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.

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American foreign policy, the tool of liars

The content below I draw from a few comments I'd written in response to other articles, then realized they were too in-depth or elaborate. You can find many of my comments at OpEdNews.com.

The first comment is an article on the Wikileaks diplomatic communications. Its author, Robert Parry, exposed Iran Contra and can summarize the events leading to the 1980 October Surprise quite well. The article is here.

The giant leak of diplomatic cables is revealing our government's propensity to lie. Increasingly, the truth about how the US behaves--revealed in the exposed communiques--reflects a level of reality known only to select few. The elite have always sought to control the flow of the information, so the leaks present a serious uppityness from below that challenges the establishment and reveals surreptitious dealings with their underlings and our allies.

While restricting information is nothing new, the functioning of an entire bureaucracy based on nothing but lies and misinformation is taking Kafka-esque ineptitude into new dimensions, channeling something on a par with the old Soviet Union. Like Orwell's 1984, the Truth is a Lie and thus whatever spits out the Truth is in fact wholly composed of lies. So in time the totality of the life as explained by the bureaucracy creates a cushion of propaganda and misinformation meant to support old lies and inconsistencies which can't be tossed into the Memory Hole.

The facts were found to fit the policy, to quote the famous Downing Street memo, means two or more layers of lies shield Fedgov from its real policies: the first, a lie that Iraq (or Iran these days) posed a threat. The second, a series of controls over the flow of information, consists of efforts to obfuscate or deny any inconvenient facts or truths, what I call propaganda-by-omission. The absence of correcting information reinforces the initial lie.

By virtue of basing our policies on lies, our diplomatic corps forged layers of misinformation meant to support previous lies or bind enemies and allies to Washington's consensus, its version of the way things were and should be. Now, with the leaked communiques we see that the entirety of our government worked on the basis of lies.

We also see a common theme in the outward rejection and criminalization of the leak. Wikileaks founder Assante has been demonized, even leading one GOP Senator to demand that he be labelled a terrorist (Orwell's fictional Emmanuel Goldstein.) This is behavior typical of authoritarian regimes not democracies. Of course various governmental bodies begging him to stop or throwing rape accusations his way is completely unrelated to the content of the leaked communications, an intended distraction like gays in the military. This is a sign that the government seeks to keep its secrets hidden, a task easily assailed in the age of thumbnail drives and near-instant dumps to remote servers through high-speed connections.

It's as if Fedgov wanted to shut down the Internet. And it has, at least for any websites the government deems as supporting the ever-widening definition of terrorist supporters, or high speed file sharers (see link below.) No warrant or Court order is required; their domain names simply disappear-- poof--and disappear into the Memory Hole. Included in these targeted sites are any that carry content derived from major media networks (read large corporations.) All their content is site specific and the corporate entities controlling those rights will allow no dissemination beyond their sites.

For victims of the corporatist agenda to privatize the Internet, see this link on the Righthaven Victims. Fedgov will capitulate on the total ownership of content issue, meaning bloggers and anyone citing Web content must get permission from the copyright owner. Apparently offering a citation back to the source IS NOT sufficient for these people.

Leaks are a valuable source of information in holding government accountable and transparent. Without them, most Americans would be dependent on corporate media to tell them them the truth.

I guess Americans' willingness to be skeptical is in question. Americans are incredibly gullible about believing what their government tells them.

See more breaking stories on the communiques at The Guardian.

Democracies do need to hide their activities--a theme repeated in Jonah Goldberg's December 1st op-ed that it's a world full of bad people doing bad things. Since 9/11, this theme was asserted under Bush, given as a reason to torture and spy on people, to break the law, lest they destroy us or so the reasoning goes.

The idea of using Hitlerian tactics to stop the rise of Hitler came from the prominent neo-con Leo Strauss, who would go on to influence budding neo-cons like Perle and Wolfowitz at the University of Chicago. In escaping the Nazis, Strauss realized how weak and vulnerable democracies had been, and believed the Holocaust and Hitler's rise could have prevented had the "good guys" been willing to break the rules. We see this rationale fueling the anti-semitic treatment of the Palestinians by Israelis. And the paranoia that Israelis have is mentioned in at least one leaked communique as well, justifying pre-emptive strikes against Iran's theoretically viable nuclear sites.

Wikipedia explains this concept, referring to a 2003 article on pre-war intelligence, published in The New Yorker: "The journalist Seymour Hersh opined that Strauss endorsed 'noble lies': myths used by political leaders seeking to maintain a cohesive society."

Noble lies are another way of describing white lies or untruths meant to serve a broader good, like stopping a Hitler. I guess since Plato originated the term in ancient Greece, we've gone a lot farther, turning the simple and petty act of lying into an art form at the base of all our foreign policy, and how our nation interacts with the outside world, as well as how the lower layers of our government blindly follow the dictates of those above--a certain recipe for autocracy and the rationalization by the bureaucracy to simply "follow orders." Lesser lies (and government minions) are meant to serve the greater Lie, which escalated from a noble lie into a self-serving and endlessly self-perpetuating one once the organs of state and co-opted corporate media capitulate on the consensus formulated by the elite.

For evidence of this self-dealing cabal, look no farther than the press corps' sell-out on exposing the lies that led to the Iraq war. Instead Valerie Plame was exposed in retaliation for her husbands public dismantling of Bush's 19 words on uranium from Niger (a topic which I hope appears in the leaked material.) Long-time readers of this blog should also know that the consolidation of the media closed off independent voices-not coincidentally at the time FDIC ownership rules had been liberalized to allow moguls like Murdoch and GE/NBC Bush supporter Welch to own more media outlets.

Another characteristic of the leaks I've seen so far is the amount of lying. We can all assume lying is common but if you've ever known a chronic liar, you'll know they never tell the truth. If you, like me, have had the enlightening experience of having a compulsive liar for a roommate, you'll have learned the lesson that it's better to assume the chronic liar is lying about everything. That way if you're wrong and the liar is telling the truth, you'll be presently surprised rather than disappointed, not only in the lie but yourself, by the fact you trusted the liar yet again.

Judging from the cables, our diplomatic corps went from a defensible tactic (likely made in justify war on Iraq) to an obsession with obfuscation.

Since 9/11, the idea of democracies behaving badly has gone from acceptable but wrong to continually justifiable. What 9/11 justified, on a one-time basis, our government has institutionalized.

