Warren Buffett's Beloved Wells Fargo Not Escaping From TARP

Joe Weisenthal|1 Look who's still stuck under the tent with Bank of America and Citi.

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1. Let's Get It Straight, Hank Paulsen Is a Prick Who Took Down the Economy
   Matt Taibbi, True/Slant. June 9, 2009.

A RECIPE FOR DISASTER
June 12th, 2009 by Egon von Greyerz

Take the following ingredients:

1. A banking system which is on the verge of collapse
2. Add a few $ trillion of government liquidity and guarantees
3. Inject $ 100's of billions in loans and capital
4. Keep all the bank management that have caused the crisis
5. Pay them astronomical bonuses because otherwise they might be snapped up by a bankrupt competitor
6. Change the method for valuing the banks toxic and worthless assets so that they can publish hocus pocus increases in profits
7. Construct a stress test that all banks can pass, some with minor capital injection
   
8. Let some of the banks repay the government money to make the markets believe that the banking system has been saved and is sound

And what do you get? A BANKING SYSTEM WHICH:

• Is still on the verge of collapse
• Is leveraged 25-50 times
• Will go under with a 2-4% write off of total assets
• Has loan books that are deteriorating at an alarming rate
• Is not recognising or extrapolating the rapidly rising default rates
• Has a high percentage of prime residential mortgages in negative equity
• Has not provided for commercial property loan defaults with property values falling 40-50%
• Has a high level of personal loans and credit card loans which will never be repaid
  
• Has worthless paper assets which are valued at fantasy prices with the blessing of the government
  
• Has $ 100's of trillions of derivatives for which there is no market and with no reserves for losses
• Is too big to fail
  
• Will soon require more support
  
• Will need $ trillions and probably tens of trillions to survive which governments will of course print
  

That, ladies and gentlemen, is the state of the world's financial system today

Senators held stock in bailed-out banks: According to the reports detailing senators’ finances in 2008, nearly half of the members of the Senate Banking Committee had holdings in financial institutions that have taken funds from the Troubled Asset Relief Program (TARP).

Not really.

Thanks to the FASB rule, the banks are NOT insolvent (because they can place any value they like on their "assets"

Thanks to the infusion of capital from the Treasury, leverage is on its way down to the desired 10 to 1. That is because the banks are not lending any money OUT. Hence their balance sheets look better every day.

The derivatives, as long as collapse has been averted, are a nice source of income for the banks. Remember, the owners of the CDSs have to PAY every month for the "privilege" of protecting against default of the bonds they hold. Any body seen any defaults since Lehman? Other than GM and Chrysler which everybody has known was coming for years.

I doubt that the Treasury will be sending the banks more money since it is the banks that are sending the Treasury money to get out of the TARP TRAP.

NOMI PRINS
The Big Bank Bailout Payback Bamboozle motherjones.com - Wall Street players reimburse Treasury with money we lent them - and Geithner celebrates?

Today's Foundation, Tomorrow's Crisis: The Geithner-Summers Proposals

Writing in the Washington Post this morning, Tim Geithner and Larry Summers outline a five point plan for dealing with the underlying problems in our financial system, entitled A New Financial Foundation.

The authors are not completely clear on what they think caused the current crisis, but you can back out some points from their reasoning – and the implicit view seems quite at odds with reality.

1. Their view: Regulation is overly focused on safety and soundness of individual banks. Reality: There was a complete failure of safety and soundness supervision. This must be fundamental to any financial system – without this, you'll get mush every time. Read the rest of this entry »

MIKE LUX
The Powers Of The Big Banks openleft.com — Progressives are keenly aware of all the political contributions the financial industry makes and the well-connected lobbyists they employ. That kind of power is certainly important, especially on Capitol Hill where members have to spend practically every day dialing for dollars to pay for absurdly expensive campaigns. But we need to be careful not to focus on only that kind of power when trying to decide how to win back out democracy from the financial industry.

LES LEOPOLD
The Ideology of Unfettered Capitalism Is Crumbling alternet.org — Unfettered globalization, and trickle down economics are dead. This is the best teaching moment in 65 years.

ARIANNA HUFFINGTON
Whistling Past the Economic Graveyard: The Audacity of Misplaced Hope huffingtonpost.com - Is it possible to have too much hope? To be too optimistic? Yes, if that hope keeps you from facing - and dealing with - unpleasant realities. That seems to be what's happening regarding the financial institutions responsible for the economic meltdown.

MIKE LUX
Returning To Their Old Habits openleft.com - Right now, the same players that brought the system crashing down last year are acting as if they didn't learn a damn thing, and don't care about the consequences. Keeping these irresponsible, greedy and reckless players from destroying the economic recovery before it starts goes to the heart of whether Obama's Presidency will be a success.

ROBERT SCHEER
Obama's Money Men Finally Get It thenation.com - Now they tell us. On Monday, two men with considerable responsibility for enabling the banking meltdown confronted the error of their ways. Not directly, of course, for accountability is hardly the mark of either Lawrence Summers, the top White House economic adviser, or Treasury Secretary Timothy Geithner.

ROBERT B. REICH
The Three Essentials of Financial Reform robertreich.blogspot.com - As the White House unveils its long-awaited proposals to prevent another Wall Street meltdown in the future, keep a lookout for three essentials. Without them the Street will revert to its old ways as soon as the coast clears.

GEORGE SOROS
The Three Steps to Financial Reform ft.com - Having gone too far in deregulating - which contributed to the current crisis - we must resist the temptation to go too far in the opposite direction. While markets are imperfect, regulators are even more so. Not only are they human, they are also bureaucratic and subject to political influences, therefore regulations should be kept to a minimum. Three principles should guide reform.

MATT YGLESIAS
The Next Tax Revolt prospect.org - Progressives need to stop worrying and learn to love taxes.

SAIAH POOLE
Financial Reform: Up To Us To Change The Game There's a reason why lawbreakers don't get to negotiate the terms of their punishment or their parole. There is no bartering to be done between the protectors of law and order and the violators of law and order. There are only two basic questions for the person who dared to stand outside the law: What is required of you to atone and what must be done to prevent that lawbreaking from recurring.

What else would they pay back... money not owed to the Treasury ?

Oh... Here ya' go U.S. Treasury. We don't owe you anything, but here's $ 10B for your coffers.

If they don't need the money now to meet reserve requirements why should they not return it ?

Isn't that what everyone was bitchin' about to start with... taxpayer money bailing out the banks.

Broken link.

I was actually looking forward to reading this... basically what I've been saying for a long time about trickle down and capitalism run amok.

Mission Shrink: We've Gone From Saving Wall Street in Order to Save Main Street to Just Saving Wall Street
Arianna Huffington, 06.18.2009



The problem continues to be the administration's habit of conflating the health of the Wall Street economy with the health of the real economy -- when, in fact, the two economies have become decoupled.

Read Post

Try this link:

http://www.alternet.org/workplace/140681/t...tive_economics/

U.S. Can't Deliver On All Its Promises - Robert Samuelson, Washington Post
How To Get the Fed Out of Its Box - Frederic Mishkin, Wall Street Journal
Banks and Bankers Are Far From Forgiven - Jim McTague, Barron's
How the Bailouts Ultimately Bashed the Banks - Nina Easton, Fortune
It's Time to End the Grotesque Bailouts - Liam Halligan, Daily Telegraph
The President's False Financial Reform - William Greider, The Nation
Obama's Regulatory Reform Isn't Enough - Clive Crook, Financial Times

This analysis is right on the money. We need to find new candidates for Congress...

Goldman Sachs Obtains Record Profits, to Pay Largest Bonuses Ever
As they say in the States, "in your face."

The outsized financial sector, with its exorbitant fees, represents a serious tax and a growing threat to the real economy.

We may have, at best, the illusion of a recovery based on the increasing monetary inflation and monetization of debt as shown in the money supply figures, as compared to real GDP growth. Price, Demand and Money Supply

It will be a selective recovery at best, and damaging to the political fabric of the United States. It is a drain on the world economy while the US dollar is the reserve currency.

It is seigniorage on a grand scale, unprecedented tax on productivity not seen since the decline of colonialism, perhaps even feudalism.

Until the financial system is reformed there can be no sustainable recovery.

The Guardian
Goldman to make record bonus payout
Surviving banks accused of undermining stability

Phillip Inman
The Observer
Sunday 21 June 2009

Staff at Goldman Sachs staff can look forward to the biggest bonus payouts in the firm's 140-year history after a spectacular first half of the year, sparking concern that the big investment banks which survived the credit crunch will derail financial regulation reforms.

A lack of competition and a surge in revenues from trading foreign currency, bonds and fixed-income products has sent profits at Goldman Sachs soaring, according to insiders at the firm.

Staff in London were briefed last week on the banking and securities company's prospects and told they could look forward to bumper bonuses if, as predicted, it completed its most profitable year ever. Figures next month detailing the firm's second-quarter earnings are expected to show a further jump in profits. Warren Buffett, who bought $5bn of the company's shares in January, has already made a $1bn gain on his investment.

Goldman is expected to be the biggest winner in the race for revenues that, in 2006, reached £186bn across the entire industry. While this figure is expected to fall to £160bn in 2009, it will be split among a smaller number of firms.

Barclays Capital, Credit Suisse and Deutsche Bank are among the European firms expected to register bumper profits, along with US banks JP Morgan and Morgan Stanley following the near collapse and government rescue of major trading houses including Citigroup, Merrill Lynch, UBS and Royal Bank of Scotland.

In April, Goldman said it would set aside half of its £1.2bn first-quarter profit to reward staff, much of it in bonuses. It is believed to have paid 973 bankers $1m or more last year, while this year's payouts are on track to be the highest for most of the bank's 28,000 staff, including about 5,400 in London.

Critics of the bonus culture in the City said the dominance of a few risk-taking investment banks is undermining the efforts of regulators to stabilise the financial system.

Vince Cable, the Liberal Democrat treasury spokesman, said: "The investment banks more than any other institutions created the culture of excessive leverage, excessive risk and excessive bonuses that led to the downfall of the financial system. Now they are cashing in and the same bonus culture has returned. The result must be that we are being pushed to the edge of another crash."

