Money pushers profit from growing debt

Big rally on Tuesday, the 30th. On the surface, the markets look to be building momentum. I couldn't help but think back to the "green shoots" theme of spring two years ago, in 2009.

At that time, we were told to expect a growing economy. Yes, things were bad but they're getting better, so on and so forth.

In the media, we were painted a rosy future. We were told to expect a quick rebound from the dark days during the height of the crisis. This after being told that the world end was neigh, or at least not if financial companies were bailed out.

The crisis really was an opportunity to profit through crisis. Banks were able to get through Paulson and Geithner everything they could imagine. Bank of America for instance, got over $80 billion in a single day! See the activistpost link here, complete with a link to this Bloomberg article.

Media company Bloomberg sued the Federal Reserve successfully under the Freedom of Information Act (FOIA). You may remember the initial findings of Bloomberg's report on the illicit (or at least previously unreported) loans by the Federal Reserve to banks of all kinds.

This I commented in OpEdNews.com:

Bloomberg deserves credit for forcing--through court action--the Federal Reserve to divulge a list of recipients of its discount lending. Among these was the Central Bank of Libya. Deutschebank and other non-US lenders (but major holders of US mortgage debt) got billions.

The Federal Reserve's lending to companies of all kinds is a major story.
People need to know what was done by the Central Bank during the 2008-9 crisis because it affects us today. The solvency of the US Treasury has been put in jeopardy by the unaudited, illicit activities of the Fed and the toxic debt they've accumulated in swapping our Treasuries for their banker friends' falling mortgage securities and derivatives. [link]

The media plays a role in disguising the true aims of the new paradigm, one which relies on public ignorance and apathy. Baring some direct intervention like Occupy, the American public will remain docile until such time as their nation's credit has been depleted and that further borrowing becomes impossible: a juncture that grows closer every day and will lead to massive inflation.

The Federal Reserve and its for-profit member banks will buy Treasuries, but I'm firmly in the camp that believes our monetary system is a Ponzi scheme where early investors get paid off by new ones. Theoretically, the Fed can buy the government's debt forever but the more they own, the more interest will have to be paid to the holders of the debt (who are, not by coincidence, the recipients of Fed lending!)

It's the accumulation of interest payments (alongside higher interest rates) that presents the greatest threat to our fiscal solvency, no matter what the size of the national debt. Such payments are projected to grow to 20% of the federal budget by the end of the decade.

Japan all over again

The Japanese have a word for it--kikai. The kanji, or character, for kikai uses one ideogram (or representation) meaning problems, and another representing opportunity. The lingual takeaway is that, as Rahm Emanuel once said, "to let no opportunity go to waste." Emmanuel, Obama's former chief of staff, is now mayor of Chicago.

The idea is that someone else's problem represent another's potential windfall. Naomi Klein calls the practice disaster capitalism. Create the conditions for failure--by deregulating the banks so they could speculate wildly--and which a massive intervention--the bailout--becomes inevitable. In this way, private sector failures (the trouble element in the kanji) are shifted into the public domain in a process NYU economist Roubini calls "lemon socialism." For the private sector, the inability of the Federal government to cope presents the opportunity--for a bailout, contracts, whatever.

As Michael Moore summed it up so well in his Wisconsin speech in March, "we bought it." We fell for the whole act. Our representatives in Congress voted for the massive unprecedented bailout, at least the one they knowingly authorized. Moore didn't know then what we know now: that the TARP bailout was dwarfed by the size of secret Fed lending.

We can't assume that our government was operating in a vacuum at the time. Its priorities reflected the consensus of corporation with the most influence. The bailout (at least the one made public) plan was designed by government insiders with deep ties to the banks. We know Treasury Secretary Paulson was working behind the scenes with the bankers, in constant telephone contact with Goldman's Sach's Blankfein. Who's telling who what to do?

The more transparency, the more damage done to the Establishment. As I say in my OpEdNews.com comment:

"Like the movie "The Usual Suspects" says, the Devil's primary job is to get people to believe he doesn't exist. Expose the cronyism, the connection between politicians and corporate campaign contributors, and the truth threatens the status quo, which they can't afford to have happen (or more support for Occupy.)"

Our political problems can't be remedied by dimming transparency, by corporatizing the Fourth Estate which plays a vital role in preserving our democracy. We're in an information war. The Powers That Be don't want the true scope of cronyism, favoritism known. The masquerade, with all its accompanying rhetoric and feel-good speeches by politicians and squawking is just for show.

Can you handle the purple pill?

My take is that our economic problems are systemic. Therefore no amount of variable-tweaking will solve our nation's financial and economic woes.

Identifying our problems as systemic is important part of a critical thinking. To craft an effective solution, it's necessary to understand the problem.

If we're looking at a war, for instance, as winnable by formula, it's easy to think we can alter the outcome simply by adding more of one variable.

Take the number of soldiers, N, for example. We may think that an increase in the number of soldiers will assure victory. But Iraq and Afghanistan show us adding more (money, N, or whatever) won't necessarily achieve a favorable outcome.

Much as we might throw more money at a problem, it doesn't necessarily produce the desired outcome. In a similar way, creating more fiat money (or making it available to banks) doesn't stimulate the economy. Just as more soldiers doesn't determine a favorable outcome in war, so too adding money automatically make everyone rich.

Monetary policy alone can't produce the desired outcome because it's only one variable in the recipe for economic success. It's not just the quantity of money out there--it's the amount of money available to those who need it. We're a consumer economy, which means people must borrow in order to spend more, unless their incomes are rising or they tap their savings.

One distinct trait of our current economic times is the availability of credit for those who use it well, and a scarcity of credit for those who abuse it. Our economy has been "financialized" for this purpose: burden income-earners with enough debt and they will suffer the interest burden.

It's a Machiavellian notion: the wealthy so enslave the many. Such a crass environment stinks of undue influence wielded upon the political system by the owners of the means of production: Marx's 1%ers.

I've cited many times Dr. Martenson's analysis of the pyramidal imperial economy, as per Renaissance 2.0. Under this interpretation of how the economy works, those at the top of the pyramid (the owners of the means of production, the 1%) receive taxes and interest payments from below.

