"End of Wall Street Boom" - Must-read history

[vanlose kid]

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[i was just riffing Jack, no offense.]

there might be in the aftermath of an all out war and horrifying body count and the subsequent division of spoils and territory (among the remaining corporations).

There might be, there might not. Very hard to say what would be after such a scenario. "They" are great at intentional mistakes, but they can't even make the Iraq invasion or the euro institution run according to plan. What makes you think the aftermath of World War III-VI can be managed in advance?

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as for your last question. it doesn't really matter whether i think they can or not, nor whether they in fact can or not. what has been shown so far is that they seem to believe they can and act accordingly, in Iraq, in the institution of the euro, etc. they seem pretty sure of themselves. as far as i can tell anyway. they do think of themselves as the elite right?

ps: "intentional mistake". i don't know. if i put down five as an answer to two times two i could have any number of reasons to do so (provokation, exasperation, stubborness, etc.), assuming i know that the correct answer is four, but i can't seem to be able to see how it could be thought of as a mistake. intentional sure, but a mistake?

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[JackRiddler]

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Ah, let's not argue the semantics of "mistake" since I'm sure we agree otherwise on what's meant, intentional being the key. Humans, including ones who imagine themselves very powerful and wonderful, do many things compulsively even when they know the outcome will hammer them. Feeding an addiction would be the paradigmatic example of an "intentional mistake."

And now...

Hope springs eternal. Kamala Harris and Eric Schneiderman (voted for him) are among five or six elected politicians I can still imagine might do the right thing. It would be a great sign if we hear they're issuing subpoenas to the ratings agencies, or accounting firms.

http://www.latimes.com/business/la-fi-m ... full.story

California may join probe of Wall Street's role in mortgage meltdown

New York's and Delaware's investigation could lead to criminal charges against financial executives. 'California was disproportionately harmed by the mortgage crisis, and our homeowners badly need relief,' the state's attorney general says.

By Nathaniel Popper and Alejandro Lazo, Los Angeles Times

5:48 PM PDT, July 14, 2011

Reporting from New York and Los Angeles


California is considering joining New York and Delaware in a wide-ranging investigation into Wall Street's role in the mortgage meltdown that could lead to criminal charges against financial executives.

California Atty. Gen. Kamala Harris met with New York Atty. Gen. Eric Schneiderman on Thursday in San Francisco to discuss cooperating on the investigation, which is already one of the broadest to probe how banks encouraged the financial crisis through the creation of risky financial instruments backed by mortgages.

New York and Delaware have more than a dozen attorneys working full time on the effort and have subpoenaed or requested information from 13 financial firms, including Goldman Sachs and JPMorgan Chase & Co., according to people familiar with the investigation. The people spoke on condition of anonymity because of the sensitivity of the investigation.

Schneiderman declined to comment on any specific investigation but told The Times, "We're taking a hard look because the American people are entitled to a full investigation that uncovers all the facts and holds those responsible to account."

Delaware Atty. Gen. Beau Biden declined to comment on the investigation.

California would represent a vital addition to the investigation because it was the location of a vast number of the mortgages and foreclosures that fed into the crisis. Since home prices peaked in 2007, California homeowners have lost $1.9 trillion in home equity, according to an estimate by the research firm Moody's Economy.com.

Harris told The Times: "California was disproportionately harmed by the mortgage crisis, and our homeowners badly need relief. We will critically evaluate every possible avenue of relief for Californians. If it will result in real accountability and real results, no option will be off the table."

The public has clamored for the scalps of financial executives who encouraged the real estate bubble, but most investigations so far have focused either on mortgage fraud by low-level brokers and appraisers or on the handling of foreclosures by banks and other lenders.

Prosecutors have had much more trouble pinning blame on executives at marquee firms such as Countrywide Financial founder Angelo Mozilo. The Justice Department shelved a criminal probe into Mozilo's activities. In end, federal regulators became involved, and Mozilo had to pay $22.5 million to settle their claims that he downplayed the risks of subprime mortgages.

The lawyers in the attorney general offices in New York and Delaware are looking at the role that Wall Street played in the buildup to the crisis: allegedly inflating the demand for subprime loans and then packaging them into shoddy bonds that triggered the financial meltdown, people familiar with the matter said.

"This is where all the bodies are buried," said Charles Geisst, a former banker who now teaches at Manhattan College. "This is where you could see fraud on an institutional level."

Biden and Schneiderman have separate but parallel investigations into the matter and have signed an agreement to share information, people familiar with the cases said.

Schneiderman's office is particularly feared by bankers because the state has unusually broad laws that have allowed past holders of the office, including Eliot Spitzer, to pursue cases that slipped through the fingers of federal prosecutors.

"It's a different ballgame when you are dealing with the New York A.G.," said Brad Bondi, a securities lawyer at Cadwalader, Wickersham & Taft.

One of the strengths of New York law is that, unlike under federal law, prosecutors can build a case without proving that fraud was intentional. Even with this easier standard, Douglas Elliott, a former banker who is now with the Brookings Institution, said Schneiderman and Biden will have a hard time securing the convictions for which the public has hungered.

"Investigations like these are very difficult because they often hinge on intent," Elliott said. "It's extremely hard to judge intent unless there's a smoking-gun email or something like that."

A special congressional commission and a Senate committee have both done industrywide probes of Wall Street and pointed to wrongdoing in the mortgage operations of banks, but neither had prosecutorial abilities. They did pass on their findings to federal prosecutors, but so far the Department of Justice has not announced any broad investigations of how banks stoked the mortgage meltdown.

This throws even more attention on the probes being conducted by the two states, which is being hailed by advocates of homeowners and critics of the banks.

"It's long past time," said John Taylor, the head of the National Community Reinvestment Coalition. "One key to getting our economy back on track is to make sure we have safe-and-sound lending practices.… But more helpful than enacting those is enforcing the laws that are on the books now."

People close to the investigations said the lawyers are looking at whether the banks misled investors about the risks of the bonds and whether they even had proper title to the underlying mortgages they were selling.

The moves by Schneiderman and Biden go significantly further than a current effort by all 50 state attorneys general to take banks to task for their work in servicing foreclosures, which became an issue only after the financial crisis began.

That nationwide effort was expected to have produced a big settlement by now — for more than $20 billion — but negotiations have been slow, and the outlines of the deal have been criticized by consumer advocates and former regulators for letting banks off too lightly.

One of the sticking points in the negotiations is a request from the banks for immunity from further investigations, such as those being conducted by New York and Delaware.

In a call with analysts Thursday, JPMorgan Chief Executive Jamie Dimon said his bank wants to come to an agreement but doesn't want to be open to further prosecution.

"We're not going to do it and be subject to double and triple jeopardy," Dimon said.

Schneiderman and Biden are still involved in the national settlement negotiations, but Schneiderman has said he is concerned that the other attorneys general will grant the banks immunity.

Harris is weighing whether she would sign on to the settlement if it gave banks immunity, a person familiar with her thinking said.

How large the pot of money going to California homeowners is the biggest consideration in any deal, that person said.

In May, Harris announced the creation of a 25-person task force to look at mortgage fraud, but she recently said that effort could be thrown into limbo by state budget cuts imposed this month.

"The budget cuts were a real challenge, are a real challenge, but the attorney general is literally working every hour, is literally working right now to mitigate those," said Michael Troncoso, senior counsel to Harris.

Schneiderman's office has requested documents from seven investment banks that sold mortgage-backed bonds to investors; two banks that held the mortgages while they were turned into bonds; four companies that insured the bonds; and two law firms that helped negotiate the process, according to people close to the investigation.

Delaware has separately subpoenaed MERS, the company that was responsible for registering the mortgages before they were turned into bonds, the people said.

None of the firms would comment on the investigation.

nathaniel.popper@latimes.com

alejandro.lazo@latimes.com

Copyright © 2011, Los Angeles Times

[vanlose kid]

So, vanclosekid, jackriddler, what do you see in the crystal ball?

Will we have a default on the Euro and the U.S. Dollar to usher in the world currency?

eyeno, here's an answer (maybe) from elsewhere...

data point.

Guest Post: Doing The Global Currency Shuffle
Submitted by Tyler Durden on 07/18/2011 23:07 -0400

Submitted by Brandon Smith of Alt-Market

Doing The Global Currency Shuffle

In mainstream financial circles, the concept of a global currency is often spoken of only with an air of caution. It is approached always in hypothetical terms. It is whispered of as some far off dream; a socio-economic moon landing in the far reaches of fiscal space. Perhaps in 2015, or 2020, or maybe 2050, but certainly never just over the horizon, or right around the corner posing as an innocuous trade asset created over 40 years ago and used only on rare occasions. Unfortunately, the development of a centralized global security representing the creation of a supranational economic body is much closer than many would care to admit…

The most common argument made in the mainstream against a global currency taking shape is the argument that no other currency in the world today has the strength or widespread circulation necessary to replace the dollar as a primary reserve unit. This is true, if, you only look at separate currencies, and not the big picture. The reality is, central banks and the IMF have no intention of replacing one national currency with yet another national currency as the world reserve. What they DO intend to do, however, is replace the dollar with a basket of national currencies linked together and homogenized under a single unit. This has been openly announced by the IMF for months, and Dominique Strauss-Kahn even produced a press release explaining the plan (this was before he apparently watched ‘Maid in Manhattan’ 57 times in a row then allegedly tried to “romance” a cleaning lady, which of course landed him in court):

http://www.imf.org/external/np/speeches/2011/021011.htm

The G20 has also raised discussion of a global currency and a greater oversight role for the IMF on a number of occasions:

http://www.themoscowtimes.com/business/ ... 75364.html

http://www.asianews.it/news-en/Sarkozy- ... 21179.html

A more in-depth look at the IMF plan for the SDR can be seen in a white paper released at the beginning of this year entitled “Enhancing International Monetary Stability – A Role For The SDR?”:

http://www.imf.org/external/np/pp/eng/2011/010711.pdf

A global currency, or at least the foundation for one, already exists in the form of “Special Drawing Rights” (SDR’s), created by the IMF in 1969 as paper collateral used to replace gold as the primary means of international trade between governments and central banks without the need for Forex exchanges. That is to say, the SDR was used as a tool for displacing the strength of gold. Today, the asset has morphed into a trade mechanism representing a basket of currencies, and, a tool to displace the U.S. dollar as the world reserve currency.

Skeptics will argue that the SDR is a “long way” from being ready to unseat the dollar, but, these economists and pundits rarely consider that the financial circumstances of markets today could quickly change tomorrow. Yes, by the standards of this very moment, a move to elevate the SDR to reserve status is impractical, mainly, because the dollar is still clinging to its relative value and widespread use. This will not be the case for much longer.

Over the past month, the “big three” ratings agencies; Moody’s, Fitch, and S&P, have suddenly decided to do the job they should have been doing years ago, and have begun a wild roller coaster ride of credit downgrades for countries with immense Debt-to-GDP ratios. Greece has been junked. Ireland has been junked. Portugal has been hit. Spain has been hit, and is ready for yet another downgrade. Italy is on the chopping block. Finally, even the U.S. is near losing its AAA status as S&P has announced it will decide within the next month whether a downgrade of our rating will soon be necessary.

