TENAC, THE ELECTION & CURRENT ECONOMIC CRISIS

SMART ENOUGH TO TAKE EVERYONE FOR EVERYTHING THEY'VE GOT

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Written by Jim McGrath Tuesday, 20 October 2009 15:20

Commenting on the N. Y. Times Op-Ed, Wall Street Smarts, NEVER AGAIN should be our cry, and the reason is obvious. All industries and human behavior need some form of restraint, from the food industry and pharmaceuticals to controlled substances and public parking.  Contrary to the conclusions one must draw from the claims of free-market philosophy about human nature, business men and entrepreneurs  do not divest themselves of greed and sefishness and become self-regulating, honest and forthright.  Especially not with what we have seen involving investors' money.  Are we to believe them? In effect they are saying that power corrupts, and absolute power corrupts absolutely, except for businessmen and women in free enterprise?  And so we businesses and markets must be free from regulation and restraint?   Rather we should say, Freedom? Nay, licentiousness, in the name is free enterprise!  Theirs is a perversion of the true definition.  These financial giants are in essence claiming that free enterprise means to do with your money what we will, damn the long term consequences, any responsibility, and what good sense dictates.  Then dress it up in fancy gimmicks like tranches, collateralized debt obligations, credit default swaps, quant funds, etc., etc., as a disguise to fool the public.

Thus, rather than submit to the restrained form of common sense capitalism dictated by established statute, that has been ignored  since the Reagan Regression and repealed in various forms by politicians sycophant to corporate interests (and campaign funds), we are currently witnessing its natural conclusion, the current perfect storm factors: lack of regulation, pay for failure, investment in junk bonds and high risk assets by the tonnage, and bonuses that reward short term profit at the expense of everyone else, and now of the economy, allowing these unregulated businessmen to abandon any pretense of  fiduciary responsibility for the unfettered pursuit of greed, true to human nature. 

We must regulate this form of insanity, or at least limit potential harm to the money, savings and investments of others. It is a restraint arguably more needed than regulating  many things, at least for our financial safety. Consider the insanity that engendered securitized obligations (mortgages, credit card debt, student loans, or whatver): no honest financial innovation -- instead, a world of chicanery where the fastest computers known to man literally took hours to slice and dice debt into different securitized instruments, or tranches, to resell to a duped world.  All under the pretense that such wide dissemination would spread risk and make worthless assets safe to invest in. No wonder some corporate heads, bank presidents, Bernanke, the Fed and many experts were baffled by what these "whiz kids" did.  

They surely were smart: smart enough to fool the investing classes and themselves, touting this snake oil as a cure for good, common business sense and we are smarting from it.  If I remember my high school history,  borrowing 10 to 1 on the margin was a major cause of the depression. Don't you think these MBAs and business gurus knew their massive leveraging on a 40 to 1 margin and worse would be disastrous?  They had to. They were smart, alright.  And in the end, this sort of con game is sheer stupidity, for as anyone can see it leads to ruin.  And downfall.  Ask the CEOs and brokers who are winding up in trouble and downsized to ice cream trucks and baristas.  For a humorous, though too kind view, see the NY Times Op-Ed , WALL STREET SMARTS by Calvin Trillin, or click at: http://www.nytimes.com/2009/10/14/opinion/14trillin.html

WALL STREET SMARTS

by Calvin Trillin, NY Times, Oct. 13, 2009

"IF you really want to know why the financial system nearly collapsed in the fall of 2008, I can tell you in one simple sentence."

The statement came from a man sitting three or four stools away from me in a sparsely populated Midtown bar, where I was waiting for a friend. "But I have to buy you a drink to hear it?" I asked.

"Absolutely not," he said. "I can buy my own drinks. My 401(k) is intact. I got out of the market 8 or 10 years ago, when I saw what was happening."

He did indeed look capable of buying his own drinks - one of which, a dry martini, straight up, was on the bar in front of him. He was a well-preserved, gray-haired man of about retirement age, dressed in the same sort of clothes he must have worn on some Ivy League campus in the late '50s or early '60s - a tweed jacket, gray pants, a blue button-down shirt and a club tie that, seen from a distance, seemed adorned with tiny brussels sprouts.

