EM08 Mythbuster: Inefficient Government

A quick point and then back to our movies. Hey, it's Friday night and man does not live by EM08 doom and gloom alone.

I've been hearing so much talk about the inefficiencies of our government, whether because of partisanship, size or systemic failures such as super-majority voting and filibustering. I've even had some acquaintances display their disgust at our big lumbering government that can't seem to get off of its own tail, let alone do something for us.

Here's my take; uncle scam's super efficient, in fact, astoundingly so. Consider the biggest socialist welfare theft in history, aka, TARP, which was passed in a matter of weeks, EVEN IN THE FACE OF BEING INITIALLY SHOT DOWN BY CONGRESS PREVIOUSLY DUE TO PUBLIC DEMAND.

uncle scam to congress: "SCREW PUBLIC DEMAND!"

Oh no, our government works WAY too well, those who think otherwise are just looking through the wrong end of the telescope.

If you think this argument's a bit too facile, I suggest you familiarize yourself with the way taxes really work in uncle scam's system. You don't have to read the bazillion page tax code either, just check out the great David Cay Johnston.

Suggestion before watching; wrap your head tight with some ace bandages, because if you're normal, it'll explode and make a mess.

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Image by Mike Licht, who ran it here in a very good article here on something that, as a sports fan, I feel passionate about; the business of sports and its intersection with the political economy. David Cay Johnston himself exposes the way sports owners exploit public money for their own financial benefit, George dumbya Bush, ex-Texas Rangers owner, being one of them.

The Two Fakes

With Goldman Sachs of Shit now braying like jackasses at the top of their mass media consorts' outlets for any and all that they're going to provide options instead of cash for bonuses, the Big Game is on, and folks, it's in full effect like at no time in history. (How's that for a run-on intro?) Hey, say what you will about shitheads like Hitler or Stalin; not that it's better than American hypocrisy, but at least they were unabashed in their prejudices and tyranny.

I've long maintained that the American System - be it politics or the market - is in large part marketing. From politicians lying through their teeth on the stump to the credit rating agencies grading the so-called "financial products" that contained the bomb in a basket toxic mortgages that lit the fuse for EM08, the American System relies on two categories of people; sharks and suckers.

There's that time worn poker adage; if you look around and you can't spot the sucker, guess what?

It doesn't get any more direct than watch what people do, not only what they say.

Meanwhile, back at the ranch, with all of the the democraps' foaming at the mouth about "financial reform," in the democrap controlled house they've now - get this - relaxed the oversight on derivatives.

I know, I know, I know, I know, I KNOW; welcome to Bizarro World....

So strap on your hard hat; here's some more hypocritical posing bullshit on their retardican brothers. From the great David Cay Johnston...

Btw, there are lots of hyperlinks in the original HuffPo posting; if you want 'em, better go to the original.

Image; Liz Asher: www.lizasher.com/Secular_Artwork.html

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Huffington Post, at:

http://www.huffingtonpost.com/david-cay-johnston/gop-favors-public-option_b_296703.html

GOP Favors Public Option for Property, Not People

by David Cay Johnston

Pulitzer Prize-winning investigative journalist

Posted: September 23, 2009 03:14 PM

Atop the front page of the New York Times today is a color photo of Georgia homes flooded up to their rafters, an image that illustrates how when it comes to insurance our Congress applies two standards, separate and unequal, one for property and a lesser one for people.

Unlike people without health insurance, homeowners have access to public option flood insurance.

Even those who fail to take personal responsibility to buy insurance to protect their property can get benefits, thanks in good part to politicians who are leading opponents of public option healthcare.

Consider the example of Trent Lott of Mississippi, who was that state's senior senator when Hurricane Katrina hit in 2005, flooding his home looking out on the Gulf. Lott had not exercised personal responsibility by taking out flood insurance even though it was available from the federal government at low cost. He did have private insurance, but his insurer refused to pay much of the claim, saying it was not wind damage (which was covered by the policy), but water damage (which was excluded).

Weeks later Lott introduced Senate Bill 1936, which would have authorized retroactive flood insurance. The idea came from Representative Gene Taylor, a Democrat who represented the Mississippi Gulf Coast, which should remind us that when there is voter demand for reform, and campaign contributions are not the driving force, the parties have worked together.

Lott's bill would have let flood victims pay 10 years of flood insurance premiums after-the-fact plus a 5 percent late payment penalty. Since this storm was rated a once in 500 years occurrence, even 10 years of premiums would not come close to covering the real costs, meaning a taxpayer subsidy was built into the Lott bill.

Instead of being laughed at by his fellow Republicans for promoting socialism, the concept of retroactive relief was warmly embraced, although not the idea for retroactive insurance. Instead the government went with handouts.

Senator Thad Cochran, also a Mississippi Republican and at the time chairman of the Senate Appropriations Committee, was key to getting taxpayer benefits for flooded property, according to Taylor's staff. The benefits were issued and expanded twice, a total of about $18 billion in all, Taylor's staff estimated.

Contrast the two Mississippi Republican senators' determined action to get welfare for flooded buildings with their votes against expanding SCHIP health insurance for poor children.

Cochran opposes a public option in health care; Lott, now a lobbyist, says Obama should just declare victory after some minor tweaks, a way to oppose without quite saying so.

Mississippi Governor Haley Barbour, the former head of the Republican Party, has spoken cautiously, but also appears to oppose a public option. But he, too, was an enthusiastic supporter of retroactive benefits for flooded property. Barbour even got the relief expanded and urged everyone to get their government property benefits.

There is also an interesting twist in this public option for another aspect of the health care debate - what to do about those who decline to buy insurance.

In Mississippi the relief for flooded buildings came with a requirement that owners buy flood insurance. It went further, requiring a covenant be added to their property deeds requiring the current and all future owners of that property to maintain public option flood insurance.

There is another word for that: government mandated insurance.

How about a similar retroactive option for people with a pre-existing condition who do not have health insurance? Many of these people had insurance before the recession cost them their jobs and with it, their health care coverage. Even people who took personal responsibility and had health insurance now may be without healthcare insurance because the recession cost them their jobs or their employers enough revenue to continue coverage.

Why should those who lost their jobs and thus their healthcare insurance be held to a different standard than irresponsible homeowners like former Senator Lott?

I call federal flood insurance a public option because it is provided by the federal government., It is sold, however, through individual insurance agents who collect commissions on the policies.

Private, for-profit insurers could sell this insurance if they wanted. The problem is that rating the risk of a once-in-a-century or even once in-a-millennium event is difficult and requires a huge pool of capital held in reserve to cover benefits that may be due tomorrow or in the year 2805.

Socializing these risks makes sense, and so does trying to minimize them with building codes that discourage building in some areas and require mitigating designs (like putting the first floor 15 feet above sea level). Individual policies for flood insurance, which many people must now rely on for health care coverage, would be like selling insurance for kindergarten in case of pregnancy or prosecution insurance in case you are a crime victim.

Congress is so generous in its subsidies for property that the public option for flood insurance even covers property built in flood prone areas. And you can literally buy insurance on the day of a flood in some cases, and 1 day before in others.

Along the Gulf Coast, on the barrier islands on the Atlantic, in below-water expanses behind river levees and in desert communities plagued by flash floods, our federal government is there using tax dollars to help take care of damaged property.

But people? Providing a public option so people can buy health insurance through the federal government is "socialism," according to Senator John Kyl, the Republican senator from Arizona, a desert state where flash floods are as permanent a feature of reality as sickness and injury. Will someone ask Kyl why he favors what he calls socialist policies for property, but not people?

And what about the denial of coverage you paid for, which so enraged Lott that he filed a lawsuit against his insurer, State Farm? Lott, like others, was told that their policies would cover the modest damage like broken windows and torn roofs caused by the hurricane's winds, but not the surge of storm waters, even though the wind drove those waters into Lott's living room.

Health insurance companies have found more than 1,400 reasons they can retroactively take away health insurance benefits from people, Congressional investigators found after digging through the fine print of insurance contracts. (You, of course, have read and understand every word in your health insurance contract, right?) A woman who had acne was denied breast cancer coverage, for example, though she later got her coverage restored.

And health insurance companies have become masters at digging up excuses to rescind policies, as shown by the recent hearings held by Representative Henry Waxman, who chairs the House subcommittee on Oversight and Investigations.

