Repeal of Glass-Steagall Act in 1999 Allowed the Big Banks to Create the Financial Crisis

Former Citicorp CEO John Reed apologized in 2009 for his role in building Citigroup and said banks that big should be divided into separate parts. Weill said today he altered his view about the industry because “the world changes.” He has been thinking about it a lot over the last year, he said. “The world we live in now is not the world we lived in 10 years ago,” Weill said. “Good things are simple.” Former President Bill Clinton said when he signed the repeal of Glass-Steagall in 1999 that it was “no longer appropriate” for the economy. “The world is very different,” Clinton said at a White House signing ceremony. [Source]

Ex-Citigroup CEO Sandy Weill: ‘Split up’ the big banks

July 25, 2012

The Ticket - In a remarkable policy shift, former Citigroup chairman and chief executive Sandy Weill now thinks that Wall Street should break up its big banks in an effort to regain the public's trust.

"What we should probably do is go and split up investment banking from banking," Weill said on CNBC's "Squawk Box" on Wednesday. "Have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that's not going to risk the taxpayer dollars, that's not too big to fail."

"I'm suggesting that they be broken up so that the taxpayer will never be at risk, the depositors won't be at risk, the leverage of the banks will be something reasonable, and the investment banks can do trading," he said.

Weill essentially called for the return of the Glass-Steagall Act, CNBC said. The 1933 Depression-era legislation separated investment and commercial banking activities in the wake of the 1929 stock market crash and commercial bank failure, according to Investopedia. It was repealed in 1999 during the Clinton administration.

Weill was one of the architects of the Gramm-Leach-Bliley Act, which helped repeal Glass-Steagall. (In his former office, Weill proudly displayed a large wooden sign with the words "The Shatterer of Glass-Steagall" etched into it.)

The 79-year-old Wall Street legend also called for complete transparency in the banking industry.

"There should be no such thing as off balance sheet," he said. "I want to see us be a leader, and what we're doing now is not going to make us a leader."

The Hypocrites Who Wrecked American Finance

July 25, 2012

Philly.com - Sandy Weill, who paid himself hundreds of millions of dollars as a reward for persuading President Clinton and the Republican-led U.S. Senate and Federal Reserve to retroactively bless his acquisition of Citibank by his Travelers insurance and high-risk loan conglomerate, now says the policy was a mistake.

“What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail,” Weill said this morning on CNBC’s “Squawk Box.”

Highlights:

"He essentially called for the return of the Glass–Steagall Act, which imposed banking reforms that split banks from other financial institutions such as insurance companies," and which Clinton, aides Larry Summers and Robert Rubin (later a Citi executive), Fed head Alan Greenspan, U.S. Sen Phil Gramm and others endorsed after lobbying by Weill and his banking allies.

“I’m suggesting that they be broken up so that the taxpayer will never be at risk, the depositors won’t be at risk, the leverage of the banks will be something reasonable, and the investment banks can do trading, they’re not subject to a Volker rule" breaking up hybrid giant banks. "They can make some mistakes, but they’ll have everything that clears with each other every single night so they can be market-to-market,” Weill told CNBC.

Banks "should be split off entirely from investment banks, he added. That would make them "much” more profitable, he said, citing the example of "regional banks" (like PNC, Citizens, TD).

Weill's top collaborators have also recanted, notes Bloomberg here: "Richard Parsons," the ex-TimeWarner boss "who earlier this year ended a 16-year tenure on the board of Citigroup, said in April that the 1999 repeal of the Glass-Steagall law made the business more complicated and ultimately helped cause the financial crisis.

"Former Citicorp CEO John Reed," who cut the Weill merger deal in the first place, "apologized in 2009 for his role in building Citigroup and said banks that big should be divided into separate parts."

Gotta hand it to them for admitting policies that were so profitable for them personally are evil for American finance.

But none of them, so far as we have heard, are promising to give back the fortunes they cashed in from Citigroup stock grants before the 2008 blow-up that proved the bankruptcy of the Weill business model and the failure of Clinton, Gramm, Greenspan, Summers and Rubin to protect Americans from the government-financial complex.

Shareholders, taxpayers, borrowers and laid-off staff paid to make these power-lobbying bankers rich. No penalty? No shame?

Oil Speculators Must Be Stopped

A more likely influence on modern thinking is due to Hubbert’s Peak Oil Theory introduced in 1954. It has figured prominently in the ecological/environmental movement. In fact, the entire global warming movement indirectly sits on top of the Hubbert Peak Theory. - Carbon Currency to Replace All Paper Currencies, Limiting Manufacturing, Food Production and People Movement

Here's the problem: The investment banks (Morgan Stanley, JP Morgan, Goldman Sachs, etc.) used to lend money to Merchants Producers End Users and Speculators (companies/individuals that use the resources to make products using commodities), which allowed supply and demand to work. But in 2002 Congress passed laws that allowed the investment banks to trade commodities for themselves, so they bought warehouse storage tanks, leased ships themselves, etc. The Federal Reserve, which is owned by the banks, gave them unlimited funds with which they now control the markets. The people are getting screwed by this arrangement and it must end. THE GLASS Steagall ACT must be brought back along with contract limits on positions, and the Volker RULE must be enforced or THE BANKSTERS will rob us all. The banksters need JAIL TIME NOW. - William H., Oil Speculation Imposes “the Most Insidious Tax” on Americans

Oil Speculators Must Be Stopped and the CFTC “Needs to Obey the Law”: Sen. Bernie Sanders

April 16, 2012

The Daily Ticket - The recent rise in gasoline prices has prompted Congressional hearings and a call to federal regulators to curb what many see as the cause for the spike: oil speculators.

A House subcommittee held a hearing on "The American Energy Initiative" Wednesday morning that focused solely on rising pump prices. Seventy members of Congress signed a letter this week to regulators at the Commodity Futures Trading Commission (CFTC), urging immediate action on oil speculation by enacting "strong position limits" and to "utilize all authorities available to…make sure that the price of oil and gasoline reflects the fundamentals of supply and demand."

The CFTC was given authority in the Dodd-Frank Wall Street Reform and Consumer Protection Act to impose position caps on oil traders beginning in January 2011. These limits have not yet been implemented by the CFTC. In an interview Wednesday with The Daily Ticker, Sen. Bernie Sanders (I-VT) says the CFTC doesn't "have the will" to enact these limits and "needs to obey the law."

"What we need to do is…limit the amount of oil any one company can control on the oil futures market," says Sanders, who has long advocated limits on speculation. "The function of these speculators is not to use oil but to make profits from speculation, drive prices up and sell."

The average price of a gallon of gasoline in the U.S. has increased nearly 30 cents in one month according to the AAA's Daily Fuel Gauge Report. U.S. oil prices have jumped more than six percent since Feb. 1 even though oil demand in the U.S. is at its lowest level since April 2007. The International Energy Agency (IEA) reported that the world's oil supply rose by 1.3 million barrels a day in the last three months of 2011 while world demand increased just 0.7 million barrels per day during that same time period.

This is not the first time oil speculators have been blamed for higher energy prices. In 2008 U.S. oil prices skyrocketed to $145 per barrel and gasoline prices averaged well above $4 per gallon. There were calls to increase domestic offshore drilling and legislation was proposed that would have required buyers of oil to physically own and store the oil barrels. Then the 2008 financial crisis hit causing oil and gasoline prices to plummet.