Goldman Sachs said it reviewed its bonus scheme last year and switched from a system of guaranteed rewards that were paid over three years to variable payments that tied staff to the firm. It told employees last year that profit-related bonuses would be delayed by 12 months.

Until the release of its first quarter profits in April, it seemed inconceivable that a firm owing the US government $10bn would be looking to break all-time records in 2009.

David Williams, an investment banking analyst at Fox Pitt Kelton, said: "This year is shaping up to be the best year ever for investment banks, or at least those that have emerged relatively unscathed from the credit crisis.

"These banks are intermediaries in the bond markets where governments and companies are raising billions of pounds of new money. There is also a lack of competition that means they can charge huge sums for doing business."

Last week, the firm predicted that President Barack Obama's government could issue $3.25tn of debt before September, almost four times last year's sum. Goldman, a prime broker of US government bonds, is expected to make hundreds of millions of dollars in profits from selling and dealing in the bonds.

The Market Ticker

Commentary On The Capital Markets
Monday, June 22. 2009

Posted by Karl Denninger in Company Specific at 08:52

How To Rob The Treasury For Bonuses

You have to love Goldman Sachs:


...after a spectacular first half of the year, sparking concern that the big investment banks
which survived the credit crunch will derail financial regulation reforms.

A lack of competition and a surge in revenues from trading foreign currency, bonds and
fixed-income products has sent profits at Goldman Sachs soaring, according to insiders at the firm.

Nothing like a little taxpayer money funneled through AIG to add to the pool, right?

In April, Goldman said it would set aside half of its £1.2bn first-quarter profit to reward staff,
much of it in bonuses. It is believed to have paid 973 bankers $1m or more last year, while this
year's payouts are on track to be the highest for most of the bank's 28,000 staff, including about 5,400 in London.

Let's remember that Goldman got roughly $10 billion in AIG-funneled money to "settle" CDS
that their CEO said was a fully-hedged position and which would have had no material impact
if AIG had gone down, mostly because they had collected nearly all of the hedge before AIG got in serious trouble.

That is, they got paid twice - once with their hedge (good move guys) and again by government fiat,
directed by Henry Paulson who coincidentally used to run Goldman.

Also note the size of the first-quarter profit, multiply by four (assuming equally good results)
and then compare against the "extra" payout through AIG to figure out whether there would
be any bonus pool absent that payment.

Looks to me like the US Taxpayer is funding all of Goldman's bonuses, never mind this ditty:

Last week, the firm predicted that President Barack Obama's government could issue $3.25tn
of debt before September, almost four times last year's sum. Goldman, a prime broker of US
government bonds, is expected to make hundreds of millions of dollars in profits from selling and dealing in the bonds.

Nice, eh? Do Treasury's bidding, get paid for it, get an extra $10 billion from the taxpayer as a
gift to cover a bet you had already hedged against default, and pocket it all.

Change we can believe in - yep, we'll steal even more than we did under The Bush Administration!

Disclosure: No related company-specific positions.

How the Financial Reform Plan Protects the Status Quo
Obama's (Latest) Surrender to Wall Street
By MICHAEL HUDSON

In reaching across the aisle for Republican support – and no doubt future campaign contributions from the financial sector Pres. Obama is morphing into Joe Lieberman. There also is a touch of Boris Yeltsin in his sponsorship of a financial "reform" ominously similar to what advisor Larry Summers backed in Russia – relinquishing government power to a banking elite. The Financial Regulatory Reform proposal promotes Wall Street's "product," debt creation, at the expense of the economy at large, and lets financial chieftains continue to self-regulate the debt industry – and to keep scot-free all their gains from the past decade's worth of fraudulent lending.

Confronting the wreckage of a debt crisis worse than any since the Great Depression, Mr. Obama has achieved what no Republican could have: rescuing the Bush Administration's pro-creditor policies that fostered the Bubble Economy in the first place. "Most of the financial sector lobby community is happy with what has emerged," the Financial Times summarized. A spokesman for the Financial Services Forum, a major Wall Street lobbying organization, called the proposals "careful and balanced."1/ With such endorsements, victims of predatory lending have good reason to worry. The Obama plan is just the opposite from reforming the financial system along lines that progressive Democrats and other critics have urged.

The plan's six most fatal flaws are apparent in its preamble, which lays out a false diagnosis of the financial problem in a way that whitewashes Wall Street (in contrast to Mr. Obama's nice televised populist speech giving verbal criticism to "culture of irresponsibility"). A false diagnosis must lead to wrong-headed cures – rarely by accident. There invariably is a financial beneficiary who gains from blind spots in a legal "reform" package.

1. Regulatory capture. Preparing the ground for future Alan Greenspan "free market" ideologues

The most serious problem is "regulatory capture": control of the public regulatory process by the special interests being regulated. Mr. Obama's speech introducing his reform was forthright in acknowledging that "some companies shop for the regulator of their choice … That is why, as part of these reforms, we will dismantle the Office of Thrift Supervision [OTS] and close loopholes that have allowed important institutions to cherry-pick among banking rules. We will offer only one federal banking charter, regulated by a strengthened federal supervisor." It was the OTS, after all, that AIG and Washington Mutual chose as their regulator, as did GE Capital. The most incompetent, most ideologically opposed to serious regulation, its idea of a "free market" in practice was one free for fraud-ridden subprime lenders to do whatever they wanted.

One could go down the list of non-enforcement agencies – the Securities and Exchange Commission (SEC) not responding to warnings about Bernie Madoff, and the most deregulatory agency of them all: the Federal Reserve under Bubblemeister Alan Greenspan. Traditionally, the Fed has acted as lobby for the commercial banking system and indeed for Wall Street as a whole. (Its shares are owned by the commercial bank members of its system.) The Fed's refusal to intervene to stop the subprime mortgage bubble, fraudulent lending and other elements of the Greenspan Chairmanship does not give much faith that it will take actions that will interfere with Wall Street's money-making at the expense of the rest of the economy. Even today, the Fed is stonewalling Congress by refusing to release details on its $2 trillion "cash for trash" giveaway to favored Wall Street institutions.

It is supposed to be the Treasury's role to represent the public interest. Unfortunately, appointing Treasury Secretaries from the ranks of Wall Street management – or giving Wall Street veto power over the nominee – undermines this mission. Elsewhere in what is supposed to be the regulatory system of public-private checks and balances, the simple tactic of underfunding the criminal justice system, the FBI, state and local prosecutors – or actively blocking them, as George Bush did – leaves the economy without adequate protection against financial fraud and predatory credit. Putting the Congressional financial committee heads up for sale to the highest campaign contributors caps the process of transforming economic democracy into oligarchy.

Meaningful regulation should start with the premise that the right of banks to create credit out of thin air (actually, out of strokes on a computer keyboard, as long as bankers can find borrowers to sign IOUs) is a public utility. Mr. Obama and his Treasury do not agree. They treat credit creation as a private Wall Street monopoly, to be regulated more in name than in practice. The result is a Thatcherite giveaway to the banking sector – and as Tim Geithner noted, Wall Street institutions of all stripes, from brokerage houses to automobile lenders and retail stores are now declaring themselves "banks" in order to get government handouts to anyone who is a creditor (but nothing for their debtors). This is part of the New Class War that the Bush-Obama administration has sponsored to polarize the economy between creditors and debtors.

The politically astute way to deregulate a public utility – especially in the wake of a financial crisis that has much of the population up in arms – is to shed crocodile tears over Wall Street's "culture of irresponsibility," as Mr. Obama did on Wednesday, and then claim that you are "centralizing" regulation to make it stronger rather than weaker. If you are going to block future bank regulation, of course you promise that your act will provide greater public oversight. Mr. Obama has tapped the Federal Reserve for this role. But this is precisely what exacerbated the Greenspan Bubble.

The deregulation-by-centralization ploy peaked when Pres. George W. Bush used it to nullify attempts by state attorney generals to prosecute Countrywide Financial, Washington Mutual, Citibank and other financial crooks as criminal enterprises for making fraudulent subprime mortgage loans. The ruse Mr. Bush used to block their lawsuits was an obscure small-print rule from the 1864 National Bank Act giving Washington the power to overrule local states in bringing criminal charges. The motivation for this Civil War law was clear enough: Local governments and their courts tended to be venal and corrupt. Washington asserted its oversight so as to prosecute "wildcat banking" in an era when bankers issued their own bank notes, many of which were worth much less than their face value when their holders tried to spend them.

Pres. Bush turned this law on its head, blocking eleven state AGs from prosecuting financial fraud. Taking matters out of their hands, he assigned the complaints to the Washington national bank regulator – who refused to prosecute, claiming that fraud was all part of America's wonderful free market. This has cost the U.S. economy over a trillion dollars so far. Washington has preferred to let the banks make their fraudulent loans, and then pay them in full (along with the financial companies they've victimized, but not the personal debtors of course) for their bad loans that defaulted, so as to "save the system."

Mr. Obama's reform does not propose repealing or qualifying this clause of the National Bank Act so as to permit any prosecutor to prosecute (but not to allow prosecutions of financial fraud to be blocked). Placing regulatory power in the Fed has the potential to annull any serious fraud prosecution. This is the Robert Rubin and Larry Summers-style free market – free for criminalized finance to proceed unchecked. And if Mr. Summers is to become the next Fed Chairman … well, you can guess where this will lead on the regulation/deregulatory spectrum between creditors and debtors!

2. Failure to give meaningful teeth to fraud reduction

Sound regulations against fraud are on the books, many of them from the New Deal. But as the Bubble Economy saw levels of financial fraud unprecedented since the 1920s, officials who wanted to prevent abuses found their departments un-funded. Mr. Obama's proposal fails to address this problem. "There are … millions of Americans who signed contracts they did not always understand offered by lenders who did not always tell the truth," he acknowledged in introducing his plan on June 17. Mr. Obama promised "enforcement will be the rule, not the exception." But where is the funding for the FBI's criminal fraud division? Where is effective consumer protection from insurance companies that don't pay, from crooked contractors and mortgage companies using property appraisers, lawyers and collection agencies, or from stockbrokers packaging junk mortgages into junk securities? They've been given a fortune in recent years – and can keep it to set themselves up to make yet a new killing. It looks as if as little will be done to financial fraud as will be done to the Guantanamo torturers and the high-ups who condoned their actions.

