Weekend Economists on a Vendetta With Fawkes: November 6-8, 2009

[Demeter]

As promised, it's V Time. V for Vendetta, that is.

"V for Vendetta is a ten-issue comic-book series written by Alan Moore and illustrated mostly by David Lloyd, set in a dystopian future United Kingdom imagined from the 1980s to about the 1990s. A mysterious anarchist who calls himself "V" works to destroy the totalitarian government, profoundly affecting the people he encounters.

The series depicts a near-future Britain after a limited nuclear war, which has left much of the world destroyed. In this future, a fascist party called "Norsefire" has arisen as the ruling power. "V", an anarchist revolutionary dressed in a Guy Fawkes mask, begins an elaborate, violent, and theatrical campaign to bring down the government. Warner Bros. released a film adaptation in 2005."

http://en.wikipedia.org/wiki/V_for_Vendetta

The plot of the graphic novel and subsequent film (which is a closely faithful rendering) is complex, meaty, and too good to spoil for those of you that have yet to enjoy it. The film is intense, but neither stupid nor gratuitous, and I recommend it. I have not seen the novel.

"V for Vendetta" ties into Guy Fawkes Day because the hero, or anti-hero, or main figure, conceals his identity with a Guy Fawkes mask (I am assuming, but not certain, that the Brits celebrate Halloween in costume as we Yanks do), and proceeds to carry out Fawkes' Gun Powder Plot, so a summary of Guy Fawkes, whose failure is celebrated every November 5th, is in order.


"Guy Fawkes (13 April 1570 – 31 January 1606), also known as Guido Fawkes, the name he adopted while fighting for the Spanish in the Low Countries,<1><2> belonged to a group of Roman Catholic restorationists from England who planned the Gunpowder Plot of 1605.<3> Their aim was to displace Protestant rule by blowing up the Houses of Parliament while King James I and the entire Protestant, and even most of the Catholic, aristocracy and nobility were inside. The conspirators saw this as a necessary reaction to the systematic discrimination against English Catholics.<4>

The Gunpowder Plot was led by Robert Catesby, but Fawkes was put in charge of its execution. He was arrested a few hours before the planned explosion, during a search of the cellars underneath Parliament in the early hours of 5 November prompted by the receipt of an anonymous warning letter.

Guy Fawkes Night (or "bonfire night"), held on 5 November in the United Kingdom and some parts of the Commonwealth, is a commemoration of the plot, during which an effigy of Fawkes is burned, often accompanied by a fireworks display. The word "guy", meaning "man" or "person", is derived from his name.<5>

Now remember, this is two years after the death of Good Queen Bess. Elizabeth had ruled with mercy and forbearance over both her Catholic and Protestant subjects, but executed James' mother Mary, Queen of Scots, for plotting against her reign. So England was still rent with religious strife, as well as enmeshed in the struggle with the Irish that Elizabeth started, and which continues to this day, although in greatly reduced form, when the Gunpowder Plot is set in motion.

So James, not so wise or forgiving as Elizabeth, took on both the Catholics and the Puritans and alienated both, which led to at least a century of religious strife at home and abroad.

Why the English feel compelled to have a monarch is another issue entirely. Habit, I suppose. Whereas we in the States, having long ago thrown off the notion of classes at least as established mores, are extremely violently opposed to new monarchs like Goldman Sachs, the English seem much less discomfited.

Which brings us back to our principle pursuit: the deciphering of power, privilege and money flows in our modern world economy, with the eventual aim of overthrowing the despots and restoring the US economy, Constitution and citizenry. Have at it, and post what you find, while WE

Remember, remember the fifth of November,
The gunpowder treason and plot,
I know of no reason
Why the gunpowder treason
Should ever be forgot.


http://en.wikipedia.org/wiki/Guy_Fawkes_Night#Traditional_rhymes

[Demeter]

1. It's too Early for Bank Failures

but if and when word comes, it shall be posted here, as usual.

I'm wondering if there's anything left to the FDIC fund after last week's blowout to shut down any other banks this year! We'll know in a few hours.

(I'm starting WE early because I actually feel rested after sleeping away the day. It's been a hard week, what with the municipal elections, the threat of swine flu, the agitation over lack of vaccines, the Michigan state budget woes, the non-recovery, etc, ...)

[Demeter]

2. And We Are Off With a Bank in Georgia (I didn't think there were any left!)

United Security Bank, Sparta, Georgia, was closed today by the Georgia Department of Banking and Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Ameris Bank, Moultrie, Georgia, to assume all of the deposits of United Security Bank.

The two branches of United Security Bank will reopen during their normal business hours as branches of Ameris Bank. This includes the branch in Woodstock, Georgia, that operated as the Bank of Woodstock also is part of today's transaction. It, too, will re-open as a branch of Ameris Bank...

As of September 14, 2009, United Security Bank had total assets of $157 million and total deposits of approximately $150 million. Ameris Bank will pay the FDIC a premium of 0.36 percent to assume all of the deposits of United Security Bank. In addition to assuming all of the deposits of the failed bank, Ameris Bank agreed to purchase essentially all of the assets.

The FDIC and Ameris Bank entered into a loss-share transaction on approximately $123 million of United Security Bank's assets. Ameris Bank will share in the losses on the asset pools covered under the loss-share agreement...The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $58 million. Ameris Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to alternatives. United Security Bank is the 116th FDIC-insured institution to fail in the nation this year, and the twenty-first in Georgia. The last FDIC-insured institution closed in the state was American United Bank, Lawrenceville, on October 23, 2009.

THAT DIDN'T TAKE LONG, DID IT?

[Demeter]

11. Add Three More to the Total

Home Federal Savings Bank, Detroit, Michigan, was closed today by the Office of Thrift Supervision, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Liberty Bank and Trust Company, New Orleans, Louisiana, to assume all of the deposits of Home Federal Savings Bank...

As of September 24, 2009, Home Federal Savings Bank had total assets of $14.9 million and total deposits of approximately $12.8 million. Liberty Bank and Trust Company did not pay a premium to assume all of the deposits of Home Federal Savings Bank. In addition to assuming all of the deposits of the failed bank, Liberty Bank and Trust Company agreed to purchase essentially all of the assets...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $5.4 million. Liberty Bank and Trust Company's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to alternatives. Home Federal Savings Bank is the 117th FDIC-insured institution to fail in the nation this year, and the third in Michigan. The last FDIC-insured institution closed in the state was Warren Bank, Warren, on October 2, 2009.

Prosperan Bank, Oakdale, Minnesota, was closed today by the Minnesota Department of Commerce, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Alerus Financial, National Association, Grand Forks, North Dakota, to assume all of the deposits of Prosperan Bank...

As of August 31, 2009, Prosperan Bank had total assets of $199.5 million and total deposits of approximately $175.6 million. Alerus Financial, N.A. will pay the FDIC a premium of 1.02 percent to assume all of the deposits of Prosperan Bank. In addition to assuming all of the deposits of the failed bank, Alerus Financial, N.A. agreed to purchase approximately $173.9 million of the failed bank's assets.

The FDIC and Alerus Financial, N.A. entered into a loss-share transaction on approximately $173.9 million of Prosperan Bank's assets. Alerus Financial, N.A. will share in the losses on the asset pools covered under the loss-share agreement...The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $60.1 million. Alerus Financial, N.A.'s acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to alternatives. Prosperan Bank is the 118th FDIC-insured institution to fail in the nation this year, and the sixth in Minnesota. The last FDIC-insured institution closed in the state was Riverview Community Bank, Ostego, on October 23, 2009

Gateway Bank of St. Louis, St. Louis, Missouri, was closed today by the Missouri Division of Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Central Bank of Kansas City, to assume all of the deposits of Gateway Bank of St. Louis...

As of September 25, 2009, Gateway Bank of St. Louis had total assets of $27.7 million and total deposits of approximately $27.9 million. Central Bank of Kansas City did not pay the FDIC a premium for the deposits of Gateway Bank of St. Louis. In addition to assuming all of the deposits of the failed bank, Central Bank of Kansas City agreed to purchase essentially all of the assets...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $9.2 million. Central Bank of Kansas City's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to alternatives. Gateway Bank of St. Louis is the 119th FDIC-insured institution to fail in the nation this year, and the third in Missouri. The last FDIC-insured institution closed in the state was First Bank of Kansas City, Kansas City, on September 4, 2009.

[Demeter]

21. And One From California--The Big One!

United Commercial Bank, San Francisco, California, was closed today by the California Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with East West Bank, Pasadena, California, to assume all of the deposits of United Commercial Bank. This agreement included all U.S. branches of United Commercial Bank, the Hong Kong branch of United Commercial Bank, and the subsidiary of United Commercial Bank headquartered in Shanghai, China, United Commercial Bank (UCB-China).

The 63 U.S. branches of United Commercial Bank will reopen during their normal business hours beginning tomorrow as branches of East West Bank. All locations in Hong Kong and China will reopen on Monday, according to normal business hours. In addition, UCB-China, the Shanghai, China, subsidiary of United Commercial Bank, which was also part of today’s transaction, will continue its regular banking operations without interruption with the full support of its parent company, East West Bank, whose qualification has already passed the preliminary review by the China Banking Regulatory Commission.

Depositors of United Commercial Bank will automatically become depositors of East West Bank. Domestic deposits will continue to be insured by the FDIC, and the Hong Kong deposits will continue to be covered by the Hong Kong Deposit Protection Scheme and the full deposit guarantee currently in force in Hong Kong. The FDIC continues to be in close cooperation with the Chinese banking regulatory authority regarding regular operations of UCB-China.

Customers should continue to use their existing branch until they receive notice from East West Bank that it has completed systems changes to allow other East West Bank branches to process their accounts as well.

This evening and over the weekend, depositors of United Commercial Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of October 23, 2009, United Commercial Bank had total assets of $11.2 billion and total deposits of approximately $7.5 billion. East West Bank paid the FDIC a premium of 1.1 percent for the right to assume all of the deposits of United Commercial Bank. In addition to assuming all of the deposits of the failed bank, East West Bank agreed to purchase approximately $10.2 billion in assets of the failed bank. As part of the purchase and assumption agreement, the FDIC transferred to East West Bank all qualified financial contracts to which United Commercial Bank was a party and those contracts remain in full force and effect.

The FDIC and East West Bank entered into a loss-share transaction on approximately $7.7 billion of United Commercial Bank's assets. East West Bank will share in the losses on the asset pools covered under the loss-share agreement...The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $1.4 billion. East West Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to alternatives. United Commercial Bank is the 120th FDIC-insured institution to fail in the nation this year, and the 14th in California. The last FDIC-insured institution closed in the state was Pacific National Bank, San Francisco, which closed on October 30, 2009.

INTERNATIONAL, NO LESS!

WONDER IF THERE ARE ANY BANKS IN WASILA IN NEED OF FDIC TREATMENT?



United Commercial Bank Fact Sheet: Discussion of Additional Issues

Cause of Failure

United Commercial Bank (UCB) had substantial concentrations in commercial real estate lending and acquisition, construction and development loans in the declining U.S. real estate market. Earlier identification of problem loans may have been impeded through alleged fraud exercised by former senior management, currently under investigation by the relevant authorities. Loan losses depleted earnings and eroded capital. The FDIC issued a public Cease and Desist Order on September 3, 2009 where the FDIC and California Department of Financial Institutions stated that there was reason to believe that the Bank had engaged in unsafe and unsound banking practices. The Order raised specific concerns with respect to management's use of policies and practices that were detrimental to the Bank and jeopardized the safety of its deposits. United Commercial Bank Holdings issued a press release on September 8, 2009 announcing the departure of UCB's CEO and COO and the adoption of the findings and recommendations of the company's Investigation Subcommittee of the Board Audit Committee's independent investigation that allowed the UCB to move forward with its financial restatement.

International Operations

The resolution of UCB demonstrates value, and prospects, for international cooperation in resolutions of banks and other financial firms. The key factor was early contact with foreign supervisors, careful discuss and understanding of their authority and prerogatives, and the flexibility to structure a transaction that accommodates their statutory requirements while ensuring a "least costly" resolution for the FDIC. These contracts helped to ensure a "whole bank" resolution by facilitating the smooth purchase of the branch operations in Hong Kong and the subsidiary in China. The FDIC did not incur any loss to the DIF from completing a whole bank transaction, and in fact reduced the DIF exposure by avoiding ring fencing by foreign authorities. Planning with the Hong Kong Monetary Authority and the China Bank Regulatory Commission about the resolution of UCB has been ongoing since discovery of the problems

Impact on Holding Company

UCBH Holdings, Inc., the holding company of UCB, was approved by the Treasury Department for $298.7 million in capital through the TARP CPP on November 6, 2008 through the procedures established by the program.

Policy Statement

To complete this transaction, the holding company of the acquirer raised equity capital. The FDIC's recent Statement of Policy on Qualifications for Failed Bank Acquisitions does not apply to an established bank holding company's acquisition of deposits and assets from a failed institution. The FDIC encourages private equity participation in failed bank acquisitions through private investment in established bank holding companies.

[Demeter]

27. 120 BANKS SO FAR THIS YEAR

http://www.marketwatch.com/story/another-bank-fails-in-georgia-2009-11-06?siteid=YAHOOB%2CYAHOOB%0A

...United Commercial, which had branches across the U.S. and also in Hong Kong and Shanghai, focused on the Chinese-American market in the U.S. and had obtained a very difficult to get banking license in China, the Los Angeles Times reported...

The last time more than 100 banks failed in a single year was 1992. By number, banks in Georgia account for one-fifth of all U.S. institutions closing in 2009, with 21 failures, followed by Illinois with 209, California with 14 and Florida with nine.

[CatholicEdHead]

22. Oakdale is the northeast Twin Cities suburbs

Part of Michelle Bachmann's 6th district and a red outer wing of the Twin Cities. I am guessing they were bit by the housing downturn and were overexposed.

[Demeter]

3. Stocks end higher, prodded by GE and consumer issues

http://www.marketwatch.com/story/stocks-end-higher-lifted-by-ge-consumer-shares-2009-11-06?siteid=YAHOOB%2CYAHOOB%0A

Stocks snapped a two-week losing streak Friday as a surge in General Electric nudged the Dow Jones Industrial Average back above 10,000, marking its first weekly close above that level since the early days of the credit crisis...

SOMEBODY WORKED LIKE A DOG TO MAKE THAT HAPPEN....I SUPPOSE THAT WOULD BE GOLDMAN'S FAITHFUL HOUND, TIMMY, OR MAYBE BEN?

[Dr.Phool]

4. I'll watch the movie this evening.

I bought the DVD, but haven't seen the whole thing yet.






You're going to get so sick of this dog..........

[Demeter]

5. Never!

I got sick of THIS dog, but only because of his breed:

[Demeter]

10. And the Fact that He is Unbroken and Rabid...

[Demeter]

6. How the Iraq War Destroyed the US Economy by Len Hart, The Existentialist Cowboy

http://existentialistcowboy.blogspot.com/2009/11/how-iraq-war-destroyed-us-economy.html

Wars reduce the GDP, destroy jobs, reduce productivity, and increase the trade deficit! If wars are 'bad' for the economy, then how are they sold so easily? The quick response: they are sold with focus group tested bullshit!

There's a 'living' in killing, we are told! There is a more opulent living in the commission of mass murder which requires the construction of tanks, smart bombs, and fighter jets --the MIC, in other words. But that's all just snake oil for idiots and Republicans!

That wars are good for the economy is just a bald-faced lie cooked up by the defense lobby for whom killing IS a living but only for the shrinking one percent who benefit: the Military/Industrial complex, truly MURDER INC. Fact is war is most often disastrous for the economy.

In fact, most models show that military spending diverts resources from productive uses, such as consumption and investment, and ultimately slows economic growth and reduces employment. In this way, military spending is comparable in most models to any other form of government spending, such as spending on public goods or improving the environment.

This paper shows the projections of the impact of an increase in annual military spending equal to 1 percent of GDP (approximately the actual increase in spending compared with the pre-war budget) of the Global Insight macroeconomic model (see Appendix). The Global Insight model was selected for this analysis because it is a commonly used and widely respected model. Other models will show somewhat different projections, but it is unlikely that the direction of the long-term impact on any of the key variables will be different. In fact, because of the structure of the Global Insights model, it likely understates the negative impact of military spending relative to other models.

--The Economic Impact of the Iraq War and Higher Military Spending

At the link (a PDF file) look for Table 1 which shows the key differences in projections, at five year intervals, between the baseline model and the simulation assuming higher levels of defense spending.

The decline in GDP projected for the twentieth year in the high military spending scenario is $42.1 billion. This corresponds to a projected loss of 668,100 jobs. Inflation is projected to be 0.7 percentage points higher in the high military spending scenario, with the interest rate on the 10-year Treasury note 1.1 percentage points higher than in the baseline scenario.

The higher interest rate is associated with a reduction in industrial production of 1.8 percent compared with the baseline scenario. Car and truck sales are projected to be 731,400 in the high military spending scenario compared to the baseline scenario. Residential investment is projected to be 3.5 percent lower, which corresponds to 38,500 fewer housing starts and a reduction of 286,500 in the number of existing homes sold.

--The Economic Impact of the Iraq War and Higher Military Spending>

Given those facts, should anyone be surprised that the US is at the very bottom of the CIA's World Fact Book with the world's largest NEGATIVE current account balance. China, which props up the declining dollar, is not surprisingly on top with the world's largest POSITIVE Current Account Balance.

One should not be surprised when millions of jobs are lost as GDP declines. Yet, as a result of right wing/militaristic/jingoistic propaganda and FOX, many people still believe that war and military spending creates jobs. That may be true in the short-term. But, in the long run, increases in military spending cause job loss.

the policy would likely lead to a rise in interest rates and inflation, as higher levels of demand begin to push against the economy’s capacity. The rise in interest rates will lead to less investment, and less demand for cars and houses.

Higher interest rates will also push up the value of the dollar. This will increase demand for imports, since foreign-made goods will be cheaper for consumers in the United States, and decrease demand for exports, since U.S.-made goods will be more expensive for people living in other countries. The result will be that the United States will run a larger current account deficit. Over time, this will lead to a larger foreign debt.

--The Economic Impact of the Iraq War and Higher Military Spending>

As I have maintained for years --military spending is a waste. Millions spent building a tank, for example, is money sucked down a black hole. The tank returns nothing on the investment and will, inevitably, be blown up! We could just throw our dollars upon a heap, set fire to them, and cut out the middle man!

Military spending slows economic growth, increases the budget deficit, increases the trade deficit as can be seen, in fact, in US's NEGATIVE Current Account Balance, formerly called the 'balance of trade deficit'.


http://www.cepr.net/documents/publications/military_spending_2007_05.pdf

[Demeter]

7. How to Be a Miser

Thief: Don't make a move, this is a stick-up!

Jack Benny: What?

Thief: You heard me.

Benny: Mister . . . Mister, put down that gun.

Thief: Shut up . . . Now, come on . . . your money or your life.(Long pause) Look bud, I said: Your money or your life.

Benny: I'm thinking . . . "The Jack Benny Show," NBC-Radio, 1948

[Demeter]

8. CIT Bankruptcy: Taxpayers Stiffed on Company's Bailout Billions While Execs Reap Bonuses

http://www.opednews.com/articles/CIT-Bankruptcy-Taxpayers-by-Ward-Harkavy-091102-581.html

If people were pissed off about AIG's temporary decline and permanent bonuses, CIT's bankruptcy ought to enrage them.

The giant lender to businesses is heading for a quick in-and-out in bankruptcy court, and when it emerges, taxpayers will be the ones who have gotten the ol' in-out: CIT won't have to repay its $2.33 billion TARP bailout.

CIT's been in deep trouble for way more than a year. Meanwhile, some of its execs have reaped special bonuses. Its H.R. director, Jim Duffy, has received a $450,000 cash bonus for what the company called his "exceptional performance." What did he do? "Mr. Duffy's achievements in 2008 include the design and implementation of a process to reduce our total headcount by 22% ... along with the successful deployment of talent and development programs targeted at retaining CIT's key talent," according to CIT's proxy filing last April. That message to taxpayers was approved by CEO Jeff Peek.

That was the same month that Peek's wife, Liz Peek (a former journalist), wrote an anonymous, weepy tell-all for Portfolio about the sad plight of TARP wives. And that was the same month that Portfolio itself went out of business.

Liz Peek acknowledged in her sob story that even her husband had to take some of the blame for last year's Wall Street tsunami, though she continued the canard that the Street's execs didn't see the tusanimi coming — as if it were a natural disaster instead of a manmade one.

After naming only a few humans who might have had something to do with it, she added:

And yes, I blame those who were in charge of the big banks--including my husband--for not seeing the default tsunami coming. But almost no one did. Everyone knows this, yet financial CEOs have replaced the Mob as the most despised group in the country.

The good news is that Americans have short attention spans. Before long, some other group will come along to absorb all the frustration and anger.

http://www.thesmartasset.com/

CHECK OUT THIS SOURCE!

[Demeter]

9. I'm Being Dragged Off to Dinner Out

at the sumptuous, delicious Burger King (the Kid rules). Be back soon. Carry on without me, as you always do anyway!

[Joe Chi Minh]

12. A kid who went to the school Guy Fawkes attended in the North of England,

said the school authorities were proud of the association, but didn't want them to view him as a role model.