In a quid pro quo, politicians whore themselves out to rack up campaign contributions. In the Guardian, Naomi Wolf offers an interesting take on the opportunities inherent in acting as the puppets of industry:

...in recent years, members of Congress have started entering the system as members of the middle class (or upper middle class) – but they are leaving DC privy to vast personal wealth, as we see from the "scandal" of presidential contender Newt Gingrich's having been paid $1.8m for a few hours' "consulting" to special interests. The inflated fees to lawmakers who turn lobbyists are common knowledge, but the notion that congressmen and women are legislating their own companies' profitsis less widely known – and if the books were to be opened, they would surely reveal corruption on a Wall Street spectrum. Indeed, we do already know that congresspeople are massively profiting from trading on non-public information they have on companies about which they are legislating – a form of insider trading that sent Martha Stewart to jail.[link.]

Eisenhower's Military Industrial Complex is one of the industries that shapes our nation's budgetary priorities. Alongside it are the many outstretched palms dependent on government discretion, from the Medical Establishment, Insurance, Pharmaceuticals, etc..

With so many industries and their friends in the media world, it's no wonder how we hear about how great the free market is, but not about how corporate fealty and cronyism are killing our budget. Few in power these days would accept Jefferson's statement that:
“It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world."

I like the second part of that statement because of the tight bond between wars, imperial overstretch and hubris, the "Emperor has no clothes" syndrome. If one constituency, the MIC, can slurp endlessly from the government trough, why not another? And another, until eventually the trough runs dry. The last pigs standing will be the fattest, made so by their gluttonous appetites and their well anchored position at the start of the trough.

The young have the most to lose from a tax-starved government. Already the projected amount needed by our government to pay its obligations to Freddie/Fannie, Medicare/Medicaid, help for states, etc. reaches over $60 trillion, not counting whatever else the Federal Reserve has gotten us into.

Social Security funds--real Treasuries held by the trustee--were stolen under Clinton, and replaced by IOUs to the point the program must depend entirely on new money (from taxes or, more likely, additional borrowings.) With no new taxes, borrowing becomes the only way to keep the program running.

The goal is and has been to starve the beast. It's a strategy that will force Democrats to choose between funding our "social programs" or defense. Defunding the latter will of course make them look weak on terror. You can bet any subsequent terror attack would be blamed for our failure to build enough submarines and new weapon systems, despite their questionable effectiveness in fighting terror.

We're hooked on debt. Without increases in Federal spending, our economy is doomed. Federal spending contributes over 30% of the economy now. The average wage for a Federal employee recently surpasses twice that of private sector workers. A sustainable bureaucracy? Not without lots more taxes at least. Our nation's political leaders lack the political will to achieve that, as the SuperCommittee showed.

The failure to cut just $100 billion a year shows just how politically influential the favored industries are on the Hill. And the hypocrisy on Europe! The Greeks cut 8% of their budget yet the market fundamentalists prattle on about the Europeans' need to cut more--an inadequacy no doubt fostered by the comparative efficacy of their retirement and health care systems, compared to ours. Public services need to be eviscerated, so the neoliberals and market fundamentalists believe.

I'm sick of hearing about the "Europe" problem. While problems there are extreme, they're eerily reminiscent of the same risky practices that our banks engaged in, leveraging themselves 35- to 40-1, using their access to cheap capital not to lend back out in the consumer (real) economy but to speculate, to gamble in the financial economy.

"Europe's" downfall has been hyped in the mainstream financial media, despite the fact that the damage has mostly occurred with PIGS debt (and the position held by many Germans who don't support a bailout there.

A stream of editorial genuflexions on "Europe" allows our media to avoid mention of our own problems. The desire to ignore our own failings isn't a surprise; those most susceptible to free market dogma are also equally deluded by the concept of American exceptionalism. It can't happen here, they think, despite our vast war budget, swelling entitlements, and utter inability to restrain spending. Expressed as a percentage of GDP, our annual budget deficit (at 9%) is worse than any country in the E.U., except Greece's (source: The Economist magazine, back page.)

"Europe's" supposed failure masks our own. By focusing attention on the other side of the Atlantic, the vast and obvious failures of our own nation to keep its fiscal house in order can be ignored. I guess the thinking goes that postponing the consequences of inadequate regulations and enforcement can wait until after the next political cycle. Such short-term thinking is hardly the path to devising a long-term solution to our budgetary woes.

There are hard limits to the impact politics can make on the economy. In some ways, those in authority can only screw things up. Obama isn't at the center of our economy, so nothing the White House does can solve our problems (plus they're systemic in nature.) Republicans clearly have no interest in seeing a recovery blossom, which it could given spending on real things like infrastructure.

Perhaps we forget too easily how ineffective central planning fails, like the Soviet example. Interesting I mention the Soviets because I'm theorizing that we may be entering a period similar to Russia's. Privatization is in place. Look no farther than Chicago. Goldman Sachs came in and bought public parking throughout the city's downtown. Rates skyrocketed.

In Russia during the Nineties, pensioners (read Social Security and public sector retirees here) were stripped of benefits and made to live humbly even as Russian oligarchs swept up and sold off the best performing industries as they were privatized.

According to Peter Schiff, the hidden, or under-story, is S&P's downgrade of credit rating of many major banks. Despite the political influence it wields, Goldman Sachs was one of the companies downgrade. I've railed on the company repeatedly in the past. Maybe all their political shenanigans aren't so lucrative after all.

///

Web-based truths obligate us to prepare

There seem to be two takes on the response to the fallout. One says that there's an ongoing leak and the risk must be acknowledged. Another, held by the docile Americans, holds that what the government tells us about fallout means we don't have to do anything to react.

Well, the question of fallout is an objective one: there either is or isn't a direct risk. Now if there's a direct risk, some could argue it may not require taking precautions, being that the risk is too low. That assessment of the risk should be the result of objective analysis of all relevant facts, and presume a worst case scenario.

In the Internet age, if government simply says there's no risk, people are bound to question authority. While there've been plenty of good reasons to distrust the mainstream media, this in itself is NOT proof that a conspiracy is afoot. The media may just be parroting what the government tells them.

