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

[2012 Countdown]

No end in sight to foreclosure quagmire
A special Nightly News/msnbc.com report on the mortgage mess

By Lisa Myers, Rich Gardella and John W. Schoen
NBC News and msnbc.com NBC News and msnbc.com
2011-05-09

Four years after a wave of rogue mortgage lending sent the U.S. housing market into the worst collapse since the Great Depression, the devastating flood of resulting foreclosures shows no sign of abating. In some ways, the problem is getting worse.

House prices are falling again, forcing more homeowners “underwater” — owing more than their house is worth. Lenders’ shoddy document practices have brought widespread court challenges, slowing the process and leaving millions of homeowners in limbo.

And the foreclosure crisis continues to weigh heavily on the fragile economy.

“Right now, it’s the second-biggest drag on the economy after the surge in oil prices,” said Moody's Analytics chief economist Mark Zandi.

Already some 5 million homes have been lost to foreclosure; estimates of future foreclosures range widely. Zandi, who has followed the mortgage mess since the housing market began to crack in 2006, figures foreclosures will strike another three million homes in the next three or four years.

Congress and the White House have run out of ideas to save those homes, he said.

"There's no political appetite to do anything," he said. "So we're on our own."
There were many causes of the foreclosure crisis — and plenty of blame to go around among mortgage lenders, regulators and, in some cases, the borrowers themselves. But as the crisis has accelerated it also has swept up families who, through no fault of their own, have lost or are in danger of losing their homes.

The government's efforts to stem the crisis are widely viewed as a failure. Its flagship foreclosure relief program, the Home Affordable Modification Program, has been hampered by confusion over its terms, lenders’ widespread refusal to forgive loan principal and a “trial modification” process that, in some cases, leaves homeowners worse off than when they entered the program.

“The biggest problem with the program is that noncompliance is still rampant, and it’s not improving,” said Alys Cohen, an attorney with the National Consumer Law Center, which is lobbying for more effective foreclosure prevention programs.

Despite the heavy toll on families, communities and the economy, the response from Congress, the White House and an alphabet soup of federal and state agencies has been a piecemeal approach that hasn't fixed the problem.

"This is an industry that was simply not prepared for this crisis, hasn't had the procedures in place, hasn't had the people to deal with it," said Tim Massad, who oversees HAMP as acting assistant secretary for financial stability at the Treasury Department. "And we've seen that over and over again. I think they're better, but they're not nearly where they need to be."

The government has repeatedly tried to offer effective solutions. Recent federal budget cuts have made matters worse by eliminating funding for frontline housing counselors, who are already spread thin in their efforts to help homeowners.

Federal bank regulators, citing widespread “unsafe and unsound practices,” recently announced a series of new regulations for lenders to follow to try to fix the problem. Critics argue the new rules don’t go far enough and merely codify changes the industry already is making.

Bankers have agreed to review their practices and report back to regulators with a plan to fix them, for example, but those reports won’t be made public. They also agreed to hire their own auditors to look into cases where homeowners were wrongly foreclosed.

The House recently voted to scuttle HAMP, which has dispersed only a fraction of the $50 billion Congress authorized in 2009. There are no signs the Senate plans to follow suit, although the program officially ends next year.

In the Senate, Jack Reed, D-R.I., has reintroduced a bill that died last year which would toughen requirements on lenders to modify loans. Democratic Sen. Sherrod Brown of Ohio has introduced a bill that would include a range of consumer protections for mortgage borrowers. Neither bill has made it out of the Banking Committee.

Other agencies are pressing mortgage lenders to break the logjam. Attorneys general from all 50 states — along with the Justice Department, the Federal Trade Commission and the new Consumer Financial Protection Board — are in talks with major lenders that would require them to follow steps that are currently voluntary, including modifying loans by writing down the principal owed. Bankers have raised numerous objections to the initial proposals.

The Treasury continues to tweak the HAMP program. It recently introduced a requirement, for example, that lenders assign a single point of contact to help homeowners cut through a thicket of red tape.

Yet families continue to lose their homes at a pace not seen in decades. Last year set a record for foreclosures, according to RealtyTrac. The pace slowed in the first quarter but is expected to pick up again as banks work through a thicket of legal challenges to faulty document practices.

The glut of unsold homes and the overhang of foreclosures are weighing on the housing market. Construction of new homes has fallen to levels never recorded. Government tax credits for home buyers briefly helped stabilized home prices, but prices have begun falling again as those incentives have expired. Falling home prices chip away at household wealth, dampening consumer spending.

Each new foreclosure brings another distressed property on the market, pushing prices lower. The greatest risk, said Zandi, is a downward spiral that becomes difficult to unwind.

"Prices decline, that pushes people underwater," he said. "There's 14 million people now underwater. Half of those are underwater by more than 30 percent. That's the fodder for (more) default."

The depression in the housing industry, which accounts for up to 20 percent of U.S. employment in good times, has stalled economic growth and contributed to a stubbornly high jobless rate of 9.0 — far higher than is typical this far into a recovery.

With effective solutions in short supply, attorneys and housing advocates say the ranks of distressed borrowers continue to swell. "I've never seen a flood like this," said Gary Klein, an attorney at Roddy, Klein and Ryan in Boston who has spent 25 years defending homeowners facing foreclosure. "There are so many people that need help at this point that we can't even begin to handle all of the phone calls."

The companies tasked with collecting payments from borrowers are just as overwhelmed. More than four years after the housing bubble burst, the mortgage servicing industry is grappling with its own dysfunctional thicket of red tape, missing documents, false affidavits and conflicting guidelines.
"We are finding that the documents themselves are manufactured," said James Kowalski, an attorney in Jacksonville, Fla., who handles foreclosure defense and prevention. "We're finding that the affidavits, which are the pieces of paper by which the servicer testifies in court, are not true. Once you get underneath the surface of all those made-up documents, you find homeowners that shouldn't be in foreclosure.”

In many cases, homeowners who were granted a "trial" modification under the HAMP program wound up worse off. Unless they won final approval, the lower monthly payments during the "trial" period placed them in default and speeded the path to foreclosure.

"I've seen homeowners that have everything that they need in order to qualify for that modification," said Chris Wyatt, a former vice president at a major mortgage loan servicing company who has worked in the industry for 20 years. "They meet all the criteria for that modification, yet were denied. So the customer actually gets caught into this kind of Catch-22, and at the end of the day the servicer says, 'Sorry, I can't do them all, and so I'm going to foreclose.'"

Government officials compounded the problem by setting overly aggressive targets for the program and then pressing mortgage servicers to show quick results. "They would do anything to get trial modifications on the board," said Caroline Herron, a former Fannie Mae official who worked as a consultant to HAMP. "Nobody made it a priority to figure out what the real problem was, and what needed to get fixed to make sure the program could work. Instead, it was pressure to report on findings and pressure servicers to bring the numbers up."

For their part, mortgage servicers say they were stymied by repeated revisions in the rules once the HAMP program started, which made it harder to follow shifting guidelines.

More on the HAMP foreclosure relief program Flaws plague foreclosure relief program Foreclosure relief plan coming up short Latest housing plan might help only a few ..Treasury's Massad admits the system was flawed and created frustration on both sides.

"We certainly acknowledge we haven't done as much as we would like, he said. "But I think the fact remains that people have a lot more options because of this program than they did before we started. And the program has changed the way the industry approaches modification so that we're seeing a lot more modifications than we otherwise would have."

http://www.msnbc.msn.com/id/42881365/ns ... al_finance

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Video also at link

[JackRiddler]

http://mondediplo.com/2011/05/01crisis

Immune and all-powerful

by Serge Halimi

The International Monetary Fund has just admitted that “nearly four years after the start of the global financial crisis, confidence in the stability of the banking system as a whole has yet to be fully restored” (1). US Federal Reserve chairman Ben Bernanke described it as “the worst financial crisis in global history, including the Great Depression” (2), but no one in the US has been charged with any crime. Goldman Sachs, Morgan Stanley and J P Morgan all stood to gain by the collapse of the high-risk investments they warmly recommended to their clients. They got off with a fine at worst; more often they got a bonus.

Eight hundred bankers were prosecuted and jailed after the fraud-related US Savings and Loans failures in the late 1980s. Now the power of the banks, increased and concentrated by restructuring, is so great that they seem immune to prosecution in any state impeded by public debt. Future White House candidates, including Barack Obama, are already begging Goldman Sachs to fund their election campaigns; the head of BNP Paribas has threatened European governments with a credit squeeze if they make any serious attempt to regulate the banks; Standard & Poor’s, the agency that awarded its highest rating of AAA to Enron, Lehman Brothers, Bear Stearns and many junk bonds, plans to downgrade the US rating if Washington fails to deliver public spending cuts.

After three years of G20 meetings to produce a new “global harmony”, the system is still intact: a mixture of deregulation, princely rewards for the brains behind “financial innovations” and destruction paid for by state and taxpayer. In France, the Socialists complain that “governments devoted more resources to rescuing the banks and financial institutions in the year after the subprime crisis than the world spent on aid to third world countries over 50 years” (3). But the remedies they propose are pathetic (a 15% bank surcharge) or pious hopes (abolish tax havens, establish a public rating agency, tax financial transactions), which rely on unlikely “joint action by the member states of the European Union”.

So what should have been a crisis too far came to nothing. Andrew Cheng, chief adviser to the China Banking Regulatory Commission, says this passive attitude is connected to a “capture problem”, states in thrall to their financial system (4). Too often political leaders behave like bankers’ puppets, anxious not to spoil the party.

[vanlose kid]

Global capitalism and 21st century fascism
The global economic crisis and the attack on immigrant rights are bound together in a web of 21st century fascism.
William I. Robinson Last Modified: 08 May 2011 08:59


The TCC has unloaded billions of dollars into food, energy and other global commodities in bond markets worldwide [GALLO/GETTY]

The crisis of global capitalism is unprecedented, given its magnitude, its global reach, the extent of ecological degradation and social deterioration, and the scale of the means of violence. We truly face a crisis of humanity. The stakes have never been higher; our very survival is at risk. We have entered into a period of great upheavals and uncertainties, of momentous changes, fraught with dangers - if also opportunities.

I want to discuss here the crisis of global capitalism and the notion of distinct political responses to the crisis, with a focus on the far-right response and the danger of what I refer to as 21st century fascism, particularly in the United States.

Facing the crisis calls for an analysis of the capitalist system, which has undergone restructuring and transformation in recent decades. The current moment involves a qualitatively new transnational or global phase of world capitalism that can be traced back to the 1970s, and is characterised by the rise of truly transnational capital and a transnational capitalist class, or TCC. Transnational capital has been able to break free of nation-state constraints to accumulation beyond the previous epoch, and with it, to shift the correlation of class and social forces worldwide sharply in its favour - and to undercut the strength of popular and working class movements around the world, in the wake of the global rebellions of the 1960s and the 1970s.

Emergent transnational capital underwent a major expansion in the 1980s and 1990s, involving hyper-accumulation through new technologies such as computers and informatics, through neo-liberal policies, and through new modalities of mobilising and exploiting the global labour force - including a massive new round of primitive accumulation, uprooting, and displacing hundreds of millions of people - especially in the third world countryside, who have become internal and transnational migrants.

We face a system that is now much more integrated, and dominant groups that have accumulated an extraordinary amount of transnational power and control over global resources and institutions.

Militarised accumulation, financial speculation - and the sacking of public budgets

By the late 1990s, the system entered into chronic crisis. Sharp social polarisation and escalating inequality helped generate a deep crisis of over-accumulation. The extreme concentration of the planet's wealth in the hands of the few and the accelerated impoverishment, and dispossession of the majority, even forced participants in the 2011 World Economic Forum's annual meeting in Davos to acknowledge that the gap between the rich and the poor worldwide is "the most serious challenge in the world" and is "raising the spectre of worldwide instability and civil wars."