Much attention has been given to the Consumer Financial Products Agency, whose role has been defined largely by Elizabeth Warren of the Harvard Law School. Its main aim is to enforce truth-in-lending laws on credit-card companies and mortgage lenders. (Weren't these laws already on the books?) This is progress, but surely much more is needed. One way to make credit-card rates more economic would be for the government to provide its own rival service. After all, credit cards have become a major form of payment today. Isn't electronic payment really a public utility? The difference is that unlike electric and gas utilities or railroads, there is no regulation to keep fees in line with economically necessary basic costs to the card issuer. It is fine to hear that one finally will be able to read clearly how much one is being exploited. But why not stop the exploitation in the first place?

Republicans may simply try to make the Consumer Financial Products Agency only "advisory," without real regulatory power. So even if Congress doesn't kill the proposal, Mr. Obama doesn't have to worry too much about offending his number-one donor constituency. Serious regulation over Wall Street will have about as much effect as the corporate "social responsibility" desk to which companies assign employees on their way out. At the Senate hearings on June 18, Sen. Robert Menendez of New Jersey asked Mr. Geithner "whether the council that would watch over the financial regulators has any power to do anything other than make recommendations. Mr. Geithner [said] they may not have gotten the balance exactly right, but he didn't want the council to have the authority to unilaterally force changes on the regulators it oversees."

To really protect consumers, why not counter extortionate credit-card practices by re-introducing anti-usury laws? They were evaded initially by companies incorporating themselves in states with "race to the bottom" laws. If Washington can override state prosecutors to prevent punishment of financial fraud, why can't it override such ploys by the usury industry? Here's where centralized federal law really should count for something.

3. Failure to reverse the shift to pro-creditor bankruptcy laws

The Obama plan allows Wall Street to keep on selling its product – debt, growing at exponential rates – as if finance were an "industry" like manufacturing. (In this spirit the Dow Jones Industrial Average now contains the leading financial-sector firms, although it dropped Citicorp when its shares dropped below the $1 cutoff point.) The reality is that tax favoritism for finance and debt leveraging is largely responsible for de-industrializing the economy. More and more income is being diverted away from buying goods and services in order to pay lenders on debts run up in the past. What is needed to free economies from such debt is repeal of the pro-creditor reversal that Congress passed in 2005 in response to lobbying by the credit card and banking industry. Making it harder for personal debtors to go bankrupt, this law blocked courts from rolling back debt to the population's ability to pay.

Obama's plan fails to rectify matters. It treats the financial "services" issue in isolation from the economy's debt problem and general economic welfare. FDIC head Sheila Bair has proposed limiting mortgage interest to 32 per cent of the debtor's family income. The alternative is for home foreclosures to continue, expropriating many recent buyers and also owners who have borrowed against their homes to pay off their higher-interest credit-card debt or simply to maintainliving standards that their paychecks no longer cover.

Ever since colonial times, New York State has had the Fraudulent Conveyance Law on its books. This wise legislation states that if a bank makes a loan to a borrower without knowing how the debtor can reasonably meet the terms of the loans out of normal income, the loan is deemed fraudulent and therefore null and void.

4. Failure to re-introduce Glass Steagall or otherwise limit lenders "too big to fail"

In presenting his program, Mr. Obama misrepresented a major cause of the Bubble Economy. It all seemed to be caused by the impersonal force of technology "A regulatory regime," he claimed, "basically crafted in the wake of a 20th century economic crisis – the Great Depression – was overwhelmed by the speed, scope, and sophistication of a 21st century global economy." Not exactly. The capstone of FDR's New Deal was the Glass-Steagall Act separating commercial banking from investment banking. This blocked the financial conflict of interest between serving retail bank customers and investment-bank profiteering.

One consequence of Glass-Steagall was to make the merger between Citibank and Travelers Insurance illegal. To save Citibank officials from suffering the consequences of breaking the law – and in the process, to open the doors to the conglomerate movement that brought down the economy – President Clinton took the advice of Messrs. Summers and Greenspan and signed into law the repeal of Glass-Steagall in 1999. Banks were permitted to buy insurance companies' real estate and stock brokers and law firms to package junk mortgages into junked collateralized debt obligations (CDOs), cover them with junk-insurance policies written by A.I.G. and other companies taking fees for promising to pay money they did not have, and get bailed out with trillions of dollars of "taxpayer" money in the form of the Federal Reserve and Treasury's "cash for trash" swaps.

5. Failure to deter credit default swaps and other "casino capitalist" gambles

On Mr. Summers' watch under the Clintons, the word "reform" came to mean what it meant in Russia, where he had a free hand in the 1990s: a giveaway of public assets to financial insiders. In the United States this involved stripping away the true reforms put in place from the Progressive Era to the New Deal. Among the excuses being cited is the need to free "innovation." But financial innovation is not like that of manufacturing. Instead of raising productivity to produce more with less labor (and hence at falling prices), financial innovation aims at extracting more from debtors and from money-management clients and funds. Under free competition, for example, modern electronic technology enables banks to clear checks in a single day. But "financial engineering" has gone hand in hand with political engineering, permitting the banking monopoly to adhere to old pony express schedules – and keeping depositors' money as "float," that is, as an interest-free loan.

<a name="OLE_LINK2">The main achievement of financial engineering has been to create mathematically opaque derivatives. As no less a speculator than George Soros has noted: "Financial engineers claimed they were reducing risks through geographic diversification: in fact they were increasing them by creating an agency problem. The agents were more interested in maximizing fee income than in protecting the interests of bondholders. … Custom-made derivatives only serve to improve the profit margin of the financial engineers designing them." The only cure is to ban credit default swaps outright. But they have become Wall Street's leading profit center. Mr. Obama's reform does not interfere with that cash cow.

As for the "technology" of credit evaluation, modern web searching should enable any creditor or hapless buyer of packaged bank mortgages to check the estimated price of any home or building on-line – or any credit reporting score on individuals, for that matter. Banks have no interest in doing this when it interferes with their rip-offs. "We've seen a system that allowed lenders to profit by providing loans to borrowers who would never repay," Mr. Obama explained, "because the lender offloaded the loan, and the consequences, to someone else." Much of today's institutionalized financial irresponsibility indeed stems from the fact that banks today no longer hold the mortgages they originated. Instead, they "offloadi" their loans and give bonuses to officers based on their loan volume without any consideration for loan quality or reality. It used to be called fraud, and be prosecuted.

Mr. Obama proposes that originators of loans keep a token 5 per cent on their own books. Critics point out that this hardly will deter junk-mortgage practices, and suggest that the required proportion at least be doubled, along with blocking off-balance-sheet vehicles, especially in tax-avoidance zero-oversight offshore banking centers. In view of the almost universal condemnation of this practice, Mr. Obama's delicate steps suggest that the plan was formulated with a view of "How little do we have to yield to popular and Congressional anger at the trillions of bailout dollars we have given to financial crooks?"

6. Failure to reform the tax system that has distorted the financial system to promote predatory extractive debt, not productive industrial credit

The "product" that the banking "industry" sells is debt – loans which, under today's financial circumstances and tax favoritism for Wall Street, are extended in a way whose main effect is to inflate asset prices, not fund tangible capital formation. Rising prices for housing and commercial property, stocks and bonds, are taken as justification for yet more lending, backed by collateral being bid up in price. By loading the economy down with debt, this seeming "wealth creation" becomes a vicious circle, increasing the economy's financial carrying charge.

Mr. Obama's "reform" plan seeks to sustain this dynamic, not reverse it. The plan does not acknowledge the symbiotic relationship between fiscal and financial policy. Cutting property taxes leaves more real estate rent, monopoly rent and asset-price gains "free" to be pledged to the banks for yet larger loans – pledged to pay more interest on the rising debt taken on to buy assets being inflated by the credit bubble.

The resulting financial "enterprise" is different from industrial innovation. It consists largely of capturing congressional tax legislators so as to write small-print tax "loopholes" and more glaring tax breaks that shift the fiscal burden onto productive labor and industry. That is the essence of today's "pay to play" democracy. Financializing the economy in this way has gone hand in hand with de-industrialization.

The most regressive tax is FICA wage withholding for Social Security and Medicare. Only wages below about $102,000 are subject to this tax, not higher incomes. And Wall Street speculators only pay a low "capital gains" rate on their trading. By shifting the tax burden onto the "real" economy, this tax shift polarizes income and wealth at the top of the economic pyramid while increasing the cost of living (taxes are a cost, after all). This squeezes family budgets and shrinks spending on goods and services. And as a result of tax subsidy for debt leveraging, industrial cash flow is diverted to pay interest and dividends rather than being reinvested in new means of production and being liable for income taxes.

More bank lending – that is, more debt – is the heart of today's economic problem, not the solution. Finance capitalism is undercutting industrial capitalism, replacing the production of goods and services with predatory extraction of rent and interest via economic "tollbooths," from parking meters in Chicago to roads in New Jersey. States and localities are facing fiscal shortfalls obliging them to sell off their roads, parking meters and public enterprises to buyers who erect expensive tollbooths and extract yet more income from the shrinking "real" economy. The economy is heading toward debt peonage as it polarizes between wealthy patrons and a work force reduced to patron-client dependency relationships.

Do we need a new beginning for meaningful financial restructuring?

America's financial problem thus requires deeper solutions than have been discussed to date. Paul Krugman has complained in his New York Times column about two obvious gaps in the Obama plan. "To live up to its own analysis, the Obama administration needs to come down harder on the rating agencies and, even more important, get much more specific about reforming the way bankers are paid." The securities ratings agencies certainly have an inherent conflict of interest in being paid by their clients to give reviews – usually a rave AAA rating - for junk securities. But beneath this problem lie much deeper ones, so it is understandable that when Mr. Geithner was asked about better regulation of the ratings agencies in his Senate testimony on Thursday, he said that this would have to wait for another day. As Mr. Obama explained: "we are proposing a set of reforms to require regulators to look not only at the safety and soundness of individual institutions, but also – for the first time – at the stability of the system as a whole."