The most important aspect of the S&P announcement is their statement that the downgrade is NOT about the impending debt ceiling decision, but America’s overall creditworthiness and our lack of ability to maintain our current spending and inflationary habits. That is to say, even if the debt ceiling is raised, as all the Keynesians are clamoring for, we could still lose our top credit rating:

http://market-ticker.org/akcs-www?singlepost=2623832

This storm of downgrades after years of inaction by ratings agencies, in my view, is simply not a coincidence. The fact that Ben Bernanke has admitted that QE3 is on the table as well after the Fed denied any need for more stimulus only two months ago is also highly suspicious (though he tried to take back the statement later after a thorough grilling from Ron Paul):

http://www.businessinsider.com/black-an ... ver-2011-7

The bottom line is that if the ceiling is raised, the Fed is ready to print the dollar into an early grave. If the ceiling is frozen in place, America defaults on its debts and its credit rating evaporates. Either way, the dollar will inevitably lose its world reserve status. Enter the SDR…

What we are witnessing is a careful and deliberate “shuffle” of economic circumstances towards a financial and political environment more receptive to a global currency. Or, indeed, a public so desperate for stability as to have no other choice but a global currency. Here are some of the steps that will likely take place and in certain cases must take place before the SDR is able to fulfill the role the IMF intends. Many of these steps are already being implemented as this is written:

1) The IMF Must Increase Circulation Of SDR’s

The normal restrictions on SDR printing were removed in 2008 by the IMF just as the credit crisis began to take shape under the guise of “producing more liquidity”. SDR’s can now be created in unlimited numbers. Allocations of SDR’s by IMF member countries leaped in 2008 to 2009. America’s holdings of SDR’s grew from 21 billion to 203 billion in the span of a single year:

http://www.imf.org/external/np/fin/tad/extsdr1.aspx

Using the “SDR Department”, the IMF has also been issuing SDR’s to emerging market countries and needy nations off the books, at the expense of the American taxpayer! Rich countries like the U.S. pay into the SDR Department program which is supposedly designed to redistribute “foreign aid” to poorer countries as low interest loans denominated in SDR’s. These loans show up nowhere on our Federal Budget:

http://www.house.gov/jec/imf/sdrdept.pdf

In 2004, the cost of paying into this program was around $5 Billion a year, but this has surely been expanded since. Finding accurate numbers on current U.S. loans through the hidden SDR Department program has proven difficult, to say the least…

The point of all this? The SDR is being widely circulated under various operations, some of them public, some of them not so public.

2) Standardized Exchange Tables For The SDR Must Be Put In Place

The IMF now releases daily conversion and exchange tables to SDR’s for almost every other currency on the planet:

http://www.imf.org/external/np/fin/data/rms_five.aspx

One important aspect of SDR conversion to take note of is that the currencies most highly valued on global forex markets, and the SDR table, are the Bahraini Dinar, and the Kuwaiti Dinar. The Bahraini Dinar is pegged directly to the SDR basket, while the Kuwaiti Dinar is pegged to “an undisclosed basket of currencies” (probably the SDR). The dollar, on the other hand, is relatively weak in comparison when converting to SDR’s, even though most of the IMF’s funding, and thus ability to create SDR’s, comes from the U.S.

Doesn’t seem fair, does it…?

Another important fact to remember is that the IMF admittedly sets the valuation of the SDR using factors outside of natural supply and demand. Meaning, they have the ability to place any value they please on the SDR versus other currencies. It is no surprise then that currencies which tie themselves to the IMF basket and placate IMF desires are rated strong in SDR’s, and perform well in forex markets, while the dollar, which remains (supposedly) independent, is weak versus SDR’s. Today, one dollar is worth 62 cents in SDR’s.

3) The SDR Must Be Made Indispensable To Global Markets

The IMF has openly suggested that the SDR could be used as an intermediary asset in volatile currency markets through what is sometimes referred to as a “Substitution Account”. Meaning, if China, for example, wished to dump their holdings of U.S. dollars because they are devaluing rapidly, they could exchange those dollars for SDR’s instead of directly converting them into another standard currency, like Euros, or Yen. This, according to the IMF, would lessen the direct damage to the Dollar, because the SDR is partly denominated in dollars. Therefore, as China throws out dollars in exchange for SDR’s, the value of the American Greenback goes down, but conversely, the value of America’s SDR holdings will go up.

This sounds like a brilliant strategy to offset sudden currency collapse. However, it is actually a very subversive way to slowly elevate the SDR as a world reserve currency itself, and to replace the dollar entirely, while the IMF plays the hero. It also allows the IMF to slowly “harmonize” all the world’s currencies until there is no distinction in their value. The SDR becomes a de facto reserve unit without officially overthrowing the dollar.

If the U.S. is faced with the nightmare of having its own currency dumped by international central banks, obviously, our Treasury would jump at the chance to support conversion to the SDR to lessen the damage, rather than face the full brunt of losing our reserve status. In fact, the U.S. would have NO CHOICE but to support the SDR and the IMF as the intermediary in all global financial transactions, otherwise, we would face certain long term full spectrum collapse. The only support holding up our financial system would then be our membership in the SDR basket. We would become completely dependent, and the IMF would have total centralized control over our economy.

What the IMF has done is create a potential environment in which any country that does not participate in SDR exchange will be left in the dust by every country that does. They have conjured an artificial economic matrix, where traditional laws of supply and demand no longer apply. A kind of “manipulated evolution” of finance. A chimera economy. They will have the power to determine the value of every currency on the planet arbitrarily using the SDR Substitution Account.

4) China Must Be Given Membership In The SDR

Right now, it appears, the only thing holding the SDR back from its debut as a global currency asset is the inclusion of emerging markets into the IMF basket. Talk of China joining the basket in 2015 has been floating around for the past couple years. However, I believe that the inclusion of the Chinese Yuan may come much faster than this.

New IMF Managing Director, Christine Lagarde, has offered China a greater role in the IMF power structure, including a post for Min Zhu, a Chinese national, as a deputy managing director:

http://www.reuters.com/article/2011/07/ ... JM20110706

Lagarde and members of the G20 have also been pressing hard for the addition of the Yuan and perhaps other currencies into the SDR. A decision on Chinese inclusion may come as soon as this November:

http://www.emergingmarkets.org/Article/ ... usion.html

http://english.capital.gr/News.asp?id=1163175

5) China Must Decouple Completely From The Dollar

One of the points of contention over Chinese inclusion in the SDR is its ties to the U.S. dollar and economy. That is to say, China would first have to decouple from the dollar, before coupling to the SDR. Its sounds like some weird parasitic experiment, and, it is.

China started taking steps to make decoupling from the U.S. and the dollar a reality back in 2005 (which suggests foreknowledge of collapse), when they began issuing Yuan denominated bonds (to circulate Yuan around the world), and, when they began converting away from an export based economy and towards a consumer based economy. The problem is that because of the wider circulation of Yuan, the increase in stimulus, and the Chinese refusal (so far) to allow faster currency appreciation, China is now in the midst of a double digit inflationary crisis (that's REAL inflation folks, not fraudulent Chinese CPI numbers):

http://english.peopledaily.com.cn/90001 ... 32861.html

Because they have deliberately restructured towards a consumer based economy, eventually, China will have to allow the Yuan to increase substantially in value versus other currencies in order to amplify the buying power of its citizens. Otherwise, they will be crushed under the weight of rising prices:

http://www.reuters.com/article/2011/06/ ... V120110626

This cannot be done without a considerable dump of their forex reserves and treasury holdings, most of which are composed of U.S. dollars and securities. This means that in order to counter inflation, and to be included in the SDR, China will have to liquidate a large portion of its U.S. holdings. This would strike the American economy hard.

6) The Dollar Must Be Removed As The World Reserve Currency

All of the above factors are leading towards one obvious conclusion; the end of the dollar as a reserve currency. The IMF will never achieve its goal of complete centralized administration of the global economy without a common supranational currency unit. And, a supranational currency unit cannot exist while the dollar remains in its current position. Thus, for the IMF to succeed, the dollar must be removed.

The expansive debt of the U.S., the endless fiat printing of the Federal Reserve, the Chinese adaptation away from the dollar and towards the SDR, and the quiet spread of the SDR itself, are all leading to this end. This does not mean, though, that the tangible version of the dollar will disappear. The interesting thing about the SDR con game is that many Americans may barely notice the transition of the global economy into IMF hands, because physical dollars will likely remain. We might feel the heartache of a devaluing monetary system, and an extremely weakened economy, but the flow of power will be obscured for a time from those who are unaware. In the end, all currencies will be tied to and completely reliant on the SDR, but our Greenback funny money will still be in our pockets. The issuance of an “SDR note” may come one day (if we allow this farce to continue), but it is not necessary. As long as every currency is required to be pegged to the SDR, the IMF will retain control.

A common assumption is that changes like these take place in some distant future we will never witness, not right under our noses while we sleep. The current evidence suggests, though, that an engineered transference to a highly condensed global economic system is underway right now, and that our country will suffer greatly in the process. To understand the tactically implemented disaster we are about to experience, it is vital to become aware of the intended end result. Just as in understanding any criminal act, it is vital to first understand a criminal’s ultimate motive.

http://www.zerohedge.com/article/guest- ... cy-shuffle

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[JackRiddler]

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Ahem,

From page 42 of this thread, in response to the story that Russia and China would in the future trade with each other directly in their own currencies:

Zerohedge isn't worried too much (I'm not sure who he is, but I see a lot of people citing him, haha):

Much Ado About Nothing: China, Russia Drop Dollar In Bilateral Trade
http://www.zerohedge.com/article/much-a ... eral-trade

Somehow the China Daily story we pointed out yesterday morning that China and Russia are expanding their trading terms and will conduct all bilateral trade exclusively in local currencies, thus dropping the dollar as an intermediary, is only today starting to make the rounds. Alas, this story is nothing but more posturing for several reasons: Bloomberg notes: "China and Russia will drop the U.S. dollar for bilateral trade and use their own currencies for settlement, China Daily reported, citing Chinese Premier Wen Jiabao and Russian Prime Minister Vladimir Putin." Oddly enough this is an identical overture from June 2009: yet very little has happened in terms of actual dollar lock out since then. Note the following story from June 17, 2009: "The leaders of Russia and China agreed to expand use of the ruble and yuan in bilateral trade to lessen dependence on the U.S. dollar a day after they took part in the first summit of the so-called BRIC countries." And judging by the market's reaction, and the dollar resurgence overnight it appears that everyone has read through this as just posturing. Furthermore, keep in mind that Russia was not even a top 10 trading counterparty of China in 2010. If China does the same with any of its top 10 partners then there may be a reason to worry. For now, China is merely testing the waters, and has absolutely no intent on isolating the US, nor making its nearly $3 trillion US FX reserves lose a double digit percentage of their value overnight.

No one wants to do this overnight if they can avoid it. Most "events" are markers or culminations of ongoing developments. I think this is a big signal. It goes beyond what they announced last year. The timing comes as the US crisis looks to intensify, after the G20 slap-down for US dollar policy, and with a round of economy-crushing austerity imminent in the new Congress. As to the volume of trade involved, may I remind that Russia is the number one oil producer, and China the future number one oil consumer? And oh look, they share the world's second-longest border. Obviously there is much room for growth between them. The news splash of two giants coming to a small agreement is significant in a context where more and more of these bilateral currency arrangements are announced.