Global inequalities and the impoverishment of broad majorities mean that transnational capitals cannot find productive outlets to unload the enormous amounts of surplus it has accumulated. By the 21st century, the TCC turned to several mechanisms to sustain global accumulation, or profit making, in the face of this crisis.

One is militarised accumulation; waging wars and interventions that unleash cycles of destruction and reconstruction and generate enormous profits for an ever-expanding military-prison-industrial-security-financial complex. We are now living in a global war economy that goes well beyond such "hot wars" in Iraq or Afghanistan.

For instance, the war on immigrants in the United States and elsewhere, and more generally, repression of social movements and vulnerable populations, is an accumulation strategy independent of any political objectives. This war on immigrants is extremely profitable for transnational corporations. In the United States, the private immigrant prison-industrial complex is a boom industry. Undocumented immigrants constitute the fastest growing sector of the US prison population and are detained in private detention centres and deported by private companies contracted out by the US state.

It is no surprise that William Andrews, the CEO of the Corrections Corporation of America, or CCA - the largest private US contractor for immigrant detention centres - declared in 2008 that: "The demand for our facilities and services could be adversely affected by the relaxation of enforcement efforts … or through decriminalisation [of immigrants]." Nor is it any surprise that CCA and other corporations have financed the spate of neo-fascist anti-immigrant legislation in Arizona and other US states.


The passing of the anti-illegal immigrants law in Arizona sparked national protests and outrage [GALLO/GETTY]

A second mechanism is the raiding and sacking of public budgets. Transnational capital uses its financial power to take control of state finances and to impose further austerity on the working majority, resulting in ever greater social inequality and hardship. The TCC has used its structural power to accelerate the dismantling of what remains of the social wage and welfare states.

And a third is frenzied worldwide financial speculation - turning the global economy into a giant casino. The TCC has unloaded billions of dollars into speculation in the housing market, the food, energy and other global commodities markets, in bond markets worldwide (that is, public budgets and state finances), and into every imaginable "derivative", ranging from hedge funds to swaps, futures markets, collateralised debt obligations, asset pyramiding, and ponzi schemes. The 2008 collapse of the global financial system was merely the straw that broke the camel's back.

This is not a cyclical but a structural crisis - a restructuring crisis, such as we had in the 1970s, and before that, in the 1930s - that has the potential to become a systemic crisis, depending on how social agents respond to the crisis and on a host of unknown contingencies. A restructuring crisis means that the only way out of crisis is to restructure the system, whereas a systemic crisis is one in which only a change in the system itself will resolve the crisis. Times of crisis are times of rapid social change, when collective agency and contingency come into play more than in times of equilibrium in a system.

Responses to the crisis and Obama's Weimar republic in the United States

In the face of crisis there appear to be distinct responses from states and social and political forces. Three stand out: global reformism; resurgent of popular and leftist struggles from below; far-right and 21st century fascism. There appears to be, above all, a political polarisation worldwide between the left and the right, both of which are insurgent forces.

A neo-fascist insurgency is quite apparent in the United States. This insurgency can be traced back several decades, to the far-right mobilisation that began in the wake of the crisis of hegemony brought about by the mass struggles of the 1960s and the 1970s, especially the Black and Chicano liberation struggles and other militant movements by third world people, counter-cultural currents, and militant working class struggles.

Neo-fascist forces re-organised during the years of the George W Bush government. But my story here starts with Obama's election.

The Obama project from the start was an effort by dominant groups to re-establish hegemony in the wake of its deterioration during the Bush years (which also involved the rise of a mass immigrant rights movement). Obama's election was a challenge to the system at the cultural and ideological level, and has shaken up the racial/ethnic foundations upon which the US republic has always rested. However, the Obama project was never intended to challenge the socio-economic order; to the contrary; it sought to preserve and strengthen that order by reconstituting hegemony, conducting a passive revolution against mass discontent and spreading popular resistance that began to percolate in the final years of the Bush presidency.

The Italian socialist Antonio Gramsci developed the concept of passive revolution to refer to efforts by dominant groups to bring about mild change from above in order to undercut mobilisation from below for more far-reaching transformation. Integral to passive revolution is the co-option of leadership from below; its integration into the dominant project. Dominant forces in Egypt, Tunisia, and elsewhere in the Middle East and North America are attempting to carry out such a passive revolution. With regard to the immigrant rights movement in the United States - one of the most vibrant social movements in that country -moderate/mainstream Latino establishment leaders were brought into the Obama and Democratic Party fold – a classic case of passive revolution - while the mass immigrant base suffers intensified state repression.

Obama's campaign tapped into and helped expand mass mobilisation and popular aspirations for change not seen in many years in the United States. The Obama project co-opted that brewing storm from below, channelled it into the electoral campaign, and then betrayed those aspirations, as the Democratic Party effectively demobilised the insurgency from below with more passive revolution.

In this sense, the Obama project weakened the popular and left response from below to the crisis, which opened space for the right-wing response to the crisis - for a project of 21st century fascism - to become insurgent. Obama's administration appears in this way as a Weimar republic. Although the social democrats were in power during the Weimar republic of Germany in the 1920s and early 1930s, they did not pursue a leftist response to the crisis, but rather side-lined the militant trade unions, communists and socialists, and progressively pandered to capital and the right before turning over power to the Nazis in 1933.

21st century fascism in the United States

I don't use the term fascism lightly. There are some key features of a 21st century fascism I identify here:

1. The fusion of transnational capital with reactionary political power
This fusion had been developing during the Bush years and would likely have deepened under a McCain-Palin White House. In the meantime, such neo-fascist movements as the Tea Party as well as neo-fascist legislation such as Arizona's anti-immigrant law, SB1070, have been broadly financed by corporate capital. Three sectors of transnational capital in particular stand out as prone to seek fascist political arrangements to facilitate accumulation: speculative financial capital, the military-industrial-security complex, and the extractive and energy (particularly petroleum) sector.
2. Militarisation and extreme masculinisation
As militarised accumulation has intensified the Pentagon budget, increasing 91 per cent in real terms in the past 12 years, the top military brass has become increasingly politicised and involved in policy making.
3. A scapegoat which serves to displace and redirect social tensions and contradictions
In this case, immigrants and Muslims in particular. The Southern Poverty Law Centre recently reported that "three strands of the radical right - hate groups, nativist extremist groups, and patriot organisations - increased from 1,753 groups in 2009 to 2,145 in 2010, a 22 per cent rise, that followed a 2008-9 increase of 40 per cent."

A 2010 Department of Homeland Security report observed that "right wing extremists may be gaining new recruits by playing on the fears about several emergency issues. The economic downturn and the election of the first African American president present unique drivers for right wing radicalisation and recruitment." The report concluded: "Over the past five years, various right wing extremists, including militia and white supremacists, have adopted the immigration issue as a call to action, rallying point, and recruitment tool."
4. A mass social base
In this case, such a social base is being organised among sectors of the white working class that historically enjoyed racial caste privilege and that have been experiencing displacement and experiencing rapid downward mobility as neo-liberalism comes to the US - while they are losing the security and stability they enjoyed in the previous Fordist-Keynesian epoch of national capitalism.
5. A fanatical millennial ideology involving race/culture supremacy embracing an idealised and mythical past, and a racist mobilisation against scapegoats
The ideology of 21st century fascism often rests on irrationality - a promise to deliver security and restore stability is emotive, not rational. 21st century fascism is a project that does not - and need not - distinguish between the truth and the lie.
6. A charismatic leadership
Such a leadership has so far been largely missing in the United States, although figures such as Sarah Palin and Glenn Beck appear as archetypes.

The mortal circuit of accumulation-exploitation-exclusion

One new structural dimension of 21st century global capitalism is the dramatic expansion of the global superfluous population - that portion marginalised and locked out of productive participation in the capitalist economy and constituting some 1/3rd of humanity. The need to assure the social control of this mass of humanity living in a planet of slums gives a powerful impetus to neo-fascist projects and facilitates the transition from social welfare to social control - otherwise known as "police states". This system becomes ever more violent.

Theoretically stated - under the conditions of capitalist globalisation - the state's contradictory functions of accumulation and legitimation cannot both be met. The economic crisis intensifies the problem of legitimation for dominant groups so that accumulation crises, such as the present one, generate social conflicts and appear as spiralling political crises. In essence, the state's ability to function as a "factor of cohesion" within the social order breaks down to the extent that capitalist globalisation and the logic of accumulation or commodification penetrates every aspect of life, so that "cohesion" requires more and more social control.

Displacement and exclusion has accelerated since 2008. The system has abandoned broad sectors of humanity, who are caught in a deadly circuit of accumulation-exploitation-exclusion. The system does not even attempt to incorporate this surplus population, but rather tries to isolate and neutralise its real or potential rebellion, criminalising the poor and the dispossessed, with tendencies towards genocide in some cases.

As the state abandons efforts to secure legitimacy among broad swathes of the population that have been relegated to surplus - or super-exploited - labour, it resorts to a host of mechanisms of coercive exclusion: mass incarceration and prison-industrial complexes, pervasive policing, manipulation of space in new ways, highly repressive anti-immigrant legislation, and ideological campaigns aimed at seduction and passivity through petty consumption and fantasy.


Militarised ideology has intensified the Pentagon's budget, and military officials are increasingly involved in policy-making [GALLO/GETTY]

A 21st fascism would not look like 20th century fascism. Among other things, the ability of dominant groups to control and manipulate space and to exercise an unprecedented control over the mass media, the means of communication and the production of symbolic images and messages, means that repression can be more selective (as we see in Mexico or Colombia, for example), and also organised juridically so that mass "legal" incarceration takes the place of concentration camps. Moreover, the ability of economic power to determine electoral outcomes allows for 21st century fascism to emerge without a necessary rupture in electoral cycles and a constitutional order.

The United States cannot be characterised at this time as fascist. Nonetheless, all of the conditions and the processes are present and percolating, and the social and political forces behind such a project are mobilising rapidly. More generally, images in recent years of what such a political project would involve spanned the Israeli invasion of Gaza and ethnic cleansing of the Palestinians, to the scapegoating and criminalisation of immigrant workers and the Tea Party movement in the United States, genocide in the Congo, the US/United Nations occupation of Haiti, the spread of neo-Nazis and skinheads in Europe, and the intensified Indian repression in occupied Kashmir.

The counterweight to 21st century fascism must be a coordinated fight-back by the global working class. The only real solution to the crisis of global capitalism is a massive redistribution of wealth and power - downward towards the poor majority of humanity. And the only way such redistribution can come about is through mass transnational struggle from below.

William I. Robinson a professor of sociology and global studies at the University of California, Santa Barbara.

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.

http://english.aljazeera.net/indepth/op ... 39672.html

[vanlose kid]

Guest Post: Capital Exploits Labor: The U.S.-China Trade And Beyond
Submitted by Tyler Durden on 05/11/2011 11:29 -0400

Submitted by Charles Hugh Smith from Of Two Minds

Capital Exploits Labor: the U.S.-China Trade and Beyond

In a classic Marxist set-up, Capital is free to exploit labor because labor is in surplus.

The fundamental dynamics of the U.S.-China trade partnership--certainly the biggest economic story of this generation--boil down to "capital exploits labor." I am well aware that this sort of quasi-Marxist analysis is supposed to be passe in the era where young nerds can start billion-dollar enterprises in a garage or dorm room. Capitalism is a priori "win-win," as all those workers in China are getting ahead while our youth launch $50 million IPOs of social networking Web 2.0 companies.

But if you scrape away the high-gloss propaganda and myth-making, then the fundamental dynamic is definitely Marxist: American capital jettisoned American labor as a costly hassle in favor of cheap, no-hassle Chinese labor.

Since Capital's best buddy in the whole world is the Central State and its proxies, i.e. the Federal Reserve, then the Central State and the central bank (the Fed) smoothed over the exploitation and furthered the consumer economy by inflating a credit-housing bubble. Since 60% of American households own a home, this enabled the increasingly impoverished "middle class" to borrow trillions of dollars in "free" money that could be spent--surprise!--on the new imports from China that filled the shelves of big box global retailers everywhere.