Have we become the bad guys? Is it so necessary for us to break the rules in order to save the world? I wonder if we're not destroying ourselves spiritually to save our selves. Plus, just how much of the risk of terror is synthesized by our own protectors. Clearly, any anti-terrorist agency needs to justify its existence or face funding cuts. Without plots like that recently exposed in Portland, Oregon, what results would our anti-terrorist agencies have to show? By the way, Portland is reconsidering its previous decision to not join the FBI's multi-city task force and now will be complying fully with all demands--I mean requests--from the FBI.

If you've seen the movie "Unthinkable" you were likely disgusted by all the torture used to get a terrorist to reveal the location of nuclear bombs, so much so you might have actually welcomed whatever retribution would come for it (not to mention an end to the tortured plot.) Samuel Jackson's character has the unenviable task of getting the terrorist to talk. Just how far should he go? The initial interrogations are marked by "harsh interrogation techniques" that go nowhere.

The point of Unthinkable is the necessity to strip morality from the actions of our protectors, to give them a clean moral slate for operations in whatever place, time, or way they may deem necessary to exert their authority and control and ostensibly save us (from a threat made real mostly by fear-peddling Hollywood and government patsies.) A hallmark of this fear salesmanship/power grab is the presentation of threats both near and far, the Goldstein of Orwell's 1984, the East Asia whom we are supposedly at war with.

Without an enemy, the state withers. This is because so much of the state's authority is based on the exertion of force. It seeks to maintain a monopoly over the use of force--look no farther than the rage exerted against those who dare shoot back. They are treated like terrorists simply because they don't submit to the power of the state.

Political Economy

Columnist Goldberg is a shrill for the Israel lobby who crooned for invasions of Israel's enemies, one of the crowd that held a mushroom cloud over our heads in the lead-in to Iraq. So for me to quote him, something must be horribly out of balance. Yet all too often I find myself siding with conservative critics of Obama. Or--to be clearer--I better tune into their conservative message rather than the neo-conservative one, a feat much easier if I disbelieve anything Goldberg and his neocon, Zionist friends might say about anyone or anything in the Mideast.

Obama is after all a neo-liberal. From time to time he'll espouse liberal ideologies, but his interpretation of the role of government is more typical of a laissez faire old school Republican, like a Blue Dog Senator Bayh (not Birch) or Bill Clinton. The idea, called the Chicago School, is that de-regulation will save the economy and that free trade benefits America unconditionally.

The predictable result has been a decrease in America manufacturing, long an aim of anti-unionist political forces masquerading as neoliberals. Kill American manufacturing through NAFTA and you kill the unions. Kill the unions and you increase profitability for the owners of the means of production--the wealthy--and you get to defang a political rival of the Right's.

Just how far will the American people let their government go? As I've commented, far too many are co-opted by the system and will fight change. Yet the whole nature of hyper-consumption is economically unsustainable. The government tapeworm will therefore chose other sources of sustenance as the host slowly dies. In plain English, the government will turn to monetizing the debt, printing and lending to itself the money it needs.

Already foreign creditors are limiting their dollar holdings, meaning people want more interest in exchange for holding the dollar. The recommendation would therefore mean reducing dollar holdings, and increasing non-dollar positions. With the Euro so weak right now, the dollar may be comparatively stronger.

Betting against the Deutschmark after the Wall fell in '93, I learned an important lesson in graduate school about not betting on foreign currencies. Despite the huge costs of reunification, the Deutschmark rose, nixing my prediction.

Sometimes hysteria and waves of unforeseeable strength crush and buoy foreign currencies, so I'd rely on a basket of foreign currencies rather than bet on one. Then again, I don't give financial advice. I can predict though what might well happen and that is that the unsound money policies will lead to an inevitable decrease in the purchasing power of the dollar. Farther afoot but not implausible is a downward spiral into hyperinflationary depression.

Economics

Had some reflections on economic concepts that I can't seem to let go of, so I've dumped them below. As much as I'd like to just pretend the decisions made by the Federal Reserve and our government don't affect me, sooner or later they will affect us all.

My comment below came from the New Arthurian Economics website here. The original comment there was referring to a Paul Krugman article. I wrote:

Commenting not so much on Krugman, but the statement at the site that "Anti-inflation policy reduces the quantity of money." I'd choose to say that a little differently. I'd say anti-inflation policies try to reduce inflation. The way they do this is to encourage people to save. If you're saving, you aren't spending.

As you know, raising rates will encourage saving. But what we have is a concerted effort to spend. Then there's QE2, what the blog author has called push inflation, or monetary inflation. In that case it's not so much demand that gets people spending but that abundance of dollars.

Now if you've been following the banks closely, you'll discover they CAN'T lend anymore. They've got so many bad debts that they HAVE to put new deposits in to stabilize their capital ratio (the amount of reserves expressed as a ratio of total deposits.)

Like Japan in the 90s, we know have a banking system that can't lend. It's not because they don't have the money--especially not with the Fed "pusher" making so much money available. Instead all that fresh money is going into the carry trade, at least according to one fund manager interview.

You also say "Pro-growth policy increases the level of spending."

I'd be hesitant to define "pro-growth policy." Of course, the phrase "being pro-business" is batted around in the political arena, like a race to the bottom to see which political party can pay lip service to the corporate interest.

If anything I'd say "pro-growth" is invariably pro-Middle Class. Heck, unemployment compensation is actually pro-growth yielding close to a 2x multiplier effect back into the economy. With neoliberal principles dominating the "pro-business mindset" in Congress, spending on the poor will be de-prioritized while spending on the massive defense establish--providing a far lower multiplier effect--will continue unconditionally until fiscal and economic collapse overtake the empire, a situation made far more likely and imminent by continuous spending on wars.

It's the defense trough that represents increasing inefficiency, as aircraft carriers and bombs don't bring much multiplier effect. Sure it's great if your town or job is supplying the War Machine, but the money has to come from somewhere. If the Chinese and Japanese aren't willing to send us back the dollars we send them, then we'll have nowhere to turn except printing up our money which will certainly devalue it.

If government spending is depriving the private sector of money through taxation (and not just deficits), increasing gov't spending actually SLOWS economic growth. Privately owned resources are forcibly pulled from productive use and spent by the State. Spending by tax/gov't is far less efficient than spending by private individuals. Taxes also deny the economy a source of private investment (G instead of I.) Now if the taxes are deferred we (or rather the beneficiaries of G) receive the benefit and defer the loss of gainful income to future generations, although that bill could come due sooner than expected if it leads to a monetization of debt and rapid decline in the purchasing power of the dollar.

End comment. For now. As you'd likely guess, I could post more of my thoughts on Art's blog and make poor Art read them. Instead I guess I'll have to save it for my dad, who fortunately for me is a good listener.