As the US crisis manifests again, there is incentive to set up an anti-dollar, and it will be if the powers involved can understand their mutual interest and work it out politically. Here's a scenario: BRIC and EU can establish a weighted basket of their own currencies fixed relative to each other (or floating within ranges a la Bretton Woods) while floating freely against the US dollar and commodities. A transaction system would allow for trade accounts among participating nations to be settled via this "Dollar for International Trade." Those accumulating DITs could redeem them in any of the participating currencies. Once the oil producers agreed to also price in DITs (as they already do in euros or other currencies under bilateral agreements), it would be more solid than the dollar. To start it off, participants could convert half of their central bank and sovereign fund holdings of dollars into DITs and use these for trade amongst them. To do that, understand, they do not sell their dollar reserves, which would be like a war. Rather, it's a bookkeeping conversion: One-half of dollar holdings are redenominated as DITs and allowed to float against the US dollar. If the Chinese holdings of 3 trillion US dollars are converted to half dollars and half DITs, they are no longer endangered, because a fall in DIT is a rise in the dollar, and vice-versa. Rather, they have 1.5 trillion DITs to go invest and spend in BRIC and EU, which is already the majority of the world's economy.

That was a scenario, true, and a presidents' meeting of Russia and China is a ways away from an agreement between EU and all of BRIC. But crisis accelerates moves that otherwise take decades of planning. The elements for the above are actually all in place. What you're going to see regardless is more and more of these bilateral and regional agreements doing away with the middleman, or in this case, the middle currency.

As for this being bad, presumably meaning for the US: Whether "we" are headed in a downward spiral is up to us. It's up to us to reject the politics of fear, permanent war, austerity and concentration of all wealth in the fewest and most corrupt hands. A better future is among our choices - and among other things the end of the US dollar as world currency and related to that the end of US empire are vital elements of a better future for the American people, assuming that also involves a much larger transformation.

I say the IMF is just trying to profit from being the superfluous administrator of the inevitable.

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[JackRiddler]

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Now this is pretty brilliant stuff - click the link, damn it!

http://www.peterfrase.com/2010/12/anti- ... posterity/

Anti-Star Trek: A Theory of Posterity

December 14th, 2010 | Published in anti-Star Trek, Art and Literature, Political Economy | 23 Comments


In the process of trying to pull together some thoughts on intellectual property, zero marginal-cost goods, immaterial labor, and the incipient transition to a rentier form of capitalism, I’ve been working out a thought experiment: a possible future society I call anti-Star Trek. Consider this a stab at a theory of posterity.

One of the intriguing things about the world of Star Trek, as Gene Roddenberry presented it in The Next Generation and subsequent series, is that it appears to be, in essence, a communist society. There is no money, everyone has access to whatever resources they need, and no-one is required to work. Liberated from the need to engage in wage labor for survival, people are free to get in spaceships and go flying around the galaxy for edification and adventure. Aliens who still believe in hoarding money and material acquisitions, like the Ferengi, are viewed as barbaric anachronisms.

The technical condition of possibility for this society is comprised of of two basic components. The first is the replicator, a technology that can make instant copies of any object with no input of human labor. The second is an apparently unlimited supply of free energy, due to anti-matter reactions or dilithium crystals or whatever. It is, in sum, a society that has overcome scarcity.

Anti-Star Trek takes these same technological premises: replicators, free energy, and a post-scarcity economy. But it casts them in a different set of social relations. Anti-Star Trek is an attempt to answer the following question:

Given the material abundance made possible by the replicator, how would it be possible to maintain a system based on money, profit, and class power?

Economists like to say that capitalist market economies work optimally when they are used to allocate scarce goods. So how to maintain capitalism in a world where scarcity can be largely overcome? What follows is some steps toward an answer to this question.

Like industrial capitalism, the economy of anti-Star Trek rests on a specific state-enforced regime of property relations. However, the kind of property that is central to anti-Star Trek is not physical but intellectual property, as codified legally in the patent and copyright system. While contemporary defenders of intellectual property like to speak of it as though it is broadly analogous to other kinds of property, it is actually based on a quite different principle. As the (libertarian) economists Michele Boldrin and David K. Levine point out:

Intellectual property law is not about your right to control your copy of your idea – this is a right that . . . does not need a great deal of protection. What intellectual property law is really about is about your right to control my copy of your idea. This is not a right ordinarily or automatically granted to the owners of other types of property. If I produce a cup of coffee, I have the right to choose whether or not to sell it to you or drink it myself. But my property right is not an automatic right both to sell you the cup of coffee and to tell you how to drink it.

This is the quality of intellectual property law that provides an economic foundation for anti-Star Trek: the ability to tell others how to use copies of an idea that you “own”. In order to get access to a replicator, you have to buy one from a company that licenses you the right to use a replicator. (Someone can’t give you a replicator or make one with their replicator, because that would violate their license). What’s more, every time you make something with the replicator, you also need to pay a licensing fee to whoever owns the rights to that particular thing. So if the Captain Jean-Luc Picard of anti-Star Trek wanted “tea, Earl Grey, hot”, he would have to pay the company that has copyrighted the replicator pattern for hot Earl Grey tea. (Presumably some other company owns the rights to cold tea.)

This solves the problem of how to maintain for-profit capitalist enterprise, at least on the surface. Anyone who tries to supply their needs from their replicator without paying the copyright cartels would become an outlaw, like today’s online file-sharers. But if everyone is constantly being forced to pay out money in licensing fees, then they need some way of earning money, and this brings up a new problem. With replicators around, there’s no need for human labor in any kind of physical production. So what kind of jobs would exist in this economy? Here are a few possibilities.

1. The creative class. There will be a need for people to come up with new things to replicate, or new variations on old things, which can then be copyrighted and used as the basis for future licensing revenue. But this is never going to be a very large source of jobs, because the labor required to create a pattern that can be infinitely replicated is orders of magnitude less than the labor required in a physical production process in which the same object is made over and over again. What’s more, we can see in today’s world that lots of people will create and innovate on their own, without being paid for it. The capitalists of anti-Star Trek would probably find it more economical to simply pick through the ranks of unpaid creators, find new ideas that seem promising, and then buy out the creators and turn the idea into the firm’s intellectual property.

2. Lawyers. In a world where the economy is based on intellectual property, companies will constantly be suing each other for alleged infringements of each others’ copyrights and patents. This will provide employment for some significant fraction of the population, but again it’s hard to see this being enough to sustain an entire economy. Particularly because of a theme that will arise again in the next couple of points: just about anything can, in principle, be automated. It’s easy to imagine big intellectual property firms coming up with procedures for mass-filing lawsuits that rely on fewer and fewer human lawyers. On the other hand, perhaps an equilibrium will arise where every individual needs to keep a lawyer on retainer, because they can’t afford the cost of auto-lawyer software but they must still fight off lawsuits from firms attempting to win big damages for alleged infringment.

3. Marketers. As time goes on, the list of possible things you can replicate will only continue to grow, but people’s money to buy licenses–and their time to enjoy the things they replicate–will not grow fast enough to keep up. The biggest threat to any given company’s profits will not be the cost of labor or raw materials–since they don’t need much or any of those–but rather the prospect that the licenses they own will lose out in popularity to those of competitors. So there will be an unending and cut-throat competition to market one company’s intellectual properties as superior to the competition’s: Coke over Pepsi, Ford over Toyota, and so on. This should keep a small army employed in advertizing and marketing. But once again, beware the spectre of automation: advances in data mining, machine learning and artificial intelligence may lessen the amount of human labor required even in these fields.

4. Guard labor. The term “Guard Labor” is used by the economists Bowles and Jayadev to refer to:

The efforts of the monitors, guards, and military personnel . . . directed not toward production, but toward the enforcement of claims arising from exchanges and the pursuit or prevention of unilateral transfers of property ownership.

In other words, guard labor is the labor required in any society with great inequalities of wealth and power, in order to keep the poor and powerless from taking a share back from the rich and powerful. Since the whole point of anti-Star Trek is to maintain such inequalities even when they appear economically superfluous, there will obviously still be a great need for guard labor. And the additional burden of enforcing intellectual property restrictions will increase demand for such labor, since it requires careful monitoring of what was once considered private behavior. Once again, however, automation looms: robot police, anyone?

These, it seems to me, would be the main source of employment in the world of anti-Star Trek. It seems implausible, however, that this would be sufficient–the society would probably be subject to a persistent trend toward under-employment. This is particularly true given that all the sectors except (arguably) the first would be subject to pressures toward labor-saving technological innovation. What’s more, there is also another way for private companies to avoid employing workers for some of these tasks: turn them into activities that people will find pleasurable, and will thus do for free on their own time. Firms like Google are already experimenting with such strategies. The computer scientist Luis von Ahn has specialized in developing “games with a purpose”: applications that present themselves to end users as enjoyable diversions, but which also perform a useful computational task. One of von Ahn’s games asked users to identify objects in photos, and the data was then fed back into a database that was used for searching images. It doesn’t take much imagination to see how this line of research could lead toward the world of Orson Scott Card’s novel Ender’s Game, in which children remotely fight an interstellar war through what they think are video games.

Thus it seems that the main problem confronting the society of anti-Star Trek is the problem of effective demand: that is, how to ensure that people are able to earn enough money to be able to pay the licensing fees on which private profit depends. Of course, this isn’t so different from the problem that confronted industrial capitalism, but it becomes more severe as human labor is increasingly squeezed out of the system, and human beings become superfluous as elements of production, even as they remain necessary as consumers.

Ultimately, even capitalist self-interest will require some redistribution of wealth downward in order to support demand. Society reaches a state in which, as the late André Gorz put it, “the distribution of means of payment must correspond to the volume of wealth socially produced and not to the volume of work performed”. This is particularly true–indeed, it is necessarily true–of a world based on intellectual property rents rather than on value based on labor-time.

But here the class of rentier-capitalists will confront a collective action problem. In principle, it would be possible to sustain the system by taxing the profits of profitable firms and redistributing the money back to consumers–possibly as a no-strings attached guaranteed income, and possibly in return for performing some kind of meaningless make-work. But even if redistribution is desirable from the standpoint of the class as a whole, any individual company or rich person will be tempted to free-ride on the payments of others, and will therefore resist efforts to impose a redistributive tax. Of course, the government could also simply print money to give to the working class, but the resulting inflation would just be an indirect form of redistribution and would also be resisted. Finally, there is the option of funding consumption through consumer indebtedness–but this merely delays the demand crisis rather than resolving it, as residents of the present know all too well.

This all sets the stage for ongoing stagnation and crisis in the world of anti-Star Trek. And then, of course, there are the masses. Would the power of ideology be strong enough to induce people to accept the state of affairs I’ve described? Or would people start to ask why the wealth of knowledge and culture was being enclosed within restrictive laws, when “another world is possible” beyond the regime of artificial scarcity?

Even as certain key commodities appear to become scarce, think of it (for a start) as a metaphor for the Internet and media convergence.

.

[wintler2]

Who Really Owns All Of America's Debt

summary thanks to Global Post..

