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

[2012 Countdown]

50 Economic Numbers About The US That Are "Almost Too Crazy To Believe"
December 16th, 2011

Even though most Americans have become very frustrated with this economy, the reality is that the vast majority of them still have no idea just how bad our economic decline has been or how much trouble we are going to be in if we don't make dramatic changes immediately. If we do not educate the American people about how deathly ill the U.S. economy has become, then they will just keep falling for the same old lies that our politicians keep telling them. Just "tweaking" things here and there is not going to fix this economy. We truly do need a fundamental change in direction. America is consuming far more wealth than it is producing and our debt is absolutely exploding. If we stay on this current path, an economic collapse is inevitable. Hopefully the crazy economic numbers from 2011 that I have included in this article will be shocking enough to wake some people up.

At this time of the year, a lot of families get together, and in most homes the conversation usually gets around to politics at some point. Hopefully many of you will use the list below as a tool to help you share the reality of the U.S. economic crisis with your family and friends. If we all work together, hopefully we can get millions of people to wake up and realize that "business as usual" will result in a national economic apocalypse.

The following are 50 economic numbers from 2011 that are almost too crazy to believe....

#1 A staggering 48 percent of all Americans are either considered to be "low income" or are living in poverty.

#2 Approximately 57 percent of all children in the United States are living in homes that are either considered to be "low income" or impoverished.

#3 If the number of Americans that "wanted jobs" was the same today as it was back in 2007, the "official" unemployment rate put out by the U.S. government would be up to 11 percent.

#4 The average amount of time that a worker stays unemployed in the United States is now over 40 weeks.

#5 One recent survey found that 77 percent of all U.S. small businesses do not plan to hire any more workers.

#6 There are fewer payroll jobs in the United States today than there were back in 2000 even though we have added 30 million extra people to the population since then.

#7 Since December 2007, median household income in the United States has declined by a total of 6.8% once you account for inflation.

#8 According to the Bureau of Labor Statistics, 16.6 million Americans were self-employed back in December 2006. Today, that number has shrunk to 14.5 million.

#9 A Gallup poll from earlier this year found that approximately one out of every five Americans that do have a job consider themselves to be underemployed.

#10 According to author Paul Osterman, about 20 percent of all U.S. adults are currently working jobs that pay poverty-level wages.

#11 Back in 1980, less than 30% of all jobs in the United States were low income jobs. Today, more than 40% of all jobs in the United States are low income jobs.

#12 Back in 1969, 95 percent of all men between the ages of 25 and 54 had a job. In July, only 81.2 percent of men in that age group had a job.

#13 One recent survey found that one out of every three Americans would not be able to make a mortgage or rent payment next month if they suddenly lost their current job.

#14 The Federal Reserve recently announced that the total net worth of U.S. households declined by 4.1 percent in the 3rd quarter of 2011 alone.

#15 According to a recent study conducted by the BlackRock Investment Institute, the ratio of household debt to personal income in the United States is now 154 percent.

#16 As the economy has slowed down, so has the number of marriages. According to a Pew Research Center analysis, only 51 percent of all Americans that are at least 18 years old are currently married. Back in 1960, 72 percent of all U.S. adults were married.

#17 The U.S. Postal Service has lost more than 5 billion dollars over the past year.

#18 In Stockton, California home prices have declined 64 percent from where they were at when the housing market peaked.

#19 Nevada has had the highest foreclosure rate in the nation for 59 months in a row.

#20 If you can believe it, the median price of a home in Detroit is now just $6000.

#21 According to the U.S. Census Bureau, 18 percent of all homes in the state of Florida are sitting vacant. That figure is 63 percent larger than it was just ten years ago.

#22 New home construction in the United States is on pace to set a brand new all-time record low in 2011.

#23 As I have written about previously, 19 percent of all American men between the ages of 25 and 34 are now living with their parents.

#24 Electricity bills in the United States have risen faster than the overall rate of inflation for five years in a row.

#25 According to the Bureau of Economic Analysis, health care costs accounted for just 9.5% of all personal consumption back in 1980. Today they account for approximately 16.3%.

#26 One study found that approximately 41 percent of all working age Americans either have medical bill problems or are currently paying off medical debt.

#27 If you can believe it, one out of every seven Americans has at least 10 credit cards.

#28 The United States spends about 4 dollars on goods and services from China for every one dollar that China spends on goods and services from the United States.

#29 It is being projected that the U.S. trade deficit for 2011 will be 558.2 billion dollars.

#30 The retirement crisis in the United States just continues to get worse. According to the Employee Benefit Research Institute, 46 percent of all American workers have less than $10,000 saved for retirement, and 29 percent of all American workers have less than $1,000 saved for retirement.

#31 Today, one out of every six elderly Americans lives below the federal poverty line.

#32 According to a study that was just released, CEO pay at America's biggest companies rose by 36.5% in just one recent 12 month period.

#33 Today, the "too big to fail" banks are larger than ever. The total assets of the six largest U.S. banks increased by 39 percent between September 30, 2006 and September 30, 2011.

#34 The six heirs of Wal-Mart founder Sam Walton have a net worth that is roughly equal to the bottom 30 percent of all Americans combined.

#35 According to an analysis of Census Bureau data done by the Pew Research Center, the median net worth for households led by someone 65 years of age or older is 47 times greater than the median net worth for households led by someone under the age of 35.

#36 If you can believe it, 37 percent of all U.S. households that are led by someone under the age of 35 have a net worth of zero or less than zero.

#37 A higher percentage of Americans is living in extreme poverty (6.7%) than has ever been measured before.

#38 Child homelessness in the United States is now 33 percent higher than it was back in 2007.

#39 Since 2007, the number of children living in poverty in the state of California has increased by 30 percent.

#40 Sadly, child poverty is absolutely exploding all over America. According to the National Center for Children in Poverty, 36.4% of all children that live in Philadelphia are living in poverty, 40.1% of all children that live in Atlanta are living in poverty, 52.6% of all children that live in Cleveland are living in poverty and 53.6% of all children that live in Detroit are living in poverty.

#41 Today, one out of every seven Americans is on food stamps and one out of every four American children is on food stamps.

#42 In 1980, government transfer payments accounted for just 11.7% of all income. Today, government transfer payments account for more than 18 percent of all income.

#43 A staggering 48.5% of all Americans live in a household that receives some form of government benefits. Back in 1983, that number was below 30 percent.

#44 Right now, spending by the federal government accounts for about 24 percent of GDP. Back in 2001, it accounted for just 18 percent.

#45 For fiscal year 2011, the U.S. federal government had a budget deficit of nearly 1.3 trillion dollars. That was the third year in a row that our budget deficit has topped one trillion dollars.

#46 If Bill Gates gave every single penny of his fortune to the U.S. government, it would only cover the U.S. budget deficit for about 15 days.

#47 Amazingly, the U.S. government has now accumulated a total debt of 15 trillion dollars. When Barack Obama first took office the national debt was just 10.6 trillion dollars.

#48 If the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to pay off the national debt.

#49 The U.S. national debt has been increasing by an average of more than 4 billion dollars per day since the beginning of the Obama administration.

#50 During the Obama administration, the U.S. government has accumulated more debt than it did from the time that George Washington took office to the time that Bill Clinton took office.

http://theeconomiccollapseblog.com/arch ... ment-91369

[gnosticheresy_2]

50 Economic Numbers About The US That Are "Almost Too Crazy To Believe"
December 16th, 2011

This totally proves that we need more cutbacks! chin up, poor people!

[JackRiddler]

http://www.nytimes.com/2011/12/18/busin ... nted=print

December 17, 2011

Slapped Wrists at WaMu

By GRETCHEN MORGENSON

WHEN Washington Mutual collapsed in 2008, it was the largest bank failure in American history. So the $64.7 million settlement struck last week by federal banking regulators and three former WaMu executives seems like small potatoes indeed.

Worse, most of the money didn’t even come from the former executives’ pockets. Instead, it came from directors’ and officers’ liability insurance policies paid for by the bank.

The deal, agreed to by the Federal Deposit Insurance Corporation, requires that the men, among them Kerry Killinger, WaMu’s former chief executive, forgo claims for insurance coverage and some past compensation that they had requested from the bankruptcy court.

To anyone familiar with WaMu’s Wild West lending practices — “The Power of Yes” was the bank’s motto — the agreement might seem like yet another example of the minimalist punishment meted out to major players in the credit boom and bust.

Here are the particulars: Mr. Killinger paid $275,000 in cash. He also agreed to forfeit claims against his WaMu retirement accounts with a face amount of $7.5 million.

These sums are a pittance when set against the $88 million in compensation that Mr. Killinger received from the bank from 2001 to 2007.

Stephen Rotella, WaMu’s former president, paid $100,000 in cash and gave up a claim to $11.5 million in compensation. David Schneider, its former home loans president, paid $50,000 and forfeited a claim to $5.8 million.

Mr. Rotella and Mr. Schneider were able to hang on to other claims that they have filed in the WaMu bankruptcy: Mr. Rotella retained a retirement account valued at $5.4 million, while Mr. Schneider kept a $1.9 million claim. It is unclear whether WaMu will pay these claims, of course. If it does, the executives will have to pay taxes on them.

“Pretty soft,” is how Senator Carl Levin, the Michigan Democrat who heads the Senate’s permanent subcommittee on investigations, characterized the settlement in an interview on Friday.

“Washington Mutual Bank epitomizes everything that went wrong with the banking industry and contributed to the financial crisis, so the F.D.I.C. was right to go after the bank’s leadership,” Mr. Levin said in a statement issued on Tuesday. “Former WaMu executives Killinger, Rotella and Schneider are truly the 1 percent: they got bonus upon bonus when the bank did well, but when they led the bank to collapse, insurance and indemnity clauses shielded them from paying any penalty for their wrongdoing.”

Officials at the F.D.I.C. said they were pleased with the settlement and that it maximized its recoveries. The $64.7 million will be combined with $125 million that WaMu’s holding company agreed to relinquish to the regulator.

Although the settlement probably disappoints anyone hoping executives might be held personally accountable, it does illustrate what regulators are up against when litigating these matters.

For starters, the F.D.I.C. faced a time constraint. The insurance policies being tapped by the regulator were declining steadily in value as others making claims against the bank were paid.

The F.D.I.C. also had to confront the circular nature of the continuing WaMu bankruptcy and the claims being made against the institution. If the regulator had asked for higher payments from the former executives, the men could have turned around and requested that the bankrupt company pay the amounts under its indemnification policies. If the company did have to cover the F.D.I.C.’s requests, it could reduce the $125 million that WaMu has agreed to give the regulator.

Given these risks and the costs of continuing litigation, the F.D.I.C. said, it made sense to complete the $64.7 million deal.

Lawyers representing Mr. Killinger and Mr. Schneider did not respond to requests for comment.

Mr. Rotella issued this statement through a spokesman: “I believe the facts clearly demonstrate that during my brief tenure at WaMu, my efforts substantially reduced risk and addressed highly challenging business problems that predated my arrival. I continue to strongly dispute the F.D.I.C.’s allegations and regret that we did not have more time to finish restructuring WaMu successfully.”

Mr. Levin’s dismay over the settlement probably arises from his deep knowledge of WaMu and its practices. After all, he led the Senate’s 2010 investigation into the origins of the financial crisis, producing a 650-page report on actions taken by WaMu, Goldman Sachs and the credit ratings agencies, among others.

Mr. Levin’s office referred the findings to prosecutors for possible follow-up. Not much has happened since.

The damning report detailed WaMu’s questionable operations as well as those of its regulator, the Office of Thrift Supervision. That feckless agency was responsible for overseeing three of the biggest disasters in mortgage lending history: Countrywide Bank, IndyMac Bancorp and WaMu. Mercifully, the Dodd-Frank law put an end to the O.T.S., folding it into the Office of the Comptroller of the Currency.

ARE the WaMu executives out of the woods? They’re getting close. Last summer, the Justice Department shut down its criminal investigation into WaMu and its officials, concluding that the evidence it had amassed “did not meet the exacting standards for criminal charges in connection with the bank’s failure.”

Mr. Levin noted that the O.C.C. could still act against WaMu’s former executives.

“There are some real possible enforcement actions they can take to go after civil money penalties,” he said. “They have the ability to go after securities violations for securities WaMu issued that were defective or misleading, unsafe and unsound practices, breach of fiduciary duty, general disregard for banking regulations — there’s still a way to get more accountability.”

Hey Levin, how about we just call them terrorists and disappear them for life under the fascist provisions you and McCain wrote into the Defense [sic] Authorization Act?

Asked whether the O.C.C. would pursue such actions, a spokesman declined to comment.

Unfortunately, the agency’s history does not suggest that it will act aggressively on this matter. If past is prologue, the accountability deficit that many Americans find so disturbing is likely to grow even larger.

[JackRiddler]

http://www.counterpunch.org/2011/12/16/what’s-so-great-about-efficiency/print

This copy is for your personal, non-commercial use only.

Weekend Edition December 16-18, 2011

Skip School and Educate Yourself
What’s So Great About Efficiency?

by ROB URIE

Early in the last century the Italian political theorist Antonio Gramsci developed the idea of hegemony as a hidden ideology behind political, economic and cultural domination. What is understood by dominant cultures as straightforward explanation of the natural world, common sense in contemporary parlance is really, as Gramsci argued, the underlying ideological basis for domination. It isn’t the dominant culture that the dominated have a quarrel with under the hegemonic belief system, but rather the natural order of the world. The struggle against domination becomes a struggle against nature goes the hegemonic claim.

It is with no small irony that a century later academic economists at prestigious universities in the West claim that what they teach is a method to understand the will of nature, natural economic laws, rather than what appears once the mystification is removed as rank ideology. When the students of Harvard University economics Professor Greg Mankiw recently walked out of his introductory economics class to protest the narrow ideology being taught they left behind their dear professor proclaiming his innocence. As an economic advisor to governments including the George W. Bush administration, Professor Mankiw either knew that he had blood on his hands or he was publicly admitting that he was too stupid to know that he did. No third explanation is possible.