[Demeter]

13. Knight Shift: Antigua Strips Stanford Of Title

http://tpmmuckraker.talkingpointsmemo.com/2009/11/knight_shift_antigua_strips_stanford_of_title.php?ref=fpblg

And now, the unkindest cut of all...

An Antiguan panel has voted unanimously to strip Allen Stanford of his knighthood. The indicted Texas billionaire was said to have embarrassed the tiny Caribbean nation, where he had previously been the largest private employer.

A spokeswomen for the National Honors Committee of Antigua and Barbuda told the AP: "It's not that we're saying he's guilty, but it's the honor that has been brought into disrepute."

Stanford faces charges of orchestrating a $7 billion Ponzi scheme by selling bogus certificates of deposits through his company, the Stanford Financial Group. He is currently in a Texas prison.

Investors are suing Antigua and Barbuda for failing to protect them from Stanford's alleged fraud. The country had welcomed Stanford to its shores, and government officials appear to have aided his efforts to build his financial empire.

[Demeter]

32. Madoff auditor pleads guilty to fraud--ANOTHER FOR THE OZY FILES!

http://www.ft.com/cms/s/0/6fcf7674-c8aa-11de-8f9d-00144feabdc0.html

David Friehling, Bernard Madoff’s auditor, on Tuesday pleaded guilty to securities fraud and filing false audit reports in his role in the multibillion dollar Ponzi scheme.

Mr Friehling pleaded guilty to nine separate charges and faces up to 114 years in prison. He is co-operating with prosecutors in the hope of receiving less prison time and is likely to be sentenced by mid-February...

The guilty plea makes Mr Friehling the third person to face prison in connection with the scheme. Mr Madoff, is serving the maximum of 150 years in prison and Frank DiPascali, one of his senior aides, is in jail awaiting sentencing. Mr Friehling was released on a $2.5m bond, secured by five properties.

Friehling & Horowitz CPA, Mr Friehling’s business, served as the auditors for Mr Madoff’s business from 1991 to 2008. Mr Friehling was paid between $12,000 and $14,500 a month for the last three of those years, according to information filed by prosecutors.

Prosecutors said there was no evidence he had conducted a “meaningful audit” or examined the bank accounts through which client funds flowed, although he signed off on the annual accounts.

He also failed to meet independence requirements for auditors because he and his wife had $500,000 invested with Mr Madoff, the information said.

Mr Friehling has agreed to forfeit $3.2m, the total compensation he received from Mr Madoff’s business, and his interest in property in New City and a Florida resort.

Mr Friehling also reached a partial civil settlement in which he agreed not to contest the US Securities and Exchange Commission’s allegations that his firm “enabled Madoff’s fraud”. The agreement says financial penalties will be determined at a later time...

[Demeter]

14. Why Keep Geithner? Dylan Ratigan

http://www.huffingtonpost.com/dylan-ratigan/why-keep-geithner_b_341908.html&cp

A year ago it was revealed to the American people that our banking system is a legalized Ponzi scheme in which bank and insurance CEOs pay themselves billions of dollars in personal compensation to lend and insure assets with money they don't have to customers who can't pay back the loans.

In those dark days between the fall of Lehman Brothers and before the presidential election, we were often carried through that time by the small glimmer of hope that at least we would soon have a new leader who would hopefully fix this mess and punish those responsible.

Yet in the past 9 months, not only has the administration failed to fix anything, they have actually made things much worse for anyone who isn't a Wall Street banker. Therefore, we are past the point where anyone in power still gets the benefit of the doubt -- the process of taking back our country for all citizens must begin now.

This is why I think we must ask if U.S. Treasury Secretary Timothy Geithner is still the right person for the job. It has become clear recently that, back in his previous role as New York Federal Reserve Governor, he unnecessarily gave billions of dollars of US tax money to banks and insurance companies with few strings attached. And it is now becoming clear that his lack of meaningful action is helping many of these same banks steal more by legalizing their most economically dangerous, socially destructive and self-enriching practices.

Yesterday on NBC's Meet the Press, Secretary Geithner again endorsed House bank reform legislation that would allow, by my calculations, as much as 80%, or $475 trillion, of the bank's $600 trillion in crooked insurance schemes to still be held in secret. It was and is the secret risks held in this very market that led to our collapse in the first place, and that continue to pose massive future risk to the global economy.

Geithner also continued to employ the bankers' favorite and most ludicrous lie : that the taxpayer must somehow continue to pay executives at companies like AIG ungodly sums of money under the threat that, if we don't, somehow the taxpayer will never make their money back. Well let me tell you something, the taxpayer and our nation will never get back the lost wealth taken under these false circumstances and this colossal breach of fiduciary duty. The idea that we must somehow perpetuate this system with our tax money and the future wealth of our children goes against the very American ideal of failure, adaptation and innovation, not to mention of our democracy.

Also last week, the Treasury Secretary endorsed a piece of legislation that, instead of stopping a select few companies from profiting from the implicit taxpayer-guarantee of Too Big Too Fail, seeks to officially condone it. If the most prized skill in our society, economically, is the ability to lend and insure the most money without consequences, then our nation's people are doomed to lose everything in the world's largest ever betting parlor; and that is precisely the system this Treasury Secretary -- Tim Geithner -- is seeking to legalize and institutionalize in America today.

However, the smoking gun for Secretary Geithner comes from a recent Bloomberg FOIA disclosure regarding events from last November. It was then that New York Federal Reserve Governor Tim Geithner decided to deliver 100 cents on the dollar, in secret no less, to pay off the counter parties to the world's largest (and still un-investigated) insurance fraud -- AIG. This full payoff with taxpayer dollars was carried out by Geithner after AIG's bank customers, such as Goldman Sachs, Deutsche Bank and Societe Generale, had already previously agreed to taking as little as 40 cents on the dollar. Even after the GM autoworkers, bondholders and vendors all received a government-enforced haircut on their contracts, he still had the audacity to claim the "sanctity of contracts" in the dealings with these companies like AIG.

None of us were in the rooms when these decisions were made, so I don't pretend to know if Mr. Geithner was the one lone, sane voice of reason fighting against mysterious forces or the primary proponent. However, I fail to see the reasoning for why we continue to rely on those who were in the room when these horrendous decisions took place to be the same people that we choose to deal with their aftermath. There are just certain situations that are not suited for continuity. The best analogy I can think of is that it would be like asking Al Cowlings to spearhead the Nicole Brown Simpson murder investigation under the premise that he knows the layout and the "players" best.

The fact is that there are people who understand all of the intricacies of finance and policy as well as Secretary Geithner, but whose allegiances to the taxpayer are much clearer. People like Elizabeth Warren, Neil Barofsky, Rob Johnson, and Senator Maria Cantwell just to name a few.

To stop the theft from continuing, the most basic rules of capitalism need to be applied to our banks. And the future of our national wealth needs to be safeguarded by the US Government. The current custodian of America's wealth, Treasury Secretary Tim Geithner, is not doing a good job of either. The time for corrective action is now.

[Demeter]

15. Vendetta Speech

http://www.youtube.com/watch?v=8TLD3Z6sJWA

[Demeter]

16. Russia woos City to aid recovery

http://www.ft.com/cms/s/0/c05a1d9a-ca37-11de-a3a3-00144feabdc0.html

Alexei Kudrin, the Russian finance minister, on Thursday travelled to London to woo investors ahead of Russia’s return to international debt markets for the first time in 10 years.

Moscow is seeking up to $17.8bn in Eurobond financing next year to cover deficit spending...

[Demeter]

17. Why did Goldman stop scrutinizing loans it bought?

The next installment in McCmlatchly's series on the greatest robber barons of them all:

http://www.mcclatchydc.com/homepage/story/77788.html

Goldman Sachs Group got into the residential mortgage business in 1984, and for 17 years, it ran a staid operation that simply bought and sold loans.

All that changed in 2001, when the elite investment bank leaped aggressively into the burgeoning subprime securities market that was becoming a fountain of money for its Wall Street rivals. The Goldman Sachs Mortgage Co. sold $8.7 billion in subprime bonds that year, amounting to a third of its business.

Soon, the Goldman subsidiary was in the jet stream, dealing with some of the most aggressive and controversial subprime lenders — including Ameriquest (through a subsidiary), New Century, Fremont General, National City and First Franklin.

A spokesman for Goldman, Michael DuVally, declined to explain how a firm of its stature was drawn into a business dogged by questions about the integrity of its lending practices.

Before they bought pools of thousands of mortgages, Goldman and other Wall Street firms hired contractors to comb through sample batches of the loans to weed out unsound or fraudulent applications.

Not much weeding occurred, however, several of the contractors said, because the Wall Street firms had agreed to accept mortgage lenders' relaxed credit guidelines.

Melissa Toy and Irma Aninger, among scores of contract risk analysts who thumbed through mortgage files for the San Francisco-based Bohan Group from 2004 to 2006, said that supervisors overrode the bulk of their challenges to shaky loans on behalf of Goldman and other firms.

They couldn't recall specific examples involving loans bought by Goldman, but they said their supervisors cleared half-million-dollar loans to a gardener, a housekeeper and a hairdresser.

Aninger, whose job was to review the work of other contract analysts, said that she objected to numerous applications for loans that required no income verification, her supervisor would typically tell her, "You can't call him a liar ... You have to take (his) word for it."

"I don't even know why I was there," she said, "because the stuff was gonna get pushed through anyway."

Toy said she concluded that the reviews were mostly "for appearances," because the Wall Street firms planned to repackage "bogus" loans swiftly and sell them as bonds, passing any future liabilities to the buyers. The investment banks and mortgage lenders each seemed to be playing "hot potato," trying to pass the risks "before they got burned," she said.

"There was nobody involved in this who didn't know what was going on, no matter what they say," she said. "We all knew."

Goldman spokesman DuVally said that the firm's standards for reviewing the loans were "at least as high, if not higher, in 2006 than they were in 2002."

But he didn't elaborate on what scrutiny was demanded.

In 2007, attorneys general in New York, Connecticut and Massachusetts subpoenaed reports that now-defunct Bohan and another due diligence contractor, Clayton Holdings Inc., provided to their Wall Street clients about the loan reviews.

Clayton revealed last year that it was cooperating with New York's inquiry in return for immunity from prosecution. A spokesman for New York Attorney General Andrew Cuomo declined to comment on the status of the inquiry.

Aninger and Toy, however, said that Bohan's and Clayton's reports to clients would be of limited value to investigators because they wouldn't mention verbal exchanges in which loan challenges were snubbed.

John Talbott, a former Goldman investment banker and the author of a new book, "The 88 Biggest Lies on Wall Street," said "it wasn't a mistake" when illegal immigrants got home mortgages.

The lenders, he said, "just wanted somebody, anybody to sign a note" so they could sell it to Wall Street, where ratings agencies that were paid hefty fees by the investment banks bestowed triple-A grades or their equivalent on most subprime bonds.

"It's not just unethical," Talbott said of the chain of profiting subprime players extending from real estate appraisers to Wall Street. "It's totally criminal."

[Demeter]

18. Vicars’ pensions under threat

http://www.ft.com/cms/s/0/b1b18958-c7fe-11de-8ba8-00144feab49a.html

Young Anglican vicars are facing the prospect of a bleaker retirement after the Church of England’s pension scheme succumbed to the “cult of equity” and sank all of its investments into stocks towards the end of the 1990s bull market...

[Demeter]

19. Watchdog forecasts (natural) gas glut

http://www.ft.com/cms/s/0/b93be716-c981-11de-a071-00144feabdc0.html

The world faces a natural gas glut that will cool prices, says the International Energy Agency, raising the prospect that Russia’s grip over Europe’s energy security will loosen...

[Demeter]

20. IN Lieu of a Better Offer, I'm Going into the arms of Morpheus

This is the first day that, after several hours of napping, I don't hurt. So I'm going to see if more sleep will make it even better. Night, folks! Keep those posts coming!

[Demeter]

23. Intel faces bribery allegation in NY suit

http://www.ft.com/cms/s/0/b8cc68b0-c971-11de-a071-00144feabdc0.html

New York’s attorney-general on Wednesday alleged Intel, the world’s biggest chipmaker, had used ”bribery and coercion” to maintain its dominant market position after an investigation into the Silicon Valley company lasting nearly two years.

Intel is already under investigation by the Federal Trade Commission and has been censured by the FTC’s counterparts in Europe, Japan and Korea over similar practices.

But Andrew Cuomo’s action, filed in a federal court, is the most detailed and strongly worded to date.

”Rather than compete fairly, Intel used bribery and coercion to maintain a stranglehold on the market,” the attorney-general alleged in a statement.

”Intel’s actions not only unfairly restricted potential competitors, but also hurt average consumers who were robbed of better products and lower prices. These illegal tactics must stop and competition must be restored to this vital marketplace.”

Mr Cuomo’s suit seeks to bar further anticompetitive acts, restore lost competition, collect penalties and recover damages he says were suffered by New York and consumers.

The lawsuit alleges that Intel paid billions of dollars to PC makers for their exclusive use of its microprocessors, including $2bn in ”rebates” to Dell in 2006. It says Intel also threatened and punished PC makers that worked too closely with its competitor Advanced Micro Devices.

It is alleged that retaliatory threats included cutting off payments in the form of rebates to PC makers, directly funding a competitor and ending joint development ventures.

New York served a wide-ranging subpoena in January last year seeking documents and information on Intel’s potentially monopolistic practices.

One internal Dell email unearthed says Intel was ”prepared for jihad if Dell joins the AMD exodus”.

”We get ZERO for at least one quarter while Intel ‘investigates the details’ - there’s no legal/moral/threatening means for us to apply and avoid this.”

Intel appealed in September against a record E1.1bn ($1.6bn) fine imposed by the European Commission for abusing its dominant market position. The South Korean FTC has also fined the chipmaker.

The attorney-general’s case is similar to a lawsuit brought in Delaware in 2005 by AMD, which is set to go to trial next March. Intel is also facing more than 80 class-action lawsuits in the US.

”We disagree with the New York attorney-general,” Intel said in a statement.

”Neither consumers, who have consistently benefited from lower prices and increased innovation, nor justice are being served by the decision to file a case now. Intel will defend itself.”

[Demeter]

24. UBS staff speculated on client accounts

http://www.ft.com/cms/s/0/9cdfea6c-ca0e-11de-a5b5-00144feabdc0.html

UBS has been hit with the third-biggest fine levied by the UK financial watchdog after senior employees were discovered using money taken from customer accounts to speculate in foreign currencies and commodities.

An internal investigation launched by the Swiss Bank after an employee blew the whistle on the practice found a desk head and three other employees in the international wealth management business had been placing up to 50 unauthorised trades a day in 2006 and 2007.

According to a notice from the UK’s Financial Services Authority, the employees exploited loose reporting controls to allocate their losses to customer accounts, repeatedly moving money around to hide their activities. Their trades lost clients nearly £26m (€29m) over two years.

UBS was fined £8m and paid restitution of the losses to 39 customers. The employees involved no longer work at the firm.

THE MIND BOGGLES--THEY MUST THROW WILD PARTIES, THOSE GNOMES OF ZURICH.

[Demeter]

34. UBS rocked by fresh losses

http://www.ft.com/cms/s/0/167c60b6-c849-11de-a69e-00144feabdc0.html

Shares in UBS fell on Tuesday after the Swiss bank revealed a bigger-than-expected loss in the third quarter as its private banking operations continued to haemorrhage funds.

Swiss and international ­clients withdrew a net SFr16.7bn ($16.2bn) from the bank in the third quarter, while US customers took out a further net SFr9.9bn.

The withdrawals followed net outflows of SFr16.5bn in the second quarter in the Swiss and international business and took to more than SFr165bn the net amounts withdrawn since the first quarter of 2008 – the last time UBS reported positive net new money for the operation.

Over the same period, there was SFr13.2bn of net outflows from US clients...

[Demeter]

25. Decision day for health care in the House

http://news.yahoo.com/s/ap/20091107/ap_on_bi_ge/us_health_care_overhaul

President Barack Obama is traveling to Capitol Hill on Saturday to try to close the sale on his signature health care overhaul, facing a make-or-break vote in the House certain to be seen as a test of his presidency.

Obama scheduled a late-morning visit with House Democrats convening a rare Saturday session on legislation to remake the U.S. health care system, extending coverage to tens of millions now uninsured and banning insurance company practices such as denial of coverage based on pre-existing medical problems.

Late Friday, House Democrats cleared an abortion-related impasse blocking a vote and officials expressed optimism they had finally lined up the support needed to pass Obama's signature issue.

Under the arrangement, Democratic Reps. Bart Stupak of Michigan, Brad Ellsworth of Indiana and other abortion opponents were promised an opportunity to insert tougher restrictions into the legislation during debate on the House floor.

The leadership's hope is that no matter how that vote turns out, Democrats on both sides of the abortion divide will then unite to give the health care bill a majority over unanimous Republican opposition.

"We wish to maintain current law, which says no public funding for abortion," Stupak said. "We are not writing a new federal abortion policy."

Ellsworth added, "From day one, my goal has been to ensure federal tax dollars are not used to pay for abortions and to provide Americans with pro-life options on the exchange. And I am proud to be part of an effort to help make this goal a reality."

With Democrats' command of the necessary votes looking tenuous in the final hours, Obama threw the weight of his administration behind the effort to round up support. He and top administration officials worked the phones to pressure wavering lawmakers.

Rep. Jason Altmire, D-Pa., said he heard Friday from Obama, White House Chief of Staff Rahm Emanuel, Health and Human Services Secretary Kathleen Sebelius and Education Secretary Arne Duncan.

Their message: "This is a historic moment. You don't want to end up with nothing," said Altmire, who remained undecided.

Democratic leaders hoped to hold the vote Saturday evening, but Majority Leader Steny Hoyer said it could slip.

Democrats hold 258 seats in the House and can afford 40 defections and still wind up with 218, a majority if all lawmakers vote. But all 177 Republicans were expected to vote "no," and Democratic leaders faced a series of complications trying to seal the needed votes for their complex and controversial legislation that would affect one-sixth of the economy and touch the lives of countless Americans.

The final hurdle was a controversy over federal funding for abortion, which simmered into Friday night with tensions running high as Democratic leaders shuttled between meetings of anti-abortion and abortion rights lawmakers.

Federal law currently prohibits the use of federal funds to pay for abortions except in the case of rape, incest of situations in which the life of the mother is in danger. That left unresolved whether individuals would be permitted to use their own funds to buy insurance coverage for the procedure in the federally backed insurance exchange envisioned under the legislation.

Democrats have little room for error, with the prospect of the 2010 midterms looming large and a some of their own moderates already declaring their opposition.

The 10-year, $1.2 trillion House bill would create a new federally supervised insurance marketplace where the uninsured could purchase coverage.

Consumers would have the option of picking a government-run plan, the most hotly contested item in the legislation.

I SUSPECT THIS WILL BE ANOTHER OF THOSE BLOODLESS, EMPTY LEGISLATIVE GESTURES, A LOT OF SOUND AND FURY, SIGNIFYING NOTHING....

[Demeter]

26. Critics take Frank 'too-big-to-fail' bill to task

http://www.marketwatch.com/story/critics-take-frank-too-big-to-fail-bill-to-task-2009-11-06?siteid=YAHOOB%2CYAHOOB%0A

What do you do with "too-big-to-fail" banks when you don't want to bail them out, but you don't want to break them up?

That's the dilemma members of Congress who are working furiously to create a process that would let a behemoth financial institution collapse in a way that avoids a repeat of the collateral damage to the markets that occurred when Lehman Brothers imploded last year.

"The problem you have right now in a crisis is that the choice you have is bankruptcy, like with Lehman -- where nobody gets paid -- or no bankruptcy, like with AIG -- where everyone gets paid," said Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee and drafter of legislation designed to prevent a repetition. "This would create another way."

IS HE OUT OF HIS MIND? I'VE LONG HAD DOUBTS ABOUT BARNEY FRANK....

The goal is something everyone can agree on, but the bill as it is written would create a hodgepodge of unintended consequences, with more expected as policymakers morph it into something they can approve.

It also raises more questions than it answers: How much taxpayer money would be on the hook? How much would banks pay into a newly proposed insurance fund? Which institutions would be dubbed, "too-big-to-fail"?

The bill would create a council of regulators, including the Treasury Department, current federal and state bank regulators and the Securities and Exchange Commission that would have broad authority to oversee and influence how much capital each big bank must carry on its books.

Faced with a large bank on the verge of insolvency, the group could wipe out the bank's management and take steps to dismantle it in a way that policymakers hope won't stress the markets.

Who gets on the lifeboat?

Treasury Secretary Tim Geithner envisions that the authority could be used to stabilize the markets in a scenario where one large insolvent bank would be dismantled with the process, while the Federal Reserve makes capital injections to stabilize healthier banks and the rest of the industry.

"You need to be able to take down one institution, but make sure the rest of the system remains stable," Geithner argued.

ANOTHER MADMAN SPEAKS..

Treasury Secretary Timothy Geithner is heavily involved in the negotiations over provisions of the "too big to fail" legislation.

However, critics argue that future financial crises won't be as simple as identifying the one bad bank and collapsing it in such a way that it doesn't hamper healthy banks. Brookings Institute fellow Douglas Elliott contends that in an economic crisis there will be a number of institutions that all start tottering at the same time and it will be difficult to separate the healthy from the sick.