Complaints have been lodged that there is a mainstream media blackout over the impact of the leak. One theory would have us believe that the media blackout (or tone-down) is a cooperative effort by GE, which owns NBC-MSNBC with Comcast. This concept has added weight considering the Fukushima plant was built by GE on a GE design.

Not so much now--with the Libya story asserting itself--but earlier, CNN and Anderson Cooper were far more involved in the radioactive leak story, going as far as to stand among Tokyo skyscrapers with a handheld radiation meter.

Since Libya, the mainstream media has been distracted away from Japan. The nuclear incident seems to have been buried with tsunami rubble--a tragedy but one that's ended, whose time is passed. I wonder sometimes if Libya isn't a synthetic controversy meant to distract the American public from the radiation over their heads.

Unfortunately we can't assume the danger is passed here in the U.S., despite what our leaders tell us. The real story is actually how little government will do.

This lack of information makes us vulnerable. More than in the past, I'm roused by the need to provide the missing information. This is a instinct, I guess, that motivates me to write specifically for the Web. People will find out the truth, which can lead them to do the right things, saving future suffering.

The need to take action should at some point exceed the need to get accurate information, a function provided through the Web better than through other media. Yet as valuable as the Web is, it doesn't do the work. Many take no action on what they learn on the Web although the numbers who rely on it are growing. The recent Fukushima event has many pondering the effects; those with access to the Web are typically more aware of the situation.

Like the poor people who took to the Gulf of Mexico after the Deepwater Horizon leaked, what you don't know can kill you. Corexit 9500 dispersant made swimming treacherous. I've read stories of swimmers and recreational water users contracting what appears to be chemical poisoning and burns. For more see my envirosite articles on the spill from last year.

Anyway, information is only so valuable. Taking action is the key to this disaster. Whereas people in the Gulf could move away, or stay off the water, we can't avoid downwind radiation. Now as small as the risk may be, it's the absence of information coming out of our government that rightfully scares us.

This post actually began as a comment on the U.S. government response to Fukushima at OpEdNews.com titled, "Only fact is we are on our own." I cross-posted a recent article there on the Fukushima leaks from my enviro-site (link below.)

~start comment~
"I wrote on the radiation at OpEdNews before (here and here) agree there's a cover-up in play, and that the fallout posed a bigger threat than was being explained in the corporate media.

Just how bad is the radioactive fallout? We know there's some out there, but unless we have our own Geiger counter, how are we to know what's irradiating us?

This lack of information makes us vulnerable. As individuals, it would appear there is little we can do. Even most libertarians would accept that nuclear accidents are not solvable (nor preventable) by individuals but rather a responsibility of the state.

[To quote the author...]"Yet the administration has not provided us with a national supply of KI, or guidance for using it."

I agree with the urgency of the author's message. Nuclear accidents are a disaster that the people are very much forced to depend on government. 

As those resources are stretched--and cuts in budgets add up--I think we owe it to our families to be better prepared.

If there was a silver lining to Katrina, it was to give Americans a preview of what to expect in the event of a widespread disaster. Inadequate responses are to be expected. We can complain rightfully, that gov't has a responsibility but if it lacks the capacity to react, the accident moves on to "disaster status."

I think the Deepwater Horizon typified this helplessness. Let the maintenance degrade, let the regulators get "captured" by Big Oil hookers and free drugs and a crisis is inevitable. Same with cutting banking regs.

The inadequacy of the Fedgov response is an opportunity for the private sector. Naomi Klein has called this "disaster capitalism."

I've heard that with nukes, power companies must make some safety shortcuts in order to be profitable. In other words, if they do everything they can to make nukes safe, then they'll lose money. That's hardly a bullish indicator for this industry.

While the Deepwater was doomed due to profit motive, I guesss Fukushima was destined to fail based on the proximity to the ocean."
~End Comment~

Just how quickly would the government response degrade? First, there's the sheer number of incidents to manage in a disaster. Communication problems abound. In 9-11, we saw a failure to coordinate radio frequency and provide the right equipment to emergency response personnel.

Then there are people who are completely unprepared. They may not anticipate a crisis nor its combined effect. Elderly loosing medicine, for instance. Or tourists and the such, who can't evacuate. For more on the "golden horde," see the survivalist perspective below.

Much of the deterioration in the response can be attributed to human error in making bad decisions. For instance, people might stay to try and weather a hurricane, then back out and request assistance.

Or it could be like hundreds of motorists stranded on Lake Shore Drive in a recent snowstorm. They were explicitly to stay off the road but used it anyway.


Like other recent tragedies, there's now a sustained pattern of government neglect. I'm not going as far as to say there's a conspiracy afoot, but the bankers' bailout in 2008 showed, that given the right level of political influence in Washington, the private sector could exploit any tragedy. Nuclear leaks may be too politically unattractive, compared to post-war reconstruction, for instance. There's nothing good created out of protection, little to show for the vast expenses.

I would argue that we the people have a right to know the threat posed by the leaks. If people don't prepare, then they choose to trust their government.

Cynicism is well-placed. By not trusting the Official Explanation (whatever the crisis), we're more prone towards self-sufficiency, which has become something of a lost art in America.

Many of us simply don't have the stamina to raise our own food, store enough properly, and handle the physical end of a homestead-type existence. So we've become dependent on our roads, our sewers, our way of life can't sustain itself without cheap fuel. We've grown accustomed to having anything we want available to buy. Without power, or our credit cards, we're made mostly powerless.

The corollary of being dependent is to put trust into government to provide for us what we can't for ourselves. In times of crisis, this faith is misplaced. As systems on which we've grown to rely break down, we're bound to find ourselves dealing with a new reality.

Of course a energy crisis alone can't end America, it can end American as we know it, what survivalists might call TEOTWAKI: the end of the world as we know it. Rather than a deconstruction, the lifestyle would shift towards a simpler existence, marked with hard physical work for many. Rather than base our existence on the automobile alone, we'd be drawn to more primitive forms of transportation. Economic might similarly depart from traditional definitions as mechanisms like barter and alternative currencies--like work-for-time credit--replace a fiat currency decimated by overspending.