Allow me to illustrate this dynamic by deconstructing two recent stories in the Mainstream Financial Media: 'Superjobs': Why You Work More, Enjoy It Less (WSJ.com) Businesses expect a lot more out of their employees these days...

Taco Bell and the Golden Age of Drive-Thru Operational innovations at restaurants like Taco Bell rival those at any factory in the world.

The first piece describes in clinical fashion how U.S. capital is ruthlessly exploiting labor, demanding more work for little to no additional pay. The underlying dynamic here is purely Marxist: capital encourages over-supply of labor, which then drives the value of labor down. Competition for the few jobs available makes desperate wage-earners willing to put up with exploitation and insecurity because the options of escaping the cycle of centralized Corporate value extraction are insecure and risky.

Global Corporate America fosters a surplus of labor in the U.S. via three mechanisms:

1. vast illegal immigration which keeps labor costs down in low-skill corporate workhouses such as slaughterhouses, fast-food outlets, etc.

2. H1-B visas for high-tech workers (now falling out of favor as those positions are better filled directly in India and China).

3. ship production, software coding and back-office functions to China, and to a lesser degree, to India and elsewhere in east Asia.

The unemployment rate among PhDs is roughly 50%. So much for "winning" by becoming ever more educated. The number of slots in academia is shrinking, and the total number of research positions is relatively inelastic. For more on academia's "plantation economy," please read Faulty Towers: The Crisis in Higher Education (The Nation).

With labor in surplus, capital is free to demand whatever it needs to boost all-important profits. The propaganda machines in HR (human resources) spray-paint slogans everywhere ("you're really really valuable to us, Super-Duper Team Member!") but everyone knows the reality: everybody is dispensible, and everyone but the CIO at a hot startup a few months from an IPO is a corporate serf a paycheck away from being booted out of the castle into abject poverty.

As a result of this exploitation--known as "wage abritrage"-- corporate profits (which boost the wealth of the top 10% who owns the vast majority of stocks and mutual funds) are extremely plump and juicy:



In the second piece, BusinessWeek breathlessly assures us that we have thousands of highly efficient factories running 24/7 in the U.S.--fast food outlets. Yes, all 6,000 Taco Bells are miniature factories pumping out "product" in vast quantities. The fast food "industry" revenues are $168 billion a year, and the workers, we're told, are paid $1.25 above minimum wage--woo-hoo, love you, Corporate America!--which means that the full-time employee makes $16,500 a year.

$16K a year doesn't go very far in urban America, but there is no pressure on Corporate America to raise wages.

I realize that I am an outsider, and biased against global corporate power regardless of the nominal country of origin (down with Canal+!), but I still found it noteworthy that BusinessWeek could run thousands of words of glowing praise for the profitable efficiency of the fast food "industry" without noting that it isn't an industry at all--it's just a consumerist fantasy (fast and cheap meals that require no effort or discipline) that produces "food" of low value that pushes the consumer into ill-health with overloads of salt, sugar, and low-grade fat.

70% of the fast "food" served is via the drive-through window, which suggests that an overworked, stressed out, focused on getting through the next two hours American is opting to shut the kids up and stave off hunger by pulling into the drive-through lane and loading up on a "meal" that they know is bad for them but they have no time to make a real meal at home (or so they've been brainwashed by thousands of hours of adverts).

If Taco Bell is the "manufacturer/factory of the New America," then I think we need a peaceful revolution, and soon. The toadies and sycophants of the financial media are pleased to worship 1) CEOs 2) profits 3) efficiencies 4) globalized "growth" as long as its owned by global corporations and of course, everyone's favorite, 5) innovation, because "innovation" drives profits!

Elsewhere in the latest issue, BusinessWeek breathlessly cooed over digital game company Electronic Arts latest "innovation," which was selling a digital parrot for $10 a pop that sits on your digital warrior's shoulder.

Excuse me while I raise my glass to American "innovation." If pumping out fast food garbage (hello, 60% obesity rates, is there any connection?) is the new American "factory" and "innovation" is selling kids with access to Mom's credit card a $10 digital parrot (and what does the parrot say? "Kill 'em all and let God sort 'em out, brawk!") for their hyper-violent fantasy wargame, then this nation is well and truly doomed.

To reap a fat profit, you need to sell the stuff being imported from the American-owned factories in China. Since wages have been flat for decades, that posed a problem, as consumers were tapped out. Never fear, capital's best buddy rode to the rescue, inflating a stupendous credit-housing bubble that enabled the working stiff to speculate "like the big boys" with free money and limitless leverage, all supported by lies (liar loans) and the misrepresentation of risk.

Wall Street reaped tens of billions in profits originating and packaging the debt loaded onto the middle class debt donkeys--not just mortgages, but auto loans, student loans and even credit card debt.

But now, at long last, capital's doting partner, the Federal Reserve, has run into a spot of bother: the only way to keep profits rising is to crash the dollar, and doing that has squeezed the purchasing power of the debt donkeys. By exporting inflation to China and the rest of the world, the Fed has engineered massive profits for U.S. corporations (when profits earned overseas are stated in dollars, presto, a 10% increase) but it has also forced China into raising prices and fueled an oil and import-driven inflation in the U.S. which has caused millions of insolvent households living paycheck to paycheck to cut back on their consumption.

China has its own problems, namely runaway domestic inflation (thanks, Federal Reserve) and finding places to dump its excess dollars. It was a wonderfully beneficial trade for awhile: we print paper money, and you give us tangible goods for the paper. Thank you very much, and we can offer you some terrific low-yield Treasuries to recycle your growing stash of dollars.

The Fed's inflation games are sinking the value of the dollar, and the Chinese are not amused. They are trying to buy tangible resources with their ocean of depreciating dollars, and even sinking to buying Spanish debt.

They have another problem: as capital's return in China slips, it will exit China just as fast as it exited the U.S.

There is a grand irony in that dynamic: a supposedly Communist country trying to run a central-command quasi-capitalist economy will find that Marx had a point after all. Not that the leadership is at risk themselves; the ChiCom offspring already have homes in Vancouver B.C. and Los Angeles and citizenship/green cards, and the family fortune is safely invested in Switzerland and North America.

The "story" is that the Chinese consumer is about to step up spending, and as a result, "you gotta be in China to profit from all the trillions in new consumer spending." The reality is that the Chinese middle class is already spending like drunken sailors and their 900 million rural compatriots already own TVs and other cheap consumer goods.

The reality is that Capital has already skimmed the big, fat easy profits, and it's looking elsewhere as labor costs and pesky regulations rise in China. The truth is American and European corporations have already earned out their investments in China, and shipping the factories from China to Vietnam is not much different than crating the factory up in the U.S. and shipping it to China.

There is a theory that the Fed's "master plan" is to sink the dollar to the point that the low-income states in the U.S. will be the lowest-cost manufacturing base in the world.

At $16,500 a year for full-time workers pushed to maximum production, they might be getting close.

http://www.zerohedge.com/article/guest- ... and-beyond

*

[Nordic]

New Matt Taibbi:

http://www.rollingstone.com/politics/ne ... s-20110511

Grabbing this summary from the post about this over at zerohedge:

They weren't murderers or anything; they had merely stolen more money than most people can rationally conceive of, from their own customers, in a few blinks of an eye. But then they went one step further. They came to Washington, took an oath before Congress, and lied about it.

Thanks to an extraordinary investigative effort by a Senate subcommittee that unilaterally decided to take up the burden the criminal justice system has repeatedly refused to shoulder, we now know exactly what Goldman Sachs executives like Lloyd Blankfein and Daniel Sparks lied about. We know exactly how they and other top Goldman executives, including David Viniar and Thomas Montag, defrauded their clients. America has been waiting for a case to bring against Wall Street. Here it is, and the evidence has been gift-wrapped and left at the doorstep of federal prosecutors, evidence that doesn't leave much doubt: Goldman Sachs should stand trial.

The great and powerful Oz of Wall Street was not the only target of Wall Street and the Financial Crisis: Anatomy of a Financial Collapse, the 650-page report just released by the Senate Subcommittee on Investigations, chaired by Democrat Carl Levin of Michigan, alongside Republican Tom Coburn of Oklahoma. Their unusually scathing bipartisan report also includes case studies of Washington Mutual and Deutsche Bank, providing a panoramic portrait of a bubble era that produced the most destructive crime spree in our history — "a million fraud cases a year" is how one former regulator puts it. But the mountain of evidence collected against Goldman by Levin's small, 15-desk office of investigators — details of gross, baldfaced fraud delivered up in such quantities as to almost serve as a kind of sarcastic challenge to the curiously impassive Justice Department — stands as the most important symbol of Wall Street's aristocratic impunity and prosecutorial immunity produced since the crash of 2008.

To date, there has been only one successful prosecution of a financial big fish from the mortgage bubble, and that was Lee Farkas, a Florida lender who was just convicted on a smorgasbord of fraud charges and now faces life in prison. But Farkas, sadly, is just an exception proving the rule: Like Bernie Madoff, his comically excessive crime spree (which involved such lunacies as kiting checks to his own bank and selling loans that didn't exist) was almost completely unconnected to the systematic corruption that led to the crisis. What's more, many of the earlier criminals in the chain of corruption — from subprime lenders like Countrywide, who herded old ladies and ghetto families into bad loans, to rapacious banks like Washington Mutual, who pawned off fraudulent mortgages on investors — wound up going belly up, sunk by their own greed.

But Goldman, as the Levin report makes clear, remains an ascendant company precisely because it used its canny perception of an upcoming disaster (one which it helped create, incidentally) as an opportunity to enrich itself, not only at the expense of clients but ultimately, through the bailouts and the collateral damage of the wrecked economy, at the expense of society. The bank seemed to count on the unwillingness or inability of federal regulators to stop them — and when called to Washington last year to explain their behavior, Goldman executives brazenly misled Congress, apparently confident that their perjury would carry no serious consequences. Thus, while much of the Levin report describes past history, the Goldman section describes an ongoing? crime — a powerful, well-connected firm, with the ear of the president and the Treasury, that appears to have conquered the entire regulatory structure and stands now on the precipice of officially getting away with one of the biggest financial crimes in history.

Defenders of Goldman have been quick to insist that while the bank may have had a few ethical slips here and there, its only real offense was being too good at making money. We now know, unequivocally, that this is bullshit. Goldman isn't a pudgy housewife who broke her diet with a few Nilla Wafers between meals — it's an advanced-stage, 1,100-pound medical emergency who hasn't left his apartment in six years, and is found by paramedics buried up to his eyes in cupcake wrappers and pizza boxes. If the evidence in the Levin report is ignored, then Goldman will have achieved a kind of corrupt-enterprise nirvana. Caught, but still free: above the law.

...

When it came time for Goldman CEO Lloyd Blankfein to testify, the banker hedged and stammered like a brain-addled boxer who couldn't quite follow the questions. When Levin asked how Blankfein felt about the fact that Goldman collected $13 billion from U.S. taxpayers through the AIG bailout, the CEO deflected over and over, insisting that Goldman would somehow have made that money anyway through its private insurance policies on AIG. When Levin pressed Blankfein, pointing out that he hadn't answered the question, Blankfein simply peered at Levin like he didn't understand.

...

This isn't just a matter of a few seedy guys stealing a few bucks. This is America: Corporate stealing is practically the national pastime, and Goldman Sachs is far from the only company to get away with doing it. But the prominence of this bank and the high-profile nature of its confrontation with a powerful Senate committee makes this a political story as well. If the Justice Department fails to give the American people a chance to judge this case — if Goldman skates without so much as a trial — it will confirm once and for all the embarrassing truth: that the law in America is subjective, and crime is defined not by what you did, but by who you are.

[JackRiddler]

http://www.wsws.org/articles/2011/may20 ... -m11.shtml

World Socialist Web Site
wsws.org


Greek crisis triggers fierce conflicts inside Europe

By Peter Schwarz

11 May 2011


Rumours about the possible withdrawal of Greece from the euro, and a secret meeting of European finance ministers, have triggered fierce conflicts within the European Union.