Goldman Sachs profits in crisis

Interest in the flash trading scandal has been brewing across the blogosphere. The practice allowed Goldman Sachs execute a fast trade milliseconds after they'd intercepted an order flowing to the exchange. Another strategy would be to follow the flow of orders, aggregate them, than predict the type of orders that would come in.

Frontrunning orders didn't make Goldman much per order, but a high frequency of these kinds of trades provided up to $50 million per day in profits. These strategies can only be executed by members of the stock exchange like Goldman Sachs who have superfast computers linked to those of the exchange. The privilege of peeking in on orders, and executing huge numbers of transactions, led to Goldman's massive profits last quarter, over $3 billion.

The profits alone aren't an issue; the larger burden is proving that the little guy operates on a level playing field. This public sensitivity creates a public relations problem for Goldman Sachs and Wall Street but also problems for the Obama administration.

More or less controlling the financial media, Goldman has been able to deflect much of the criticism. In the corporate media, Goldman Sachs's rebound was framed as a testament to Goldman's trading acumen.

Goldman's profits really come from technical advantages and its position on the exchange.

Competitors like Morgan Stanley had a dismal quarter, and the difference was attributed to a lack of risk-taking by Goldman's competitor. The lack of faithfulness by Goldman Sachs was blamed; other companies didn't conduct trading as "aggressively" as Goldman.

A more truthful reason for the disparity in profits might be the proprietary software that fugitive executive Sergey Aleynikov wanted to sell, in a deal busted by the FBI that started the scandal.

The unprecedented gush of government capital into the big banks, achieved through TARP and Reserve discount windows, amounts to $4 trillion with some $12 trillion made available to loan. This largeness was made available not only to Goldman Sachs but several of its competitors, so why didn't they perform as well?

AIG did just turn in a profitable quarter, but I doubt we can believe that AIG is profitable considering it was on the brink of failure. Plus, the government now owns the company and has every reason to see it make money.

I'm not going to attribute Goldman's outperformance to anything other than its High Frequency Trading and improved access to cheaper capital. These advantages come at the end of a deregulatory campaign which included the repeal of Glass-Steagal, an important Depression-era law that kept banks from entering the stock market.

Regulatory reforms cause crisis

Yes, it was irresponsible bets on mortgage-backed securities that decimated Wall Street. But the crisis would never have occurred had Congress not let the regulatory environment collapse.

Combined with lax enforcement, and changes in the law which enable speculation, the Congress set the stage for the collapse by making changes in the law and regulation that had kept bankers from taking too much risk.

During the height of the crisis, Goldman and other investment houses were converted into bank holding companies, a fact brought up in the NYT article. That status, bestowed on them by Treasury Secretary Paulson, allowed these companies to take advantage of easier access to capital and looser deposit requirements-they were able to leverage speculative investments.

The corporate media downplays the role of lower regulatory standards played in spawning the crisis, as I wrote in several posts and articles like my Op-ednews.com article "Capitalism Kills Itself."

The blowup was blamed on subprime loans, although exotic mortgage-based securities and accompanying Credit Default Swaps compromised a far bigger risk than simple defaults ever could. The CDSs, packaged as insurance policies but unable to handle the risk of systemic default, would only kick in if the mortgage-backed securities they "insured" fell below a pre-set level.

Derivatives are the real market monster. Subprime constitutes only 2% of the entire derivatives market, estimated at $150 trillion in the US alone. Clearly debt on this scale could never be created through traditional lending. Instead a shadow banking system emerged to create profits from selling debt securities. Wall Street companies saw their profits skyrocket. We now know these gains brought with them larger systemic risks which were realized in 2008.

Derivatives are plagued by the fact that the price of the underlying securities can't be determined. So they will likely sit on banks' ledgers for years. We might have another liquidity crunch, a period when banks can't meet their massive obligations under the CDSs--thus triggering their default provisions. That would send the market back to the precipice, the edge of chaos. I guess that would require an even greater intervention by government.

Government and the media

With the economic crisis we are led to believe the myth--9/11 like--that what the government tells us is all we need to know. How dare us little citizens dare question what the government tells us!

Fear-peddling was used to sell the Paulson plan and bailout. It worked at convincing Americans a real economic threat existed, albeit not as effectively as 9/11 turned the nation into bunch of people terrified of impending attack, a fear stroked through the Bush administration reelection.

An approach so dependent on public indifference would fail anywhere but here. For some reason Americans are less likely to disbelieve what they're told, and so are far more gullible than Russians during the Soviet era, or Italians or Germans during their nations' fascist periods.

Sooner or later, the anti-Wall Street sentiments might convert more Americans into "-ers": screamers (disrupting town hall meetings), birthers (doubting Obama's birth credentials), tea-baggers (fiscal conservatives) and Truthers (9/11.) At some point the reasons for bitching won't matter-there will be more anger than any amount of perception management can control. Bye bye second term.

It doesn't help that the Obama confidants Summers and Geithner appear to be groveling to appease Wall Street. This cooperation may be a bigger political problem than a financial one-last time I checked Goldman didn't need to win elections to make money: they'll have their people in the next White House no matter who wins.

Politicians were told to expect the worst if government didn't further relax depository requirements and make more cash available through the Fed, through so called "trash-for-cash" trades of AAA US Treasuries for Mortgage-backed securities of indeterminate value. Congress was swayed by the appeal, in ways only a few years removed from the fear peddling we saw lead to the Iraq War and sustain the War on Terror through a prolong sequence of color-coded threat levels and chatter.

Yes, the threat of crisis was real, thanks to the years of regulatory neglect and massive profits to be had. In his testimony before Congress, Geithner claimed that the market for mortgage-backed securities needed to be kept functioning in order to prevent a system-wide collapse. According to the New York Times article linked below, "federal officials" worried about Goldman and Morgan Stanley failing if AIG did.

The broader political message behind too big too fail is the proclamation that what's good for Goldman Sachs is good for America. That patriotic message was similar to one heard through the 70s, that what was good for Chrysler was good for America. The difference between the auto bailout of the 70s and that of Wall Street is that financial activities count for 40% of our total GDP now, meaning the government has more invested in financial profits than those of the automakers, or manufacturing.

The media seemed to be on the same page as the government in anticipating the worst case scenario, and generally followed the official script that the sky was falling and we'd better open our public checkbook or the economy would collapse.