But this is just what is not being done. The plan is silent when it comes to the reported 25 per cent of U.S. real estate sunk into a state of negative equity and 1/8 already in arrears heading for foreclosure as the mortgage debt attached to it exceeds its (falling) market price. Commercial real estate looks like the next big sector to topple. Debt service meanwhile is crowding out consumer spending on goods and services, shrinking the domestic market and aggravating unemployment.

The economy needs an FDR but has got the opposite. Mr. Obama promised change, but is defending the status quo. Will his historical role be to have made a doomed attempt to sustain growth in America's debt overhead? Eroding Progressive Era checks on financial dynamics has been the political and economic trend for the past thirty years. It is advisor Summers' idea of "reform" which he and his neoliberal cohorts imposed on Russia in the mid-1990s, endowing a kleptocracy and imposing poverty on the population at large, stripping away industrial capital.

Mr. Obama's financial "reform" aims at sustaining casino capitalism by rolling back a century's worth of progressive tax and financial legislation. After his speech the Dow Jones Industrial Average rose on Thursday, mainly because most "industrials" are now financial companies, reflecting the degree to which financial engineering has replaced industrial engineering.

The banks will complain about the Obama plan (really the Paulson Plan) to centralize financial regulation in a strengthened Federal Reserve. But of course that's just where they want to end up, under a compliant Chairman (Mr. Summers himself?) appointed with Wall Street's advice and consent. "Born and bred in the briar patch," crowed B'rer Rabbit triumphantly after being thrown there. Saved from future Eliot Spitzers!

Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) He can be reached via his website, mh@michael-hudson.com

Note.


1. Edward Luce, "White paper sets out skilful compromises," Financial Times, June 18, 2009.

Tin Foil Hat Monday. Yessir, those darned time monks and their warning that by summer, or so, things would begin to feel, well, surreal to the point that people would be pinching themselves asking "Is this real?" turns out pretty much right. I've taken to wearing ViceGrips on both arms lately, such is my state of disbelief at some of the headlines crossing.

---

Goldman Sachs, for example, is about to make a record bonus payout to its employees because they had such a spectacular first half of the year. What's more, Warren Buffet who put five billion dollars into Goldman in January of this year is already up a billion on his investment, reports the UK's Guardian.



Not to sound grumpy here, but don't I recall that...

• You read in the prestigious Columbia Journalism Review about "Goldman's Backdoor bailout" which gets to how bailing out AIG helped Goldman.
• Am I the only one that remembers that "Goldman's share of AIG bailout draw fire" since they pulled $12.9 billion out of AIG?
• And has everyone forgotten the Digg notes last October about how "Goldman Sachs takes $12-billion bailout, hands out $14B bonuses"?

Nice that Goldman paid back $10-billion in TARP money last week before word of the bonuses leaked out. That's a good thing - nice that they made money. But the core problem - banks that are too big to fail is still present and CONgress sits on its duff. Structural reform has been a talking point, not an action plan.



Want to hear a great joke? "Transparency." (I can sure tell, 'em, can't I?)

How the Financial Reform Plan Protects the Status Quo
Obama's (Latest) Surrender to Wall Street
By MICHAEL HUDSON

In reaching across the aisle for Republican support – and no doubt future campaign contributions from the financial sector Pres. Obama is morphing into Joe Lieberman. There also is a touch of Boris Yeltsin in his sponsorship of a financial "reform" ominously similar to what advisor Larry Summers backed in Russia – relinquishing government power to a banking elite. The Financial Regulatory Reform proposal promotes Wall Street's "product," debt creation, at the expense of the economy at large, and lets financial chieftains continue to self-regulate the debt industry – and to keep scot-free all their gains from the past decade's worth of fraudulent lending.

Confronting the wreckage of a debt crisis worse than any since the Great Depression, Mr. Obama has achieved what no Republican could have: rescuing the Bush Administration's pro-creditor policies that fostered the Bubble Economy in the first place. "Most of the financial sector lobby community is happy with what has emerged," the Financial Times summarized. A spokesman for the Financial Services Forum, a major Wall Street lobbying organization, called the proposals "careful and balanced."1/ With such endorsements, victims of predatory lending have good reason to worry. The Obama plan is just the opposite from reforming the financial system along lines that progressive Democrats and other critics have urged.

The plan's six most fatal flaws are apparent in its preamble, which lays out a false diagnosis of the financial problem in a way that whitewashes Wall Street (in contrast to Mr. Obama's nice televised populist speech giving verbal criticism to "culture of irresponsibility"). A false diagnosis must lead to wrong-headed cures – rarely by accident. There invariably is a financial beneficiary who gains from blind spots in a legal "reform" package.

1. Regulatory capture. Preparing the ground for future Alan Greenspan "free market" ideologues

The most serious problem is "regulatory capture": control of the public regulatory process by the special interests being regulated. Mr. Obama's speech introducing his reform was forthright in acknowledging that "some companies shop for the regulator of their choice … That is why, as part of these reforms, we will dismantle the Office of Thrift Supervision [OTS] and close loopholes that have allowed important institutions to cherry-pick among banking rules. We will offer only one federal banking charter, regulated by a strengthened federal supervisor." It was the OTS, after all, that AIG and Washington Mutual chose as their regulator, as did GE Capital. The most incompetent, most ideologically opposed to serious regulation, its idea of a "free market" in practice was one free for fraud-ridden subprime lenders to do whatever they wanted.

One could go down the list of non-enforcement agencies – the Securities and Exchange Commission (SEC) not responding to warnings about Bernie Madoff, and the most deregulatory agency of them all: the Federal Reserve under Bubblemeister Alan Greenspan. Traditionally, the Fed has acted as lobby for the commercial banking system and indeed for Wall Street as a whole. (Its shares are owned by the commercial bank members of its system.) The Fed's refusal to intervene to stop the subprime mortgage bubble, fraudulent lending and other elements of the Greenspan Chairmanship does not give much faith that it will take actions that will interfere with Wall Street's money-making at the expense of the rest of the economy. Even today, the Fed is stonewalling Congress by refusing to release details on its $2 trillion "cash for trash" giveaway to favored Wall Street institutions.

It is supposed to be the Treasury's role to represent the public interest. Unfortunately, appointing Treasury Secretaries from the ranks of Wall Street management – or giving Wall Street veto power over the nominee – undermines this mission. Elsewhere in what is supposed to be the regulatory system of public-private checks and balances, the simple tactic of underfunding the criminal justice system, the FBI, state and local prosecutors – or actively blocking them, as George Bush did – leaves the economy without adequate protection against financial fraud and predatory credit. Putting the Congressional financial committee heads up for sale to the highest campaign contributors caps the process of transforming economic democracy into oligarchy.

Meaningful regulation should start with the premise that the right of banks to create credit out of thin air (actually, out of strokes on a computer keyboard, as long as bankers can find borrowers to sign IOUs) is a public utility. Mr. Obama and his Treasury do not agree. They treat credit creation as a private Wall Street monopoly, to be regulated more in name than in practice. The result is a Thatcherite giveaway to the banking sector – and as Tim Geithner noted, Wall Street institutions of all stripes, from brokerage houses to automobile lenders and retail stores are now declaring themselves "banks" in order to get government handouts to anyone who is a creditor (but nothing for their debtors). This is part of the New Class War that the Bush-Obama administration has sponsored to polarize the economy between creditors and debtors.

The politically astute way to deregulate a public utility – especially in the wake of a financial crisis that has much of the population up in arms – is to shed crocodile tears over Wall Street's "culture of irresponsibility," as Mr. Obama did on Wednesday, and then claim that you are "centralizing" regulation to make it stronger rather than weaker. If you are going to block future bank regulation, of course you promise that your act will provide greater public oversight. Mr. Obama has tapped the Federal Reserve for this role. But this is precisely what exacerbated the Greenspan Bubble.

The deregulation-by-centralization ploy peaked when Pres. George W. Bush used it to nullify attempts by state attorney generals to prosecute Countrywide Financial, Washington Mutual, Citibank and other financial crooks as criminal enterprises for making fraudulent subprime mortgage loans. The ruse Mr. Bush used to block their lawsuits was an obscure small-print rule from the 1864 National Bank Act giving Washington the power to overrule local states in bringing criminal charges. The motivation for this Civil War law was clear enough: Local governments and their courts tended to be venal and corrupt. Washington asserted its oversight so as to prosecute "wildcat banking" in an era when bankers issued their own bank notes, many of which were worth much less than their face value when their holders tried to spend them.

Pres. Bush turned this law on its head, blocking eleven state AGs from prosecuting financial fraud. Taking matters out of their hands, he assigned the complaints to the Washington national bank regulator – who refused to prosecute, claiming that fraud was all part of America's wonderful free market. This has cost the U.S. economy over a trillion dollars so far. Washington has preferred to let the banks make their fraudulent loans, and then pay them in full (along with the financial companies they've victimized, but not the personal debtors of course) for their bad loans that defaulted, so as to "save the system."

Mr. Obama's reform does not propose repealing or qualifying this clause of the National Bank Act so as to permit any prosecutor to prosecute (but not to allow prosecutions of financial fraud to be blocked). Placing regulatory power in the Fed has the potential to annull any serious fraud prosecution. This is the Robert Rubin and Larry Summers-style free market – free for criminalized finance to proceed unchecked. And if Mr. Summers is to become the next Fed Chairman … well, you can guess where this will lead on the regulation/deregulatory spectrum between creditors and debtors!