Spiegel Online reported on Friday that Greece was considering leaving the euro zone and reintroducing the drachma as its national currency. Finance ministers from the largest euro countries met in Luxembourg with euro group chief Jean-Claude Juncker, European Central Bank (ECB) President Jean-Claude Trichet, and EU Commissioner Olli Rehn.

The news sparked turmoil on the financial markets. The euro fell considerably against the dollar. Jean-Claude Juncker at first denied there had been a meeting, even though he had issued the invitations. Greek Prime Minister Giorgos Papandreou denied there were plans to leave the euro, saying angrily, "Such scenarios border on the criminal." Other governments and the ECB also denied the existence of such exit plans. "No euro-zone member wants to abandon the euro," said ECB executive officer Erkki Liikanen.

Nevertheless, speculation about the possible consequences of a Greek withdrawal from the euro zone is mounting. Economists, politicians and journalists are avidly discussing the pros and cons of such a move.

The tone of discussions between the capital cities is becoming more and more heated. According to Spiegel, Berlin is accused of deliberately spreading confidential information. “In Germany, there are people who are deliberately spreading rumours and half truths”, said one critic cited by the Süddeutsche Zeitung. "They are either acting irresponsibly or pursuing their own agenda."

The newspaper cited another high-ranking representative of the euro countries saying that Berlin was throwing "Greece and the euro into the jaws of the speculators."

A year ago, the European Union and the International Monetary Fund agreed to a 110 billion-euro rescue package for Greece, demanding that the Greek government implement drastic austerity measures. It is now obvious that Greece—despite, or rather because of, this programme—is slipping deeper into debt.

ahem...


Why the Internet is so great: No doubt I was going to find this instantly!

The Papandreou government has pushed through drastic cuts in public spending; wages in the public sector have declined by 30 per cent. But the austerity measures have in turn unleashed a recession, which is eating up all the savings. According to the Ministry of Finance, in the first four months of this year government revenues were €15.1 billion, €1.3 billion less than the amount needed to meet the requirements of EU and the IMF.

Last year, economic output fell by 4.5 percent and total debt increased to 142 percent of gross domestic product (GDP). There have been 65,000 bankruptcies, and more than 200,000 people have lost their jobs. In Athens, one in five shops now stands empty. In the countryside, the situation is even worse.

All figures suggest that the recession has deepened. The number of building permits issued in January was 62 per cent lower than in the same month last year. The sale of new cars fell by half in the first four months compared to the same period last year.

The EU and IMF plan anticipated that Greece's borrowing needs until 2013 would be covered by the €110 billion bailout. Thereafter, it should be able to gradually raise funds on the capital market by issuing government bonds. But half of the rescue fund has already been used up and the remaining €55 billion will probably last only until the spring of 2012. At the same time, the financial markets refuse to lend to Greece. The rating agencies have downgraded the country so low that it must pay 25 per cent interest for two-year bonds—an unsustainable situation.

If nothing happens, Greece must declare state bankruptcy next spring. This would result in significant costs falling on other European governments.

The bailout means that a growing portion of Greek government debt is not held by private banks but by public institutions. In 2009, private creditors held 100 per cent of Greek public debt, whereas now 37 per cent is in the hands of the EU, IMF and ECB. "The burden has shifted massively from private to public hands", said Unicredit banker Andreas Rees.

The public share of the debt is expected to rise to 50 percent by 2013. Private investors will probably then only hold €180 billion of Greek debt, compared to just under €300 billion in 2009. The recovery programme for Greece has turned out to be a rescue programme for the private banks.

The threat of Greek state bankruptcy has led to fierce conflicts within the EU. Especially in Germany, there are increasing calls for debt rescheduling or for Greece to be expelled from the euro zone.

In several recent interviews, the head of the Ifo Institute Hans-Werner Sinn called for Greece to return to the national currency. “Any attempt to stabilize Greece and keep it in the euro zone would be a bottomless pit. If Greece is left inside, it would destabilize the euro,” he said. The return to the drachma would enable Greece to devalue its currency and become competitive again.

This is one of five think-tanks that basically run German economic policy. He could add that long run the euro would stabilize and rise if some or even all of the GIPSI left.

Max Otte, professor of economics at the University of Applied Sciences in Worms, argues in a similar fashion. "Leaving the euro would help Greece to establish its competitiveness again through external devaluation. Over time, the country could rehabilitate itself without this being seen as the result of dictates from abroad," he wrote to finance daily Handelsblatt.

The finance expert of the Free Democratic Party (FDP) parliamentary group, Frank Schäffler, called for "positive support for Greece's withdrawal from the euro-zone, as it is clear the Greek bailout and savings measures are accelerating the crisis."

However, other experts warn of the explosive consequences of such a move: massive price increases for energy and other imports, a run on the Greek banks and a massive capital flight. And public and private debts would probably still be denominated in euros. "[Debt] servicing would become impossible and the Greek state would immediately become bankrupt", wrote Gustav Horn, director of the Institute for Macro Economics and Crisis Research (IMK).

Well, no shit. That's the idea. Bankruptcy is good. It means the end of the Greek debt.

This would also bankrupt the Greek banks and pension funds, which have loaned the Greek state €75 billion. The export sector would see little benefit from devaluation, as exports contribute only 7 percent of GDP in this industrially weak country.

In other words, the introduction of the drachma would result in state bankruptcy and massive inflation. It would decimate the living conditions of broad layers of the population, as happened under hyper-inflation in Germany in the 1923.

They just need to pick the right launch rate for the drachma. Argentina did not have it nearly as bad, and (the part they always leave out) even Germany returned to stability (until the Depression, a different disaster).

Government representatives warn that a Greek exit from the euro zone would pull Ireland, Portugal and Spain into a maelstrom, and bring about the end of the euro. "We don't want the euro area to explode for no reason", commented euro group leader Jean-Claude Junker.

Nonetheless, a small but influential minority in Germany is insisting that Greece be forced out of the euro zone. The call for Greek debt rescheduling finds broader support. Berlin does not openly advocate this step, however, fearing a violent reaction by the financial markets that could overwhelm Ireland, Portugal and Spain.

There are sharp conflicts regarding this issue with other countries, whose banks and governments have underwritten far higher loans to Greece. In contrast to previous rescue measures, which had merely extended credits to Greece, billions would be lost forever in the event of debt rescheduling.

Billions in assumed future income. I wonder what pct. of the total original principal Greece has already paid? I bet barracuda would know how to figure that out.

The German banks have clearly come to the conclusion that they could deal with debt rescheduling in which Greece wrote off up to 50 percent of its debts. For France and other countries, such a restructuring would be far more difficult to bear. For the Greek population, it would be bound up with further cuts and attacks on living standards - as is the current rescue package.

According to Spiegel Online, a 50 percent debt write-off would cost the German banks, the federal government and Bundesbank (Federal Bank) a total of €27 billion. But only €9 billion would fall on private banks, of which the lion's share is held by Hypo Real Estate, which is state owned.

This amount is relatively high. But compared with the costs of German unification, which have amounted to well over one trillion euros in the past twenty years, it is quite modest. Germany's annual trade surplus of €200 billion is a multiple of that amount. In addition, the longer a debt rescheduling is postponed, the more expensive it becomes for Germany.

Some commentators have come to the conclusion that the essential problem in the Greek crisis is not financial but political. The pressure of the international financial crisis is bringing national interests increasingly to the fore in Europe.

Columnist Wolfgang Münchau writes in the Financial Times: "The core issue in the euro-zone crisis is not the overall size of the peripheral countries' sovereign debt. This is tiny relative to the monetary union's gross domestic product. The area's total debt-to-GDP ratio is lower than that of the UK, US or Japan. From a macroeconomic point of view, this is a storm in a teacup. The problem is that the euro zone is politically incapable of handling a crisis that is now contagious and has the potential to cause huge collateral damage.”

Former German Chancellor Helmut Schmidt argues along similar lines in Die Zeit. The alleged crisis of the euro was “much more a crisis of the ability to act of the EU as a whole,” he writes. "There is neither a common economic or finance policy, nor a common foreign and security policy (look at Libya!) nor a common energy policy."

According to recent agency reports, the EU is now preparing to increase the size of the rescue pact for Greece by €30 to 60 billion, linking this to further cuts targets for the Greek government. However, this will only postpone the problem and intensify the crisis rather than resolve it.


Copyright © 1998-2011 World Socialist Web Site - All rights reserved

http://counterpunch.org/weisbrot05112011.html

May 11, 2011

Shrinkage and Austerity Have Failed
Why Greece Should Reject the Euro

By MARK WEISBROT

Sometimes there is turmoil in the markets because a government threatens to do what is best for its citizens. This seemed to be the case in Europe last week, when the German magazine Der Spiegel reported that the Greek government was threatening to stop using the euro. The euro suffered its worst two-day plunge since December 2008.

Greek and European Union officials denied the report, but a threat by Greece to jettison the euro is long overdue, and it should be prepared to carry it out. As much as the move might cost Greece in the short term, it is very unlikely that such costs would be greater than the many years of recession, stagnation and high unemployment that the European authorities are offering.

The experience of Argentina at the end of 2001 is instructive. For more than three and a half years Argentina had suffered through one of the deepest recessions of the 20th century. Its peso was pegged to the dollar, which is similar to Greece having the euro as its national currency. The Argentines took loans from the International Monetary Fund, and cut spending as poverty and unemployment soared. It was all in vain as the recession deepened.

Then Argentina defaulted on its foreign debt and cut loose from the dollar. Most economists and the business press predicted that years of disaster would ensue. But the economy shrank for just one more quarter after the devaluation and default; it then grew 63 percent over the next six years. More than 11 million people, in a nation of 39 million, were pulled out of poverty.

Within three years Argentina was back to its pre-recession level of output, despite losing more than twice as much of its gross domestic product as Greece has lost in its current recession. By contrast, in Greece, even if things go well, the IMF projects that the economy will take eight years to reach its pre-crisis GDP. But this is likely optimistic — the IMF has repeatedly lowered its near-term growth projections for Greece since the crisis began.

The main reason for Argentina's rapid recovery was that it was finally freed from adhering to fiscal and monetary policies that stifled growth. The same would be true for Greece if it were to drop the euro. Greece would also get a boost from the devaluation's effect on the trade balance (as Argentina did for the first six months of recovery), since its exports would be more competitive, and imports would be more expensive.

Press reports have also warned of a sharp increase in Greek debt from devaluation if it were to leave the euro zone. But the fact is that Greece would not pay this debt, as Argentina did not pay two-thirds of its foreign debt after its devaluation and default.

Portugal just concluded an agreement with the IMF that projects two more years of recession. No government should accept this kind of punishment. A responsible leader would point out to the European authorities that they have the money to support Greece with countercyclical policies (like fiscal stimulus), though they are choosing not to.

From a creditors' point of view, which the European Union authorities have apparently adopted, a country that has accumulated too much debt must be punished, so as not to encourage "bad behavior." But punishing an entire country for the past mistakes of some of its leaders, while morally satisfying to some, is hardly the basis for sound policy.

There is also the idea that Greece — as well as Ireland, Spain and Portugal — can recover by means of an "internal devaluation." This means increasing unemployment so much that wages fall enough to make the country more internationally competitive. The social costs of such a move, however, are extremely high and it rarely if ever works. Unemployment has doubled in Greece (to 14.7 percent), more than doubled in Spain (to 20.7 percent) and more than tripled in Ireland (to 14.7 percent). But recovery is still elusive.

You can be sure that the European authorities would offer Greece a better deal under a credible threat of leaving the euro zone. In fact, there are indications that they may have already moved in response to last week's threat.

But the bottom line is that Greece cannot afford to settle for any deal that does not allow it to grow and make its way out of the recession. Loans that require what economists call "pro-cyclical" policies — cutting spending and raising taxes in the face of recession — should be off the table. The attempt to shrink Greece's way out has failed. If that's all that the European authorities have to offer, then it is time for Greece, and perhaps others, to say goodbye to the euro.