Odd it is how a similar pattern appears to be emerging with regard to the nascent recovery. Yes, green shoots may be emerging, but huge job losses don't mean things are getting better, only that the rate of decline has eased. In a media world turned upside down through corporate mergers, entertaining pessimistic thoughts might be considered unpatriotic.

So little is said in the corporate media about how the irresponsible bets on mortgage-backed securities, and the destruction of regulatory hurdles had led to the crisis, as I wrote in my Op-ednews.com article "Capitalism Kills Itself." Instead we are led to believe the myth--9/11 like--that what the government tells us is all we need to know. How dare us little citizens dare question what the government tells us!

An approach so dependent on public indifference would fail anywhere but here. For some reason Americans are less likely to disbelieve what they're told, and so are far more gullible than Russians during the Soviet era, or Italians or Germans during their nations' fascist periods.

Going too far: WTC 7

The force that undermined the regulatory paradigm was the same as that which encouraged too much risk taking: greed.

It's no coincidence that the market collapse caused such damage to the banking system, which can be quite fragile if bankers start behaving like speculators, a distinction that can hardly be made after Glass-Steagal was appealed and the floodgates to speculation thrown open.

Being too big to fail creates moral hazard, a concept which states that those who get bailed out out of trouble of their own making are bound to find themselves in trouble. Libertarians in particular assail the FDIC insurance on banking deposits, believing that bank managers will take on far higher risks with lending knowing their deposits will be guarded no matter what.

The best example of banking gone bad came during the S&L crisis in the early 80s. Then, like now, a group of politicians with ties to powerful opportunists in the financial sector weakened oversight. So by the time the crisis hit, the problem was many times greater than had malinvestment in real estate by the S&Ls been halted.

The crisis may have unravelled because of uncontrolled speculation in the energy markets. Allowed to borrow like banks, hedge funds and investment houses poured huge sums leveraged many times over into rapidly rising markets.

If you could borrow as much as you want, why not securitize the market for a physical material in limited supply, then corner it? The model for selling mortgage-backed debt had been set--applying it to commodities seemed to be working well through 2008. Rather than trade derivatives and other promises to pay mortgages, the idea was the same for other types of investment: monetizing future revenue streams to boost profits now.

We saw through 2008 an incredible run-up in commodities prices; I'd blogged about the fact Morgan Stanley was the largest owner of oil in North America! Even now hedge funds and financial firms control huge amounts of commodities, created in transaction like futures, warrants, and swaps whose prices have little to do with the underlying economic demand.

Leveraged twenty or thirty times, profits are indeed mighty when the market heads up. Then of course there's the reality they'll crash and burn should their bets go the other way.

The license to borrow became a method to ride a giant speculative bubble. Agencies like the Commodities Future Exchange Commission were overruled and regulatory enforcement collapsed, often as the result of politicians with ties to hedge funds and Wall Street exerting influence over the regulatory process.

Perception problems

The notion of saving Wall Street, the richest and most politically influential industry in America, from itself, did become fodder for the mass media. Magnifying the distrust of Goldman Sachs is the broader popular image, where Wall Street is seen as an industry favored by Congress and the White House.

A big perception problem for Goldman, and all recipients of government aid in the financial industry like A.I.G., who made over $1 billion last quarter, is the perception that things weren't as bad as they said--meaning Wall Street should never have been given the TARP money.

Added to these huge profits are obscene bonuses. Writing in The New York Times, Frank Rich asserts that:
"...nine of those bailed-out banks — which in total received $175 billion of taxpayers’ money, but as yet have repaid only $50 billion — are awarding a total of $32.6 billion in bonuses for 2009."

Goldman takes the top spot with a $700,000 average bonus for every employee for the year 2009. There are bonuses then there are bonuses. I guess everyone working at Goldman is worth so much more than everyone else, being that the Goldman people work so much harder or something.

Former Secretary Paulson's contacted Goldman Sachs via telephone during the crisis, the New York Times asserts in its article Paulson’s Calls to Goldman Tested Ethics During Crisis.

Of course the Grey Lady stooped by explaining what Paulson did was by any means expected and customary:
"It is common, of course, for regulators to be in contact with market participants to gather valuable industry intelligence, and financial regulators had to scramble very quickly last fall to address an unprecedented crisis. In those circumstances it would have been difficult for anyone to follow routine guidelines."

Paulson's conduct was apparently so customary and aboveboard as to require a stalwart defense be made against the prying inquiries of the Freedom of Information Act.

Why did Paulson contact Goldman CEO Blankfein so often--two dozen times during the week of the AIG bailout, according to the Times? AIG did owe Goldman Sachs a great deal of money, debts which ended up being paid out of TARP funds from AIG that surely would have be unavailable had the company been like Lehman Brothers, which was allowed to fail.

What if Lehman had owed Goldman Sachs billions? Would we have seen so many consultations between Goldman Sachs and the Secretary of the Treasury? Lehman was left to die out on a limb, bankrupt, while AIG was stalwartly preserved from falling off the precipice--why?

A.I.G. was bigger, but much more importantly it owed Goldman Sachs...big. Lehman's failure may have been attributed more to "natural economic forces" but these sames issue--systemic collapse--only became a priority when AIG faced its defining moment. Then and only then was too big to fail made possible, once the vested interest that line the White House walls let loose their full power in shaping the government's reaction to the crisis.

The New York Times article explains:
"Ad hoc actions taken by Mr. Paulson and officials at the Federal Reserve, like letting Lehman fail and compensating A.I.G.’s trading partners, continue to confound some market participants and members of Congress."

The relationship between Goldman and our government is long and friendly. Very friendly as a matter of fact. So friendly as it's not uncommon for top advisers in the White House to freely merge into and out of the top hierarchy at Goldman and vice versa. Even as presidents change, the cadre of Goldman advisers seems to replenish itself automatically.

Sooner or later, the anti-Wall Street sentiments might convert more Americans into "-ers": screamers (disrupting town hall meetings), birthers (doubting Obama's birth credentials), tea-baggers (fiscal conservatives) and Truthers (9/11.) At some point the reasons for bitching won't matter-there will be more anger than any amount of perception management can control. Bye bye second term.

It doesn't help that the Obama advisors Summers and Geithner appear to be groveling to appease Wall Street. This cooperation may be a bigger political problem than a financial one-last time I checked Goldman didn't need to win elections to make money: they'll have their people in the next White House no matter who wins.

More Links

See this youtube video about High Frequency Trading: Trader says markets are manipulated and volumes 'ficticious'.

See the HuffPo article Goldman Sachs: Gambling With Your Money?

I may have posted a link to the following article in my comments both here and at SmirkingChimp after last month's post: Schumer wants to curb traders' flash orders.