The reason why this is an argument that needs to be had in public is that Western academic economists have wielded power over the lives of billions of people without being held responsible for the outcomes of these policies. The Free Trade policies that Mr. Mankiw and his colleagues have developed, recommended and supported have caused economic dislocations that would be the envy of the most irresponsible of military strategists and they have accomplished them with a global efficiency that would make any twentieth century dictator blush with envy. How many of those affected by free trade policies were ever asked if they consented to their implementation? The answer is none.

The claim that Professor Mankiw makes (see his New York Times editorial responding to the student protest), but that is endemic to Western economics in general, is that his economics is a methodology rather than an ideology. But a methodology is a means of accomplishing a goal. Whose goals are accomplished with the methodology of his economics? Why would a generic methodology be better at accomplishing specific goals than specific methods? And most pressing to readers, why does a purported non-ideological methodology always come to such ideologically loaded conclusions—why are there winners and losers if in theory everyone benefits? And why are the winners always the already rich and powerful and the losers always the already marginalized?

The benefits of their policies that Western economists point to are always systemic, but where exactly does this system reside? It must reside outside of human existence because otherwise the specific nature of the purported gains and losses would be evident as a social struggle between the gainers and losers. The fact is that the policies of Western economists affect specific people and the claims of systemic benefits hide their motives behind the language of political neutrality. Professor Mankiw and his colleagues either know that they are paid hacks in the service of international capital or they are but they don’t know that they are. You decide which is worse.

The goal of economics always given by Western economists is to maximize economic efficiency. Who could object to getting the most out of society’s economic efforts? If free trade agreements drive a few million peasants from their land through the destruction of their indigenous economies, don’t a few capitalists getting rich from hiring the newly “freed” labor that results mean that efficiency has been served? Lest one think this tale improbable, take a look at Mexico following implementation of NAFTA. If capital is globally mobile while labor is embedded within national boundaries, linguistic and cultural difference and the accoutrement of complex social life, how do economic models that assume that none of this embedding has economic content maximize anything?

Another smokescreen offered by Western economists is that their economics is evidence based. What they mean is that they choose the methods that support their economic claims. How many victims of their intellectual largesse have they ever interviewed? In fact, the statistical methods that they use are ideologically embedded at the core of Western hegemony. I refer readers to the ontological issues discussed in Edmund Husserl’s Crisis of the European Sciences and Martin Heidegger’s response in History of the Concept of Time and less straightforwardly in Being and Time.

The point here is that the statistical methods used by Western economists to support their claims are hegemonic in the same way that their economics are. Alternatively, if the statistical methods are non-ideological and the economics they are used to support are non-ideological, both being “methods,” then who sets the goals of these methods and how do they escape the taint of ideology? Is capitalism only a method also?

Lastly, to the protesting students, this piece results from a conversation that I had with fellow arrestees and cellmates from the Occupy Wall Street protests at the Brooklyn Bridge on October 1st. The Harvard protest came later but these ideas are in the air. The advice given me in the days of Vietnam War was to skip school and educate myself. I pass that advice along for what it is worth. And the “better” the school is that you are attending, the more relevant it is.


Rob Urie is an artist and political economist in New York.

[eyeno]

The IMF threatens the entire world with basically a:

'submit or else, turn over your hard assets for paper or we will make your life miserable' message.

Just check out what the head of the International Monetary Fund, Christine Lagarde, recently said about Europe. Speaking at a State Department conference in Washington D.C. this week, Lagarde made the following very shocking statements....

*"The world economic outlook at the moment is not particularly rosy. It is quite gloomy"

*"There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating"

*"It is not a crisis that will be resolved by one group of countries taking action. It is going to be hopefully resolved by all countries, all regions, all categories of countries actually taking action."

*"No country or region is immune. All must take action to boost growth. Work must start in the eurozone countries and must continue relentlessly. The risks of inaction include protectionism, isolation and other elements reminiscent of the 1930s depression."

*"This is exactly the description of what happened in the 1930s, and what followed is not something we are looking forward to."

And they want all the assets, all of em....

But this Ponzi scheme cannot go on indefinitely. A lot of European banks are already starting to run out of collateral for these loans as one Australian news source recently explained....

"If anyone thinks things are getting better, they simply don't understand how severe the problems are," a London executive at a global bank said. "A major bank could fail within weeks."

Others said many continental banks, including French, Italian and Spanish lenders, were close to running out of the acceptable forms of collateral, such as US Treasury bonds, that could be used to finance short-term loans.

Some have been forced to lend out their gold reserves to maintain access to US dollar funding.

http://endoftheamericandream.com/archiv ... depression

[JackRiddler]

http://www.counterpunch.org/2011/12/19/ ... -are/print

December 19, 2011

The Making of the Managerial Class
How Business Schools Came to Be the Way They Are

by DAVID WARSH


If, as still seems possible, Mitt Romney becomes the nominee of the Republican Party, then the US presidential campaign in 2012 will consist of a competition between two men with very different preparations for the job: one, a political organizer who found a home in law schools; the other, a private equity investor with close ties to a business school (Romney has a law degree as well.) In that case, The Roots, Rituals, and Rhetorics of Change: North American Business Schools after the Second World War, by Mie Augier and James G. March, may get some of the attention it deserves.

It may not show up on best books lists – not even the one I wrote for Strategy + Business – but Roots, Rituals and Rhetorics (for which I have adopted the useful mental shorthand of the “three Rs” of change), was the most unexpectedly illuminating book I read this year. Not everybody is as interested as I am in how our ideas about business and economics originate, and how they are absorbed, elaborated and changed. But for fans of such things, this book is nearly impossible to beat.

Few readers at the beginning of the second decade of the twenty-first century will be surprised by Augier and March’s broad conclusions about how the social organization of business has changed since 1945.

A managerial class came into being in those fifty years. What had been relatively open occupational category before the war, drawing from the ranks of workers, owners and college grads, gradually became the province of the MBA.

A new language emerged. Spreadsheets became the standard form by which MBAs exchanged opinions; “properly aligned incentives,” their desiderata. Managers spoke the new lingo to one another, confident that they would be understood. There was less technical language for the general public.

Business schools’ faculties became the gatekeepers and custodians of managerial rhetoric, first through the students whom they admitted, then through the curricula they devised; finally through the support they provided to executives, through consulting, mentoring, research, and their links to the press.

Business schools assumed the task of producing fundamental knowledge relevant to management, a responsibility they shared with departments of economics. As repositories of a store of know-how indispensable to practice, management schools came to be seen as having joined the worlds of engineering, medicine, law, science, architecture, and theology.

What’s riveting about the book is the historical narrative by which its authors reach those conclusions. They turn it into a story, which they tell in graceful, often witty, prose. March, 83, lived through much of it: a Stanford University professor since 1970, a sociologist, he is a veteran of the Nobel nomination league for his writings on decision-making and organizations. Augier, of the Naval Post Graduate School, nearly fifty years March’s junior, is an especially original historian of economic ideas. As essentially the account of a participant-observer, the book is a welcome complement to Philip Mirowski’s Machine Dreams: Economics Becomes a Cyborg Science, another version of more or less the same story. Roots, Rituals and Rhetorics’ jacket image, a sculpture of a sleeping slave by Michelangelo, is presumably a sly rejoinder to the abstract bronze robot on the cover of Machine Dreams.

Augier and March begin their account with a chapter on Abraham Flexner. It was Flexner’s 1910 report on medical education in the United States and Canada, Bulletin Number Four, from the Carnegie Foundation, that guided foundations’ investment in medical schools for a crucial twenty years after it appeared. The US was suffering from “a century of overproduction of cheap doctors,” Flexner wrote. Universities, not commercial establishments, should train physicians. Fundamental knowledge of science and medicine, not apprenticeships, should be the basis for their education. Professionalism, meaning peer review, should be the rule.

It worked. Within a decade of Flexner’s prescription, the number of medical schools declined dramatically; the quality of students, faculty and instruction in the remaining schools substantially improved; and science, biochemistry in particular, became pervasive in the curriculum. Not surprisingly, in the 1950s and ’60s, the Flexner Report became a model for foundations wishing to reshape the business schools.

The authors move on to a chapter about the University of Chicago, where they say Robert Hutchins, president from 1929 until 1951, played a key role in galvanizing the spirit of change. Hutchins supported the highly interdisciplinary Cowles Commission, hired Friedrich von Hayek, Milton Friedman and Aaron Director. And even though Hutchins considered business schools second-rate intellectual enterprises, the Chicago Graduate School of Business under Allen Wallis, George Shultz, James Lorie and George Stigler came to represent – though only after Hutchins left – precisely the sort of research-oriented curriculum and interdisciplinary faculty that he had championed in other corners of the university.

It was RAND Corp. that provided the most stimulating incubator of change in the years after World War Two. An acronym for Research And Development, RAND was a private facility originally chartered by the US Air Force to explore ways of organizing scientific and technological knowledge for military purposes. Its first Pentagon boss was Gen. Curtis LeMay. But RAND’s Southern California headquarters, across the street from the Santa Monica pier, quickly grew into a kind of universal think-tank, spinning out important work on strategic thinking, decision making, organization theory and economics of all sorts, much of which found its way into business school curricula. “Cleverness led inexorably to excess,” the authors write. RAND’s cocksure enthusiasm for intelligence eventually was implicated in both the misadventure of Vietnam and the financial collapses of the first decade of the twenty-first century, they say. But its influence also led to the creation of successful and durable programs, such as the Advanced Research Projects Agency (ARPA) and the Office of Net Assessment in the Defense Department.

None of it would have happened the way it did without the Ford Foundation. Chartered in 1936, the philanthropy in the 1950s supported a number of liberal causes, among them public broadcasting in the United States, nation-building in Asia and support for the social and behavioral sciences. California attorney H. Rowland Gaither, who eventually would become the foundation’s head, left RAND Corp. to set up a wildly ambitious web of programs, especially in view of Se. Joseph McCarthy’s enthusiasm for attacking social science in general and foundations in particular. Business education turned out to be “a safe haven,” a “philanthropoid’s dream,” in the words of one Ford functionary.

And so it was that the Graduate School of Industrial Administration at the Carnegie Institute of Technology in Pittsburgh – a small, unranked, and unaccredited school at a second-tier engineering institute, as the authors put it – became a poster- child of the new management education. That story is too interesting to tell here, but what went on in the old factory building that Andrew Carnegie had built on the side of a hill, so that it could be used as a gravity-powered assembly line in case the education business didn’t work out, was an explosive success, assembling a collection of faculty members (including March) whose influence on both economics and management education was far flung. After that, everybody got into the act, led by the Wharton School of the University of Pennsylvania, the University of Chicago, Northwestern University, and Stanford University.

And of course there was Harvard, which, as the citadel of teaching by case methods, routinely hedged its bets. Its business school had long maintained a foot in the business of knowledge production. Historian Alfred Chandler might well have shared a Nobel Prize, had he lived a year or two longer. Instead, the prize for research on governance, a deft one, went to Elinor Ostrom, of Indiana University, and Oliver Williamson, of the University of California at Berkeley. Starting in the late ’70s, however, Harvard Business School dean John McArthur made a decisive break, promoting from within Michael Porter, in strategy; and hiring a trio of key outsiders: Michael Jensen, from the University of Rochester, in organization; Robert C. Merton, from the Massachusetts Institute of Technology, in finance; and Robert Kaplan, from Carnegie Mellon University, in accounting;. These were serious researchers at the very top of their fields, producers of public knowledge, as opposed to a stereotypical old guard at Harvard, for whom teaching was paramount.

Roots, Rituals and Rhetorics doesn’t concern itself with the content of the doctrines that were propagated by these and other thinkers. There is nothing about income distribution, the global financial system, nation-building and the like. So much heavy lifting lies ahead for other historians of thought. There is, after all, a distinct possibility that the attempt to improve the intellectual environment of the business schools overshot and produced something else instead. In any event, the book ends on a note of disappointment:

As the scholars and policy makers who grew up during the Great Depression and the Second World War and launched their careers in the 1950s and 1960s were gradually removed from the scene, they were replaced by individuals who grew up in different times and were imbued with different, less academic, and more self-interest-oriented perspectives. The “golden age” was transformed to a significant extent into an era of the glorification of huge fortunes and of those who accumulated them, the anointing of greed as a social virtue, and the substitution of the lessons of experience for the lessons of analysis and research.

But, briefly, there was a Camelot.

Having embarked on the reform of management education, however, this is no time to stop. Business schools were part – only a part – of a well-intentioned effort to take apart and examine the workings of North American society in the ’50s and ’60s. Those same economic architects and engineers must now assist in putting it back together again. What’s the Carnegie Foundation, or whatever may be its nearest equivalent today, doing about that now? Significantly, it seems to me, Augier and March prominently acknowledge the John and Cynthia Reed Foundation, a creation of the former Citicorp CEO and present chairman of the MIT Corporation.

There is plenty of juice in this orange. I don’t see how you can know much of anything about, say, the rise of management consulting, without Augier and March. The Roots, Rituals, and Rhetorics of Change is an indispensable point of entry to one of the most important stories of our time.


DAVID WARSH covered economics for The Boston Globe for 22 years and, earlier, reported on business for The Wall Street Journal and Forbes. He publishes Economic Principals.com, an independent weekly commentary on the production and distribution of economic ideas, where this article first appeared. He can be reached at warsh@economicprincipals.com

[JackRiddler]

http://www.counterpunch.org/2011/12/19/ ... haos/print

December 19, 2011

"They Are Stealing Our Lives"
Greece in Chaos

by NOËLLE BURGI


“Who knows what tomorrow will bring?” people ask in Athens, Salonika and right across Greece. There’s a sense of collective imprisonment, individual uncertainty and impending catastrophe. Yet Greece has had a turbulent history, and the Greeks have always seen themselves as a gifted people, sturdy and accustomed to adversity. “There have always been difficult times, and we always made it through. But now, all hope has been taken from us,” said a small business owner.