"It's hard to know for sure during a crisis whether a troubled institution is solvent or not solvent," Elliott said. "There will be triage where you say, 'These guys will live, we're not going to do anything; these guys will die, we can't do anything; and these guys are troubled but will make it with our help.' " See full story.

To do that, the government would provide funds to creditors, debtholders and counterparties of the failed bank so they don't collapse as well. Those investors would be required to take some losses, but the government would make sure their losses weren't so severe that they also would disintegrate.

Large banks with at least $10 billion in assets would be required to pay fees in advance into a special insurance fund that would cover payments needed to safely dismantle an insolvent too-big-to-fail bank. Roughly 120 banks would be responsible to cover the costs had the fund been in existence today.

If the insurance fund didn't have enough capital to cover the costs, the measure would allow Treasury to lend taxpayer money to cover the costs, with an assumption that the amount would be recouped later by assessments on big banks.

Frank's Senate counterpart, Sen. Christopher Dodd, D-Conn., the chairman of the Senate Banking Committee, is expected to release details about his systemic-risk legislation in the coming week. While Dodd and Frank disagree about some aspects of bank reform regulation, both generally agree about the mechanics of a mechanism to dismantle a large financial institution in the case of a financial crisis....

SO MUCH INSANITY, SEE ARTICLE (IF YOU CAN TAKE IT) AND THE BACKGROUND ARTILCE:

http://www.marketwatch.com/story/frank-big-banks-must-pay-systemic-fee-in-advance-2009-11-03

THIS DOESN'T EVEN RESEMBLE SAUSAGE-MAKING, MORE LIKE DATE RAPE WITH DRUGS...

[Joe Chi Minh]

76. Just give the money back to Golden Sack's lobbyists right now, Barney. If

that's what this is about.

It raises the interesting question: Would ordinary bank-robbers be able to pressure the government to go easy on the legislation, policing and penal system relating to their chosen career? Surely, it's unthinkable, and yet their criminal irresponsibility and loot is minuscule in comparison with that of the banking moguls and their political hirelings.

I once negotiated a concession from a couple of threatening-looking gypsies (people I have lot of time for, normally) who asked me for "money" for their "bus fares into town", on the grounds (true enough), that I wanted to keep a few bob for myself (didn't have a lot on me) to put on a horse at the bookies round the corner. I feel Obama is a kindred spirit in this matter. Except that in his case, it's the muggers who are going to do the betting - with your bail-out money and ongoing bail-out guarantee. Quite ironical that bookies were prohibited in your country, presumably on account of the shady relations they tended to cultivate.

[Demeter]

28. Berkshire Hathaway's net income triples

http://news.yahoo.com/s/nm/20091106/bs_nm/us_berkshire

Warren Buffett's Berkshire Hathaway Inc (BRKa.N) (BRKb.N) on Friday said quarterly earnings tripled, as rising stock markets boosted its investment holdings and a quiet hurricane season contributed to higher insurance profit.

Results were announced three days after Buffett revealed the biggest acquisition in his 44 years running Berkshire, a $26 billion takeover of Burlington Northern Santa Fe Corp (BNI.N). Berkshire had already owned 23 percent of the nation's second-largest railroad operator.

Third-quarter net income for Omaha, Nebraska-based Berkshire rose to $3.24 billion, or $2,087 per Class A share, from $1.06 billion, or $682, a year earlier.

Excluding investments, operating profit fell less than 1 percent to $2.06 billion, or $1,325 per share, from $2.07 billion, or $1,335. On that basis, analysts expected profit of $1,308.25 per share, according to Thomson Reuters I/B/E/S.

Revenue rose 7 percent to $29.9 billion, though Berkshire said the effects of a global recession hurt results for several manufacturing, apparel and retailing units, as some customers "dramatically" reduced spending.

"These operating subsidiaries are so sensitive to the economic climate," said Bill Bergman, an analyst at MorningstarInc in Chicago. "It will be worth watching."

Berkshire's growing diversification has made it more of a bellwether for the U.S. economy. Its roughly 80 operating units sell such things as Geico car insurance, Dairy Queen ice cream, Benjamin Moore paint and Fruit of the Loom underwear.

Insurance underwriting profit more than quadrupled to $363 million, helped mainly by reinsurance operations and despite a decline at Geico, while insurance investment income rose 21 percent to $976 million. Results benefited from the quietest Atlantic hurricane season in more than a decade. Only a single named storm, Claudette, made U.S. landfall.

Operating profit in noninsurance businesses, in contrast, fell 28 percent to $774 million.

Berkshire also benefited as rising stock markets boosted the value of investments in companies such as Coca-Cola Co (KO.N), Goldman Sachs Group Inc (GS.N), Procter & Gamble Co (PG.N) and Wells Fargo & Co (WFC.N).

DERIVATIVE GAINS

Results included $1.18 billion of investment and derivatives gains, mainly from derivatives contracts tied to junk bond credit quality and to a lesser extent to performance of four stock indexes in the United States, Europe and Japan.

Berkshire's book value ended September at $126.07 billion, or $81,247 per share, up 10 percent from three months earlier and 15 percent from year end.

Buffett often touts book value, which reflects assets minus liabilities, as a good gauge of Berkshire's health.

Steven Check, who oversees Check Capital Management in Costa Mesa, California, noted that book value is 4 percent higher than at the start of 2008, despite a 27 percent drop in the Standard & Poor's 500 (.SPX). "Buffett has made back everything he lost in 2008, and then some," he said.

Class A shares of Berkshire closed Friday up $500 at $102,400, while Class B shares rose $30 to $3,425. Both are about one-third below their record highs set in December 2007.

Berkshire plans to conduct a 50-for-1 split of its B shares. It announced the split in connection with the Burlington takeover, which is expected to close in the first quarter of 2010. Such a split would made it easier for ordinary investors to buy Berkshire stock...

[Demeter]

29. Freddie Mac posts $5 billion loss

http://news.yahoo.com/s/nm/20091107/bs_nm/us_freddiemac_results

[Demeter]

30. CAR TALK: Opel, Toyota Make News

Incentives boost carmaker’s cash pile

http://www.ft.com/cms/s/0/c62e473c-ca41-11de-a3a3-00144feabdc0.html

General Motors’ newly regained confidence that it can restructure Opel is in large part due to a better-than-expected performance of the US carmaker’s European subsidiary that has – at least partially – been funded by the European taxpayer.

Opel/Vauxhall is understood to have amassed more than €1bn ($1.4bn) in cash in recent months. Although some of this reserve has come from strong sales of Opel’s new top of the range Insignia sedan, it appears the biggest contributor is the bumper sales triggered by the scrapping incentives for old cars offered by governments across Europe.

Employees of German car maker Opel protest at the company's factory in Kaiserslautern

Troubles loom for GM in the shape of the German unions, which promised to adopt a tough stance in negotiations.

The irony may have been lost on Fritz Henderson, GM’s chief executive, when he said on Thursday that Opel’s cash pile would be used to pay back the remaining €900m of bridge loan from the German government.

Opel was kept afloat in May when Berlin offered it a €1.5bn government bridge loan when its parent filed for chapter 11 bankruptcy protection in the US.

“One can say that parts of the cash Opel uses to pay back the bridge loan has been gained from German taxpayers indirectly via the scrapping incentive,” Christoph Stuermer, analyst at IHS Global Insight, said.

Mr Stuermer estimates that the German scrapping incentive could have contributed €300m to Opel alone.

“That is enough for Opel to survive for three months,” he says.

The extent to which these scrappage schemes have shored up the car industry is illustrated by one car analyst’s estimate that about a fifth of the forecast 1.56m sales by the Opel/Vauxhall group in Europe this year are expected to be a direct result of the government support. The government-backed programmes this year triggered a boost in demand for small and medium-sized cars and helped Opel to sell more of its Corsa and Astra models.

On top of that Opel has also benefited from the strong sales of the Insignia, independent of the state schemes.

Mr Henderson on Thursday also revealed that GM could fund at least part of Opel’s restructuring from the US, if it failed to obtain state aid for its restructuring of Opel government. It was thought that as a condition of the US government bail-out of GM, the carmaker was restricted from financing unprofitable overseas operations.

The Detroit carmaker has said earlier this week it would initially turn to the governments of Germany, the UK, Spain and Poland to provide the €3bn that it needs to sustain Opel and its UK Vauxhall arm. It remains unclear if the German, Spanish and Polish governments will provide the state loans. A German state government official said that GM would brief the government next week on plans to restructure Opel.

The UK, however, seem more prepared to support GM. Peter Mandelson, the British business secretary, said GM’s proposal would be a much cheaper one than the plan to sell to the carmaker to Magna. “This will be a significantly less costly deal for European taxpayers, notably German, British and Spanish taxpayers,” said Mr Mandelson.

But further troubles loom for GM in the shape of the German unions, which promised to adopt a tough stance in negotiations.

Klaus Franz, head of Opel’s works council, on Thursday demanded for GM to convert Adam Opel GmbH into a joint-stock company to increase employee’s power and to give a guarantee for the carmaker’s research and development centre in Rüsselsheim.

Germany and Russia furious at Opel blow

http://www.ft.com/cms/s/0/18c8064a-c93e-11de-b551-00144feabdc0.html

Germany and Russia reacted furiously to General Motors’ surprise decision to keep Opel rather than sell it, throwing up fresh uncertainty about the future direction of one of Europe’s biggest carmakers.

The news that GM’s board had abandoned the sale of Opel/Vauxhall to Canada’s Magna and Russia’s Sberbank also led to a schism among the carmaker’s workers, with UK employees celebrating while Germans said they would start warning strikes on Thursday.

Jürgen Rüttgers, premier of North Rhine-Westphalia state, where GM proposes closing a factory, said: “General Motors’ behaviour shows the ugly face of turbo-capitalism. That is completely unacceptable.”

GM’s decision pitches the Detroit-based company into a new confrontation with the German government over Opel. At the heart of the controversy is whether Berlin would allow Opel to go bankrupt or step in to support GM financially.

GM said that it would need about €3bn in financing to restructure Opel and that it would ask European governments for money. But Berlin, which was offering Magna €4.5bn ($6.6bn) in state aid, is instead asking GM to pay back a €1.5bn bridging loan it gave to the US carmaker. GM said it had paid back €600m and was willing to repay the rest...

IT DOESN'T GET MUCH UGLIER THAN THIS

Toyota posts first profit in four quarters

http://www.ft.com/cms/s/0/3b2c9d3e-c9c7-11de-a5b5-00144feabdc0.html

Toyota reported its first profit in four quarters on Thursday and said its full-year loss would be less than half what it had previously forecast, owing to cost cuts and government incentives that have reversed a free-fall in demand...Toyota warned, however, that it would likely slip back into the red in the next few quarters before a full-fledged recovery takes hold. The carmaker is facing a renewed rise in the yen’s exchange rate and the end of some government stimulus programmes that had helped it over the summer, notably the US “cash-for-clunkers” trade-in scheme...The group also increased its global sales forecast by 430,000 vehicles to 7.03m to reflect the impact of government stimulus schemes in the US, Europe, Japan and China. Yukitoshi Funo, executive vice-president, said Toyota planned to intensify its focus on China and other “lively” emerging markets at the expense of “sluggish” North America.

In Japan, the latest version of Toyota’s Prius petrol-electric hybrid has been the top-selling car for five straight months thanks to subsidies and tax breaks on low-emission vehicles, helping stem its losses in an otherwise shrinking market.

Toyota is also benefitting from a rebound at its financial services arm, which is enjoying low interest rates and an easing in the number of car-loan defaults by customers in the US...

Nissan cut its net-loss forecast to Y40bn from Y170bn on Wednesday and said it expected to return to profit at the operating level.

Honda, which has weathered the slump thanks to its focus on relatively strong-selling small cars and motorcycles, trebled its net profit forecast last week...

THANK YOU UNCLE SUGAR AND ALL YOUR LITTLE SUCKERS....

[Demeter]

33. BMW drop in profits stifles recovery hopes

http://www.ft.com/cms/s/0/2064ada8-c859-11de-a69e-00144feabdc0.html

[Demeter]

36. Ford posts $1bn quarterly profit

http://www.ft.com/cms/s/0/2e1f2ce4-c7ae-11de-8ba8-00144feab49a.html

[Demeter]

31. Novartis to expand Chinese research labs

http://www.ft.com/cms/s/0/c57f87a4-c8a9-11de-8f9d-00144feabdc0.html

Novartis on Tuesday revealed plans to invest $1bn to expand its Shanghai laboratories and make China the third pillar of its global research and development capabilities.

Daniel Vasella, chairman, said the Swiss drugs group would build a new campus in Shanghai to house its research activities, which would employ 1,000 scientists in five years’ time.

The announcement is the latest sign that major pharmaceuticals groups are eager to tap China’s growing scientific base and demonstrates how emerging economies have become central to their plans as markets in the US and Europe struggle.

The move comes after significant investments in recent years by several big western companies, including AstraZeneca, Roche and GlaxoSmithKline, seeking to recruit local expertise, take advantage of lower costs and expand their presence in one of the world’s fastest-growing drugs markets.

Mr Vasella said the group’s China business had lifted revenues by 30 per cent a year over the past five years to become one of its top 10 markets. He predicted China would be one of its top three markets after another five years....

[Demeter]

35. Gold extends record high on India purchase

http://www.ft.com/cms/s/0/0eaa4a80-c856-11de-a69e-00144feabdc0.html

Gold prices continued to rise on Wednesday extending the all-time highs which followed India’s central bank bought 200 tonnes of the precious metal, swapping dollars for bullion as the country’s finance minister warned the economies of the US and Europe had “collapsed”.

India’s decision to exchange $6.7bn for gold equivalent to 8 per cent of world annual mine production sent the strongest signal yet that Asian countries were moving away from the US currency.

The purchase by New Delhi’s Reserve Bank from the International Monetary Fund pushed gold prices to a record $1,090.90 per troy ounce, up 2.6 per cent on the day, as traders bet that other central banks would also become buyers...

[Demeter]

56. Swiss banks running out of storage space for gold bullion

http://www.mineweb.co.za/mineweb/view/mineweb/en/page34?oid=86392&sn=Detail

In a note entitled No more space for Gold Bars, Swiss news website 20 Minuten Online reports that Swiss banks are running out of secure storage space for gold bullion held by investors and institutions in their vaults. Fears of hyperinflation, the economic downturn and the success of gold index funds (ETFs), which are supported by physical gold, has led to a run on precious metals investment - and in gold in particular, and in the necessary secure storage space in which to hold it..

One Swiss bank, earlier this year, reported that it was having to relocate some of its stored silver bullion to another site to make room for gold. The Zurich Kantonal bank put this down to the success of its gold ETF.

The website reports another Swiss investment banker despairing "We have the need to store more gold for our clients but are finding it difficult to find secure storage facilities". Gold storage makes high demands on security which is what is making the gold holding task more difficult. Few banks will divulge exactly where their gold is stored for security reasons.

Another banker reported that his bank still had space but that it is beginning to run out.

Some of the problems are being handled by improving the storage systems in existing space. As one banker commented "A 12.5 kilo gold bar only occupies about the same amount of space as a tetrapak of milk".

While the big U.S. based ETF, the SPDR Gold Trust has recently seen a relatively small decline in its gold holdings with some investors seeking better returns in the markets, the ever-cautious Swiss seem to be seeing continuing growth in locally managed ETFs. A recent report noted that Swiss Bank, Julius Baer, for example, was still seeing a 3.3% growth in its gold ETF in the current week. And even though the Swiss Central Bank has been selling gold via the Central Bank Gold Agreement, it still holds 38% of its foreign exchange reserves in the yellow metal.

[Demeter]

37. Goldman holds stake in China group battling M Stanley

http://www.ft.com/cms/s/0/cf9e0a78-c802-11de-8ba8-00144feab49a.html

The leading foreign investor in the Chinese company embroiled in a legal spat with Morgan Stanley over derivatives is Goldman Sachs, the US investment bank’s arch rival.

Morgan Stanley and China Haisheng Juice Holdings are battling in English and Chinese courts over a disputed hedging contract. The case is the most public example to date of the stand-off between foreign investment banks and mainland companies over derivatives deals, which has resulted in a collapse in such structured product deals in China this year.

Goldman Sachs made its first investment in Haisheng in early 2005 and its private equity arm now holds 20 per cent of the Chinese company’s Hong Kong-listed shares.

Goldman’s investment in Haisheng is understood to be passive and it does not have a board seat or provide financial advice to the privately founded Chinese company.

In London, Morgan Stanley is pursuing $26m it alleges it is owed after Haisheng failed to post collateral relating to the renminbi-dollar hedges. The Chinese company is suing the US bank in a provincial mainland court for allegedly mis-selling the hedging contracts.

While Goldman’s private equity unit would benefit from Haisheng winning the dispute, the US group could suffer on a wider level as a Chinese victory would be likely to embolden local action against foreign banks. Many global banks are in dispute with Chinese companies over derivatives deals. Goldman itself is negotiating with Shenzhen Nanshan Power, a mainland utility, to settle a contractual dispute relating to oil derivatives contracts.

Goldman and Morgan Stanley declined to comment.

Beijing authorities want to clamp down on the over-the-counter derivatives markets after a raft of state-owned companies made disastrous bets on currency and commodity movements. As a result, the amount of derivatives business being conducted by global investment banks in China has fallen by about 75 per cent this year, according to overseas groups.

Chin-Chong Liew, a senior derivatives lawyer at Linklaters in Hong Kong, said that the cross-border derivatives business had plummeted, amid the disputes and the general economic slowdown.

However, he added: “Lessons are being learned by all sides and China will again represent a major market in derivatives as soon as these issues subside.”

Ironically, many of the derivatives contracts that caused such large losses at Chinese companies have become profitable just as some of the disputes are being brought to court, thanks to resurgent commodity prices and the falling US dollar.

China’s three largest airlines all returned to profit in the third quarter, partly due to a rise in jet fuel prices which allowed them to reverse hedging losses they made last year.

Air China and China Eastern in particular made large bets on derivatives contracts in early 2008 that jet fuel prices would continue to rise, but suffered huge losses when oil prices plummeted later in the year.

[Demeter]

51. In July: Morgan Stanley Pays for Caution

http://online.wsj.com/article/SB124826212817171863.html

It looks like Morgan Stanley needs to get more of its old swagger back.

A week after Goldman Sachs Group Inc. proved securities firms still can rake in record profits from taking big risks, Morgan Stanley reported a $159 million second-quarter loss from continuing operations that left Chairman and Chief Executive John Mack conceding that parts of the company got too conservative after surviving its near-death experience last fall.

On a per-share basis that included adjustments related to repaying a capital infusion from the government and other preferred dividends, the New York company's third quarterly loss in a row was ...

HIDDEN BEHIND SUBSCRIPTION EVEN AFTER ALL THESE MONTHS--WSJ GOT THE LOCK

[Demeter]

38. IMF refuses to rule out use of capital controls

http://www.ft.com/cms/s/0/80201cce-c7ef-11de-8ba8-00144feab49a.html

The International Monetary Fund is not in principle opposed to emerging markets using capital controls to limit inflows of hot money that risk fuelling new asset price bubbles, Dominique Strauss-Kahn said on Monday.

“I have no ideology on this,” the IMF managing director said. He said capital controls were “not something that come from hell” but said the fund would not recommend them as a standard prescription either – as they carried costs and were usually ineffective...

EVIDENTLY A LARGE CHANGE OF HEART AT THE IMF...

[Demeter]

39. The "GDP Fraud" by Joel Bowman

DAILYRECKONING.COM


If GDP is telling us that the US economy is steadily improving, how come so many folks on Main Street feel so bad? Don't they read the papers? Don't they know the GDP is improving?

The short answer to these questions is that the GDP calculation is a fraud...or perhaps it's a fraud wrapped in a deception.

To understand why the GDP numbers could be so good when the economy all around looks so bad, it is necessary to understand a few pertinent details of the GDP calculation. It is necessary to see just what meat and meat by-products go into this economic sausage. For one thing, GDP includes government spending...but does not SUBTRACT any of the borrowing the government does to fund its spending. And obviously, government spending is in no way a reflection of private sector economic activity.

Therefore, as Frank Shostak, an adjunct scholar of the Mises Institute, observes, "The GDP framework gives the impression that it is not the activities of individuals that produce goods and services, but something else outside these activities called the 'economy.' However, at no stage does the so-called 'economy' have a life of its own, independent of individuals. The so-called economy is a metaphor - it doesn't exist."

Convention tells us that the GDP framework is, more or less, a tool used to measure the size and health of this "metaphor"...ahem, the "economy." Most often, we hear it expressed as a rate of growth - either positive or negative. And it is this widely followed number that determines when economic expansions end and recessions begin (two consecutive quarters of "negative growth."). But GDP as a measurement is really just hogwash. It can no more calculate the health of an economy than it can tell you the time or give you a back massage.

Let us consider briefly the computation of the GDP measure. There are three main ways to calculate GDP:

1) The expenditure method
2) The income method and
3) The value-added method.

Theoretically, all three methods should produce the same result although, in practice, this almost never happens. For instance, when there is a large surge in public spending, as we have seen recently with the torrent of stimulus packages from governments around the world, the GDP "growth" registers most prominently in the expenditure method.

Roughly speaking, this method calculates the "size" of an economy by totaling its expenditures, minus imports. It is also the most common method employed to determine GDP. The equation looks like this:

GDP = private consumption + gross investment + government spending + (exports - imports).