I think the trend is towards Congressional intervention. I just wonder if incumbents are more afraid of losing millions in corporate donations from their allies on Wall Street, and might work to water down reforms, so as to minimize the damage posed by tighter margin requirements and what the investor class might call regulatory obstacles that in fact work to stabilize markets.

///

CNBC spikes story on Goldman Sachs

To follow up on allegations that Goldman Sachs deployed High Frequency Trading ("quant flushing") software, I admit I was wrong about the story going no farther in the corporate media. The blogger who brought up the original story so irritated one of its editors, Charlie Gasparino, as to stir a personal response.

About 1:30 EST on Wednesday, CNBC's on-air editor Gasparino, explained that he'd been bombarded with e-mails from a "zero something" blogger who'd claimed that he'd given Goldman Sachs preferential treatment.

Gasparino appear to be somewhat defensive, explaining that he'd spent "90 percent" of his reporting critical of the financial behemoth and that any allegation of favorable treatment was patently false. But it didn't end there, nor did Gasparino even admit the real source of contention with the blogger "zero-whatever."

At the urging of CNBC's big-breasted Caruso-Cabrera, Gasparino began to rail on about how some bloggers were so stupid, hiding behind their anonymity, more or less a full blown' attack not only on ZeroHedge, but the credibility of the whole blogging community.

Rather than cover the real story--Goldman's uncanny ability to make money while its competitor's languished--CNBC anchor Michelle Caruso-Cabrera launched into a mini-campaign of defamation of bloggers, assailing their credibility. For the wise, this kind of attack readily appears to be what it truly is, the attempted destruction of a story dangerous for Goldman Sachs and the credibility of the mass media.

Reporters and anchors at CNBC apparently see no fault in making themselves the news story- a big no-no in journalism. One CNBC reporter, Rick Santelli, just a few months back actually got in a war of words with the White House about the bailout, as he editorialized about the injustice of bailing out defaulting mortgage-holders.

However strongly Tyler Durden, ZeroHedge's anonymous author, comes on, it's the duty of an objective press to bring to the public's attention a story of this magnitude. If the mainstream media can't or won't cover a story, it falls on bloggers to call it to attention. I discovered the story myself through a blog post by vets74 on DailyKos, ""Incredibly Shrinking Liquidity as Goldman Flushed Quant Trading."

That article dated from July 7th, giving an indicator of just how delayed the mainstream is in covering timely stories. For example, the New York Times held back on the NSA surveillance story for an entire year. There's not being in a hurry, then there's just plain sitting on a story 'til it dies. In the meantime I'd heard all kinds of explanations for the size of Goldman's profits, not a one of course explaining the company's use of High Frequency Trading software nor its fugitive executive, Sergei Aleynikov.

The New York Times did provide a nibble on the quant flushing game in an Op-Ed by Michael Osinki last week, on Friday, titled "Steal This Code." The article largely downplays Aleynikov's theft of the proprietary trading software. Osinki does express his surprise at the scale of the FBI's reaction.

Presented not as a news item but simple opinion, the op-ed doesn't mention the possibility that a large portion of GS' huge profit may have come from quantitative trading, software programs that conduct high-frequency automated transactions a millisecond before they're executed on the exchange. Nor is any mention made of the threat that exposing HFT trading on such a vast scale posed to Goldman, or the credibility of US-based exchanges.

When a broker does this, it's called front-running. Several mutual fund companies were penalized for front-running their own customer's order back in 2003, and paid over a billion dollars in fines (versus restitution.) Because the proprietary software Goldman was digital, it likely didn't meet the outdated definition of front-running.

What HFT might lose in terms of its profit-by-order, it makes up for with volume. Some 70% of the trading volume of the major exchanges now comes through these high frequency trading programs.

High frequency trading (HFT) appears to be the domain of the largest players in the market players.

The former Goldman Sachs executive, Sergei Aleynikov, who stole the software was attempting to start his own firm in Europe when arrested by the FBI.
I suggested in my previous comment on this point that the FBI's role in what should be a simple case might indicate that the software might have been sold to the highest bidder, possibly even a strategic rival like Russia who could use the systems to profit as well. I can just see the thriller, like "Assassins" with Julianne Moore as a hot geek peddling stolen software.

In the tight star chamber shared by New York financial and media elite, Goldman has a reputation to preserve. Reticent indeed would any major media outlet be to suggest Goldman had cheated. Offering illicit quantitative software in the open market challenges the broadly sold myth that Goldman is special, or so much better managed that the normal rules need not apply. The potential PR damage is immense; stifling it the duty of any promotion-minded mid-level media employee.

While other firms appear to execute HFT, it takes real clout and a trusted place on the inner circle of the financial elite to turn massive profits out of HFT. Clearly, Goldman's software offers key advantages. Still. it's the insider access that allows the firm to tap in to the web traffic, analyze it, and determine the most likely transaction that will transpire based on the message's size, destination, and past patterns--aggregate--behaviors. All within milliseconds.

The process depends on speed. Transactions occur just fast enough to execute the "quant flush" trades before the real orders are executed.

The better the connection to the server, the more quickly orders can be executed. An order originating on the periphery of the vast electronic trading network might take several seconds to bounce between servers. That data traffic can be read and its destination determined, providing the data miners along the web route sufficient opportunity to exploit the trade that will unwind at the exchange a scant few seconds later.

Exploiting the web architecture for gain is nothing new; what has changed is the sheer scale of the operation and its profits. Regulators don't stand a chance, unless of course they are given full access to Goldman's data resources, an unlikely event considering the massive influence it has over Washington and Congress.

For those who are only now waking up to this important story, you can see the original post here, (with limited commercial interruption or top-heavy hosts spouting off in defense of hypercapitalism):

Bloomberg also appears somewhat concerned when a company that took billions in government funds ends up making a vast profit just a quarter later. Unlike the people at CNBC, I'm guessing Bloomberg figured out that there is something to the allegations, and actually reported on it. See the post by Edward Harrison of Credit Writedowns here.

Now if Bloomberg were more like CNBC, I guess we'd see the credibility of the blogger attacked and the real issue--how much GS is making with its High Frequency Trading--ignored. To make matter worse, dissing the blogs is in itself evidence of how out-of-touch that entity, a subsidiary of GE, has become.

Blogs are a major source of information for anyone in the financial industry. Look no further than CNBC's own "bloggingstocks.com" blog. I guess some in the corporate media see bloggers as a threat.