Hong Kong: $121.9 billion (0.9 percent)
Caribbean banking centers: $148.3 (1 percent)
Taiwan: $153.4 billion (1.1 percent)
Brazil: $211.4 billion (1.5 percent)
Oil exporting countries: $229.8 billion (1.6 percent)
Mutual funds: $300.5 billion (2 percent)
Commercial banks: $301.8 billion (2.1 percent)
State, local and federal retirement funds: $320.9 billion (2.2 percent)
Money market mutual funds: $337.7 billion (2.4 percent)
United Kingdom: $346.5 billion (2.4 percent)
Private pension funds: $504.7 billion (3.5 percent)
State and local governments: $506.1 billion (3.5 percent)
Japan: $912.4 billion (6.4 percent)
U.S. households: $959.4 billion (6.6 percent)
China: $1.16 trillion (8 percent)
The U.S. Treasury: $1.63 trillion (11.3 percent)
Social Security trust fund: $2.67 trillion (19 percent)

So America owes foreigners about $4.5 trillion in debt. But America owes America $9.8 trillion.

Was news to me.

Surely all those patriotic US holders of US debt don't want the crisis to get any worse? Perhaps they see it as just like any other investment, where regulatory debasement & mass sackings are neoliberalisms policy options of choice when investment underperforms their expectations. In which case their fellow citizens need to help them realise their error.

[seemslikeadream]

I am the sister of Lee Farkas
We received an unsolicited letter from the sister of Lee Farkas, the former CEO of Taylor, Bean & Whitaker Mortgage Corp. whom a jury in April found guilty of all 14 counts of conspiracy and bank, wire and securities fraud in connection with his masterminding a scheme to defraud banks and the government out of billions of dollars.

I am the sister of Lee Farkas. Lee asked me to write to you and explain some things that have not been public. First of all, Lee understands that all of this is old news by now but he felt compelled to get the information out. It is certainly up to you to do what you want to do with the information at this time.

Lee is spending the rest of his life in prison. It has been very difficult for me to understand how this is going to help anybody in anyway. Do you think that it is justified for the government to use Lee as a scapegoat for the mortgage crises, figure out that he is not their man and throw him in jail anyway and everyone will forget about him? Should the taxpayers be responsible to foot the bill for Lee Farkas? The taxpayers ultimately have to pay for him living the rest of his life in prison. We are putting an intelligent, feeling human behind bars in prison, locked up and what good is that going to do any of us? This is the governments answer to the mortgage crises blame Lee Farkas for mortgage crises, give Neil Barofsky something to boast about as he does in his letter to Barack Obama. Sigtarp was the lead law enforcement agency in the criminal investigation and prosecution of Lee Farkas. Neil resigned after he “got his man”.

We should be very scared by the tactics of the US Government because I have witnessed them first hand.Does this make interesting news? Probably not, is there another side to all the propaganda that has been written about Lee Farkas?

Here are some words from Lee Farkas.

Due to the Government’s pressing need to prosecute someone for the financial crises of 2008 – 2009, he believes they are using him as a scapegoat.

Prosecutor Stokes comments at the sentencing that Farkas single-handedly caused Colonial Bank’s failure when the FDIC analysis said otherwise.

Colonial Bank’s failure was caused by bad commercial loans that the bank made and had nothing to do with Lee Farkas.

The Government including the shareholders of Colonial Bank, as victims of the crime in this case is ridiculous. Any shareholders of Colonial stock from 2002-2009 were invited to be victims by the Government.

The fact is that Taylor Bean and Whitaker paid over one billion dollars in interest to Colonial from 2007-2009 alone, more thatn the “crime” netted. TBW was actually the only profitable business Colonial had in 2008 and 2009.

The assertion that Lee Farkas was going to steal the TARP money from Colonial is again ridiculous. Every dollar in this crime was recorded as debt fully personally guaranteed by Farkas. There was no attempt to hide the amount that TBW owed to Colonial.

All government witnesses testified that the obligation from TBW to Colonial was fully collateralized. Prosecutors conveniently dismissed all of that testimony and evidence.

The FDIC testified as a victim at sentencing. They stated that their figures discounted the collateral, so that means that the large loss figures were grossly inflated by ignoring the real collateral. The judge would not allow the defense to provide evidence during the trial that Colonial was fully collateralized yet sentenced Farkas based on the “hole” or lack of collateral. The “hole” was actually created when Freddie Mac and Ginnie Mae seized portfolios which were capitalized on. TBW’s balance sheet at over a billion dollars and ran.

After the resignation of Lee Farkas from TBW,

Troutman Sanders from Atlanta and Navigant Consulting from Chicago looted TBW of more than $50 million in fees and sold greater than or more than another billion dollars of assets for pennies on the dollar. This created even more unjustified fees and then almost a 2 billion “hole” in TBW’s balance sheet. The Government took the oney from TBW and prosecuted Lee Farkas for it and sentence him to prison for the rest of his life and took every dime that he had.

Lee Farkas was not remorseful simply because he believes that he hasn’t committed any crime.

So there you have it, as Paul Harvey used to say, the rest of the story.

~ Terri Huber

There is no question the American justice system is a pathetic excuse for law that is woefully uncreative and heavily biased toward politically-connected plutocrats. We believe wholeheartedly that far more creative punishments should be levied against financial crooks than simply throwing them in jail at the tax payers expense.

Federal prosecutors are seeking the statutory maximum sentence of 385 years for Farkas.

It's also clear that Mrs. Huber has been submitting articles to a numerous publications and people in her own efforts to affect the judicial process and clear her brother's name. We certainly don't begrudge her efforts.

Terri Huber's letter to the Honorable Leonie M Brinkema

Dear readers, do you believe that the government used Lee as a scapegoat for the mortgage crises? Do you believe that his peronsal letters are of any consequence given the charges levied against him? Is it possible that Lee Farkas is completely innocent as he claims?

[JackRiddler]

http://counterpunch.org/prashad07292011.html

Weekend Edition
July 29 - 31, 2011

An Economic Draft
The Costs of War

By VIJAY PRASHAD

"The impact of war is self-evident, since economically it is exactly the same as if the nation were to drop a part of its capital into the ocean"
-- Karl Marx, Grundrisse, 1857-58.


Reports come fast and furiously from the Pew Research Center and the National Urban League. The news is bad. The Pew report shows that between 2005 and 2009 every "racial" group lost wealth, but the losses were largest amongst Hispanics and Blacks. Inflation-adjusted median wealth of white households fell by 16%, but Hispanic households lost 66% and Black households lost 53%. As of 2009, the typical white household had wealth (assets minus debts) worth $113,149, which Black households only had $5,677 and Hispanic households $6,325. The myth of the post-racial society should be buried under this data.

The most dazzling fact is not this decline. It is what is to come. The National Urban League Policy Institute's latest study finds that unemployment for Blacks with four-year college degrees has tripled since 1992, and overall unemployment is near 1982 levels, namely 20%. Such numbers have not been seen since the Depression. Langston Hughes wrote that the 1930s "brought everybody down a peg or two," but that those on the darker side of the Color Curtain had not much to lose. That is no longer the case. The thirty years since 1965 provided a boost to the Black and Latino middle class, largely thanks to employment at the various levels of government (and salutations to the American Federation of State, County and Municipal Employees for its battles to hold public sector wages). With unemployment on the rise, it will be difficult to build back those assets.

The shuttering of the U. S. industrial sector and the attack on public sector jobs hit the Black and Latino workers very hard. Rather than tax the rich and use these public funds to build up a different kind of economy (such as to make public rail networks), the Clinton administration harshly developed a massive prison archipelago and hacked at the modest social welfare system in the country. In the name of balanced budgets and supply side economics, a generation of young people of color lost access to decent education. It is difficult to try and get a job if your resume includes a stint in prison, often for non-violent economic crimes (such as employment in the drug economy, one of the few places to get a job in neighborhoods of the disposable class). The other place for employment, of course, was the military.

The proximate reason for this catastrophic loss of wealth is the housing crisis, and the racial impact of the foreclosure epidemic. The Center for Responsible Lending shows that 8% of Blacks who bought homes between 2005 and 2008 lost them to foreclosure, whereas only 4.5% of whites who bought in the same period lost their homes. A look back to the 1990s confirms these statistics: Blacks and Latinos are hit disproportionately hard by foreclosure.

The tendency is to blame all this on the Economy. But the "economy" does not exist outside our social relations, and the public policies enacted by governments to shape those relations. The United States government handed the keys of the treasury to large corporations (General Electric pays no taxes, and indeed won a rebate last year!). Policy-making benefits large corporations and the paper-thin class that controls them. The Supreme Court adjudged these corporations as individuals, so that they could exert their power through the constitutional protections of free speech.

Acknowledging this obscenity, Ralph Nader wrote in the Chicago Tribune (July 20) that big firms should be judged based on their "corporate patriotism." They like to take tax breaks and be rescued by marines when it suits them, but they are unwilling to invest their untaxed profits to build up the productive capacity in the United States. Corporations, Nader wrote, "receive all the benefits of American corporate personhood and avoid all the expectations of patriotic behavior and the responsibilities that go along with those privileges and immunities." Hand-over-fist they make money in the financial casinos and by defrauding workers across the world. Meanwhile, they are party to the view that the U. S. needs to balance its budget and cut "entitlements" so that the debt can be managed – but without their own positive contribution to that $14.46 trillion hole.

A few years ago, some progressives in Congress suggested that the government bring back the military draft. If the children of the well-heeled and the middle class had to go to war, sentiment for military adventures might decline. The feint went nowhere. There might not be a military draft for these wars in Droneland, but there certainly is an economic draft. The total cost of the adventures is now inching along to $2 trillion (the total cost of the security apparatus is going to go over $8 trillion as the year winds down). Congress' progressives argued that the population does not have a palpable sense of the war's cost, and that the draft would raise awareness. It does not help that the administration prevented pictures of those killed in action to be broadcast. The numbers of war dead are reduced due to the better body armor, but the numbers of those who are grievously wounded is greater now than it was in other wars (one authority suggests that in Iraq alone, the war wounded is roughly 100,000). The bulk of the population has been protected from this harm that affects the very same communities where foreclosure stalks the land.

There is no military draft, but there is an economic draft. The current economic collapse has reduced those who had built up some assets, on whatever fictitious foundation, to the level of bare life. The drain of wealth to the war economy is a massive regressive taxation on the population: the rich who pay a much smaller proportion of their taxes (and nothing on capital gains, which is also income) and the corporations (who pay little to no taxes) are insulated from the costs of war, and indeed some of them benefit from the windfalls of war. To balance the budget in the context of the economic draft means to devastate whatever social spending remains: education, healthcare, senior care, care for the indigent, resources for the environment, capacity for the state regulators and so on. President Obama seems to have picked Al Gore's pocket and stolen the key to the lock-box that holds Social Security, Medicare and Medicaid. These are all victims of the war economy.

The spinal cord of the nation rests in Springfield, MA. Here, on July 18, the City Council passed two ordinances that try to inoculate this city, which has the largest number of foreclosures in Massachusetts. The first ordinance denies banks the right to foreclose on a home unless they have participated in a city-facilitated mediation, and earn a "good faith participation" certificate from the city. Every day that the banks fail to go to mediation earns them a fine of up to $300. The second ordinance requires banks to pay $10,000 in a cash bond if they wish to foreclose on a property. Councilman Amaad Rivera and the Springfield No One Leaves/Nadie Se Mude Coalition proposed these ordinances. "The Springfield city council has given residents real, tangible tools to fight back against the damage banks have done to our city and our country as a whole," said Sellou Diaite of the coalition. The Council and the Coalition have put down a marker against the war economy, and against the economic draft.