Mark Weisbrot is an economist and co-director of the Center for Economic and Policy Research. He is co-author, with Dean Baker, of Social Security: the Phony Crisis.

This column was originally published by The New York Times.

Thanks to Nordic for collecting these photos here:
viewtopic.php?f=8&t=32052

Haven't seen these anywhere else:

http://www.zerohedge.com/article/pictur ... exhibition

Lots of photos. Here are a few.









And I gotta love this guy:



It's what happens when banks are allowed to con a nation out of its wealth.

The anger on display at these demonstrations is a side effect of an informed public. As far as the violence is concerned, rioting at the general strike is the premature ejaculation of political action. It is completely counterproductive and often directly provoked by police saboteurs. There are plenty of angry and sexually frustrated youths that are willing to do exactly the same thing, though. Wilhelm Reich is probably the best person to read to understand this kind of behavior. The anarchist youth culture is so fragmented / infiltrated that you sometimes see squats bombing other squats. Political violence has been happening in Greece on an ongoing basis since WW2, with a civil war that went underground in the form of November 17 and now with splinter groups. While I support the cause of liberation by any means necessary, I think that violence for the sake of violence is futile and that the rapidly worsening situation is a strong indicator of this.

Finding something creative and productive to do in order to improve your situation is more difficult than having a tantrum, both on a personal and national basis.

[edited for clarification]

I tend to agree with undead.

Also, this joke has its truth:

Joke:

Two greek anarchists are making molotov cocktails.

One says to the other, "So who will we throw these at then?"

The other replies "What are you, some kind of fucking intellectual?!?"

http://redleftreview.blogspot.com/2007/ ... jokes.html

However, often as not "the other" anarchist in this joke... is a cop.

.

[JackRiddler]

.

OMG, three years later, one fucker out of three or four thousand finally got convicted of something.

http://dealbook.nytimes.com/2011/05/11/ ... ss&emc=rss

May 11, 2011, 9:51 pm Hedge Funds | The Galleon Trial

Galleon Conviction Likely to Embolden Prosecutors

By PETER LATTMAN and AZAM AHMED


Raj Rajaratnam, the billionaire investor who once ran one of the world’s largest hedge funds, was found guilty on Wednesday of fraud and conspiracy by a federal jury in Manhattan, giving the government its biggest victory yet in a widening investigation of insider trading.

The verdict is expected to embolden prosecutors in their campaign to ferret out criminal activity on Wall Street trading floors. By using wiretaps — a tactic normally reserved for Mafia and drug trafficking cases — to secretly record the phones of Mr. Rajaratnam and others, the government now has a new weapon against white-collar crime.

Mr. Rajaratnam, dressed in a dark suit and a gold tie, remained stoic and stared straight ahead as the courtroom deputy read out the verdict — guilty on all 14 counts.

Just as the insider trading cases of the 1980s focused on the major Wall Street figures of that era — risk arbitragers like Ivan Boesky and junk-bond financiers like Michael R. Milken — the recent wave of prosecutions home in on some of the most influential players in today’s markets: hedge funds. As the investment firms have grown in clout and prominence, now managing more than $2 trillion and minting dozens of billionaires, the industry has attracted more scrutiny.

“Mr. Rajaratnam was among the best and the brightest — one of the most educated, successful and privileged professionals in the country,” said Preet Bharara, the United States attorney for Manhattan. “Yet, like so many others recently, he let greed and corruption cause his undoing.”

Mr. Bharara’s office has headed the crackdown on insider trading. His office alone has charged 47 people with insider trading over the last 18 months; of those, 36 have been convicted or have pleaded guilty. Some of those who pleaded guilty were cooperating witnesses in Mr. Rajaratnam’s trial.

The case stoked the worst suspicions of Main Street investors: That the stock market was a rigged game controlled by powerful Wall Street financiers who made fortunes trading on secret information unavailable to the public. Over the two months of the trial, jurors heard evidence that Mr. Rajaratnam used a corrupt network of tipsters to gain about $63 million from illegal trading in stocks, including Google and Hilton Worldwide.

Mr. Rajaratnam, 53, could be sentenced to as much as 25 years in prison. Prosecutors said federal sentencing guidelines would suggest a sentence of 15 and half to 19 and a half years. He could also be forced to disgorge tens of millions of dollars in illegal trading profits.

Judge Richard J. Holwell ordered home detention and electronic monitoring for Mr. Rajaratnam while he awaits his sentencing set for July 29.

John Dowd, a lawyer for Mr. Rajaratnam, said his client would appeal.

Jurors, who reached their decision on the 12th day of deliberations, did not respond to requests for comment.

Over a nine-month stretch in 2008, agents from the Federal Bureau of Investigation taped Mr. Rajaratnam’s telephone conversations. They listened in as he matter-of-factly swapped illegal stock tips with corporate insiders and fellow traders.

“I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share,” Mr. Rajaratnam said to one of his employees in advance of the bank’s earnings announcement.

For years, Mr. Rajaratnam was lionized as one of Wall Street’s savviest investors. At its peak, his Galleon Group hedge fund managed more than $7 billion in assets. Investment banks counted Galleon, which paid out roughly $300 million in trading commissions annually to brokerage firms, as one of their largest trading clients.

In the early hours of Oct. 16, 2009, federal agents arrested Mr. Rajaratnam at his Sutton Place apartment on the East Side of Manhattan.

Mr. Rajaratnam fought the charges against him, insisting that he had done nothing wrong. Mr. Dowd said that his client’s success as a money manager came from “shoe-leather research, diligence and hard work.”

He based his defense on the so-called mosaic theory of investing. Galleon was famous for doggedly digging for information about publicly traded companies that would form a “mosaic” — a complete picture of a company’s prospects that gave it an investment edge over other investors.

Prosecutors acknowledged that Galleon performed legitimate stock research. But at the same time, they argued, the firm routinely violated securities laws. In the words of a former Galleon portfolio manager who testified during the trial, the firm did its homework — but also cheated on the test.

“Cheating became part of his business model,” said a prosecutor, Reed Brodsky, in his summation.

The verdict marks an end to a Wall Street success story. A native of Sri Lanka, Mr. Rajaratnam came to the United States in 1981 to study business at the prestigious Wharton School at the University of Pennsylvania. He joined Needham & Company, a small investment bank, and carved out a reputation as an expert in technology companies.

Mr. Rajaratnam’s ascent coincided with both the tech boom of the 1990s and the emergence of hedge funds. When he formed the Galleon Group in 1997, investors clamored to put their money with him. Mr. Rajaratnam posted superior investment returns, attracting clients like New Jersey’s state pension fund and UBS, the giant Swiss bank.

Galleon brought Mr. Rajaratnam great wealth, estimated by Forbes magazine at $1.3 billion. During the trial, Mr. Rajaratnam’s former friends told the jury about lavish vacations. For his 50th birthday, he chartered a private jet to fly dozens of family and friends to Kenya for a safari.

Fiercely competitive, Mr. Rajaratnam could be heard on wiretaps speaking in sports and military metaphors. He compared himself to fighting Muhammad Ali in the ring and said during the financial crisis, “I’m feeling the pain, but they can’t kill me. I’m a warrior.”

It was that competitiveness that caused Mr. Rajaratnam, despite a blizzard of incriminating evidence, to fight the charges, according to two former Galleon employees who requested anonymity.

“Raj hated to lose and loved a good fight,” one former colleague said. “He’s a big sports fan, and I think in some ways he viewed this trial as a contest.”

His appeal will take aim at the use of wiretaps, contending that they were unconstitutional and that there was no cause for employing such unconventional investigative tactics.

Legal experts say that the biggest blow to Mr. Rajaratnam’s defense came last November, when Judge Holwell denied his request to prohibit the government from using the recorded conversations at trial.

A breakthrough in the multi-year investigation of Mr. Rajaratnam came in 2006 during an inquiry of a hedge fund run by Rengan Rajaratnam, Mr. Rajaratnam’s younger brother who has not been charged.

While reviewing e-mails and instant messages, a prosecutor discovered incriminating communications between the brothers.

More than a year later, a government informant taped calls with Mr. Rajaratnam on which he exchanged confidential tips. On the basis of those recordings, a federal judge agreed to allow a wiretap on Mr. Rajaratnam’s phone.

Yeah, yeah, whatever. The CEOs of the six big banks and the ratings agencies heads on a platter, please.

http://dealbook.nytimes.com/2011/05/11/ ... r-over/?hp

May 11, 2011, 2:48 pm Legal/Regulatory | White Collar Watch
The Galleon Case Is Nowhere Near Over
By PETER J. HENNING

Peter Foley/Bloomberg News
Raj Rajaratnam leaving federal court on Wednesday after his conviction.

With the conviction of Raj Rajaratnam on 14 counts of conspiracy and securities fraud, the Galleon Group insider trading case moves to its next phase.

Mr. Rajaratnam will remain free on $100 million bail at least until his sentencing, which is scheduled for late July, and he faces a possible prison term of up to 19½ years under federal guidelines. But his lawyers are set to appeal the guilty verdict, so this case will continue to play out over the next year or longer.

Here is a look at some of the issues that will arise as the case progresses:

SNIP

Three years and the only middle fish in prison is still Madoff... who had to turn himself in (by "confessing" to his sons, who called the authorities) because he'd run out of cash and (according to Markopoulos) was going to be killed by the mobsters he was money-laundering for.

.

[JackRiddler]

.

The latest broadside-slash-indictment against Goldman Sachs, from Taibbi. Who is the real government, who is more untouchable: the Senate or this bank?

The People vs. Goldman Sachs

A Senate committee has laid out the evidence. Now the Justice Department should bring criminal charges


Goldman Sachs CEO Lloyd Blankfein tesifies before the Senate in April 2010
Mark Wilson/Getty Images


They weren't murderers or anything; they had merely stolen more money than most people can rationally conceive of, from their own customers, in a few blinks of an eye. But then they went one step further. They came to Washington, took an oath before Congress, and lied about it.

Thanks to an extraordinary investigative effort by a Senate subcommittee that unilaterally decided to take up the burden the criminal justice system has repeatedly refused to shoulder, we now know exactly what Goldman Sachs executives like Lloyd Blankfein and Daniel Sparks lied about. We know exactly how they and other top Goldman executives, including David Viniar and Thomas Montag, defrauded their clients. America has been waiting for a case to bring against Wall Street. Here it is, and the evidence has been gift-wrapped and left at the doorstep of federal prosecutors, evidence that doesn't leave much doubt: Goldman Sachs should stand trial.

(This article appears in the May 26, 2011 issue of Rolling Stone. The issue is available now on newsstands and will appear in the online archive May 13.)

The great and powerful Oz of Wall Street was not the only target of Wall Street and the Financial Crisis: Anatomy of a Financial Collapse, the 650-page report just released by the Senate Subcommittee on Investigations, chaired by Democrat Carl Levin of Michigan, alongside Republican Tom Coburn of Oklahoma. Their unusually scathing bipartisan report also includes case studies of Washington Mutual and Deutsche Bank, providing a panoramic portrait of a bubble era that produced the most destructive crime spree in our history — "a million fraud cases a year" is how one former regulator puts it. But the mountain of evidence collected against Goldman by Levin's small, 15-desk office of investigators — details of gross, baldfaced fraud delivered up in such quantities as to almost serve as a kind of sarcastic challenge to the curiously impassive Justice Department — stands as the most important symbol of Wall Street's aristocratic impunity and prosecutorial immunity produced since the crash of 2008.