Now many of us wouldn't choose a frontier lifestyle. Not of our own free will at least. People would more likely sit around and wait for someone else to serve their problems. Some things would change but remain. Commerce/trade would persist into what some might call the End Times, kind of like the movie Eli, which I reviewed here last year.

I think the Mad Max series of movies typifies the kind of societal breakdown that could occur. We'd go from a system of justice to a society that's at the mercy of its own fragility. At this first stage, police would find themselves outnumbered by gangs. We're seeing this along the Mexican American border--no one wants to oppose the gangs.

The next stage is a more thorough decapitation of society. Authority wouldn't flow from the top-down but rather by those with the most power, who use it to increase their strength and popularity largely at the expense of weaker groups and the disorganized. Small feudal groups grapple with each other for control of dwindling resources.

The we get to Mad Max Beyond Thunderdome, where a twisted form of order is established. In some ways we can see the seeds of our future self-destruction in the rudimentary reestablishment of that society. Fights are settled in an enclosed arena, where the bloodthirsty madness of the group turns even the mentally handicapped into objects of public sport.

Yes, we've regained some stability by that time, but the society is simply too warped to be worth saving, again, from self-destruction. What fell off the wall can't be put back together again. Or can it? Should it be saved, or will a better one come of the former's destruction? Popular support sides with optimism, for instance at the end of the movie Eli, where historians assemble knowledge lost during the apocalypse.

Whatever the final outcome, it's a scary thought to consider the enormous suffering that accompanies a End Times-like event. Mind you that I'm not saying we're in the End Times, but rather than apocryphal literature and perspectives created in popular fiction may turn out to be accurate in some respects. In our age, End Times fantasy offers relief, a form of entertainment.

Instead of ignoring any possibility of risk (and thereby justify the lazy approach to do nothing about it), it's better to prepare for something bad to happen. The alternative is to accept what happens to you, like the half million Japanese in refugee camps. And if it can happen there, it can happen anywhere. Sure, there may not be a fault line where you life, but nuclear plants can leak, even far away.

A big downside of preparing is dealing with those who haven't prepared. I find the survivalist perspective entertaining in this regard. Yes, it does dehumanize the golden horde--not unlike a zombie shooter--but I guess this is the price that must be paid to keep yourself safe...or so they believe.
The original article by Brian T. at survivalblog.com explains:

"Misconception number five:  Needy hungry hordes will come from town.  Not likely, when local resources (read: booze and junk food), and the aid from whatever governmental response is exhausted they will do nothing.  By nothing I mean nothing that need concern you. They will sit in a refugee center or at home and pass the time playing cards, talking but essentially just waiting. Certainly the burning and looting that started seconds after the beginning of the event will increase until there is nothing left to burn or steal.  When food and clean bedding all run out they are not likely to walk out of town any more then than before. They are weaker by that time and as out of shape as most of us. They have rarely walked any distance at all in their adult lives and are unlikely to start now. The biggest reason is that they are psychologically predisposed, brainwashed, to wait for rescue and will stay in town.  It is easier to wait and thus easier to make hunger somebody else’s problem. With no gas and no desire to do any tiresome walking means you are not going to see many if any at your BOL(Bug Out Location.)  Most will sit and if they move at all they will head for another urban area rumored to be better, particularly if they are being trucked there by the National Guard or other entity..."

I'm not a survivalist nor ascribe to this opinion, but with so many real life horror stories, who can afford to ignore this zombification theme? On the other hand, I've been reading that interpersonal relations will become more necessary during End Times. Your life could depend on that doctor you know, or your replenishing food supply, or just in making a mutual support society in order to deal with the many issues of that period.

At the very least, those who've put in the work required to protect themselves can enjoy the benefits. The unprepared meanwhile will be like locusts, hungry and desperate. I read the following from a recent article on a survivalist site:

"the "golden hoards" actually are...your friends, family and unprepared next door neighbors and theirs, and theirs, and theirs. They will be the ones at your doorstep, if they know you have food and other supplies.
Can you turn them away? Will you shoot them if they won't leave? Will you risk sacrificing the lives of your family by joining the rest of the lemmings in the G.O.O.D. traffic jam? These are the big questions that need to be dealt with by those who are conditioning their minds for the realities of such events."

We don't see this deterioration in Japan. Survivalists would argue that's only because the response can be sustained for so long and that government-provided resources will quickly run out in a real crisis.

I saw this comment by Pogue on a post about the tsunami which exposes the schadenfreude some preppers might feel when crisis hits the unprepared:
"I love watching people panic over nothing. Ever notice how bad people freak out over a winter storm? They get the survival french toast makings (eggs, milk, bread) and go nuts. And ever see how many people wait until the last minute to evacuate ahead of a hurricane they’ve known about for a week. A disaster in the US would see total chaos. Hell, when Homestead was flattened in 1993, the people there rioted when the USG didn’t rescue them within 24 hours."
///

Obama spins BP spill, and we get to pay

Below is a crosspost from my health and environmental blog, where I post infrequently.

I did see Obama's speech last night, and found it wholly inadequate. He failed to mention that BP was denying responders the use of respirators. Apparently people along the coast are experience dizziness, headaches, and other issues from the leak and, quite possibly, the toxic dispersants as well.

Last night, Obama said nothing of BP's chronic understatement of the size of the leak. The number I've been able to translate from gallons (yes, the size of the leak is being obfuscated by the use of barrels instead of gallons) is about 50,000 barrels a day (calculated from 42 gallons/barrel and an estimated 2 million gallons/day.) A far cry from the 5,000 we were told were leaking by BP for months. The discrepancy speaks legions about BP's credibility, and Obama's as well.

As I say in the article below, I guess it was the size of BP's surface tankers collecting the oil that gave away the true size of the spill. Nothing was volunteered. And now we can only guess at the size of undersea plumes, whose existence BP has denied.

Now today, after negotiating with BP for four hours, Obama said a $20 billion fund will be set up. He neglected to mention when. It was only by digging through the details later that I saw this in an AP article:

"Svanberg announced the company would not pay dividends to shareholders for the rest of the year, including one scheduled for June 21 totaling about $2.6 billion. The company will make initial payments into the escrow fund of $3 billion this summer and $2 billion in the fall, followed by $1.25 billion per quarter until the $20 billion figure is reached."