2. Failure to give meaningful teeth to fraud reduction

Sound regulations against fraud are on the books, many of them from the New Deal. But as the Bubble Economy saw levels of financial fraud unprecedented since the 1920s, officials who wanted to prevent abuses found their departments un-funded. Mr. Obama's proposal fails to address this problem. "There are … millions of Americans who signed contracts they did not always understand offered by lenders who did not always tell the truth," he acknowledged in introducing his plan on June 17. Mr. Obama promised "enforcement will be the rule, not the exception." But where is the funding for the FBI's criminal fraud division? Where is effective consumer protection from insurance companies that don't pay, from crooked contractors and mortgage companies using property appraisers, lawyers and collection agencies, or from stockbrokers packaging junk mortgages into junk securities? They've been given a fortune in recent years – and can keep it to set themselves up to make yet a new killing. It looks as if as little will be done to financial fraud as will be done to the Guantanamo torturers and the high-ups who condoned their actions.

Much attention has been given to the Consumer Financial Products Agency, whose role has been defined largely by Elizabeth Warren of the Harvard Law School. Its main aim is to enforce truth-in-lending laws on credit-card companies and mortgage lenders. (Weren't these laws already on the books?) This is progress, but surely much more is needed. One way to make credit-card rates more economic would be for the government to provide its own rival service. After all, credit cards have become a major form of payment today. Isn't electronic payment really a public utility? The difference is that unlike electric and gas utilities or railroads, there is no regulation to keep fees in line with economically necessary basic costs to the card issuer. It is fine to hear that one finally will be able to read clearly how much one is being exploited. But why not stop the exploitation in the first place?

Republicans may simply try to make the Consumer Financial Products Agency only "advisory," without real regulatory power. So even if Congress doesn't kill the proposal, Mr. Obama doesn't have to worry too much about offending his number-one donor constituency. Serious regulation over Wall Street will have about as much effect as the corporate "social responsibility" desk to which companies assign employees on their way out. At the Senate hearings on June 18, Sen. Robert Menendez of New Jersey asked Mr. Geithner "whether the council that would watch over the financial regulators has any power to do anything other than make recommendations. Mr. Geithner [said] they may not have gotten the balance exactly right, but he didn't want the council to have the authority to unilaterally force changes on the regulators it oversees."

To really protect consumers, why not counter extortionate credit-card practices by re-introducing anti-usury laws? They were evaded initially by companies incorporating themselves in states with "race to the bottom" laws. If Washington can override state prosecutors to prevent punishment of financial fraud, why can't it override such ploys by the usury industry? Here's where centralized federal law really should count for something.

3. Failure to reverse the shift to pro-creditor bankruptcy laws

The Obama plan allows Wall Street to keep on selling its product – debt, growing at exponential rates – as if finance were an "industry" like manufacturing. (In this spirit the Dow Jones Industrial Average now contains the leading financial-sector firms, although it dropped Citicorp when its shares dropped below the $1 cutoff point.) The reality is that tax favoritism for finance and debt leveraging is largely responsible for de-industrializing the economy. More and more income is being diverted away from buying goods and services in order to pay lenders on debts run up in the past. What is needed to free economies from such debt is repeal of the pro-creditor reversal that Congress passed in 2005 in response to lobbying by the credit card and banking industry. Making it harder for personal debtors to go bankrupt, this law blocked courts from rolling back debt to the population's ability to pay.

Obama's plan fails to rectify matters. It treats the financial "services" issue in isolation from the economy's debt problem and general economic welfare. FDIC head Sheila Bair has proposed limiting mortgage interest to 32 per cent of the debtor's family income. The alternative is for home foreclosures to continue, expropriating many recent buyers and also owners who have borrowed against their homes to pay off their higher-interest credit-card debt or simply to maintainliving standards that their paychecks no longer cover.

Ever since colonial times, New York State has had the Fraudulent Conveyance Law on its books. This wise legislation states that if a bank makes a loan to a borrower without knowing how the debtor can reasonably meet the terms of the loans out of normal income, the loan is deemed fraudulent and therefore null and void.

4. Failure to re-introduce Glass Steagall or otherwise limit lenders "too big to fail"

In presenting his program, Mr. Obama misrepresented a major cause of the Bubble Economy. It all seemed to be caused by the impersonal force of technology "A regulatory regime," he claimed, "basically crafted in the wake of a 20th century economic crisis – the Great Depression – was overwhelmed by the speed, scope, and sophistication of a 21st century global economy." Not exactly. The capstone of FDR's New Deal was the Glass-Steagall Act separating commercial banking from investment banking. This blocked the financial conflict of interest between serving retail bank customers and investment-bank profiteering.

One consequence of Glass-Steagall was to make the merger between Citibank and Travelers Insurance illegal. To save Citibank officials from suffering the consequences of breaking the law – and in the process, to open the doors to the conglomerate movement that brought down the economy – President Clinton took the advice of Messrs. Summers and Greenspan and signed into law the repeal of Glass-Steagall in 1999. Banks were permitted to buy insurance companies' real estate and stock brokers and law firms to package junk mortgages into junked collateralized debt obligations (CDOs), cover them with junk-insurance policies written by A.I.G. and other companies taking fees for promising to pay money they did not have, and get bailed out with trillions of dollars of "taxpayer" money in the form of the Federal Reserve and Treasury's "cash for trash" swaps.

5. Failure to deter credit default swaps and other "casino capitalist" gambles

On Mr. Summers' watch under the Clintons, the word "reform" came to mean what it meant in Russia, where he had a free hand in the 1990s: a giveaway of public assets to financial insiders. In the United States this involved stripping away the true reforms put in place from the Progressive Era to the New Deal. Among the excuses being cited is the need to free "innovation." But financial innovation is not like that of manufacturing. Instead of raising productivity to produce more with less labor (and hence at falling prices), financial innovation aims at extracting more from debtors and from money-management clients and funds. Under free competition, for example, modern electronic technology enables banks to clear checks in a single day. But "financial engineering" has gone hand in hand with political engineering, permitting the banking monopoly to adhere to old pony express schedules – and keeping depositors' money as "float," that is, as an interest-free loan.

<a name="OLE_LINK2">The main achievement of financial engineering has been to create mathematically opaque derivatives. As no less a speculator than George Soros has noted: "Financial engineers claimed they were reducing risks through geographic diversification: in fact they were increasing them by creating an agency problem. The agents were more interested in maximizing fee income than in protecting the interests of bondholders. … Custom-made derivatives only serve to improve the profit margin of the financial engineers designing them." The only cure is to ban credit default swaps outright. But they have become Wall Street's leading profit center. Mr. Obama's reform does not interfere with that cash cow.

As for the "technology" of credit evaluation, modern web searching should enable any creditor or hapless buyer of packaged bank mortgages to check the estimated price of any home or building on-line – or any credit reporting score on individuals, for that matter. Banks have no interest in doing this when it interferes with their rip-offs. "We've seen a system that allowed lenders to profit by providing loans to borrowers who would never repay," Mr. Obama explained, "because the lender offloaded the loan, and the consequences, to someone else." Much of today's institutionalized financial irresponsibility indeed stems from the fact that banks today no longer hold the mortgages they originated. Instead, they "offloadi" their loans and give bonuses to officers based on their loan volume without any consideration for loan quality or reality. It used to be called fraud, and be prosecuted.

Mr. Obama proposes that originators of loans keep a token 5 per cent on their own books. Critics point out that this hardly will deter junk-mortgage practices, and suggest that the required proportion at least be doubled, along with blocking off-balance-sheet vehicles, especially in tax-avoidance zero-oversight offshore banking centers. In view of the almost universal condemnation of this practice, Mr. Obama's delicate steps suggest that the plan was formulated with a view of "How little do we have to yield to popular and Congressional anger at the trillions of bailout dollars we have given to financial crooks?"

6. Failure to reform the tax system that has distorted the financial system to promote predatory extractive debt, not productive industrial credit

The "product" that the banking "industry" sells is debt – loans which, under today's financial circumstances and tax favoritism for Wall Street, are extended in a way whose main effect is to inflate asset prices, not fund tangible capital formation. Rising prices for housing and commercial property, stocks and bonds, are taken as justification for yet more lending, backed by collateral being bid up in price. By loading the economy down with debt, this seeming "wealth creation" becomes a vicious circle, increasing the economy's financial carrying charge.

Mr. Obama's "reform" plan seeks to sustain this dynamic, not reverse it. The plan does not acknowledge the symbiotic relationship between fiscal and financial policy. Cutting property taxes leaves more real estate rent, monopoly rent and asset-price gains "free" to be pledged to the banks for yet larger loans – pledged to pay more interest on the rising debt taken on to buy assets being inflated by the credit bubble.

The resulting financial "enterprise" is different from industrial innovation. It consists largely of capturing congressional tax legislators so as to write small-print tax "loopholes" and more glaring tax breaks that shift the fiscal burden onto productive labor and industry. That is the essence of today's "pay to play" democracy. Financializing the economy in this way has gone hand in hand with de-industrialization.

The most regressive tax is FICA wage withholding for Social Security and Medicare. Only wages below about $102,000 are subject to this tax, not higher incomes. And Wall Street speculators only pay a low "capital gains" rate on their trading. By shifting the tax burden onto the "real" economy, this tax shift polarizes income and wealth at the top of the economic pyramid while increasing the cost of living (taxes are a cost, after all). This squeezes family budgets and shrinks spending on goods and services. And as a result of tax subsidy for debt leveraging, industrial cash flow is diverted to pay interest and dividends rather than being reinvested in new means of production and being liable for income taxes.

More bank lending – that is, more debt – is the heart of today's economic problem, not the solution. Finance capitalism is undercutting industrial capitalism, replacing the production of goods and services with predatory extraction of rent and interest via economic "tollbooths," from parking meters in Chicago to roads in New Jersey. States and localities are facing fiscal shortfalls obliging them to sell off their roads, parking meters and public enterprises to buyers who erect expensive tollbooths and extract yet more income from the shrinking "real" economy. The economy is heading toward debt peonage as it polarizes between wealthy patrons and a work force reduced to patron-client dependency relationships.

Do we need a new beginning for meaningful financial restructuring?