While the austerity measures are piling up, an avalanche of laws, decrees and edicts is sweeping aside the social, economic and administrative frameworks. Yesterday’s reality is crumbling. As for tomorrow — who knows?

Greek citizens are subject to a Kafkaesque bureaucracy, with its incomprehensible, fluctuating regulations. Addressing colleagues, a civic employee in the Cyclades said: “People want to conform to the law, but we don’t know what to tell them, [the authorities] haven’t given us any details.” A man had to pay € 200 and present 13 papers and proofs of identity to renew his driving license. Salary cuts among public employees have disrupted the public sector. “When you call the police to alert them to a situation, they reply, ‘it’s your problem, you deal with it’,” said a retired engineer officer from the merchant navy. Tensions are rising. Reports show a big increase in domestic violence, theft and murder (1).

Salaries are falling (by 35-40% in some sectors) while new taxes are invented, some backdated to the beginning of the calendar year. Net incomes have fallen drastically, in many cases by 50% or more. Since the summer, a solidarity tax (1-2% of annual income) and an energy tax (calculated on the consumption of petrol and natural gas) have been levied. Further novelties include the lowering of the tax threshold from € 5,000 to € 2,000, and a property tax of € 0.5 to € 20 per square metre levied as part of electricity bills, payable in two or three instalments (failure to pay results in power cuts and penalties).

Since the start of November, pensioners and public and private employees cannot anticipate their monthly earnings. Many workers go without pay altogether. The state is reducing its workforce drastically as part of its restructuring programme. Between now and 2015, 120,000 public employees over the age of 53 have been earmarked for “semi-retirement”, the precursor to full mandatory retirement after 33 years of service, during which employees are obliged to stay at home, and only receive 60% of their basic salaries. Once fully retired, many public employees will be reduced to living on very little. A group of ex-railwaymen, aged 50 and above, said they used to earn between € 1,800 and € 2,000 a month, a relatively comfortable salary in Greece. They have now been posted to jobs as museum guards as part of a “voluntary transition” package (2) and their basic monthly income fluctuates between € 1,100 and € 1,300; semi-retirees are restricted to € 600. All are barred from taking on extra paid work to supplement their income — the penalty, immediate loss of revenue, is enforced.

’Insurance payments have stopped’

The loss of income is tearing society apart. Bills are not paid, consumption is down, stores are closing and unemployment rising. In May the official unemployment rate was 16.6% (10 points higher than in 2008) and 40% among the young. The actual rate is likely to be much higher. The social, economic and political crisis has shaken the national health service. Hospital and public health care centre budgets have been cut by 40% on average. More patients are admitted to the emergency room, others go to Doctors of the World health centres, and many choose to do without medical care altogether. People report being denied access to crucial medicine. One journalist said her father suffers from Parkinson’s disease: “His medication costs € 500 a month. The pharmacy told us it will stop supplying him, because insurance payments have stopped.”

Physical ailments (notably heart conditions) and mental illnesses are increasing at a worrying rate. Recent epidemiological studies have shown that heightened stress, exacerbated by high debt and prolonged unemployment, is generating “major depressive disorders, disruptions and generalised anxiety” (3), which account for a dramatic rise in suicides. According to unofficial figures discussed in parliament, the suicide rate increased by 25% from 2009 to 2010, with a further rise of 40% in the first half of 2011, compared to last year, according to health ministry sources. Figures published in The Lancet (4) reveal an alarming increase in prostitution, as well as infection rates of HIV and other sexually transmitted diseases (5). There are unprecedented numbers of homeless people, and they are no longer limited to alcoholics, drug addicts or the mentally ill. A recent study demonstrates that the middle class, the young and the moderately poor are now more likely to end up on the street (6).

The Greeks struggle to see a way out of what a social worker described as a return to a “barbaric” way of life. They feel abandoned and unable to cope. Strong family ties are buckling under the pressure of diminished incomes and a collapsing welfare state. Those who can leave, do so. The options for those remaining are limited. Some turn to the Church, which arranges soup kitchens and other social services. In Salonika, Father Stefanos Tolios of the Orthodox church, is swamped by desperate people looking for work. Residents of several cities (Volos, Patras, Heraklion, Athens, Corfu, Salonika) have set up community-based informal economies, based on local exchange systems. Families are bringing their elderly back from retirement homes, to recover the monthly charge of € 300-400.

No country could withstand this. Greece is worse equipped to deal with the social consequences of the austerity measures imposed with a “scientific cruelty” (7) by the national and transnational elites. Post-1945 Greece, with a weak state and clientelism, had neither the time nor means to build a resilient system of social protection. The existing safety nets are now tearing. “Everything is falling apart,” said Sotiris Lainas, a psychologist and coordinator of the Self Help Promotion Programme at Aristotle University of Thessaloniki (Salonika).

Who’s to blame?

The previous government, under George Papandreou, scrambled to conform to the demands of the “troika” — the European Union, International Monetary Fund and European Central Bank — for instance by cutting 210 budget lines in the health ministry. No thought was given as to how the budget cuts would undermine the ability of essential (and viable) services to function, such as the day care provided by the Panhellenic Federation of Alzheimer’s Disease and Related Disorders. Thus the transnational forces, which for nearly 30 years have worked to erode the welfare state, have passed on the task to national enforcers, themselves longtime beneficiaries of a nepotic, inefficient, corrupt system.

Responsibility for the crisis has been shamelessly dumped upon the Greeks. Accused, but not tried, they have been pronounced guilty because of their association with their inept leaders. Certain sections of the population are exposed to popular fury: seen as a privileged caste, public employees are stigmatised; doctors and shopkeepers are all suspected of untruthful tax filings. But the people know that the system and their leaders are at the root of the rot. Knowledge is not power, though, and the nation is left wondering what to do next.

Patronage and corruption have historical roots. Greece has never enjoyed a modern state with a relatively autonomous bureaucracy, free from private interests, with the capacity to shape economic and social development. Nor has it had a strong civic identity. Foreign powers have imposed their preferences since independence in 1830 (8), when Greece was forcefully integrated into the world capitalist economy in a peripheral position, kept servile and buffeted by various great powers. History has superimposed an artificial political model on a fragmented society traditionally centred on local loyalties, the extended family and community values. As a result, the Greek political system has always been authoritarian and centralised, denying the separation of powers, local autonomy or real democracy (9) — fertile soil for corruption and patronage, which serve the interests and entrench the domination of the elites. The Greeks have resigned themselves to all this.

They are not naive or ignorant of their and their country’s shortcomings. But they are destitute and disempowered. What hope is there for a nation that has proved “fundamentally incapable of forming a political community” (10)? Even if it wanted to return to the pre-crisis days, “when we were living a lie”, as Lainas put it, Greece would be unable to do so. It has been hit too hard, as the repeated calls for order and control make clear. Polls initially favourable to the new government formed by Lucas Papademos, the former governor of the Greek Central Bank replacing Papandreou as prime minister, point to the belief among some Greeks that a technocratic administration might be preferable to the disgraced political class. This does not imply an adherence to the austerity measures, but rather a willingness to set matters right. For some, a strong foreign authority, mentioned by Mario Monti before he became Italy’s prime minister (11), might guarantee an honest and competent government acting in the interests of the country.

But everything points against it. Having seen off their worthless leaders, Greeks may not know who the enemy is any more. “There is no enemy to fight,” said Lainas: “You can’t fight what you can’t see. Their strength lies in abstract governments. Such as the EFSF [European Financial Stability Fund]. The enemy may be abstract, but the tragedy is real. They are stealing our lives, depriving us of a future.”

Noëlle Burgi is a researcher at the Centre Européen de Sociologie et de Sciences Politique (CESSP), Sorbonne University, Paris

(1) I Simerini, Nicosia, 16 March 2011.

(2) Part of the railway company’s preparations for privatisation, which include reducing the number of staff.

(3) Study yet to be published by the University Mental Health Research Institute, conducted February-April 2011. See Eleftherotypia, Athens, 5 October 2011.

(4) Alexander Kentikelenis et al, “Health effects of financial crisis: omens of a Greek tragedy”, The Lancet, London, vol 378, no 9801, 22 October 2011.

(5) See “Risk of HIV outbreaks among drug injectors in the EU”, European Monitoring Centre for Drugs and Drug Addiction, Lisbon, 14 November 2011.

(6) Study conducted by Klimaka, an NGO based in Athens. Also see “Greek crisis creates thousands of middle-class homeless”,www.monstersandcritics.com, 9 October 2011.

(7) Karl Polanyi, The Great Transformation.Originally published as The Origins of Our Time(Rinehart, New York 1944); latest edition published by Beacon Press, 2001.

(8) Following the War of Independence (1821-1830), the London Treaty (1832) imposed a monarchy on Greece. Otto de Wittelsbach, prince of Bavaria, was installed on the throne by the European Great Powers (France, Russia, Britain), which dabbled constantly in Greek affairs.

(9) See Nicos P Mouzelis, Modern Greece: Facets of Underdevelopment, Macmillan, London, 1978.

(10) Cornelius Castoriadis, “We are responsible for our own history” (in Greek), cited in Le mouvement grec pour la démocratie directe, Lieux Communs, 2011.

(11) Mario Monti, “Il podestà forestiero”, Corriere della Serra, Milan, 7 August 2011.

This article appears in the excellent Le Monde Diplomatique, whose English language edition can be found at mondediplo.com. This full text appears by agreement with Le Monde Diplomatique. CounterPunch features two or three articles from LMD every month.

[2012 Countdown]

How Companies Plunder and Profit from the Nest Eggs of American Workers
'The death spiral of American pensions and benefits'... How corporate America is plundering the pensions of ordinary workers and throwing the aged into deeper poverty

http://www.alternet.org/story/152549 /


In December 2010, General Electric held its Annual Outlook Investor Meeting at Rockefeller Center in New York City. At the meeting, chief executive Jeffrey Immelt...gave the gathered analysts and shareholders a rundown on the global conglomerate's health... Like many other CEOs at large companies, Immelt pointed out that his firm's pension plan was an ongoing problem. The "pension has been a drag for a decade," he said, and it would cause the company to lose 13 cents per share the next year. Regretfully, to rein in costs, GE was going to close the pension plan to new employees...

What Immelt didn't mention was that, far from being a burden, GE's pension and retiree plans had contributed billions of dollars to the company's bottom line over the past decade and a half, and were responsible for a chunk of the earnings that the executives had taken credit for....In fact, GE hadn't contributed a cent to the workers' pension plans since 1987 but still had enough money to cover all the current and future retirees.

And yet, despite all this, Immelt's assessment wasn't entirely inaccurate. The company did indeed have another pension plan that really was a burden: the one for GE executives...

---

But despite the rules protecting pension funds, U.S. companies siphoned billions of dollars in assets from their pension plans...To replenish the surplus assets in their pension piggy banks, companies cut benefits....

full-
http://www.alternet.org/story/152549/?page=2


===

Bankers Seek to Debunk ‘Imbecile’ Attack on Top 1% By Max Abelson - Dec 19, 2011

Dimon, 55, whose 2010 compensation was $23 million, joined billionaires including hedge-fund manager John Paulson and Home Depot Inc. (HD) co-founder Bernard Marcus in using speeches, open letters and television appearances to defend themselves and the richest 1 percent of the population targeted by Occupy Wall Street demonstrators.
If successful businesspeople don’t go public to share their stories and talk about their troubles, “they deserve what they’re going to get,” said Marcus, 82, a founding member of Job Creators Alliance, a Dallas-based nonprofit that develops talking points and op-ed pieces aimed at “shaping the national agenda,” according to the group’s website. He said he isn’t worried that speaking out might make him a target of protesters.

“Who gives a crap about some imbecile?” Marcus said. “Are you kidding me?”

---

At a lunch in New York, Stemberg and Allison shared their disdain for Section 953(b) of the Dodd-Frank Act, which requires public companies to disclose the ratio between the compensation of their CEOs and employee medians, according to Allison. The rule, still being fine-tuned by the Securities and Exchange Commission, is “incredibly wasteful” because it takes up time and resources, he said. Stemberg called the rule “insane” in an e-mail to Bloomberg News.
“Instead of an attack on the 1 percent, let’s call it an attack on the very productive,” Allison said. “This attack is destructive.”

---

Income Tripled

The top 1 percent of taxpayers in the U.S. made at least $343,927 in 2009, the last year data is available, according to the Internal Revenue Service. While average household income increased 62 percent from 1979 through 2007, the top 1 percent’s more than tripled, an October Congressional Budget Office report showed. As a result, the U.S. had greater income inequality in 2007 than China or Iran, according to the Central Intelligence Agency’s World Factbook.

Detailed article, full-
http://www.bloomberg.com/news/2011-12-2 ... op-1-.html

[StarmanSkye]

--quote--
“Who gives a crap about some imbecile?” Marcus said. “Are you kidding me?”

Well, we can understand why HE sees steady-state full-employment as inefficient and wasteful, but WHY do legions of un-and-under-employed, part of an ever-growing cadre of the former middle-class, accomodate his strident talking-points excusing his taking a bigger and bigger share of profits while ordinary workers' lucky enough to still have jobs take-home pay has declined?

The priveleged ruling-elites & corporate-class have sucessfully demonized almost every vestige of sharing and equality that smacks of 'socialism' -- the rabid-dog vaccination which kills every progressive concept of worker-rights, unions and collective bargaining that might challenge the privelege of status-quo greed.

These asswipes are impervious to logic or arguments, they have bought-into the fable of American exceptionalism without reservation since it legitimizes their position at the head of the table. What they richly deserve is our profound contempt.

[JackRiddler]

.

On the myth that Fannie and Freddie were the originators of the great financial fraud.

http://www.nytimes.com/2011/12/24/opini ... nted=print

December 23, 2011

The Big Lie

By JOE NOCERA


So this is how the Big Lie works.