The message from this corner of America is simple: no more bombing houses in Droneland, no more foreclosing houses in America.


Vijay Prashad is the George and Martha Kellner Chair of South Asian History and Director of International Studies at Trinity College, Hartford, CT His most recent book, The Darker Nations: A People's History of the Third World, won the Muzaffar Ahmad Book Prize for 2009. The Swedish and French editions are just out. He can be reached at: vijay.prashad@trincoll.edu

Vijay will be speaking in Anaheim on July 30th at Soul of a Nation & the Audacity of Nope session sponsored by the Progressive Caucus and the Veterans Caucus.

[JackRiddler]

http://counterpunch.org/hudson07262011.html

July 26, 2011

Under Cover of "Crisis"
Obama's Ambush on Entitlements

By MICHAEL HUDSON


You know that the debt face-off is as staged as melodramatically as a World Wrestling Federation exhibition when Obama makes the blatantly empty threat that if Congress does not “tackle the tough challenges of entitlement and tax reform,” there won’t be money to pay Social Security checks next month. In his debt speech last night (July 25), he threatened that if “we default, we would not have enough money to pay all of our bills – bills that include monthly Social Security checks, veterans’ benefits, and the government contracts we’ve signed with thousands of businesses.”

This is not remotely true. But it has become the scare theme for over a week now, ever since the President used almost the same words in his interview with CBS Evening News anchor Scott Pelley.

Of course the government will have enough money to pay the monthly Social Security checks. The Social Security administration has its own savings – in Treasury bills. I realize that lawyers (such as . Obama and indeed most American presidents) rarely understand economics. But this is a legal issue. Obama certainly must know that Social Security is solvent, with liquid securities to pay for many decades to come. Yet . Obama has put Social Security at the very top of his hit list.

The most reasonable explanation for his empty threat is that he is trying to panic the elderly into hoping that somehow the budget deal he seems to have up his sleeve can save them. The reality, of course, is that they are being led to economic slaughter. (And not a word of correction reminding the President of financial reality from Rubinomics Treasury Secretary Geithner, neoliberal Fed Chairman Bernanke or anyone else in the Wall Street Democrat administration, formerly known as the Democratic Leadership Council.)

It is a con. Obama has come to bury Social Security, Medicare and Medicaid, not to save but kill them. This was clear from the outset of his administration when he appointed his Deficit Reduction Commission, headed by avowed enemies of Social Security Republican Senator Alan Simpson of Wyoming, and President Clinton’s Rubinomics chief of staff Erskine Bowles. Obama’s more recent choice of Republicans and Blue Dog Democrats to be delegated by Congress to rewrite the tax code on a bipartisan manner – so that it cannot be challenged – is a ploy to pass a tax “reform” that democratically elected representatives never could be expected to do.

The devil is always in the details. And Wall Street lobbyists always have such details tucked away in their briefcases to put in the hands of their favored congressmen and dedicated senators. And in this case they have the President, who has taken their advice as to whom to appoint as his cabinet to act as factotums to capture the government on their behalf and create “socialism for the rich.”

There is no such thing, of course. When governments are run by the rich, it is called oligarchy. Plato’s dialogues made clear that rather than viewing societies as democracies or oligarchies, it was best to view them in motion. Democracies tended to polarize economically (mainly between creditors and debtors) into oligarchies. These in turn tended to make themselves into hereditary aristocracies. In time, leading families would fight among themselves, and one group (such as Kleisthenes in Athens in 507 BC) would “take the people into his party” and create a democracy. And so the eternal political triangle would go on.

This is what is happening today. Instead of enjoying what the Progressive Era anticipated – an evolution into socialism, with government providing basic infrastructure and other needs on a subsidized basis – we are seeing a lapse back into neo-feudalism. The difference, of course, is that this time around society is not controlled by military grabbers of the land. Finance today achieves what military force did in times past. Instead of being tied to the land as under feudalism, families today may live wherever they want – as long as they take on a lifetime of debt to pay the mortgage on whatever home they buy.

And instead of society paying land rent and tribute to conquerors, we pay the bankers. Just as access to the land was a precondition for families to feed themselves under feudalism, one needs access to credit, to water, medical care, pensions or Social Security and other basic needs today – and must pay interest, fees and monopoly rent to the neo-feudal oligarchy that is now making its deft move from the United States to Ireland and Greece.

The U.S. Government has spent $13 trillion in financial bailouts since Lehman Bros. failed in September 2008. But . Obama warns that thirty years from now, the Social Security fund may run a $1 trillion deficit. It is to ward it off that he urges dismantling the plans for such payments now.

It seems that the $13 trillion used up all the money the government really has. The banks and Wall Street firms have taken the money and run. There is not enough to pay for Social Security, Medicare or other social spending that the Blue Dog Democrats and Republicans now plan to cut.

Not right away. The plan will be to “paper over” the current crisis by delegating the plans to a “Deficit Reduction Commission #2,” appointed from Congressional members.

Finally, we have “Change we can believe in.” Real change is always surprising, after all.

The faux crisis

Usually a crisis is needed to create a vacuum into which these toxic details are fed. Wall Street does not like real crises, of course – except to make quick computer-driven speculative gains on the usual fibrillation of today’s zigzagging markets. But when it comes to serious money, the illusion of a crisis is preferred, staged melodramatically to wring the greatest degree of emotion out of the audience much like a good film editor edits a montage sequence. Will the speeding train run over the girl strapped to the tracks? Will she escape in time?

The train is debt; the girl is supposed to be the American economy. But she turns out to be Wall Street in disguise. The exercise turns out to be a not-so-divine comedy. Obama offers a plan that looks very Republican. But the Republicans say no. There is an illusion of a real fight. They say Obama is socialist.

Democrats express shock at the giveaway being threatened. Many say, “Where is the real Obama?” But it seems that the real Obama turns out to be a Republican Wall Street imposter in Democratic clothing. That is what the Democratic Leadership Committee basically is: Wall Street Democrats.
This is not as much of an oxymoron as it may sound. There is a reason why today’s post-Clinton Democrats are the natural party to undo what FDR and earlier Democrats stood for. A Democratic Senate never would stand for such giveaways to Wall Street and double-cross of their urban constituency if a Republican president would propose what . Obama is putting before them.
Here’s what the next Republican presidential candidate can say: “You know that whatever we Republicans want, Obama will support us. If you don’t want a Republican policy, they you should vote for me for president. Because a Democratic Congress will oppose a Republican policy if we propose it. But if. Obama proposes it, congress will be de-toothed, and cannot resist.”
It’s the same story in Britain, where the Labour Party is called upon to finish up the job that the Conservatives start but need New Labour to subdue popular opposition to privatizing the railroads and a Public/Private Partnership financial giveaway for the London tube line. And it’s the same story in France, where a Socialist government is supporting the privatization program dictated by the European Central Bank.

Round up the usual fallacies

Whenever one finds government officials and the media repeating an economic error as an incessant mantra, there always is a special interest at work. The financial sector in particular seeks to wrong-foot voters into believing that the economy will be plunged into crisis of Wall Street does not get its way – usually by freeing it from taxes and deregulating it.
Obama’s first fallacy is that the government budget is like a family budget. But families can’t write IOUs and have the rest of the world treat it as money. Only governments can do that. It is a privilege that the banks would now like to obtain – the ability to create credit freely on their computer keyboards, and charge interest for what is almost free, and what governments can indeed create for free.

“Now, every family knows that a little credit card debt is manageable. But if we stay on the current path, our growing debt could cost us jobs and do serious damage to the economy.” But economies need government money to grow – and this money is provided by running federal budget deficits. This has been the essence of Keynesian counter-cyclical spending for more than half a century. Until the present, it was Democratic Party policy.

It’s true that Pres. Clinton ran a budget surplus. The economy survived by the commercial banking system supplying the credit needed to grow – at interest. To force the economy back into this reliance on Wall Street rather than on government, the government needs to stop running budget deficits. The economy will then have a choice: to shrink sharply, or to turn almost all the economic surplus over to banks as economic rent on their credit-creation privilege.

Obama also pretends that credit ratings agencies are able to act as mascots for their clients, the large financial underwriters, by making the entire economy pay even higher interest rates on its credit cards and banks. “For the first time in history,” . Obama dissembled, “our country’s Triple A credit rating would be downgraded, leaving investors around the world to wonder whether the United States is still a good bet. Interest rates would skyrocket on credit cards, mortgages, and car loans, which amounts to a huge tax hike on the American people.”

The reality is that running a budget surplus would increase interest rates, by forcing the economy into captivity to the banking system. The Obama administration is now deep into its Orwellian rhetorical phase.

During Obama’s speech I could not help feeling that I had heard it all before. And then I remembered. Back in 2008, Treasury Secretary Henry Paulson sought to counter Sheila Bair’s argument that all FDIC-insured depositors would be able to ride out the September crisis, with only the reckless gamblers losing the gains they hoped to make on their free credit. “If the financial system were allowed to collapse,” he warned in his Reagan Library speech, “it is the American people who would pay the price. This never has been just about the banks; it has always been about continued prosperity and opportunity for all Americans.”

But of course, it is all about the banks. Wall Street knows that to get sufficient Congressional votes to roll back the New Deal, Social Security, Medicare and Medicaid, a Democratic president needs to be in office. A Democratic Congress would block any Republican president trying to make the kind of cuts that Obama is sponsoring. But Congressional Democratic opposition is paralyzed when President Obama himself – the liberal president par excellence, America’s Tony Blair – acts as cheerleader for cutting back entitlements and other social spending.

So just as the City of London backed Britain’s Labour Party in taking over when the Conservative Party could not take such radical steps as privatizing the railroads and London tube system, and just as Iceland’s Social Democrats sought to plunge the economy into debt peonage to Britain and Holland, and the Greek Socialist Party is leading the fight for privatization and bank bailouts, so in the United States the Democratic Party is to deliver its constituency – urban labor, especially the racial minorities and the poor who are most injured by Pres. Obama’s austerity plan – to Wall Street.

So Obama is doing what any good demagogue does: delivering his constituency to his campaign contributors on Wall Street. Yves Smith has aptly called it Obama’s “Nixon goes to China moment in reverse.”

The Republicans help by refraining from putting forth a credible alternative presidential candidate. The effect is to give Obama room to move far to the right wing of the political spectrum. Far enough so that it is his own Democrats who are most intent on scaling back Social Security, not the Republicans.

This is done most easily under pressure of near panic. This worked after September 1008 with TARP, after all. The Wall Street bailout melodrama should be viewed as a dress rehearsal for today’s debt-ceiling non-crisis.


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

[JackRiddler]

.

Excellent new thread on the Top 1% started by Wombaticus Rex. Stealing some bits here, good discussion at link.

some interesting facts and anaecdotes, otherwise no major news here

viewtopic.php?f=8&t=32750

An Investment Manager's View on the Top 1%
July 2011

This article was written by an investment manager who works with very wealthy clients. I knew him from decades ago, but he recently e-mailed me with some concerns he had about what was happening with the economy. What he had to say was informative enough that I asked if he might fashion what he had told me into a document for the Who Rules America Web site. He agreed to do so, but only on the condition that the document be anonymous, because he does not want to jeopardize his relationships with his clients or other investment professionals.
— G. William Domhoff

I sit in an interesting chair in the financial services industry. Our clients largely fall into the top 1%, have a net worth of $5,000,000 or above, and if working make over $300,000 per year. My observations on the sources of their wealth and concerns come from my professional and social activities within this group.