America's financial problem thus requires deeper solutions than have been discussed to date. Paul Krugman has complained in his New York Times column about two obvious gaps in the Obama plan. "To live up to its own analysis, the Obama administration needs to come down harder on the rating agencies and, even more important, get much more specific about reforming the way bankers are paid." The securities ratings agencies certainly have an inherent conflict of interest in being paid by their clients to give reviews – usually a rave AAA rating - for junk securities. But beneath this problem lie much deeper ones, so it is understandable that when Mr. Geithner was asked about better regulation of the ratings agencies in his Senate testimony on Thursday, he said that this would have to wait for another day. As Mr. Obama explained: "we are proposing a set of reforms to require regulators to look not only at the safety and soundness of individual institutions, but also – for the first time – at the stability of the system as a whole."

But this is just what is not being done. The plan is silent when it comes to the reported 25 per cent of U.S. real estate sunk into a state of negative equity and 1/8 already in arrears heading for foreclosure as the mortgage debt attached to it exceeds its (falling) market price. Commercial real estate looks like the next big sector to topple. Debt service meanwhile is crowding out consumer spending on goods and services, shrinking the domestic market and aggravating unemployment.

The economy needs an FDR but has got the opposite. Mr. Obama promised change, but is defending the status quo. Will his historical role be to have made a doomed attempt to sustain growth in America's debt overhead? Eroding Progressive Era checks on financial dynamics has been the political and economic trend for the past thirty years. It is advisor Summers' idea of "reform" which he and his neoliberal cohorts imposed on Russia in the mid-1990s, endowing a kleptocracy and imposing poverty on the population at large, stripping away industrial capital.

Mr. Obama's financial "reform" aims at sustaining casino capitalism by rolling back a century's worth of progressive tax and financial legislation. After his speech the Dow Jones Industrial Average rose on Thursday, mainly because most "industrials" are now financial companies, reflecting the degree to which financial engineering has replaced industrial engineering.

The banks will complain about the Obama plan (really the Paulson Plan) to centralize financial regulation in a strengthened Federal Reserve. But of course that's just where they want to end up, under a compliant Chairman (Mr. Summers himself?) appointed with Wall Street's advice and consent. "Born and bred in the briar patch," crowed B'rer Rabbit triumphantly after being thrown there. Saved from future Eliot Spitzers!

Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) He can be reached via his website, mh@michael-hudson.com

Note.


1. Edward Luce, "White paper sets out skilful compromises," Financial Times, June 18, 2009.

How the Wall Street Bankers Bought Congress

by Petrino DiLeo / June 22nd, 2009 (0)

You would think that causing the worst financial crisis since the Great Depression might have repercussions. You would think being a major factor in the destruction of around 40 percent of the world’s wealth might get you in trouble. You would think being the cause of the worst housing crisis in history — with millions of people losing their homes because of you — might force a restructuring of how Wall Street does things.

You would think that. But you’d be wrong.

For Wall Street’s lobbyists in Washington, it’s business as usual. Since Barack Obama took office, the bankers have succeeded in …
(Full article …)
http://dissidentvoice.org/2009/06/how-the-...ought-congress/

Obama Regulatory Reform Plan Officially Establishes Banking Dictatorship - by Paul Joseph Watson, Steve Watson - 2009-06-23

Obama's Financial Reform Proposal: A Stealth Scheme for Global Monetary Control - by Stephen Lendman - 2009-06-24

Big Brother in Basel: Are We Trading Financial Stability for National Sovereignty?- by Ellen Brown - 2009-06-23

• Insiders Continue to Hit the Exits - Financial Times
• When Money Dies (online) - Adam Fergusson
• "Suck On Our Yachts" by Matt Taibbi
• World Bank Warns of Social Unrest - BBC
• Obama's Latest Surrender to Wall St. - Michael Hudson

Clinton did it (and others helped)

Commentary: How would effective financial services reform look? Like 1999
java script:void(0) By David Weidner, MarketWatch

NEW YORK (MarketWatch) -- On Wall and Main streets they call William Jefferson Clinton the "comeback kid," but it's not because of some election-day surprise.

It's because most everything he did regarding financial services regulation has come back to haunt us.

If it wasn't apparent before, the former president's handiwork became clear last week when President Obama announced sweeping financial services reform. The plan's efforts to bring fair dealing to the mortgage markets, rules to the derivative marketplace and restraint to big financial firms underscored the missteps of the second Clinton term.



Reuters
President Bill Clinton
That's because we had weakly regulated markets when Clinton took office. When he left, they were an invitation to lawless dealing where, for the ease of it, Willie Sutton would have traded his gun and mask for a briefcase and necktie.

During his final three years in office, Clinton created a fertile environment for home-lending charlatans, hiding places for Wall Street swindlers and a regulatory structure that had served the financial marketplace so well for more than six decades.

Clinton bashing -- like Bush bashing -- is often a cop out, but he made some critical mistakes when it came to dealing with the financial industry. Three poor decisions stand out.

The first was a change in 1997 to the amount of taxes a homeowner had to pay on the sale of his or her home on up to $500,000. This change effectively made buying and selling a home for profit the most compelling investment in America by tax standards. It changed our housing market from one of supply and demand to one of rampant speculation.

The second mistake was one of inaction. In 1998, Long-Term Capital Management's use of derivatives and leverage required a massive $3.6 billion hedge fund bailout organized by the New York Federal Reserve Bank. After the fiasco rocked the markets, the administration was on the spot. Would it require tighter regulation of this new form of investment vehicle? Would it rein in the derivatives markets?

Federal Reserve Chairman Alan Greenspan and Securities and Exchange Commission Chairman Arthur Levitt and Treasury Secretary Robert Rubin counseled against it to varying degrees and Clinton relented.


Repeal of Glass-Steagall
But perhaps the biggest mistake of the Clinton years regarding Wall Street and the one that rings loudest today was the repeal of Glass-Steagall, a 1933 law that effectively split investment banking and brokerages from commercial banks.

In the years leading up to the repeal, Wall Street had been grumbling that the law had become an anachronism. Financial technology was sophisticated. We were so much smarter than they were back in 1929 that there was no way a financial services conglomerate could pose a threat to the system, Wall Street experts said. Besides, they argued, it was a good idea for a bank to handle customers' investments and savings as a hedge in the bad times.

The Clinton administration effectively had its hand forced in 1998 by the merger of Citicorp and Travelers Group in 1998. The creation of Citigroup Inc. /quotes/comstock/13*!c/quotes/nls/c (C 2.99, -0.01, -0.33%) required a lot of chutzpah by its CEO, Sandy Weill, because it was effectively prohibited under Glass-Steagall.

Enter the Gramm-Leach-Bliley Financial Services Modernization Act of 1999, which not only allowed Citi to exist but also eliminated key barriers between bankers who are supposed to limit risks and investment bankers who were supposed to take them.

The biggest argument critics have against bringing back Glass-Steagall is that it would be too chaotic. Whole companies would have to be cleaved. Relationships would have to be unwound.

Well, back in 1933 the law effectively split J.P. Morgan /quotes/comstock/13*!jpm/quotes/nls/jpm (JPM 33.75, +0.88, +2.68%) , the bank, from what would become Morgan Stanley /quotes/comstock/13*!ms/quotes/nls/ms (MS 26.69, +0.06, +0.23%) , the brokerage. Both seem to have come through the disruption fairly well.


Aides who abetted
Clinton didn't do it all alone. He had a lot of help from Congress. He was under pressure from a legislature controlled by laissez-faire Republicans who were hell bent on taking up the Reagan ideology of deregulation and free markets. The repeal of Glass-Steagall passed 90-8 in the Senate and 362-57 in the House.

Greenspan, the universally loved chairman of the Federal Reserve, gave everyone bad advice in regard to interest rates, home ownership and derivatives. Under Levitt at the SEC, Wall Street accounting reached its nadir only to reveal itself with WorldCom and Enron after he left office.

Then, Clinton's Republican successor closed the deal. George W. Bush took the ball into the end zone, and making buying a home easier than spelling FNMA or FICO and removing the last vestiges of capital requirements at U.S. brokerage firms.

Ultimately, however, the big bang -- the wall torn down between brokers and banks -- happened on Clinton's watch. It's largely the problem that's being tackled in the current administration's 85-page white paper on reform. After all, Citigroup's banking side probably would not have loaded its balance sheet with toxic loans had it not been under pressure from the arm making all of the stuff.

Citi also wouldn't be the size it is today, a monster that the government deems "too big to fail" and required more than $300 billion in cash and guarantees to stabilize.

Citigroup's drag on the nation probably isn't what Clinton envisioned, but that's the problem with modernizing markets and making our financial system cutting edge. Too often we get cut.

David Weidner covers Wall Street for MarketWatch.

For those that profess all is well and getting better, have a look at this.

Now here is a lot of improvement! (Click chart to enlarge)

Here is the new GM Volt car, not exactly emission free and somewhat methane powered, but definitely greenish.



By comparison to the GM Volt shown above, below is transportation in Greenwich, CT today. The two people pictured are OTC credit default derivative dealers on their way to work, financed by TARP. Palm trees were imported, and paid for by Madoff clients.

By 2012 Banksters will be an endanger species.

High-Flying Banker Boumeester Found Dead
12:41pm UK, Monday June 29, 2009

A Dutch financier who went missing after leaving his job at troubled banking group ABN Amro has been found dead with gunshot wounds.

Fears grew for the safety of high-flying banker Huibert Boumeester when he missed a business appointment. He had not been seen for a week.

Police said two of his shotguns had also disappeared from his homes in London and Scotland.

The body of the 49-year-old former chief financial officer at ABN Amro was found in woodland in Winkfield near Ascot, Berkshire, on Sunday morning.

A Thames Valley Police spokesman said they could not confirm the identity of the dead man, but added: "He is believed to have died from gunshot wounds.

"At the moment it is being treated as an unexplained death. A definite cause of death has not been established."

Mr Boumeester joined ABN Amro, the 2007 takeover of which plunged the Royal Bank of Scotland into record losses, in 1987

He worked his way up to the post of chief financial officer before leaving early last year.