You begin with a hypothesis that has a certain surface plausibility. You find an ally whose background suggests that he’s an “expert”; out of thin air, he devises “data.” You write articles in sympathetic publications, repeating the data endlessly; in time, some of these publications make your cause their own. Like-minded congressmen pick up your mantra and invite you to testify at hearings.

You’re chosen for an investigative panel related to your topic. When other panel members, after inspecting your evidence, reject your thesis, you claim that they did so for ideological reasons. This, too, is repeated by your allies. Soon, the echo chamber you created drowns out dissenting views; even presidential candidates begin repeating the Big Lie.

Thus has Peter Wallison, a resident scholar at the American Enterprise Institute, and a former member of the Financial Crisis Inquiry Commission, almost single-handedly created the myth that Fannie Mae and Freddie Mac caused the financial crisis. His partner in crime is another A.E.I. scholar, Edward Pinto, who a very long time ago was Fannie’s chief credit officer. Pinto claims that as of June 2008, 27 million “risky” mortgages had been issued — “and a lion’s share was on Fannie and Freddie’s books,” as Wallison wrote recently. Never mind that his definition of “risky” is so all-encompassing that it includes mortgages with extremely low default rates as well as those with default rates nearing 30 percent. These latter mortgages were the ones created by the unholy alliance between subprime lenders and Wall Street. Pinto’s numbers are the Big Lie’s primary data point.

Allies? Start with Congressional Republicans, who have vowed to eliminate Fannie and Freddie — because, after all, they caused the crisis! Throw in The Wall Street Journal’s editorial page, which, on Wednesday, published one of Wallison’s many articles repeating the Big Lie. It was followed on Thursday by an editorial in The Journal making essentially the same point. Repetition is all-important to spreading a Big Lie.

In Wallison’s article, he claimed that the charges brought by the Securities and Exchange Commission against six former Fannie and Freddie executives last week prove him right. This is another favorite tactic: He takes a victory lap whenever events cast Fannie and Freddie in a bad light. Rarely, however, has his intellectual dishonesty been on such vivid display. In fact, what the S.E.C.’s allegations show is that the Big Lie is, well, a lie.

Central to Wallison’s argument is that the government’s effort to encourage homeownership among low- and moderate-income Americans is what led to the crisis. Fannie and Freddie, which were required by law to meet certain “affordable housing mandates,” were the primary instruments of that government policy; their need to meet those mandates, says Wallison, is what caused them to dive so heavily into those “risky” mortgages. And because they were powerful forces in the housing market, their entry into subprime dragged along the rest of the mortgage industry.

But the S.E.C. complaint makes almost no mention of affordable housing mandates. Instead, it charges that the executives were motivated to begin buying subprime mortgages — belatedly, contrary to the Big Lie — because they were trying to reclaim lost market share, and thus maximize their bonuses.

As Karen Petrou, a well-regarded bank analyst, puts it: “The S.E.C.’s facts paint a picture in which it wasn’t high-minded government mandates that did [Fannie and Freddie] wrong, but rather the monomaniacal focus of top management on market share.” As I wrote on Tuesday, Fannie and Freddie, rather than leading the housing industry astray, got into riskier mortgages only after the horse was out of the barn. They were becoming irrelevant in the most profitable segment of the market — subprime. And that they couldn’t abide.

(The S.E.C., I should note, had its own criticism of my column, saying that I conflated its allegations regarding the lack of disclosure of subprime mortgages, with an entirely different set of charges it has brought regarding disclosure of so-called Alt-A loans. I still maintain that the S.E.C.’s charges are weak, and that the agency brought the case in part for political reasons: how better to curry favor with House Republicans than to go after former Fannie and Freddie executives?)

Three years after the financial crisis, the country would be well served by a real debate about the role of government in housing. Should the government be helping low- and moderate-income Americans own their own homes? If so, is there an acceptable level of risk? If not, how do we recast the American dream?

To have that debate, though, we need a clear understanding of what role the government’s affordable-housing goals did — and did not — play in the crisis. And that is impossible as long as the Big Lie holds sway.

Which, now that I think of it, may be the whole point of the exercise.

[seemslikeadream]

WHY were big position granted a "temporary" waiver from the requirements for reporting positions exceeding speculative limits on the CME/COMEX until May 31st of 2012?

Temporary Waiver of Annual Application Update for Position Limit Exemptions
To
Members, Member Firms and Market Users
From
Market Regulation Department
Advisory #
CME Group RA1107-5
Notice Date
December 20, 2011
Effective Date
December 20, 2011
Effective immediately, CME, CBOT, NYMEX and COMEX (collectively, “the Exchanges”) are granting a temporary waiver of the requirement under each Exchange’s Rule 559 (“Position Limit and Exemptions”) that market participants file an updated application on an annual basis to exceed speculative position limits.

On November 18, 2011, the Commodity Futures Trading Commission (“CFTC”) final rules governing position limits and exemptions were published in the Federal Register. These rules, which become effective 60 days after the CFTC further defines the term “swap,” outline specific requirements for obtaining an exemption from federal position limits. As a result of the final CFTC rules, various types of exemptions authorized by Rule 559 will no longer be applicable, while additional types of exemptions will be added. Further information on the revisions to the types of exemptions from speculative position limits that will be permitted pursuant to Rule 559 will be the subject of a future Market Regulation Advisory Notice.

In light of the fact that the new CFTC rules will likely be effective in the near future and will require new applications to be filed with the Exchanges, we are temporarily waiving the annual updated application filing requirements through May 31, 2012. This temporary waiver is intended to reduce the administrative burden on both market participants operating under an exemption and the Exchanges. Should it appear that the final rules will not be in effect prior to May 31, the Exchanges will review whether an extension is warranted and will advise the marketplace accordingly.

Notwithstanding this temporary waiver, all market participants currently operating under the terms of an Exchange-granted exemption from speculative position limits remain bound by and must comply with all relevant terms and conditions of such exemptions and Exchange rules.

Questions regarding this advisory may be directed to the following individuals in Market Regulation:
William Kokontis, Director, Market Surveillance, 312.435.3665
Chris Reinhardt, Associate Director, Market Surveillance, 212.299.2882
Joe Hawrysz, Director, Market Surveillance, 312.341.7750
For media inquiries concerning this Advisory Notice, please contact CME Group Corporate Communications at 312.930.3434 or news@cmegroup.com.

[JackRiddler]

Some catch-up.

http://www.cbsnews.com/2102-18560_162-5 ... ontentBody

December 4, 2011 7:03 PM

Prosecuting Wall Street


Two whistleblowers offer a rare window into the root causes of the subprime mortgage meltdown. Eileen Foster, a former senior executive at Countrywide Financial, and Richard Bowen, a former vice president at Citigroup, tell Steve Kroft the companies ignored their repeated warnings about defective, even fraudulent mortgages. The result, experts say, was a cascading wave of mortgage defaults for which virtually no high-ranking Wall Street executives have been prosecuted.


The following is a script of "Prosecuting Wall Street" which aired on Dec. 4, 2011. Steve Kroft is correspondent, James Jacoby, producer.


It's been three years since the financial crisis crippled the American economy, and much to the consternation of the general public and the demonstrators on Wall Street, there has not been a single prosecution of a high-ranking Wall Street executive or major financial firm even though fraud and financial misrepresentations played a significant role in the meltdown. We wanted to know why, so nine months ago we began looking for cases that might have prosecutorial merit. Tonight you'll hear about two of them. We begin with a woman named Eileen Foster, a senior executive at Countrywide Financial, one of the epicenters of the crisis.

Behind the financial crisis: A fraud investigator talks


Steve Kroft: Do you believe that there are people at Countrywide who belong behind bars?


Eileen Foster: Yes.


Kroft: Do you want to give me their names?


Foster: No.


Kroft: Would you give their names to a grand jury if you were asked?


Foster: Yes.


But Eileen Foster has never been asked - and never spoken to the Justice Department - even though she was Countrywide's executive vice president in charge of fraud investigations. At the height of the housing bubble, Countrywide Financial was the largest mortgage lender in the country and the loans it made were among the worst, a third ending up in foreclosure or default, many because of mortgage fraud.


It was Foster's job to monitor and investigate allegations of fraud against Countrywide employees and make sure they were reported to the board of directors and the Treasury Department.


Kroft: How much fraud was there at Countrywide?


Foster: From what I saw, the types of things I saw, it was-- it appeared systemic. It, it wasn't just one individual or two or three individuals, it was branches of individuals, it was regions of individuals.


Kroft: What you seem to be saying was it was just a way of doing business?


Foster: Yes.


In 2007, Foster sent a team to the Boston area to search several branch offices of Countrywide's subprime division - the division that lent to borrowers with poor credit. The investigators rummaged through the office's recycling bins and found evidence that Countrywide loan officers were forging and manipulating borrowers' income and asset statements to help them get loans they weren't qualified for and couldn't afford.


Foster: All of the-- the recycle bins, whenever we looked through those they were full of, you know, signatures that had been cut off of one document and put onto another and then photocopied, you know, or faxed and then the-- you know, the creation thrown-- thrown in the recycle bin.


Kroft: And the incentive for the people at Countrywide to do that was what?


Foster: The loan officers received bonuses, commissions. They were compensated regardless of the quality of the loan. There's no incentive for quality. The incentive was to fund the loan. And that's-- that's gonna drive that type of behavior.


Kroft: They were committing a crime?


Foster: Yes.


After Foster's investigation, Countrywide closed six of its eight branches in the Boston region and 44 out of 60 employees were fired or quit.


Kroft: Do you think that this was just the Boston office?


Foster: No. No, I know it wasn't just the Boston office. What was going on in Boston was also going on in Chicago, and Miami, and Detroit, and Las Vegas and, you know-- Phoenix and in all of the big markets all over Florida.


After the Boston investigation, Foster says Countrywide's subprime division began systematically concealing evidence of fraud from her in violation of company policy, and Countrywide's internal financial controls system. Someone high up in the top levels of management - she won't say who - told employees to circumvent her office and instead report suspicious activity to the personnel department, which Foster says routinely punished other whistleblowers and protected Countrywide's highest earning loan officers.


Foster: I came to find out that there were-- that there was many, many, many reports of fraud as I had suspected. And those were never-- they were never reported through my group, never reported to the board, never reported to the government while I was there.


Kroft: And you believe this was intentional?


Foster: Yes. Yes, absolutely.

Foster, with the support of her boss, took the information up the corporate chain of command and to the audit department, which confirmed many of her suspicions, but no action was taken. In late 2008, with Countrywide sinking under the weight of its bad loans, it merged with Bank of America. Foster was promoted and not long afterwards was asked to speak with government regulators to discuss Countrywide's fraud reports. But she was fired before the meeting could take place.

Kroft: What would you have told 'em?

Foster: I would have told 'em exactly-- exactly what I've told you.


Kroft: Did you have any discussions with anybody at Countrywide or Bank of America about what you should say to the federal regulators when they came?


Foster: I got a call from an individual who, you know, suggested how-- how I should handle the questions that would be coming from the regulators, made some suggestions that downplayed the severity of the situation.


Kroft: They wanted you to spin it and you said you wouldn't?


Foster: Uh-huh (affirm).


Kroft: And the next day you were terminated?


Foster: Uh-huh (affirm).


Kroft: I mean, it seems like somebody at Countrywide or Bank of America did not want you to talk to federal regulators.


Foster: No, that was part of it, no, they absolutely did not.


Kroft: Do you feel like you were a victim of criminal activity?


Foster: It's a crime to retaliate against someone for making reports of mail fraud, bank fraud, wire fraud, mortgage fraud, things that would harm stockholders and investors. And that's what I did and that's why I was terminated.


Kroft: Were you offered a settlement?


Foster: They asked me to sign a 14-page document that basically would buy my silence in exchange for a large amount of money.


Kroft: But you didn't sign it?


Foster: No.


Kroft: Why not?


Foster: How many people can they-- can they buy off? They just pay for it. They commit the crime and they buy their way out of it. And just do it over and over and over again. I wanted them to have some sleepless nights thinkin' about what they would say to a federal investigator and worry about being exposed and being held accountable for committing a crime.


Eileen Foster spent three years trying to clear her name. This fall she finally won a federal whistleblower complaint against Bank of America for wrongful termination and was awarded nearly a million dollars in back pay and benefits.


All of this raises several questions. Why has the Justice Department failed to go after mortgage fraud inside Countrywide? There has not been a single prosecution. Even more puzzling is the Justice Department's reluctance to employ one of its most powerful legal weapons against Countrywide's top executives. It's called the Sarbanes Oxley Act of 2002.


It was overwhelmingly passed by Congress and signed by President Bush following the last big round of corporate scandals involving Enron, Tyco and Worldcom. It was supposed to restore confidence in American corporations and financial markets.


The Sarbanes Oxley Act imposed strict rules for corporate governance, requiring chief executive officers and chief financial officers to certify under oath that their financial statements are accurate and that they have established an effective set of internal controls to insure that all relevant information reaches investors. Knowingly signing a false statement is a criminal offense punishable with up to five years in prison.


Frank Partnoy is a highly regarded securities lawyer, a professor at the University of San Diego Law School and an expert on Sarbanes Oxley.


Frank Partnoy: The idea was to have a criminal statute in place that would make CEOs and CFOs think twice, think three times before they signed their names attesting to the accuracy of financial statements or the viability of internal controls.


Kroft: And this law has not been used at all in the financial crisis.


Partnoy: It hasn't been used to go after Wall Street. It hasn't been used for these kinds of cases at all.


Kroft: Why not?


Partnoy: I don't know. I don't have a good answer to that question. I hope that it will be used. I think there clearly are instances where CEOs and CFOs-- signed financial statements that said there were adequate controls and there weren't adequate controls. But I can't explain why it hasn't been used yet.


We told Partnoy about Eileen Foster's allegations of widespread mortgage fraud at Countrywide and efforts to prevent the information from reaching her, the federal government and the board of directors in violation of the company's internal controls.


Kroft: I mean, that's a deliberate circumvention, right?