For-profit health insurers literally reward doctors who deny costly care to people, making corporate-run death panels a lucrative enterprise. As recounted in my book FREE LUNCH, Dr. Linda Peeno denied a heart transplant to a man she never met even though she was certain it would cause him to die. She did so in Kentucky, where she had a medical license, by stamping "denied" on a form even though the man was in California, where she was not licensed. Humana, one of the biggest for-profit health insurers, rewarded her and Dr. Peeneo got a conscience that caused her to stop that work and start working to end such abominations.

We have elevated property above human lives. That members of Congress who frequently proclaim their religious faith and cite the Bible as their guide would put property above people suggests they need to actually read the texts they claim guide them. Neither Jesus nor the Old Testament prophets ever put property first. They did however denounce those who did, labeling their deeds with a simple word: evil.

Two standards, separate and unequal, for the health of property and the health of people, are un-American. This bias in favor of property over people should be ended with all deliberate speed by raising the standard for people to that of property. A public option would be one small step in that direction.

The Insider: Nomi Prins

As I've said, what's going on in terms of EM08 is sick but is the stuff of talk for forever. It really is unprecedented, and uncle scam has set new standards for theft.

One of the gratifying things about all this mess is discovering those that are getting down and telling it like it is, which here translates into seeing things as I do. Therefore, I must add to the list of recommendations I posted a bit ago, and add to it EM08's #1 draft pick, Nomi Prins.

I'm not excusing my unawareness of her, but I am an irregular listener to Pacifica Radio - apologies to my homeboy Don Bustany - where evidently she's held court a few times now with Amy Goodman on Democracy Now.

What makes people like Meredith Whitney so interesting to me are their bona fides, and Prins' cred is stellar in terms of this mess. Her econ blueblood is easily found on the web, with none other than Goldman under her belt.

Plus, her books have entertaining titles, a'la, It Takes a PIllage.

Right now, I can't think of much in filmmaking I'd rather do than assemble my dream team - David Cay Johnston, Meredith Whitney, Muhammad Yunus, Vinod Khosla, Prof. William Black, Matt Taibbi, Michael Lewis, and now, #1 draft pick Nomi Prins - take them to a resort for a month and have all kinds of discussions about EM08, from the run-up, the players both business & political, the companies, the machinations, and recommendations to the Obama administration for moving forward.

Of course, shoot everything.

Such a project would of course be massive, but would be great to have available via a site where updates and forums could be integrated into the process. And then, every year, have an annual confab of the participants, probably via webcam.

Oh well, the stuff of dreams and money; There's plenty of vid stuff of hers out there, which I may get to later, but I'm going to end this entry here with two articles in an inside/outside format, from that very smart gal, Nomi Prins.



Mother Jones, at:
http://www.motherjones.com/politics/2009/07/how-you-finance-goldman-sachs%E2%80%99-profits

How You Finance Goldman Sachs’ Profits
An insider’s view of Wall Street’s rebound.
—By Nomi Prins

Tue July 28, 2009 12:28 PM PST

This is perhaps the most important thing I learned over my years working on Wall Street, including as a managing director at Goldman Sachs: Numbers lie. In a normal time, the fact that the numbers generated by the nation's biggest banks can't be trusted might not matter very much to the rest of us. But since the record bank profits we're now hearing about are essentially created by massive federal funding, perhaps it behooves us to dig beneath their data. On July 27, 10 congressmen, led by Rep. Alan Grayson (D-Fla.), did just that, writing a letter to Federal Reserve Chairman Ben Bernanke questioning the Fed's role in Goldman's rapid return to the top of Wall Street.

To understand this particular giveaway, look back to September 21, 2008. It was a frenzied night for Goldman Sachs and the only other remaining major investment bank, Morgan Stanley. Their three main competitors were gone. Bear Stearns had been taken over by JPMorgan Chase in March, 2008, Lehman Brothers had just declared bankruptcy due to lack of capital, and Bank of America had been pushed to acquire Merrill Lynch because the firm didn't have enough cash to survive on its own. Anxious to avoid a similar fate, hat in hand, they came to the Fed for access to desperately needed capital. All they had to do was become bank holding companies to get it. So, without so much as clearing the standard five-day antitrust waiting period for such a change, the Fed granted their wish.

Bank holding companies (which all the biggest financial firms now are) come under the regulatory purview of the Fed, the Office of the Comptroller of the Currency, and the FDIC. The capital they keep in reserve in case of emergency (like, say, toxic assets hemorrhaging on their books, or credit derivatives trades not being paid) is supposed to be greater than investment banks'. That's the trade-off. You get access to federal assistance, you pony up more capital, and you take less risk.

Goldman didn't like the last part. It makes most of its money speculating, or trading. So it asked the Fed to be exempt from what's called the Market Risk Rules that bank holding companies adhere to when computing their risk.

Keep in mind that by virtue of becoming a bank holding company, Goldman received a total of $63.6 billion in federal subsidies (that we know about—probably more if the Fed were ever forced to disclose its $7.6 trillion of borrower details). There was the $10 billion it got from TARP (which it repaid), the $12.9 billion it grabbed from AIG's spoils—even though Goldman had stated beforehand that it was protected from losses incurred by AIG's free fall, and if that were the case, would not have needed that money, let alone deserved it. Then, there's the $29.7 billion it's used so far out of the $35 billion it has available, backed by the FDIC's Temporary Liquidity Guarantee Program, and finally, there's the $11 billion available under the Fed's Commercial Paper Funding Facility.

Tactically, after bagging this bounty, Goldman asked the Fed, its new regulator, if it could use its old risk model to determine capital reserves. It wanted to use the model that its old investment bank regulator, the SEC, was fine with, called VaR, or value at risk. VaR pretty much allows banks to plug in their own parameters, and based on these, calculate how much risk they have, and thus how much capital they need to hold against it. VaR was the same lax SEC-approved risk model that investment banks such as Bear Stearns and Lehman Brothers used, with the aforementioned results.

On February 5, 2009, the Fed granted Goldman's request. This meant that not only was Goldman getting big federal subsidies, but also that it could keep betting big without saving aside as much capital as the other banks. Using VaR gave Goldman more leeway to, well, accentuate the positive. Yes, Goldman is a more risk-prone firm now than it was before it got to play with our money.

Which brings us back to these recent quarterly earnings. Goldman posted record profits of $3.4 billion on revenues of $13.76 billion. More than 78 precent of those revenues came from its most risky division, the one that requires the most capital to operate, Trading and Principal Investments. Of those, the Fixed Income, Currency and Commodities (FICC) area within that division brought in a record $6.8 billion in revenues. That's the division, by the way, that I worked in and that Lloyd Blankfein managed on his way up the Goldman totem pole. (It's also the division that would stand to gain the most if Waxman's cap-and-trade bill passes.)

Since Goldman is trading big with our money, why not also use it to pay big bonuses? It's not like there are any strings attached. For the first half of 2009, Goldman set aside $11.4 billion for compensation—34 percent more than for the first half of 2008, keeping them on target for a record bonus year—even though they still owe the federal government $53.6 billion, a sum more than four times that bonus amount.

But capital is still key. Capital is the lifeblood that pumps through a financial organization. You can't trade without it. As of June 26, 2009, Goldman's total capital was $254 billion, but that included $191 billion in unsecured long-term borrowing (meaning money it had borrowed without putting up any collateral for it). On November 28, 2008 (4Q 2008), it had only $168 billion in unsecured long-term borrowing. Thus, its long-term unsecured debt jumped 14 percent. Though Goldman doesn't disclose exactly where all this debt comes from, given the $23 billion jump, we can only wonder whether some of it has come from government subsidies or the Fed's secret facilities.

Not only that, by virtue of how it's set up, most of Goldman's unsecured funding comes in through its parent company, Group Inc. (Think the top point of an umbrella with each spoke being a subsidiary.) This parent parcels that money out to Goldman's subsidiaries, some of which are regulated, some of which aren't. This means that even though Goldman is supposed to be regulated by the Fed and other agencies, it has unregulated elements receiving unsecured funding—just like before the crisis, but with more of our money involved.

As for JPMorgan Chase, its profit of $2.7 billion was up 36 percent for the second quarter of 2009 vs. the same quarter last year, but a lot of that also came from trading revenues, meaning its speculative endeavors are driving its profits. Over on the consumer side, the firm had to set aside nearly $30 billion in reserve for credit-related losses. Riding on its trading laurels, when its consumer business is still in deterioration mode, is not a recipe for stability, no matter how much cheering JPMorgan Chase's results got from Wall Street. Betting is betting.