Photo Gallery: How Goldman top dogs defrauded their clients and lied to Congress
http://www.rollingstone.com/politics/ph ... s-20110511

To date, there has been only one successful prosecution of a financial big fish from the mortgage bubble, and that was Lee Farkas, a Florida lender who was just convicted on a smorgasbord of fraud charges and now faces life in prison. But Farkas, sadly, is just an exception proving the rule: Like Bernie Madoff, his comically excessive crime spree (which involved such lunacies as kiting checks to his own bank and selling loans that didn't exist) was almost completely unconnected to the systematic corruption that led to the crisis. What's more, many of the earlier criminals in the chain of corruption — from subprime lenders like Countrywide, who herded old ladies and ghetto families into bad loans, to rapacious banks like Washington Mutual, who pawned off fraudulent mortgages on investors — wound up going belly up, sunk by their own greed.

Read Matt Taibbi on Goldman Sachs, the 'great vampire squid'
http://www.rollingstone.com/politics/ne ... e-20100405

But Goldman, as the Levin report makes clear, remains an ascendant company precisely because it used its canny perception of an upcoming disaster (one which it helped create, incidentally) as an opportunity to enrich itself, not only at the expense of clients but ultimately, through the bailouts and the collateral damage of the wrecked economy, at the expense of society. The bank seemed to count on the unwillingness or inability of federal regulators to stop them — and when called to Washington last year to explain their behavior, Goldman executives brazenly misled Congress, apparently confident that their perjury would carry no serious consequences. Thus, while much of the Levin report describes past history, the Goldman section describes an ongoing crime — a powerful, well-connected firm, with the ear of the president and the Treasury, that appears to have conquered the entire regulatory structure and stands now on the precipice of officially getting away with one of the biggest financial crimes in history.

Read Taibbi's 2010 piece on how bailed-out banks are recreating the conditions for a crash
http://www.rollingstone.com/politics/ne ... e-20100217

Defenders of Goldman have been quick to insist that while the bank may have had a few ethical slips here and there, its only real offense was being too good at making money. We now know, unequivocally, that this is bullshit. Goldman isn't a pudgy housewife who broke her diet with a few Nilla Wafers between meals — it's an advanced-stage, 1,100-pound medical emergency who hasn't left his apartment in six years, and is found by paramedics buried up to his eyes in cupcake wrappers and pizza boxes. If the evidence in the Levin report is ignored, then Goldman will have achieved a kind of corrupt-enterprise nirvana. Caught, but still free: above the law.

*

To fully grasp the case against Goldman, one first needs to understand that the financial crime wave described in the Levin report came on the heels of a decades-long lobbying campaign by Goldman and other titans of Wall Street, who pleaded over and over for the right to regulate themselves.

Before that campaign, banks were closely monitored by a host of federal regulators, including the Office of the Comptroller of the Currency, the FDIC and the Office of Thrift Supervision. These agencies had examiners poring over loans and other transactions, probing for behavior that might put depositors or the system at risk. When the examiners found illegal or suspicious behavior, they built cases and referred them to criminal authorities like the Justice Department.

This system of referrals was the backbone of financial law enforcement through the early Nineties. William Black was senior deputy chief counsel at the Office of Thrift Supervision in 1991 and 1992, the last years of the S&L crisis, a disaster whose pansystemic nature was comparable to the mortgage fiasco, albeit vastly smaller. Black describes the regulatory MO back then. "Every year," he says, "you had thousands of criminal referrals, maybe 500 enforcement actions, 150 civil suits and hundreds of convictions."

But beginning in the mid-Nineties, when former Goldman co-chairman Bob Rubin served as Bill Clinton's senior economic-policy adviser, the government began moving toward a regulatory system that relied almost exclusively on voluntary compliance by the banks. Old-school criminal referrals disappeared down the chute of history along with floppy disks and scripted television entertainment. In 1995, according to an independent study, banking regulators filed 1,837 referrals. During the height of the financial crisis, between 2007 and 2010, they averaged just 72 a year.

But hey, they got Spitzer.

But spiking almost all criminal referrals wasn't enough for Wall Street. In 2004, in an extraordinary sequence of regulatory rollbacks that helped pave the way for the financial crisis, the top five investment banks — Goldman, Merrill Lynch, Morgan Stanley, Lehman Brothers and Bear Stearns — persuaded the government to create a new, voluntary approach to regulation called Consolidated Supervised Entities. CSE was the soft touch to end all soft touches. Here is how the SEC's inspector general described the program's regulatory army: "The Office of CSE Inspections has only two staff in Washington and five staff in the New York regional office."

Among the bankers who helped convince the SEC to go for this ludicrous program was Hank Paulson, Goldman's CEO at the time. And in exchange for "submitting" to this new, voluntary regime of law enforcement, Goldman and other banks won the right to lend in virtually unlimited amounts, regardless of their cash reserves — a move that fueled the catastrophe of 2008, when banks like Bear and Merrill were lending out 35 dollars for every one in their vaults.

Goldman's chief financial officer then and now, a fellow named David Viniar, wrote a letter in February 2004, commending the SEC for its efforts to develop "a regulatory framework that will contribute to the safety and soundness of financial institutions and markets by aligning regulatory capital requirements more closely with well-developed internal risk-management practices." Translation: Thanks for letting us ignore all those pesky regulations while we turn the staid underwriting business into a Charlie Sheen house party.

Goldman and the other banks argued that they didn't need government supervision for a very simple reason: Rooting out corruption and fraud was in their own self-interest. In the event of financial wrongdoing, they insisted, they would do their civic duty and protect the markets. But in late 2006, well before many of the other players on Wall Street realized what was going on, the top dogs at Goldman — including the aforementioned Viniar — started to fear they were sitting on a time bomb of billions in toxic assets. Yet instead of sounding the alarm, the very first thing Goldman did was tell no one. And the second thing it did was figure out a way to make money on the knowledge by screwing its own clients. So not only did Goldman throw a full-blown "bite me" on its own self-righteous horseshit about "internal risk management," it more or less instantly sped way beyond inaction straight into craven manipulation.

"This is the dog that didn't bark," says Eliot Spitzer, who tangled with Goldman during his years as New York's attorney general. "Their whole political argument for a decade was 'Leave us alone, trust us to regulate ourselves.' They not only abdicated that responsibility, they affirmatively traded against the entire market."

*

By the end of 2006, Goldman was sitting atop a $6 billion bet on American home loans. The bet was a byproduct of Goldman having helped create a new trading index called the ABX, through which it accumulated huge holdings in mortgage-related securities. But in December 2006, a series of top Goldman executives — including Viniar, mortgage chief Daniel Sparks and senior executive Thomas Montag — came to the conclusion that Goldman was overexposed to mortgages and should get out from under its huge bet as quickly as possible. Internal memos indicate that the executives soon became aware of the host of scams that would crater the global economy: home loans awarded with no documentation, loans with little or no equity in them. On December 14th, Viniar met with Sparks and other executives, and stressed the need to get "closer to home" — i.e., to reduce the bank's giant bet on mortgages.

Sparks followed up that meeting with a seven-point memo laying out how to unload the bank's mortgages. Entry No. 2 is particularly noteworthy. "Distribute as much as possible on bonds created from new loan securitizations," Sparks wrote, "and clean previous positions." In other words, the bank needed to find suckers to buy as much of its risky inventory as possible. Goldman was like a car dealership that realized it had a whole lot full of cars with faulty brakes. Instead of announcing a recall, it surged ahead with a two-fold plan to make a fortune: first, by dumping the dangerous products on other people, and second, by taking out life insurance against the fools who bought the deadly cars.

The day he received the Sparks memo, Viniar seconded the plan in a gleeful cheerleading e-mail. "Let's be aggressive distributing things," he wrote, "because there will be very good opportunities as the markets [go] into what is likely to be even greater distress, and we want to be in a position to take advantage of them." Translation: Let's find as many suckers as we can as fast as we can, because we'll only make more money as more and more shit hits the fan.

By February 2007, two months after the Sparks memo, Goldman had gone from betting $6 billion on mortgages to betting $10 billion against them — a shift of $16 billion. Even CEO Lloyd "I'm doing God's work" Blankfein wondered aloud about the bank's progress in "cleaning" its crap. "Could/should we have cleaned up these books before," Blankfein wrote in one e-mail, "and are we doing enough right now to sell off cats and dogs in other books throughout the division?"

How did Goldman sell off its "cats and dogs"? Easy: It assembled new batches of risky mortgage bonds and dumped them on their clients, who took Goldman's word that they were buying a product the bank believed in. The names of the deals Goldman used to "clean" its books — chief among them Hudson and Timberwolf — are now notorious on Wall Street. Each of the deals appears to represent a different and innovative brand of shamelessness and deceit.

In the marketing materials for the Hudson deal, Goldman claimed that its interests were "aligned" with its clients because it bought a tiny, $6 million slice of the riskiest portion of the offering. But what it left out is that it had shorted the entire deal, to the tune of a $2 billion bet against its own clients. The bank, in fact, had specifically designed Hudson to reduce its exposure to the very types of mortgages it was selling — one of its creators, trading chief Michael Swenson, later bragged about the "extraordinary profits" he made shorting the housing market. All told, Goldman dumped $1.2 billion of its own crappy "cats and dogs" into the deal — and then told clients that the assets in Hudson had come not from its own inventory, but had been "sourced from the Street."

Hilariously, when Senate investigators asked Goldman to explain how it could claim it had bought the Hudson assets from "the Street" when in fact it had taken them from its own inventory, the bank's head of CDO trading, David Lehman, claimed it was accurate to say the assets came from "the Street" because Goldman was part of the Street. "They were like, 'We are the Street,'" laughs one investigator.

Hudson lost massive amounts of money almost immediately after the sale was completed. Goldman's biggest client, Morgan Stanley, begged it to liquidate the investment and get out while they could still salvage some value. But Goldman refused, stalling for months as its clients roasted to death in a raging conflagration of losses. At one point, John Pearce, the Morgan Stanley rep dealing with Goldman, lost his temper at the bank's refusal to sell, breaking his phone in frustration. "One day I hope I get the real reason why you are doing this to me," he told a Goldman broker.

Goldman insists it was only required to liquidate the assets "in an orderly fashion." But the bank had an incentive to drag its feet: Goldman's huge bet against the deal meant that the worse Hudson performed, the more money Goldman made. After all, the entire point of the transaction was to screw its own clients so Goldman could "clean its books." The crime was far from victimless: Morgan Stanley alone lost nearly $960 million on the Hudson deal, which admittedly doesn't do much to tug the heartstrings. Except that quickly after Goldman dumped this near-billion-dollar loss on Morgan Stanley, Morgan Stanley turned around and dumped it on taxpayers, who within a year were spending $10 billion bailing out the sucker bank through the TARP program.

It is worth pointing out here that Goldman's behavior in the Hudson scam makes a mockery of standards in the underwriting business. Courts have held that "the relationship between the underwriter and its customer implicitly involves a favorable recommendation of the issued security." The SEC, meanwhile, requires that broker-dealers like Goldman disclose "material adverse facts," which among other things includes "adverse interests." Former prosecutors and regulators I interviewed point to these areas as potential avenues for prosecution; you can judge for yourself if a $2 billion bet against clients qualifies as an "adverse interest" that should have been disclosed.

But these "adverse interests" weren't even the worst part of Hudson. Goldman also used a complex pricing method to turn the deal into an impressive triple screwing. Essentially, Goldman bought some of the mortgage assets in the Hudson deal at a discount, resold them to clients at a higher price and pocketed the difference. This is a little like getting an invoice from an interior decorator who, in addition to his fee for services, charges you $170 a roll for brand-name wallpaper he's actually buying off the back of a truck for $63.

To recap: Goldman, to get $1.2 billion in crap off its books, dumps a huge lot of deadly mortgages on its clients, lies about where that crap came from and claims it believes in the product even as it's betting $2 billion against it. When its victims try to run out of the burning house, Goldman stands in the doorway, blasts them all with gasoline before they can escape, and then has the balls to send a bill overcharging its victims for the pleasure of getting fried.