Blaming the speculators may seem like scapegoating to some (namely, oil traders) but speculators control more than 80 percent of the energy futures market, up from 30 percent a decade ago, and there is mounting evidence that speculation contributes to higher prices:

• At a Senate hearing last June, Rex Tillerson, the CEO of ExxonMobil, said speculation was driving up the price of a barrel of oil by as much as 40 percent.
• A study conducted by the nonpartisan consumer advocacy group Consumer Federation of America found that speculation caused the average American household to spend an additional $600 on gasoline expenditures in 2011. Moreover, the report concluded that excessive speculation (which the organization estimated added about $30 per barrel to the cost of oil in 2011) drained the U.S. economy of more than $200 billion in consumer spending in 2011.
• The St. Louis Federal Reserve has also recommended that the CFTC do more to prevent oil speculators from driving up the price of oil. Fed officials studied the effect of oil traders on the price oil over five years and determined that "speculation contributed to around 15 percent to oil prices increases."
• CFTC Chair Gary Gensler declared last year that "huge inflows of speculative money create a self-fulfilling prophecy that drives up commodity prices."

There are many components reflected in the current price of oil, including old-fashioned supply and demand and geopolitical factors (such as a possible attack on Iran). Rising gasoline prices are a huge pocketbook issue for many Americans, a reason alone for politicians to focus on the role of the speculators.

President Obama Targets Oil Speculators: Another Election Ploy?

April 16, 2012

The Daily Ticker - President Obama today raised the ante on his efforts to limit the rise in oil prices. The president, joined by Treasury Secretary Tim Geithner and Attorney General Eric Holder, called on Congress to adopt tougher rules on speculators in the oil market.

"We can't afford a situation where some speculators can reap millions while millions of American families get the short end of the stick," President Obama said.

The president's $52 million proposal would stiffen penalties for firms found to manipulate markets and raise the amount of money traders would have to put up to back their positions. It would also beef up the enforcement staff of the Commodity Futures Trading Commission and increase spending on technology to oversee and monitor energy markets.

Read More...

Japan's Private Pension Scandal Casts Doubt on the Future of Small and Medium-sized Businesses

Japan Pension Scandal Shakes Trust in System

April 1, 2012

AP - Trucking company president Masazumi Ando said he was furious when he saw the head of an investment firm that lost $1.3 billion in pension money bow in apology at a parliamentary hearing last week.

"This is nothing but a fraud," said Ando, whose 300 employees belong to a trucking-sector pension plan with $120 million in retirement savings that may now be gone for good.

"We are preparing to file lawsuits so that any cash that may be hidden overseas could be recovered," he told AFP.

Ando's sentiment may be widely shared amid the fallout from Japan's latest financial scandal, which has shaken trust in cherished private pension plans seen as crucial for millions in a country with a rapidly aging population.

It also comes at a time when camera maker Olympus attempts to rebuild its own reputation following a $1.7 billion loss scandal by present and former top executives.

The problem at AIJ Investment Advisors goes beyond a cover-up -- analysts say the AIJ meltdown points to a serious problem with the deregulation of Japan's private pensions. It also casts doubt on the future of small and medium-sized businesses if they cannot compensate about 880,000 employees who lost money in the scandal.

"Many of them are small businesses. They could collapse in a domino effect," said Hiroyuki Ozaki, a business professor at Tokyo University of Technology.

The spectre of such a collapse comes as Japanese firms, big and small, are already struggling to recover after last year's earthquake-tsunami disaster.

The stress is particularly acute for smaller firms that contribute more and more money to their pension plans, which tend to be generous in addition to Japan's national retirement scheme.

The fate of 109.2 billion yen ($1.3 billion) managed by AIJ was all but confirmed when president Kazuhiko Asakawa on Tuesday admitted wrongdoing, saying the company falsified its accounts to hide massive losses.

Asakawa told a parliamentary panel the money had disappeared in a string of risky bets on futures and options contracts between 2002 and 2011, but insisted he had not deceived clients since his plan included making the money back.

"I didn't want to use inflated figures for the pensions fund, but I did not want to come back with losses, no matter what," he told the panel in his first public appearance since the scandal surfaced in February.

"I was confident of recouping the losses," he added.

Regulators have so far found just 8.1 billion yen in accounts in Japan and Hong Kong, with one official saying some of the money may have been funnelled into offshore bank accounts, which Asakawa has denied.

His parliamentary appearance followed a raid on AIJ's Tokyo headquarters by securities regulators, which itself came after a January inspection of AIJ's books found it could not account for most of the funds under its management.

The Financial Services Agency halted the company's operations in February and then revoked its license as an asset manager in March. No charges have yet been laid, but Mario Takeno, head of the Securities and Exchange Surveillance Commission, has said the watchdog may ask prosecutors to pursue criminal charges.

It has also been widely reported that former employees at the now-defunct Social Insurance Agency were hired at AIJ. In 2007, the state agency that managed the public pension system admitted it could not find records for about 50 million accounts. The ensuing scandal contributed to the 2009 downfall of the long-ruling Liberal Democractic Party.

Yasuyoshi Masuda, a Tokyo University economics professor, said the wider problem was rooted in deregulation of the sector after Japan's booming economy headed south in the 1990s. Authorities pushed for wide-ranging changes to stimulate the economy, easing rules for investment advisors looking to manage corporate pensions, he said.

"But following the deregulation, authorities failed to set up a system to impose penalties on almost fraudulent managers like this," Masuda told AFP, referring to AIJ.

"There is a flaw in the whole system," he said.

JPMorgan's Slow Delivery of Funds Worsened MF Global's Distress

In MF Global, JPMorgan Again at Center of a Financial Failure

January 18, 2012

Reuters - In late October, as MF Global Holdings Ltd teetered toward bankruptcy, Jon Corzine phoned his close-knit circle of Wall Street friends for help.

His firm, facing demands from customers and other firms for cash, needed to sell billions of dollars in securities to raise the money. As the week progressed, MF Global executives came to believe that JPMorgan Chase & Co., one of MF Global's primary bankers and a middleman moving that cash, was dragging its feet in forwarding the funds.

Corzine phoned Barry Zubrow, then JPMorgan's chief risk officer, to question the slow payments. Corzine also called William Dudley, president of the Federal Reserve Bank of New York, to update him on MF Global's status and told him that payments were slow to arrive from JPMorgan and others. Dudley said he'd monitor the situation.

The delays contributed to a serious cash shortage at MF Global, according to people familiar with the matter. These people say the firm started trading one day in late October with $600 million in cash and spent the whole day selling securities, only to end with just $200 million in cash.

By adhering to procedure and not cutting MF Global any slack, these people say, JPMorgan was able to slow the delivery of funds, worsening MF Global's distress. As a result, they note, hundreds of millions of dollars of MF Global money may be still stuck in accounts at JPMorgan.

The details of MF Global's trading, based on court documents and multiple interviews with people familiar with the situation, shed light on what could have happened to more than $600 million in customer funds at MF Global, which are still being sought by regulators nearly three months after the firm filed for bankruptcy protection on October 31.

An early sign that money was missing came as auditors from the CME Group Inc., which audited MF Global, combed through the company's books in Chicago and New York, according to congressional testimony by CME executive chairman Terrence Duffy. After MF Global reported a quarterly loss on October 25, the CME had dispatched two auditors to the Chicago office to review customer accounts on October 27 - the first of several confusing days as auditors and regulators, working in Chicago and New York, tried to understand whether funds were intact.

In a statement last week , a JPMorgan spokeswoman said,

"Our firm lost money because of MFG's failure, and we are cooperating with the regulators with full transparency to assist their investigation."

Through a spokesman, Corzine declined to comment.

To be sure, regulators have made no allegation of wrongdoing against JPMorgan, and there is no evidence that JPMorgan did anything improper. Indeed, it seems to have been simply following banking procedure, according to people familiar with the matter.

Futures trading firms and brokers like MF Global are heavily dependent on borrowing, which then exposes the big banks that lend to them was well as their trades. That gives banks like JPMorgan the ability to protect themselves in a crisis.