Let's pause for some reflection: The bank "stars" made most of their money on speculation, got nearly $124 billion in government guarantees and subsidies between them over the past year and a half, yet saw continued losses in the credit products most affected by consumer credit problems. Both are setting aside top-dollar bonuses. JPMorgan Chase CEO Jamie Dimon mentioned that he's concerned about attracting talent, a translation for wanting to pay investment bankers big bucks—because, after all, they suffered so terribly last year, and he needs to stay competitive with his friends at Goldman. This doesn't add up to a really healthy scenario. It's more like bad déjà vu.

As a recent New York Times article (and many other publications in different words) said, "For the most part, the worst of the financial crisis seems to be over." Sure, the crisis may appear to be over because the major banks of Wall Street are speculating well with government subsidies. But that's a dangerous conclusion. It doesn't mean that finance firms could thrive without the artificial, public-funded assistance. And it certainly doesn't mean that consumers are any better off than they were before the crisis emerged. It's just that they didn't get the same generous subsidies.

Additional research by Clark Merrefield.

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Mother Jones, at:
http://www.motherjones.com/politics/2009/09/obama-banking-too-much-banks


Obama Banking Too Much On Banks

In his Wall Street speech, the president outlines reforms—but they don’t go deep enough.
—By Nomi Prins

Mon September 14, 2009 8:53 AM PST

On Monday—one year after the once-mighty Lehman Brothers collapsed in the nation’s biggest bankruptcy—President Obama addressed the state of the economy and again outlined his proposals for what he calls reform. The location—Federal Hall at 26 Wall Street, near the New York Stock Exchange and New York Federal Reserve Bank—was fitting. George Washington took his presidential oath there, a precursor for how intertwined Washington and Wall Street would become. And Obama’s speech indicates that he’s still making the grave error of mistaking the health of Wall Street for the health of the American economy.

Obama chose not to deliver his speech on, say, the streets of Bend, Oregon, or Fresno, California, which provide different indicators of our economic predicament. That’s because Washington’s approach to the crisis has been to focus on the banking system, throw a few crumbs to citizens, and hope everything else will magically work itself out.

The problem with concentrating on the banking system is that it allows the administration to present an overly optimistic assessment of its actions. "The storms of the past two years are beginning to break," Obama pronounced, attributing this to a government that "moved quickly on all fronts, initializing a financial stability plan to rescue the system from the crisis and restart lending for all those affected by the crisis." He continued: "By taking aggressive and innovative steps in credit markets, we spurred lending not just to banks, but to folks looking to buy homes or cars, take out student loans, or finance small businesses. Our home ownership plan has helped responsible homeowners refinance to stem the tide of lost homes and lost home values."

Those steps were certainly aggressive. Under both the Bush and Obama administrations, the government, from the Federal Reserve to the Treasury Department, has flushed the banking systems and other components of the financial markets with $17.5 trillion worth of loans, guarantees, and other forms of support. About another $1 trillion has been provided to citizens through the recovery package, first-time homeowner tax benefits, auto purchase credits, and approximately $800 billion to help guarantee the loans of certain lenders—which somewhat helps borrowers, but helps lenders more.

But these measures have hardly brought the economy back from the brink. They brought Wall Street back from capital starvation and prevented the possibility of more big banks going bankrupt—instead of the slew of smaller and mid-size ones that have since met the same fate as Lehman Brothers. Taking credit for stabilizing the financial system after feeding it with massive amounts of federal money is like a teacher bragging about turning around the academic performance of a failing student after handing them all the answers to the big tests.

Here’s how the economy is really faring (and how Washington is failing to take adequate steps to fix it):

* National unemployment is at 9.7 percent, higher than last year’s 5.8 percent, with double digit jobless rates in 139 metropolitan areas this July, compared to 14 last July.
* The number of foreclosures is greater than last year: nearly 2 million new foreclosure filings occurred in the first half of 2009, up 15 percent from the same period in 2008.
* While homes in some areas have begun to slowly sell again, they are doing so at deeply depressed prices, in many instances below their mortgage value.
* Wall Street bonuses are back to pre-crisis levels. For some firms, such as Goldman Sachs, they are even higher.
* Bank leverage, or excessive borrowing on the back of risky assets—a major cause of the meltdown—is rising again.
* Geithner recently reported that his program to enable private financial firms to buy up toxic assets with government help will wind up costing less than the $1 trillion he had first envisioned. However, he did not mention that there are less toxic assets available to buy partly because the Fed has allowed banks to use some toxic assets as collateral in return for cheap loans.
* Big banks are bigger than they were last year. Since the Fed blessed more mergers last fall, the nation’s three largest banks—Bank of America, JPMorgan Chase and Wells Fargo—hold the maximum percentage of legally permissable US deposits or more.
* Mid-size and smaller banks keep closing. This year, the Federal Deposit Insurance Corporation (FDIC) has closed 92 banks and depleted its deposit insurance money in the process.
* We still don’t have detailed information on the trillions of dollars of loans the Fed handed out to the banking sector or about the quality of the collateral banks provided in return.



Obama did acknowledge that the picture isn’t entirely rosy. He also outlined his ideas for avoiding another catastrophe: reshuffle the decks of regulatory agencies, slap a few trading constraints on some derivatives, and create a Consumer Financial Protection Agency (CFPA). But while Obama's rhetoric was stern—"normalcy cannot lead to complacency," he vowed—the proposals themselves are hardly sweeping.

Obama’s plan calls for eliminating the Office of Thrift Supervision and providing greater oversight by the Fed of “systemically important” institutions. The Senate is trying to water that down, in part because some members of both parties in Congress remain skeptical about the power of the Fed itself. The Senate also wants to consolidate regulatory authority into fewer entities, but leave oversight to a council of regulators. Of course, consolidating regulatory oversight only works if regulators are doing their jobs and the banking system is transparent enough to allow them to do so.

The last leg of Obama’s proposal would be establishing the CFPA, which would monitor financial products in an effort to protect consumers from risky instruments such as subprime mortgages. Legislation to create such an agency is expected to be taken up this year by the House Financial Services Committee, chaired by Rep. Barney Frank (D-Mass).

A strong CFPA is a sensible plan. Right now there is no other body imbued with the power not just to protect consumers but also to foster the general economic stability that would be achieved by closely monitoring the integrity of financial products. This proposal has drawn the most ire from the banking community, so you know it’s good. The Chamber of Commerce launched a $2 million ad campaign to convince people that a CFPA would mean that local butcher couldn’t extend credit to his customers without government interference.

But Obama's reforms do not strike deeply enough. The banking crisis has been subdued, not fixed, because of enormous amounts of government assistance. Ignoring that fact, and failing to overhaul the sector, leaves us open to another crisis. And the next round will be worse, because there is now so much more federal money invested in the banks.

Simply funding the banking system without reforming it is an expensive and dangerous game. Obama is capable of truly fixing things—by dividing up the Wall Street mega-banks with a new Glass Steagall Act, thereby enabling the success of more extensive regulatory reforms. Or, he could introduce a set of cosmetic changes that allow banks to keep doing what they did before last year’s crisis and that put us on the path for the next one.

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Nomi Prins is an economist and frequent contributor for Mother Jones. Her most recent book is It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street. To read more articles by Nomi Prins, click here.

Meredith Whitney on Small is Beautiful

Barack needs to kick his econ team to Pluto. He needs to listen up and make the following the econ generals leading the fight:

David Cay Johnston
Meredith Whitney
Muhammad Yunus
Vinod Khosla
Prof. William Black

Under them should be Matt Taibbi and Michael Lewis as special advisors or whatever fancy junior cabinet sounding names you want.

Meanwhile back in reality, EM08 continues to barf all over us, but one of the key things for Americans to keep their eyeballs glued on is the mass-media (mis)handling of it. It is absolutely nuts the way they are shooting Krugman and Roubini blanks everywhere. Oh wait, this is Bizarro world.

Right on time, here's Meredith Whitney breakin' it down on the credit crunch, small business, small banking, and the crucial role both should be playing at this turning point, with chirps from yours truly.