To understand just how misleading the expenditure method can be, let us consider briefly the case of the Australian economy. It is widely accepted that the Aussies, under the deft stewardship of Prime Minister Kevin Rudd, had avoided entering a technical recession during the crisis from which we are now said to be "recovering." It's a nice story...except that it is a lie or, at best, a "one-third truth."

Australia DID unquestionably fall into recession. It's just a matter of definitions.

Like their American counterparts, Australian politicians pushed through a series of emergency stimulus packages, now credited with having helped the country avoid recession. Dr. Steven Kates, who lectures on economics at RMIT University in Melbourne, provided a rare dose of clarity in a recent article, published in The Australian. Dr. Kates concludes that by both the income and value-added measures, Australia comfortably satisfied the criteria for a technical recession.

"The income series... indicates a pretty minimal year all round," Dr. Kates explains. "Both the September and December 2008 quarters showed an actual fall in the level of output, the very definition of a technical recession. Over the year, the level of GDP has fallen 0.4 per cent, by no means as bad as elsewhere, but more in keeping with the general experience across the economy.

"The third measure shows the changes in GDP according to the production-based data," Kates continues. "Here, too, we have the ingredients for a technical recession, with an actual reduction in the level of output in both December 2008 and March 2009. Across the year, GDP has fallen by 0.7 per cent.

"While the stimulus package appears to have been able to distort one of the three sets of national accounting measures we use," Dr. Kates concluded, "beneath it all the Australian economy, in keeping with the rest of the developed world, has gone through a recessionary phase from which it is only now beginning to emerge."

Therefore, the only way the Australian government could claim that it had "avoided" a recession was by utilizing the expenditure method, or by averaging all three measures of GDP together. Here we see that unprecedented government stimulus spending propped up the expenditure metric, much like a steroid injection might help prop up a cheating athlete. Not only is stimulus spending an unsustainable and deceptive scam, measuring it as a "+" under the expenditure GDP calculation separates further the reality individuals experience from the fantasy their governments serve up to them.

As the Australian example shows, this methodology simply ignores the fact that government spending is not true production at all because it is debt financed. Government spending, therefore, should really only be government spending, LESS government borrowing.

You see how misleading this measurement can be, especially when huge sums of debt-financed stimulus must be taken into account. Sound familiar?

Murray Rothbard, the legendary Austrian economist, elaborated further when he proposed his alternative measures: Gross Private Product (GPP) and Private Product Remaining (PPR).

Rothbard defines the former as "gross national product less income originating in government and government enterprises." PPR is GPP less the higher of government expenditures and tax revenues plus interest received. Rothbard argues that because government output is "financed coercively" (i.e., by taxation), it is unclear what - if any - market value may be ascribed to the end product. Simply put, both measures place government "production" where it belongs: in the "opportunity cost" pile.

If free market participants did not deem it worth their while to buy something in the first place, why should it be considered a net positive when the government uses their money (or China's) to buy it on their behalf? This case may be brought against the "cash for clunkers" program, the $8,000 credit for homebuyers and impending "cash for anything" programs currently finding their way through the special- interest-greased halls of Congress as we write. Indeed, the entire bailout and stimulus programs fall squarely into the opportunity cost pile. But that's not how those trillions are calculated using conventional GDP metrics.

Measure it how you will, dear reader; true economic progress is forged not in the crucibles of debt or coercion, but from the honest toil of individuals seeking to better their own lot, unhindered from the government's long, strangulating reach. No nation can spend its way out of recession...no matter what the official GDP numbers may imply.

[Demeter]

40. A housing bust chronology

Subprime resets crushed the housing market in ’07 and ’08. Now a new wave of adjustable-rate mortgages is just around the corner.

“These helped frame where we are in the mortgage crisis,” explains Chris, “which has been the main shark in the water over the past couple of years. You should know where that shark is and whether or not it is hungry...

“Clearly, it is not yet safe to get back in the water: Years 2010 and 2011 face big resets in so-called Alt-A and Option ARM loans. What this means is more write-downs and more losses for banks and others who hold these mortgages.

“The bounce in home building stocks looks ridiculous in light of what they have to look forward to. The T2 duo actually recommended shorting the home building stocks through the iShares Dow Jones U.S. Home Construction ETF (ITB)... I like the idea of shorting homebuilders. At the very least, I wouldn’t buy one.”




DAILYRECKONING.COM

[Demeter]

41. DIRECT Fax Action To Congress: Pass Medicare For All (Weiner Amendment)

Dear Friends and Activists,

This is the second one of our brand new direct fax actions on health
care reform, the first of which generated tens of thousands of faxes
to the White House.

This one will add your signature (and any personal comments of your
own) to a fax petition with the heading, "Pass Medicare For All Or
Pass Nothing", and send it to each of your individual members of
Congress.

Fax Action On Medicare for All:
http://www.peaceteam.net/action/pnum1020.php

The fact is that from the moment early on that Max Baucus manipulated
the hearings in his Senate committee to keep any spokesperson for
single payer from even having a voice at the table, the entire
congressional process has been rigged to keep any meaningful reform
of our health care system from actually happening. The corporate
medical interests whose business it is to gouge the American people
have spent hundreds of millions of dollars to literally bribe members
of Congress to look the other way, and to try to slam the door on any
real reform.

But we the American people still have a choice. We can, as the
deceivers in Washington hope, remain silent and simply capitulate to
the unconscionable. Or in the alternative, we can speak out, and
declare that we will not be fooled, that we will not be deceived,
that we will not accept outright fraud as the best we get from our
representatives in Congress. And speak out we must if we expect a
different result.

Please go to the action page below now, read the actual text of the
fax petition. We think you will find it candid and unequivocal. Then
speak out and make your voice heard at this most critical of moments.

Fax Action On Medicare for All:
http://www.peaceteam.net/action/pnum1020.php


And here is the one click Facebook page for this same fax action.

Single Payer Amendments Action:
http://apps.facebook.com/fb_voices/action.php?qnum=pnum1020

And the Twitter reply to send, to send this message to all your
members of Congress that way, is

@cxs #p1020

Please take action NOW, so we can win all victories that are supposed
to be ours, and forward this alert as widely as possible.

If you would like to get alerts like these, you can do so at
http://www.peaceteam.net/in.htm

[Demeter]

42. Judicial Apartheid By PAM MARTENS

http://www.counterpunch.org/martens07202009.html

Heralded by the Supreme Court as Fair, Vast Private Judicial System Exposed as Fraud

For the past 18 years, a motley mix of corporate law firms, Wall Street powerhouses and private justice providers have been serving up false testimony to the highest court of our land that mandatory arbitration is “inexpensive, fast and fair” and a proper substitute for the public court system. And for 18 years a majority of the U.S. Supreme Court has been cozying up to these brazenly preposterous statements while gutting our Constitution’s Seventh Amendment guarantee to a jury trial. In doing so, wittingly or unwittingly, the Supreme Court had aided and abetted the key linchpin of a wealth transfer system that has brought the nation to its knees.

Today, everything from Wall Street brokerage accounts, employment contracts, credit cards, mortgages, even cell phone contracts have routinely removed the individual’s constitutional right to file a claim in court to seek redress of a grievance or fraudulent action. Instead, the individual’s claim is forced into one of the privately run arbitration organizations where conflicts are rampant, discovery is limited, and the right to appeal is typically impossible because the arbitrators are not required to explain the rationale for their decisions in writing.

In a saner era, these mandatory arbitration contracts would be thrown out by courts as contracts of adhesion because they were offered on a take it or leave it basis. Under any rational interpretation of contract law, contracts must be a meeting of the minds, freely entered into, between parties of equal bargaining power.

But just as profits have been privatized on Wall Street and losses socialized, the right to a jury trial in a court system paid for by individual taxpayers is now increasingly reserved for corporations, not people. It’s a form of judicial apartheid not dissimilar to the way the Supreme Court rationalized the segregation of blacks in its Plessy v. Ferguson decision in 1896, promising “equal” facilities, just separate.

Last week, a lone female state attorney general put the lie to mandatory arbitration. And when she pulled back its dark curtain, what we saw was a grand theft of both justice and wealth perpetuated by the U.S. Supreme Court against the American people.

Lori Swanson, Attorney General of Minnesota, charged the National Arbitration Forum with consumer fraud, deceptive trade practices and false advertising. The National Arbitration Forum is a private justice provider that adjudicates upwards of 200,000 consumer claims a year and acknowledges that it has been appointed as the arbitrator in “hundreds of millions of contracts.”

Swanson’s lawsuit charges that the National Arbitration Forum, which masquerades as functioning like an independent judge and jury, is in fact financially shackled to debt collection law firms representing major credit card companies. The lawsuit states that:

“Beginning in 2006 and through 2007, Accretive LLC…engineered two transactions. In the first transaction, Accretive formed several private equity funds under the name ‘Agora’ (meaning ‘Forum’ in Greek), which in turn invested $42 million in the National Arbitration Forum and obtained governance rights in it. In the second transaction, three of the country’s largest debt collection law firms (Mann Bracken of Georgia, Wolpoff & Abramson of the District of Columbia, and Eskanos & Adler of California) merged into one large national law firm called Mann Bracken, LLP. Accretive then formed and funded (partly using federal money from the U.S. Small Business Administration) a debt collection agency called Axiant, LLC, which acquired the assets and collections operations of Mann Bracken. Through these transactions, the Accretive hedge fund group simultaneously took control of one of the country’s largest debt collectors and became affiliated with the Forum, the country’s largest debt collection arbitration company.”

In announcing the suit, Swanson was joined at the press conference by Richard Neely, retired Chief Justice of the West Virginia Supreme Court of Appeals. One suspects that Mr. Neely, who worked for a brief stint as an arbitrator for the National Arbitration Forum, may have assisted in providing research for the lawsuit. Here are the choice words Mr. Neely had to say about the organization in the September/October 2006 issue of The West Virginia Lawyer:

“A few years ago I answered a request from the National Arbitration Forum to join their panel of arbitrators. I thought I was invited because I was a former state supreme court judge. Stupid me! I was just another piece of raw meat…Thus I learned how Godless bloodsucking banks have converted apparently neutral arbitration forums into collection agencies to exact the last drop of blood from desperate debtors…Banks and other bloodsuckers make campaign contributions and single moms don’t. That accounts for the current Federal system…”

Another insider glimpse at the National Arbitration Forum came on April 2, 2009 when Deanna Richert, a former employee, filed a lawsuit for employment discrimination, deceptive trade practices and consumer fraud in the U.S. District Court for the District of Minnesota. Ms. Richert’s lawsuit alleges:

“During the course of plaintiff’s employment at defendants, she witnessed fraudulent and corrupt practices in the administration of arbitration cases by defendants which draw into question the neutrality of any arbitrator associated in any way with defendants and which practices make any alleged requirement of arbitration fraudulent and unconscionable, and thereby null, void and unenforceable. The NAF and Forthright had regular business users of their arbitration system who were referred to in-house as the ‘Famous Parties.’ These ‘Famous Parties’ were repeat filers for arbitration who did not pay for defendants’ services as they filed like sporadic filers, but used the arbitration service so commonly that they paid on account to defendants. Among the fraudulent and corrupt practices witnessed by plaintiff with respect to these ‘Famous Parties,’ were the following:

Management meetings in which personnel were instructed to call arbitrators and tell them, prior to the release of the decision to the parties to the arbitration, to change decisions they had issued that found against the Famous Parties;

Management meetings in which personnel were instructed to make sure that certain arbitrators who had decided cases against a Famous Party did not get any more cases;

Defendants drafting the claim forms and fictitious affidavits of service for the Famous Parties, including the placement of stored electronic signatures for the Famous Parties on these documents…

Arbitrators calling defendants to ask its attorneys how they should rule on a particular matter…

The disallowance by defendants of responses by consumers to claims filed against them simply because the consumer did not carbon copy the filer of the claim on their correspondence, thereby putting the consumer into default on an arbitration claim they had attempted to answer.”

According to Ms. Richert’s attorney, Daniel E. Warner, a motion to compel the lawsuit “into arbitration is pending in the federal district court, which we are actively resisting.”

Who are these so-called “Famous Parties?” According to Attorney General Swanson’s lawsuit, the National Arbitration Forum has among its clients, MBNA/Bank of America, JPMorgan Chase and Citigroup; those same “infamous” parties deemed too big to fail by the Federal government, thus entitling them to the public purse as a lifeline.

Nine years ago, on March 1, 2000, Caroline E. Mayer, writing in the Washington Post, put the deception of this so-called neutral forum right under the nose of the Supreme Court justices, Congress and the Department of Justice. Ms. Mayer had obtained documents filed in a class action lawsuit against First USA. The documents showed that the bank prevailed in “99.6 percent of the cases that went all the way to an arbitrator” at the National Arbitration Forum. “Since First USA implemented its arbitration clause in early 1998, it has filed 51,622 claims against consumers with the forum. The forum has made 19,705 awards: First USA prevailed in 19,618, card members in 87.”

That did not stop the U.S. Supreme Court from continuing to embrace the virtues of mandatory arbitration. Justice Ruth Ginsburg even gave the National Arbitration Forum a plug in a partial dissenting opinion when she said: “Other national arbitration organizations have developed similar models for fair cost and fee allocation.” Adding in a footnote: “They include National Arbitration Forum provisions that limit small-claim consumer costs to between $49 and $175 and a National Consumer Disputes Advisory Committee protocol recommending that consumer costs be limited to a reasonable amount. National Arbitration Forum, Code of Procedure, App. C, Fee Schedule (July 1, 2000).”

Ginsburg made her remarks in a case called Green Tree Financial Corp. v. Larketta Randolph where the mandatory arbitration clause left open ended the amount of fees the consumer might have to pay for the arbitration.

Former Chief Justice William Rehnquist wrote the opinion for the court, stating:

“…we have recognized that federal statutory claims can be appropriately resolved through arbitration, and we have enforced agreements to arbitrate that involve such claims…We have likewise rejected generalized attacks on arbitration that rest on ‘suspicion of arbitration as a method of weakening the protections afforded in the substantive law to would-be complainants...’ These cases demonstrate that even claims arising under a statute designed to further important social policies may be arbitrated because `so long as the prospective litigant effectively may vindicate statutory cause of action in the arbitral forum,' the statute serves its functions.”

The above twisted logic together with the phrase "liberal federal policy favoring arbitration agreements" has become the mindless mantra of a high court that has evinced willful blindness toward their role of enablers to a creeping corporate fascism.

Particularly egregious in Green Tree was the mountain of evidence the Supreme Court majority ignored. Amici for the respondent, Larketta Randolph, submitted the following facts supporting the charge that

“many individuals asserting statutory claims against corporations have confronted arbitration fees that amounted to thousands of dollars in settings where these fees would discourage the individuals from pursuing those claims: In Brower v. Gateway 2000…an arbitration clause required individuals to pay an advance fee of $4000 (which the court noted exceeded the cost of most of the defendant’s products)…In Patterson v. ITT Consumer Financial Corp….the court found that a borrower would have to pay at least $850 to get a participatory hearing over debts as small as $2,000 and that these fees (along with other procedures) ‘become oppressive when applied to unsophisticated borrowers of limited means…In Cole v. Burns Int’l Sec. Servs…the court noted that arbitrators’ fees range from $500 to $1,000 per day. In Jones v. Fujitsu Network Communications…the Arbitration Policy require Plaintiff to pay one-half of the arbitrator’s fee, the court reporter’s fee, the fee for the arbitrator’s copy of the transcript, and facility costs….In the Matter of Arbitration Between Teleserve Sys., Inc. and MCI Telecomm. Corp…the court noted that the arbitration filing fee alone for the claimant in an antitrust dispute would amount to more than $200,000.”

In September 2007, Public Citizen published a comprehensive 74-page study of mandatory arbitration with a sharp focus on the National Arbitration Forum. The report is titled “The Arbitration Trap.” Among its many startling findings related to the National Arbitration Forum, Public Citizen found that in California between January 1, 2003 and March 31, 2007 “…a small cadre of arbitrators handled most of the cases that went to a decision. In total, 28 arbitrators handled 17,265 cases – accounting for a whopping 89.5 percent of cases in which an arbitrator was appointed – and ruled for the company nearly 95 percent of the time…Topping the list of the busiest arbitrators was Joseph Nardulli, who handled 1,332 arbitrations and ruled for the corporate claimant an overwhelming 97 percent of the time.”

This is known as the “repeat player” defect in arbitration and is one of the darkest secrets among private arbitral forums. Corporate antagonism to a trial by a jury of our peers is the randomness of jury selection. Juries are typically culled from massive voter or motor vehicle registrations. They are not highly paid, repeat players hearing claims involving the same corporation.

And the National Arbitration Forum is not an aberration. On July 20, 2000 the Public Investors Arbitration Bar Association (PIABA) issued a press release accusing the National Association of Securities Dealers (NASD) of rigging its computerized system of selecting arbitrators. The opening text reads as follows: “In direct and flagrant violation of federal law, the NASD systematically evaded the Securities and Exchange Commission approved ‘Neutral List Selection System’ arbitration rule requiring arbitrators to be selected on a rotating basis. Instead, the NASD secretly programmed its computers to select some arbitrators on a seniority basis – just what the rule was designed to prevent.”

The Public Investors Arbitration Bar Association discovered the manipulation when a team of its attorneys demanded a test of the selection system at an NASD/PIABA meeting in Chicago on June 27, 2000. PIABA predicted that “this rule violation tainted hundreds or even thousands of compulsory securities arbitration – many still ongoing. In every such instance, the substantive rights of public investors to a neutral panel have been cynically violated. Many public investors were thus twice cheated: first, by an NASD member firm that fraudulently conned them out of their life’s savings, and second by the NASD Arbitration Department’s rigged panels.”

The industry bias of arbitrators hearing claims against Wall Street firms is legendary. On June 9, 1994, Margaret Jacobs exposed the systemic bias in a feature article in the Wall Street Journal on the case of Helen L. Walters:

“Helen L. Walters says her boss called her a ‘hooker,’ a ‘bitch’ and a ‘streetwalker.’ Sometimes he brandished a riding crop in front of her and once he left condoms on her desk.

Ms. Walters, then a trading-room secretary at a California brokerage firm, filed a complaint against him alleging sexual harassment. In a formal hearing, he readily admitted to the whip and the condoms, and to using all of those epithets. Her case, legal scholars agree, seems a textbook example of illegal harassment as defined by the Supreme Court: a situation in which a ‘reasonable person’ would find the work environment ‘hostile or abusive.’

So why did Ms. Walters lose?

Ms. Walters slammed into a little-known, but extraordinarily daunting, roadblock facing many women in the securities industry: Bias complaints, like any other employee dispute, must go through the industry’s mandatory-arbitration system. That means victims’ complaints can’t be heard in court by judge or jury, no matter how strong their merit.”

Ms. Walters’ case is indicative of the final dark secret that seems to have escaped the U.S. Supreme Court, whose occupants make their deliberations in a taxpayer funded building inscribed with the words “Equal Justice Under Law.” Arbitration cannot be a fair substitute to court because arbitrators are not bound to follow the law or legal precedent. The big lie in Plessy of separate but equal is the big lie in Supreme Court rulings on mandatory arbitration.

In the case of Delfina Montes v. Shearson Lehman Brothers, involving a claim for overtime pay under the Fair Labor Standards Act (FLSA), the lawyer for this Wall Street brokerage firm argued as follows during the arbitration:

“I know, as I have served many times as an arbitrator, that you as an arbitrator are not guided strictly to follow case law precedent… I know it’s hard to have to say this and it’s probably even harder to hear it but in this case this law is not right. Know that there is a difference between law and equity and I think, in my opinion, that difference is crystallized in this case. The law says one thing. What equity demands and requires and is saying is another….You know as arbitrators you have the ability, you’re not strictly bound by case law and precedent. …as I said in my Answer, as I said before in my Opening, and I now ask you in my Closing, not to follow the FLSA if you determine she’s not an exempt employee.”

From defective consumer products, to denial of overtime pay, to gutting the civil rights laws, to unconscionable mortgages, derivatives, obscene rates and bogus fees on credit cards, the corporations have had quite a run over the past decade with their judicial apartheid and anointed blessing of a majority of the U.S. Supreme Court. And just where did it get them? Those with the most egregious mandatory arbitration contracts are either bankrupt or zombie firms struggling for survival on the taxpayer’s dime.

Pam Martens worked on Wall Street for 21 years; she has no security position, long or short, in any company mentioned in this article. She writes on public interest issues from New Hampshire. She can be reached at [e-mail]

[Demeter]

43. Big Estimate, Worth Little, on Bailout

http://www.nytimes.com/2009/07/21/business/economy/21bailout.html?ref=business

Just how much could the bailout of the financial system end up costing American taxpayers?

Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program set up by the Treasury Department, came up with the largest number yet in testimony prepared for delivery THIS JULY to a House committee. “The total potential federal government support could reach up to $23.7 trillion,” he stated.

But in the report accompanying his testimony, Mr. Barofsky conceded the number was vastly overblown. It includes estimates of the maximum cost of programs that have already been canceled or that never got under way.

It also assumes that every home mortgage backed by Fannie Mae or Freddie Mac goes into default, and all the homes turn out to be worthless. It assumes that every bank in America fails, with not a single asset worth even a penny. And it assumes that all of the assets held by money market mutual funds, including Treasury bills, turn out to be worthless.