The transactions that JPMorgan handled are drawing increased scrutiny from regulators, a bankruptcy trustee and MF Global because understanding MF Global's money flow could aid in identifying customer money flows, according to people familiar with the situation.

"They made things that are in normal times quite plain vanilla, easy things to do very difficult to do," said a person involved in MF Global's struggle, referring to JPMorgan. "What normally works well was taking forever because JPMorgan was dotting every 'i' and crossing every 't,' and they were holding on to as much money as they possibly could under the law."

JPMORGAN'S DUAL ROLE

The role that JPMorgan played as both a lender and middleman to MF Global illustrates the procedures banks can deploy to protect their own interests when dealing with weaker counterparties.

On one side of its ledger, JPMorgan and a syndicate of banks had lent MF Global $1.3 billion in its final week through a loan commitment the firm could draw down at any time. JPMorgan also was a primary banker for MF Global, a role that gave it significant insight into, and control over, MF Global's accounts.

On the other side, JPMorgan was clearing some of the asset sales MF Global was making. In this role, its job was to take the securities from MF Global and the cash from the buyer and pass them along to the other party when the deal was complete. Normally such trades can settle within a day or two, if the back-office mechanics function smoothly. But that week, the money didn't arrive when MF Global executives expected, according to people familiar with the situation.

JPMorgan, a major lender to rival firms as well as one of Wall Street's biggest middlemen in settling trades, has previously drawn scrutiny for protecting its own interests when rival firms ran aground. In 2008, a week before Lehman Brothers Holdings Inc. sought bankruptcy protection, JPMorgan demanded collateral to protect its role as counterparty to Lehman. While the request was not improper, Lehman's bankruptcy estate later claimed Lehman posted the collateral because JPMorgan had threatened to withhold funding.

A Congressional panel that looked at the 2008 crisis, the Financial Crisis Inquiry Commission, investigated the events surrounding Lehman's fall in a 2011 report. A JPMorgan official told the FCIC that the bank didn't believe "the request put undue pressure on Lehman," the report said. The FCIC didn't draw a conclusion about the incident.

SLOW ON THE TRADE

When Corzine took the helm in 2010, MF Global was a little-known boutique futures trading firm. Corzine, who joined Goldman Sachs as a bond trader in 1975 and ultimately became chairman, also was a former U.S. Senator and former governor of New Jersey. He brought star power to the CEO role, and sought to increase MF Global's profits. Among his trades was a series of purchases of deeply discounted European government debt. European Union leaders, he reasoned, would never allow the countries to default.

In September, MF Global said the Financial Industry Regulatory Authority had required the firm to bolster its capital.

On Monday, October 24, things took a turn for the worse when Moody's Investors Service downgraded MF Global's credit rating to one level above junk. A day later, MF Global reported its largest-ever quarterly loss.

By Wednesday, October 26, customers were demanding millions of dollars from accounts held at MF Global. To meet the sudden outflow, MF Global during the week of October 24 tapped the $1.3 billion loan commitment from a syndicate of banks led by JPMorgan.

MF Global also decided to sell $1.3 billion of IOUs known as commercial paper. The short-term debt was part of some $7 billion of securities the firm sold that week. But this sale was critical, people familiar with the situation said, because MF Global had used customer funds to invest in the short-term debt and now badly needed to liquidate the IOUs and move cash into the customer accounts to meet their demands. The investments in the IOUs were allowed by industry regulations, these people said.

For help, Corzine turned to his old employer, Goldman Sachs, which specializes in trading the short-term paper. Corzine phoned Goldman President Gary Cohn to ask him to buy the IOUs, offering a slight discount, according to people familiar with the situation.

Cohn agreed, and Goldman traders made the purchases, these people said. Because it needed the cash immediately, MF Global sought to settle the deal that day, according to Corzine's testimony in Congress.

JPMorgan, in its role as middleman, was able to control the speed with which MF Global's asset sales were processed, according to people familiar with the situation.

Two people familiar with the transaction say that JPMorgan was slow to process the trade. A spokeswoman for JPMorgan said the bank was not able to confirm the information about that specific trade. It remains unclear exactly whether cash from the sale was ultimately routed to MF Global.

On Thursday October 27, Moody's downgraded MF Global again, this time to junk.

At that point, "we were finished," said a former employee in MF Global's New York office.

While MF Global waited for the funds from JPMorgan, it frenetically tried to avoid a second cash demand generated by the second Moody's downgrade. The downgrade sparked margin calls from trading partners. The New York Fed at one point issued its own margin calls.

To meet those demands, MF Global on October 28 undertook yet another set of asset sales totaling $4.5 billion. It sold the securities to JPMorgan, yet the bank was slow to settle this trade as well, according to people familiar with the situation. JPMorgan declined to confirm whether it bought the securities.

LOST CONFIDENCE

One thread regulators are now examining is how MF Global got hold of enough funds to cover an overdrawn account at JPMorgan. Corzine told a congressional panel that during the morning of October 28,

"I was trying to sell billions of dollars of securities to JPMorgan Chase in order to reduce our balance sheet and generate liquidity. JPMorgan Chase told me that they would not engage in those transactions until overdrafts in London were cleaned up."

To clear that hurdle, Corzine contacted MF Global's back office in Chicago and told them to resolve the problem-ostensibly by routing money to JPMorgan. JPMorgan then asked whether a transfer of funds violated industry regulations. Corzine said that the Chicago office "explicitly confirmed to me that the funds were properly transferred." Corzine said he assumed JPMorgan signed off because the bank then executed billions of dollars in trades.

People familiar with JPMorgan say that the bank had to contend with numerous issues in assisting MF Global with the asset sales, including the fact that some MF Global assets couldn't immediately be sold.

As MF Global tried to complete the sales, MF Global officials and regulators, who were trying to untangle customer accounts in Chicago and New York, discovered a shortfall of cash in the customer accounts -- including those that had once held MF Global's commercial paper holdings.

"Despite our best efforts to sell assets and generate liquidity, the marketplace lost confidence in the firm," Corzine said at a congressional hearing.

While it may appear that records for the trades would be clear, regulators say they have been stymied in tracing the money flowing to and from MF Global.

"They are circuitous money trails," said Bart Chilton, a commissioner at the Commodity Futures Trading Commission, one of the agencies probing MF Global. "They are not simple linear transactions."

"There were an extraordinary number of transactions during MF Global's last few days and I do not know, for example, whether there were operational errors at MF Globalor whether banks and counterparties have held onto funds that should rightfully have been returned to MF Global," Corzine told a congressional panel in December.

The concern for a clearing bank like JPMorgan is over exposure when it is extending a lot of credit, according to Craig Pirrong, a finance professor at the University of Houston.

JPMorgan, as a clearing bank, has the ability to take some actions to protect itself, but the bank "is going to undergo a lot of scrutiny," Pirrong said. "Any action it takes to reduce its exposure comes into question when a bankruptcy is involved."

"STOCK WAS TOAST"

MF Global, during the weekend before it filed bankruptcy proceedings, made one final push to sell more assets. In London, it tried to sell off short-term European bonds, according to one trader at a London bank.

But by then, MF Global had run out of time, this trader said. Tagged with a junk credit rating and unable to meet margin calls, the firm could no longer effectively function in the markets.

The firm's stock, which hit $7.74 at the end of June, fell from $3.87 at the beginning of October to $1.20 on October 28, its final day of trading before it filed for bankruptcy protection.

"Their stock was toast," the trader said.

What remains unclear is whether JPMorgan held on to the funds, and where the funds are now. People familiar with the situation suggest that the funds are still at JPMorgan.

Regulators and the bankruptcy trustee have not said. They say they are still trying to verify which customer accounts may have been tapped for funds during MF Global's final hours.