Before I turn you over to Meredith, I'll make the point that one of the important things completely absent in mass media coverage of EM08 are the messages that are being sent out to Americans. Think about the TARP, GM & Chrysler bailouts, AIG bailouts, and the utter madness of banks who, with public money, didn't help the public but instead helped themselves. The executive/management bonuses while reprehensible are just mis-direction by mass media; the TRUE damage is in the further conglomeration the banking system has undergone. Thus, welcome to the era of the super banks, led by JP Morgan/Chase and Goldman Sachs. As I've said but will say again until everyone knows, if you think mass-media conglomeration is bad, think about the unprecedented power these super banks now wield.

Is the irony of "too big to fail" lost on you...?

Meredith Whitney's following take makes me think about those small banks and community oriented credit unions that didn't buy into all of the toxic mortgages much less the ultra high risk gambling committed by the banks and AIG (Well, it was risky... for TAXPAYERS).

Then these law-abiding small banks and community oriented credit unions had to stand by and be humiliated as the government dumped free money on these criminals in the biggest heist in history.

Here're the questions;

How do you think those banks and credit unions feel?

As an American, how do you feel about that?

What kind of message is that to be sending?

Why isn't the mass media addressing this?

Will you continue to bank at a large bank? (Disclosure; I don't anymore. I bank at my local credit union exclusively now)

One more thing I'll say about Whitney's take; I stand and applaud her, because it's easy to see that she's sticking up for the little people and, lest we forget, sounder economic practices. But in her own way, she's really talking about communities. I believe that is one of the things Americans desperately need to get back to.

I said it before and here again; That Meredith Whitney - she's one smart gal.

Meredith Whitney

* The Wall Street Journal
* OPINION
* OCTOBER 1, 2009, 6:58 P.M. ET

The Credit Crunch Continues
Taxpayer dollars have supported institutions that are 'too big to fail.' Small business has been left out in the cold.

By MEREDITH WHITNEY

Anyone counting on a meaningful economic recovery will be greatly disappointed. How do I know? I follow credit, and credit is contracting. Access to credit is being denied at an accelerating pace. Large, well-capitalized companies have no problem finding credit. Small businesses, on the other hand, have never had a harder time getting a loan.

jp: Emphasis mine. In textbook journalistic inverted pyramid form, there's the theme, in perfect accord with TARP strategy. In Bonzo Ronnie's time it was "trickle down" economics. Today it's "too big to fail."

Since the onset of the credit crisis over two years ago, available credit to small businesses and consumers has contracted by trillions of dollars, and that phenomenon is reflected in dismal consumer spending trends. Equally worrisome are the trends in small-business credit, which has contracted at one of the fastest paces of any lending category. Small business loans are hard to find, and credit-card lines (a critical funding source to small businesses) have been cut by 25% since last year.

Unfortunately for small businesses, credit-line cuts are only about half way through. Home equity loans, also historically a key funding source for start-up small businesses, are not a source of liquidity anymore because more than 32% of U.S. homes are worth less than their mortgages.

Why do small businesses matter so much? In the U.S., small businesses employ 50% of the country's workforce and contribute 38% of GDP. Without access to credit, small businesses can't grow, can't hire, and too often end up going out of business. What's more, small businesses are often the primary source of this country's innovation. Apple, Dell, McDonald's, Starbucks were all started as small businesses.

What's especially disturbing is how taxpayer dollars have supported "too big to fail" businesses yet left small businesses unassisted and at a significant disadvantage. Small businesses do not have the same access to government guarantees on their debt. After all, most of these small businesses don't issue public debt. [Emphasis mine]

As is true in most recessions, banks' commercial lending portfolios shrink as creditworthy customers pay down their debts and the less-worthy borrowers are simply denied loans. Banks, in other words, want to lend only to those that don't want to borrow. Challenging as that may be, in the last cycle small businesses at least had access to their credit cards.

Small businesses primarily fund themselves through credit cards and loans from local lenders. In the past two years, credit-card lines have been cut by over $1.25 trillion. During the same time, 10% of all credit-card accounts have been cancelled. According to the most recent Federal Reserve data, small business lending is down 3%, or $113 billion, from fourth-quarter 2008 peak levels—the first contraction since 1993. Credit cards are the most common source of liquidity to small businesses, used by 82% as a vital portion of their overall funding. Thus, it is of merit when 79% of small businesses surveyed tell the Small Business Association that credit-card lending standards have tightened drastically and their access to credit lines has decreased materially.

Incentives should be provided to smaller banks to step up small-business loans on a greater scale. Smaller banks could not only bridge gaps created by the shut down in the securitization market but also gaps being created by a massive contraction in credit-card lines. Arguably credit would perform better with these types of loans as they would reintroduce and reinforce the most important rule in banking: "Know Your Customer." [Emphasis mine]

I believe that we are only in the early stages of the second half of this credit cycle. I expect another $1.5 trillion of credit-card lines to be removed from the system by the end of 2010. This includes not only the large lenders reducing exposure but also the shuttering of several major subprime credit-card lenders. Beginning in the fourth quarter of 2007, lenders began reducing available credit by zip code. During the past four quarters, lenders have cut "inactive" accounts (whether or not the customer viewed the account as a liquidity vehicle).

The next phase will likely be credit-line cuts as lenders race to pre-emptively protect themselves from regulatory changes associated with the Credit Card Accountability, Responsibility and Disclosure Act, passed in May of this year, and the 2008 Unfair and Deceptive Acts and Practices Act.

Regulators should be mindful that regulatory change during the midst of a credit crisis often ends with unintended consequences. Those same consumers that regulators are trying to help are actually being hurt by a vast reduction in available credit.

Main Street represents the foundation of this country. Reviving it should take priority over any regulatory reform or systemic overhaul. [Emphasis mine]

Trashmen

Follow the money.

As EM08 continues to throw up all over us, new stories of shitheads behaving like, well, shitheads, are now a regular occurrence. Meanwhile, Barack, congress and everyone else with a hand in determining more money down the drain are worrying me to no end. I heard our president saying that it was urgent we act swiftly.

But urgency is part of the problem that just compounded EM08.

Back in November I said that Barack should use David Cay Johnston, the one "economist" who I think makes sense. It was Johnston, before the bank theft, who posed the one key question on Lou Dobbs' show; "Let's say we give the banks this $700 billion. But what if things get worse?"

And worse they have.

What a shitstorm, and like William Goldman said about Hollywood, "No one knows anything."

Op-Ed Columnist
Wall Street’s Socialist Jet-Setters

By MAUREEN DOWD
Published: January 27, 2009

WASHINGTON

As President Obama spreads his New Testament balm over the capital, I’m longing for a bit of Old Testament wrath.

Couldn’t he throw down his BlackBerry tablet and smash it in anger over the feckless financiers, the gods of gold and their idols — in this case not a gilt calf but an $87,000 area rug, a cache of diamond Tiffany and

Cartier watches and a French-made luxury corporate jet?

Now that we’re nationalizing, couldn’t we fire any obtuse bankers and auto executives who cling to perks and bonuses even as the economy is following John Thain down his antique commode?

How could Citigroup be so dumb as to go ahead with plans to get a new $50 million corporate jet, the exclusive Dassault Falcon 7X seating 12, after losing $28.5 billion in the past 15 months and receiving $345 billion in government investments and guarantees?

(Now I get why a $400 payment I recently sent to pay off my Citibank Visa was mistakenly applied to my sister-in-law’s Citibank Mastercard account.)

The “Citiboobs” — as The New York Post, which broke the news, calls them — watched as the car chieftains got in trouble for flying their private jets to Washington to ask for bailouts, and the A.I.G. moguls got dragged before Congress for spending their bailout on California spa treatments. But the boobs still didn’t get the message.

The former masters of the universe don’t seem to fully comprehend that their universe has crumbled and, thanks to them, so has ours. Real people are losing real jobs at Caterpillar, Home Depot and Sprint Nextel; these and other companies announced on Monday that they would cut more than 75,000 jobs in the U.S. and around the world, as consumer confidence and home prices swan-dived.

Prodded by an appalled Senator Carl Levin, Tim Geithner — even as he was being confirmed as Treasury secretary — directed Treasury officials to call the Citiboobs and tell them the new jet would not fly.

“They woke up pretty quickly,” says a Treasury official, adding that they protested for a bit. “Six months ago, they would have kept the plane and flown it to Washington.”

Senator Levin said that the financiers will not be able to change their warped mentality, but will have to be reined in by Geithner’s new leashes. “I have no confidence that they intend or desire to change,” Levin told me. “These bankers got away with murder, and it’s obscene that close to nothing is being asked of financial institutions. I get incensed at the thought that a bank that’s getting billions of dollars in taxpayer money is out there buying fancy new airplanes.”