It would also require the Treasury itself to default on securities purchased by the Federal Reserve system.

The sheer unreality of the number did not stop some members of Congress from taking the estimate seriously.

“The potential financial commitment the American taxpayers could be responsible for is of a size and scope that isn’t even imaginable,” said Representative Darrell E. Issa of California, the ranking Republican on the House Committee on Oversight and Government Reform, which will hold the hearing. “If you spent a million dollars a day going back to the birth of Christ, that wouldn’t even come close to just one trillion dollars — $23.7 trillion is a staggering figure.”

Mr. Issa’s staff distributed a briefing memo for Republicans on the committee that quoted the testimony relating to the $23.7 trillion number, but did not mention any of the qualifications contained in the report.

In an interview Monday evening, Mr. Barofsky said he did not view his testimony as misleading.

“We’re not suggesting that we’re are looking at a potential loss to the government of $23 trillion,” he said. “Our goal is to bring transparency, to put things in context.”

Asked what he thought the maximum total cost could be, he replied that it was not his job to estimate that, and declined to give a figure.

Mr. Barofsky has no authority to investigate most of the programs he discussed. He came up with far smaller numbers for the Troubled Asset Relief Program, known as TARP, that he is charged with monitoring. Of the $700 billion appropriated by Congress, the Treasury has so far spent $441 billion, and about $70 billion of that has been repaid.

“TARP does not operate in a vacuum,” Mr. Barofsky said in his prepared testimony. To properly evaluate that spending, “the context of these broader efforts” must be considered.

That $23.7 trillion figure would amount to about $77,000 for every person in the United States, and would be almost $10 trillion more than the country’s entire economic output, which is $14.1 trillion.

To reach that figure, Mr. Barofsky added up all possible Federal Reserve programs, and got a total of $6.8 trillion. He figured the TARP program could end up costing $3 trillion, including possible spending by the Federal Deposit Insurance Corporation and the Fed.

For those totals to be reached, every dollar invested by the government in banks would have to become worthless, and the banks would have to default on securities guaranteed by the F.D.I.C. All the collateral posted by the banks to get loans from the Fed would also have to become worthless.

Added to those figures are $4.4 trillion in other possible Treasury programs, and $2.3 trillion in F.D.I.C. guarantees of deposits. The final $7.2 trillion comes mostly from various mortgage-related programs.

Even if all those numbers somehow turned out to be accurate, the report conceded that the total would be smaller because “there is potential for double-counting of exposures where different federal agencies provide guarantees for the same financial institutions.”

The report does not appear to discuss how total government obligations are increased when the Fed either guarantees or purchases Treasury securities. In the interview, Mr. Barofsky declined to address that question.

Andrew Williams, a spokesman for the Treasury Department, called the figures “distorted” because they did not consider the value of the collateral posted for loan programs, as well as the value of securities the Treasury has received from banks.

“These estimates of potential exposures do not provide a useful framework for evaluating the potential cost of these programs,” Mr. Williams said, according to Bloomberg News. “This estimate includes programs at their hypothetical maximum size, and it was never likely that the programs would be maxed out at the same time.”

He added that the United States had spent less than $2 trillion so far, and that much of that was backed by valuable assets.

It may be the first time that $2 trillion appears to be a small number.

[Demeter]

45. Treasury clashes with Tarp watchdog on data

http://www.ft.com/cms/s/0/ab533a38-757a-11de-9ed5-00144feabdc0.html

US bail-out efforts are having a significant impact on some credit markets, the Treasury and Federal Reserve said in a report on Monday JULY, just as the watchdog for the rescue effort attacked a lack of transparency.

Neil Barofsky, special inspector-general for the troubled asset relief programme, said that the various US schemes to shore up banks and restart lending exposed federal agencies to a risk of $23,700bn – a vast estimate that was immediately dismissed by the Treasury.

He added in his own report to Congress that “disagreements remain” between the office of the special inspector-general for the troubled asset relief programme (Sigtarp) and Treasury over a scheme to shift toxic assets and that there were “fundamental vulnerabilities . . . relating to conflicts of interest and collusion, transparency, performance measures, and anti-money laundering”.

The Treasury said the estimate for total liabilities was “inflated” and not “useful”, including programmes that have never been used or were winding down and ignoring assets acquired by the government – such as equity in banks and carmakers – that offset the risk.

The dispute over the design of the huge intervention in the private sector – and extent of taxpayer exposure – will get a further airing on Wednesday when Mr Barofsky appears before a congressional hearing.

It comes as the Financial Stability Oversight Board, made up of the Treasury, Fed and other regulators, released a broadly positive quarterly report into the financial rescue effort.

The board noted a sharp rise in the issuance of consumer credit asset-backed securities, which it attributed partly to the $1,000bn term asset-backed securities loan facility. Talf allows institutions to post ABS as collateral for federal loans with the aim of restoring the flow of household credit.

But aside from a more positive tone, one of the most striking differences between the latest report and the previous one in March is the focus on the “considerable stress” in commercial real estate.

The Fed has begun to open up Talf to commercial mortgage-backed securities to try to influence credit conditions in the commercial real estate market. The report draws attention to a new potential credit crunch when $500bn worth of real estate mortgages need to be refinanced by the end of the year.

Even as Talf starts to wind down for consumer-related securities, the heightened anxiety around commercial real estate may keep the programme running beyond its current expiry date of December.

Minutes of discussions of the board members, including Tim Geithner, Treasury secretary, and Ben Bernanke, chairman of the Fed, show the team discussing whether to extend Talf to CMBS and other assets such as small business loans and whether to increase the size of the programme. Much of the expansion is being carried out.

The expansion of the various programmes into new and riskier asset classes is one of the main bones of contention between the Treasury and Mr Barofsky. The Treasury points out that it has sought to improve the rigour of the programmes in line with Sigtarp’s recommendations and says its efforts are important in bringing life back into frozen credit markets.

[Demeter]

44. Goldman and JPMorgan -- The Two Winners When The Rest of America is Losing ROBERT REICH

http://tpmcafe.talkingpointsmemo.com/talk/blogs/robert_reich/2009/07/goldman-and-jpmorgan----the-tw.php

Besides Goldman Sachs, the Street's other surviving behemoth is JPMorgan. Today it posted second-quarter earnings up a stunning 36 percent from the first quarter, to $2.7 billion.

The resurgence of JPMorgan and Goldman Sachs gives both banks more financial clout than any other players on the Street -- allowing both firms to lure talent from everywhere else on the Street with multi-million pay packages, giving both firms enough economic power to charge clients whopping fees, and bestowing on both firms even more political heft in Washington.

Where are the antitrusters when we need them? Alternatively, why isn't the government charging Goldman and JPMorgan a large insurance fee for classifying both firms as "too big to fail" and therefore automatically bailed out if the risks they take turn sour? Instead, we've ended up with two giants that now have most of the casino to themselves, are playing with poker chips backed by taxpayers, and have a big say in what the rules of the game are to be.

When JP Morgan repaid its federal bailout of $25 billion last month it was, like Goldman, freed from stricter government oversight. The freedom has also allowed JP, like Goldman, to take tougher and more vocal stands in Washington against proposed financial regulations they dislike.

JP is mounting a furious lobbying campaign against regulations that would funnel derivatives trading through exchanges where regulators can monitor them, and thereby crimp JP's profits. Now the Street's biggest derivatives player, JP has generated billions helping clients navigate these contracts and assuming counter-party risk in such transactions. Its derivatives contracts were valued at roughly $81 trillion at the end of the first quarter, representing 40 percent of the derivatives held by all banks, according to the Office of the Comptroller of the Currency. JP has played down its potential risk exposure from these derivatives contracts, of course, but anyone who's been paying attention over the last ten months knows that unregulated derivatives have been at the center of the storm.


The tumult on the Street has also given both firms extraordinary market power. That's where much of the current profits are coming from. JP used the crisis to snap up Bear Stearns in March and Washington Mutual last fall, with the amiable assistance of the FDIC. The deals have boosted JP's dominance in retail banking and prime brokerage, enabling it to charge its corporate clients heftier fees for lending and other financial services, and to corner more of the market in fixed-income and equities. JP also bolstered its earnings by helping other financial companies raise capital following the stress test results in May.

Antitrust law was designed to prevent just this sort of market power and political heft. The Justice Department or the Federal Trade Commission should investigate the new-found dominance of Goldman and JP -- and, if warranted, break them up. Alternatively, Congress should impose a surtax on the newly-exclusive group of Wall Street firms, most notably Goldman and JPMorgan, which are now backed by implicit government bailout insurance guaranteeing that, should they get into trouble, taxpayers will keep them afloat. The surtax would approximate the economic benefit to these firms of such government largesse, which I'd estimate to be at least 50 percent of their profits from here on.

Where are the antitrusters when we need them? Alternatively, why isn't the government charging Goldman and JPMorgan a large insurance fee for classifying both firms as "too big to fail" and therefore automatically bailed out if the risks they take turn sour? Instead, we've ended up with two giants that now have most of the casino to themselves, are playing with poker chips backed by taxpayers, and have a big say in what the rules of the game are to be.

When JP Morgan repaid its federal bailout of $25 billion last month it was, like Goldman, freed from stricter government oversight. The freedom has also allowed JP, like Goldman, to take tougher and more vocal stands in Washington against proposed financial regulations they dislike.

JP is mounting a furious lobbying campaign against regulations that would funnel derivatives trading through exchanges where regulators can monitor them, and thereby crimp JP's profits. Now the Street's biggest derivatives player, JP has generated billions helping clients navigate these contracts and assuming counter-party risk in such transactions. Its derivatives contracts were valued at roughly $81 trillion at the end of the first quarter, representing 40 percent of the derivatives held by all banks, according to the Office of the Comptroller of the Currency. JP has played down its potential risk exposure from these derivatives contracts, of course, but anyone who's been paying attention over the last ten months knows that unregulated derivatives have been at the center of the storm.

The tumult on the Street has also given both firms extraordinary market power. That's where much of the current profits are coming from. JP used the crisis to snap up Bear Stearns in March and Washington Mutual last fall, with the amiable assistance of the Treasury. The deals have boosted JP's dominance in retail banking and prime brokerage, enabling it to charge its corporate clients heftier fees for lending and other financial services, and to corner more of the market in fixed-income and equities. JP also bolstered its earnings by helping other financial companies raise capital following the stress test results in May.

Antitrust law was designed to prevent just this sort of market power and political heft. The Justice Department or the Federal Trade Commission should investigate the new-found dominance of Goldman and JP -- and, if warranted, break them up. Alternatively, Congress should impose a surtax on the newly-exclusive group of Wall Street firms, most notably Goldman and JPMorgan, which are now backed by implicit government bailout insurance guaranteeing that, should they get into trouble, taxpayers will keep them afloat. The surtax would approximate the economic benefit to these firms of such government largesse, which I'd estimate to be at least 50 percent of their profits from here on.

[DemReadingDU]

46. Good morning, Demeter

You've been busy, thanks! I'll see what I can find.
:hi:

[DemReadingDU]

47. WSJ interviews Mike Ruppert

11/4/09 Sounding an Alarm on Oil
Independent journalist Michael Ruppert predicted the global recession. Now he's foreseeing an imminent energy crisis

Michael Ruppert proudly claims that he predicted the global economic slump more than four years ago in his self-published "From the Wilderness," a monthly news publication and Web site. A narcotics investigator for the Los Angeles police department in the 1970s, Mr. Ruppert left the department and spent years trying to expose links between the CIA and drug smuggling;

Mr. Ruppert, 58 years old, has since moved on to what he believes are more pressing matters: oil and energy. He has a new self-published book, "A Presidential Energy Policy: Twenty-five Points Addressing the Siamese Twins of Energy and Money," and a critically acclaimed new movie, "Collapse," in which he is the sole star and commentator.

Directed by documentarian Chris Smith ("American Movie"), the film consists mostly of Mr. Ruppert speaking about the dangers of peak oil and the looming catastrophe that declining oil reserves could bring. The film opens Nov. 6 in New York and on the new video-on-demand channel FilmBuff.
.
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WSJ: Do you think there's a greater chance of things turning around under the Obama administration?

Mr. Ruppert: No, it's not a matter of political party. It's a matter of energy. And money is useless without energy and money has no respect for power or ideology. We have to reconnect with the requirements that we're living on a planet that's falling apart. And we have to maintain some relationship that's separate from the illusory power of money. Clearly, the power in this country is not in Washington, it's in New York, with the Fed and with Wall Street.

WSJ: How do you see Wall Street playing a role?

Mr. Ruppert: Until you change the way money works, you change nothing. The current economic paradigm calls for infinite growth, from fractional reserve banking to compact interest. So Wall Street needs to somehow help us find an economy that works without requiring more and more consumption.
.
.
lots more...
http://online.wsj.com/article/SB10001424052748703932904574511942676683258.html

watch movie trailer
The whole economy is a pyramid scheme
http://www.youtube.com/watch?v=1WJ0CjGOsG8

Collapse website
http://www.collapsemovie.com/COLLAPSEMOVIE/

[DemReadingDU]

48. Prechter video on CNBC

11/4/09
appx 5 minutes
bullish on the dollar, will be up for a year
get out of stocks, and into safe investments (Treasury Bills and cash)
http://elliottwave.com/cnbc-11-05-2009.aspx

[DemReadingDU]

49. video - Tim Geithner Lie Detector-Taser Device

maxkeiser ON THE EDGE; "Tim Geithner Lie Detector-Taser Device" to Stop Tim's Pathological Lying

http://www.youtube.com/watch?v=D_EzoAAjo6s

:rofl:

[Demeter]

50. An Idea So Crazy, It Just Might Work!

[Demeter]

52. Why is organized labor blocking the easiest way to pay for health care reform? By J. Lester Feder

http://www.thebigmoney.com/articles/judgments/2009/07/22/unions-selective-solidarity?page=full

"The president is not helping us." That complaint came last JULY from Senate finance committee Chairman Max Baucus, referring to the biggest roadblock for health reform—finding a way to cover its $1 trillion price tag.

Baucus was frustrated because Obama opposes one of the revenue options that are most politically acceptable in the Senate, rolling back the tax break on employer health benefits. If the tax break were eliminated altogether, the treasury would have an additional $250 billion each year to help expand coverage for the uninsured. Republicans like this idea because they'd prefer individuals be responsible for paying for their care instead of businesses, and many progressive economists support restructuring the tax break because they think it largely benefits wealthier workers at the expense of poorer ones. Yet Obama and many other senior Democrats are steadfastly opposing even a partial rollback of the tax break because it is treasured by the unions, whose members are 50 percent more likely to get benefits than workers in non-union shops. And the unions' hard-line position, it pains me to say, contradicts what I learned about solidarity while a steward of the United Auto Workers.

At first glance, this tax break, known as the "employer exclusion," is a great idea. Under the exclusion, a worker who earns an annual salary of $100,000 and receives $5,000 in benefits pays income tax only on the $100,000, not the full amount she receives from her employer. This effectively makes benefit dollars worth more than salary dollars, encouraging businesses to offer benefits. The problem, however, is that only 70 percent of workers have employer benefits, and they tend to be wealthier than workers without employer benefits. The employer exclusion also gives the greatest payoff to the wealthiest people: A worker in the 35 percent tax bracket with a $5,000 benefit package gets a $1,750 tax windfall, but if a low-income worker in the 15 percent bracket were lucky enough to get the same package, he would only save $750 on his taxes. The employer exclusion is a backdoor health insurance subsidy that gives the most help to the wealthiest workers with the best benefits while fully taxing the income of uninsured low-wage workers.

Unions fought hard for health benefits, and they fear employers will stop offering benefits if this tax advantage is taken away. And they're right: Wholesale removal of the employer exclusion without other reforms could cause the complete collapse of the employer insurance system. But only a partial rollback of the exclusion is under consideration as a part of comprehensive health reform. It is hard to argue against taxing a portion of the benefits of higher earners in order to make the tax code fairer and expand coverage for the uninsured. Yes, some unionized workers with benefits would see their taxes go up, but I was taught that we organize to make life better for all workers, not just those in our bargaining units.

I signed a union card before I even drew a salary, and I later served as a steward for the local of the United Auto Workers that represents the 12,000 teaching assistants of the University of California. You may be as perplexed as I was at first that teaching assistants—who are the workers that run the classrooms of large universities while earning their doctoral and professional degrees—are affiliated with a union known for representing blue-collar workers. In 2002, the first time I attended a political meeting with activists from other UAW locals, I thought our agendas had little in common: They were concerned about jobs lost to globalization, while we were worried about class sizes and tuition hikes. As I drove back from this meeting with a UAW organizer, however, she pointed out that blue-collar union wages formed the tax base that helped build the University of California, so I had a vested interest in their economic strength. Teaching assistants returned the favor by giving the children of blue-collar workers an affordable, high-quality education that allowed them to continue climbing the economic ladder, so they had a vested interest in keeping our class sizes small.

This is what solidarity really means—we use our strength to make all workers stronger because that makes us all better off. That is why I was proudest of my local when we chose to go on strike rather than promise the university we would not come to the assistance of other university workers fighting for their rights. That is why I helped organize our members to support a living-wage law to protect service workers who did not have the union strength to win fair pay through collective bargaining.

And that is why better-off workers who don't genuinely need the tax break to afford coverage should be willing to give up a portion of the employer exclusion to subsidize care for the uninsured. One proposal by MIT's Jonathan Gruber would tax only families earning $125,000 or more per year, and it would tax only the value of their benefits above the average amount American workers receive. This alone could raise more than $340 billion in revenues by 2019.

Yes, there are other sources of revenue to pay for health reform. Savings from the current system can pay for half of the bill. Progressive options to raise the rest include a House proposal to raise taxes on those earning more than $280,000. But even if such a tax hike works its way through the openly skeptical Senate, it won't change the fact that the employer exclusion partly diverts resources from the needy to the more comfortable.

Understandably, the unions are afraid Congress won't deliver an adequate package, and they don't want their members punished if Congress falls short. Richard Kirsch of the coalition Health Care for America Now, which includes most of the largest unions, told me that "there's no way within this system to have those protections" against workers who currently have affordable coverage from becoming vulnerable to losing if the employer exclusion is reformed.

That sounds like planning for failure. There are storm clouds over the Senate finance committee, but the House of Representatives and another important Senate committee—the health, education, labor, and pensions committees—have both put forward proposals with strong market controls that would make care available to all, including a public option to keep insurers in check and make sure providers operate efficiently. They also include a requirement that employers who can afford it will contribute to health costs. Perhaps most important, however, are their significant subsidies for low and moderate earners to buy insurance. A progressive restructuring of the employer exclusion could provide the revenues needed to break the logjam in the Senate finance committee and ensure its package does not scale back these invaluable subsidies.

Unions' fears are not unreasonable, but they are compromising what's best for all workers in order to protect unionized workers. And I'd like to believe that Walter Reuther, the legendary head of the United Auto Workers, would endorse this modest change in order to achieve universal coverage. When most unions had abandoned the fight for health reform in the 1960s because they had already won employer benefits for their members, Reuther launched his own effort to revive national health legislation. Announcing this campaign in 1969, he declared, "The call to greatness must be commensurate with the amount of change that is needed."

The amount of change it will take to cover the 50 million uninsured and help Americans with insurance keep up with skyrocketing costs is huge—but more possible now than ever. Now is the time to be great.

* Lester Feder is a journalist and policy researcher based in Washington, DC. He is a regular contributor to the Columbia Journalism Review's Campaign Desk, and his work has appeared in The New Republic, The Nation, and NPR.

OF COURSE, STARTING FROM SCRATCH WITH EQUAL BENEFITS TO ALL AND FUNDING OUT OF GENERAL REVENUES WOULD BE SIMPLY FAR TOO SIMPLE!

[Demeter]

54. Obama: Taking the profit motive out of health care will incentivize the private sector

http://www.correntewire.com/obama_taking_profit_motive_out_health_care_will_incentivize_private_sector



Just... Wow. But let's get the dishonesty out of the way first; then we can go on to the incoherence. CNN transcript:

{OBAMA}"Now, one of the plans that we talked about is a public option. And part of the reason we want to have a public option is just to help keep the insurance companies honest."

That's dishonest. Although "progressives" sold the "public option" as a Medicare-style program that would enroll 130 million, the CBO scores "public option" as enrolling only 9 million.

How are 9 million enrollees going to have enough clout in the marketplace to keep the insurance companies honest? What's not honest is claiming that they will.

Not only is Obama dishonest, he's incoherent:

{OBAMA}"But having a public plan out there that also shows that maybe if you take some of the profit motive out, maybe if you are reducing some of the administrative costs, that you can get an even better deal, that's going to incentivize the private sector to do even better. And that's a good thing. That's a good thing."

Can somebody please explain to me how taking the profit motive out incentivizes the private sector to do better? It's their fiduciary responsibility to make a profit!

To play yet another round of What Obama Really Meant, I think he means that if the "public plan" (or "option" -- even the administration is confused) is out there competing with the private plans, then they'll respond by cleaning up their act. Of course he can't say that, because the Dems have already conceded the argument that the government shouldn't compete with the insurance companies.(!) And he can't prove it, given that a market of 9 million isn't big enough to force the kind of competition the Dems have already conceded can't happen, and given that the insurance companies are just as likely to use their financial clout to game the system, as to improve their product. In any case, it's always more profitable to collect the premiums and then deny care, so the only incentive Obama could point to would be some vague sort of moral suasion. As Krugman remarks, "I'm sure they're terrified." What a tangled web we weave....