*

Timberwolf, the most notorious of Goldman's scams, was another car whose engine exploded right out of the lot. As with Hudson, Goldman clients who bought into the deal had no idea they were being sold the "cats and dogs" that the bank was desperately trying to get off its books. An Australian hedge fund called Basis Capital sank $100 million into the deal on June 18th, 2007, and almost immediately found itself in a full-blown death spiral. "We bought it, and Goldman made their first margin call 16 days later," says Eric Lewis, a lawyer for Basis, explaining how Goldman suddenly required his client to put up cash to cover expected losses. "They said, 'We need $5 million.' We're like, what the fuck, what's going on?" Within a month, Basis lost $37.5 million, and was forced to file for bankruptcy.

In many ways, Timberwolf was a perfect symbol of the insane faith-based mathematics and blackly corrupt marketing that defined the mortgage bubble. The deal was built on a satanic derivative structure called the CDO-squared. A normal CDO is a giant pool of loans that are chopped up and layered into different "tranches": the prime or AAA level, the BBB or "mezzanine" level, and finally the equity or "toxic waste" level. Banks had no trouble finding investors for the AAA pieces, which involve betting on the safest borrowers in the pool. And there were usually investors willing to make higher-odds bets on the crack addicts and no-documentation immigrants at the potentially lucrative bottom of the pool.

Don't engage in class hate rhetoric, Taibbi.

But the unsexy BBB parts of the pool were hard to sell, and the banks didn't want to be stuck holding all of these risky pieces. So what did they do? They took all the extra unsold pieces, threw them in a big box, and repeated the original "tranching" process all over again. What originally were all BBB pieces were diced up and divided anew — and, presto, you suddenly had new AAA securities and new toxic-waste securities.

A CDO, to begin with, is already a highly dubious tool for magically converting risky subprime mortgages into AAA investments. A CDO-squared doubles down on that lunacy, taking the waste products of the original process and converting them into AAA investments. This is kind of like taking all the kids who were picked last to play volleyball in every gym class of every public school in the state, throwing them in a new gym, and pretending that the first 10 kids picked are varsity-level players. Then you take all the unpicked kids left over from that process, throw them in a gym with similar kids from all 50 states, and call the first 10 kids picked All-Americans.

Those "All-Americans" were the assets in the Timberwolf deal. These were the recycled nightmare dregs of the mortgage craze — to quote Beavis and Butt-Head, "the ass of the ass."

Goldman knew the deal sucked long before it dinged the Aussies in Basis Capital for $100 million. In February 2007, Goldman mortgage chief Daniel Sparks and senior executive Thomas Montag exchanged e-mails about the risk of holding all the crap in the Timberwolf deal.

MONTAG: "CDO-squared — how big and how dangerous?"
SPARKS: "Roughly $2 billion, and they are the deals to worry about."

Goldman executives were so "worried" about holding this stuff, in fact, that they quickly sent directives to all of their salespeople, offering "ginormous" credits to anyone who could manage to find a dupe to take the Timberwolf All-Americans off their hands. On Wall Street, directives issued from above are called "axes," and Goldman's upper management spent a great deal of the spring of 2007 "axing" Timberwolf. In a crucial conference call on May 20th that included Viniar, Sparks oversaw a PowerPoint presentation spelling out, in writing, that Goldman's mortgage desk was "most concerned" about Timberwolf and another CDO-squared deal. In a later e-mail, he offered an even more dire assessment of such deals: "There is real market-meltdown potential."

On May 22nd, two days after the conference call, Goldman sales rep George Maltezos urged the Australians at Basis to hurry up and buy what the bank knew was a deadly investment, suggesting that the "return on invested capital for Basis is over 60 percent." Maltezos was so stoked when he first identified the Aussies as a target in the scam that he subject-lined his e-mail "Utopia."

"I think," Maltezos wrote, "I found white elephant, flying pig and unicorn all at once."

The whole transaction can be summed up by the now-notorious e-mail that Montag wrote to Sparks only four days after they sold $100 million of Timberwolf to Basis. "Boy," Montag wrote, "that timeberwof [sic] was one shitty deal."

Last year, in the one significant regulatory action the government has won against the big banks, the SEC sued Goldman over a scam called Abacus, in which the bank "rented" its name to a billionaire hedge-fund viper to fleece investors out of more than $1 billion. Goldman agreed to pay $550 million to settle the suit, though no criminal charges were brought against the bank or its executives. But in light of the Levin report, that SEC action now looks woefully inadequate. Yes, it was a record fine — but it pales in comparison to the money Goldman has taken from the government since the crash. As Spitzer notes, Goldman's reaction was basically, "OK, we'll pay you $550 million to settle the Abacus case — that's a small price to pay for the $12.9 billion we got for the AIG bailout." Now, adds Spitzer, "everybody can just go home and pretend it was only $12.4 billion — and Goldman can smile all the way to the bank. The question is, now that we've seen this report, there are a bunch of story lines that seem to be at least as egregious as Abacus. Are they going to bring cases?"

*

Here is where the supporters of Goldman and other big banks will stand up and start wanding the air full of confusing terms like "scienter" and "loss causation" — legalese mumbo jumbo that attempts to convince the ignorantly enraged onlooker that, according to American law, these grotesque tales of grand theft and fraud you've just heard are actually more innocent than you think. Yes, they will say, it may very well be a prosecutable crime for a corner-store Arab to take $2 from a customer selling tap water as Perrier. But that does not mean it's a crime for Goldman Sachs to take $100 million from a foreign hedge fund doing the same thing! No, sir, not at all! Then you'll be told that the Supreme Court has been limiting corporate liability for fraud for decades, that in order to gain a conviction one must prove a conscious intent to deceive, that the 1976 ruling in Ernst and Ernst clearly states....

Leave all that aside for a moment. Though many legal experts agree there is a powerful argument that the Levin report supports a criminal charge of fraud, this stuff can keep the lawyers tied up for years. So let's move on to something much simpler. In the spring of 2010, about a year into his investigation, Sen. Levin hauled all of the principals from these rotten Goldman deals to Washington, made them put their hands on the Bible and take oaths just like normal people, and demanded that they explain themselves. The legal definition of financial fraud may be murky and complex, but everybody knows you can't lie to Congress.

"Article 18 of the United States Code, Section 1001," says Loyola University law professor Michael Kaufman. "There are statutes that prohibit perjury and obstruction of justice, but this is the federal statute that explicitly prohibits lying to Congress."

The law is simple: You're guilty if you "knowingly and willfully" make a "materially false, fictitious or fraudulent statement or representation." The punishment is up to five years in federal prison.

When Roger Clemens went to Washington and denied taking a shot of steroids in his ass, the feds indicted him — relying not on a year's worth of graphically self-incriminating e-mails, but chiefly on the testimony of a single individual who had been given a deal by the government. Yet the Justice Department has shown no such prosecutorial zeal since April 27th of last year, when the Goldman executives who oversaw the Timberwolf, Hudson and Abacus deals arrived on the Hill and one by one — each seemingly wearing the same mask of faint boredom and irritated condescension — sat before Levin's committee and dodged volleys of questions.

Before the hearing, even some of Levin's allies worried privately about his taking on Goldman and other powerful interests. The job, they said, was best left to professional prosecutors, people with experience building cases. "A senator's office is not an enormous repository of expertise," one former regulator told me. But in the case of this particular senator, that concern turned out to be misplaced. A Harvard-educated lawyer, Levin has a long record of using his subcommittee to spend a year or more carefully building cases that lead to criminal prosecutions. His 2003 investigation into abusive tax shelters led to 19 indictments of individuals at KPMG, while a 2006 probe fueled insider-trading charges against the notorious Wyly brothers, a pair of billionaire Texans who manipulated offshore investment trusts. The investigation of Goldman was an attempt to find out what went wrong in the years leading up to the financial crash, and the questioning of the bank's executives was not one of those for-the-cameras-only events where congressmen wing ad-libbed questions in search of sound bites. In the weeks leading up to the hearing, Levin's team carefully rehearsed the moment with committee members. They knew the possible answers that Goldman might give, and they were ready with specific counterquestions. What ensued looked more like a good old-fashioned courtroom grilling than a photo-op for grinning congressmen.

Sparks, who stepped down as Goldman's mortgage chief in 2008, cut a striking figure in his testimony. With his severe crew cut, deep-set eyes and jockish intransigence, he looked like a cross between H.R. Haldeman and John Rocker.

That would be a baseball pitcher once much-hated in New York for his aggressive, obnoxious comments about how the subway was full of animals.

He repeatedly dodged questions from Levin about whether or not the bank had a responsibility to tell its clients that it was betting against the same stuff it was selling them. When asked directly if he had that responsibility, Sparks answered, "The clients who did not want to participate in that deal did not." When Levin pressed him again, asking if he had a duty to disclose that Goldman had an "adverse interest" to the deals being sold to clients, Sparks fidgeted and pretended not to comprehend the question. "Mr. Chairman," he said, "I'm just trying to understand."

OK, fine — non-answer answers. "My guess is they were all pretty well coached up," says Kaufman, the law professor. But then Sparks had a revealing exchange with Sen. Jon Tester of Montana. Tester calls the Goldman deals "a wreck waiting to happen," noting that the CDOs "were all downgraded to junk in very short order."

At which point, Sparks replies, "Well, senator, at the time we did those deals, we expected those deals to perform."

Tester then cannily asks if by "perform," Sparks means go to shit — which would have been an honest answer. "Perform in what way?" Tester asks. "Perform to go to junk so that the shorts made out?"

Unable to resist the taunt, Sparks makes a fateful decision to defend his honor. "To not be downgraded to junk in that short a time frame," he says. Then he pauses and decides to dispense with the hedging phrase "in that short a time frame."

"In fact," Sparks says, "to not be downgraded to junk."

So Sparks goes before Congress and, under oath, tells a U.S. senator that at the time he was selling Timberwolf, he expected it to "perform." But an internal document he approved in May 2007 predicted exactly the opposite, warning that Goldman's mortgage desk expected such deals to "underperform." Here are some other terms that Sparks used in e-mails about the subprime market affecting deals like Timberwolf around that same time: "bad and getting worse," "get out of everything," "game over," "bad news everywhere" and "the business is totally dead."

And we indicted Roger Clemens?

*

Another extraordinary example of Goldman's penchant for truth avoidance came when Joshua Birnbaum, former head of structured-products trading for the bank, gave a deposition to Levin's committee. Asked point-blank if Goldman's huge "short" on mortgages was an intentional bet against the market or simply a "hedge" against potential losses, Birnbaum played dumb. "I do not know whether the shorts were a hedge," he said. But the committee, it turned out, already knew that Birnbaum had written a memo in which he had spelled out the truth: "The shorts were not a hedge." When Birnbaum's lawyers learned that their client's own words had been used against him, they hilariously sent an outraged letter complaining that Birnbaum didn't know the committee had his memo when he decided to dodge the question. They also submitted a "supplemental" answer. Birnbaum now said, "Having reviewed the document the staff did not previously provide me" — his own words! — "I can now recall that ... I believed ... these short positions were not a hedge." (Goldman, for its part, dismisses Birnbaum as a single trader who "neither saw nor knew the firm's overall risk positions.")

When it came time for Goldman CEO Lloyd Blankfein to testify, the banker hedged and stammered like a brain-addled boxer who couldn't quite follow the questions. When Levin asked how Blankfein felt about the fact that Goldman collected $13 billion from U.S. taxpayers through the AIG bailout, the CEO deflected over and over, insisting that Goldman would somehow have made that money anyway through its private insurance policies on AIG. When Levin pressed Blankfein, pointing out that he hadn't answered the question, Blankfein simply peered at Levin like he didn't understand.

But Blankfein also testified unequivocally to the following:

"Much has been said about the supposedly massive short Goldman Sachs had on the U.S. housing market. The fact is, we were not consistently or significantly net-short the market in residential mortgage-related products in 2007 and 2008. We didn't have a massive short against the housing market, and we certainly did not bet against our clients."