There is a Massive Mobilization by the White House, Congress and the Media Against the OWS Protesters

The Shocking Truth About the Crackdown on Occupy

The violent police assaults across the US are no coincidence. Occupy has touched the third rail of our political class's venality

November 26, 2011

Naomi Wolf - US citizens of all political persuasions are still reeling from images of unparallelled police brutality in a coordinated crackdown against peaceful OWS protesters in cities across the nation this past week. An elderly woman was pepper-sprayed in the face; the scene of unresisting, supine students at UC Davis being pepper-sprayed by phalanxes of riot police went viral online; images proliferated of young women – targeted seemingly for their gender – screaming, dragged by the hair by police in riot gear; and the pictures of a young man, stunned and bleeding profusely from the head, emerged in the record of the middle-of-the-night clearing of Zuccotti Park.

But just when Americans thought we had the picture – was this crazy police and mayoral overkill, on a municipal level, in many different cities? – the picture darkened. The National Union of Journalists and the Committee to Protect Journalists issued a Freedom of Information Act request to investigate possible federal involvement with law enforcement practices that appeared to target journalists.

The New York Times reported that "New York cops have arrested, punched, whacked, shoved to the ground and tossed a barrier at reporters and photographers" covering protests. Reporters were asked by NYPD to raise their hands to prove they had credentials: when many dutifully did so, they were taken, upon threat of arrest, away from the story they were covering, and penned far from the site in which the news was unfolding. Other reporters wearing press passes were arrested and roughed up by cops, after being – falsely – informed by police that "It is illegal to take pictures on the sidewalk."

In New York, a state supreme court justice and a New York City council member were beaten up; in Berkeley, California, one of our greatest national poets, Robert Hass, was beaten with batons.

The picture darkened still further when Wonkette and Washingtonsblog.com reported that the Mayor of Oakland acknowledged that the Department of Homeland Security had participated in an 18-city mayor conference call advising mayors on "how to suppress" Occupy protests.

To Europeans, the enormity of this breach may not be obvious at first. Our system of government prohibits the creation of a federalized police force, and forbids federal or militarized involvement in municipal peacekeeping.

I noticed that right-wing pundits and politicians on the TV shows on which I was appearing were all on-message against OWS. Journalist Chris Hayes reported on a leaked memo that revealed lobbyists vying for an $850,000 contract to smear Occupy. Message coordination of this kind is impossible without a full-court press at the top. This was clearly not simply a case of a freaked-out mayors', city-by-city municipal overreaction against mess in the parks and cranky campers. As the puzzle pieces fit together, they began to show coordination against OWS at the highest national levels.

Why this massive mobilization against these not-yet-fully-articulated, unarmed, inchoate people? After all, protesters against the war in Iraq, Tea Party rallies and others have all proceeded without this coordinated crackdown. Is it really the camping?

As I write, two hundred young people, with sleeping bags, suitcases and even folding chairs, are still camping out all night and day outside of NBC on public sidewalks – under the benevolent eye of an NYPD cop – awaiting Saturday Night Live tickets, so surely the camping is not the issue. I was still deeply puzzled as to why OWS, this hapless, hopeful band, would call out a violent federal response.

That is, until I found out what it was that OWS actually wanted.

The mainstream media was declaring continually "OWS has no message". Frustrated, I simply asked them. I began soliciting online "What is it you want?" answers from Occupy. In the first 15 minutes, I received 100 answers. These were truly eye-opening.

The No 1 agenda item: get the money out of politics. Most often cited was legislation to blunt the effect of the Citizens United ruling, which lets boundless sums enter the campaign process.

No 2: reform the banking system to prevent fraud and manipulation, with the most frequent item being to restore the Glass-Steagall Act – the Depression-era law, done away with by President Clinton, that separates investment banks from commercial banks. This law would correct the conditions for the recent crisis, as investment banks could not take risks for profit that create kale derivatives out of thin air, and wipe out the commercial and savings banks.

No 3 was the most clarifying: draft laws against the little-known loophole that currently allows members of Congress to pass legislation affecting Delaware-based corporations in which they themselves are investors.

When I saw this list – and especially the last agenda item – the scales fell from my eyes. Of course, these unarmed people would be having the shit kicked out of them.

For the terrible insight to take away from news that the Department of Homeland Security coordinated a violent crackdown is that the DHS does not freelance. The DHS cannot say, on its own initiative, "we are going after these scruffy hippies". Rather, DHS is answerable up a chain of command: first, to New York Representative Peter King, head of the House homeland security subcommittee, who naturally is influenced by his fellow congressmen and women's wishes and interests. And the DHS answers directly, above King, to the president (who was conveniently in Australia at the time).

In other words, for the DHS to be on a call with mayors, the logic of its chain of command and accountability implies that congressional overseers, with the blessing of the White House, told the DHS to authorize mayors to order their police forces – pumped up with millions of dollars of hardware and training from the DHS – to make war on peaceful citizens.

But wait: why on earth would Congress advise violent militarized reactions against its own peaceful constituents? The answer is straightforward: in recent years, members of Congress have started entering the system as members of the middle class (or upper middle class) – but they are leaving DC privy to vast personal wealth, as we see from the "scandal" of presidential contender Newt Gingrich's having been paid $1.8m for a few hours' "consulting" to special interests.

The inflated fees to lawmakers who turn lobbyists are common knowledge, but the notion that congressmen and women are legislating their own companies' profitsis less widely known – and if the books were to be opened, they would surely reveal corruption on a Wall Street spectrum. Indeed, we do already know that congresspeople are massively profiting from trading on non-public information they have on companies about which they are legislating – a form of insider trading that sent Martha Stewart to jail.

Since Occupy is heavily surveilled and infiltrated, it is likely that the DHS and police informers are aware, before Occupy itself is, what its emerging agenda is going to look like. If legislating away lobbyists' privileges to earn boundless fees once they are close to the legislative process, reforming the banks so they can't suck money out of fake derivatives products, and, most critically, opening the books on a system that allowed members of Congress to profit personally – and immensely – from their own legislation, are two beats away from the grasp of an electorally organized Occupy movement … well, you will call out the troops on stopping that advance.

So, when you connect the dots, properly understood, what happened this week is the first battle in a civil war; a civil war in which, for now, only one side is choosing violence. It is a battle in which members of Congress, with the collusion of the American president, sent violent, organized suppression against the people they are supposed to represent. Occupy has touched the third rail: personal congressional profits streams. Even though they are, as yet, unaware of what the implications of their movement are, those threatened by the stirrings of their dreams of reform are not.

Sadly, Americans this week have come one step closer to being true brothers and sisters of the protesters in Tahrir Square. Like them, our own national leaders, who likely see their own personal wealth under threat from transparency and reform, are now making war upon us.

U.S. Banking Monopoly Created After More Than Two Decades of Unbridled Bank Mergers

Must See Graphic: How the Too-Big-To-Fail Banks Were Born

The Daily Bail
October 7, 2011

(Click for larger image)

This is how the U.S. banking monopoly was created after more than two decades of unbridled bank mergers endorsed, and in some cases, encouraged the by the OCC, the FDIC, the FTC and the elimination of Glass-Steagall.

We’re Now in a Period of Wealth Destruction Before the Ultimate Crash

If foreign creditors should question our ability and willingness to repay them without resorting to the currency printing press, there could be a run on the dollar, which would lead to sharply higher U.S. interest rates, which would do great harm to household finances and the housing market, which would put a crimp in consumer spending, which would increase unemployment, which would result in a spike in mortgage defaults, which would likely cripple the banking system given that a record 61% of total bank credit is mortgage related, which would, in turn, render future Fed interest rate cuts -- expected on or about September 20th, 2006 -- less potent in reviving the economy. - Paul Kasriel, Positive Economic Commentary, August 25, 2005

Super-Rich CEOs are Killing Your Retirement

April 6, 2011

MarketWatch — Headlines race across the web: “Jamie Dimon Worries That Financial Regulation Will Doom Banks, Forever.” Doom? Forever? Settle down Dimon, this sounds like an over-the-top B-movie promo for “Vampire Chronicles.”