New York’s attorney general, Andrew Cuomo, always gratifying on the issue of clawing back money from the greedy creeps on Wall Street, on Tuesday subpoenaed Thain, the former Merrill Lynch chief executive, over $4 billion in bonuses he handed out as the failing firm was bought by Bank of America.

In an interview with Maria Bartiromo on CNBC, Thain used the specious, contemptible reasoning that other executives use to rationalize why they’re keeping their bonuses as profits are plunging.

“If you don’t pay your best people, you will destroy your franchise” and they’ll go elsewhere, he said.

Hello? They destroyed the franchise. Let’s call their bluff. Let’s see what a great job market it is for the geniuses of capitalism who lost $15 billion in three months and helped usher in socialism.

Bartiromo also asked Thain to explain, when jobs and salaries were being cut at his firm, how he could justify spending $1 million to renovate his office. As The Daily Beast and CNBC reported, big-ticket items included curtains for $28,000, a pair of chairs for $87,000, fabric for a “Roman Shade” for $11,000, Regency chairs for $24,000, six wall sconces for $2,700, a $13,000 chandelier in the private dining room and six dining chairs for $37,000, a “custom coffee table” for $16,000, an antique commode “on legs” for $35,000, and a $1,400 “parchment waste can.”

Does that mean you can only throw used parchment in it or is it made of parchment? It’s psychopathic to spend a million redoing your office when the folks outside it are losing jobs, homes, pensions and savings.

Thain should never rise above the level of stocking the money in A.T.M.’s again. Just think: This guy could well have been Treasury secretary if John McCain had won.

Bartiromo pressed: What was wrong with the office of his predecessor, Stanley O’Neal?

“Well — his office was very different — than — the — the general décor of — Merrill’s offices,” Thain replied. “It really would have been — very difficult — for — me to use it in the form that it was in.”

Did it have a desk and a phone?

How are these ruthless, careless ghouls who murdered the economy still walking around (not to mention that sociopathic sadist Bernie Madoff?) — and not as perps?

Bring on the shackles. Let the show trials begin.

A version of this article appeared in print on January 28, 2009, on page A31 of the New York edition.

The Biggest Thugs

I'm hopeful for B-rack, but the reality is that we are spiraling out of control. Make no mistake; what's going on in Amerikkka is nothing less than the biggest thugs committing the largest heist in history. For those of you who read here, I urge you to tune in to CNN's Lou Dobbs, virtually alone in the mainstream media in his unabashed calling out of this theft.

Remember, the mainstream media has a major role in this. They are a sham, when so much is at stake, they are not informing us of the reality happening right now.

Before he was elected, Howard Stern said that dumbya would bankrupt the country. Howard Stern! That has now come true, and dumbya's new record low approval rating does little to console a country out of control. Folks, if someone doesn't do something to reign in Congress to let them know this is insane, we are selling my daughter's generation down the river. And that pisses me off. It should piss you off as well.

And if it doesn't, you need to ask yourself and everyone you know why it doesn't.

Note to B-rack; you need to consult with David Cay Johnston. Now.

Courtesy of Dobbs today, here are the points every American needs to be aware of, the first major deconstruction of AIG:

$85 Billion for the first looting

$60 Billion for the second looting

NOW they are asking for an additional $27 Billion because AIG is struggling to meet the terms of its agreements.

"more money, cheaper rates, more flexible terms - it's historic, in US financial markets, where one institution has this much money available to it."
-Bill Bergman, Morningstar

Reduced interest rate on $60B as a result of this re-structuring

FED buys:

$40 Billion of preferred stock to be bought by treasury

$22 Billion from Fed to buy "toxic loans" ie: mortgage-backed securities

$30 Billion to guarantee credit default swaps, ie: unregulated insurance contracts that are in reality ultra risky bets, the highest stakes gambling in history.

==================

In the background, GM hits 60 year low for share price; bailiouts now heard... haven't they received 25B already???

EVERYBODY'S an Expert

So I've been inundated with info about Barack, particularly the guessing game about cabinet nominees. Emanuel's already accepted CoS. Richardson's on the short list for SoS, and Volcker for the Treasury; personally, I sincerely feel that this country desperately needs David Cay Johnston advising economically. And Johnston's a Republican! Hillary was conspicuous by absence.

I would think Schumer's gotta be in there somewhere. But Tom Friedman needs to be tapped. He doesn't have micro down, but he has macro. Muhammad Yunis should be tapped for micro-lending. In an astounding turn-around, Mike Milken (!) is now working with Yunis on micro-lending; they already have a program up and going in Queens. Think about what this does for everyday folks who are hurting, or just have dreams of entrepreneurship, but no capital, no connections, no collateral. If America is to realize more fully its sloganeering rhetoric of "anything's possible" then that must include opportunity. This is a proven, sober and very economically sound path. It's humane, it has a heart. It's battle tested.

Here are a few more ideas:

1. SUSTAINABILITY CZARS - This needs to be a committee because it's so important. I agree with Tom Friedman that a "Green America" is energy forward, environmentally conscious, entrepreneurial, geo-political, and economically conservative AND stimulating. It'd take another essay to explain all of those, but, back on point, this committee should contain sub-committees on:

A. ENTREPRENEURSHIP - Entrepreneurs are the base, they are the ones taking the risks and developing the Google's of Green - HELP THEM. They are good for America, good for the economy. They are key in helping wean America off of our addiction to oil. OPEC's got us by the balls - this is the way out. That in turn gets us out of South Asia and our insane war mentality that has oil as its motive. The madness ends here, with a coherent strategy for sustainable energy.

These green companies who go on to develop and flower are good for the economy; they create jobs that people can feel good about as opposed to being just another cog in the wheel of corporate America.

B. HEALTH CARE - The number one reason for foreclosures, combined with this insane system of adjustable rate mortgages and derivatives, hedge funds, over-leveraging, etc., is health care issues. Bankruptcy's as well. This is a major economic, health and welfare issue. With tens of millions of boomers heading into retirement, our broken health care system is headed for crisis - it already is in crisis.

But Barack's plank on this issue will do nothing to solve the central problem, that is, the oligarchy that has a stranglehold on health care. This is because the oligarchy - comprised of insurance, HMOs and drug companies, are way to economically powerful. Any one of those three has lobbyists with deep pockets and banks of lawyers. Citizens can't possibly fight on that level.

Until Barack and congress decide to address this central problem, health care in America will loom as a major social and economic problem. There's no other way. Solution? Single payer. This is a major reason why I voted for Cynthia McKinney.

2. WARS - We need out of Iraq. The SoD must have a mandate on a clear plan for dis-engagement including infrastructure for Iraq. Most Americans aren't even aware of the reality that Iraqis don't have running water and electricity, let alone jobs and a viable economy that sustains living sanely. All of Iraq, save for ONE region: the oil producing south. What does that tell you about the lie the dumbya administration said: "It's not about oil." Bullshit. The plan must also include giving aid health care-wise to Iraqis as well as our service people. The Walter Reed scandal is shameful and more evidence of this administration's utter disregard of our young people who have suffered. When a person has been injured, it effects their whole family - COMPENSATE THEM, TAKE CARE OF THEM, IT'S THE LEAST WE CAN DO. This madness must end now.

In each case, there's massive amounts of work. The keys are:

1. To assemble good teams
2. Formulate clear plans - Budgets, schedules, reporting, accountability
3. Get them up and running
4. Communicate - The time has come for an administration to consistently communicate with us. Taking a page from Howard Dean, Barack's team mobilized on the Internet in the modern age. He and his advisers should not forget that. How easy is it to set up a Barack blog where the public could read updates, give commentary, etc.? Rahm Emanuel or whoever ends up being press sec could oversee this and staff it with people who monitor it. Companies - forward thinking companies - now do this, the most obvious example being Google.

These are my first ideas in the immediate blush of this post-election.

Good luck brothaman - you'll need it for this mess you've inherited.

More later.

Burning Down the House

Without a doubt, this world is crazy beyond anything I could have ever imagined as a young man.

In a newsbreak, CBS just announced that the Fed has "taken over" Freddie Mac and Fannie Mae. This will, by the announcer's clarion call, amount to "tens of billions of dollars" that will be paid by me and my fellow Americans.