Partnoy: It certainly sounds like it. And it certainly sounds like a good place to start a criminal investigation. Usually when the federal government hears about facts like this, they would start an investigation and they would try to move up the organization to try to figure out whether this information got up to senior officers, and why it wasn't disclosed to the public.


In fact, according to a civil suit filed by the Securities and Exchange Commission, Countrywide's chief executive officer, Angelo Mozilo, knew as early as 2006 that a significant percentage of its subprime borrowers were engaged in mortgage fraud and that it hid this and other negative information about the quality of its loans from investors.


When the case was settled out of court a year ago October, the SEC's director of enforcement, Robert Khuzami, called Mozilo "a corporate executive who deliberately disregarded his duty to investors by concealing what he saw from inside the executive suite -- a looming disaster in which Countrywide was buckling under the weight of increasing risky mortgage underwriting, mounting defaults and delinquencies, and a deteriorating business model."


Mozilo, who admitted no wrongdoing, accepted a lifetime ban from ever serving as an officer or director of a publicly traded company, and agreed to pay a record $22 million fine, less than five percent of the compensation he received between 2000 and 2008.


Kroft: What did you think of the settlement with Countrywide?


Partnoy: I'd think a lot of it if I were Angelo Mozilo. I'd think I did pretty well for myself. No jail, a relatively small fine compared to the hundreds of millions of dollars I was able to take out of this company.


Kroft: Slap on the wrist.


Partnoy: Clearly a slap on the wrist. And part of the problem is the dual nature of how we prosecute these kinds of violations. We have the Department of Justice, which can put people in jail and the Securities and Exchange Commission, which can't. And its sort of like we have this two-headed monster - one head has some teeth. The other head has no teeth. And it was the head with no teeth that went after Angelo Mozilo. So the greatest danger he was in from the beginning was maybe he'd be gummed to death, but not even that happened.


Three months after the SEC settled the civil suit, federal prosecutors in Los Angeles dropped their criminal investigation of Countrywide and its CEO, Angelo Mozilo. We wanted to know why the Justice Department has been unable to bring a single criminal case against Countrywide or any of the major Wall Street banks and Lanny Breuer, the head of the criminal division at the Justice Department, agreed to talk to us.


Kroft: A year ago, in September of 2010, you told the congressional hearing that you seek to prosecute people who make materially false statements. People who told the investors one thing and did something different.


Lanny Breuer: That's absolutely right. And we're-- we're doing exactly that.


Kroft: We spoke to a woman at Countrywide, who was a senior vice president for investigating fraud. And she said that the fraud inside Countrywide was systemic. That it was basically a way of doing business.


Breuer: Well, it's hard for me to talk about a particular case. Of course, in the Countrywide case, Steve, as you know, terrific office, U.S. attorney's office in Los Angeles investigated that, interviewed many, many people, hundreds of people perhaps, and reviewed millions of documents.


Kroft: They never talked to the senior vice president inside Countrywide, who is charged with investigating fraud.


Breuer: Well, I-- we-- look, I-- I can't speak about that, because I actually don't know about that particular case. But if the senior vice president of any company believes they know about fraud, I want them to contact us.


Breuer says the department has brought major financial prosecutions involving hedge funds, insider trading, Ponzi schemes and a huge bank fraud case in Florida but he acknowledged there have been no prosecutions against major players in the financial crisis.



Breuer: In our criminal justice system, we have to prove beyond a reasonable doubt that you intended to commit a fraud. But when you can't or when we think we can't, there's still many, many important resolutions and options we have.

And that's why there have been civil lawsuits and regulatory action.


Kroft: Do you lack confidence in bringing cases under Sarbanes Oxley?


Breuer: Steve, no-- no one is-- really has accused this Department of Justice or this division or me of lacking confidence. If you look at the prosecutors all over the country, they are bringing record cases, with respect to all kinds of criminal laws. Sarbanes Oxley is a tool, but it's only one tool. We're confident. We follow the facts and the law wherever they take us. And we're bringing every case that we believe can be made.


Lanny Breuer says this Justice Department has been as aggressive as any in history. But a recent report on federal prosecutions from a research center at Syracuse University, says the number of cases brought against financial instutions for fraud is at a 20-year low. When we come back, we talk to a whistleblower who was inside Citigroup during the financial meltdown.

If you had looked at the financial statements of the major banks on Wall Street in the weeks leading up to the financial crisis of 2008, you wouldn't have guessed that most of them were about to crumble and require a trillion dollar bailout from the taxpayers. It begs the question did the CEO's of these banks and their chief financial officers withhold critical information from their investors. If they did they can be subject to criminal prosecution under the Sarbanes Oxley Act for knowingly certifying false financial reports and statements about the effectiveness of their internal controls. The Justice Department has not brought a single case against Wall Street executives for violating Sarbanes Oxley, in spite of some compelling evidence. Tonight we take a look at Citigroup beginning with a former vice president, Richard Bowen.

Richard Bowen: There are things that obviously went on in this crisis, and decisions that were made, that people need to be accountable for.

Kroft: Why do you think nothing's been done?


Bowen: I don't know.


Until 2008, Richard Bowen was a senior vice president and chief underwriter in the consumer lending division of Citigroup. He was responsible for evaluating the quality of thousands of mortgages that Citigroup was buying from Countrywide and other mortgage lenders, many of which were bundled into mortgage-backed securities and sold to investors around the world. Bowen's job was to make sure that these mortgages met Citigroup's own standards - no missing paperwork, no signs of fraud, no unqualified borrowers. But in 2006, he discovered that 60 percent of the mortgages he evaluated were defective.


Kroft: Were you surprised at the 60 percent figure?


Bowen: Yes. I was absolutely blown away. This-- this cannot be happening. But it was.


Kroft: And you thought that it was important that the people above you in management knew this?


Bowen: Yes. I did.


Kroft: You told people.


Bowen: I did everything I could, from the way-- in the way of e-mail, weekly reports, meetings, presentations, individual conversations, yes.


Kroft: How high up in the company?


Bowen: My warnings, which were echoed by my manager, went to the highest levels of the Consumer Lending Group.


Bowen also asked for a formal investigation to be conducted by the division in charge of Citigroup's internal controls. That study not only confirmed Bowen's findings but found that his division had been out of compliance with company policy since at least 2005.


Kroft: Did the situation improve?


Bowen: I started raising those warnings in June of 2006. The volumes increased through 2007 and the rate of defective mortgages increased to an excess of 80 percent.


Kroft: So the answer is no?


Bowen: The answer is no, things did not improve. They got worse.


Not only was Citigroup on the hook for massive potential losses, Bowen says it was misleading investors about the quality of the mortgages and the mortgage securities it was selling to its customers. We managed to get our hands on a prospectus for a mortgage-backed security that was made up of home loans that Bowen had tested.

Kroft: It says, "These loans were originated under guidelines that are substantially, in accordance with Citi Mortgage's guidelines, for its own originations, its own mortgages." Is that a true statement?


Bowen: No.


Kroft: This is not some insignificant statement. This is-- speaks to the quality of the-- of the mortgages that-- that investors are putting their money in.


Bowen: Yes.


Kroft: And it's wrong?


Bowen: Yes.


Kroft: And people at Citigroup knew it was wrong. Had been warned that it was wrong, had been told that it was wrong.


Bowen: Yes.


In early November of 2007, with Citi's mortgage losses mounting, Bowen decided to notify top corporate officers directly. He emailed an urgent letter to the bank's chief financial officer, chief risk officer, and chief auditor as well as Robert Rubin, the chairman of Citigroup's executive committee and a former U.S. treasury secretary. The letter informed them of "breakdowns of internal controls" in his division and possibly "unrecognized financial losses existing within our organization."


Kroft: Why did you send that letter?


Bowen: I knew that there existed in my area extreme risks. And one, I had to warn executive management. And two, I felt like I had to warn the Board of Directors.


Kroft: You're saying there's a serious problem here, you've got a big breakdown in internal controls. You need to pay attention. This could cost you a lot of money.


Bowen: Yes. Somebody needed to pay attention. Somebody needed to take some action.


The next day Citigroup's CEO Charles Prince, in his last official act before stepping down, signed the Sarbanes Oxley certification endorsing a financial statement that later proved to be unrealistic and swore that the bank's internal controls over its financial reporting were effective.


Bowen: I know that there were internal controls that were broken. I served notice in that e-mail that they were broken. And the certification indicates that they are not broken.


Kroft: It would seem the chief financial officer and the people that signed the Sarbanes Oxley certification disregarded those warnings.


Bowen: It would appear.


We received a letter from Citigroup saying the bank had acted promptly to address Richard Bowen's concerns and that the issues he raised were limited to his division and had little bearing on the bank's overall financial health. Citigroup also told us that it did not retaliate against Bowen for sending the email. But not long after he sent it, Bowen's duties were radically changed.


Bowen: I was relieved of most of my responsibility and I no longer was physically with the organization.


Kroft: You were told not to come into the office?


Bowen: Yes.


[Phil Angelides: Mr. Bowen.


Bowen: I am very grateful to the commission to be able to give my testimony today.]


The Financial Crisis Inquiry Commission thought enough of Bowen's story to call him as one of its first witnesses and he turned over more than a thousand pages of documents to the Securities and Exchange Commission. Nothing ever came of it. But Bowen wasn't the only one to warn Citigroup's top officials about its financial weaknesses and breakdowns in the company's internal controls.


Three months after Bowen's email Citigroup's new CEO Vikrim Pandit received a blistering letter from the office of the comptroller of the currency, its chief regulator. It questioned the valuations that Citi had placed on its mortgage securities and found internal controls deeply flawed. The letter stated, among other things, that risk management had insufficient authority and risk was insufficiently evaluated and that the Citibank board had no effective oversight.


Yet eight days later, CEO Vikrim Pandit and Chief Financial Officer Gary Crittenden personally signed the Sarbanes Oxley certification. They attested to the bank's financial viability and the effectiveness of its internal controls. The deficiencies cited by the comptroller of the currency were never mentioned. Citi said it didn't consider the problems serious enough that they had to be disclosed to investors and says the certifications were entirely appropriate. But nine months later, Citigroup would need a $45 billion bailout and $300 billion more in federal guarantees just to stay in business.


Frank Partnoy: I don't think Wall Street senior people really think they'll ever end up in jail and they've been right.


Frank Partnoy, the securities lawyer and expert on Sarbanes Oxley law, says the facts about Citigroup raise some troubling questions.


Partnoy: They certainly knew the internal controls were inadequate and that the company was out of control from a reporting perspective.


Kroft: And yet they signed the Sarbanes Oxley letter saying that everything was fine.


Partnoy: I'm very surprised that the CEO and CFO would sign those letters. I wouldn't have signed them under those conditions. You're signing them under penalties of potentially 10 years in prison. You're certifying that you designed and implemented effective internal controls in the aftermath of all this news about the company's problems.


Kroft: How is that not a violation of Sarbanes Oxley?


Partnoy: I don't know. I think that it might be hard to establish knowledge. That might be what prosecutors are thinking in not bringing the cases.


Kroft: The letter was addressed to Vikram Pandit, the new CEO of Citigroup.


Partnoy: And he had eight days to think about it, from February 14th, Valentine's Day, he gets the letter. And then February 22nd, he sits down and signs his name, certifying that financial statements are accurate and that he had designed and evaluated and reported any problems with internal controls. Eight days is a long time on Wall Street. I can't get inside his head, but I would certainly think, as a prosecutor, that this would be something I'd be interested in asking some questions about.


We wanted to know what Assistant Attorney General Lanny Breuer, thought about that, and why no prosecutions have been directed at Wall Street. We also wanted to know why Sarbanes Oxley has not been used against big banks like Citigroup.


Lanny Breuer: When you talk about Sarbanes Oxley we have to know that you intended-- had the specific intent to make a false statement.


Kroft: They knew there was a problem. Not only had they been told that there was a problem by one of their chief underwriters, that the loans that they were buying were not what they claimed, and that the federal government, that the comptroller of the currency didn't think their internal controls were adequate either.


Breuer: If a company is intentionally misrepresenting on its financial statements what it understands to be the financial condition of its company and makes very real representations that are false, we want to know about it. And we're gonna prosecute it.


Kroft: Do you have cases now that you think that will result in prosecution against major Wall Street banks?


Breuer: We have investigations going on. I won't predict how they're gonna turn out.


Kroft: Has anybody at Treasury or-- or the Federal Reserve or the White House come to you and said, 'Look, we need to go easy on the banks. That-- there are collateral consequences if you bring prosecutions. Some of these organizations are still very fragile and we don't want to push them over the edge?'


Breuer: Steve, this Department of Justice is acting absolutely independently. Every decision that's being made by our prosecutors around the country is being made 100 percent based on the facts of that particular case and the law that we can apply it. And there's been absolutely no interference whatsoever.


Kroft: The perception. I mean, it doesn't seem like you're trying. It doesn't seem like you're making an effort. That the Justice Department does not have the will to take on these big Wall Street banks.


Breuer: Steve, I get it. I find the excessive risk taking to be offensive. I find the greed that was manifested by certain people to be very upsetting. But because I may have an emotional reaction and I may personally share the same frustration that American people all over the country are feeling, that in and of itself doesn't mean we bring a criminal case.


Kroft: If you had said two years ago that nobody was gonna be prosecuted on Wall Street for the subprime mortgage scandal, I think people would think, "It's not possible."


Breuer: Sometimes it takes a number of years to bring these cases. So I'd say to the American people, they should have confidence that this is a department that's working hard and we're gonna keep working hard, so stay tuned.


© 2011 CBS Interactive Inc.. All Rights Reserved.

William Pfaff still writing? Slams the ratings agency terror.

http://www.truthdig.com/report/print/fi ... _20111206/

Fiction, Fantasy and the Euro

http://www.truthdig.com/report/item/fic ... _20111206/

Posted on Dec 6, 2011

By William Pfaff

The American rating firm Standard & Poor’s warned 15 European nations on Monday, including Germany and France, that unless they solve their currency problems this week, to the satisfaction of S&P, a business corporation, this company will “downgrade” them, with the effect of increasing the interest they must pay on their sovereign debt and on foreign funds placed on loan to their economies.