More…

• Market Manipulation - Levin & Santelli (video)
• American Capitalism - Felix Rohatyn
• The US and Argentina - Eric Janzen itulip
• Debtor's Revolt - Anecdotal Economics
• Where's the Gold? - Huffington Post
• Goldman Sachs Did It - ZeroHedge

The Great Bank Robbery: How the Federal Reserve is destroying America- by Robert Bridge - 2009-06-30

Five on the 26th. Is that not a one week record?

Five More Banks Closed by Regulators
Total Failures so Far: 50 Banks and Credit Unions in 2009
June 29, 2009 - Linda McGlasson, Managing Editor

Five more banks were closed by banking regulators on June 26, bringing the total number of bank/credit union failures to 50 for 2009. Two banks in Georgia, one in Minnesota and two in California were shut down. Four were bought by other banks. The total assets of the five banks were just over $1 billion.

These five come on the heels of three banks closed on June 19.

The Federal Deposit Insurance Corporation (FDIC) paid out the insured deposits of Community Bank of West Georgia, Villa Rica, GA. The bank was closed by the Georgia Department of Banking and Finance. The failed bank had assets of $199.4 million and deposits of $182.5 million. The customers of the failed bank receiving direct deposits have been transferred to United Community Bank, Blairsville, GA. The estimated cost of the failure to the FDIC’s Deposit Insurance Fund will be $85 million. Community Bank of West Georgia is the eighth Georgia bank to fail this year.

The second Georgia bank to fail was Neighborhood Community Bank, Newnan, GA. The Georgia Department of Banking and Finance closed the bank and appointed the FDIC receiver. The FDIC in turn sold the failed bank’s deposits to CharterBank, West Point, GA. The four offices of Neighborhood Community Bank are now branches of CharterBank. The failed bank had $221.6 million in assets and deposits of $191.3 million. CharterBank agreed to purchase $209.6 million of assets. The bank and FDIC are in a loss-share agreement on $178.5 million of the failed bank’s assets. The FDIC DIF cost will be $66.7 million. Neighborhood Community Bank was the ninth bank in Georgia to fail in 2009.

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Banks Own the US Government
There are smart ways to raise money and regulate the market, but Wall Street is working to kill any meaningful financial reform
by Dean Baker

Last month, when the US Congress failed to pass a bankruptcy reform measure that would have allowed home mortgages to be modified in bankruptcy, senator Dick Durbin succinctly commented: "The banks own the place." That seems pretty clear.

After all, it was the banks' greed that fed the housing bubble with loony loans that were guaranteed to go bad. Of course the finance guys also made a fortune guaranteeing the loans that were guaranteed to go bad (ie AIG), and when everything went bust, the taxpayers got handed the bill. The cost of the bailout will certainly be in the hundreds of billions, if not more than $1tn when it is all over.

More importantly, we are looking at the most severe economic downturn since the Great Depression. The cumulative lost output over the years 2008-2012 will almost certainly exceed $5tn. That comes to more than $60,000 for an average family of four. This is the price that we are paying for the bankers' greed, coupled with incredible incompetence and/or corruption from our regulators.

Under these circumstances, it would be reasonable to think that the bankers would be keeping a low profile for a while. That's not the way it works in Washington. The banks are aggressively pushing their case in Congress and Obama administration. Not only are we not going to see bankruptcy reform, but any financial reform package that gets through Congress will probably contain enough loopholes that it will be almost useless.

In this political environment, the poor might get empathy, but Wall Street gets money, and lots of it. Even when the issue is global warming Wall Street has its hand out. The fees on trading carbon permits could run into the hundreds of billions of dollars in coming decades. A simple carbon tax would have been far more efficient, but efficiency is not the most important value when it comes to making Wall Street richer.

This is why it was so encouraging to see congressman Peter DeFazio's proposal to tax trades in oil options and futures. DeFazio proposed a tax of 0.02% on trades in oil futures and options as a way to make up a shortfall in the federal government's highway trust fund. This tax could raise billions of dollars each year in revenue and make speculation in the oil market a more dangerous affair.

The logic is very simple. For someone using these markets to hedge, the tax will be inconsequential. For example, a farmer that hedges a $400,000 wheat crop will pay $80 when selling a future. Similarly, airlines that hedge by buying oil futures will barely notice the higher cost. In fact, because trading costs have fallen so much in recent decades, a tax at this level would just be raising costs back to their levels of two decades ago, a point at which there was already a very vibrant futures and options market.

However, even a modest tax will make life much more difficult for speculators. Many of them expect to make quick short-term gains, often buying and selling the same day. For these traders, an increase in transactions costs of 0.02% would be a burden.

Of course, a modest tax will not drive the speculators out of the market altogether, it is just likely to reduce the volume of speculation. For this reason, even a modest tax can still raise an enormous amount of money in a market where tens of trillions of dollars of derivatives changes hands each year.

This tax can best be thought of as a tax on gambling. Gambling is heavily taxed in every state that allows it. DeFazio's bill is effectively a tax on gambling in the oil markets. It will not stop it, but it would discourage it, and in the process raise a huge amount of money that could go to productive purposes.

The bill faces an enormous uphill struggle in Congress. As Durbin said, the banks own the place, and they are not going to just step aside and let Congress impose a tax on such a lucrative business. But, it is important that people know about the DeFazio bill. First, DeFazio deserves a place on the honour roll for standing up to Wall Street.

Also, it is important for the public to know that there is a relatively low-cost way to make up the shortfall in the highway trust fund. When Congress raises some other tax and/or cuts a useful programme, people should know that there was a better alternative. It just didn't happen because, as we know, the banks own the place.

© 2009 Guardian News and Media Limited

Goldman Sachs The Fourth Branch of the U.S. Government: Best Financial Markets Analysis ArticleQuietly and almost unnoticed by most Americans, the US Federal Government introduced a fourth branch to its political structure in 2006.

How Goldman Sachs and Citi Run the Show
The Wall Street White House
By ANDREW COCKBURN

Robert Hormats, Vice Chairman of Goldman Sachs, is to be installed as Under Secretary of Economics, Business, and Agricultural Affairs. This comes as one more, probably unnecessary reminder of the total control exercised by Wall Street over the Obama administration's economic and financial policy. True, Hormats is "a talker rather than a decider" according to one former White House official, but he will find plenty of old friends used to making decisions, almost all of them uniformly disastrous for the U.S. and global economy.

Among the familiar Wall Street faces that Hormats will encounter in his new post will that of Deputy Secretary of State Jacob Lew, lately Chief Financial Officer of Citigroup Alternative Investments Group which lost $509 million in the first quarter of 2008 alone. On visits to the White House he is sure to bump into Michael Froman, who also tore a swath through the Citi balance sheet at the alternative investments shop (they specialized in "esoteric" investments such as private highways) but is now Obama's Deputy National Security Adviser for International Economic Affairs. If Froman is otherwise engaged, Hormats can interface with Froman's deputy, David Lipton, who was until recently running Citi's global country risk management effort.

Citigroup is also well represented at Treasury, in the form of Lewis Alexander, formerly the bank's chief economist and now Counselor to Treasury Secretary Timothy Geithner. Given the role played by all of the above in bankrupting us all, Alexander's 2007 verdict on the onset of the mortgage crash, "I think that's not going to spill more broadly into the economy and so I think we're going to have a normal kind of housing cycle though the middle of this year," can only have been a recommendation in the eyes of his current employer.

Alexander's function at Citi may have been merely to endorse the financial depredations of colleagues with economic blather, rather than exercise loss-making functions personally. Not so Deputy Treasury Secretary Neal Wolin, who has moved over to the number two job at the department from the Hartford Insurance Company, where he served as president and chief operating officer of the Property and Casualty Group. Hartford was one of the insurance companies that got suckered by the banks into backing their ruinous investments in real estate and other esoterica, but Wolin's Treasury has just handed Hartford $3.4 billion of our money in the form of TARP funds.

Hormats' agricultural responsibilities will of necessity bring him into frequent contact with the Chairman of the Commodity Futures Trading Commission, Gary Gensler – a former Goldman partner. As Assistant Secretary of Treasury in the Clinton Adminsitration Gensler played a key role in greasing the skids for the notorious Commodity Futures Modernization Act of 2000, which set the stage for the great credit default swaps scam that underpinned the recent bubble and subsequent collapse. News of the appointment did generate threats of obstruction in the Senate – any one of the senators could have blocked the appointment had they really wished to do so – but such threats proved predictably hollow. Had they been otherwise, Treasury Chief of Staff Mark Patterson could of course have lent the expertise he gained as Goldman's lobbyist to overcome the obstacle.

For sheer gall it would be hard to equal the appointment of Gensler, one of the engineers of this catastrophe, but the administration has managed it with the selection of Linda Robertson, formerly a key Enron lobbyist and intimately involved in pushing through the commodity futures act as chief flack for the Federal Reserve. Prior to joining the crooked energy-trading firm, Robertson was an important figure in the Clinton Treasury Department, latterly serving her friend Larry Summers and before him Robert Rubin during their terms as Treasury Secretaries.

Such connection to the key enablers of our bankrupt casino helps explain many of the other hires listed above. Michael Froman was Chief of Staff to Robert Rubin at Treasury before following Rubin to his reward at Citigroup. Most significantly, it was Froman who first introduced Rubin to his Harvard classmate Barack Obama. David Lipton also served in the Rubin Treasury, as deputy under secretary for international affairs. Neal Wolin, on the other hand, appears to have more an acolyte of Summers, who cherished him as Treasury General Counsel from '99 to '01. Summers and Robertson were similarly close, and certainly he raised no objection to her fatal submissions on behalf of her paymasters at Enron.

Recent reports suggest that financial industry lobbying in Washington, at $104.7 million for the first three months of 2009, is 8% down on last year. But that is to be expected – why should Wall Street continue paying top dollar for a wholly owned subsidiary?

Andrew Cockburn writes about national security and related matters. His most recent book is Rumsfeld: His Rise, Fall and Catastrophic Legacy. He is the co-producer of American Casino, the feature documentary on the ongoing financial collapse. He can be reached at amcockburn@gmail.com.
http://www.counterpunch.org/andrew07022009.html

Banks own the US governmentThere are smart ways to raise money and regulate the market, but Wall Street is working to kill any meaningful financial reform- by Dean Baker - 2009-07-02

Depression 2 Update: Seven More Banks Fail!