Suddenly the boss of $2 trillion J. P. Morgan Chase is our newest “Dr. Doom.” Last week he was preaching his mantra to the U.S. Chamber of Commerce choir, warning that financial reforms would be a “nail in the coffin for big American banks.”

Small investors hurt by low rates

Mark Whitehouse explains how while low interest rates have meant big profits for banks, they are hurting small investors, including seniors who are seeing their cash earn minimal interest.

Nail in the coffin? Yes, and that’s exactly what the American public wants. Stuff Wall Street’s Vampire Squids back in their coffins, nail the lids shut, bury them forever.

Seriously, nationalize our incompetent Super-Rich Banks. We made a historic mistake not doing it in 2008. Should have let the vampires go bankrupt, reinstated Glass-Steagall. Instead we sat passively letting our double-dealing Treasury Secretary, former Goldman boss Hank Paulson, protect his Wall Street cronies as he conned Congress and taxpayers into making the worst economic blunder in American history, bailing out Wall Street’s “too-greedy-to-fail” banks.

Warning: Soon our Super-Rich Vampires will sink the economy deeper than 2008. Worse, they even believe we’ll bail them out again. We blinked in 2008, so they’ll try sucking out more bail-out blood next time.

The scene’s pathetic: Here’s one of America’s Super-Rich CEOs, a guy worth $260 million, coming across like a crybaby, whining because a tough-as-nails gal like Harvard law professor Elizabeth Warren and her Consumer Financial Agency just might take away his toys for being a bad boy … might try to limit his ability to rip off cardholders … might limit his high-risk gambling with depositors’ cash, limit him playing in the $700 trillion global derivatives casino … might force his bank to put up more reserves to prevent the next meltdown … might even awaken his lost moral consciousness and get him to think about the public welfare instead of the tens of millions he makes squeezing the public.

Wall Street’s Super-Rich CEOs killing financial reforms

But will Wall Street have an epiphany? Change? Never. No, won’t happen. Why? America’s Super-Rich Vampire CEOs are already doomed, forever. Our too-greedy-to-fail banks are back to their old pre-2008 tricks, bankrolling a billion dollar “kill reform” drive. J. P. Morgan Chase, Goldman Sachs, Citigroup, Bank of America and Morgan Stanley have invested megabucks in lobbyists and politicians to water down, defund and effectively kill Warren’s CFA, the SEC, Dodd-Frank and every other attempt to protect the public.

These guys love running the Fed and Treasury as their own little piggy banks. As Spencer Bachus, the GOP chairman of the House Financial Services committee put it, government regulators “exist to serve banks.”

So, unfortunately, for a while you will have to listen to Dimon’s incessant whining as he keeps replaying his overly dramatic Dr. Doom story. Until Wall Street pounds all their nails in the coffin of financial reform, while resurrecting their self-destructive Reaganomics vampire that sank its fangs and triggered the 2008 meltdown.

But watch out Wall Street: Next time, American taxpayers won’t support bailouts and trillions more debt. We will sink into the Great Depression 2 and a new American Revolution next time. No bailout, we’ll just nationalize all banks.

Then, poor little Jamie and his Super-Rich buddies will lose their jobs, having destroyed American capitalism. Unfortunately, the great irony is that these insatiable greedy, incompetent CEOs will personally survive well after the collapse, living off the millions they’ve stashed away while sabotaging America with their bankrupt Reaganomics ideas.

Dimon becomes our newest Dr. Doom

Dimon really loves his new role as a Dr. Doom. Plays a tragic drama queen very well. That “nail in the coffin” speech fits perfectly with the Chamber’s kill-reform strategies.

Some may say Wall Street’s short-term thinking CEOs are too myopic to be on the same stage as our long-term thinking Dr. Dooms. But you decide: Here’s a criteria from Barron’s, offered by legendary money manager Jeremy Grantham, referring to the 2008 crash:

“Why is it that several dozen people saw this crisis coming for years.”

Several dozen Over four years.

But “the bosses of Merrill Lynch and Citi and even Treasury Secretary Paulson and Fed Chairman Bernanke, none of them seemed to see it coming.”

Why? Grantham’s answer is simple:

Wall Street and Washington’s leaders are “management types who focus on what they are doing this quarter or this annual budget.” Their myopia “guarantees that every time we get an outlying, obscure event that has never happened before in history, they are always going to miss it.”

Yes, and they’ll miss the next crash. Guaranteed. Here’s what other long-term thinking Dr. Dooms predict:

1. This time is never, never different with insatiable greed

In “This Time Is Different: Eight Centuries of Financial Folly” economists Carmen Reinhart and Kenneth Rogoff warn that,

As economies “improve there will always be a temptation to stretch the limits. … A financial system can collapse under the pressure of greed, politics and profits … Technology has changed … but the ability of governments and investors to delude themselves … seems to have remained a constant.”

2. Fed’s new easy money is fueling new bubble, new meltdown

In the 400-year history of the stock market “there has been a long succession of financial bubbles,” says financial historian Niall Ferguson. The culprit? The Fed:

“Without easy credit creation a true bubble cannot occur. That is why so many bubbles have their origins in the sins of omission and commission of central banks.”

And with the rate near zero, Bernanke is becoming the biggest bubble-blower in American history.

3. American ‘Empire’ has peaked, is on a rapid downward spiral

Savvy Hong Kong economist Marc Faber says:

“The average life span of the world’s greatest civilizations has been 200 years … Once a society becomes successful it becomes arrogant, righteous, overconfident, corrupt, and decadent … overspends … costly wars … wealth inequity and social tensions increase; and society enters a secular decline.”

4. Wall Street has created a very ‘short respite’ before new crash

Nobel economist Joseph Stiglitz warned that unless Wall Street’s incentive system is drastically reformed,

“The financial sector will only try to circumvent whatever new regulations we put in place. We will simply have a short respite before the next crisis.”

5. First dot-coms, then subprimes; ‘third episode’ dead ahead

Remember a decade ago in “Irrational Exuberance” Yale’s Robert Shiller predicted the dot-com crash. More recently he warned:

“Bubbles are primarily a social phenomena. Until we understand and address the psychology that fuels them, they’re going to keep forming. We recently lived through two epidemics of excessive financial optimism, we are close to a third episode.” And everything since 2008 guaranteed the “third episode.”

6. America’s ‘running out of time’ before the Great Depression 2

Former IMF chief economist Simon Johnson waned:

“We’re running out of time … to prevent a true depression … the financial industry has effectively captured our government” and is “blocking essential reform,” and unless we break Wall Street’s “stranglehold” we will be unable prevent another Great Depression.

Failure to reform Wall Street guarantees a depression. Unfortunately, Dimon just doesn’t get it.

7. Fed’s haunted by ghost of Greenspan’s failed Reaganomics

When Obama reappointed Bernanke, “Black Swan’s” Nicholas Taleb warned that Bernanke was an economist who “doesn’t even know he doesn’t understand how things work.” Now the Fed’s Greenspan clone is feeding the GOP’s self-destructive Reaganomics ideology, blindly focused on saving a dying banking system by flooding the world with inflated dollars guaranteed to trigger another meltdown.

8. Hedgers made billions shorting dumb politicians, dumber bankers

Hedge funds make fortunes betting on the utter stupidity of Washington politicians and Wall Street CEOs gambling with the Fed’s self-destructive cheap-money policies. In fact, AR Magazine just reported that the top hedge fund manager made $4.9 billion shorting our clueless leaders, after making $3.4 billion in 2008, the year of the crash.