Excuse me? Where's the beef? The first installment hasn't yet arrived. And what are the poor people on the Gulf going to do should BP go bankrupt? With government serving the corporate interest (above even its own?) we really are on our own.

Begin post:

I'm writing this before President Obama goes before a nationwide audience this evening. I'm not sure if he'll characterize the response to the Deepwater spill as "his own." No one, it would seem, wants to take ownership of the response. The spill is an economic, environmental, and political liability. It may now be such a huge political problem, now that it hasn't been dealt with in a forthright manner.

BP has been actively trying to cover up the disaster. Obviously, they have the most to lose by admitting that the spill is out of control. For weeks, they refused to consider that the leak was anything more than 5,000 barrels. Fedgov has--and is, depending on what Obama will actually do differently--demurred control over the clean-up to BP, a questionable act considering how BP's failure to follow safety rules and regulations led to the crisis.

We've only recently been able to guess at the size of the leak. BP's damage control efforts have been more about controlling public relations and the release of negative information than stopping the leak. The FAA has obliged by preventing overflights of the spill area by media personnel. Just as perception management overshadows the political leadership, so too does BP try and obfuscate damaging press and deflect criticism to prop up its sagging public image (limiting lawsuits is another goal.)

As hard as Obama might try to sound tonight, it's a safe bet what he does won't be anywhere as aggressive. It's a recurring theme: talk tough and do little to nothing. How much more bad leadership can America take? As a defender of the environment, I guess I might take some consolidation in the carbon taxes he'll likely try to sell. In my opinion, trying to take advantage of the spill is grossly immoral, even if it points the country in a different direction.

Fact is, the buck stops at the President's desk. If for whatever reason he can't get BP to stop the leak(s ?), he needs to do it himself. Yet he's said he lacks the resources to stop it. Can we honestly believe that? With all those trillions spent on our war machine, I can't believe we can't put anything out there on the water. During an oil spill off Saudi Arabia, huge tankers vacuumed up the oily water. Why can't we at least try to do something like that? Deepwater will likely do more damage to the US--economically--than any terror strike could have. Yet we haven't anticipated it, and now must depend on the polluter's capability to respond, which so far now eight weeks later, has been...surprise...inadequate.

We could talk forever about how the spill could have been better dealt with. We could also talk in volumes about how the spill could have been avoided. I'm sure the mainstream media will cover these valuable issues, judging from the scale of the disaster. So in this respect, don't expect me to repeat what's regurgitated but rather spotlight the less published secrets and schemes meant to mislead the public and cover up the extensive relationship between policymakers and Washington and BP.

Now Obama might say anything tonight. And some people will believe him, no matter what he says. It's often easier to believe that something will be done than see it done. Obama's time in office can be characterized as lip service to the ideal, and doing the complete opposite.

I could list many examples of what Obama said on the campaign trail he didn't do in office. The glowing one, of course, is the failure to draw down U.S. forces in Iraq according to the promised timeframe. Escalating the Afghan war is something Obama never said he would not do, however.

As a side note, I found it amusing that a report just came out indicating Afghanistan had $1 trillion in minerals and natural resources. Of course, this bounty is the reason our occupation has lasted so long--a point I made on my blog years ago. If we won, we'd get to go home. A trillion dollars is a pretty good motive to find terrorists behind every bush, and press an unworkable plan into an unwinnable occupation. And meanwhile the Military Security Complex fattens itself on the blood of innocents and young Americans caste into the fray.

* * *

According to the Los Angeles Times, Rahm Emmanuel, Obama's chief of staff, was staying for five years in a Washington, D.C. townhouse owned by a BP adviser. Emmanuel has been known to say that no disaster should go to waste. This fits exactly with Naomi's Klein's concept of disaster capitalism, where corporation profit from inadequate enforcement except, of course, instead of greedy corporations it's crass political opportunism.

Money rules the Washington establishment, and the consensus in Washington is that corporations pay better than serving the public interest, at least as long as illusion that the public is being represented can be preserved. This is why the art form of perception management has latched onto the Washington establishment--feeding the myth that politicians are still serving their constituencies.

Maybe the unholy alliance between the corporate and political worlds has been at work for longer than we've realized. Wherever we now stand in the historical cycle--whether at some new low point or somewhere along a slippery, downward slope--it's obvious deft management of the media is seen as more than valuable than actual leadership. Preserving the impression that something is being done ameliorates the public's rightful skepticism. Meanwhile, deals in the back rooms and corridors of power allow the wealthy and corporations to avoid accountability.

Regulations are much criticized despite the fact they were greatly eviscerated prior to the financial crisis (see the testimony of Texas professor James Galbraith here.) Rather than presenting an obstacle to growth, regulations--if enforced--protect the markets. The trillions of equity (I've heard $10 trillion real estate and another $10 trillion in equity values) that disappeared didn't have to vanish. Yet the companies who kept pushing risky bets in the Wall Street casino gained the most from short-sighted speculation, exactly the thing Glass-Steagal tried to prevent prior to its dismantling by Congress.

So now, with all that oil bursting from the busted, under-maintained well in the Gulf, it's clear that a lack of enforcement is to blame. Self-regulation, a term that came into existence during the get-rich 1980s, simply doesn't work. The forces of greed are simply too strong in the corporate enterprise. Profit-taking is simply too short-term an approach to consider longer term consequences, even if they include self-destruction. British Petroleum stands now on that precipice. And if it'd go under, many investors and stakeholders would pay the price.

Those that profit the most in the short-term aren't likely to hang around once their mistakes impact the companies they once led. The executives who should have monitored the company's compliance will jet away and land in exclusive retirement retreats on golden parachutes.

We could blame greed for this--or the structure of corporate governance. All too often corporate boards rubber stamp the decisions of upper management. Shareholders rarely question the ethics or morality of board decisions, especially in regard to compensation committees. All too easy it is for board members to consent to huge stock options packages for executives, based on quarterly performance, rather than measure performance against longer term objectives.