As far as the government action, this isn't anything new. As David Cay Johnston has pointed out, the scams by corporations working in tandem with bought off government thugs runs deep. The pattern of government run taxpayer bailout really came to a head with the S&L bailout, but then most tend to overlook Lee Iacocca's theft when heading up Chrysler. Here's a Wiki excerpt:

Realizing that the company would go out of business if it did not receive a significant amount of money to turn the company around, Iacocca approached the United States Congress in 1979 and asked for a loan guarantee. While it is sometimes said that Congress lent Chrysler the money, it, in fact, only guaranteed the loans. Most thought this was an unprecedented move, but Iacocca pointed to the government bail-outs of the airline and railroad industries, arguing that more jobs were at stake in Chrysler's possible demise. In the end, though the decision was controversial, Iacocca received the loan guarantee from the government.

I'll say it clearly; this is gambling with the house's money, or, as gambler's say, a freeroll. Pretty remarkable "businessman" eh?

Although Iacocca is credited with Chrysler's resuscitation, not too long ago they ran it into the ground again. Now, it's off the public market, having been swept up in private equity. So, in effect, my money - hardworking Americans' money - went into propping up a huge corporation so that the oligarchs could profit - that is, gamble with our money - and then when they screwed up could bail out, conscience free and with their profits having been extracted and invested into private interests.

Folks, with this new Fannie Mae/Freddie Mac debacle, and as if we weren't before, we are now up shitcreek so far that the future is even more bleak and uncertain than ever before. We've surpassed the stage of gambling, where a hustler who knows the basics can at least know what he's getting into.

Along with all of the other shit that's happened in the past eight years, this isn't gambling, it's something else. It's not even mortgaging because when you get down to it mortgages are gambling as well.

If any of you out there think I'm just being hyperbolic, think again: between Fannie Mae and Freddie Mac, they control over FIVE TRILLION in loans.

We are truly in unprecedented times, folks.

And perhaps the worst part? Aside from the fact that we're now laying the hugest pile of crap at the feet of future generations, if I had to bet, no one's going to lift a finger to stop the ongoing slaughter that's only going to be much more brutal now.

For those who want to at least understand how we're getting screwed, NYT's Gretchen Morgenson has been one of the most high-profile journalists consistently sounding this alarm. Her latest article is sobering, but deserves archiving here if nothing else to prove that I'm not the only one who sees the pain ahead. Back in the day the saying was, "Right On," now all I can muster is "read on."





September 7, 2008
Mortgage Giant Overstated the Size of Its Capital Base

By GRETCHEN MORGENSON and CHARLES DUHIGG
The government’s planned takeover of Fannie Mae and Freddie Mac, expected to be announced as early as this weekend, came together hurriedly after advisers poring over the companies’ books for the Treasury Department concluded that Freddie’s accounting methods had overstated its capital cushion, according to regulatory officials briefed on the matter.

The proposal to place both mortgage giants, which own or back $5.3 trillion in mortgages, into a government-run conservatorship also grew out of deep concern among foreign investors that the companies’ debt might not be repaid. Falling home prices, which are expected to lead to more defaults among the mortgages held or guaranteed by Fannie and Freddie, contributed to the urgency, regulators said.

The details of the deal have not fully emerged, but it appears that investors who own the companies’ common stock will be virtually wiped out; preferred shareholders, who have priority over other shareholders, may also wind up with little. Holders of debt, including many foreign central banks, are expected to receive government backing. Top executives at both companies will be pushed out, according to those briefed on the plan.

While it is not yet possible to calculate the cost of the government’s intervention, it could rise into tens of billions of dollars and will probably be among the most expensive rescues ever financed by taxpayers. The takeover comes on the heels of a rescue of the investment bank Bear Stearns, which was sold to JPMorgan in a deal backed by taxpayer dollars. Already, the housing crisis has cost investors hundreds of billions of dollars.

Both presidential nominees expressed support for the government’s plans to take over the companies. The chief economic adviser to Senator John McCain, Republican of Arizona, who has long been critical of the mortgage giants, said on Saturday that Mr. McCain considered it an unfortunate but necessary step.

Senator Barack Obama, Democrat of Illinois, said as he campaigned in Indiana on Saturday that not acting could place the housing market in further distress. “These entities are so big and they are so tied into the housing market that it is probably true that we have to take steps to make sure they don’t just collapse,” Mr. Obama told an audience in Terre Haute, Ind. But he added that the government needed to take steps to guard against Fannie Mae and Freddie Mac ultimately profiting from the government assistance.

The big question now is whether the federal government’s move to take over Fannie and Freddie will restore investor confidence in the nation’s credit markets, help stabilize the stock market and keep loans flowing to creditworthy borrowers.

Fannie and Freddie, by buying mortgages, provide banks and other financial institutions with fresh money to make new loans, a vital lubricant for the housing and credit markets.

As a result of the government’s intervention, the cost of borrowing for Fannie Mae and Freddie Mac should decline, because the government will be standing behind their debts. Equally important, because the government is backing the companies, their buying and selling of loans will continue.

But the plan to bail out the firms will probably do little to stop home prices from falling further. And foreclosures are almost certain to rise.

Just a week ago, Treasury officials were still considering a wide variety of options for Fannie Mae and Freddie Mac, ranging from doing nothing to taking over the companies completely, according to people with knowledge of those discussions.

The Treasury secretary, Henry M. Paulson Jr., who won authority from Congress last month to use taxpayer funds to bolster the companies, always maintained that he hoped never to use that power. But, as the companies’ stocks continued to languish, some within the Treasury Department began urging Mr. Paulson to intervene quickly.

Then, last week, advisers from Morgan Stanley hired by the Treasury Department to scrutinize the companies came to a troubling conclusion: Freddie Mac’s capital position was worse than initially imagined, according to people briefed on those findings. The company had made decisions that, while not necessarily in violation of accounting rules, had the effect of overstating the firm’s capital resources and financial stability.

Indeed, one person briefed on the company’s finances said Freddie Mac had made accounting decisions that pushed losses into the future and postponed a capital shortfall until the fourth quarter of this year, which would not need to be disclosed until early 2009. Fannie Mae has used similar methods, but to a lesser degree, according to other people who have been briefed.

Representatives of both companies did not return calls or declined to comment.

On Friday, executives from Fannie Mae and Freddie Mac were ordered to appear in the offices of their regulator, James B. Lockhart, in separate meetings, and were told that the Treasury Department was exercising its authority to place the companies in conservatorship, which would allow for uninterrupted operation of the firms but would put them under the control of Mr. Lockhart.

The details of those plans continued to be worked out on Saturday, when the Federal Reserve chairman, Ben S. Bernanke, Mr. Paulson, Mr. Lockhart and key company executives met in Washington.

While Freddie Mac’s accounting woes make it easier for regulators to force the company into conservatorship, there was more resistance from Fannie Mae, according to people familiar with the discussions. However, given Fannie Mae’s declining financial condition, and the fact that even a slightly pessimistic statement from Mr. Paulson about the company’s finances would be likely to send its stock price into a tailspin, the company has few options but to concede to the government’s demands.

Both companies have the option of challenging the conservatorship and asking for a judicial review. Such a move, however, would probably be disastrous for their stock prices.

Accusations of improper accounting are not new for either company. Earlier this decade, both companies paid large fines and ousted their top executives after accounting scandals.

Freddie Mac’s current chief executive and chairman, Richard F. Syron, joined the company in 2003 after the former managers revealed they had manipulated earnings by almost $5 billion. The following year Fannie Mae’s chief executive, Daniel H. Mudd, was promoted to the top spot after that company was accused of accounting errors totaling $6.3 billion. People familiar with Treasury’s plan say that both men, as well as other top executives, will be forced to leave the companies.

The accounting issues that brought so much urgency to the bailout appear to center on Freddie Mac’s capital cushion, the assets that regulators require it to keep on hand to cover losses.

The methods used to bolster that cushion have caused serious concerns among the companies’ regulator, outside auditors from Morgan Stanley brought in by the Treasury Department and some investors. For example, while Freddie Mac’s portfolio contains many securities backed by so-called subprime and alt-A loans, which are one step up from the riskier mortgages, the company has not written down those loans’ values to reflect current market prices.

Executives have argued that because they intend to hold the loans to maturity, they need not write down their value. But other banks and financial institutions have written down the value of those securities, even if they continue holding them, under “mark-to-market” accounting rules. Freddie Mac holds roughly double the securities that Fannie Mae does.