S&P, like the other rating firms at work today, is a company operating to make profits for its managers and stockholders. It has no public mandate, and indeed, if it acted under an assumed public-interest mandate, it could find itself sued by its stockholders, whose interest is to profit themselves, not the public.

These “ratings” of companies and nations lack any objective authority or validated qualification. The company sells opinion (like journalists; but nations and central banks very sensibly do not base their decisions on what journalists write). The potential link of unqualified or biased ratings to market speculation is obvious, but nonetheless accepted on the international markets, despite proven instances of past rating agency malfeasance, including the AAA-rated securitized junk mortgages responsible for creating this world financial crisis.

The extent to which the economic policy of nations is made on the basis of misinformation or wishful thinking is not generally recognized. Even when error becomes established as part of the conventional wisdom, it rarely is challenged because of the price usually inflicted upon public dissenters.

Consider how many years Anglo-American corporate and academic economics operated on the transparently implausible assumption that markets are perfectly informed and automatically self-correcting.

Consider the present all but universal policy of imposing austerity on nations, automatically creating unemployment and depressing consumption, making impossible the growth without which the victim nation can never pay its debts.

Consider, for that matter, the assumption underlying the creation of the euro. One of the implicit conclusions reached Monday at the Paris meeting between Angela Merkel and Nicolas Sarkozy was that European governments of varying size and sophistication (from Greece to united Germany) have difficulty coordinating national budgets in a manner that can sustain a common currency. This was said (here and elsewhere) at the time the euro was created, but the objections were disregarded in the belief that good will and luck could carry the day.

They failed to do so, and a door has now been opened for the weak to abandon the euro, suggesting that it may survive as a somewhat less than common European currency, for fewer than 17 members. In that case, it would be a more stable currency than it could ever be for 27 EU members. Whether, or how, the euro will survive is unknowable. I personally think it will survive, but it now is in jeopardy. (It has hardly been out of jeopardy since last summer.)

The outcome will theoretically be produced by officials at conferences, but those conferences take place against background concern that the matter will actually be decided by “the markets.”

Who are the markets? A mass of honest citizens searching to place their savings where they will be secure? No. The market consists of professional traders largely indifferent as to whether the euro is “rescued” or not. They place their own bets on how official actions will affect the euro’s assessed value, and their interest is to win their bets (and bonuses). The bets really are on what the majority opinion among speculators will prove to be, thereby causing the euro to rise or fall in value (for a time). This is not a matter of indifference since it causes the sovereign debt of the euro-using nations to rise or fall.

Here lies the problem. As currency possesses real rather than fiat value in the minds of those who use it to buy other things possessing intrinsic value, the outcome of market speculation has real consequences in national economies and for society. But for the speculator, the market provides a horserace, with no redeeming social value. A horserace improves the breed.

Why do governments allow speculation to set the value of their money, as they have since the last trace of the gold standard was destroyed by Richard Nixon in 1971? One notes that President Nixon was acting in tacit submission to the perils of fiat currency, since his motive (one of them) was to halt American gold holdings being shipped to France, at the demand of President Charles de Gaulle, to settle the American commercial deficit. (Had he not broken the dollar-gold link, one shivers at what American-Chinese relations would be today, with China able to demand redemption in gold of its dollar holdings. On the other hand, what peril now may exist to both countries in the lack of what might be called an objective corollary to printed money?)

Fiction and fantasy in finance provide questions that might profitably be the subject of another of those “summit conferences” that have kept high officials on the road in past months. It might be devoted to rescuing the economy from the depredations of speculation, which just last week created a situation in which, as Jeremy Warner wrote in the London Telegraph, even German bonds had lost “their ‘risk-free’ status. … No one wants to hold euro denominated assets of any variety. … All of a sudden, the pound is the European default asset of choice.”


Visit William Pfaff’s website for more on his latest book, “The Irony of Manifest Destiny: The Tragedy of America’s Foreign Policy” (Walker & Co., $25), at www.williampfaff.com (http://www.williampfaff.com) .

© 2011 Tribune Media Services, Inc.

http://www.huffingtonpost.com/jeff-conn ... 57915.html

Obama and the Rule of Law

Posted: 12/19/11 01:55 PM ET


Long silent and now contradictory, President Obama needs to deliver a clarifying speech about our financial markets and the rule of law. Speaking in Kansas on December 6, he said, "Too often, we've seen Wall Street firms violating major anti-fraud laws because the penalties are too weak and there's no price for being a repeat offender." Just five days later on 60 Minutes, he said, "Some of the least ethical behavior on Wall Street wasn't illegal." Which is it? Have there been no prosecutions because Wall Street acted legally (albeit unethically)? Or did Wall Street repeatedly violate major anti-fraud laws (and should thus find itself in the dock)?

The President is confusing "legal" with "difficult to prosecute successfully." The Justice Department's repeated decisions not to risk losing at trial against Wall Street executives don't make these person's actions legal. (If a district attorney can't prove the actual thief stole your wallet, that doesn't make stealing legal. It simply means that, regrettably, a malefactor goes unpunished.) As Securities and Exchange Commission Enforcement Director Robert Khuzami said in Senate testimony in 2009, Wall Street perpetrators "are smart people who understand that they are crossing the line" and "are plotting their defense at the same time they're committing their crime."

Moreover, the President is misleading us when he says that Wall Street firms violate anti-fraud law because the penalties are too weak. Repeat financial fraudsters don't pay relatively paltry -- and therefore painless -- penalties because of statutory caps on such penalties. Rather, regulatory officials, appointed by Obama, negotiated these comparatively trifling fines. This week, the F.D.I.C. settled a suit against Washington Mutual officials for just $64 million, an amount that will be covered mostly by insurance policies WaMu took out on behalf of executives, who themselves will pay just $400,000. And recently a federal judge rejected the S.E.C.'s latest settlement with Citigroup, an action even the Wall Street Journal called "a rebuke of the cozy relationship between regulators and the regulated that too often leaves justice as an orphan."

The Obama Justice Department hasn't tried a single Wall Street executive in a criminal court. Against a handful, it decided to let the S.E.C. bring civil charges of fraud, which are easier to prove. So if defendants' wrists are merely being slapped by the S.E.C. instead of cuffed by the Justice Department, Obama has only his appointees to blame.

For three important reasons, the President needs to explain why the Justice Department has filed away its investigations of big banks and Wall Street firms without indicting anyone. First, American confidence in the system is deeply shaken. Second, it strains credulity for millions of Americans -- and has impelled thousands of them to occupy public places in protest -- that no banking or insurance executive deserves criminal prosecution for the actions that brought on the financial crisis. Third, by failing to prosecute a single high-profile Wall Street actor today, the Administration is failing to deter financial fraud tomorrow.

The jury is out (alas, only metaphorically) on whether Wall Street practices that accompanied the financial crisis amounted to criminal fraud. Some legal commentators have concluded that the causes of the crisis were systemic and not the result of malfeasance or conspiracy. The debate about whether practices were illegal or simply unethical will never be resolved because only a jury can render a verdict after weighing the evidence, presented by opposing counsel, for each element of an alleged crime. That said, independent fact-finders like the Financial Crisis Inquiry Commission, the Senate Permanent Committee on Investigations, and the bankruptcy examiner for Lehman Brothers have compiled compelling evidence of what, to many, certainly looks like fraud.

But did the Justice Department's senior leadership even make targeting high-level fraud a top priority? Did it plan, staff, fund, and direct a thorough, probing investigation of each of the primary potential defendants? While I was working in the Senate, conversations I had with Justice Department officials led me to believe that it didn't. As the New York Times and New Yorker have reported, the Department's leadership never organized or supported strike-force teams of bank regulators, F.B.I. agents, and federal prosecutors for each of the potential primary defendants and ignored past lessons about how to crack financial fraud. When Senator Ted Kaufman (D-DE) and I met privately with Department officials in September 2009, one of them explained they were dependent on investigators to bring them cases (which typified, I believed, their passive approach). And, for their part, the investigators were receiving no help from bank regulatory agencies (in the 1990s, successful prosecutions after the savings-and-loan scandal hinged on referrals from the responsible supervising agencies, which provided key roadmaps for F.B.I. investigations).

The Justice Department, F.B.I., and bank regulatory agencies failed to design a prosecutorial strategy that would've indicted and perhaps convicted many top executives who knew that their banks were selling fraudulent securities that bundled together thousands of largely bad loans. These loans, known in the industry as stated-income loans and (more glibly and more accurately) as liar loans, were issued without verifying the borrowers' income. A former executive in charge of fraud investigations at mortgage lender Countrywide Financial told 60 Minutes that mortgage fraud at her firm was "systemic," but federal investigators never contacted her. The U.S. attorney in Los Angeles has already declined to prosecute Countrywide executives. The Senate's Permanent Subcommittee on Investigations found that approximately 90 percent of WaMu's home-equity loans were stated-income loans, creating, in the words of Treasury Department Inspector General Eric Thorson, a "target rich environment for fraud." Yet the U.S. Attorney in Seattle decided not to indict anyone at WaMu.

Failure to disclose material information is another form of potential fraud. Merrill Lynch, for example, understated its risky mortgage holdings by hundreds of billions of dollars. Executives at Lehman Brothers assured investors in the summer of 2008 that the company was sound, even though the bankruptcy examiner later concluded that Lehman had engaged in "actionable balance-sheet manipulation."

Yes, with financial fraud, criminal intent is difficult to prove, especially when a defendant relied on professional advice from accountants and lawyers (and in some cases may even have been acting with the knowledge of the bank's regulator, who was apparently more concerned about the bank's financial soundness than about full disclosure to investors). But we shouldn't outsource the interpretation of fraud laws to a potential defendant's accountant and lawyers. And why haven't prosecutors used provisions in the Sarbanes-Oxley Act, which put in place tough criminal sanctions in the wake of Enron and other cases of massive corporate frauds? In the absence of an aggressive, targeted effort by the Justice Department, we'll never know whether crimes may have been proved beyond a reasonable doubt.

Why didn't this happen? I wish I knew. At the Senate oversight hearings, Justice Department officials assured the Judiciary Committee that every lead was being pursued and every rock turned over. Doubtless they'll continue to claim this. Yet in Ron Suskind's book, Confidence Men, he quotes Treasury Secretary Timothy Geithner as saying, "The confidence in the system is so fragile still... a disclosure of a fraud... could result in a run, just like Lehman." The Obama Administration is pushing hard for a 50-state settlement with the major banks for their fraudulent foreclosure practices, even though several state attorneys general have rejected this approach because, in their view, it would shield too much wrongdoing. Regrettably, Obama's top officials and lawyers seem more eager to restore the financial sector to health than establish criminal accountability among the executives who were in charge.

In 1986, speaking about the failure of another president's Justice Department to vigorously prosecute white-collar crime, former Chairman of the Senate Judiciary Committee and current Vice President Joseph Biden said that "people believe that our system of law and those who manage it have failed, and may not even have tried, to deal effectively with unethical and possibly illegal misconduct in high places." Until this president stops calling Wall Street's deleterious actions "not illegal," he's failing to deter -- and therefore effectively encouraging -- future financial fraud. And until he gives a clear and full explanation of the inadequate response of his Justice Department and S.E.C., he and his appointees are helping to undermine the public's faith in equal justice under the law.


Jeff Connaughton is the former chief of staff to former U.S. Senator Ted Kaufman (D-DE), who chaired two Senate Judiciary Committee oversight hearings on financial fraud prosecutions in 2009 and 2010.

This one's a double! Going to also post in OWS!

Princeton Brews Trouble for Us 1 Percenters: Michael Lewis

http://finance.yahoo.com/news/princeton ... 00782.html

By Michael Lewis | Bloomberg – Wed, Dec 28, 2011 7:00 PM EST


To: The Upper Ones, From: The Strategy Committee, Re: The Alarming Behavior of College Students

The committee has been reconvened in haste to respond to a disturbing new trend: the uprisings by students on elite college campuses.

Across the Ivy League the young people whom our Wall Street division once subjugated with ease are becoming troublesome. Our good friends at Goldman Sachs, to cite one example, have been forced to cancel their recruiting trips to Harvard and Brown. At Princeton, 30 students masquerading as job applicants entered a pair of Wall Street informational sessions, asked many obnoxious questions ("How do I get a job lobbying the U.S. government to protect Wall Street interests?"), rose and chanted a list of charges at bankers from JPMorgan and Goldman Sachs, and, finally, posted videos of their outrageous behavior on YouTube.

The committee views this latter incident as a sure sign of trouble to come. The whole point of going to Princeton for the past several decades has been to get a job at Goldman Sachs or, failing that, JPMorgan. That Princeton students are now identifying their interests with the Lower 99 percenters is, in its way, as ominous as the return of the Jews to Jerusalem.

Having fully investigated the incidents in question, we are now prepared to offer strategic recommendations. Going forward all big Wall Street banks, when visiting college campuses, should adopt the following tactics.

No. 1. Send only women. You may not have fully understood why you hired them in the first place, but now is their moment to shine. For some time now the standard recruiting mission has included at least one woman and one person of color, to "season" the sauce. But typically, in the interests of keeping it "real," there has been on the scene at least one white male recruiter.

Anyone who studies the Princeton-JPMorgan video will see that we can no longer afford to keep it real. The camera passes forgivingly over the JPMorgan women -- the viewer feels sorry for them, for some reason -- and comes to rest on the lone white Morgan man. The viewer doesn't feel sorry for him. Get him out of there. Now.

No. 2. Having identified your female employees, gather them together to explain that they have no obligation to justify your behavior, even to themselves. They shouldn't give college students the satisfaction of thinking that you have devoted so much as a passing thought to the following subjects: Why it is OK for Wall Street banks to create securities designed to fail; why it is OK for them to game the ratings companies; why it is OK to get paid huge sums of money while working for companies rescued, and still implicitly backed, by the U.S. government; why it is OK to subvert attempts by politicians to reform the financial system?