The environment is a stakeholder in all corporations. Rather than look at the earth as a passive backdrop, a source of raw materials, to be plundered 'til exhaustion, all corporations must look at sustainability. Implementing sustainable practices requires full commitment by shareholders and corporate Board members who perform the invaluable function of holding executive management to account.

Like auditors, independent outsiders need to observe corporate practices and report on them. Most importantly, regulatory lapses must be corrected. If government regulators have recurring issues with a company, or its methods, the shareholders and directors need to take action. The BP case clearly shows the consequences of non-monitoring. And preventable are the effects if the causes are obvious for all to see (except perhaps the executives who are trying to squeeze maximum profit out of their operations by undercutting safety.)

Well, if BP should go under, I think the environment will have its say. Again, BP's misconduct wasn't isolated or random but rather sustained and serious. The company had been put on probation--which I said in my last post is an utterly meaningless proposition that obviously did nothing to push the company in to compliance.

Another huge lesson is for government. When regulators fail their job--as Galbraith's testimony linked above explains--everyone loses. Not only the offending company--the Enron, the Worldcomm, the BP--but so many people who had done nothing wrong. The lesson lies in government doing its job, and walls being put between the regulators and regulated.

Enough said. At this time we don't need lessons, we need to prevent the tragedy from worsening. Now isn't the time for opportunism, or even recriminations. It's time to stop the spill. If Obama can't do that, he'll almost certainly be tossed aside in 2012.

Obama appears to be having a hard time getting BP to pay all its claims. This shouldn't be a surprise. If you read my post on blogspot last month, you'd have been reminded of how long it took Exxon to pay the fisherman in Prince William Sound, and how inadequate their compensatory damages had been as awarded by a corporate-friendly Supreme Court some twenty years later.

Now if Obama can only spend our money--or our children's children's to be more accurate, as it's all borrowed--to clean up the spill, I'd say fedgov has become utterly toothless or so wholly beholden to BP that it socializes the costs of the companies pollution. Either alternative is unacceptable. We do know the taxes on oil drilling will go up, presumably to pay for future spills. Guess who gets to pay for the taxes? You. So because fedgov (especially the notorious M.M.S.) failed to regulate, and BP didn't self-regulate, you pay.

Unless of course you live on the Gulf, the largest impact will be higher energy costs. If Obama chooses to exploit the disaster by urging a carbon tax scheme, it'll provide a dark motive for not handling the response, or letting BP bungle it. Another impact: shipping into and out of the Port of New Orleans will be more expensive, and delayed, resulting in higher prices for some kinds of imports throughout the country, and lower prices for exports like grains from the Midwest which go through New Orleans, typically via barge down the Mississippi.

Under-regulated, BP pollutes. The corporate state capitalizes on the failure. And we get to pay, higher prices for gas and energy, as well as some imports. The scheme encourages wrong-doing and punishes the innocent unless of course BP really does go under, or the Supreme Court reverses its corporate-friendly bias and uncaps damage limits. Neither scenario--really the same issue, liability--is likely to occur. BP will be allowed to go on, and the costs in some way limited in order to protect the corporation.

~End post

Goldman indictment chopping at branches

Woke today to the news that Goldman Sachs had been indicted. Needless to say, with all my writing about Goldman Sachs, all of it critical, I'd felt somewhat vindicated. Yet at the time of this writing, I can't be sure whether the indictment will expose wrong-doing at the top rungs at Goldman, kind of like how the prosecution of a few "bad apples" at Abu Ghraib did little to expose "harsh interrogations" authorized at the top of the military's chain of command--namely by Rumsfeld and Dick Cheney.

Currently a single employee--a Goldman Vice President stands under indictment for fraud, misrepresenting a basket of securities he was hawking. This rogue trader kind of stuff reminds me of the $7 billion fraud allegedly perpetrated by Jerome Kerviel at Societe Generale, who'd been arrested in January 2008.

What's so interesting about both cases is how a corporate with a pattern of fraud offers up a scapegoat for massive losses brought on by mismanagement and greed. Far easier it is to blame a single rogue trader than a slew of traders, or the actions of an individual despite the orders and permissions he'd been granted by his superiors. For an idea on how broadly fraud was being perpetrated, I'd recommend Peter Schiff's 2006 address to southern California mortgage brokers and a recent lecture by white collar criminologist and former bank regulator William Black.

In the minds of investors and clients--who are the most likely to react in an adverse way to Goldman's indictment, it's easy to dismiss what are company- and perhaps industry-wide examples of malfeasance by attributing them to a bad apple. The bad apple--in Societe's example, a young computer programmer--could redirect distrust away from the company who'd created the circumstances through which fraud on an unprecedented scale (at least by a single individual) could be committed.

Another benefit to scapegoating is to mollify the size of losses that occurred because of bad decisions by the financial entity. Societe had lost billions on dubious derivatives, not coincidentally the same type of product hawked by the indicted Goldman executive. Derivatives are essentially debt instruments whose present value reflects a large degree of future uncertainty about the credit-worthiness of borrowers and value of the underlying collateral.

Misrepresenting the sale of an orange is one thing. It's a tangible, physical object. Not so with the derivative, a financial project based on little more than the promise to be repaid. So shaky were CDOs (Collateralized Debt Obligations) that
many were sold with insurance attached--the infamous CDSs (Credit Defaults Swaps.)

What's so interesting about the CDS--which Buffett has labelled "insurance fraud"--is the fact they were created to insure the purchaser against the risk of loss. This would be like saying, "Hey, wanna buy some super-risky asset?"
"No," the client might retort. "Well, then what if add--for an additional cost--a clause that will compensate you in the event of loss?"

The client might bite at the possibility of a higher return. This was--after all--the age when hedge funds were making easy millions by borrowing cheap and earning big returns. This Wall Street attitude was part of the culture of greed, a Gordon Gecko-type construct where making more was naturally assumed to be a healthy, constructive attitude. Bush was in charge and the money-grab was on. Ethics were secondary, or irrelevant.

I digress. Back to our story of the day, which is how Goldman Sachs is facing legal charges for its misconduct. I'd said I'd felt vindicated, but I do possess some doubts about the effectiveness of the charges. Purely civil, they don't incur any criminal penalties.