Freddie Mac and Fannie Mae have also inflated their financial positions by relying on deferred-tax assets — credits that the companies have built up over the years that can be used to offset future profits. Fannie maintains that its worth is increased by $36 billion through such credits, and Freddie argues that it has a $28 billion benefit.

But such credits have no value until the companies generate a profit — something they have failed to do over the last four quarters, and something that is increasingly unlikely within the next year. Moreover, even when the companies’ profits soared, such credits were often unusable because the companies also had large numbers of affordable housing tax credits, which themselves offset profits.

One analyst estimates the companies, in the future, would have to collect roughly double the profits of the past five years for the credits to become usable. Most financial institutions are not allowed to count such credits as assets in the manner used by Fannie and Freddie.

Regulators and auditors may question the companies’ use of deferred-tax credits because they cannot be sold to anyone else and they would disappear in a receivership. And, if those credits were not counted as assets, both companies would probably fall below the capital threshold they are required to hold.

Finally, regulators are said to be scrutinizing whether the companies were trying to manage their earnings by maneuvering the timing of reserves set aside to offset losses from defaulted loans. Each quarter, both companies have gradually increased their loss reserves — Fannie’s reserves today stand at $8.9 billion, and Freddie’s at $5.8 billion. However, regulators and auditors felt strongly that both companies should have identified larger potential losses immediately, and set aside much more from the beginning.

Other companies, like private mortgage insurers, have identified much larger losses and have set aside much larger amounts of capital. Fannie and Freddie, however, have delayed the recognition of such losses, dribbling out bad news with each quarterly announcement, suggesting a strategy to manage the recognition of losses.

Finally, regulators are concerned that the companies have mischaracterized their financial health by relaxing their policies on when to recognize a loss on a defaulted loan, according to people familiar with the review. For years, both companies have effectively done that when a loan is 90 days past due. But, in recent months, both companies said they would extend that to two years.

As a result, tens of thousands of loans that previously would have been marked down have maintained their value. The companies have injected their own capital into pools of securities, arguing that new business policies are helping greater numbers of borrowers.

Under conservative accounting methods, such a change in policy should not have any impact on the companies’ books. However, people briefed on the accounting inquiry said that Freddie Mac may have been using their new policy to delay recognition of losses.

“We have just had to nationalize the two largest financial institutions in the world because of policy makers’ inaction,” said Josh Rosner, an analyst at Graham Fisher, an independent research firm in New York, and a longtime critic of the government-sponsored enterprises. “Since 2003, when these companies’ accounting came under question, policy makers have done nothing. Even though they had every reason to know that the housing market’s problems would not be contained to subprime and would bring down the houses of Fannie and Freddie.”

Reporting was contributed by Stephen Labaton and Edmund L. Andrews in Washington; Jeff Zeleny from Terre Haute, Ind.; and Elisabeth Bumiller from Colorado Springs.

Follow the Money: David Cay Johnston

A recent email from a friend that cited a NY Times article on corporate theft via tax evasion has prompted me to write about a crusader that is long overdue. I mentioned David Cay Johnston last year, but the truth is he is deserving of special mention, so here we are.

In 2005, I saw a very in-depth interview with Johnston on CSPAN's Book TV upon the release of his then just released Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich--and Cheat Everybody Else. The interview was fascinating because Johnston - a seasoned, Pulitzer Prize Winning Journalist formerly with the LA Times and now with the NY Times - was so far-reaching in his assessment, finding connections in ways that are revelatory as to how the system of American capitalism really works to the ultimate benefit of the rich few. It also helps that he's well spoken, with examples galore of corporate theft via the tax system and how that was aiding and abetting the system of funneling money from the majority underclass to the minority economically privileged.

I highly recommend watching the 6 part series of his vids on Youtube regarding his latest book, Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill). Once again, Johnston exposes how corporations, wealthy individuals and government collude in a perfect storm of thievery.

And lest anyone think that Johnston is a wacko liberal expounding weird conspiracy theories, I heard him with my own ears say that he's a registered republican. I don't forget things like that.

For all of my mudpeep friends, here's a guy that not only talks shit but backs it up with hard investigative journalism and good old fashioned research. Although he doesn't address race explicitly, he gives peeps of color plenty of ammo to fight with, because what he's really talking about is classism. But in fact, in that aforementioned 6 part series of Youtube vids, he comes very close to talking about the ways poor (mudpeeps) are screwed over by the system. The difference maker is that Johnston is a surfeit of facts, knowledge and research, and in the best Columbo-esque fashion, he makes connections explicit that the power elite and their co-horts would prefer remain hidden behind the wizard's curtain.

One example stands out: How home alarm companies are related to youth crime, the driver of course being economic imperative. On a side note, Johnston said that the profit margin for the home alarm company services is over seventy percent!

And that's what's so fascinating about Johnston's work: its range. He even cites in the Moyers interview below how George Dumbya Bush's wealth was founded upon the bilking of the American public. He then cites professional sports, which is how Dumbya came upon his wealth, and the system of American funding of pro sports that enables the rich to get richer at the expense of tax payers. In fact, without taxpayer subsidies, professional sports would LOSE money. Perhaps even worse, he further cites how Dumbya (and I imagine his scumbag lawyers) used eminent domain to steal private property to build a new stadium (for his then Texas Rangers). It's clear: Dumbya's no great entrepreneur; he's a connected thief, who was directly responsible for wreaking havoc on innocent people, the American public and caused arguably more damage as one person than any Mafioso. All for profit.

I haven't read Free Lunch yet, but I can tell you that reading Perfectly Legal, while jaw-dropping is an exhausting exercise. I have this habit of placing Post-Its in my books where I like passages; Perfectly Legal got to the point where I literally ran out of Post-Its! As it is, I left the book half-unread because my head exploded from the outrage.

He even relates all of this corporate malfeasance to sustainability, specifically, local communities and their economic well being. In a Johnstonian analysis, this shit is out of control; healthcare, retailing, sports, impact on local communities... He gives new meaning to Watergate's infamous "Deep Throat" dictum: "Follow the money." Johnston's that hardcore, that good.

I put him right up there with Stephen Jay Gould. Seriously, the guy ought to be nominated for the Nobel in econ, he's that much of a complete badass. As a journalist, he embodies the best of America. And he puts these twits who write that distractive "freakonomics" and "tipping point" crap to shame. His work needs to be in schools.

Oh yeah, Lou Dobbs loves him. (Vid quality not the greatest)


Here's an interview he did with Bill Moyers upon the release of Free Lunch. He trashes Dumbya here. Some vid dropouts here, but the audio holds up.


And here's interview clips with the Progressive Book Club. (Very good vid quality)


If I get time, I'll post DCJ's aforementioned 6 part Book TV interview; you can find it for now on Youtube. I wish Stern would interview him - this guy needs to reach a wide audience.

Not My Idea, but I'll Take the Check, Thank You.

Immature poets imitate; mature poets steal.
-T.S. Eliot

I've just watched Naomi Klein on her Charlie Rose book flacking tour, and I must say, while there's no doubting her good intentions, (here I go again), it amazes me how what passes for insight and incisiveness is "just another white liberal's discovery of (fill in the blank)."

Her take on "disaster capitalism" (I can see her editor chiding her, "You need a buzz phrase! You know, like, "The L word," to make it stick), which basically boils down to a catastrophe (natural or human-made), posits that when a population is in calamitous shock that it is a prime time for monetization, baby. So, bomb the fuck out of the Japs and then bomb them with credit cards.

What dope can't see that? What dope hasn't seen that, a loooooong time ago?

It gets better, folks. In 2005 she was evidently on some big fat list of "world's leading intellectuals" or some such poll taken on the net. Whoopee friggin' doo, now brainiacs have an Oscar show cum People's Choice Awards. And although Chomsky came out on top, Camille Paglia, I see, is still around, although she did come in behind Wolfowtiz. Gotdam, I don't think I could live with myself if the world said Wolfie was smarter than me. Oy.

Given her lineage, Klein's prominence is just the natural growth spurt of a pre-ordained chain of events. In fact, one would have been surprised if she had not been successful, what with her blue blood.

Her forte, evidently, is globalization, and I thought it amusing in the least when she was going on about the WTO protests in Seattle a few back. She said, and I paraphrase, that "the irony of it all was that protests were happening worldwide, facilitated by globalized networks... that the protests were really about the march of corporations..." And other such horseshit.