9. Dollar’s dead as reserve currency, killing our retirement system

In George Soros’s “New Paradigm:”

America’s 25-year “superboom … led to massive deregulation … blindly chasing free markets … unleashed excessive greed … created the dot-com and credit meltdowns” and a “shadow banking system” of derivatives.

“The system is broken … the end of an era of credit expansion based on the dollar as the international reserve currency.”

Warns Soros: “We’re now in a period of wealth destruction.”

10. Sell everything, hide in the hills with seed, fertilizer, drugs, guns

Barton Biggs 2008 bestseller, “Wealth, War and Wisdom” warns us to prepare for a “breakdown of civilization …

Your safe haven must be self-sufficient and capable of growing some kind of food … well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc. … a few rounds over the approaching brigands’ heads would probably be a compelling persuader that there are easier farms to pillage.”

Biggs is no anarchist militiaman; he’s a former Morgan Stanley research guru, now a top hedge fund manager.

11. Nations ignore obvious till too late, then collapse rapidly

Yes, the end will be swift. Why? Few can take the warnings of geniuses like evolutionary anthropologist Jared Diamond. In “Collapse: How Societies Choose to Fail or Succeed,” Diamond warns that societies fail because they’re unprepared, in denial till it’s too late:

“Civilizations share a sharp curve of decline. Indeed, a society’s demise may begin only a decade or two after it reaches its peak population, wealth and power.”

Just two decades. America hit its peak in 2000, with Bush’s election. Our two-decade reprieve will soon be up.

Obvious warnings were everywhere long before the 2008 meltdown. But a tragic Reaganomics dogma created a blind spot in Greenspan, Bernanke and Paulson. Today that blind spot is even stronger with a new crop of Reaganomics ideologues.

And again, the warnings are everywhere. Again ignored. Tragic figures like Dimon, Bernanke, Geithner as well as Bachus, Bachman, Palin, Trump, Koch Brothers and even Obama have that blind spot. They simply cannot hear any warnings … won’t till it’s too late.

The Final Push for World Government

“We will have world government whether or not we like it. The only question is whether world government will be achieved by conquest or consent.” - James Paul Warburg, Monopoly Banker, Testimony before the U.S. Senate Committee on Foreign Relations, February 17, 1950 (Warburg was an agent of the Rockefeller-JP Morgan-Rothschild banking bloc and son of Paul Warburg, chief architect of the Federal Reserve Corporation, an unconstitutional private bank monopoly set up for cartel hegemony.)

Blame the Fed for the Pension Crisis Because They Engineered It

May 24, 2010

Seeking Alpha - A key player in the nation's unfolding pension debacle is rarely fingered--The Federal Reserve.

If you reckon state and local government have created their own guaranteed-to-go-bankrupt pension problem, you'd be half-right: the Federal Reserve's policies of the past two decades are the crumbling foundation beneath the nation's unsustainable pension plans.

Here's a precis of how the nation's local government pension plans were set to implode.

1. Public unions formed an unholy alliance with elected officials (in effect, an oligarchy) to establish politically untouchable protected fiefdoms.
   
   In a typical labor-management nexus, labor negotiates with capital for a slice of the profits from the enterprise. In local government, the unions lavishly funded the election campaigns of state and local politicos, who then awarded unions lavish pensions and other benefits. There was no "push-back" against union demand except elections, and the unions stupendous "investment" in buying politicos ensured elections were never a threat to the fiefdom's rising share of the tax swag.
   
   Here is an MSM (mainstream media) summary of the public-union/politico oligarchy: The Bankrupting of America: We have a ruinous collaboration of elected officials and unionized public workers.


2. As the stock market bubbled ever higher in the 1990s, managers of pension plans ratcheted up their expectations of future "permanent" growth, giving politicos the go-ahead to ramp up pension pay-outs.
   
   In essence, pension plans, which were once constructed on the long-term expectation of 4-5% returns on capital, now based future earnings and pay-outs on the stock market's "average return" of 8% annually.
   
   As any reasonable person might have foreseen, the bubblicious stock market of the 1990s was not a "new permanent plateau" but, in fact, a bubble which imploded. Real returns in the past decade have been literally half what was anticipated and, as a result, state and local governments are having to make up the difference with cash out of general fund tax receipts.

Going for broke in L.A.?

Currently, Riordan says, the city is struggling to meet its pension obligations, and that's assuming it will receive 8% annually on the money invested on retirees' behalf. In fact, the average return over the past decade has been just 4%.

As tax receipts plummet in the "slow-growth," jobless recession, then state and local governments are forced to gut their programs to fund the oligarchy / fiefdom's pension promises.

Pension issue balloons with soaring costs:

Los Angeles officials say Riordan's prediction is overstated. But pension costs are soaring to $800 million, tripling during the last decade, as Los Angeles faces years of projected budget deficits even with deep cuts in services and staff.

Since the pension pay-outs were based on plump stock market returns, the pension plan managers had no alternative but to gamble in the stock market on a massive scale. With "safe" bonds paying so little in the Fed's low-interest universe, the only way to get an 8% yield was to speculate in real estate or stocks. As the sharpy behind the three-card-monte card table could have told you, the pension fund sheep got sheared along with all the other marks:

The main driver of higher pension costs is the stock market crash. CalPERS gets about 75% of its revenue from investment earnings. Its portfolio peaked at $260 billion in 2007, fell to $160 billion last year and now is about $204 billion.

Now that the stock market is setting up for a long-term crash, CalPERS will be lucky to have $100 billion in its coffers in two years. And that won't be enough to fund the bloated promises made in the go-go 1990s:

A political issue is the benefit increases enacted a decade ago, when pension systems had surpluses during a strong economy. A major increase for state workers, SB400 in 1999, even included retirees.

A typical state worker can retire after 40 years of service with a pension equal to their final pay. The formula for the Highway Patrol, 3 percent of final pay for each year served at age 50, became a statewide trendsetter for police and firefighters.

In the usual gaming, favored by gutless politicos desperate to cling to their diminishing power to channel tax funds to their cronies and masters, elected officials are setting aside their pension fund contributions until next year, in the hopes that "growth" will magically save them next year. As this article explains, that is a vain hope without foundation in the real world:

Why economic growth isn't enough to fix budgets:

But under the laws now dominating government budgets, many expenditures essentially are or will be growing faster than both revenues and the rest of the economy. In fact, in many areas of the budget, automatic expenditure growth matches or outstrips revenue growth under almost any conceivable rate of economic growth.

Now, so much spending growth is built into permanent or mandatory programs that they essentially absorb much or all revenue growth. Meanwhile, we've also cut taxes, widening the gap between available revenues and growing spending levels.

Consider government retirement programs. Most are effectively "wage-indexed" insofar as a 10 percent higher growth rate of wages doesn't just raise taxes on those wages, it also raises the annual benefits of all future retirees by 10%. Meanwhile, in most retirement systems, employees stop working at fixed ages, even though for decades Americans have been living longer.

Today, so much of government spending is devoted to health and retirement programs that their growing costs tend to swamp gains we might achieve in holding down the ever-smaller portion of the budget devoted to discretionary spending. Still other programs add to the problem, such as tax subsidies for employee benefits, the cost of which grows automatically without any new legislation.

In other words, the entire system of state and local government is now based on the same 8% "permanent high growth" of the 1990s speculative market. Funding increases are wired in, regardless of how much tax revenues fall. That is a recipe for insolvency.

Now we get to the heart of the matter. Which institution engineered and enabled the heady stock market bubble of the 1990s that created the illusion of "permanent high returns" and growth of tax receipts? The Federal Reserve.