A case could be made that the prosecution of a single employee could relieve pressure on the company for its participation in other forms of wrong-doing, a virtual laundry list assembled on blogs like mine and by investigative journalists like Matt Taibbi.

I hope that investors and clients will wake up to the reality that they've been betrayed by Wall Street in this most recent fraud. More importantly, investors need to understand that they've been intentionally defrauded, as part of a pattern of abuses by investment banks.

It's worth noting these same banks have crossed the threshold into positions of greater control and authority as a result of emergency reforms passed after the Lehman Brothers collapse. In what could be deemed a sweetheart deal, or example of disaster capitalism, Goldman and other investment banks were converted into bank holding companies, which greatly reduced their cost of capital. So excuse me for being somewhat cynical about the government's ability to reign in its close partners on Wall Street through a single indictment.

Now as long as Glass-Steagall remains de-constructed, I'd argue that the same risky behaviors and outright criminal deceptions related to the sale of derivatives will continue. And rather than interrupt the practices that led to the collapse of the credit bubble in 2008, a lack of criminal prosecutions for securities fraud will not only allow the practices to continue but actually foster greater acceptance for illegal conduct based on misrepresentation.

Wall Street, and not just the banks, should be particularly concerned about a loss of trust by the investing public. Any time a pattern of fraud emerges in any industry, it's credibility rightfully diminishes. And as a bursting of the credit bubble showed, it's not the initial losses that cause the most financial damage. Instead, it's the broader sell-off that occurs due to a loss of trust: the foundation of all relationships.

Sensitive to this PR damage, Wall Street responded by hiring the greatest of frontmen--Barack Obama. It funded our President's campaign to the tune of over $200 million and the pay-off has been large, with the first installment on the Obama investment a $308 billion loan to Citigroup (beyond TARP), made as the administration's first action, before even it'd taken office.

Don't blame the President exclusively. Congress has done its part to make sure Wall Street gains from the reaction to the crisis, or at least isn't hurt as badly as it would were the forces of non-intervention allowed to work their invisible hand on the marketplace. Instead we have a lame excuse for socializing the banks' losses--what Nouriel Roubini calls "lemon socialism."

It wasn't so long ago that everyone was acknowledging the importance of broad participation in stock market investing through mutual funds and IRAs in the 1990s. The investing public won, as did the brokerages, by increasing the pool of investment capital. Middle class Americans were investing, and we were all getting ahead.

Now we could say that the bursting of the 2008 credit bubble was different from past crises, but many of the conditions leading to it were easily preventable, predictable and predicted.

The end of the 90's bull market in equities came with the Dot Com Bust in 2000-1. What's far less widely known is that the SEC was in the process of investigating Wall Street for its role in fraudulently talking up Dot Com stocks. The investigations came to an abrupt halt on September 11th, 2001.

Numerous brokerages were being investigated by the SEC in 2001. The evidence ended up being stored in the SEC offices in--you can probably guess this--vaults of WTC 7, the third building at the complex to be destroyed on September 11th. Remember WTC 7 was the building whose collapse had been predicted twenty minutes beforehand, by BBC.

Add to that stupendous timing the fact that WTC 7 wasn't directly hit by any of the aircraft. WTC 7 also housed the operations command for the initial response--the Mayor's Office of Emergency Management. One witness, Barry Jennings, of the NYC Housing Authority actually stated that he'd heard bombs in the building. See his interview on his traumatic near-death experience at 911review.og. {Mr. Jennings was consistent with his testimony in the years after 9-11. He has since died. See the blog http://barryjenningsmystery.blogspot.com/ for more on his story}


Whatever you understanding of what went on 9-11, or your reaction to government reports on 9-11, it appears as if Wall Street has been unregulated and under-investigated for years. In the past two stock market corrections, we see the consequences of inadequate regulatory enforcement. Paradoxically, the financial damage from a loss of public confidence far exceeds the benefits granted to those who bent the rules to chase record profits like those at Goldman Sachs.

As I've written about, the company has so much influence with the White House, that a real investigation--one which expose criminal actions at the highest level--would be undermined or prevented. Therefore like the Valerie Plame investigation, we will see little more than a sacrificial lamb being offered for what are thoroughly illegal and criminal behaviors perpetrated at the highest levels. The result of the limited investigation will instill the attitude among Wall Street players that they are above the law, and therefore go on to commit additional illegal actions under the assumption they will never be held accountable.

For more, see wtc7.net

"Debunking NIST conclusions about WTC7..."
http://georgewashington2.blogspot.com/2008/08/debunking-nists-conclusions-about-wtc-7.html

"9/11 and the Greenberg Familia" by Jerry Mazza
http://onlinejournal.com/artman/publish/article_1261.shtml

"SoGen reels from record $7 bln rogue trade fraud"
http://www.reuters.com/article/idUSL2422020620080124

///

Goldman execs stand to profit in FDIC deal

The unfolding mortgage crisis could get a lot worse, for the taxpayer at least. I'm looking back through my history of sites visited under the term "FDIC" and I see numerous articles alarmed by the FDIC's dire fiscal condition.

A few weeks ago, I stumbled across a great video blog entry on how the FDIC was compensating OneWest--a bank owned by major Goldman Sachs players--for every house it sold at less than initial loan value. OneWest acquired the loans from failed lender IndyMac in 2009 based on FDIC assurances that their losses on IndyMac loans would be subsidized.

The revised video entry dated Feb 8th, by thinkbigworksmall.com, contains a thorough accounting of how the OneWest/FDIC deal works. The two fellas at thinkbig provide a real world example of how OneWest profits from their "loss share agreement."

The FDIC responded directly and hotly to the charges, in a press release dated February 12th. It offer a list of Supplemental Facts that explain how much risk and debt OneWest absorbed, as well as restrictions and procedures on receiving FDIC funds.

The FDIC response churned up some mainstream interest. WallStreet Journal's marketwatch brings up a you-tube response to another purchase of a failed lender by OneWest:

Earlier in February, the FDIC responded to a YouTube video that criticized its transactions with OneWest. The video has been removed [not sure if this is that of thinkbig, which remains posted], but FDIC spokesman Andrew Gray said in a Feb. 12 statement that it made "blatantly false claims" about the loss-sharing agreement.
The FDIC may be particularly sensitive about OneWest because it was formed in early 2009 when the regulator sold IndyMac to a group of private-equity and hedge fund investors, including former Goldman Sachs Group Inc. executive vice president Steven Mnuchin, as well as George Soros and J. Christopher Flowers.
John Paulson, who made billions of dollars betting against mortgage securities during the housing crisis, is also an investor.