Deriding the bloggers as CNBC anchors are prone to do might be a sign of progress, a tacit admission that the blogs are really making an impact. The impact on Charlie Gasparino reflects a blogger community and Americans beyond the centers of media control who are very eager to hold television personalities to account for the truth, or the absence of it they provide.

Mass media will of course look to diminsh the relevance of bloggers any way they can. Challenging the media status quo is a heatlhy exercise, and should probably evoke derision. Gandhi said they--meaning the British in his quest for Indian independence--would first ignore you, than laugh at you, then start to fight you. The fact that the concerns of an anonymous Tyler Durden made it all the way to the mass media proves that dedication and persistance can pay off, evenif the reward comes dressed as a package of on-air mockery.

Sooner or later the media moguls in control of their corporate news divisions will feel the heat of huge chunks of their audience lost to the Internet. Still, I've never said that the mass media model should be abandoned, just that the idea of relying on TV news exclusively in like so twentieth century, reflects an adolescent, condescending attitude with which TV personalities view their audiences, as passive, unthinking sheep who cling on their every word. How dare they make the unfiltered truth known to millions through their blogs, they must be thinking.

Big egos are common in that industry, just as the trend towards "conservatism" in reporting has accelerated to the point commentators on CNBC like Larry Kudlow constantly frame the good approach to business as anti-regulatory, and regulatory efforts as "anti-business."

This highly politicized worldview has led to an utter lack of objectivity in covering the news, and worse, deluded Americans into thinking deregulation is actually good for business. Nowhere has this been made clear than by the financial credit implosion, an event that is continuing to unfold, one that will likely bear lasting effects for years to come.

Notice how little of the mass media's coverage has been concerned with regulatory lapses that led to the risky behaviors by major financial firms who were supposed to have been regulated. We all know enforcement drastically eroded under Bush, as industry representatives assumed control of numerous agencies throughout the federal government, overseeing industries on whose behalf they'd previously lobbied.

Are these mass media people so stupid as to assume Americans can't tie de-regulation and the financial collapse together? And what of the credibility of entities like CNBC-can people truly say that their interests and risks to their financial futures will be brought up for honest and objective analysis by the mass media? No.

The purpose of the corporate media has been to follow the corporate interest, not the public's. Those working in the financial news media clearly work for their advertisers, who first and foremost want to avoid any negative publicity.

The death of investigative journalism has come largely because these corporate conglomerates don't want to risk alienating potential advertisers with exposes and other damaging information made public. So instead we're to blithely assume we can learn all we need to know from the mass media, and can trust them. Ridiculous. And the recent collapse of equity and mortgage markets proves that the corporate media will do very little to protect the interest of the public, or keep people informed.

See this article by Thom Hartman for a great take on why Republican media moguls seems so disinterested in profits, which are the holy grail of the hyper-capitalist system they worship. I've blogged on this inconsistency in the past, pointing out that the media has not only been overly consolidated, it's become unprofitable, even with the myriad interconnections between news divisions and marketing divisions hocking celebrity tell-all's and other crap, which are presented as "interviews" for marketing reasons only. The quality of content declines, suiting a dumbed-down audience that doesn't question what it sees on TV.

On the surface, lost profits seem to be a conflict of interest. But the ugly truth is that right wing media moguls have consolidated their industry to the point they now offer Right-leaning perspective on what they call the news, turning media outlets into distribution engines in a massive propaganda effort to keep Americans ignorant and in the dark, where they can be more easily manipulated. Hitler's propaganda minister Goebbels would have been pleased with the extent to which corporations control media. Like Mussolini, he might have been surprised by how American fascism, if it ever took root, would be far superior to his Italian variety, based on the gullibility of Americans.

The present day consolidated, watered-down corporate news seeks screen out news that might contradict key myths, which include at their forefront the idea that radical islamic terrorists were able to bring down the towers through their efforts alone, with no aid from any other government.

The 9/11 Truth movement is a vital part of the Web experience because it challenges assumptions made by the government in its Official Explanation long before the molten metal in the basement of the Towers had cooled--all from a bunch of kerosene, really?

Hitler didn't have to contend with the Internet; accurate news provided by bloggers would have dispelled numerous propaganda, and could have more quickly consolidated opposition to the Holocaust and other unsavory practices.

Now as is the case in modern-day Australia, Hitler and his goons could simply blacklist websites. Except instead of targeting websites thought to contain child pornography, in Australia's case, a despotic regime would simply blacklist any sites that threaten the regime's version of the truth. And unlike Australians who happen to link to blacklisted sites--and face a large fine--a more autocratic machine could simply disappear the authors.

Now of course there are some issues with using blogs as the only source of news, an idea that just isn't plausible for any serious consumer of news, or anyone concerned with the threats posed by unregulated capitalism on the value of their homes, or retirement accounts.

Anonymous blogging can be a source of libel and unfounded obligations, and thereby unjustly attack individuals. I don't favor hiding behind anonymity-I've extending my name fully here, on some highly confidential issues myself, and have imperiled myself professionally for years to come. Still, like whistleblowers, there's a role for certain anonymous bloggers to play, particularly in sensitive industries or concerning complex topics when an insider's knowledge is essential. One good example might be accountant rules, or graft in contracting, where the anonymous source could face drastic consequences for informing. At the very least, running off about Goldman's HFT schemes is probably a great way for a financial professional to get in trouble.

Despite his anonymity, Tyler Durden is taking risks that the CNBC people won't. Fearless journalism died on that network, at least on that corporate network. Maybe the Durden identity, created in the movie Fight Club, isn't that bad a name for ZeroHedge's author after all. Durden is clearly anti-establishment and CNBC clearly stands on Goldman's side in dodging the accusations.

--------Links-------------
-Gasparino's profile: http://www.cnbc.com/id/15838145
-Michelle Caruso-Cabrera profile: http://www.cnbc.com/id/15838214

Article posted on OpEdNews.com

My article, "More spending brings little change" was published on OpEdNews on Saturday.

I've been researching the private credit money fiasco. Since writing my article, I've come across high-value opinion pieces throughout the Web, including this excellent piece by Mike Whitney, When securitization blew up so did the economy.

My comment is there at dissidentvoice.org, complementing Whitney. Now if you're fairly new to the blogosphere, Whitney may be a new name to you, but he's been writing for a while now about complex economic issues, most notably the motives and actions behind the scenes and out of the eye of the mass media.

The dysfunction we're now experiencing is the financial equivalent of Naomi Klein's disaster capitalism: we didn't arrive here by chance. And there's a real benefit to getting the truth: if you're following people like Whitney and me, you're definitely not as surprised by the crisis or its severity.