The Greenspan-era Federal Reserve's policy of low interest rates, abundant liquidity and lax oversight directly created the incentives and the wherewithal for malinvestment and speculation on a scale heretofore unknown. Under the phony guise of "boosting productivity and home ownership" with essentially free money and splendid opportunities for embezzlement, fraud and gaming of the system, the Fed studiously avoided any policy which might have offered some modest restraint on the asset bubbles it inflated.

As the dot-com era market foamed into an unmistakable bubble, wiser heads implored Greenspan to increase the margin requirement for borrowing funds to play the market--he steadfastly refused. Whatever barriers remained to rampant speculation were dismantled under the false banner of deregulation in the service of free enterprise.

Thus the Glass-Steagall divide between commercial and investment banking was effectively dismantled in 1980 (under President Carter) and the late 1990s (under President Clinton). (So much for the blame being placed solely on the evil Republican lackeys of the bankers-- the "liberal" Democrats were just as craven and slavish.)

Thanks to these long-standing Fed policies favoring exponential expansion of credit and low interest rates, pensions funds were forced into speculating in the stock market to "reach" for their required return on capital.

This certainly suited Wall Street and the deeply politicized leaders of the supposedly independent Federal Reserve, but it set in motion a set of policies, expectations and incentives which fatally undermined pension plans.

In a richly ironic playing out of unintended consequence, the Fed's "zero interest rate policy" (ZIRP) and endless creation of credit for speculation in asset bubbles will in effect bankrupt all the states and local governments which foolishly based their pension plans on 8% yield in a low-inflation environment.

But one last pernicious Fed-created self-destruct awaits pension managers scrambling for both safety and yield. As they pour into long-term Treasuries based on low inflation and low interest rates as far as the eye can see, the pension fund managers will find their remaining capital decimated as interest rates rise later this decade.

The Fed's policy of pushing zero interest rates and abundant credit has undermined not just pension plans and local government, but the entire U.S. economy. Asset bubbles and incentives for embezzlement, fraud and gaming the system are not productive. While Bernanke et al. issue ponderous promises that the "nascent recovery" is not just a house of cards flying apart in the rising wind of global volatility and malinvestment, high above his head the chickens are coming home to roost at the Fed.

Wall Street Bill Sweeps Away Stray Remnant of 1933 Glass-Steagall Act

August 6, 2010

The Hill - In seven simple lines buried in this year’s financial overhaul bill, lawmakers swept away one of the last vestiges of the 1933 Glass-Steagall Act that held sway over markets for decades.

The Depression-era bill is best known for separating commercial and investment banking — a wall that was effectively repealed in the late 1990s. Liberal Democrats, consumer advocates and a few Republicans pushed unsuccessfully this year to draw that line once more as part of the Wall Street bill.

But Glass-Steagall had another core pillar: a ban on banks paying interest on checking accounts. Banks and lawmakers chipped away at the ban and other interest rate restrictions over the years, to the point that it basically only barred payments on business accounts. The Dodd-Frank Act did away with the rule entirely.

“This really is the last remnant of that Depression edifice,” said Vincent Reinhart, a former senior Federal Reserve official.

Wayne Abernathy, executive vice president at the American Bankers Association, said the provision “is clearly an anachronism.”

The original goal of the provision was to steady the banking industry during the turmoil of the Great Depression, which saw thousands of banks fail in the early 1930s. Without a ban, the thinking went, banks could run wild by competing to pay the highest interest rate to attract customers. Keeping interest rates low and steady was also an incentive to banks to lend instead of parking their own money with other banks to receive interest.

The Federal Reserve implemented the ban through “Regulation Q.”

The restrictions and ceilings on interest rates were changed several times in the 1960s, but the biggest shift came in 1980.

Interest rates rose sharply in the late 1970s and a range of new financial products sprang up challenging the banking industry. Money-market mutual funds quickly became a major force in the financial world, while banks were limited in what they could pay in interest.

In 1980, Congress decided to do away with almost all of the policy on interest rate ceilings. In 1982, lawmakers pushed to speed up the phase-out.

Still, banks were not able to pay interest on business accounts, which now represent about 8 percent of total bank profit, according to Treasury Strategies, a consulting firm. The House took up legislation several times to remove the provision. As an assistant Treasury secretary in 2003, Abernathy testified that the prohibition on interest payments was a “relic of the Great Depression.” The George W. Bush administration wanted a repeal, but the Senate never found a way to pass one.

Lawmakers barely debated the repeal in public over the last two years. The Independent Community Bankers of America (ICBA), a powerful trade association of 5,000 smaller banks, did not have a formal position on it.

“Some are uncomfortable because it would raise their costs,” said Steve Verdier, executive vice president at ICBA. “Others were hoping to use it as a competitive tool.”

The American Bankers Association (ABA) wanted a repeal, but it was never among the association’s top priorities in the financial bill, which touched nearly every part of the regulatory landscape.

On Dec. 10, Rep. Scott Murphy (D-N.Y.) pushed for the change on the House floor.

“This adversely affects our small businesses and keeps them from building their business,” he said. “Now, as we are fixing some of the issues we have with our regulatory system, is the right time to get rid of that.”

The change was added to the financial bill as the very last section when it passed the House. The Senate didn’t take it up when it passed its version. During negotiations between the House and Senate to reconcile the bills, the repeal found its way back into the legislation, this time in the middle, near much more contentious provisions.

“It’s been on the legislative to-do list for some period of time, but it never really found a vehicle that will allow it to be actually enacted into law,” said Charles Horn, a partner at the Mayer Brown law firm. “Dodd-Frank proved to be the vehicle.”

The repeal takes effect in July 2011.

Financial industry lawyers and experts are not sure how much of an impact the repeal will have.

“I would say that in theory it could have some far-reaching impact,” said Scott Cammarn, of Cadwalader, Wickersham & Taft LLP.

George Kaufman, professor at Loyola University in Chicago, said he doubts it will have much of an effect.

“It just cleans things up,” he said.

They crashed housing markets, they plummeted stock markets, they bankrupted nations by passing entitlement and stimulus programs and by lavishing public workers with extravagant salaries/benefits/pensions. Up next, our private retirements assets, which they want to confiscate and replace with government-run investment plans (they will take the money now by forcing us to put our 401-ks and IRAs into funds tied to government bonds in exchange for a promise to pay an "annuity" later). They plundered the wealth of nations so that we the people won't have the money to fight the New World Order.

As George Carlin so succinctly put it: "The real owners are the big wealthy business interests that control things and make all the important decisions. Forget the politicians, they're irrelevant. The politicians are put there to give you the idea that you have freedom of choice. You don't. You have no choice. You have owners. They own you. They own everything. They own all the important land. They own and control the corporations. They've long since bought and paid for the Senate, the Congress, the statehouses, the city halls. They've got the judges in their back pockets. And they own all the big media companies, so that they control just about all of the news and information you get to hear. They've got you by the balls. They spend billions of dollars every year lobbying—lobbying to get what they want. Well, we know what they want; they want more for themselves and less for everybody else...The table is tilted, folks! The game is rigged!...They don't care about you! At all! At all! At all!"

Phil Gramm, the Glass-Steagall Act and the Commodity Futures Modernization Act

The Big Takeover (Excerpt)

The global economic crisis isn't about money - it's about power. How Wall Street insiders are using the bailout to stage a revolution

March 19, 2009

Matt Taibbi, Rolling Stone - In 1999, Gramm co-sponsored a bill that repealed key aspects of the Glass-Steagall Act, smoothing the way for the creation of financial megafirms like Citigroup. The move did away with the built-in protections afforded by smaller banks. In the old days, a local banker knew the people whose loans were on his balance sheet: He wasn't going to give a million-dollar mortgage to a homeless meth addict, since he would have to keep that loan on his books. But a giant merged bank might write that loan and then sell it off to some fool in China, and who cared?