Work by various economists and tax experts make it indisputable that the top 1% controls a widely disproportionate share of the income and wealth in the United States. When does one enter that top 1%? (I'll use "k" for 1,000 and "M" for 1,000,000 as we usually do when communicating with clients or discussing money; thousands and millions take too much time to say.) Available data isn't exact. but a family enters the top 1% or so today with somewhere around $300k to $400k in pre-tax income and over $1.2M in net worth. Compared to the average American family with a pre-tax income in the mid-$50k range and net worth around $120k, this probably seems like a lot of money. But, there are big differences within that top 1%, with the wealth distribution highly skewed towards the top 0.1%.

The Lower Half of the Top 1%

The 99th to 99.5th percentiles largely include physicians, attorneys, upper middle management, and small business people who have done well. Everyone's tax situation is, of course, a little different. On earned income in this group, we can figure somewhere around 25% to 30% of total pre-tax income will go to Federal, State, and Social Security taxes, leaving them with around $250k to $300k post tax. This group makes extensive use of 401-k's, SEP-IRA's, Defined Benefit Plans, and other retirement vehicles, which defer taxes until distribution during retirement. Typical would be yearly contributions in the $50k to $100k range, leaving our elite working group with yearly cash flows of $175k to $250k after taxes, or about $15k to $20k per month.

Until recently, most studies just broke out the top 1% as a group. Data on net worth distributions within the top 1% indicate that one enters the top 0.5% with about $1.8M, the top 0.25% with $3.1M, the top 0.10% with $5.5M and the top 0.01% with $24.4M. Wealth distribution is highly skewed towards the top 0.01%, increasing the overall average for this group. The net worth for those in the lower half of the top 1% is usually achieved after decades of education, hard work, saving and investing as a professional or small business person. While an after-tax income of $175k to $250k and net worth in the $1.2M to $1.8M range may seem like a lot of money to most Americans, it doesn't really buy freedom from financial worry or access to the true corridors of power and money. That doesn't become frequent until we reach the top 0.1%.

I've had many discussions in the last few years with clients with "only" $5M or under in assets, those in the 99th to 99.9th percentiles, as to whether they have enough money to retire or stay retired. That may sound strange to the 99% not in this group but generally accepted "safe" retirement distribution rates for a 30 year period are in the 3-5% range with 4% as the current industry standard. Assuming that the lower end of the top 1% has, say, $1.2M in investment assets, their retirement income will be about $50k per year plus maybe $30k-$40k from Social Security, so let's say $90k per year pre-tax and $75-$80k post-tax if they wish to plan for 30 years of withdrawals. For those with $1.8M in retirement assets, that rises to around $120-150k pretax per year and around $100k after tax. If someone retires with $5M today, roughly the beginning rung for entry into the top 0.1%, they can reasonably expect an income of $240k pretax and around $190k post tax, including Social Security.

While income and lifestyle are all relative, an after-tax income between $6.6k and $8.3k per month today will hardly buy the fantasy lifestyles that Americans see on TV and would consider "rich". In many areas in California or the East Coast, this positions one squarely in the hard working upper-middle class, and strict budgeting will be essential. An income of $190k post tax or $15.8k per month will certainly buy a nice lifestyle but is far from rich. And, for those folks who made enough to accumulate this much wealth during their working years, the reduction in income and lifestyle during retirement can be stressful. Plus, watching retirement accounts deplete over time isn't fun, not to mention the ever-fluctuating value of these accounts and the desire of many to leave a substantial inheritance. Our poor lower half of the top 1% lives well but has some financial worries.

Since the majority of those in this group actually earned their money from professions and smaller businesses, they generally don't participate in the benefits big money enjoys. Those in the 99th to 99.5th percentile lack access to power. For example, most physicians today are having their incomes reduced by HMO's, PPO's and cost controls from Medicare and insurance companies; the legal profession is suffering from excess capacity, declining demand and global outsourcing; successful small businesses struggle with increasing regulation and taxation. I speak daily with these relative winners in the economic hierarchy and many express frustration.

Unlike those in the lower half of the top 1%, those in the top half and, particularly, top 0.1%, can often borrow for almost nothing, keep profits and production overseas, hold personal assets in tax havens, ride out down markets and economies, and influence legislation in the U.S. They have access to the very best in accounting firms, tax and other attorneys, numerous consultants, private wealth managers, a network of other wealthy and powerful friends, lucrative business opportunities, and many other benefits. Most of those in the bottom half of the top 1% lack power and global flexibility and are essentially well-compensated workhorses for the top 0.5%, just like the bottom 99%. In my view, the American dream of striking it rich is merely a well-marketed fantasy that keeps the bottom 99.5% hoping for better and prevents social and political instability. The odds of getting into that top 0.5% are very slim and the door is kept firmly shut by those within it.

The Upper Half of the Top 1%

Membership in this elite group is likely to come from being involved in some aspect of the financial services or banking industry, real estate development involved with those industries, or government contracting. Some hard working and clever physicians and attorneys can acquire as much as $15M-$20M before retirement but they are rare. Those in the top 0.5% have incomes over $500k if working and a net worth over $1.8M if retired. The higher we go up into the top 0.5% the more likely it is that their wealth is in some way tied to the investment industry and borrowed money than from personally selling goods or services or labor as do most in the bottom 99.5%. They are much more likely to have built their net worth from stock options and capital gains in stocks and real estate and private business sales, not from income which is taxed at a much higher rate. These opportunities are largely unavailable to the bottom 99.5%.

Recently, I spoke with a younger client who retired from a major investment bank in her early thirties, net worth around $8M. We can estimate that she had to earn somewhere around twice that, or $14M-$16M, in order to keep $8M after taxes and live well along the way, an impressive accomplishment by such an early age. Since I knew she held a critical view of investment banking, I asked if her colleagues talked about or understood how much damage was created in the broader economy from their activities. Her answer was that no one talks about it in public but almost all understood and were unbelievably cynical, hoping to exit the system when they became rich enough.

Folks in the top 0.1% come from many backgrounds but it's infrequent to meet one whose wealth wasn't acquired through direct or indirect participation in the financial and banking industries. One of our clients, net worth in the $60M range, built a small company and was acquired with stock from a multi-national. Stock is often called a "paper" asset. Another client, CEO of a medium-cap tech company, retired with a net worth in the $70M range. The bulk of any CEO's wealth comes from stock, not income, and incomes are also very high. Last year, the average S&P 500 CEO made $9M in all forms of compensation. One client runs a division of a major international investment bank, net worth in the $30M range and most of the profits from his division flow directly or indirectly from the public sector, the taxpayer. Another client with a net worth in the $10M range is the ex-wife of a managing director of a major investment bank, while another was able to amass $12M after taxes by her early thirties from stock options as a high level programmer in a successful IT company. The picture is clear; entry into the top 0.5% and, particularly, the top 0.1% is usually the result of some association with the financial industry and its creations. I find it questionable as to whether the majority in this group actually adds value or simply diverts value from the US economy and business into its pockets and the pockets of the uber-wealthy who hire them. They are, of course, doing nothing illegal.

I think it's important to emphasize one of the dangers of wealth concentration: irresponsibility about the wider economic consequences of their actions by those at the top. Wall Street created the investment products that produced gross economic imbalances and the 2008 credit crisis. It wasn't the hard-working 99.5%. Average people could only destroy themselves financially, not the economic system. There's plenty of blame to go around, but the collapse was primarily due to the failure of complex mortgage derivatives, CDS credit swaps, cheap Fed money, lax regulation, compromised ratings agencies, government involvement in the mortgage market, the end of the Glass-Steagall Act in 1999, and insufficient bank capital. Only Wall Street could put the economy at risk and it had an excellent reason to do so: profit. It made huge profits in the build-up to the credit crisis and huge profits when it sold itself as "too big to fail" and received massive government and Federal Reserve bailouts. Most of the serious economic damage the U.S. is struggling with today was done by the top 0.1% and they benefited greatly from it.

Not surprisingly, Wall Street and the top of corporate America are doing extremely well as of June 2011. For example, in Q1 of 2011, America's top corporations reported 31% profit growth and a 31% reduction in taxes, the latter due to profit outsourcing to low tax rate countries. Somewhere around 40% of the profits in the S&P 500 come from overseas and stay overseas, with about half of these 500 top corporations having their headquarters in tax havens. If the corporations don't repatriate their profits, they pay no U.S. taxes. The year 2010 was a record year for compensation on Wall Street, while corporate CEO compensation rose by over 30%, most Americans struggled. In 2010 a dozen major companies, including GE, Verizon, Boeing, Wells Fargo, and Fed Ex paid US tax rates between -0.7% and -9.2%. Production, employment, profits, and taxes have all been outsourced. Major U.S. corporations are currently lobbying to have another "tax-repatriation" window like that in 2004 where they can bring back corporate profits at a 5.25% tax rate versus the usual 35% US corporate tax rate. Ordinary working citizens with the lowest incomes are taxed at 10%.

I could go on and on, but the bottom line is this: A highly complex and largely discrete set of laws and exemptions from laws has been put in place by those in the uppermost reaches of the U.S. financial system. It allows them to protect and increase their wealth and significantly affect the U.S. political and legislative processes. They have real power and real wealth. Ordinary citizens in the bottom 99.9% are largely not aware of these systems, do not understand how they work, are unlikely to participate in them, and have little likelihood of entering the top 0.5%, much less the top 0.1%. Moreover, those at the very top have no incentive whatsoever for revealing or changing the rules. I am not optimistic.

bks then brings up Domhoff's commitment to the fallacy of "anti-conspiracism." Reply:

bks, absolutely right about Domhoff. He's a big disappointment for having claimed the mantle of Mills, writing books like The Power Elite 2000 (or some similar title; I read it, don't have it at hand) and the like. What killed me about the latter is that he's playing Son of Mills but the Pentagon was barely in the index, and the CIA left out altogether! He had a line about how the military's insignificant since it only represents 3% (at the time) of the total GDP pie, a willful blindness in so many ways, ignoring all the military spending labeled as something else, ignoring the central role in shaping policy and society, ignoring how it provides (until now) indispensable enforcement toward running the goddamn world, ignoring the hyperprofit potentials it allows, of course ignoring the incredible leverage that secret power allows over the public parts of the government... it's kind of like measuring the physical weight of someone's sex drive (balls/ovaries and half the brain, let's say) and declaring that it can't be determinative of very much because it's only a small percentage of one's total body weight.

But anyway, that's not Domhoff talking, it's our financial consultant, and the nice thing about a well-respected scholar like Domhoff giving it to us (instead of Alex Jones, say) is that at least we know it's a real person's testimony.

Other replies:

"If a drought strikes them, animals perish - man builds irrigation canals; if a flood strikes them, animals perish - man builds dams; if a carnivorous pack attacks them, animals perish - man writes the Constitution of the United States." – Ayn Rand

In a world of competition life's portrayed (key word) as a contest where we're forced to live by making gains at others expense,

man's abilities and understanding compared to the natural world is orders of magnitude so great that they could be characterized as "god-like" imo. in civilization, the idea is never to live and relate to each other like animals.