NOTE Now, I'm all for removing the profit motive from health care; that is, I want to abolish the health insurance parasites. But I don't claim that removing even some of the profit motive is going to incentivize private companies run by CEOs who must make a profit as their fiduciary duty!

[Demeter]

60. Bait and switch: How the “public option” was sold by Kip Sullivan MUST READ

Posted by Andrew Coates MD on Monday, Jul 20, 2009

http://pnhp.org/blog/2009/07/20/bait-and-switch-how-the-%E2%80%9Cpublic-option%E2%80%9D-was-sold/


The people who brought us the “public option” began their campaign promising one thing but now promote something entirely different. To make matters worse, they have not told the public they have backpedalled. The campaign for the “public option” resembles the classic bait-and-switch scam: tell your customers you’ve got one thing for sale when in fact you’re selling something very different.

When the “public option” campaign began, its leaders promoted a huge “Medicare-like” program that would enroll about 130 million people. Such a program would dwarf even Medicare, which, with its 45 million enrollees, is the nation’s largest health insurer, public or private. But today “public option” advocates sing the praises of tiny “public options” contained in congressional legislation sponsored by leading Democrats that bear no resemblance to the original model.

According to the Congressional Budget Office, the “public options” described in the Democrats’ legislation might enroll 10 million people and will have virtually no effect on health care costs, which means the “public options” cannot, by themselves, have any effect on the number of uninsured. But the leaders of the “public option” movement haven’t told the public they have abandoned their original vision. It’s high time they did.

The bait

“Public option” refers to a proposal, as Timothy Noah put it, “dreamed up” by Jacob Hacker when Hacker was still a graduate student working on a degree in political science. In two papers, one published in 2001 and the second in 2007, Hacker, now a professor of political science at Berkeley, proposed that Congress create an enormous “Medicare-like” program that would sell health insurance to the non-elderly in competition with the 1,000 to 1,500 health insurance companies that sell insurance today.

Hacker claimed the program, which he called “Medicare Plus” in 2001 and “Health Care for America Plan” in 2007, would enjoy the advantages that make Medicare so efficient – large size, low provider payment rates and low overhead. (Medicare is the nation’s largest health insurance program, public or private. It pays doctors and hospitals about 20 percent less than the insurance industry does, and its administrative costs account for only 2 percent of its expenditures compared with 20 percent for the insurance industry.)

Hacker predicted that his proposed public program would so closely resemble Medicare that it would be able to set its premiums far below those of other insurance companies and enroll at least half the non-elderly population. These predictions were confirmed by the Lewin Group, a very mainstream consulting firm. In its report on Hacker’s 2001 paper, Lewin concluded Hacker’s “Medicare Plus” program would enroll 113 million people (46 percent of the non-elderly) and cut the number of uninsured to 5 million. In its report on Hacker’s 2007 paper, Lewin concluded Hacker’s “Health Care for America Plan” would enroll 129 million people (50 percent of the nonelderly population) and cut the uninsured to 2 million.

Until last year, Hacker and his allies were not the least bit shy about highlighting the enormous size of Hacker’s proposed public program. For example, in his 2001 paper Hacker stated:

...approximately 50 to 70 percent of the non-elderly population would be enrolled in Medicare Plus…. Put more simply, the plan would be very large…. critics will resurface whatever the size of the public plan. But this is an area where an intuitive and widely held notion – that displacement of employment-based coverage should be avoided at all costs – is fundamentally at odds with good public policy. A large public plan should be embraced, not avoided. It is, in fact, key to fulfilling the goals of this proposal. (page 17)

In his 2007 paper, Hacker stated:

For millions of Americans who are now uninsured or lack … affordable work place coverage, the Health Care for America Plan would be an extremely attractive option. Through it, roughly half of non-elderly Americans would have access to a good public insurance plan…. A single national insurance pool covering nearly half the population would create huge administrative efficiencies. (page 5)

Hacker’s papers and the Lewin Group’s analyses of them have been cited by numerous “public option” advocates. For example, when Hacker released his 2007 paper, Campaign for America’s Future (CAF) published a press release praising it and drawing attention to the large size of Hacker’s proposed public program. The release, entitled “Activists and experts hail Health Care for America plan,” stated:

Detailed micro-simulation estimates suggest that roughly half of non-elderly Americans would remain in workplace health insurance, with the other half enrolled in Health Care for America…. A single national insurance pool covering nearly half the population would create huge administrative efficiencies…. Because Medicare and Health Care for America would bargain jointly for lower prices …, they would have enormous combined leverage to hold down costs.

When the Lewin Group released its 2008 analysis of Hacker’s 2007 paper, CAF’s Roger Hickey wrote in the Huffington Post, “efficiencies achievable … through Hacker’s public health insurance program” would save so much money that the US could “cover everyone” for no more than we spend now.

The switch

Now let’s compare the “single national health insurance pool covering nearly half the population” that Hacker and other “public option” advocates enthusiastically championed with the “public option” proposed by Democrats in Congress, and then let’s inquire what Hacker and company said about it.

As readers of this blog no doubt know, the Senate Health, Education, Labor, and Pensions (HELP) Committee, and three House committee chairman working jointly, published draft health care “reform” bills in June. (The third committee with bill-writing authority, the Senate Finance Committee, has yet to produce a bill.) According to the Congressional Budget Office, the “public option” proposed in the House “tri-committee” bill might insure 10 million people and would leave 16 to 17 million people uninsured. The “public option” proposed by the Senate HELP committee, again according to the Congressional Budget Office, is unlikely to insure anyone and would hence leave 33 to 34 million uninsured. The CBO said its estimate of 10 million for the House bill was highly uncertain, which is not surprising given how vaguely the House legislation describes the “public option.”

Here is what the CBO had to say about the HELP committee bill:

The new draft also includes provisions regarding a “public plan,” but those provisions did not have a substantial effect on the cost or enrollment projections, largely because the public plan would pay providers of health care at rates comparable to privately negotiated rates – and thus was not projected to have premiums lower than those charged by private insurance plans. (page 3)

Obviously the “public option” in the Senate bill (zero enrollees, 34 million people left uninsured) and the “public option” in the House bill (10 million enrollees (maybe!); 17 million people left uninsured) are a far cry from the “public option” originally proposed by Professor Hacker (129 million enrollees; 2 million people left uninsured). Have we heard the Democrats in Congress who drafted these provisions utter a word about how different their “public options” are from the large Medicare-like program that Hacker proposed and his allies publicized? What have Professor Hacker and his allies had to say?

In public comments about the Democrats’ “public option” provisions, the leading lights of the “public option” movement imply that Hacker’s model is what Congress is debating. Sometimes they come right out and praise the Democrats’ version as “robust” and “strong.” But I cannot find a single example of a a statement by a “public option” advocate warning the public of the vast difference between Hacker’s original elephantine, “Medicare-like” program and the Democrats’ mouse version.

For example, on June 23, Hacker testified before the House Education and Labor Committee that “the draft legislation prepared by special tri-committee promises enormous progress.” He went on to enumerate all the benefits of a “public option.” Yet the House tri-committee proposal bore no resemblance to the public plan he described in his papers and that the Lewin Group analyzed. Later, when Kaiser Health News asked Hacker in a July 6 interview why “your signature idea – a public plan – has become central to the health care reform debate,” Hacker again praised his “public plan” proposal and offered no hint that the “public option” so “central to the debate” was very different from the one he originally proposed.

Ditto for Hacker’s allies. Representatives of Health Care for America Now (HCAN), the organization most responsible for popularizing the “public option,” repeatedly describe the House and Senate HELP committee bills as “strong” or “robust,” always without any justification for this claim, and have repeatedly failed to warn the public that the “public options” they promote today are mere shadows of the “public options” they endorsed in the past. On July 15, the day the HELP committee passed its bill, Jason Rosenbaum blogged for HCAN:

The Senate HELP Committee has just referred a bill to the floor of the Senate with a strong public option.

Searching the websites of the organizations that serve on HCAN’s steering committee – AFSCME, Democracy for America, Moveon.org and SEIU, for example – one will find not a shred of information that would help the reader comprehend how small and ineffective the “public options” proposed in the Democrats’ bills are, nor how different these are from the one Hacker originally proposed. Yet these groups continue to urge their members and the public to “tell Congress to support a public option.”

Hacker’s original model compared with the Democrats’ mouse model

It has become fashionable among advocates of a “public option” to trash the expertise and the motives of the Congressional Budget Office. But the CBO’s characterization of the “public option” proposed in the Democrats’ legislation is entirely reasonable. This becomes apparent the moment we compare Hacker’s blueprint for his original “Medicare Plus” and “Health Care for America” programs with the “blueprints” (if tabula rasas can be called “blueprints”) contained in the Senate HELP Committee and House bills.

Hacker’s papers laid out these five criteria that he and the Lewin Group said were critical to the success of the “public option”:

• The PO had to be pre-populated with tens of millions of people, that is, it had to begin like Medicare did representing a large pool of people the day it commenced operations (Hacker proposed shifting all or most uninsured people as well as Medicaid and SCHIP enrollees into his public program);
• Subsidies to individuals to buy insurance would be substantial, and only PO enrollees could get subsidies (people who chose to buy insurance from insurance companies could not get subsidies);
• The PO and its subsidies had to be available to all nonelderly Americans (not just the uninsured and employees of small employers);
• The PO had to be given authority to use Medicare’s provider reimbursement rates; and
• The insurance industry had to be required to offer the same minimum level of benefits the PO had to offer.

Hacker predicted, and both of the Lewin Group reports concluded, that if these specifications were met Hacker’s plan would enjoy all three of Medicare’s advantages – it would be huge, it would have low overhead costs, and it would pay providers less than the insurance industry did. As a result, the “public option” would be able to set its premiums below those of the insurance industry and seize nearly half the non-elderly market from the insurance industry. According to the Lewin Group’s 2008 report, Hacker’s version of the “public option” would, as of 2007:

• Enroll 129 million enrollees (or 50 percent of the non-elderly);
• Have overhead costs equal to 3 percent of expenditures;
• Pay hospitals 26 percent less and doctors 17 percent less than the insurance industry (but these discounts would be offset to some degree by increases in payments to providers treating former Medicaid enrollees); and,
• Set its premiums 23 below those of the average insurance company.

I question some of Hacker’s and the Lewin Group’s assumptions, including their assumption that any public program that has to sell health insurance in competition with insurance companies could keep its overhead costs anywhere near those of Medicare (Medicare is a single-payer program that has no competition), especially during the early years when the public program will be scrambling to sign up enrollees. A public program will have to hire a sales force and advertise. It will have to open offices. It will have to negotiate rates, and perhaps contracts, with thousands of hospitals and hundreds of thousands of clinics, chemical treatment facilities, rehab units, home health agencies, etc. Or it will have to contract with someone to do all that. But I have little doubt that if a public program were to open with a large enough customer base, and it had the advantage of a law requiring that only its customers receive substantial subsidies, it could do what the Lewin Group said it could do.

Now let us compare Hacker’s original model with the mousey “public options” proposed by the Senate HELP Committee and the House. Of Hacker’s five criteria, only one is met by these bills! Both proposals require the insurance industry to cover the same benefits the “public option” must cover. None of the other four criteria are met. The “public option” is not pre-populated, the subsidies to employers and to individuals go to the “public option” and the insurance industry, employees of large employers cannot buy insurance from the “public option” in the first few years after the plan opens for business and maybe never (that decision will be made by whoever is President around 2015), and the “public option” is not authorized to use Medicare’s provider payment rates. (The House bill comes the closest to authorizing use of Medicare’s rates; it authorizes Medicare’s rates plus 5 percent).

Is it any wonder the CBO concluded the Democrats’ “public option” will be a tiny little creature incapable of doing much of anything? More curious is that CBO gave the House “public option” any credit at all (you will recall CBO said it would enroll maybe 10 million people). The CBO should have asked, Can the “public option” – as presented in either bill – survive?

Put yourself in the “public option” director’s shoes

To see why the “public option” proposed by congressional Democrats remains at great risk of stillbirth, let’s engage in a frustrating thought experiment. Let’s imagine Congress has enacted the House version (it is not quite as weak as the HELP Committee model and thus gives us the greatest opportunity in our thought experiment to imagine a scenario in which the “public option” actually survives its start-up phase). Let us imagine furthermore that you have been foolish enough to apply for the job of executive director of the new “public option,” and the Secretary of the Department of Health and Human Services (the federal agency within which the program will be housed) decided to hire you. It’s your first day on the job.

You know the House bill did not create a ready-made pool of enrollees for you to work with the way the 1965 Medicare law created a ready-made pool of seniors prior to the day Medicare commenced operations. You realize, in other words, that you represent not a single soul, much less tens of millions of enrollees. You will have to build a pool of enrollees from scratch. You also know the House bill authorized some start-up money for you, so you’ll be able to hire some staff, including sales people if you choose. You can also open offices around the country, and advertise if you think it necessary. But you know you can’t pay out too much money getting the “public option” started because the House bill requires that you pay back whatever start-up costs you incur within ten years. In other words, you may hire enough people and open enough offices and buy enough advertising to create a critical mass of enrollees nationwide, but you must do it quickly so that your start-up costs don’t sink the “public option” during its first decade.

The only other feature in the House bill that appears to give you any advantage over the insurance industry is the provision requiring you to use Medicare’s rates plus 5 percent, which essentially means you are authorized to pay providers 15 percent less than the insurance industry pays on average. But the House bill also says providers are free to refuse to participate in the plan you run.

So what do you do? Let’s say you open offices in dozens or hundreds of cities, you hire a sales force to fan out across the country to sign up customers, you advertise on radio and TV to get potential customers (employers and individuals) to call your new sales force to inquire about the new “public option” insurance policy. What happens when potential customers ask your salespeople two obvious questions: what will the premium be and which doctors they can see? What do your employees say? They can’t say anything. They haven’t talked to any clinics or hospitals about participating at the 15-percent-below-industry-average payment rate, so they have no idea which providers if any will agree to participate. They also have no idea what the “public option” premium will be because they don’t know whether providers will accept the low rates the plan is authorized to pay. And they have no idea about several other factors that will affect the premiums, including how much overhead the “public option” will rack up before it reaches a state of viability, or who the “public option” will be insuring – healthy people, sick people, or people of average health status.

So, let’s say you redeploy your sales force. Now instead of talking to potential customers, you direct them to focus on providers first. But when your salespeople call on doctors and hospital administrators and ask them if they’ll agree to take enrollees at below-average payment rates, providers ask how many people the “public option” will enroll in their area. Providers explain to your salespeople that they are already giving huge discounts, some as high as 30 to 40 percent off their customary charge, to the largest insurers in their area and they are not eager to do that for the “public option” unless the plan will have such a large share of the market in their area that it will deliver many patients to them. If the “public option” cannot do that, providers tell your salespeople, they will not agree to accept below-average payment rates.

In other words, you find that the “public option” is at the mercy of the private insurance market, not the other way around.

This thought experiment illustrates for you the mind-numbing chicken-and-egg problem created by any “public option” project that does not meet Hacker’s criteria, most notably, the criterion requiring pre-population of the “public option.” If the pre-population criterion isn’t met, the poor chump who has to create the “public option” is essentially being asked to solve a problem that is as difficult as describing the sound of one hand clapping. You need both hands to clap.

How did the mouse replace the elephant?

How did the “Medicare Plus” proposal of 2001 (when Hacker first proposed it) get transformed into the tiny “public options” contained in the Democrats’ 2009 legislation? The answer is that somewhere along the line it became obvious that the Hacker model was too difficult to enact and had to be stripped down to something more mouse-like in order to pass. Did the leading “public option” advocates realize this early in the campaign? Or midway through the campaign when the insurance industry began to attack the “public option”? Or late in the campaign when they found it difficult to persuade members of Congress to support Hacker’s original model? Whatever the answer, will they find it in their hearts to tell their followers their original strategy was wrong?

I suspect the answer is different for different actors within the “public option” movement. Hacker surely knew what was in his original proposal and surely knows now that the Democrats’ bills don’t reflect his original proposal. Hacker and others familiar with his original proposal were probably betrayed by the process. As the “public option” concept became famous and edged its way toward the centers of power, they couldn’t find the courage to resist the transformation of the original proposal into the mouse model.

For other actors within the “public option” movement, ignorance of Hacker’s original proposal and of health policy in general may have led them to rely on more knowledgeable leaders in the movement. Their error, in other words, was to trust the wrong people and, as the “public option” came under attack, to cave in to group think. This error was facilitated by the “public option” movement’s decision to avoid mentioning any details of the “public option” whenever possible. MR. PRESIDENT, MR. PRESIDENT, IF WE COULD HAVE YOUR ATTENTION, PLEASE?

What next?

Those of us in the American single-payer movement must continue to educate Congress and the public on the need for a single-payer system. We must also convince advocates of the “public option” that they have made two serious mistakes and, if they learn quickly from these mistakes, that real reform is still possible.

The first mistake was to think that a “public option” that merely took over a large chunk of the non-elderly market (as opposed to one that took over the entire market) could substantially reduce health care costs and thereby make universal coverage politically feasible. Any proposal that leaves in place a multiple-payer system — even a multiple-payer system with a large government-run program in the middle of it — is going to save very little money. Even if Hacker’s original Health Care for America Plan had taken over half the non-elderly market and then reached homeostasis (something Hacker swore up and down it would do), the savings would have been relatively small. The reason for that is twofold. First, any insurance program, public or private, that has to compete with other insurers is going to have overhead costs substantially higher than Medicare’s. (It is precisely because Medicare is a single-payer program that its overhead costs are low.) Second, the multiple-payer system Hacker would leave in place would continue to impose unnecessarily large overhead costs on providers.

The second mistake the “public option” movement made was to think the insurance industry and the right wing would treat a “public option” more gently than a single-payer. Conservatives have a long history of treating small incremental proposals such as “comparative effectiveness research” as the equivalent of “a government takeover of the health care system.” It should have been no surprise to anyone that conservatives would shriek “socialism!” at the sight of the “public option,” even the mouse model proposed by the Democrats.

The bait-and-switch strategy adopted by the “public option” movement has put the Democrats in a terrible quandary. Seduced by the false advertising about the potency of the “public option” to lower costs, Democrats have raised public expectations for reform to unprecedented levels. Failing to meet those expectations during the 2009 session of Congress, which is inevitable if the Democrats continue to promote legislation like the bills released in June, is going to have unpleasant consequences. Is there no way out of this quandary?

Conventional wisdom holds that if the Democrats don’t pass a health care reform bill by December, they will have to wait till 2013 to try again. But if the “public option” movement were to join forces with the single-payer movement, the two movements could prove the conventional wisdom wrong. This won’t happen, obviously, if the “public option” movement fails to perceive the reasons it failed.

It is conceivable the “public option” movement could decide the bait-and-switch strategy was wrong and that their only error was not to stick with Hacker’s original model. It should be obvious now that that would also be a tactical blunder. We have plenty of evidence now that conservatives will react to the mousey version of the “public option” as if it were “a stalking horse for single-payer.” We can predict with complete certainty they will treat Hacker’s original version as something even closer to single-payer. If a proposal is going to be abused as if it were single-payer, why not actually propose a single-payer? At least then, when a particular session of Congress comes and goes and we haven’t enacted a single-payer system, we will have educated the public about the benefits of a single-payer and have further strengthened the single-payer movement.

To sum up, “public option” advocates must choose between continuing to promote the “public option” and seeing their hopes for cost containment and universal coverage go up in smoke for another four years, and throwing their considerable influence behind single-payer legislation. At this late date in the 2009 session, it is unlikely that a single-payer bill could be passed even if unity within the universal coverage movement could be achieved. But if the “public option” wing and the single-payer wing join together to demand that Congress enact a single-payer system, December 2009 need not constitute a deadline.

Kip Sullivan belongs to the steering committee of the Minnesota chapter of Physicians for a National Health Program.

[bread_and_roses]

85. I am deeply disappointed in my Sisters and Brothers who are in leadership

A little background. Be aware that I am as about as low as one can get on the union totem pole, so this is all just my take - no insider info.

However, I can tell you that there has been a national effort underway from the AFL-CIO since at least the beginning of '08 - maybe even earlier - to prepare the membership to fight for "health care for all" - not just for union members. A huge effort to educate the rank and file, which was necessary for two reasons:

1) Members were fearful that they would lose what they had under any sort of reform. What many people don't realize is that nearly all union members have had to give up any real raises for years to keep health care coverage. Huge numbers have accepted raises so low - along with increased insurance contributions, higher deductibles and co-pays, etc., that they're actually worse off - but at least, have SOME insurance. And we all know how important that's become to people. The leadership engaged in a huge effort to educate members that the only way to break this cycle was to assure health care for all - and they have fought hard for a real public option. THAT would have benefited their low-wage workers as well - and there are many low-wage union workers in the service industries in particular, but also in education (aides and such).

2) Many people also probably don't realize how many union members are Republican. Unions have to spend huge sums and staff time educating their members on why the R positions are bad for their pocket books. The votes for Ds are hard fought and won with enormous issue education and GOTV efforts that usually start months and months before an election. All too many members are as inclined as any other group to swallow the "big gub'mt, taxes steal my money" poison.