Avoid taking questions from college students. For that matter, avoid engaging them in substantive conversation of any sort. Your women need to shift the conversation from content to form. They must say things like, "I don't mind what you are saying, I just mind how you are saying it." And "I don't understand why you can't treat other people with respect."

They must cast themselves not as extensions of a global financial empire but as guests. Everyone at Princeton can agree that it is wrong to be rude to ladies on a visit.

Happily, many Princeton students, hiding behind aliases, have already taken up this cry on campus websites. Encourage those who still want to work for big Wall Street banks to blog and post our new defense. Don't offer jobs to these students who agree to help, however. They are better suited to being Wall Street customers than Wall Street bankers.

No. 3. Focus on what actually angers these angry young people, rather than what they say angers them. The character of Princeton students didn't change overnight; what changed is their circumstances. They think they are pissed off at us because of what we did. They are actually pissed off at us because we can no longer afford to hire them all. To that end ...

No. 4. Engage, quietly, with the ringleaders. Of course, all variations of the Occupy movement claim to be leaderless. We on the committee aren't buying this. With the possible exception of Bank of America, there is no such thing as a leaderless organization, only organizations in which the leaders operate in the shadows.

Sources inside inform us that one of the leaders of the Princeton-JPMorgan protest -- the young man who led the so- called "mic check" -- is a comparative literature major named Derek Gideon. Sources further indicate that for his senior thesis Mr. Gideon is writing -- get this -- a poem.

This poem of his apparently leaves him with a great deal of time and energy to stir up trouble.

"My goal is to change the dominant campus culture," he has been quoted saying, "the culture that assumes that going to work for Goldman Sachs and JPMorgan is the most prestigious thing you can do, without having any critical sense of their current role in society. We're very privileged to be here. We're getting an incredible education. All just for us to be sending 30 percent, 40 percent of our graduates to the finance sector?"

Unsurprisingly, Mr. Gideon doesn't know precisely what he is going to do with his life after he graduates. This young man strikes the committee as an ideal candidate for a job at Goldman Sachs. Yes, in our experience, even the Gideons of this world can be persuaded. After all, what better way for him to improve our behavior than to become one of us? Put that way, he almost has an obligation to take his natural resting place among us.

As awkward as it is to find ourselves in a war with students inside our own trade schools, we cannot simply cease to deal with them. After all, many are our own children. Disinheritance is messy. And, anyway, what's the point of winning the estate-tax battle if we have no heirs?

More important, the students at Ivy League schools are our most devastating ammunition in this looming cultural war. They show the Lower 99 that today's economic inequality isn't some horrible injustice but a financial expression of the natural order of man. The sort of people who become Upper Ones are inherently different from the sort of people who become Lower 99s. The clearest sign of this inherent difference is that we begin our adult life by getting into places like Princeton.

Win the battle at Princeton and we might still win this war.

(Michael Lewis, most recently author of "Boomerang: Travels in the New Third World," is a columnist for Bloomberg News. The opinions expressed are his own.)

To contact the writer of this article: Michael Lewis at mlewis1@bloomberg.net.

To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net.

[eyeno]

I'm not really sure where this should go in the forum but this thread seems appropriate.


Chris Hedges "Brace Yourself! The American Empire Is Over & The Descent Is Going To Be Horrifying!"


http://www.youtube.com/watch?v=7zotYU21 ... r_embedded

[JackRiddler]

.

Posting it here, but this is history everyone on the board should know as well as JFK:

http://www.counterpunch.org/2011/12/02/ ... coup/print

This copy is for your personal, non-commercial use only.

Weekend Edition December 2-4, 2011
The American Liberty League vs. Gen. Smedley Butler
Wall Street’s Failed 1934 Coup
by MICHAEL DONNELLY

“In the last few weeks of the committee’s official life it received evidence showing that certain persons had made an attempt to establish a fascist organization in this country…There is no question that these attempts were discussed, were planned, and might have been placed in execution when and if the financial backers deemed it expedient.”

– Report of the McCormack-Dickstein Committee

A Patriot, not the Traitor they wanted

You know the coup plot they teach all young Americans about in 10th Grade History class? Oh yeah…

In November 1934, famed double Medal of Honor winner Marine Gen. Smedley Butler gave secret testimony before the McCormack-Dickstein committee – a precursor to the House Committee on Un-American Activities. In it, Butler told of a plot headed by a group of wealthy businessmen (The American Liberty League) to establish a fascist dictatorship in the United States, complete with concentration camps for “Jews and other undesirables.”

Show Me the Money

Butler had been approached by Gerald P. MacGuire of Wall Street’s Grayson M-P Murphy & Co. MacGuire claimed they would assemble an army of 500,000 mostly unemployed WWI veterans and march on DC. The plutocrats wanted Butler to lead the coup, thinking that, like the Bolsheviks, taking one major city (DC as Petrograd) would lead to the fall of the government. They promised to put up $3 million as starters and dangled a future $300 million as bait. Butler went along with the plot until he could learn the identities of all the schemers. Not a one of them was ever called to testify or was charged with Treason. Virtually all of them were founding members of the Council on Foreign Relations (CFR).

The League was headed by the DuPont and J.P Morgan cartels and had major support from Andrew Mellon Associates, Pew (Sun Oil), Rockefeller Associates, E.F. Hutton Associates, U.S. Steel, General Motors, Chase, Standard Oil and Goodyear Tires.

Money was funneled thru the Sen. Prescott Bush-led Union Banking Corporation (yes, those Bushes) and the Prescott Bush-led Brown Brothers Harriman (yes, that Harriman) to the League (and to Hitler, but that’s another story). The plotters bragged about Bush’s Hitler connections and even claimed that Germany had promised Bush that it would provide materiel for the coup. This claim was entirely believable: a year earlier, Chevrolet president William S. Knudsen (who himself had donated $10,000 to the League) went to Germany and met with Nazi leaders and declared upon his return that Hitler’s Germany was “the miracle of the twentieth century.” At the time, GM’s wholly-owned Adam-Opal Co. had already begun producing the Nazi’s tanks, trucks and bomber engines. James D. Mooney, GM’s vice-president for foreign operations was joined by Henry Ford and IBM chief Tom Watson in receiving the Grand Cross of the German Eagle from Hitler for their considerable efforts on behalf of the Third Reich.

The Whitewash

While the Committee found that Gen. Butler was telling the truth, discrediting such a stalwart was problematic for the plotters. Quickly, the corporate press weighed in and sought to raise doubts about the war hero, settling on branding him naive. The discredit Knudsen meme was: “it was all idle cocktail party chatter.” This red herring was trumpeted under the Associated Press headline “The Cocktail Putsch.” New York Mayor Fiorello LaGuardia dismissed the plot as “someone at the party had suggested the idea to the ex-Marine as a joke.”

From 1934 through 1936, the League got thirty-five pro-League front page stories in the New York Times. TIME ridiculed Butler in a Dec. 3, 1934 cover story, even though Butler’s story was corroborated by VFW head James E. Van Zandt, who also said he was approached to lead the coup. Though, TIME did put a footnote on an early 1935 article stating; “Also last week the House Committee on Un-American Activities purported to report that a two-month investigation had convinced it that General Butler’s story of a fascist march on Washington was alarmingly true.”

Solely, the Scripps-Howard papers backed FDR and presented the truth.

Whatever Happened to the “Economic Royalists?”

President Franklin D. Roosevelt labeled the plotters “economic royalists” and survived their, thankfully, ham-handed efforts. Jan. 3, 1936, FDR blasted the American Liberty League before a joint session of Congress where he announced the ban on military exports to Italy.

“Our resplendent economic aristocracy does not want to return to that individualism of which they prate, even thought the advantages under that system went to the ruthless and the strong. They realize that in thirty-four months we have built up new instruments of public power. In the hands of a people’s government this power is wholesome and proper. But, in the hands of political, puppets of an economic aristocracy, such power would provide shackles for the liberties of the people. Give them their way and they will take the course of every aristocracy of the past – power for themselves, enslavement for the public.”

FDR was never able to bring any of the plotters to justice. He wasn’t even able to rein in Prescott Bush until 1942 when the government seized the assets of Bush’s pro-Nazi enterprises – garnering Bush a $1.5 million windfall once the assets were returned in 1951! It’s obvious that the fascist mindset of the “economic royalists” has never gone away and is the driving force behind the modern-day ascent (and the ultimate demise of) of the American Empire, the attacks on worker’s rights and pensions, the attacks on our minimal safety nets, etc.

In its day, the League promoted itself as a bastion of all concerned about “burdensome taxes imposed upon industry for unemployment insurance and old age pension.” The League sought to “combat radicalism” and to “teach respect for the rights of persons and property, and generally to foster free private enterprise.”

J.P. Morgan and Chase are now one. The fortunes of the Mellon, Rockefeller, DuPont, Pitcairn (Pittsburgh Plate Glass) and Pew families have sky-rocketed. Pew and Rockefeller have morphed into a cabal of foundations that fund/neuter progressive grass roots efforts.

1936′s Occupy Movement

William S. Knudsen was the sole inside plotter who turned against the plot, renounced Hitler and is credited with pushing GM into a settlement of the Flint Sit-Down Strike . Underpaid, overworked workers took over and stayed in their plants, starting with Flint’s Fisher Body #3 and fought off attacks by GM-controlled police and hired goons. FDR and Michigan Gov. Frank Murphy called out the National Guard, not to roust the strikers, but to form a cordon between the strikers and the goons. Murphy’s father and grandfather had been hung by the British as Irish revolutionaries and many of the strikers were ethnic Irish laborers, so he as very sympathetic.

After 44 days, Knudsen, now GM vice-president, declared that “Collective Bargaining’s time has come” With his ally, two-time Flint Mayor, life-long civic booster/philanthropist, GM’s top shareholder and fellow board member C. S. Mott assisting; GM settled, leading the way to the 40-hour work week, overtime pay, union organizing rights, pensions, etc. Mott even saw to it that health clinics were set up in the factories for the workers and their families. Coup plotter/GM President and Chairman Alfred P. Sloan, who had wanted to reclaim the plants with guns blazing stepped partly aside as GM head and Knudsen replaced him as president. GM went on to become the world’s top corporation for 40 years, the country saw the rise of a middle class and wealth disparity was at the lowest levels ever in the US.

It likely was not entirely altruistic of Knudsen, as two years later FDR put Knudsen in charge of the National Defense Advisory Commission. On his watch, some $12 billion in armament contracts were awarded to GM by the U.S. War Production Board, which also was conveniently chaired by Knudsen. At the same time, GM’s Opal factories built most of Hitler’s trucks and bomber engines. This part of the “win-win” did not lead to any charges against Knudsen or GM. Instead, it led to the Danish immigrant Knudsen becoming the first civilian commissioned as a U.S. Army General.

The Lesson

The take-away lesson to never forget is that, as Roosevelt noted, economic royalists have their own decidedly non-populist agenda. Since they paid no price at all for their coup attempt, they have never wavered from their elitist ideology. They now simply rig elections, set up massive “security” apparatuses and roust anyone who stands up to their dominance. (NY Mayor Michael Bloomberg, the 12th richest American worth $19.5 billion, recently bragged: “I have my own army in the NYPD, which is the seventh biggest army in the world. I have my own State Department, much to Foggy Bottom’s annoyance.”)

Union busting goes on unabated. The US has a greater percentage of its people incarcerated than any country at any time in history. And, thanks to recent Supreme Court decisions, no one can match the political clout of the financiers. The “royalists” now own the government, as well as the press and their own armies. War profiteering still tops the agenda, followed closely by attacks on workers’ wages, pensions, health care… FDR and the Sit-Downers’ hard-won safety net is under assault.

As the great populist Sen. Robert La Follette, Jr. said at the time, the American Liberty League (and all its following incarnations) cannot “be expected to defend the liberty of the masses of the American people. It speaks for the vested interests.”

The other lesson is: Occupying the Means of Production gets the goods.

MICHAEL DONNELLY lives in Salem, OR. He can be reached at pahtoo@aol.com

[JackRiddler]

http://www.counterpunch.org/2011/12/02/debt-slavery-–-why-it-destroyed-rome-why-it-will-destroy-us-unless-it’s-stopped/print

This copy is for your personal, non-commercial use only.

Weekend Edition December 2-4, 2011

Hammurabi Knew Better
Debt Slavery – Why It Destroyed Rome, Why It Will Destroy Us Unless It’s Stopped

by MICHAEL HUDSON


Book V of Aristotle’s Politics describes the eternal transition of oligarchies making themselves into hereditary aristocracies – which end up being overthrown by tyrants or develop internal rivalries as some families decide to “take the multitude into their camp” and usher in democracy, within which an oligarchy emerges once again, followed by aristocracy, democracy, and so on throughout history.

Debt has been the main dynamic driving these shifts – always with new twists and turns. It polarizes wealth to create a creditor class, whose oligarchic rule is ended as new leaders (“tyrants” to Aristotle) win popular support by cancelling the debts and redistributing property or taking its usufruct for the state.

Since the Renaissance, however, bankers have shifted their political support to democracies. This did not reflect egalitarian or liberal political convictions as such, but rather a desire for better security for their loans. As James Steuart explained in 1767, royal borrowings remained private affairs rather than truly public debts. For a sovereign’s debts to become binding upon the entire nation, elected representatives had to enact the taxes to pay their interest charges.

By giving taxpayers this voice in government, the Dutch and British democracies provided creditors with much safer claims for payment than did kings and princes whose debts died with them. But the recent debt protests from Iceland to Greece and Spain suggest that creditors are shifting their support away from democracies. They are demanding fiscal austerity and even privatization sell-offs.

This is turning international finance into a new mode of warfare. Its objective is the same as military conquest in times past: to appropriate land and mineral resources, also communal infrastructure and extract tribute. In response, democracies are demanding referendums over whether to pay creditors by selling off the public domain and raising taxes to impose unemployment, falling wages and economic depression. The alternative is to write down debts or even annul them, and to re-assert regulatory control over the financial sector.