For a hilarious poke at the comments by CNBC report Rick Santelli, see Jon Stewart's Comedy Central review.

My article does include a reference to Senator Bernie Sanders (S.-Vt.) , as part of a critique of our failed two-party system. I cite an article by John Nichols in the article, but since writing I found this squib about Sanders. On a personal note, I saw Sanders speak, with Nichols, at a media reform conference at the University of Illinois in May, 2005. {If you're wondering about the S. after Sanders' name, it stands for socialist, which Sanders is by his own admission, a reference you will not see in the mass media.}

As I say in my dv post, Sanders apparently got in a tangle with Federal Reserve Chairman Bernanke during recent Senate subcommittee testimony. Bernanke said "no" when asked to reveal where TARP funds had been allocated; Sanders is sponsoring legislation to force the Fed to post on their website this information. See the squib in truthdig.

Hope to have the recently submitted article back and posted or linked here. In the meantime, I recommend my 2007 video of an antiwar protest, its accompanying still photos, and the link to sites where I've posted comments like OpEdNews and commondreams.org.

If you should have technical problems seeing the video, try to run the video several times, even if it breaks up first few times. Hopefully it will play without interruption after a few runs. I'm looking for a host that will cast streaming video. I would have done youtube, if I thought the picture quality was better. The video recorder I used at that rally was somewhat aged.
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Cops clamp down at GOP Convention; Palin family values

As far as the size of demonstrations, the 2008 Republican National Convention was hardly exceptional. Yet eight hundred people were arrested during the course of last week's event, which ended last Thursday. In terms of police tactics, St. Paul has distinguished itself by arresting and detaining journalists.

Typical of bland, dumber down news, absent from the media narrative is any substantive inquiry into the protests outside the--mostly sanitized--interior of the Xcel center, where the Convention was held. I say mostly sanitized because two protestors did interrupt John McCain's acceptance speech which came at the end of the event.

Last year, I'd read that a Secret Service manual advocates the use of the chant "USA, USA, USA" by 'rally squads' in chanting down these demonstrators, should they appear at a Presidential event. A Salon article cites the 'Presidential Advance Manual': "If the demonstrators are yelling, rally squads can begin and lead supportive chants to drawn out protestors (USA!, USA!, USA!)."

The choice of police tactics was controversial. Before the Convention had begun, packs of heavily armed police, aided by the Department of Homeland Security and FBI, targetted groups who'd set up protest headquarters in the area. The terrorism moniker has been slapped on these organizations, which shows you how quick authorities are to criminalize dissent. See a Marjorie Cohn article on the effort to preempt demonstrations here.

In Truthout.org, Michael Winship writes:
"...the police seemed especially intent on singling out independent journalists and activists covering the Republican convention for the Internet and other alternative forms of media. Over the weekend, police staged preemptive raids on several buildings where planning sessions for demonstrations were being held, one of them a meeting of various video bloggers, including I-Witness Video, a media group that monitors law enforcement."

During several protests held on the week of the Convention, St. Paul police created cordons with few if any avenues of escape. Demonstrators, with press mixed in, were forced to endure showers of chemical agents.

Media people were targetted, or simply treated the same as the demonstrators. During arrests, independent news producers, photographers, and citizen/journalists were forced to lie down in the streets, with hands tied behind their back. Cameras and equipment were seized. Along with dozens of people simply covering the event, Amy Goodman was arrested.

At least not all people filming the event were targetted, judging from the video available of Goodman's arrest [available only through youtube as of 9/10.] This isn't to say the police there were practicing arbitrary and illegal arrest powers, or practicing the unjustified use of force. Back in 1991, Goodman was actually shot and left for dead by the Indonesia military when she'd been reporting on a protest on the island of Timor and a massacre of unarmed Timorians began. She recounts the nightmare here.

Chris Hedges writes about the police state behavior in Truthdig, "You had to search out Democracy Now!, TheUptake.org, Twin Cities Indymedia, I-Witness, along with a few other independent outlets, to see, hear or read real journalism from St. Paul."

Hedges blames the failure of the media to cover both sides of the war issue (pro- and anti-), the police would be more reticent to act, knowing that millions of viewers would see the repression and react negatively to the use of force. The Vietnam era showed the impact that full and accurate coverage of demonstrations could make. Alongside the first war to be brought through television 'into Americans' living rooms,' huge demonstrations made a large impact when carried by the national networks.

Even with all the 'negative' coverage, support for the Vietnam War was I believe over 50% at the time of its closure. It's worth remembering that Republicans now believe that poor management of the public perception was the reason for our losing that war. By curtailing the press and their freedoms, the idea is that Iraq can be made into a success, or at least a non-failure, which will support continuation of the war until it can presumably be won at some point in the future.

Accompanying Hedges' article is a powerful picture of a flower-wielding woman being sprayed with a chemical agent at point blank range (also available in the photo gallery linked below.) The AP photographer, Matt Rourke, was himself injured in the melee later that day, but not before capturing this photo, and this one.

One of the best videos I've seen comes via indybay, which I found through the constant reports eminating from indymedia's Minneapolis/St. Paul chapter. A group of protestors is met by a mixed police and National Guard detachment which actually pursues the dispersing crowd down Shepard Road as they try to move out of the area.

An extensive gallery of still photos is also available through indybay.org. In a different format, the same pictures are viewable in a scroll-down, chronological sequence of blog entries, arranged on a single page format, here.

Amy Goodman of DemocracyNow explained what happened Thursday: "The march ended with more than 200 demonstrators trapped on the Marion Street bridge with hundreds of police in riot gear blocking either side." link. Also at that link is an interview with DemocracyNow producer Sharif Abdel Kouddous arrested Thursday, who explained the situation, "As soon as we were on the bridge, we realized that we were trapped. Everyone—they had a line of riot cops on one side, a line of riot cops on the other, and the marchers had nowhere to go."

Kouddous explains an exchange he had with a policeman--presumably from the city of St. Paul--during his arrest:
"And he goes, you know, 'Why didn’t you guys just disperse when we tell you to disperse, and this is not going to happen?' I told him, 'You’ve been telling me to disperse since 5:00 p.m. And so, you know, there would be no press for four hours of this march. You know, we can’t—we’re just doing our job. We’re not going to disperse whenever you tell us to. We’re going to continue to do this.'”