The MarketWatch article, written by Alistair Barr, goes on to quote one analyst who said it "...was unusual for the FDIC to respond to criticism from outside the mainstream media." In other words, the FDIC tends to ignore criticism, because I doubt the mainstream media dares to criticize it much (accounting for the atypical nature of its response to the blogosphere.)

The thinkbig guys actually use the FDIC response to bring up what they deem a "huge" point: that the OneWest people only get their subsidy if the bank's losses exceed $2.5 billion or so. In other words, OneWest makes money if the homes they got from IndyMac collapse in value; no reward should they be able to sell them at a profit. According to the video, until OneWest "hit(s) that magical $2.5 billion loss mark," they have no incentive to offer loan modifications.

So in a broader sense, the FDIC deal with One West, and others like it, insure that the real estate market won't recover because the banks who take over loans from failed banks only get compensated for losses. OneWest has no reason to try and salvage what it can from IndyMac's mortgage portfolio--instead it can capitalize on the terms of the deal which more fully compensate OneWest if it can't sell the homes at full value, a prospect made infinitely more likely by the FDIC's reward-for-failure guidelines.

Goldman Sachs has been riding the taxpayers' money train for quite some time. They've been able to exchange their political influence at the highest levels of government for favored status as a bank holding company. They experienced record profits and bonus in 2009, in a year which saw their competitors struggle. The Goldman edge: cronyism. Bush Treasury Secretary Paulson was a former Goldman CEO reputed to have made $400 million while there. Former Goldman executives have served as economic advisers for the White House at the top or second highest positions.

Big media has always undersold the nexus between government and private sector, I suppose to further the myth that those who get ahead in our society do so by hard work and a level playing field--a notion the recent crisis (and those who've profited from the response) makes patently absurd. I'm indebted to the excellent work--real journalism--offered by the thinkbig guys and Tyler Durden at ZeroHedge who've exposed the techniques through which Goldman profits by cronyism. These methods are not only insidious but complicated. Easy it is to look at the methods by which financial companies make their money and assume they're simply to hard to understand. As a matter of fact, regulators complicit in the regulatory failures, and the entities that exploit them count on the lack of transparency and complexities of their dealings to keep them secret, a fact we see play out whenever the Federal reserve is called on to explain where the money went.

Now OneWest could argue--or the FDIC, since quasi-government agencies (read implicit guarantee) and Goldman Sachs are so often united in their purpose--that their purchase of IndyMac saved the government millions. Then again, the FDIC letter states that the entity isn't supported by federal taxes, a point which only emphasizes the FDIC's negative $20 billion balance and the impending necessity for a bailout.

Daryl Montgomery at seekingalpha.com explains:

"Its deposit insurance fund is now at a negative $20.9 billion. Despite statements that it has enough cash to keep operating (Bear Stearns and Lehman Brothers made similar claims), it is only a matter of time before the FDIC is bailed out. This will take place before the end of the year and will be done by tapping a line of credit from the Treasury department. Expect this event to be downplayed by mainstream media reports with claims that it is not really a bailout."

Contributions made by banks which supposedly cover the FDIC's costs are wholly inadequate. The consequence will be a massive bailout probably to exceed that of the S&L crisis during the Eighties, which came as the result of risky commercial real estate deals by the S&L's, coupled with inadequate regulations, associated with a group of Senators called the Keating Five.

Add to this the nefarious role GS played in the Greek debt crisis. Apparently several years previous to the crisis, a team of Goldman witchdoctors dispatched to Athens to hawk their derivatives shell game recommended that Greece enter into currency swaps, in a move that delayed budget problems and reduced the debt load in the short-term. As best as I understand it--Goldman simultaneously bought credit default swaps which would pay big in the event of a collapse of Greek debt. In other words, GS played both sides: sell the politicians on a debt proposal which ran counter to their longer term fiscal stability while betting on the higher risk of default through the Credit Default Swaps.

The same pattern played out with AIG. At one point, GS CEO Blankein actually told AIG to default, although GS was owed billions. Few people could figure out why Goldman was willing to let AIG default, being that it was owed so much by AIG, until of course they realized that Goldman had insured their loans to AIG with CDSs which would pay off big if AIG defaulted.

Th regulatory environment has failed for two reasons. First, those in government, particularly those with too-close connections to former employers, must maintain distance and impartiality, in what's known as "arm's length." With a revolving door between Goldman and the White House, not to mention Congressional staff and department aides, this impartiality is impossible.

The second problem areas are what are called fiduciary responsibilities--managing others' money. If Goldman was selling products it knew to be risky, it was violating legal and ethical boundaries. If Goldman saw the broader systemic risks which made the CDSs so appealing, why did it steer clients towards taking on more exposure to debt (and risky, exotic derivatives at that) amid what Goldman knew to be deteriorating market conditions?

There's a pattern to these plays on systemic risk: create volatility, then prosper off it. Goldman's exemplary results in 2009 indicate that the company was either very lucky or had foreknowledge of the pending collapse and took steps to profit from it. The absence of regulatory enforcement either allowed the opportunity to arise through disaster capitalism, or the entities that gained from it set up the conditions that made it happen, a la 9-11.

The Federal Reserve has recently pledged to investigate Goldman's Grecian deal-making gambit. I don't know how effective the Federal Reserve can be, being that its regulatory oversight responsibilities were so utterly ineffective leading into the crisis. It's doubtful that industry self-regulation is possible through the Fed, as it is owned by a group of banks it purports to regulate. The Fed's effort to manage public perception through an internal investigation that won't be made public can hardly force accountability.

Additional source
Robert G's blog explains the math in one example of OneWest's deal management tactics and acumen. In an update dated February 16th, Mr. Hertzog denies he had anything to do with the video, although his figures were used by thinkbigworksmall without his consent.