"O.K.," I said. "Let's hear it."       

"The financial system nearly collapsed," he said, "because smart guys had started working on Wall Street." He took a sip of his martini, and stared straight at the row of bottles behind the bar, as if the conversation was now over.

"But weren't there smart guys on Wall Street in the first place?" I asked.

He looked at me the way a mathematics teacher might look at a child who, despite heroic efforts by the teacher, seemed incapable of learning the most rudimentary principles of long division.

"You are either a lot younger than you look or you don't have much of a memory," he said. "One of the speakers at my 25th reunion said that, according to a survey he had done of those attending, income was now precisely in inverse proportion to academic standing in the class, and that was partly because everyone in the lower third of the class had become a Wall Street millionaire."

I reflected on my own college class, of roughly the same era. The top student had been appointed a federal appeals court judge - earning, by Wall Street standards, tip money. A lot of the people with similarly impressive academic records became professors. I could picture the future titans of Wall Street dozing in the back rows of some gut course like Geology 101, popularly known as Rocks for Jocks.

"That actually sounds more or less accurate," I said.

"Of course it's accurate," he said. "Don't get me wrong: the guys from the lower third of the class who went to Wall Street had a lot of nice qualities. Most of them were pleasant enough. They made a good impression. And now we realize that by the standards that came later, they weren't really greedy. They just wanted a nice house in Greenwich and maybe a sailboat. A lot of them were from families that had always been on Wall Street, so they were accustomed to nice houses in Greenwich. They didn't feel the need to leverage the entire business so they could make the sort of money that easily supports the second oceangoing yacht."

"So what happened?"

"I told you what happened. Smart guys started going to Wall Street."

"Why?"

"I thought you'd never ask," he said, making a practiced gesture with his eyebrows that caused the bartender to get started mixing another martini.

"Two things happened. One is that the amount of money that could be made on Wall Street with hedge fund and private equity operations became just mind-blowing. At the same time, college was getting so expensive that people from reasonably prosperous families were graduating with huge debts. So even the smart guys went to Wall Street, maybe telling themselves that in a few years they'd have so much money they could then become professors or legal-services lawyers or whatever they'd wanted to be in the first place.

That's when you started reading stories about the percentage of the graduating class of Harvard College who planned to go into the financial industry or go to business school so they could then go into the financial industry. That's when you started reading about these geniuses from M.I.T. and Caltech who instead of going to graduate school in physics went to Wall Street to calculate arbitrage odds."

"But you still haven't told me how that brought on the financial crisis."

"Did you ever hear the word ‘derivatives'?" he said. "Do you think our guys could have invented, say, credit default swaps? Give me a break! They couldn't have done the math."

"Why do I get the feeling that there's one more step in this scenario?" I said.

"Because there is," he said. "When the smart guys started this business of securitizing things that didn't even exist in the first place, who was running the firms they worked for? Our guys! The lower third of the class! Guys who didn't have the foggiest notion of what a credit default swap was. All our guys knew was that they were getting disgustingly rich, and they had gotten to like that. All of that easy money had eaten away at their sense of enoughness."

"So having smart guys there almost caused Wall Street to collapse."

"You got it," he said. "It took you awhile, but you got it."

The theory sounded too simple to be true, but right offhand I couldn't find any flaws in it. I found myself contemplating the sort of havoc a horde of smart guys could wreak in other industries. I saw those industries falling one by one, done in by superior intelligence. "I think I need a drink," I said.

He nodded at my glass and made another one of those eyebrow gestures to the bartender. "Please," he said. "Allow me."

WAKE UP, IT'S MORNING IN AMERICA, ONLY NOT LIKE YOU THINK

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Written by Jim McGrath Thursday, 22 October 2009 14:36

We see that Congress has amended the legislation regulating the derivative trade to continue to allow "some" secrecy.  Actually, ONE AMENDMENT WOULD EXEMPT 98 PERCENT OF ALL BANKS FROM OVERSIGHT of a new Consumer Financial Products Safety Commission. This is lunacy. We need real reform. Continuing their secret, shadow "investing" is paving the way for more of the same and greater economic catastrophe. We must repeal the deregulation that started us on this course to ruin and regulate them properly. Damn their definition of free market: free to cheat, create fraudulent investments, Ponzi trash and gimmicks, disguising garbage as derivatives, quant funds, credit default swaps, etc.