Levin couldn't believe what he was hearing. "Heck, yes, I was offended," he says. "Goldman's CEO claimed the firm 'didn't have a massive short,' when the opposite was true." First of all, in Goldman's own internal memoranda, the bank calls its giant, $13 billion bet against mortgages "the big short." Second, by the time Sparks and Co. were unloading the Timberwolves of the world on their "unicorns" and "flying pigs" in the summer of 2007, Goldman's mortgage department accounted for 54 percent of the bank's risk. That means more than half of all the bank's risk was wrapped up in its bet against the mortgage market — a "massive short" by any definition. Indeed, the bank was betting so much money on mortgages that its executives had become comically blasé about giant swings on a daily basis. When Goldman lost more than $100 million on August 8th, 2007, Montag circulated this e-mail: "So who lost the hundy?"

This month, after releasing his report, Levin sent all of this material to the Justice Department. His conclusion was simple. "In my judgment," he declared, "Goldman clearly misled their clients, and they misled the Congress." Goldman, unsurprisingly, disagreed: "Our testimony was truthful and accurate, and that applies to all of our testimony," said spokesman Michael DuVally. In a statement to Rolling Stone, Goldman insists that its behavior throughout the period covered in the Levin report was consistent with responsible business practice, and that its machinations in the mortgage market were simply an attempt to manage risk.

It wouldn't be hard for federal or state prosecutors to use the Levin report to make a criminal case against Goldman. I ask Eliot Spitzer what he would do if he were still attorney general and he saw the Levin report. "Once the steam stopped coming out of my ears, I'd be dropping so many subpoenas," he says. "And I would parse every potential inconsistency between the testimony they gave to Congress and the facts as we now understand them."

I ask what inconsistencies jump out at him. "They keep claiming they were only marginally short, that it was more just servicing their clients," he says. "But it sure doesn't look like that." He pauses. "They were $13 billion short. That's big — 50 percent of their risk. It was so completely disproportionate."

Lloyd Blankfein went to Washington and testified under oath that Goldman Sachs didn't make a massive short bet and didn't bet against its clients. The Levin report proves that Goldman spent the whole summer of 2007 riding a "big short" and took a multibillion-dollar bet against its clients, a bet that incidentally made them enormous profits. Are we all missing something? Is there some different and higher standard of triple- and quadruple-lying that applies to bank CEOs but not to baseball players?

This issue is bigger than what Goldman executives did or did not say under oath. The Levin report catalogs dozens of instances of business practices that are objectively shocking, no matter how any high-priced lawyer chooses to interpret them: gambling billions on the misfortune of your own clients, gouging customers on prices millions of dollars at a time, keeping customers trapped in bad investments even as they begged the bank to sell, plus myriad deceptions of the "failure to disclose" variety, in which customers were pitched investment deals without ever being told they were designed to help Goldman "clean" its bad inventory. For years, the soundness of America's financial system has been based on the proposition that it's a crime to lie in a prospectus or a sales brochure. But the Levin report reveals a bank gone way beyond such pathetic little boundaries; the collective picture resembles a financial version of The Jungle, a portrait of corporate sociopathy that makes you never want to go near a sausage again.

Upton Sinclair's narrative shocked the nation into a painful realization about the pervasive filth and corruption behind America's veneer of smart, robust efficiency. But Carl Levin's very similar tale probably will not. The fact that this evidence comes from a U.S. senator's office, and not the FBI or the SEC, is itself an element in the worsening tale of lawlessness and despotism that sparked a global economic meltdown. "Why should Carl Levin be the one who needs to do this?" asks Spitzer. "Where's the SEC? Where are any of the regulatory bodies?"

This isn't just a matter of a few seedy guys stealing a few bucks. This is America: Corporate stealing is practically the national pastime, and Goldman Sachs is far from the only company to get away with doing it. But the prominence of this bank and the high-profile nature of its confrontation with a powerful Senate committee makes this a political story as well. If the Justice Department fails to give the American people a chance to judge this case — if Goldman skates without so much as a trial — it will confirm once and for all the embarrassing truth: that the law in America is subjective, and crime is defined not by what you did, but by who you are.

[American Dream]

Cross-posting at Videp Links Only Thread:

[eyeno]

What do you guys make of these reports coming in lately that governments such as Mexico, the University of Texas, central banks, etc... are buying incredibly large physical amounts of gold? This for me is an enigma. Not sure what I think about it. The University of Texas supposedly bought and took delivery of 1 Billion dollars worth of gold yet did not take delivery. Central banks own and control the gold so how are they buying it and taking delivery? This seems to be a theme that cannot uphold itself?

Jackriddler? vanclose kid? Anybody?

[vanlose kid]

What do you guys make of these reports coming in lately that governments such as Mexico, the University of Texas, central banks, etc... are buying incredibly large physical amounts of gold? This for me is an enigma. Not sure what I think about it. The University of Texas supposedly bought and took delivery of 1 Billion dollars worth of gold yet did not take delivery. Central banks own and control the gold so how are they buying it and taking delivery? This seems to be a theme that cannot uphold itself?

Jackriddler? vanclose kid? Anybody?

there's this fairly recent FOFOA post related to that that i've been meaning to post in one thread or another. it's long and covers lots but that too. the entire post is worth reading, maybe i'll throw it in "12 signs..." and then JR can make the call.

the recent FOFOA post is a grab bag of things, one of which consists of comments on a previous FOFOA post i've already posted in GD (somewhere, can't remember, probably "12 Warning Signs..."): "FOFOA: Deflation or Hyperinflation?". here's the snippet:

I read a lot of comments posted around the Internet that show up in my stats report. Occasionally I send an email to someone that impresses me. This guy was one such.

His name is Bill Quick and he seems to be (from what little I've seen) a political and survivalist blogger. Apparently he is known as "the guy who named the 'blogosphere.'" What really grabbed me was not only that he said he was a deflationist before reading this post, but that he is a complete outsider to FOFOA's world. He'd probably never even heard of FOFOA before this day. Yet I could tell through his comments that he "got it" in a deep way that very few do. Anyway, here is his short post and a few of his comments that caught my attention:

FOFOA: Deflation or Hyperinflation?

It is long, very long. Perhaps only two or three of my readers will make it through the whole thing - although I hope nemo and kennycan will give it a shot, maybe over a weekend or something.

It may seem obscure in places, boring in others, and impenetrable in even more.

But this is the most important piece of analysis I have yet read on the big question of our financial future: Inflation, or deflation?

-Bill Quick
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Bill Quick April 28th, 2011 | #4

Guys, listen.

He “couldn’t have simply said…”

He is making a dead serious argument about a very complicated question, and that argument cannot be couched in sound bites.

I understand that this is not a very accessible argument. But it does reward if the effort is made.

Golden nugget: “Losses can’t be avoided: but they can be socialized/collectivized.”

Big money, via monetization, is at this very moment in the process of collectivizing its losses - the profits are theirs, and the losses are being moved to the public books - that is, your front lawn.

And that is why hyperinflation is inevitable. All the people who really matter benefit. You, on the other hand, lose.

Do you think the trustees of the accounts of the University of Texas bought a billion bucks worth of gold on a whim? And they are buying that gold with fiat money, now.

Because they are first in line for the money spigots. Later on, the confetti won’t buy gold. Hell, it won’t even buy hamburger.
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Bill Quick April 28th, 2011 | #5

By the way, this changes my own thinking about political strategy.

We are not going to be able to stop the hyperinflation. Even the Tea Partiers are not going to demand that we do, or prevent its onset.

So I think we need to think hard about the sort of politicians we want to be in charge when it does happen. And that is a very interesting, very thorny question.
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Bill Quick April 28th, 2011 | #7

The worst hyperinflation in the past hundred years - Zimbabwe - has mostly burned itself out, and the government that caused it is still in power.

If that gives anybody a clue as to what choices our own ruling classes are likely to make.
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Bill Quick April 28th, 2011 | #9

Razor, in our lifetimes, the dollar has been less and less good. In fact, it is 97% less good than it was in 1913.

We haven’t noticed it so much because of massive productivity gains due to first, industrialization, then technologization, and then putting our wives to work, and then borrowing several trillion dollars from Europe and Asia, and then another hundred trillion from our kids, and now inviting those kids to move back home and keep working to help out the household income.

But there isn’t anybody else we can put to work, and shortly, there won’t be anybody we can borrow from except our own money printing presses.

At that point, hyperinflation.

I’m no longer even convinced it’s even worth wasting any time trying to prevent it. In fact, if the choice is only hyper deflation or hyperinflation, I much prefer the latter. Less bloodshed, for one thing.
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Bill Quick April 28th, 2011 | #11

However, there isn’t enough gold, silver, platinum, etc. in the world to allow the banksters & billionaires to transfer their wealth from the dollar to the next fiat currency

Actually, there is. Read the whole article. I told you it repays careful attention.
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Bill Quick April 28th, 2011 | #14

Well, I certainly didn’t say it was an easy read, and my confirmation bias ran the other way - I’ve always thought we were heading toward a deflationary reckoning.

He changed my mind - and once you grasp the reasoning behind his primary contention - that inflation, rather than deflation, is better for the rich and powerful, then the rest falls into place.

Because that notion is so counterintuitive, once you do get it, it is a genuine Aha! moment.

You also suddenly understand why Paul Krugman, economist to the rich and powerful, is advocating the things he does.
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Bill Quick April 28th, 2011 | #15

BTW, I read parts of that article quite a few more than two or three times before the murk finally cleared.

[FOFOA source]

[Bill Quick's post]

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edit: formatting, links.

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[vanlose kid]

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uhm, just checked, seems i never posted it to begin with (though i'm pretty sure i did). so i'm going to put it up in "12 Warning Signs..." it's worth the effort.

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[JackRiddler]

What do you guys make of these reports coming in lately that governments such as Mexico, the University of Texas, central banks, etc... are buying incredibly large physical amounts of gold? This for me is an enigma. Not sure what I think about it. The University of Texas supposedly bought and took delivery of 1 Billion dollars worth of gold yet did not take delivery. Central banks own and control the gold so how are they buying it and taking delivery? This seems to be a theme that cannot uphold itself?

Jackriddler? vanclose kid? Anybody?

Don't know. I would guess they're hedging against another crash. There are many kinds of those that don't involve hyperinflation scenarios. Also, not every investment decision is wise and based on insider knowledge. I have no way of knowing what UT is thinking.

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VK, if you're asking me, I think you should throw whole books in here if you feel like it, whatever I might think of this or that material. I've already done so, on earlier pages.

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I do wonder why hyperinflationists always think Zimbabwe is a generalizable example. It's a strange choice of a bogeyman, though I can see where it sets off the culture-war bells. The country would be arid and impoverished even were it not post-colonial, underdeveloped, devastated since its start by decades of war, saddled with an inflexible one-party kleptocracy, and isolated by an international sanctions regime. Seems to me Argentina is light-years closer as a comparison to the United States, and the upshot of their bankruptcy was that high inflation and economic upheavals came to an end!

The talk about the value of one (1) dollar being 3 percent of what it was in 1913 is also puzzling. What is it supposed to mean? Inflation always accompanies growth, it's effectively a condition. Per capita income after adjusting for inflation is about five times higher today than in 1913. What does such numbers-play show?

Also, it may be unfair to pick on questionable formulations:

We haven’t noticed it so much because of massive productivity gains due to first, industrialization, then technologization, and then putting our wives to work,

except that the reactionary social understandings implied in the phrase crop up consistently in the hyperinflationist oeuvre. "Our wives" defines a subject of history, an "us," to which I feel no belonging. An imaginary homogeneous and indivisible American middle-class white-male society that never really existed as imagined, was lousy for most people in the country, and definitely was not what decided to put "its wives" to work. Just in that one sentence, the other terms are amazingly spongy. (Industrialization is what happened after the Civil War; "technologization" is... many waves of something.)

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But anyway... Goldman stock actually dropped because of the Rolling Stone story. More stuff that dreams are made of for us anti-capitalists, I guess.

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[anothershamus]

John Embry discusses gold and silver with James Turk, via maxkeiser.com

This is a very polite discussion about the state of the US financial system.

[seemslikeadream]

The PEOPLE vs GOLDMAN SACHS Matt Taibbi Interview