The very next year, Gramm compounded the problem by writing a sweeping new law called the Commodity Futures Modernization Act that made it impossible to regulate credit swaps as either gambling or securities. Commercial banks — which, thanks to Gramm, were now competing directly with investment banks for customers — were driven to buy credit swaps to loosen capital in search of higher yields.

"By ruling that credit-default swaps were not gaming and not a security, the way was cleared for the growth of the market," said Eric Dinallo, head of the New York State Insurance Department.

The blanket exemption meant that Joe Cassano could now sell as many CDS contracts as he wanted, building up as huge a position as he wanted, without anyone in government saying a word.

"You have to remember, investment banks aren't in the business of making huge directional bets," says the government source involved in the AIG bailout. When investment banks write CDS deals, they hedge them. But insurance companies don't have to hedge. And that's what AIG did. "

They just bet massively long on the housing market," says the source. "Billions and billions."

Thanks to Geithner, AIG Was Forced to Pay 100% to Creditors - With OUR Money

Credit default swaps are often so complicated and difficult to understand that these can be presented as a safe and viable investment to even sophisticated institutional investors including pension funds, credit unions mid-sized and smaller financial institutions, as well as school districts and other governmental subdivisions. CDS were often marketed to such investors under the claim that these could provide a higher return than "comparable" investments. However, the risk of the CDO's was often far greater than those investments to which these were being compared. - Credit Default Swaps (CDS) Sold as Safe are Potentially Toxic Waste, Shepherd Smith Edwards & Kantas

October 28, 2009

Crooks & Liars - Matt Taibbi says we should run Elizabeth Warren for president in 2012, and the more I read about how the since-appointed members of the Obama administration handled the financial crisis, the more I like the idea:

Oct. 27 (Bloomberg) -- In the months leading up to the September 2008 collapse of giant insurer American International Group Inc., Elias Habayeb and his colleagues worked nights and weekends negotiating with banks that had bought $62 billion of credit-default swaps from AIG, according to a person who has worked with Habayeb.

Habayeb, 37, was chief financial officer for the AIG division that oversaw AIG Financial Products, the unit that had sold the swaps to the banks. One of his goals was to persuade the banks to accept discounts of as much as 40 cents on the dollar, according to people familiar with the matter.

[...] Beginning late in the week of Nov. 3, the New York Fed, led by President Timothy Geithner, took over negotiations with the banks from AIG, together with the Treasury Department and Chairman Ben S. Bernanke’s Federal Reserve. Geithner’s team circulated a draft term sheet outlining how the New York Fed wanted to deal with the swaps -- insurance-like contracts that backed soured collateralized-debt obligations.

CDOs are bundles of debt including subprime mortgages and corporate loans sold to investors by banks.

Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar. The content of its deliberations has never been made public.

The New York Fed’s decision to pay the banks in full cost AIG -- and thus American taxpayers -- at least $13 billion. That’s 40 percent of the $32.5 billion AIG paid to retire the swaps. Under the agreement, the government and its taxpayers became owners of the dubious CDOs, whose face value was $62 billion and for which AIG paid the market price of $29.6 billion. The CDOs were shunted into a Fed-run entity called Maiden Lane III.

[...] A spokeswoman for Geithner, now secretary of the Treasury Department, declined to comment. Jack Gutt, a spokesman for the New York Fed, also had no comment.

One reason par was paid was because some counterparties insisted on being paid in full and the New York Fed did not want to negotiate separate deals, says a person close to the transaction. “Some of those banks needed 100 cents on the dollar or they risked failure,” Vickrey says.

In other words, Geithner used taxpayer money from one big disaster to paper over the fact that all the other parties were bankrupt, too - and probably still are, no matter what you read in the papers. Wait until the commercial market crashes. Wheee!

Too Big to Fail Means Too Big to Exist

May 24, 2010

USAWatchdog.com - Both the House of Representatives and the Senate have passed their versions of financial reform legislation. Now, the process of reconciliation takes place between both bodies of Congress to iron out a final bill the President can sign into law. There is plenty in the bill such as new consumer protection, increased power given to regulators to prevent systemic risk, and new powers to oversee the $600 trillion derivatives market. These are just a few of the highlights, and there is no telling what will actually end up in the final bill. (The derivatives problem alone can kill the U.S. economy. I wrote about this in a post called “Can The Financial System Really Be Fixed? Some Say No.”)

“Too big to fail”

The most important issues that could cause another financial crisis are not covered in the pending legislation. The biggest problem is the enormous size of the institutions being regulated. “Too big to fail” means they are simply too big, and shrinking them is not on the table. Last month, Senator Sherrod Brown (D-Ohio) explained the size problem this way:

“Fifteen years ago, the assets of the six largest banks in this country totaled 17 percent of GDP. The assets of the six largest banks in the United States today total 63 percent of GDP, and that’s too (big)–we’ve got to deal with risk to be sure, but we’ve got to deal with the size of these banks, because if one of these banks is in serious trouble, it will have such a ripple effect on the whole economy.”

After the Senate passed its version of financial reform, Representative Alan Grayson said,

“Too big to fail means too big to exist. We have to systematically dismantle the institution that caused the systemic risk to the economy and that, for sure, the Senate bill does not do.”

I don’t see any way we are going to see a breakup of the banks. There are some amendments that will force banks to spin off risky trading operations. The banks are against any trading restrictions or spin-offs. So, getting that into a final bill is going to be tough. I don’t think the big banks will get appreciably smaller until after the next meltdown, and one is coming sooner than later.

Big institutions take big risks.

There was a time when banks were not allowed to take on too much leverage. The max was about 10 or 12 times capital. During the Bush Administration, the caps on leverage were unlocked and banks took on insane amounts of risk. During the last financial crisis, it was not uncommon for banks to be leveraged 40 times capital (sometimes even higher!)

The pending financial reform legislation doesn’t really address limits on leverage. To be fair, President Bill Clinton signed into law the Gramm-Leach-Bliley Act (GLBA) in 1999. That legislation repealed the Depression era laws of the Glass-Steagall Act and allowed banks to have unlimited growth and take on much more risk. Without GLBA, also know as the Financial Services Modernization Act, the banks would have never grown “too big to fail.”

Fannie and Freddie

Neither the House nor Senate bills address failed mortgage giants Fannie Mae or Freddie Mac. The government took over these two institutions in 2008. They have a combined taxpayer liability of more than $6 trillion! There is not a mention of reform or how we are going to budget for this slow motion train wreck. I guess if Congress just ignores a problem, it doesn’t exist or it will vanish all on its own. Omitting this from financial reform legislation is too stupid to be stupid.

The Fed gets more power!

Finally, the big winner in all of this is the Federal Reserve. The regulator who stood by and watched as the financial system spun out of control is going to be rewarded by getting more power! These are the same people who fought regulation of the derivatives market and pushed for repeal of the Glass-Steagall Act. The Fed will likely get authority to oversee a new consumer protection division for businesses such as mortgages and credit cards. Also, the Fed will supervise the biggest and most complex financial companies. This is like the proverbial fox guarding the hen house. The pending legislation may force an audit of the central bank, but I wouldn’t count on any meaningful look at the secret deals of the Federal Reserve. I hope I am wrong.

Congressman Grayson recently summed up the importance of financial reform by saying,

“We have a basic choice we have to make. Do we want a government of the people, by the people and for the people, or of Wall Street, by Wall Street and for Wall Street? It is disturbing how much this government is by Wall Street and, therefore, you end up with bills that are for Wall Street.”

Failure Is the Only Reform We Need
Health Care Reform Passed By House, Now What?
Fannie, Freddie and Gold
Has Anything Changed on Wall Street?
Fraud, It’s Much Bigger Than Goldman Sachs