The only natural conclusion one can draw, when followed by the logic inherent in their definition of free market is that once a man goes into business, he becomes a saint, self-regulating and fulfiller of his/her fiduciary roles as defined under the law with utmost objectivity. We see that is false, obviously, in everything from stocks to mortgages and massive leverage.

Message to Bankers, Brokers, CEOs and All of Wall Street: ENOUGH OF THE SMOKESCREEN screed "FREE MARKET" to exempt yourselves from scrutiny and any real financial responsibility to your investors! It's a mask to continue your error: making a quick buck so your financial "acumen" (read charlatanism) looks like success, only to reap the ultimate ruin that comes from voodoo investing, so called in my book, because it derives from the voodoo economics of the Reagan Regression. Morning in America is real everybody, only not the way Reagan and the magic of the marketplace magicians promised it. Everybody wake up! Or we will all be speaking Chinese! TAKE A LOOK AT CONGRESS' WIMPING OUT ON REALLY REGULATING THESE TRICKS, WHAT WARREN BUFFET CALLS "WEAPONS OF MASS DESTRUCTION", in the Huffington Post below:

Dem "Reformers" Going the Way of Cain!

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Written by Jim McGrath Tuesday, 10 November 2009 18:03

Now after all this talk of "progressive" and "reform", it appears our Democratic brethren are adept at adopting G.O.P. pro-banking, pro-business, pro-ruin policies, thereby making a sham of reform and progressive principles. We invite you to read the article below, from The Huffington Post, about what seems to be more shameless pandering, now from our wolves in sheeps' clothing.  We elected Dems in '08 for reform and are getting the same old thing.  If THIS is change you can believe in, maybe we ought to form a new party, with a pox on both houses!  

Labor Leader Decries "Reform" as "TARP

 on Steroids"

From Mike Elk on The Huffington Post:

After leading the dramatic three day Showdown in Chicago at the American Bankers Association (ABA) Convention in Chicago, AFL-CIO President Richard Trumka will head to the House Financial Service Committee today to testify against proposed reform legislation that actually gives the banks more power. In a twist of irony, he will literally sit down the table from American Bankers Association President Ed Yingling as he testifies against the banksters.

After weakening current laws on derivatives, the committee has once again weakened laws in the banker's favor. The drafted legislation concerning banks "too big to fail" would actually lead to more bailouts over the long run.

According to an advance copy of AFL-CIO President Richard Trumka's prepared testimony that I obtained, Trumka will tesify that:

The discussion draft appears to take the most problematic and unpopular aspects of the TARP and makes them the model for permanent legislation.

Essentially the legislation would weaken regulation and lead to the conditions in which the American people would be forced to bail out the banks again. As Trumka testifies:

The discussion draft would appear to give power to the Federal Reserve to preempt a wide range of rules regulating the capital markets -- power which could be used to gut investor and consumer protections.

Trumka goes onto explain in vivid detail how the Federal Reserve, with its lack of accountability, has traditionally acted in the interests of the banks:

The Federal Reserve currently is the regulator for bank holding companies. In that capacity, it was responsible throughout the period of the bubble for regulating the parent companies of the nation's largest banks. While regulatory authority rests in the Board of Governors of the Federal Reserve in Washington, routine responsibility for regulatory oversight has been delegated by the Board of Governors to the regional Federal Reserve Banks. The Federal Reserve System's regulatory expertise resides in these regional banks.

The problem is that these regional Federal Reserve Banks are actually controlled by their member banks -- the very banks whose holding companies the Fed regulates. The member banks control the selection of the majority of the regional bank boards, and the boards pick the regional bank president, who are effectively the CEO's of the regulatory staff...

Giving the Federal Reserve with its current governance control over which financial institutions are bailed out in a crisis is effectively giving the banks the ability to raid the Treasury for their own benefit.