Oh, the joys of not having to get up with the first ring of the alarm clock! But then, as I laid in bed this morning wondering what to write about, it came to me in a flash: There have been numerous alarming signs and portents in the markets this week, if one knows where to look.

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The FDIC announced seven bank failures after the market closed Thursday, which brings the number of banks closed this year to 52. But, if you count the number of branch offices closed this week it's 30 branches.



Founders Bank Millennium State Bank of Texas First National Bank of Danville Elizabeth State Bank Rock River Bank First State Bank of Winchester John Warner Bank

But what's even more alarming is that if you look back over the last year of "We're not in a Depression" bank numbers, you'll see that the number of banks closed is nominally up to 75, but if you count up branches, the banking system has shuffled ownership of 2,969 branches.



That FDIC seems to be doing a smooth job of it - making depositors whole in each case (so far), one can't help but wonder what's the cost of all this to be in the longer term, especially since the real guts of the second leg down in financial markets isn't expected till this fall.



When will FDIC have to go looking to recharge its coffers?



Meantime, at least the bad news was released after the markets were closed and has an extra day to contemplate what this all means. Answer to that should be apparent to anyone with half a brain (Depression 2.0 may be real and George may not be so crazy after all...).



If you divide the total offices closed (2,969) by 51 weeks (since July 11, 2008 is the IndyMac failure - 51 weeks back) closings have been averaging 58.21 offices per week, although admitted the data is skewed a bit by the WAMU and Downey Savings failures. Still, the count is the count.

Wall Street Pay Fattens as Rest of U.S. Suffers
Unemployment rose to 9.5 percent last month, the highest level in 26 years. Meanwhile, Wall Street payouts are not dropping. Goldman Sachs will be shelling out a whopping $20 billion to its employees this year. As we enter the 20th month of this recession, unemployment is becoming a way of life for many, and the very same people who created this mess are still reaping the profits.

THE GREAT AMERICAN BUBBLE MACHINE
Rolling Stone's Matt Taibbi On "How Goldman Sachs Has Engineered Every Major Market Manipulation Since The Great Depression"

• Quick Read

THE ZERO DOWN MIRAGE WSJ STUDY: No Money Down Deals Caused Foreclosure Crisis, Not Subprime Loans

• Quick Read

Bill Gross, Bond King: Greed Will Soon Return To Wall St.
Quick Read

Wall Street Pay Approaches 2007's Record Highs
Quick Read

Steve: Fed, Help Us
Steve Forbes, 07.06.09, 06:00 AM EDT

Steve Forbes discusses the prospect of the Federal Reserve getting more responsibilities, and why it doesn’t need any more.

The Obama administration wants to enhance the regulatory powers of the Federal Reserve. That’s a mistake. The Fed has all the power it needs to help the American consumer and the global economy. The Fed needs to stop buying government debt and start focusing on what matters.

Cash in the banking system is not the problem, so the Fed buying Treasuries won’t solve anything. The Fed should be aggressively buying mortgage-backed securities, packages of credit card loans, car loans and other kinds of credit, as it promised to do last year. The Fed’s balance sheet has shrunk since December, indicating an appallingly timid response in the face of the crisis. The Fed doesn’t have to balloon its balance sheet when it purchases these consumer credit packages, but it does have to pump hundreds of millions of dollars into the system to get credit flowing again.

In terms of regulation, it is a bit ironic they’re still going to put new powers in the Federal Reserve–an agency that didn’t exercise proper oversight over the banking system and whose lousy monetary policy in 2003 and 2004 made the bubble possible. The Fed doesn’t need new powers, it needs to clean up the mess it created.

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Will Bernanke keep his job?
Obama will have to make a big decision: Whether to reappoint the Fed chair. Bernanke has detractors on the Hill. Right now at least, odds are he’ll hang on.
By Jennifer Liberto, CNNMoney.com senior writer
Last Updated: July 6, 2009: 11:22 AM ET

WASHINGTON (CNNMoney.com) — In the next six months, President Obama faces one of his biggest and most important decisions about the economy.

Should Federal Reserve Chairman Ben Bernanke keep his job?

Bernanke’s term comes to an end on Jan. 31. Obama will either reappoint or replace him. And the president has been coy about his leanings.

Last month, Obama offered a strong defense of Bernanke, saying he has done a "fine job." At the same time, Obama acknowledged that the Fed had missed key aspects of the financial crisis, saying it "didn’t do everything that needed to be done."

As the nation slogs through the recession — now in its 20th month — the role of the central bank’s chief has never been more important.

The Fed is charged with examining bank soundness, as well as checking the cost and availability of money and credit in the economy. Lately, given the more than $1 trillion the Fed has printed to get the markets moving, there’s a renewed focus on watching for signs of inflation.

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Random Comments -- I see that Time magazine (which is steadily losing circulation) is becoming more and more a religious messenger to the masses. Their newest cover (July 13) tells us that "Infidelity is eroding our most sacred institution. How to make marriage matter again." Funny, I thought FREEDOM was our most sacred institution. Later we read in a full-page article, "Obama's Sanctuary. Inside the church where Presidents pray in peace." Soon we'll be reading Time magazine as a adjunct to the Bible.
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Frank Rich in the Sunday New York Times notes that Wall Streeters have put a big one over on the confused American people. He compares Madoff's thievery to the much bigger robbery pulled off by Wall Streeters. Writes Rich, "The estimated $65 billion involved in Madoff's flimflam is dwarfed by the more than $2.5 trillion paid so far by American taxpayers to bail out those masters of Wall Street's universe. AIG alone has already left us on the hook for $180 billion. It's hard for those who didn't have money with Madoff to get worked up about him when so many of the era's real culprits have slipped away scot-free. Already, some of these same players are up to similarly greedy shenanigans again, now that the coast seems to be clear.

"Washington had no choice but to ride to their rescue last fall to prevent an even greater systemic catastrophe. As the economist, Joseph Stiglitz wrote in this month's Vanity Fair, 'In the developing worlds, people look at Washington and see a system of government that allowed Wall Street to write self-serving rules which put at risk the entire global economy-- and then, when the day of reckoning came, turned to Wall Street to manage the recovery. They see continued re-distributions of wealth to the top of the pyramid, transparently at the expense of ordinary citizens....

"The Times reported on Thursday, the institutions that received the most bailout loot are often the biggest offenders. That would include the too-big-to-fail Citigroup, which has so far received $45 billion in taxpayers money, along with guarantees on $300 billion in toxic assets, to mitigate its reckless risk-taking during the reign of such obscenely rewarded (and now departed) executives as Charles Prince and Robert Rubin. While taxpayers will soon own some 34% of Citi, it is not only increasing our credit card interest rates (to nearly 30% in some cases) but raising its own base salaries (by 50%) to work around Washington's new restrictions on bonuses....

"What's uncontroversial and indisputable is that Goldman alumni have played key roles in both the Bush and Obama administrations' responses to the current crisis, even though Goldman has a big stake in the outcome. ... Goldman also rules at the New York Fed, a supposed monitor of Wall Street. Until May, the Fed's Chairman was serving simultaneously on the Goldman board. He resigned only after the Wall Street Journal reported that he was also still buying Goldman stock during his Fed tenure. At least the other failed watchdog, the Securities and Exchange Commission, has now cleaned house."

Russell Comment --The whole bailout campaign stinks to high heaven. It was created and run by Wall Street -- FOR Wall Street.

Again, I say, personally, I wouldn't have lifted a finger to bail Wall Street out. Let all these Wall Street thieves stew in their own toxic juices. Thieves should be out on the street or in jail, not luxuriating in government bailout money. In the end, the bailouts will simply extend the bear market in stocks and the economy. The Wall Streeters will be richer, and the nation will be poorer, choking on trillions in debt that will keep future generations struggling to deal with the sins of Wall Street. Too bad Obama didn't have the courage (or knowledge) to tell the nation what was going on. Obama should have said, "sit tight" and "this too shall pass." Unfortunately, after the trillions spent in bailouts, "this too will not pass."

S&P Increases Loss Estimates for Alt-A and Subprime RMBS by CalculatedRisk on 7/06/2009 04:49:00 PM

From Reuters: S&P raises loss expectations for risky US mortgages

Standard & Poor's on Monday boosted its expectations for losses on risky loans backing U.S. mortgage securities ... [this] "significantly impact" bonds originally carrying AAA ratings, S&P said in a report.
...
S&P boosted loss projections for subprime loans made at the peak of the market in 2006 and 2007 to 32 percent and 40 percent from 25 percent and 31 percent, respectively. For 2005 loans, loss projections rose to 14 percent from 10.5 percent.

For Alt-A loans ... loss projections for 2006 and 2007 mortgages rose to 22.5 percent and 27 percent from 17.3 percent and 21 percent, respectively. S&P expects Alt-A loans from 2005 to post losses of 10 percent, up from its previous estimate of 7.75 percent.

Loss severities ... are expected to rise to 70 percent for 2006 and 2007 subprime bonds and 60 percent for Alt-A bonds issued in those years, S&P added.

According to the article, S&P noted a surge in the inventory of bank-owned properties. Here is the S&P report.

Update: From the S&P report: Standard & Poor's Chief Economist David Wyss expects "home prices will decline by an additional 5%-7% from the 2006 peak before residential real estate prices start to stabilize in the first half of 2010, marking an overall decline of approximately 37% from the July 2006 peak."

Like Roaches, Wall St. Survives New York Times - Rob Cox, Antony Currie - It is said that roaches would survive a nuclear conflagration. But Wall Street is proving similarly resilient to financial Armageddon.

Wells Fargo Capital Needs Alter Its Thinking TheStreet.com

Bank Bears Pile Into Wells Fargo Puts Forbes

Taibbi's Scream: Stop the Political System That Has Let Goldman Sachs Fleece Us for 90 Years

Rob Johnson, AlterNet

The sordid story of how Goldman Sachs and Co. engineered bubbles in the economy and made a hefty profit.