Near Eastern rulers proclaimed clean slates for debtors to preserve economic balance

Charging interest on advances of goods or money was not originally intended to polarize economies. First administered early in the third millennium BC as a contractual arrangement by Sumer’s temples and palaces with merchants and entrepreneurs who typically worked in the royal bureaucracy, interest at 20 per cent (doubling the principal in five years) was supposed to approximate a fair share of the returns from long-distance trade or leasing land and other public assets such as workshops, boats and ale houses.

As the practice was privatized by royal collectors of user fees and rents, “divine kingship” protected agrarian debtors. Hammurabi’s laws (c. 1750 BC) cancelled their debts in times of flood or drought. All the rulers of his Babylonian dynasty began their first full year on the throne by cancelling agrarian debts so as to clear out payment arrears by proclaiming a clean slate. Bondservants, land or crop rights and other pledges were returned to the debtors to “restore order” in an idealized “original” condition of balance. This practice survived in the Jubilee Year of Mosaic Law in Leviticus 25.

The logic was clear enough. Ancient societies needed to field armies to defend their land, and this required liberating indebted citizens from bondage. Hammurabi’s laws protected charioteers and other fighters from being reduced to debt bondage, and blocked creditors from taking the crops of tenants on royal and other public lands and on communal land that owed manpower and military service to the palace.

In Egypt, the pharaoh Bakenranef (c. 720-715 BC, “Bocchoris” in Greek) proclaimed a debt amnesty and abolished debt-servitude when faced with a military threat from Ethiopia. According to Diodorus of Sicily (I, 79, writing in 40-30 BC), he ruled that if a debtor contested the claim, the debt was nullified if the creditor could not back up his claim by producing a written contract. (It seems that creditors always have been prone to exaggerate the balances due.) The pharaoh reasoned that “the bodies of citizens should belong to the state, to the end that it might avail itself of the services which its citizens owed it, in times of both war and peace. For he felt that it would be absurd for a soldier … to be haled to prison by his creditor for an unpaid loan, and that the greed of private citizens should in this way endanger the safety of all.”

The fact that the main Near Eastern creditors were the palace, temples and their collectors made it politically easy to cancel the debts. It always is easy to annul debts owed to oneself. Even Roman emperors burned the tax records to prevent a crisis. But it was much harder to cancel debts owed to private creditors as the practice of charging interest spread westward to Mediterranean chiefdoms after about 750 BC. Instead of enabling families to bridge gaps between income and outgo, debt became the major lever of land expropriation, polarizing communities between creditor oligarchies and indebted clients. In Judah, the prophet Isaiah (5:8-9) decried foreclosing creditors who “add house to house and join field to field till no space is left and you live alone in the land.”

Creditor power and stable growth rarely have gone together. Most personal debts in this classical period were the product of small amounts of money lent to individuals living on the edge of subsistence and who could not make ends meet. Forfeiture of land and assets – and personal liberty – forced debtors into bondage that became irreversible. By the 7th century BC, “tyrants” (popular leaders) emerged to overthrow the aristocracies in Corinth and other wealthy Greek cities, gaining support by cancelling the debts. In a less tyrannical manner, Solon founded the Athenian democracy in 594 BC by banning debt bondage.

But oligarchies re-emerged and called in Rome when Sparta’s kings Agis, Cleomenes and their successor Nabis sought to cancel debts late in the third century BC. They were killed and their supporters driven out. It has been a political constant of history since antiquity that creditor interests opposed both popular democracy and royal power able to limit the financial conquest of society – a conquest aimed at attaching interest-bearing debt claims for payment on as much of the economic surplus as possible.

When the Gracchi brothers and their followers tried to reform the credit laws in 133 BC, the dominant Senatorial class acted with violence, killing them and inaugurating a century of Social War, resolved by the ascension of Augustus as emperor in 29 BC.

Rome’s creditor oligarchy wins the Social War, enslaves the population and brings on a Dark Age

Matters were more bloody abroad. Aristotle did not mention empire building as part of his political schema, but foreign conquest always has been a major factor in imposing debts, and war debts have been the major cause of public debt in modern times. Antiquity’s harshest debt levy was by Rome, whose creditors spread out to plague Asia Minor, its most prosperous province. The rule of law all but disappeared when publican creditor “knights” arrived. Mithridates of Pontus led three popular revolts, and local populations in Ephesus and other cities rose up and killed a reported 80,000 Romans in 88 BC. The Roman army retaliated, and Sulla imposed war tribute of 20,000 talents in 84 BC. Charges for back interest multiplied this sum six-fold by 70 BC.

Among Rome’s leading historians, Livy, Plutarch and Diodorus blamed the fall of the Republic on creditor intransigence in waging the century-long Social War marked by political murder from 133 to 29 BC. Populist leaders sought to gain a following by advocating debt cancellations (e.g., the Catiline conspiracy in 63-62 BC). They were killed. By the second century AD about a quarter of the population was reduced to bondage. By the fifth century Rome’s economy collapsed, stripped of money. Subsistence life reverted to the countryside.

Creditors find a legalistic reason to support parliamentary democracy

When banking recovered after the Crusades looted Byzantium and infused silver and gold to review Western European commerce, Christian opposition to charging interest was overcome by the combination of prestigious lenders (the Knights Templars and Hospitallers providing credit during the Crusades) and their major clients – kings, at first to pay the Church and increasingly to wage war. But royal debts went bad when kings died. The Bardi and Peruzzi went bankrupt in 1345 when Edward III repudiated his war debts. Banking families lost more on loans to the Habsburg and Bourbon despots on the thrones of Spain, Austria and France.

Matters changed with the Dutch democracy, seeking to win and secure its liberty from Habsburg Spain. The fact that their parliament was to contract permanent public debts on behalf of the state enabled the Low Countries to raise loans to employ mercenaries in an epoch when money and credit were the sinews of war. Access to credit “was accordingly their most powerful weapon in the struggle for their freedom,” Richard Ehrenberg wrote in his Capital and Finance in the Age of the Renaissance (1928): “Anyone who gave credit to a prince knew that the repayment of the debt depended only on his debtor’s capacity and will to pay. The case was very different for the cities, which had power as overlords, but were also corporations, associations of individuals held in common bond. According to the generally accepted law each individual burgher was liable for the debts of the city both with his person and his property.”

The financial achievement of parliamentary government was thus to establish debts that were not merely the personal obligations of princes, but were truly public and binding regardless of who occupied the throne. This is why the first two democratic nations, the Netherlands and Britain after its 1688 revolution, developed the most active capital markets and proceeded to become leading military powers. What is ironic is that it was the need for war financing that promoted democracy, forming a symbiotic trinity between war making, credit and parliamentary democracy which has lasted to this day.

At this time “the legal position of the King qua borrower was obscure, and it was still doubtful whether his creditors had any remedy against him in case of default.” (Charles Wilson, England’s Apprenticeship: 1603-1763: 1965.) The more despotic Spain, Austria and France became, the greater the difficulty they found in financing their military adventures. By the end of the eighteenth century Austria was left “without credit, and consequently without much debt,” the least credit-worthy and worst armed country in Europe, fully dependent on British subsidies and loan guarantees by the time of the Napoleonic Wars.

Finance accommodates itself to democracy, but then pushes for oligarchy

While the nineteenth century’s democratic reforms reduced the power of landed aristocracies to control parliaments, bankers moved flexibly to achieve a symbiotic relationship with nearly every form of government. In France, followers of Saint-Simon promoted the idea of banks acting like mutual funds, extending credit against equity shares in profit. The German state made an alliance with large banking and heavy industry. Marx wrote optimistically about how socialism would make finance productive rather than parasitic. In the United States, regulation of public utilities went hand in hand with guaranteed returns. In China, Sun-Yat-Sen wrote in 1922: “I intend to make all the national industries of China into a Great Trust owned by the Chinese people, and financed with international capital for mutual benefit.”

World War I saw the United States replace Britain as the major creditor nation, and by the end of World War II it had cornered some 80 per cent of the world’s monetary gold. Its diplomats shaped the IMF and World Bank along creditor-oriented lines that financed trade dependency, mainly on the United States. Loans to finance trade and payments deficits were subject to “conditionalities” that shifted economic planning to client oligarchies and military dictatorships. The democratic response to resulting austerity plans squeezing out debt service was unable to go much beyond “IMF riots,” until Argentina rejected its foreign debt.

A similar creditor-oriented austerity is now being imposed on Europe by the European Central Bank (ECB) and EU bureaucracy. Ostensibly social democratic governments have been directed to save the banks rather than reviving economic growth and employment. Losses on bad bank loans and speculations are taken onto the public balance sheet while scaling back public spending and even selling off infrastructure. The response of taxpayers stuck with the resulting debt has been to mount popular protests starting in Iceland and Latvia in January 2009, and more widespread demonstrations in Greece and Spain this autumn to protest their governments’ refusal to hold referendums on these fateful bailouts of foreign bondholders.

Shifting planning away from elected public representatives to bankers

Every economy is planned. This traditionally has been the function of government. Relinquishing this role under the slogan of “free markets” leaves it in the hands of banks. Yet the planning privilege of credit creation and allocation turns out to be even more centralized than that of elected public officials. And to make matters worse, the financial time frame is short-term hit-and-run, ending up as asset stripping. By seeking their own gains, the banks tend to destroy the economy. The surplus ends up being consumed by interest and other financial charges, leaving no revenue for new capital investment or basic social spending.

This is why relinquishing policy control to a creditor class rarely has gone together with economic growth and rising living standards. The tendency for debts to grow faster than the population’s ability to pay has been a basic constant throughout all recorded history. Debts mount up exponentially, absorbing the surplus and reducing much of the population to the equivalent of debt peonage. To restore economic balance, antiquity’s cry for debt cancellation sought what the Bronze Age Near East achieved by royal fiat: to cancel the overgrowth of debts.

In more modern times, democracies have urged a strong state to tax rentier income and wealth, and when called for, to write down debts. This is done most readily when the state itself creates money and credit. It is done least easily when banks translate their gains into political power. When banks are permitted to be self-regulating and given veto power over government regulators, the economy is distorted to permit creditors to indulge in the speculative gambles and outright fraud that have marked the past decade. The fall of the Roman Empire demonstrates what happens when creditor demands are unchecked. Under these conditions the alternative to government planning and regulation of the financial sector becomes a road to debt peonage.

Finance vs. government; oligarchy vs. democracy

Democracy involves subordinating financial dynamics to serve economic balance and growth – and taxing rentier income or keeping basic monopolies in the public domain. Untaxing or privatizing property income “frees” it to be pledged to the banks, to be capitalized into larger loans. Financed by debt leveraging, asset-price inflation increases rentier wealth while indebting the economy at large. The economy shrinks, falling into negative equity.

The financial sector has gained sufficient influence to use such emergencies as an opportunity to convince governments that that the economy will collapse they it do not “save the banks.” In practice this means consolidating their control over policy, which they use in ways that further polarize economies. The basic model is what occurred in ancient Rome, moving from democracy to oligarchy. In fact, giving priority to bankers and leaving economic planning to be dictated by the EU, ECB and IMF threatens to strip the nation-state of the power to coin or print money and levy taxes.

The resulting conflict is pitting financial interests against national self-determination. The idea of an independent central bank being “the hallmark of democracy” is a euphemism for relinquishing the most important policy decision – the ability to create money and credit – to the financial sector. Rather than leaving the policy choice to popular referendums, the rescue of banks organized by the EU and ECB now represents the largest category of rising national debt. The private bank debts taken onto government balance sheets in Ireland and Greece have been turned into taxpayer obligations. The same is true for America’s $13 trillion added since September 2008 (including $5.3 trillion in Fannie Mae and Freddie Mac bad mortgages taken onto the government’s balance sheet, and $2 trillion of Federal Reserve “cash-for-trash” swaps).

This is being dictated by financial proxies euphemized as technocrats. Designated by creditor lobbyists, their role is to calculate just how much unemployment and depression is needed to squeeze out a surplus to pay creditors for debts now on the books. What makes this calculation self-defeating is the fact that economic shrinkage – debt deflation – makes the debt burden even more unpayable.

Neither banks nor public authorities (or mainstream academics, for that matter) calculated the economy’s realistic ability to pay – that is, to pay without shrinking the economy. Through their media and think tanks, they have convinced populations that the way to get rich most rapidly is to borrow money to buy real estate, stocks and bonds rising in price – being inflated by bank credit – and to reverse the past century’s progressive taxation of wealth.

To put matters bluntly, the result has been junk economics. Its aim is to disable public checks and balances, shifting planning power into the hands of high finance on the claim that this is more efficient than public regulation. Government planning and taxation is accused of being “the road to serfdom,” as if “free markets” controlled by bankers given leeway to act recklessly is not planned by special interests in ways that are oligarchic, not democratic. Governments are told to pay bailout debts taken on not to defend countries in military warfare as in times past, but to benefit the wealthiest layer of the population by shifting its losses onto taxpayers.

The failure to take the wishes of voters into consideration leaves the resulting national debts on shaky ground politically and even legally. Debts imposed by fiat, by governments or foreign financial agencies in the face of strong popular opposition may be as tenuous as those of the Habsburgs and other despots in past epochs. Lacking popular validation, they may die with the regime that contracted them. New governments may act democratically to subordinate the banking and financial sector to serve the economy, not the other way around.

At the very least, they may seek to pay by re-introducing progressive taxation of wealth and income, shifting the fiscal burden onto rentier wealth and property. Re-regulation of banking and providing a public option for credit and banking services would renew the social democratic program that seemed well underway a century ago.

Iceland and Argentina are most recent examples, but one may look back to the moratorium on Inter-Ally arms debts and German reparations in 1931.A basic mathematical as well as political principle is at work: Debts that can’t be paid, won’t be.

This article appears in the Frankfurter Algemeine Zeitung on December 5, 2011.

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