I suppose this marks the latest litcrit fad as a conflation of the mundane and the obvious. My, how out of touch I am.

It also points out how certain people have opportunity before them, and how most people these days really have nothing to say, then plagarize, steal and co-opt. Gladwell's "Tipping Point" is a perfect example; what marketer worth their salt isn't familiar with what he talks about? Even more pernicious is the way in which recycling takes an evil bent, as with Herrnstein & Murray's "The Bell Curve." (Which couched 17th century "scientific" eugenics in a modern-day take and aims its scope at "inferior" mud peeps. Stephen Jay Gould, god love him, blasted Murray [Herrnstein died shortly after publication from intellectual dishonesty] to smithereens. Ah, Gould, where are those who have sipped from your golden cup?)

To her credit, Klein talked about the way Bechtel was monetizing water (I believe in Bolivia) and the way water prices rose 300% and the evil way it was claiming unfair competition when citizens were capturing rain water! What she failed to deconstruct are the ways in which, when corporations install themselves, they are aptly positioned to lobby and institute the system of payoffs in order to leverage their monetary interests into political reality and then subsequent leverages. Talk about unfair competition.

But even more egregious, she passes this "discovery" of hers off as if she were Columbus. The truth is, Alan Snitow produced and directed an excellent doc, Thirst, in 2004. While Klein told Rose that she had been laboring for four years on her book, anyone who's produced a movie -- especially one as auspicious as Thirst which spans several countries -- knows pre-production not to mention research and then raising money (unless one is rich) begins way before production, much less release, the latter sometimes occurring years after production.

I don't fault Klein for putting the topic out on the table for discussion and in fact appreciate it; I do fault her not citing Snitow's work. Surely a non-fiction writer as acclaimed as her ("No Logo") must do hardcore research. How could she not mention Snitow's film? It's not like it was relegated to the doc ghetto, after all, in perfect poetic/ironic symmetry, it aired on PBS's POV, Rose's own network!!!

$ = $ = $ = $ = $ = $ = $ = $

Now the conversation on my part will shift gears, although it relates to Klein's theme, because I want to talk about recent history; the rise of global capital and, specifically, the way it was enacted via its audience. Is it wrong for Klein to say that corporations go forth and run roughshod over the world in the pursuit of capital expansion and profit? Of course not, but one of the "problems" of her kind of analysis is that she falls into the trap of examining symptoms, or re-labeling symptoms as causes, while positing the wrong things as causal agents. Yes, corporations are "bad" and "do bad things", but they are only the expression of what enabled them to do so - an American capitalist system.

For the individual, dis-empowered as they may be, I think it can be persuasively argued that macro arguments such as these obfuscate and further the illusion that there's simply nothing to do. Thus, the, "What can I do, I'm just one person?" syndrome remains unchallenged.

Now drill further; by what means have these corporations extracted their booty from the laity? For my money, that's the trillion dollar question.

First, we have to understand an axiom; that as a basic principle, and insofar as it concerns global capital, nothing is reified in this world without an audience. Global capital as mass consumption defined in absolute, demands large common denominators.

Second, what are the means of capturing said audience?

A brief historical look back is first in order. (I've actually mentioned this before in this blog) It's a favorite question of mine to ask friends, "Only 3 or 4 decades ago, the baby boomers protested against and helped stop a war, ousted an evil president, fought for civil rights, and women's rights. But in the 80's all of that began to radically change with the rise of the Yuppies, Wall Street and the `greed is good' zinger, paving the way toward the present day march of globalization. How did that happen in such a short span of time?"

[By the way, I'm no Marxist and think Marx ultimately got it wrong. And while I think some of his critiques of capitalism are spot on, there's no way Marx - or anyone then - could have foreseen the current manifestation of global capital and the rise of the mega-corps.]

Think about this before you read on for my take, because it is one of the most serious things to consider in our lifetime. It encompasses everything; colonialism, the rise of multi-nationals, foreign policy, co-opted mass media, group-think, mind control (seriously)....

Over the years I've heard many different answers, but the one thing I noticed amongst them all was that they never boiled down to specifics; how this system was funded. (Let's leave the system of state-funded corporate welfare and theft via taxes alone for now. For a roiling critique of that, see: David Cay Johnston's "Perfectly Legal" - highly recommended, although a tough read.)

Here's my take, and it's simplicity itself; I remember being in school in the 80's and walking down Bruin Walk at UCLA. Then, Visa and Mastercard and probably AMEX had tables with freshly scrubbed people handing out applications for credit cards. And they were easy to get.

Fast forward to today, and we can now see the residue of that insidious scheme; record numbers for credit card debt, and a system of slavery so far-reaching that it touches virtually every facet of modern life.

Eighty percent of American households have at least one credit card.
-Source: www.cardweb.com

Total credit card debt in the United States has reached about $665 billion on bank credit cards and about $105 billion on store or gas credit cards. According to the Fed's G19 release, the total is roughly $800 billion.
-Sources: www.cardweb.com and the Federal Reserve

I remember one spring, just before summer break, talking to a friend and asking what her plans were for the summer. "Oh, travel. Europe or Asia." I asked how she, a student, was going to fund such a trip. Her answer pre-figured this entry; "Oh, I'll charge it. You know, us college students, we're the privileged poor..."

And there you have it - too simple, you say?

On the face of it, yes, but when you think about the insidious way credit hooks each and every one of us consumers into the mix, I don't think it's a leap to see how the consumer conditioning finds fertile ground in this scenario.

What I really mean is, Marx got this completely wrong as well; religion isn't the opiate of the masses, it's the ability to get something, and get it now, "painlessly" ... that's the ultimate drug.

This is why it's much easier to punish the laity these days. Commit all kinds of horrendous shit and be the worst administration in history, but as long as the people have cable, McDonald's and their SUVs, they may groan and bitch, but they will not revolt. They will medicate by ... SHOPPING!!! Wasn't it dumbya himself who, after 9/11, urged Americans to go out and shop fer god's sakes? Read: suck on that crack pipe, and even though things are horrible, at least you'll feel better. The Boomers hadn't drunk the Kool Aid - yet - which helps explain why in the halcyon 60's/70's they got up off their asses and did shit, not just talked about it.

That addiction to a "vastly improved" consumer lifestyle provided the impetus for mass marketing on an unprecedented scale. Take Nike, for example. Their timing couldn't have been more perfect, pioneering out-sourcing in the 70's (cheap imports were already an American staple, marked by the, "Oh, `Made in Japan?' That's cheap," signifier), first in Japan, then all throughout Asia, because once the standard of living rose, labor became too expensive in Japan. Which raises another interesting question: What happens when labor has become too expensive everywhere? It's not like there are an unlimited number of undeveloped countries - we may not and probably won't see the end of this string in our lifetimes, but it has built in obsolescence.

The naysaying absolutist Friedman/Rand free-marketers point to raising standards of living for developing countries, completely ignoring business metrics such as total cost of doing business, a highly subjective but, necessary analysis when talking about something as impactful as out-sourcing. In an elementary equation, they'd say having a car(bon)-based transportation system, such as LA, is worth it because it raises standards of living. The immediacy of being able to get somewhere, pick up loads of stuff, then cart it back is, a high luxury. Despite terrible air. It's like saying you can have an Olympic-sized swimming pool, but every day someone is going to show up and piss in it. BUT, you've got an Olympic-sized swimming pool.

The problem is now exacerbated by longevity and intransigence; simply, the familiar. Go into the hood to any Walmart (China's largest customer, the world's largest corporation and with all of the heirs in the top ten richest people in the world) and you'll see the drug-addicted going crazy. Why? Because they can buy a sweatshirt for ten bucks.

And while everyone's implicated, you can't fault the working poor for wanting to pay less, but you can point fingers at mega-corps like Walmart for extracting capital out of local communities and concentrating it in a tiny fraction of the population.

The implications spread out further; schools and an educational system that's simply incompetent insofar as educating kids into the real world with even a basic understanding of real-world economics, mass media (who suck on Walmart's crack pipe) and politicians who are intellectually dishonest about the way globalization wreaks havoc, both here and abroad.

I've gone on too long here, but if you're still with me, the only way to fight back is to consider your dollars as votes, or even, as JT said the other day, as a representation of your energy. Where you place that energy is something to consider.

Beyond a ten buck sweatshirt, and beyond the Klein-esque macro view of globalization, and in an ironic twist, it really does boil down to agency.

Much to Ayn Rand's chagrin.