A deconditioned consciousness of mutual respect is the only way to cure this cosmetic disease.

or we could obey the Constitution. imo, doing so would be the realization of something like the above statement...

Fine until your last line, I'd say. Where do people get such an essentially religious idea?

In the 1770s, the top 0.1% of the time looked West and saw a seemingly endless continent that they could conquer from the natives with relatively little trouble. The main obstacle was a pesky notional Line of Demarcation that the Crown and Parliament had drawn on some map back in London, restricting the colonists to the coastal areas east of the Appalachians. Then they looked East and saw London was 6,000 miles away. That's why your Founders declared Independence and your Federalists (an essentially separate group) later framed a new Constitution. Lucky for us there was enough anti-Federalist upheaval (among the white men who were the only acknowledged full humans of the time) to at least force a Bill of Rights. All the best things about this country have come about thanks to those who struggled against the original vision of your Constitution, forcing amendments and building institutions that the Federalists had not imagined.

someone should ask the author of the OP what those top .1% are doing with their children?

Sending them to Harvard, Yale, etc. Finding one or two to run the show and giving the rest sinecure jobs in their own foundations, or capital for ventures if so inclined. Just as the Corleone goal is to shift the wealth secured from crime into legal pursuits, the top 0.1% seek to shift the wealth secured from legalized plunders into the non-profit entities that shape society and an impenetrable, largely off-shore structure of holding companies holding holding companies. The robber baron seeks to become (or to be succeeded by) something known as a philanthropist. The old money in this country has institutionalized itself to such a degree that some of the best known family empires are as rich as ever, but the individuals no longer appear on these Forbes lists of billionaires and the like. So it has been until now, with many of the super-rich understanding the need to restore some of the society's ability to sustain the damage they do, sponsoring universities, charities, churches and other institutions, albeit always with a view to reproducing ideologies compatible with their continued existence. Now, with capitalist civilization facing an end stage that may extend for another century or see global production collapses tomorrow, more of the top .5% than ever are seeking simply to become invisible: to render their wealth untraceable, to establish themselves in relatively discreet high-security enclaves, to exert economic control over nations at a remove, to have their names unknown to the world.

The figure that says the top 1% make 25% of the income and hold 40% of the wealth is a substantial underestimation, by the way. Most of the wealth held by the 99% or even 99.5% is in the form of primary housing. That represents security, but it's not disposable. It's not investable. It's not power. Even a high-earning professional with a bit of wealth and a fancy home (and children's college bills) cannot alone make the development decisions for his or her town as a whole. That person by himself doesn't get to place power plants or raze neighborhoods for an office park, or set up think tanks on the Potomac to directly influence Congress, or pay a billion dollars straight out of his pocket to establish foundations that attack Social Security (like Petersen) or assault the teachers union (like Gates).

Furthermore, large-scale capital never acts alone; it attracts borrowed capital and holds the mode of production through proxies of privileged stock and holding companies. If I own a majority share of voting shares in Company X at $4 million in stock (which counts as my personal wealth), that may give me access and control to company assets of $40 million and similar totals in company credit and cash flow. Also, I get to use the company jet, managerial retreats, etc. Let's call that a part of my indirect wealth, my corporatized. (In addition, there is extralegal wealth for example, drug money that goes altogether unaccounted, but let's leave that out for the moment.) Subtract housing and add the indirect wealth, and you probably find the top 1% holding 90% or more of the investable, active wealth: ownership of the means of production and the natural wealth from which everything flows.

how many are they having? Are they seeing the kids trained in the same fields or just letting the kids go do whatever they want?

They're having lots. Generally, just a couple get to captain the main ship, while the rest can pursue their dreams individually in chosen professions or as philanthropists, artists, or dumb leisure-society layabouts.

When the wealth is all trickling up, and those at the top are having children, the same old problems of aristocracy would come up wouldn't they?

Absolutely have, since long ago.

I think that's worth reposting on this forum at least once every 2 weeks, myself. As I often remind myself when I'm on a WOO kick for too long: "Class warfare, class warfare, class warfare."

Thank you for this excellent article, WR. You know of course I will be cross-posting it, with thanks.

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[JackRiddler]

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New and relevant thread started by Jeff on the big S&P downgrade of US debt, despite the timely resolution by Obama's capitulation to the Republicans in the World Wrestling Federation show about the debt ceiling. (Kayfabe!)

viewtopic.php?f=8&t=32771

Stock market had 5% crash on Friday, now the weekend preparations for the real sell-off next week.

Re: S&P Cuts US Credit Rating For First Time In Modern History

AUGUST 5, 2011, 8:22 P.M. ET

NEW YORK (Dow Jones)--Standard & Poor's took the unprecedented step of downgrading the U.S. government's "AAA" sovereign credit rating Friday in a move that could send shock waves through global financial markets and potentially undermine world economic growth.

In a press release, S&P, cut its top-notch long-term credit rating for the U.S. Treasury's debt to AA+ with a negative outlook. It is the first time in modern history that one of the three main ratings firms has stripped the U.S. of its coveted AAA rating.

S&P warned last month that if the U.S. government didn't approve a credible medium-term plan to shrink its fiscal shortfall, it would downgrade the rating even if Congress approved a debt deal that raised the Treasury's borrowing limit. On Tuesday, just in time for a deadline to avoid default, U.S. lawmakers passed a bill increasing the U.S. debt ceiling by $2.1 trillion. However, the amount of planned quid-pro-quo deficit cuts ran to $2.4 trillion, well short of the $4 trillion that S&P had suggested was needed to put the nation's fiscal house in order.

Some market participants have warned that the tepid pace of economic recovery means that even deeper fiscal cuts may be needed to reduce the share of public debt to U.S. gross domestic product, a closely watched gauge of a nation's fiscal health.

...

http://online.wsj.com/article/BT-CO-201 ... 18118.html[/quote]

S&P hates us for our freedoms.

United States of America Long-Term Rating Lowered To 'AA+' On Political Risks And Rising Debt Burden; Outlook Negative

We have lowered our long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating.

We have also removed both the short- and long-term ratings from CreditWatch negative.

The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.

More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon.

The outlook on the long-term rating is negative. We could lower the long-term rating to 'AA' within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

Full text of the downgrade statement here.

More at link...

America's Sovereign Debt Credit Rating and Interest Rate Imponderables

We can expect continued credit market volatility. The recent debt limit increase did nothing to correct the basic problem. The U. S. government spends more than it takes in, so its residual payments are growing, inexorably. As this insanity continues, at some point U.S. Treasury paper will lose its AAA luster. that will initiate a very ugly chain of events that will play out something like this:

1.One of the major credit rating agencies will drop the credit rating, most likely to the AA+ level.
2.All of the other rating agencies will immediately follow suit.
3.Subsequent Treasury auctions may fail, or more likely rates will have to jump by 100 basis points (1%), or more.
4.This higher rate will ripple through the global credit market.
5.As the cost of borrowing money goes up, several things happen:

•Global credit shrinks to the point where a full-blown liquidity crisis could develop.
•Marginal enterprises fail.
•Economies slow.
•Stocks tumble.
•Municipalities begin to declare bankruptcy.
•Commercial and residential real estate both take another leg down and more foreclosures will hit the market. This will lengthen the duration of the housing slump.
•Notes are called. This can cause a secondary squeeze, as everyone begins calling as many notes of their own as possible, to cover their creditor's calls.

The next phase is difficult to predict, but there are several possible outcomes:

There could be more failed public debt auctions, followed by further credit rating cuts. If that happens, the interest rates will rise repeatedly, as the cleansing of the debt market continues: "Lather, rinse, repeat." In the long run, all of the bad debt will be driven out of the system, but it will be a slow, agonizing process. Government meddling will only prolong the agony. Meanwhile, precious metals prices will rise. If there are repeated ratings cuts of U.S. Treasury paper, then I would not be surprised to see $90 per ounce silver and $1,950 per ounce gold.

Credit spreads will eventually adjust, as the yield curve stabilizes. But in the short term, some of the currency carry traders will suffer huge losses. (Since they depend on stable Forex rates, and stable interest rates.) Presently, the U.S. Dollar is drifting downward (at 73.955, the last time I checked the USDI), but it will likely plummet when there is a credit downgrade. You can also expect to hear about huge derivatives losses, and here we're talking about trillion dollar losses.

There will also be lots of hedge funds going under. As I explained in SurvivalBlog back in 2007, hedge funds make their money by "borrowing short and lending long." That works magnificently in a stable credit market, and investors make piles of money. But when interest rates spike, hedge funds often suffer huge losses. Mark my words: The big hedge fund collapses will be preceded by announcements of redemption suspensions. Beware.

http://www.democraticunderground.com/di ... 39x1674972

This is what happens when you allow criminals to stay free and be rewarded.


Edited on Fri Aug-05-11 11:12 PM by JackRiddler
(With respect to the downgrading of US debt by S&P.)


The ratings agencies were the indispensable, perhaps most important participants in the greatest financial fraud in all history: the packaging of bad mortgage debt for sale to naive investors around the world. The banksters could have never perpetrated their fraud, with losses to investors in the trillions, without relying on the ratings agencies to confer AAA ratings on their fraudulent paper. It was the magic word of Moody's and Co. that sold the shit to the patsies.

In 2008 and in 2009, the United States had a chance to round up the banksters for their fraud. Instead, they were rewarded with many trillions of dollars in bailouts from the Treasury and the Federal Reserve. As a result, the same criminals remain on top of the world financial system today, now more powerful than ever. They control all of the relevant institutions of government.

One of the first moves in a prosecution of the criminal class would have been to seize Moody's, S&P and Fitch for their central role in the fraud. Instead, these particular criminals were allowed to continue sitting in judgement over the governments of the world. It didn't matter that public debts of governments, states and localities skyrocketed as a direct result of the private sector bankster fraud, and the resulting global economic disasters.

Now these monsters are allowed to give the signal to squeeze ever-higher interest rates out of the world's taxpayers, and at the same time you can be certain that they will continue to enable further bankster frauds in the future.

Why not? All they've learned is that crime pays. No one is held responsible. After the crash, bonuses go up.

And bearing the primary fault for the situation today is the Democratic chief executive and his team of advisers: banksters themselves. The Obama administration didn't create this mess, but by allowing the criminals to be rewarded, they allowed its perpetuation.

The same of course applies to the failure to prosecute the criminals of the Bush regime: the planners and wagers of wars of aggression, of torture, of the new global surveillance and police state, of incalculable taxpayer plunder and the resulting public deficits. They too have been rewarded for their crimes, both by immunity from prosecution, and by continuation of their policies by the new government.

Now, because the Democratic leadership did not show the courage to pursue justice, the Republicans will return to commit even worse crimes. However, Obama and his corporatist coterie did not blow it. Their loyalties, as with the Republican leaders, are to the corporatists and the warfare state, not the people.

Let us hope there are enough Democrats left to fight for this party's restoration to the ideals of political and economic justice. It's not about who Obama is, but what he has done, by which he must be judged -- and, if we win the damned lottery, primaried before his extremely likely 2012 general election loss.