BUT. Always the but. The fight was compromised from the beginning. Due to the fears of the membership, the leadership never fought for single-payer. Along with their coalition partners in HCAN, the language from the start included the word "affordable" - which is an Orwellian term in the context of health care. The battle was lost before it was begun.

And...the other but. They want to get on to Employee Free Choice Act. I think that they are deluding themselves that supporting this "health insurance" monstrosity is going to get them any more support from Obama on that, who'll no doubt pull his usual bi-partisan, republican-code "competition is god" act, regardless of both the huge effort unions made to elect him (just take a look at white male voters who were union members vs. white male non-union to see the fruits of that) and of Obama's strong campaign promises. We've seen just how much those promises are worth, and he'll sell-out on EFCA too.

[Demeter]

88. No Matter Who Offers, We Are the Ones Sold Out

so much for by the People.

[Dr.Phool]

53. Home builders' perks helped lead buyers to bust

By Michael Van Sickler, Times staff writer
In Print: Sunday, November 8, 2009

http://www.tampabay.com/news/article1049902.ece

TAMPA — As the housing boom revved up, few builders were as lauded as Lennar Corp.

Experts especially liked Lennar's "Everything Included" business model, which steered prospective buyers toward the company's lender, appraisers and Realtors, and away from anyone independent.

"A personal touch toward customers and employees goes a long way," raved a Fortune magazine article that praised the company's rapid growth. "In that regard, no one does it better than Lennar."

Try telling that to residents of Carriage Pointe, where half the homes are in foreclosure. Lennar provided the mortgages for 162 of Carriage Pointe's 380 homes. Since 2007, at least 74 have had foreclosure actions filed against them.

And about 87 percent of the Lennar mortgages came with adjustable rates. Those are considered particularly risky because the loan payments jump after a year or two when the interest rate goes up.

"Lennar made it pretty hard not to go with its lender," says Nick Burkel, who took two mortgages from Lennar's Universal American Mortgage Co. when he bought his Carriage Pointe house in 2006.

While banks have garnered significant blame for the bad loans that helped crash the U.S. economy, the actions of home builders have received little attention.

Pulte Homes wrote mortgages for its customers. So did Morrison Homes, KB Home and quite a few small builders.

"Builders absolutely had a large role in this," said Chris Lafakis, an economist at Moody's Economy.com. "Many of them didn't care about the performance of the mortgage because they were packaging them to investors."

Lennar's annual reports said as much during the boom years, when the company made record profits.

"Substantially all of these loans were sold within a short period in the secondary market," its 2006 annual report stated of that year's haul of 41,800 mortgages. Since most of them were sold to investors, Lennar greatly limited its exposure if the borrower couldn't pay the mortgage.

A review of the enticements offered by builders during the boom years shows how hard they worked to get customers to use their mortgage companies.

In 2006, Morrison Homes took $15,000 off closing costs if buyers got their mortgage from Morrison Financial Services. M/I Homes offered a super-low 4.75 percent interest rate for people who went with its lender. And Pulte Homes told buyers "you can stop pinching" thanks to its offer of a zero down payment and no closing costs through its mortgage arm.

Lennar had offers of its own, including a $5,000 shopping spree at Rooms-to-Go and $1,000-off trips to Best Buy and Home Depot. And buyers could skip mortgage payments for the first five months.

Even before the crash, Lennar's practices raised eyebrows. In 2007, the St. Petersburg Times wrote about Victoria Lynn Wehlau, who bought a Lennar home by putting down $100. Universal American Mortgage approved the $279,900 loan for the home, which was later foreclosed. Wehlau was 21 and autistic at the time she was approved.

Lennar denies it issued risky loans.

"I assure you that we, Lennar Corporation and Universal American Mortgage Corp., comply with all laws and best practices in the lending industry," says Marshall Ames, a Lennar spokesman.

As for Carriage Pointe, Ames says Lennar-issued loans are doing better than other loans made in the development. About 45 percent of the Lennar mortgages in Carriage Pointe defaulted. That compares to a 50 percent rate for the subdivision as a whole.

Nick Burkel, the Carriage Pointe homeowner with two mortgages from Lennar, is angry about what he calls Lennar's broken promises.

The company, he says, swore it would limit sales to investors to no more than 20 percent of the homes. A Times review of sales shows investors actually bought 60 percent of the homes.

Burkel bought his house for $236,400. It's now surrounded by empty homes once owned by people who never lived there. Its current value: $103,000.

"That was the golden rule: Don't sell to investors," Burkel says. "We don't have the community we were promised because of Lennar's greed."

[Demeter]

59. Wow

Florida is really in a mess.

[Dr.Phool]

61. Even worse. I just got my homeowners insurance renewal today.

A FORTY FUCKING PERCENT INCREASE!!!!! No inflation, huh?

State Farm jacked me up from $2300 per year to $3350. And that's before flood insurance, which was another $1,000 last year. And, that's on a replacement value of $175,000.

I hope Ida turns into a Cat 5 and levels this place.

[Demeter]

62. Not even any hurricanes--what gives?

[Dr.Phool]

64. Because they can.

Our state legislature is probably the most corrupt in the country. And I'm including Texas and Louisiana.

[DemReadingDU]

63. that's robbery!

We have State Farm too - auto, life, home. Prices have not yet climbed to such peaks in Ohio. Are there other cheaper insurance companies in Florida?

[Dr.Phool]

65. Nothing cheaper that I've found so far.

We were lucky to have them. The people across the street, right on the Anclote River could only buy state-run Citizens, and they were about 60% higher than us.

This comes after a big electric rate increase AND and a 30% surcharge on top of that to pay for 2 nukes they "might" build. We pay for the plants, and they get the profits.

We're trying to stop that one. We just formed this organization.

www.cfrpr.com
www.citizensforratepayerrights.com
www.progressenergysucks.org

I'm on the board, and the treasurer. I can't say much more about it, until we have a public announcement and a press conference next week.

That's also why I haven't been around much lately.

[Demeter]

55. Obama Approval 49% Among U.S. Investors, 87% AMONG THOSE Overseas (Update1)

http://www.bloomberg.com/apps/news?pid=20601087&sid=aLCO_kfFLJag

July 23 (Bloomberg) -- President Barack Obama has rock- star appeal among the investing class -- except in his own country.

The Quarterly Bloomberg Global Poll of financial investors and analysts finds attitudes about the new president in Asia and Europe are overwhelmingly positive. In the U.S., by contrast, they are slightly negative.

In Europe and Asia, 87 percent of respondents say they view Obama positively, compared with just 49 percent in the U.S. His standing among American investors is even lower on economic matters: only a quarter of U.S. poll respondents rate his economic policies as “good” or “excellent,” compared with more than half in Europe and Asia.

Obama’s “stratospheric favorability ratings” outside the U.S. after five months in office are related to attitudes about his predecessor, former President George W. Bush, says J. Ann Selzer, the president of Selzer & Co., a Des Moines, Iowa-based polling firm that conducted the survey.

“It speaks as much to the visceral distaste for George Bush outside of the U.S,” she says. In Europe and Asia, more than four of five poll respondents choose Obama over Bush as the president offering better economic leadership. In the U.S., investors pick Bush, 43 percent to 41 percent.

Brown, Putin, Lula

Worldwide, Obama has a 73 percent favorability rating, far higher marks than those of a sampling of other leaders, including U.K. Prime Minister Gordon Brown, who has a 34 percent favorable rating, President Vladimir Putin of Russia, with 23 percent, and President Luiz Inacio Lula da Silva of Brazil, with 49 percent.

Equity investors around the world have done well since Obama’s Jan. 20 inauguration. The gains were most pronounced in Asia, where the MSCI Asia Pacific Index has risen 28 percent. In the U.S., the S&P 500 Index has risen 19 percent. The benchmark index for U.S. equities has rallied 41 percent over the past four months, led by a 95 percent rise in financial firms. European investors, though they are more bullish on Obama than their U.S. counterparts, have fared less well: The Eurostoxx 50 Index has risen 14 percent.

The poll of investors and analysts on six continents was conducted July 14-17. It’s based on interviews with a random sample of 1,076 Bloomberg subscribers, representing decision makers in markets, finance and economics. The poll has a margin of error of plus or minus 3 percentage points.

Fixed-Income, Equity

There isn’t much difference in favorability ratings for Obama across professions. Among respondents in the fixed-income sector, he gets 70 percent, while his rating with equity investors, is 71 percent.

A plurality of all investors, 43 percent, rate Obama’s economic policies as good or excellent. Twenty-eight percent say they are average and the same number say they are below average or poor.

Obama’s policies for handling of the crises in the financial and auto markets, is praised by Italian poll respondent Mario Di Marcantonio, a 32-year-old portfolio manager for Eurizon Capital SGR in Milan.

“Companies like Goldman and Morgan Stanley have been able to survive this crisis and do business as usual, and people working at GM will continue to have their jobs,” he says. “I don’t think they can solve the problems of the world overnight, but at least they’re starting to fix it.”

Obama, during a press conference last night, cited the steps his administration took to stabilize the U.S. financial institutions and housing market.

“We’ve been able to pull our economy back from the brink,” he said.

Government Bailouts

The views of Chris Gurkovic, a 36-year-old strategist for First Brokers Securities LLC in Jersey City, are typical of many U.S. poll respondents. He says bailouts of the auto and financial industries and Obama’s health-care proposals are making Americans like him nervous about the government’s role in the economy, and rates the president “very unfavorably” in the survey.

“I feel that we’re becoming a socialist nation,” Gurkovic says. “It’s not a step in the right direction; the big-government policies kind of scare me.”

Brown, the U.K. prime minister, gets low grades across the board. This is particularly true in Europe, where only one- quarter of respondents gave him a favorable rating.

Putin also gets bad marks from these investors, including those in Asia, where half of the respondents give him an unfavorable rating.

Brazil’s Lula does better, though about one-third of the poll participants say they have “no idea” how they feel about him.

Investor Profile

The political profile of the majority of global investors in the poll is similar to Obama’s coalition. Half say they consider themselves either left of center or centrist; 42 percent say they are right of center. In the U.S., 43 percent of respondents describe themselves this way.

Obama does best with those who describe themselves as on the left: 94 percent of respondents in that group rate him favorably, compared with 80 percent of those in the center and 60 percent of those on the political right.

[Demeter]

57. Alan Grayson: "Where is the half a trillion dollars the Federal Reserve lent to foreigners?"

http://www.nakedcapitalism.com/2009/07/alan-grayson-where-is-half-trillion.html

http://www.youtube.com/watch?v=n0NYBTkE1yQ&feature=player_embedded


I found this exchange intriguing. First, the unflappable Bernanke looks stressed. I can’t put my finger on why, but the Congressional attacks seem to be getting to him. Second is the stunning lack of candor as to why the dollar swap lines were put in place, that there was massive dollar deleveraging happening. It would not be hard to paint a picture as to why letting that proceed without the Fed intervention could have had very bad consequences for US citizens. Or to say the offshore market for dollar based funding does affect US rates via arbitrage, that everyone including the Fed is now in an awkward position because markets have grown beyond national boundaries, but the market for dollar borrowing is now effectively global and involves a lot of non-US players. That would have been simpler and avoided what might be perceived as scare-mongering (even though that time was scary).

Instead, Bernanke basically stonewalls and refuses to offer reasonable explanations. Not sure if he is treating the Congress as stupid or not entitled to know, but he backs himself into a real whopper with his non-defense defense (see 2:55 to 3:20).

Update: I see from some of the comments that there might have been some misunderstanding or lack of clarity in my drafting. The Fed had nothing to hide here. The reason for implementing dollar swaps lines isn’t that hard to explain and were quite legitimate. Of all the things the Fed has done, this one is where there is nothing to be gained by not being forthcoming. Yet Bernanke’s answer was vague and he denied that the spike in the dollar had to do anything with the swap lines. Of course, teh causality runs the reverse way: the deleveraging led to very high demand for dollars, and the Fed was intervening to alleviate that, but saying the two had no relationship to each other is simply untrue.

It would have been tactically smart for Bernanke to be forthcoming on a line of questioning where he had nothing to lose.

MAYBE THAT'S WHY THE FOREIGNERS LIKE OBAMA SO MUCH?

[Demeter]

58. britain's Pubs closing at rate of 52 a week as hard-up drinkers shun their local

http://business.timesonline.co.uk/tol/business/industry_sectors/leisure/article6722488.ece

this was in july

[UpInArms]

66. Peter S. Goodman of the NYT is an absolute idiot

he completely wakes up on a new world every day and puts on his partisan idiot glasses so that he can call shit "business cycles".

someone needs to hold my hair

:puke:

here's his tripe:

The Recession’s Over, but Not the Layoffs

http://www.nytimes.com/2009/11/08/weekinreview/08goodman.html?_r=1&pagewanted=print

The Recession’s Over, but Not the Layoffs
By PETER S. GOODMAN

The Great Recession is over — not officially, but by popular acclaim — and in this accepted fact we are invited to take comfort, even as the unemployment rate last week rose into double digits for the first time in a quarter-century.

Experts have long assured us that economic life is governed by the business cycle, a repeating loop of downturn followed by expansion, as reliable as the seasons. In this context, worsening joblessness is like a punishing blizzard in April: Misery notwithstanding, the calendar promises spring.

But just as climate change has altered how we contemplate the seasons, some economists argue that the business cycle no longer operates as it once did, failing to replenish the jobs it destroys, and leaving our economy vulnerable to a potentially long-term shortage of work.

The tools we use to assess the business cycle date back to the 1920s, when the economy looked much different. Manufacturing jobs have declined sharply as a percentage of overall employment, while services have emerged as the primary economic engine. Automation and globalization have supplied thrifty corporate managers with myriad ways to boost production without hiring.

“It’s a change in the structure of the business cycle,” argues Allen Sinai, chief global economist at the research firm Decision Economics, who has put together a panel to discuss the subject at a January meeting of the American Economic Association in Atlanta. “There appears to be a new tendency to substitute against labor. It’s permanent, as long as there are alternatives like outsourcing and robotics.”

Certainly, those inclined to argue that commercial life has been remade are frequently chastened when — as often happens — the dusty old laws of economics reassert themselves.

During the technology boom of the 1990s, some hailed a New Economy that supposedly liberated us from the tyranny of the business cycle while explaining how companies that never earned a nickel could be worth more than established brands. When arithmetic returned, the New Economy became synonymous with silliness.

This decade, as investors bid housing prices to levels that breached all connection to incomes, some economists argued that the booms and busts of real estate had been rendered inoperative by financial innovation. We know how that turned out.

But the latest reassessment of the business cycle now has a couple of decades of data to consider. After recession gave way to expansion in March 1991, it took a year before hiring resumed in earnest — a so-called jobless recovery. After the following recession ended in March 2001, two years passed before jobs grew. Many economists assume that the third straight jobless recovery has already begun, as nervous businesses — worried about the lingering bite of the financial crisis and weak prospects — continue to hold back on hiring.

This is not how things are supposed to go, not according to our traditional view of the business cycle. When the economy is growing, businesses hire aggressively as they increase production and sell more goods. As workers spend their paychecks, they distribute dollars throughout the economy, creating business opportunities that prompt other companies to hire — a virtuous cycle. As growth slows, companies let people go, then hire anew when new opportunities emerge.

Our unemployment insurance system is built for this kind of boom and bust cycle, giving furloughed workers some cash to tide them over until their companies call them back.

[Demeter]

67. music for the age---Guy Fawkes' age, that is

https://www.indiana.edu/~mrktpl/mp3/cl_06_05.mp3

https://www.indiana.edu/~mrktpl/mp3/cl_06_01.mp3

https://www.indiana.edu/~mrktpl/mp3/cl_06_19.mp3

[Dr.Phool]

68. Financial advice from last summer.

Lenny Dykstra's career as a financial advisor.


http://www.thedailyshow.com/watch/tue-july-14-2009/lenny-dykstra-s-financial-career

[Demeter]

72. So, Did You Like the Movie, Doc?

[Dr.Phool]

74. I haven't had a chance to look at it yet.

I was finishing up some reading. And improving my vocabulary talking about State Farm.

[bread_and_roses]

69. I've been in an alternate universe for two days, watching horse racing

I have a love-hate relationship with TB racing. I detest the inherent elitism, loathe the reverence shown for the Royals of Dubai and elsewhere, have grave objections to many of its practices and wonder if it is not in essence abusive to the horses, detest the exploitation of back-stretch workers, and hold my breath every race knowing at any fraction of a second a horse or a human could die on the track. And...with all that...can't resist the beauty of the creatures, their unworldly grace, their pure spirit. And yesterday was pure magic, as a filly/mare named Zenyatta took the richest race in North America, against one of the best fields ever assembled for this race, at a distance she'd never run, making history: a perfect record (no losses) and the first time a female horse has ever won this race. Perfection.

And now I have to get up to read about this grotesque horror of a "health insurance" Bill passed in the House yesterday....passed, I guess, so Obama can say he did something, I can't figure out a single other reason why they bothered with it. The few reforms to the Vampire Insurance Cos could have been done with simple legislation; instead we have this utterly dishonest hoopla that will play entirely into the Rights hands as we have to create endless regulatory and administrative paths for the non-public "option" they threw in as a sop to real reform, while they're shoveling more $ into the coffers of the Corps and some low-wage worker suddenly has to BUY insurance that some idiot in DC deems is "affordable" for him/her.

You know, we're insane. We know that if the forests and oceans die, we die. We keep destroying them. We know that our Gov't is a bought and sold exhange for the Profiteers - and we keep talking like it's a representative democracy. We know that poverty and unemployment is destroying our nation, not to mention the world, and we say "the recession is over!" because a few rich get richer. In comparison, my cognitive dissonance on horse-racing is the mildest of disorders - it's not causing wars or poisoning the earth and sea or stealing more than a fraction of the wealth of the people.

Thank the goddess for Zenyatta.

[Demeter]

73. It Is Appalling and Amazing

that a country with so much pride in its accomplishments, and they were worthy accomplishments and painfully won, has been reduced to self-satire, and has become the butt of late-night humor and a standing joke around the world.

[Dr.Phool]

75. Settle down. Take two aspirin,

And go out on the front page and drink some of the Kool-Aid. Everything will be fine. :hi:

[bread_and_roses]

78. Wicked! Made me laugh, though. (n/t)

[Dr.Phool]

80. I'm not a real doctor, but I play one on DU. Puppy kisses might help.

[Demeter]

83. The Koolaid is Double Strength Tonight

Why do I feel like I'm in a crowd of lemmings? DU didn't used to have that group-think feel.

[Demeter]

70. All stimulus roads lead to China By Barry Eichengreen/Beijing

http://www.gulf-times.com/site/topics/article.asp?cu_no=2&item_no=304830&version=1&template_id=46&parent_id=26


Now that the “green shoots” of recovery have withered, the debate over fiscal stimulus is back with a vengeance. In the US, those who argue for another stimulus package observe that it was always wishful thinking to believe that a $787bn package could offset a $3Tn fall in private spending. But unemployment has risen even faster and further than expected. Combine this with the continued fall in housing prices, and it is understandable that consumer spending remains depressed.

The banks, having been recapitalised only to the extent necessary to keep them afloat, still have weak balance sheets. Their consequent reluctance to lend constrains investment. Meanwhile, state governments, seeing revenues fall as a result of lower taxable incomes last year, are cutting back like mad. If there was a case for additional stimulus back in February, that case is even stronger now.

But the case against additional stimulus is also strong. The US federal deficit is an alarming 12% of GDP, and public debt as a share of national income is already projected to double, to 80% of GDP. The idea that the US can grow out of its debt burden, as did Finland and Sweden following their financial crises in the 1990’s, seems unrealistic.

Given all this, more deficit spending will only stoke fears of higher future taxes and inflation. It will encourage the reemergence of global imbalances. And it will not reassure consumers or investors.

It is possible to argue the economics both ways, but the politics all point in one direction. The US Congress lacks the stomach for another stimulus package. It has already faced intense criticism for its failure to get the country’s fiscal house in order. The slowness with which the first stimulus has been rolled out, and the fact that it will take even more time for its full effects to be felt, provides more fodder for the chattering classes.

Disappointment over the effects of the TARP has already destroyed popular – and Congressional – support for more public money to recapitalise the banks. So, even those who find the economic logic of arguments for fiscal activism compelling must acknowledge that the politics are not supportive. A second stimulus simply is not in the cards.

If there is going to be more aggregate demand, it can come from only one place. That place is not Europe or Japan, where debts are even higher than in the US – and the demographic preconditions for servicing them less favorable. Rather, it is emerging markets like China.

The problem is that China has already done a lot to stimulate domestic demand, both through government spending and by directing its banks to lend. As a result, its stock market is frothy, and it is experiencing an alarming property boom. Through May, property prices were up 18% year on year. Understandably, Chinese officials worry about bubble trouble.

The obvious way to square this circle is to spend more on imports. China can purchase more industrial machinery, transport equipment, and steelmaking material, which are among its leading imports from the US. Directing spending toward imports of capital equipment would avoid overheating China’s own markets, boost the economy’s productive capacity (and thus its ability to grow in the future), and support demand for US, European, and Japanese products just when such support is needed most.