I couldn't help but remember my brief discussion with a former D.C. police officer last September, as I made my way towards Washington to cover the demonstration there. He'd been very, very specific about warning me to disperse when told by the police to disperse. The St. Paul situation shows what can easily occur if people don't disperse, but I also think it's vital that people get to see another side--a point of view that the corporate media seems to ritually avoid, one that is unedited, straight from the heart, contrasting with the slick image presented of a party unified inside the Convention hall. Without these Ron Kovic moments, there will be insufficient disruption to the state of normalcy in the political sphere, and the status quo--a continuation of the war--will continue.

Goodman explains her own arrest on Monday in her article "Why we were falsely arrested."

As a personal note, I don't know where we'd be without this great reporting. I don't think a free press should be subject to arrest simply for covering an event like this. I admit with not a little pride that I'm a citizen/journalist who has taken to blogging largely because the mainstream media doesn't provide accurate reporting and objective in-depth analysis, so when I see people performing journalistic duties, I naturally tend to sympathize with them. I also don't see how the police using arbitrary powers of arrest is an effective bludgeon to bash in all coverage that might be detrimental to their handling of the situation. While some in the mainstream media might cower at the thought of arrest, we citizen journalists are a tougher breed, I would hope, and less easily intimidated. If not, well then I guess the public will have to rely exclusively on the mainstream media for their news, which I guess is what those who lack the Internet must do anyway.

A large-scale letter-writing campaign was led by FreePress.org in the aftermath of the journalist arrests. Updates on the effort to hold the authorities accountable for their actions are available at thier site, and the website theuptake.org as well, which includes a summary of all the Convention violence.

Surprisingly, the City of St. Paul actually has an agreement with the Republican National Committee to pay for the first $10 million in civil settlements that the city might be forced to pay as the result of successful litigation by those arrested, gassed, or denied their rights. Paul Demko of the Minnesota Independent writes:
"The St. Paul JPA [Joint Powers Agreement] offers participating agencies liability insurance coverage with a $10 million limit. The cost of that insurance is being footed by the RNC’s Minneapolis St. Paul 2008 Host Committee per an agreement it struck with the city. Some police departments, particularly county sheriffs’ agencies across the metro, are worried that $10 million isn’t really enough to cover potential litigation costs associated with an event of the RNC’s magnitude. And if such expenditures did exceed $10 million, cities and counties fear they could end up on the financial hook." (Source)

Recently a jury found New York City liable for their abuse of protester rights at the 2004 Republican National Convention in New York City (that was the infamous case of the illegal holding pens set up in the docks.) If the Republicans have simply marked off $10 million as the price of doing business, they would much rather contend with the financial ramifications of violating the rights of demonstrators than risk facing the true scope of public discontent concerning the Iraq War, which they must truly fear.

Speaking of fear, Zack de la Rocha leads his band Rage Against the Machine in an impromtu, acapella song the band's four members played using a bullhorn on Tuesday near the State Capitol. At the bottom of this Raw Story article on the Convention arrests there was an abbreviated video of the performance credited to above-thefold.com, which had a more complete video half-way down a post there, including some political opinion omitted from the shorter Raw Story post. [Editor's Note: Neither of those links was functioning as of September 10th. RATM's website was directing visitors to the same video at the youtube site.]

Dela Rocha points out that the authorities don't fear him or four musicians from Los Angeles, but rather you, the crowd.

World Socialist Web Site--a scary name but good source of information--offers a good article by Jerry White on the official misconduct occuring alongside the Convention. Also worth reading is this blog entry in GeorgeWashington2.blogspot.com.

Palin Family Values

I guess Palin and her supporters reserve the right to remove Bristol, Palin's 17-year-old daughter, from the public spotlight. Barack Obama has obliged the Republicans, agreeing that Bristol's situation is a private family matter.

Marie Cocco, writing in Truthdig, agrees that pregnancy is completely a family matter, an issue over which no one outside the family should be allowed to exercise their control or opinions. In Cocco's opinion, the privacy that families are entitled to should not be violated by the passage of laws and controls over family planning decisions.

Right-to-lifers believe that having a child is a responsibility of all pregnant females. They would take their view and impose it on all families with unwed pregnant daughters, denying them what the Palins desire--just to be left alone to make their decisions free of outside meddling. Under draconian restrictions on abortion--including a set of rules that make victims of rape and incest get parental approval for abortions--the inner sanctity of the family is violated. Families that decide that their teenage daughters aren't yet ready for parental responsibilities would be forced to carry the girl's fetus to full term.

Cocco brings up the zealotry of the anti-abortion movement and its intrusive nature:

Activists have applauded inquisitors who’ve sought to rummage through the medical files of women who have had abortions, under the guise of investigating whether doctors might be performing them in contravention of certain state restrictions. They have sought to make it harder for women even to obtain birth control pills, forcing them to argue with objecting pharmacists in all the privacy afforded by a drugstore aisle. Just days ago, the Bush administration put forth a new rule that would allow objecting health care workers to refuse to tell rape victims about the availability of emergency contraception or refuse to dispense ordinary birth control pills.

Blocking information is a vital element in controlling behavior. What a young woman does not know, she cannot choose. If Palin and others have their way, she won't even be allowed access to borth control, which turns her body into a vehicle for procreation, an essentially fundamentalist view that Palin shares. Another nasty belief is the idea that vicitms of rape and incest should be forced to carry their fetuses to birth. While mayor of Wasilla, Palin required rape victims to pay for their own rape kits. (Alaska has the nation's highest incidence of rape.)

The young man who presumably impregnated Palin's daughter has apparently agreed to marry her. While Bristol, the daughter of a governor, might be able to get married, most teenage girls who get pregnant aren't so lucky. Was the pregnancy was the reason for the marriage, or was the rise of Palin to the scrutiny of a national audience the reason for the marriage? Either way, Bristol's pregnancy was likely the result of inadequate sex education and the absence/familial rejection of brith control as a method to prevent pregancy.

Joe Conason writes in Truthdig:
"As a politician who insists on lecturing adolescents to abstain without teaching them about contraception, she may never have informed Bristol how to protect herself from an unwanted pregnancy and sexually transmitted disease."
He goes on:
"Surely Sarah and Todd Palin as well as their church gave Bristol a clear message that she should avoid premarital sex. But what we know now is abstinence-only education, whether at school or in the home, fails at least as often as it succeeds. The religious morality of the evangelical right, preaching the return of the sexual mores of decades ago, is no more likely to succeed."

Bristol's personal life is no longer private. She'll be lifted to the nation as a role model of how unmarried teenagers should behave. The marriage after the fact does nothing to glaze over the fact that unmarried teenage girls should not have unprotected sex, and that abstinence-only doesn't work.

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