Trumka explains how the proposed legislation would, incredibly, give the big banks more of an incentive to take risky bets in order to drive out their competition:

We are also deeply troubled by a provision in the discussion that would allow the Federal Reserve to use taxpayer funds to rescue failing banks, and then bill other non-failing banks for the costs.

Isn't that absolutely absurd? If a bank deemed "too big to fail" by the Fed takes out risky bets and it fails miserably, those that were engaged in safe banking would have to bail them out. For the big banks that can afford to take huge bets this would simply give them more incentive to do it. If they lose, the smaller banks not deemed "too big to fail" would merely go under bailing out the big banks. So why not gamble big on Wall Street, since every situation would be a win-win? If you win, big profits; if you lose a, bailout and your competition goes out of business. Sounds like a good deal to me.

Furthermore, as Congressman Brad Sherman points out, the proposed legislation would allow the government to bailout banks into the trillions of dollars without having to seek Congressional approval. It would allow the Federal Reserve to bail these banks out secretly without the public knowing about it.

This is simply undemocratic. At least the last time we bailed them out, the bankers had to go to Congress and beg in shame. Now, as Congressman Sherman put it, the current legislation meant to reform Wall Street would actually be like "TARP on steroids."

The obvious question remains: why has the House Financial Service Committee under the leadership of Barney Frank dramatically weakened time and time again President Obama's proposals to regulate Wall Street? Why have the committee members strayed so far from President Obama's plans to regulate Wall Street?

Perhaps it's the $223 million that the banking lobbyists spent on lobbying Congress in the first six months of 2009 alone. Or perhaps, as the Wall Street Journal reports, campaign contributions to committee members have increased dramatically as they consider financial reform.

However, as the Showdown in Chicago showed, anger over the bailout and greed on Wall Street has increased dramatically as well. The message is loud and clear: we will go to any venue to take on the banks. We will fight the banks wherever or whenever, whether it be the halls of Congress as AFL CIO President Trumka is doing today; the thousands of protesters busting up the American Bankers Association's Convention earlier this week; or the members of United Electrical Workers (UE), who, as portrayed in Michael Moore's Capitalism, occupied their factory after Bank of America closed it down.

We will not rest until their real reform of Wall Street is passed. We will hold any politicians -- Republicans and Democrats alike -- accountable for passing fake reform that merely lines the pockets of Wall Street.

We will not rest until justice is done.

Follow Mike Elk on Twitter: www.twitter.com/MikeElk

BEYOND BONUSES: GOVERNMENT SUBSIDIZES NEW OFFICE BUILDINGS FOR GOLDMAN

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Written by Jim McGrath Tuesday, 22 December 2009 15:14

Now we hear that beyond taxpayer-funded success and bonuses, the government is subsidizing Goldman Sachs's purchases of swanky new office buildings, in the form of tax breaks, job grants, and other subsidies.   According to one economics professor, quoted on Bloomberg News:

"It's just an unbelievably bad deal...We could hire any middle-tier guy or gal at Goldman, and they would tell us within 15 seconds that the deal we have made as a nation with Goldman is underpriced by many, many orders of magnitude and that we are insane."

The article exposes the details and notes the irony of how Goldman Sachs, really a giant hedge fund and investment channel for only the wealthy (where only millionaires can open accounts and a firm that services only the wealthiest investments for the wealthiest) is benefiting from such largesse now at a time when the incomes of all but the unaffluent are falling.

We must ask, what social value is there in providing such assistance? Does it really trickle down and make a difference to the average wage earner and the economy as a whole?  Do a few thousand purchasers of yachts and other luxury items support the economy with their wealth, or is it the other way around, where the needs of millions of unaffluent wage earners are the only real stimulus that can be relied on, as stimulus dolars or indeed, any other form of prosperity or uptick, like small business growth, funnel their way through the economy? 

We must ask, and marshall public opinion: as the banks continue on life support, sucking everything out of the economy, when will the government stop giving away the store to rich corporations that provide little except to the top five or so per cent?  Will greed and lobbyist dollars continue us down the path of ruin? 

For the entire article, see Bloomberg News at :  http://www.bloomberg.com/apps/news?pid=20601109&sid=aaLwI2SKYQJg&pos=10