This strategy is not without risks. Allowing the renminbi to appreciate as a way of encouraging imports may also discourage exports, the traditional motor of Chinese growth. And lowering administrative barriers to imports might redirect more spending toward foreign goods than the authorities intend. But these are risks worth taking if China is serious about assuming a global leadership role.

The question is what China will get in return. And the answer brings us back, full circle, to where we started, namely to US fiscal policy. China is worried that its more than $1tn investment in US Treasury securities will not hold its value. It wants reassurance that the US will stand behind its debts. It therefore wants to see a credible program for balancing the US budget once the recession ends.

And, tough talk notwithstanding, the Obama administration has yet to offer a credible roadmap for fiscal consolidation. Doing so would reassure American taxpayers worried about current deficits. Just as importantly, it would reassure Chinese policymakers.We live in a multipolar world where neither the US nor China is large enough to exercise global economic leadership on its own. For China, leadership means assuming additional risks. But for this to be tolerable, the US needs to relieve China of existing risks. Only by working together can the two countries lead the world economy out of its current doldrums.

- Project Syndicate l Barry Eichengreen is Professor of Economics at the University of California, Berkeley.

[Demeter]

71. CERBERUS: Panting Dog

http://www.breakingviews.com/2009/07/23/cerberus.aspx?sg=nytimes

The Vulture gets slapped around.....

[IndianaGreen]

77. Guy Fawkes: the only man to enter Parliament with honest intentions!

[Demeter]

79. Rimshot!

I'm just sick about this stupid phony health care bill. The only one whose health is being cared for is the insurance companies.

[DemReadingDU]

86. same here

wonder if the markets will be sick tomorrow

and thanks for your weekend efforts, lots of good articles to read

[Demeter]

87. It's amazing how stuff first published in July is now coming to pass

and the fresh stuff is very fresh, too

[Demeter]

81. Einhorn: First, Let’s Kill All the Credit Default Swaps

http://www.nakedcapitalism.com/2009/11/einhorn-first-lets-kill-all-the-credit-default-swaps.html


David Einhorn, who enjoys his considerable reputation for hard-fought battles against firms with shaky finances and dubious accounting (Allied Capital and Lehman), has taken aim at a new and equally deserving target: credit default swaps.

In an interesting bit of synchronicity, Einhorn’s comments in a letter to investors overlap to a considerable degree with a post we wrote yesterday on why a clearinghouse for derivatives wasn’t a solution to the dangers posed by credit default swaps (and note the Orwellian branding, the reforms are about “derivatives” which include benign ones, names simple interest rate and currency swaps, yet the bill has loopholes that will let many, indeed probably most, credit default swaps escape).

Credit default swaps have no redeeming social value. They are a fee machine for Wall Street and their supposed value is considerably overstated (the world pre credit default swaps functioned perfectly well) and their costs, which are considerable, are not given the attention they warrant. And I don’t mean the failure of AIG, either.

Even though Einhorn gave a stinging, wide-ranging indictment, he missed one of the issues I find troubling, which is that credit default swaps result in information loss, which in turn lowers the quality of credit decisions. In other words, the product is inherently destructive.

In the world of old-fashioned fixed income investing, creditors would evaluate a borrower to make sure it had good odds of meeting its obligations. The lender could and usually did make inquiries about the borrower’s income, and its other commitments. If it was a business, the bank might also want to assess information that would help it evaluate the stability of the borrowers income (for instance, learning who its main customers were to determine how diverse and solid they were).

Just as with securitiztion, credit default swaps lower the incentive to do borrower due diligence. Why bother, when the CDS spreads on the reference entity tells you what the market thinks and you can use CDS to reduce or lay off the credit risk? But the original lender is in a privileged position; he is able to gather data from the borrower that it non-public and thus will not be incorporated in a market price. Thus giving creditors an incentive not to do that work systematically lower the quality of credit decisions.

But that reason is a bit abstract, although the costs are real. Einhorn focused on more tangible types of damage wrought by CDS, as summarized by the Financial Times. First, CDS are a means of extortion:

“I think that trying to make safer credit default swaps is like trying to make safer asbestos,” he writes in a recent letter to investors, adding that CDSs create “large, correlated and asymmetrical risks” having “scared the authorities into spending hundreds of billions of taxpayer money to prevent speculators who made bad bets from having to pay”.

Second, CDS speculators win if companies die. Given that the volume of CDS outstanding is a significant multiple of the amount of bonds outstanding, they are not used primarily for hedging, but for creating “synthetic” exposures. And those on the short side have compelling reasons to influence outcomes. When a company gets in trouble, the best outcome is often an out-of-court restructuring of debt before it gets even further in trouble. As much as the Chapter 11 process has certain advantages, it is also costly and risky. A CDS holder (one with a significant short position) can buy some bonds (now at a cheap price) of a struggling company to assure it has a seat at the table in negotiations so it can block a renegotiation of the debt and force a bankruptcy filing so it can assure its payoff on the CDS. From the Financial Times:

CDSs are “anti-social”, he goes on, because those who buy credit insurance often have an incentive to see companies fail. Rather than merely hedging their risks, they are actively hoping to profit from the demise of a target company. This strategy became prevalent in recent years and remains so, as holders of these so-called “basis packages” buy both the debt itself and protection on that debt through CDSs, meaning they receive compensation if the company defaults or restructures. These investors “have an incentive to use their position as bondholders to force bankruptcy, triggering payments on their CDS rather than negotiate out of court restructurings or covenant amendments with their creditors”

Einhorn also agrees with our contention, that a credit default swaps clearinghouse is not a viable solution. As we said yesterday in comments:

CDS are not economic if adequately margined. Adequate allowance for jump to default risk makes it very unattractive on a ROE basis. The way around that pre-crisis was making AIG and the monolines the bagholders. That game is over, but the Street is hooked on the revenues…..

….in invoking AIG, I am saying that an undercapitalized clearinghouse is a concentrated point of failure and a very big one too, a systemic risk all of its own.

Einhorn’s views:

“The reform proposal to create a CDS clearing house does nothing more than maintain private profits and socialised risk by moving the counterparty risk from the private sector to a newly created too big to fail entity,” he notes.

That’s because it is almost impossible to adequately capitalise against such developments. “There is no way a clearing house could demand enough collateral,” he says. “The market can be so big and discontinuous that it is very hard to figure out the correct amount of collateral.”

I think you need more people recognizing that CDS serve the interests of the financial sector at the expense of the real economy, and calling for the product to be banned. Only then might you see radical enough action taken.

However, as much as I hate CDS, I have reluctantly concluded that they cannot be taken out overnight. They have become sufficiently enmeshed in our financial infrastructure that eliminating them is like disarming a web of nuclear weapons. If you make a mistake on any one, they all go boom. One (and this is far from the only) problem is that the big banks not only have large CDS exposures, but they have other hedges related to them (such as interest rate swaps). So simply putting CDS into runoff mode could lead to dislocations in other markets.

I prefer regulating them very intrusively (like insurance, to make sure the counterparties are adequately capitalized), limiting new CDS writing to hedging existing positions (that would need to be tightly defined and monitored) and limiting CDS writing to end users (which would include proprietary trading desks) to where the investor had an insurable interest, as in owned the bonds, and only up to his exposure. That plus increasing capital requirement over, say, a three year period, to reflect the true default risk of the product should shrink the market enough to allow regulators to then ascertain whether it could then be put in runoff mode. But the intent of policy should be loud and clear: to strangle CDS, with the hope of killing them.

And for those who hope netting might do the trick, reader Richard Smith disabuses us of that notion:

Another point is about the struggle to keep up with ‘financial innovation’ in the OTC market. A problem for clients and regulators alike. CDS are probably the nastiest of these. They are so polymorphous – part of a basis trade, or a directional bet, or a sort-of-legit hedge, or a synthetic, depending on context; and no cap on speculation a la Gambling Act; and then vaguely like derivatives, or insurance, or short bond positions, or a prediction market.

But you couldn’t rule out the possibility that equally nasty new products could be developed by some smart aleck. Maybe there should be a charge on the inventors to cover the cost of regulatory catch up. Or something equivalent to airworthiness regulations, which even libertarians accept without demur, as far as I understand. That would slow the innovators down a bit – proving the ‘wings’ aren’t going to come off their new financial products and kill all the passengers.

Another observation I’d been meaning to make on ‘CDS trade compression’: the 20-40% that some commentators are so pleased about. I worked on an app like this for a large IB (recently unpopular in the guise of an mollusc) at the turn of the millennium. They had half a million daily NASDAQ trades at that time and their settlement IT guy in NY was freaking out as his mighty mainframe began to wilt under the volumes. Even with quite a conservative approach to compression (there are choices about how aggressively you net the trades – we thought we could get it down to 25,000 trades per day if we really went for it) we got 80% compression straight away, so, 100,000 netted trades per day. Of course those are highly standardized trades. The aggregation was something like stock, side, settlement date, counterparty, trade flags. NASDAQ is often characterized as an OTC market so it is really the product standardization that matters, rather than the nature of the venue perhaps. I think it went to 90% within a month or two as we got bolder but I may be confabulating; it’s a while ago.

If they can only get 40% trade compression out of CDS, after a year, there must be an awful lot of detritus left over (especially when IIRC most of the counterparties are TBTFs). So things like contract clauses, reference entity, duration of cover must be all over the place in what remains. Difficult to hedge or lay off I should think. And some unconfirmed trades too no doubt. A total mess.

Ignoring all the other shortcomings of CDS the natural thing would be to standardize the product:: that’s happened so many times before, but IBs hate standardization of course for the margin erosion it brings, and anyway now we get this cartel-like protection of the margins, under the guise of support for ‘finanical innovation’.

The implication is that what is on the banks’ books now is a bit hairier to manage than they are ‘fessing up. As other experts who similarly hate the product, like Satyajit Das have observed, simply banning new protection writing would probably lead to hugely disfunctional behavior prior to the date and also lead to problems (as in big time losses, which in a worst case scenario could result in another bailout) as positions that were in runoff mode would be essentially frozen and could not be managed.

But if we can get agreement on aims, which is the product should be killed, then it becomes possible to debate the best (least painful and costly) means.

[Demeter]

82. Wall Street still overestimating the American consumer

http://www.economicpopulist.org/content/wall-street-still-overestimating-american-consumer

Despite every effort from Washington, the American consumer continues to repair his/her balance sheet. The federal government has repeatedly gone back to what it knows and teased us with goodies (like cash4klunkers) in an effort to get us to spend money we don't have on things we don't need, but those days appear to be over.

(Bloomberg) -- U.S. consumer credit fell in September for an eighth straight month, the longest series of declines on record, as thousands of Americans lost their jobs and banks tightened access to loans.
Borrowing fell more than economists predicted, declining by $14.8 billion, or 7.2 percent at an annual rate, to $2.46 trillion, according to a Federal Reserve report released today in Washington. Credit dropped by $9.86 billion in August, less than previously estimated. The consecutive declines were the most since records began in 1943.

The optimists, who are already predicting that happy days are here again, fail to mention how the economy will rebound without the American consumer. Consumer spending is 70% of the economy. So how will the economy grow when the consumer is paying down debt rather than buying junk at the mall?

A good way of measuring of how Wall Street has completely underestimated this trend has been in the consumer credit numbers.
Oct08 Nov08 Dec08 Jan09 Feb09 Mar09 Apr09 May09 Jun09 Jul09 Aug09 Sep09
Forecast Consumer Credit 2.0B 0.0B -4.2B -4.2B -2.2B -4.2B -6.0B -9.8B -4.0B -3.8B -9.9B -9.9B
Actual Consumer Credit -3.5B -7.9B -6.6B 1.8B -7.5B -11.1B -15.7B -3.2B -10.3B -21.6B -12.0B -14.8B

It isn't just a matter of the so-called experts on Wall Street missing the forecasts in all 12 months of the past year by a large margin. The real trick is that they've missed 10 of those 12 months in the same way - by overestimating the spending ability of the American consumer. After a certain number of misses in the same direction it's no longer a surprise - it's a bias.

They keep expecting the American consumer to start spending again, or at least spend more than he/she is going to, no matter what the job market like look like. Wall Street seems to have missed the biggest and most important lesson of the last bubble - housing supported the American consumer. Not paychecks.



With the implosion of the housing bubble, the American consumer can no longer use their homes as ATM machines. With the implosion of the credit bubble, the American consumer can no longer tap easy credit from the banks.

It almost makes sense why the stock market seems to want to go higher, if you think the American consumer is just about to start spending again. At some point Wall Street is going to wake up to the fact that the game has changed and their premise is wrong. The American consumer isn't going to start spending again until either the jobs return, or their balance sheets are repaired. Neither of those things are going to happen anytime soon.
When Wall Street figures this out the stock market will correct very sharply. This realization is most likely to happen when the Christmas sales numbers begin to come in.

[bread_and_roses]

89. What happens to Wall St. if we find some other way than buying crap we don't need

to keep our economy alive? Because we'd better work on finding it pretty damn quick, since our greed is a prime cause in the utter destruction of our ecosystem now underway. I'd say the lack of consumption is good for the environment, but in the long run, unless we change our patterns, the resultant poverty will be a killer. Nothing like an abused, deprived population for fueling a few good wars - just look at the 20th century, and just that sure as hell won't be good for Mother Nature.

[Demeter]

84. The less optimistic view of Treasury’s handling of the crisis (Ed Nails It)

http://www.nakedcapitalism.com/2009/11/the-less-optimistic-view-of-treasury%E2%80%99s-handling-of-the-crisis.html


By Edward Harrison of Credit Writedowns

The Obama Administration is captured. To understand why it has acted as it has, one doesn’t have to take the view that its efforts to save the banking industry were a deliberate attempt to line bankers’ pockets by transferring money from taxpayers to the banking industry. One need merely read the last post I wrote on this topic.

In their wildly optimistic view,

http://www.creditwritedowns.com/2009/11/the-wildly-optimistic-view-of-treasurys-handling-of-the-crisis.html

the banking industry is solvent and always has been. All that was needed to ‘solve’ than banking crisis was a lot of liquidity, government backstops and, most importantly, time. This blinkered view sees a looting of taxpayer money to bailout the banking industry as necessary to save banks whose credit is the ‘lifeblood of our economy.’

They are wrong. The banks did not need to bailed out. The banking industry industry needed to made solvent again. There is a big difference between those two sentences (banks versus banking industry and liquidity versus solvency) that goes to the core of the captured and politically damaging world view we have seen on display by the Obama Administration.

Change you can believe in

Think back some 18 months when Senator Obama was in a horse race with Hillary Clinton to see who would go up against John McCain in the Presidential election. If you asked any reasonable individual who had the least experience and the thinnest political resume of the three, he or she would have said Barack Obama. If Americans wanted someone long on inside-the-beltway experience, they would have chosen John McCain – or, at a minimum, Hillary Clinton, not Barack Obama.

So, Barack Obama did not best both Hillary Clinton and John McCain and get to the White House because Americans felt him more qualified for the job. Rather, Americans believed the U.S. was on the wrong path and wanted a qualified person to lead the country who would also change course. They believed that person was Barack Obama.

And when it came to the economy, the presence of two men, Paul Volcker and Warren Buffett, born some 80 years ago, gave one the sense that, despite Barack Obama’s perceived relative youth or inexperience, he had the ablest of wise old men who would be his and our counsel in resolving this crisis.

Bailing out the banks

So when Barack Obama took office, it came as a rude awakening for many that he chose to bail out the too big to fail institutions with little or no strings attached, allowing them to later make record profits and pay record bonuses, while the economy was in a deep slump and ordinary Americans were being bankrupted and losing their jobs and homes at record rates. This was not change you can believe in.

What could or should the Obama Administration have done?

If you had listened to the chatter inside the beltway early this year, you would realize that Obama’s team believed it was not politically feasible to ‘nationalize’ Citigroup or Bank of America and force top executives to resign as was done at RBS, Bradford and Bingley or Northern Rock in the UK. This was a blinkered view which can only be described as captured (if not outright disingenuous). We need look no further than Fannie Mae and Freddie Mac to see that nationalization was an option.

But this is not the kind of solution we needed. What we needed was a solution by the Administration to take prompt corrective action in seizing bankrupt institutions, dismissing management, punishing any misdeeds and setting up a timetable to sell off the institution’s assets. That is change you can believe in.

http://www.law.cornell.edu/uscode/12/usc_sec_12_00001831---o000-.html

I laid this out fairly comprehensively in February in my post “America needs a pre-privatization plan.”

http://www.creditwritedowns.com/2009/02/america-needs-a-pre-privatization-plan.html

So I am not going to cover that ground here except to quote the key relevant passage in that post:

To my mind, there are three ways to deal with an insolvent financial institution:

* Bankruptcy. Allow the institution to collapse (like Lehman Brothers)
* Nationalization. Seize the assets of that institution and nationalize it (like Northern Rock, AIG, or Fannie Mae)
* Bailout. Inject capital into the institution in order to allow it breathing room until it can meet capital adequacy levels.

As you can see, governments have tried all three solutions. However, there are vast differences between the three.

The bailout solution is the most ‘anti-free market’ choice and seems to be the favored solution of governments everywhere. It props up organizations, giving them an unfair advantage at the expense of other more prudent institutions. It also acts as a subsidy, which favors domestic institutions over foreign rivals. Bailouts increase moral hazard by rewarding risky and reckless lending practices. And they are often the result of crony capitalism due to the power of the financial services lobby. There are many other problems with bailouts. All around, bailouts are a poor solution.

So what we have here is a case of crony capitalism and kleptocracy, plain and simple – whether by design or not is immaterial. And the American people are on to this. That is why people are resistant to other changes this Administration has put forth.

Don’t let the media’s spin fool you: Washington insiders are on to this too. Politicians in Congress realize that Obama’s bailouts have cost him political capital and they are challenging his policy agenda as a result. This is why the health care bill, which Obama wanted passed before the summer recess, may not see the light of day before year’s end.

Are we home safe?

I would advise the Obama Administration not to run any victory laps about having slayed the beast. The lingering effects of crisis are still there. The Fed’s liquidity is still liquid. Impaired assets are still impaired. And zombie banks are still zombies. As I indicated in my depression piece:

In reality, the problems of high debt levels in the private sector and an undercapitalized financial system are still lurking, waiting for the government to withdraw its economic support to become realized.

http://www.creditwritedowns.com/2009/10/the-recession-is-over-but-the-depression-has-just-begun.html

Since I covered this ground in that article, I will leave you to read my further thoughts there. What I want to turn to now is the ‘why.’

The Cheney-Rumsfeld replay

Now, I am not writing off Barack Obama’s presidency. I do worry he still could see a recessionary relapse which would cause him to seem more Herbert Hoover than Franklin Roosevelt. But, despite his Nobel Prize, it is much to early to know what his legacy will be.

Nonetheless, I believe he has wasted a lot of political capital and this will make ushering through a meaningful legislative agenda very difficult.

Why did Obama throw it all away?

Here’s my answer: I call it the Cheney-Rumsfeld replay.

When historians look back at the Bush 42 presidency, it will be defined by 9/11 and the wars in Iraq and Afghanistan. While George W. Bush was politically pre-disposed to the Neo-con world view, it was really advice from Dick Cheney and Don Rumsfeld which made Afghanistan and Iraq possible. George W. Bush was famously not well-versed in foreign affairs, having almost never travelled abroad. He was completely dependent on Dick Cheney and Donald Rumsfeld to make foreign policy (although he could have listened more to Colin Powell, his actual Secretary of State; again it goes to predisposition).

So, I see George W. Bush’s presidency as having been defined by foreign policy and the War on Terror and, by extension, on Rumsfeld and Cheney.

Fast-forward to Barack Obama’s presidency and you have an almost identical situation, this time with the economy instead of foreign policy and Tim Geithner and Larry Summers instead of Donald Rumsfeld and Dick Cheney.

But, as with George W. Bush, it goes to pre-disposition. Paul Volcker was a critical member of the Obama 2008 campaign. He also was a key member of Obama’s economic policy team. But, he has been speaking a very discordant message that is not in sync with team Obama. So, as with Bush and his marginalization of Powell, one has to believe Barack Obama has chosen to side with Geithner and Summers over Volcker.

The obvious conclusion, therefore, is that Barack Obama shares the blinkered and captured view of his policy makers and that this is why he has decided to go down this chosen path. And when it comes to Obama’s other ‘change’ decisions on the Guantanamo closure, torture, rendition, state secrets, and health care, the same logic also applies.

Is this change we can believe in? I will leave that for you to decide.

[Roland99]

90. I need to start paying attention to this thread on weekends!

:)

[Demeter]

91. You Are Welcome, Anytime

[Joe Chi Minh]

92. '(and note the Orwellian branding, the reforms are about “derivatives”'

which include benign ones, names simple interest rate and currency swaps, yet the bill has loopholes that will let many, indeed probably most, credit default swaps escape).

This conflation, this homogenizing of bad and good under the same head seems to be just about the only recourse open to the "wheelers and dealers" of the right, in finance and politics, these days.

"People don't want higher taxes!"
Well, yes, they do. Very much so. On the rich. And drastic reductions and abolition of income tax on the rest.

... and so and so forth.

[Joe Chi Minh]

93. "Which brings us back to our principle pursuit: the deciphering of power,

privilege and money flows in our modern world economy, with the eventual aim of overthrowing the despots and restoring the US economy, Constitution and citizenry."

It's unfinished business... !Viva Guido!