Those who support the renomination of Obama after these awesome failures to do the right thing, and the resulting continuation of Bush's economic disasters, are precisely those who will enable the election of the Republicans in 2012.

Thread continuing...
viewtopic.php?f=8&t=32771

[JackRiddler]

Oh, shit!

Now this is an interesting development. At least Italy is fighting back!

Italian authorities raid Milan offices of S&P, Moody’s

http://www.blacklistednews.com/Italian_ ... 8/Y/M.html

August 5, 2011


Source: All Headline News

Italian authorities seized documents from the Milan offices of ratings agencies Standard & Poor’s and Moody’s Investors Service on Thursday. The seizure was part of an investigation that the two agencies were allegedly engaged in dubious movements in domestic share prices.

Carlo Maria Capistro, head of the prosecutor’s office in Trani which led the raid, said the action sought to verify if the two agencies followed Italian regulations in carrying out their business.

S&P and Moody’s said the probe has no basis. The raid is seen as the eurozone government’s way of getting back at ratings agencies, which recently downgraded the credit rating of Greece, Portugal and Ireland.

The political angle of the Italian raid becomes apparent since Italy and Spain are said to be on the list of nations due for a downgrade.

The Center for Economics and Business Research, a British think tank, forecast on Thursday that Italy would likely default on its debt, unless Rome registers an unexpected hike in its economic growth.

The center estimated Italy’s debt would reach 150 percent of the country’s yearly output by 2017 from the current 128 percent if the bond yields would be above the present 6 percent and growth remains flat. However, Italian Prime Minister Silvio Berlusconi told the Parliament on Wednesday that the nation’s economy is strong and its banks are solvent.

The center had a better outlook for Spain, which it said would likely avoid a default, unless Madrid would be dragged by the eurozone debt contagion.

[JackRiddler]

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Gotta also snag this from the S&P thread for this, our disaster capitalism scrapbook:

Richard Seymour of Lenin's Tomb (today):

[...]

The pathologies of the US economy are not exactly a secret. Michael Perelman identifies the following as weaknesses of US capitalism in its neoliberal phase: long-term underinvestment in research and development, low productivity resulting from a shift toward low wage service jobs, more financial vs productive investment, underinvestment in infrastructure, and an irrational military Keynesianism that results in the best innovation and research being conducted in secrecy, hoarded by the Pentagon etc.. Obama has performed sterling work on behalf of the Wall Street establishment, throwing his immense clout behind the bail outs, screening them from criticism, allowing them to continue to act with relatively little serious oversight, bringing them into government decision-making, and basically devising most of his policies with an eye to pleasing investment banks, bond traders and, at the outside, hedge funds. But what he doesn't done is re-orient US capitalism in a more rational direction. What he doesn't done is anything that could conceivably rescue the system from its pathologies. This raises the question of why the wider US ruling class isn't kicking up a stink about it?

David McNally has made a strong case for arguing that US capital, or at least dominant sectors of US capital, find more and more of their investments and sales overseas. Sluggish growth and profitability within the core capitalist economies has thus been more than offset by dynamism in south-east Asia. As a result of imperialism, then, much of American capital is at liberty to make significant returns without worrying too much about what happens to infrastructures, consumer power or labour productivity in the US. And with financialization, much of the US services and manufacturing economy generates revenues from financial investments rather than productive investment. The centrality of imperialism here may explain why reducing military spending to cover the deficit isn't on the agenda. It would also explain why the mandarins of Pennsylvania Avenue have appeared to be desperate to placate the ire of Republican tubthumpers, blasting away with biblical fury about the dangers of out-of-control spending.

So, we have an astonishing spectacle. The political leadership of the dominant capitalist states is now trying to shred the public investment that has hitherto acted as a lifeline to their economies. They are talking about savagely reducing labour costs, ostensibly to compete with China or India. And they're being urged on by the banks and business federations despite their awareness of the tremendous peril involved. This is actually going to undercut the conditions that led to their dominance in the first place. It's as if they've given up on the idea of having a relatively stable economy with a productive, educated, healthy workforce, and have decided instead to jack up the absolute rate of exploitation, take as much as possible until the economy crashes again, and then raise the flood barriers, hoard their capital, let others take the pain, and allow governments to police the inevitable fall out.

[...]

http://leninology.blogspot.com/2011/08/ ... ently.html

[Peachtree Pam]

Maybe this should be in the S&P thread...

http://www.salon.com/news/opinion/glenn ... index.html

Why are Treasury prices rising after the S&P downgrade?

While Glenn Greenwald is away this week, Yves Smith of Naked Capitalism will be filing periodic guest posts

By Yves Smith

Despite the hysteria that the downgrade of US debt would lead to US funding costs rising and Treasuries crashing, instead we've had stocks crashing and Treasury prices rising sharply. That's completely rational. The policies being implemented as a result of this contrived budget crisis are deflationary. For non-economists, as much as inflation has been touted as a major financial problem over the last 30 years, deflation is widely acknowledged to be Economic Enemy Number One. And high quality bonds like Treasuries are the place to be in deflation.

Deflation occurs when you have a falling level of prices and wages. Even though it isn't included in the Consumer Price index, the most important price in an economy is that of labor. We've had stagnant real worker wages over the last 30+ years, and from 2007 to 2009, IRS data shows that incomes fell 15% in real terms. Most of that is due to unemployment, but remember another pattern of the last decade: when seasoned workers lose jobs, when they find work again, it is often at much lower pay. Stagnant real wages are pretty much stagnant actual wages in a low inflation economy.

As many economists have recognized far too late is that increasing consumer debt levels is what enabled the US to fuel economic growth even with no real wage increases. Rising consumer debt is not a plus over the longer term, since consumers don't make productive investments from debt (the one supposed exception, that of borrowing to fund education, is misleading, since the rising borrowing has led to increased costs of education as well as more people getting graduate degrees that have more to do with credentialing than actual value to economic productivity, such as MBAs).

Since wages in aggregate are not growing, consumers are now trying to or being forced to delever, and the other ways to keep growth going (business investment and government spending) are very much absent or in retreat, the slack in demand can lead to stagnant or falling prices (that doesn't mean particular prices, like milk, won't rise, but the general price level will be flat or lower). That took place in the Great Depression and in a less extreme form, in Japan in its bubble aftermath. Deflation turns an economic downturn into a self-reinforcing spiral. Outstanding debt, which is usually too large to begin with, becomes crushing. The interest payments were set assuming positive inflation, so that the future interest payments and the principal would be paid back in cheaper dollars.

But in deflation, the reverse happens. With prices falling, cash is worth more in the future. That discourages consumers from spending, and means that paying off existing debt becomes harder and harder as incomes fall. The fall in spending as consumers and businesses delay purchases slows economic growth further, which makes the price fall accelerate, which increases the real cost of the debt burden.

Every country that has tried reining in government spending to deal with a debt overhang has only made matters worse. In Ireland, the GDP has contracted nearly 20% in nominal terms, making the debt to GDP ratio considerably worse. Latvia has had similar outcomes, and austerity is also leading to falling GDP in Greece, again making the country more, not less, insolvent.

Japan, which had a more massive bubble relative to the size of its economy in the late 1980s than the US did two decades later, had aggressive government spending through 1997, and barely kept the economy out of deflation. As soon as it tried balancing its budget, on the assumption the economy was now stable, growth promptly went into reverse and Yamaichi, one of the four biggest Japanese brokerage firms, failed.

The better approach with a debt hangover is to write down and restructure the debt that can't or probably won't be repaid. Those very same 1997 financial failures forced the Ministry of Finance to accept a more Darwinian model and allow more bank failures and restructurings. A 2009 recent Economist article stated that it has taken the banks 17 years to work off their bad debts. Not surprisingly, the Japanese told the US in uncharacteristically blunt terms twhen our crisis started, that the number one priority was cleaning up the financial system. Instead, we've copied Japan's mistakes.

But, but, but....you may protest...doesn't the US government have way too much debt? In short, no. Even the work of Carmen Reinhart and Kenneth Rogoff, which is highly problematic in that it mixed gold standard countries with so-called "fiat" issuers like the US, found that government debt to GDP didn't hurt growth until it exceeded 90%. CBO projections show US debt to GDP before the debt reduction measures were put into motion stabilizing at around 77% as of 2015. (The Reinhart/Rogoff work is also at best a correlation. As occurred in this crisis, government debt to GDP levels rise sharply in the wake of financial crises. Financial crises also feature deep recessions in their aftermath. Thus in many cases, the low growth and high debt to GDP levels were caused by a criss rather than the debt levels causing the low growth).

A fiat issuer like the US can only default by choice. It can never run out of dollars to satisfy creditors (that is hot the case with US states or countries like Greece, which must borrow if they run budget deficits. The US does not need to sell bonds to finance its deficit, but we have kept debt issuance in place as a holdover from the gold standard era).

Some have tried arguing that S&Ps rating change was warranted due to inflation risk, but that's bunk too. The US experienced actual high inflation in the 1970s, and the dollar weakened then, yet the US was not downgraded by any of the ratings agencies.

The S&P downgrade looks to be politically motivated. The President had several routes by which he could have circumvented the debt ceiling restriction and almost certainly would have used one of them if the debt celling talks had dragged on so long that it became difficult to make interest payments out of tax receipts. McGraw Hill, which owns S&P, is headed by Terry McGraw, a prominent figure in the Business Roundtable, which has stated that it wants Social Security privatized. S&P has used its muscle to its advantage in the past, such as a state effort in Georgia in the early 2000s which would have reined in predatory lending and in turn reduced the issuance of private label mortgage backed securities. Rating them was a very profitable business for all the rating agencies. S&P torpedoed that initiative by refusing to rate bonds with Georgia loans in them. That forced Georgia to back down and killed other state efforts underway. Had these laws been in place, it is almost certain the subprime crisis would not have risen to a global-economy-wrecking event.

Austerian policies are sound medicine only when economies are strong. That isn't where we are now. Inducing an economic downturns when an economy is choked with private sector debt is very likely to produce near or actual deflation. Stocks perform badly. They are subject to low general prices with sharp rallies and declines, which favor brave and adept traders, but not ordinary investors. Riskier bonds shunned because they may be restructured or default. As much as S&P tried to diss Treasuries, it is has created conditions that make them a choice investment.

[2012 Countdown]

Roubini Warns of Global Recession Risk
8/11/2011 6:42:02 PM
Economist Nouriel Roubini says the risk of a global recession is greater than 50 percent, and the next two to three months will reveal the economy's direction. In an interview with WSJ's Simon Constable, Roubini also says he's putting his money in cash. "This is not the time to be in risky assets," he says.

http://online.wsj.com/video/roubini-war ... F8735.html

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6:40 Zombie households, Zombie banks, Zombie governments

No jobs, No income, rising inequality...leads to massive social instability.
US jails 'keep' unemployment rate low.

14:20 Zombie banks....kept alive....
15:20 no more fiscal resources for bailouts....
15:50 the European banking crisis is coming to USA.
16:40 choose your poison
16:55 cash...better to be safe than sorry...volatility.
17:35 commodities and Gold...food, lead, cabin in the woods...Gold can go higher
18:30 other currencies...US Treasuries and USD are "less dirty" than others
19:15 Europe has serial default risk.
20:15 Cash now...when to get out ...
21:00 NOW AT STALL SPEED...either accelerate (up) or down...get safe.