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

[norton ash]

^^^ Excellent TIME cover parody. But it's 'its reputation.'

Tainted a good joke. Although I suck at Photoshop.

http://en.wikipedia.org/wiki/You_Suck_A ... web_series)

[2012 Countdown]

Flawed Titan of the Fed
A new documentary on the financial crisis paints Alan Greenspan as an embodiment of what went wrong with America.

In the fall of 2008, with the global economy in shambles and panic spreading throughout the financial system, a seemingly humbled Alan Greenspan—the former chairman of the U.S. Federal Reserve—appeared before Congress and admitted the unimaginable: there was a “flaw” in his world view that had prevented him from foreseeing the worst credit crisis in American history.

And so begins The Flaw, David Sington’s new documentary about the origins of the financial crisis. The movie, which opened in London last week, makes a compelling argument that the nature of American capitalism has changed in recent decades, giving rise to unstable levels of inequality and a mistaken belief in the self-correcting power of free markets. The Flaw focuses largely on the housing market and offers a far less blistering critique of Wall Street than Inside Job¸ Charles Ferguson’s 2010 Oscar-winning documentary. Yet in both films, Greenspan, who spoke with NEWSWEEK at his office in Washington, D.C., is cast in a similar role—as someone who personifies much of what went wrong with the economy.

Since the housing bubble burst, and Wall Street teetered on the brink of collapse, Greenspan—once widely hailed as the oracle of the American economy—has seen his standing plummet. Most recently, Paul Krugman, the Nobel Prize–winning economist and columnist for The New York Times, wrote that Greenspan is continuing “to cement his reputation as the worst ex–Fed chairman in history”—a searing statement even for someone on the left.

And yet what continues to drive much of the criticism of Greenspan is not so much his record at the Fed but his recent political commentary. Despite his 2008 mea culpa, Greenspan has largely remained steadfast in his faith in laissez faire, arguing against the government’s stimulus package and recent financial regulation. As Congress continues to fight over long-term spending and the future of entitlements, it is precisely this sort of stubborn libertarianism that has enraged Greenspan’s critics and once again cast a spotlight on his legacy.

When Greenspan retired five years ago, his reputation seemed unimpeachable. Despite fears that he would govern the central bank as a conservative ideologue—he was once a disciple of the radical libertarian writer Ayn Rand—during the early ’90s, Greenspan proved to be a pragmatist and a highly successful technocrat, according to Brad DeLong, an economist at the University of California, Berkeley. One of the central bank’s two primary jobs is to keep prices stable and employment high. On both fronts, Greenspan’s record, from 1987 to 2000, was strong, according to friends, former colleagues, and even critics. “The years that Alan Greenspan was chair were years of unprecedented growth and price stability,” says Larry Summers, the former Treasury secretary.

Greenspan’s first decade or so in office was also marked by a series of potential disasters. Yet from the stock-market crash of 1987 to the Asian financial crisis in the late 1990s, Greenspan—with a combination of luck and skill—helped steer the U.S. economy away from catastrophe. “He deserves tremendous credit,” says John Taylor, a senior fellow at the Hoover Institution and one of Greenspan’s most prominent critics.

For years he got that credit. But people also lauded him for things he didn’t do. Once, he recalled, a woman came up to him and thanked him for her 401(k). On the cusp of the millennium, a hagiography began to form around Greenspan and his role in the economic boom. The accolades became so grandiose that it wasn’t a far cry from the truth when, in 2001, The Onion, the satirical newspaper, ran an item with the headline “Screaming Japanese Schoolgirls Overturn Greenspan’s Bus.”

Today the jokes about Greenspan are no longer flattering. One satirist even compared his book, The Age of Turbulence, to O. J. Simpson’s If I Did It. “He has gone from a God-like figure to someone who fouled up everything,” says Alan Blinder, a Princeton economist and former Fed vice chairman. “Both are exaggerations.”

Some of the more serious criticism borders on unfair. Many critics have argued that the Federal Reserve’s low-interest-rate policies in the early 2000s encouraged investors to take excessive risks. And to some extent, that’s true. Yet at the time, deflation was a legitimate concern. And to assign much of the blame for the financial meltdown on the central bank’s easy-money policies—rather than holding Wall Street accountable for its excessive greed—is a bit like jailing the person who accidentally left the back door open and then pardoning the thief who came in and robbed everyone blind. For all hoopla about Greenspan—and on this, Inside Job strikes a resonant note—what’s remarkable about the financial crisis is how few Wall Street malefactors have been prosecuted, despite considerable evidence of fraud.

Where Greenspan deserves considerable blame, however, is on the regulatory front—something that The Flaw, for all its sharp analysis of economic history, mentions largely in passing. The central bank is among the main federal agencies in charge of policing the financial system. All dropped the ball at some point, yet when it came to the economy, Greenspan was perhaps the country’s most influential figure. “Things were going so well for so long,” says Donald Kohn, a senior fellow at the Brookings Institution and former Fed vice chairman. “We got complacent. He got complacent.” Indeed, Greenspan’s zealous, decades-long opposition to regulation undoubtedly “caused grievous harm,” says Blinder. As the government’s Financial Crisis Commission concluded several months ago, the Fed had heard warnings of widespread fraud in the mortgage market yet did not act to curb it, which was well within its power. In fact, more than a decade before the crisis, Congress made the Fed the primary watchdog of the growing subprime-mortgage market.

Despite this regulatory failure, many economists say that Greenspan’s legacy is still relatively positive, thanks to the success of his early years. And some, such as Kohn and Blinder, praise his overall record on monetary policy. In fact, some of the most scathing words have more to do with Greenspan’s criticism of the Dodd-Frank financial regulation than his actual stewardship of the economy. “What next?” John Cassidy wrote in a blog post for The New Yorker. “Donald Rumsfeld attacking the notion of postwar planning?”

In an interview, Greenspan—his voice raspy, his eyes looking weary behind his dark-framed glasses—was reluctant to talk about his legacy. Instead, speaking in long, careful sentences, the former Fed chairman tried to appear unfazed by his critics. “Mistakes are essential, and I have made my share,” he said. “But they don’t weigh heavily on me. I don’t have any interest in dwelling on the past.”

Yet as the interview neared its end, his tone belied his agitation. “I am as sensitive as anybody. But criticism doesn’t bother me that much. I know with certainty that two plus two equals four, and I don’t need help to make that judgment.”

Perhaps, but it is this defiance—as much as any flaw in his ideology—that will continue to obscure his actual legacy, which shouldn’t exclusively be defined by the crisis.


http://www.newsweek.com/2011/06/12/new- ... -flaw.html

[JackRiddler]

vk has been putting a lot of Greece coverage into the EU-MENA revolution consolidation thread, starting here:
viewtopic.php?f=8&t=32282&start=30#p407247

Going to steal a few items, but check that for many more.

Greece on the brink of revolutionary situation
Written by Stamatis Karagiannopoulos Monday, 06 June 2011


Yesterday a milestone was passed in the social and political situation in Greece and throughout Europe. Impressive mobilizations rolled across the country: half a million in Athens and rallies of thousands of people gathered in Thessaloniki, Patras, Larissa, Volos, Heraklion, etc. This places Greece on the threshold of a revolutionary situation. It means that, for the first time in decades the developed capitalist countries of Europe are faced with the prospect of a revolution with continental dimensions.

Half a million protesters in Athens - Uprising across the country


June 2, Syntagma Square. Photo: Rania H.June 2, Syntagma Square. Photo: Rania H.

Yesterday's gathering in Athens, apart from its impressive size, had many new elements. The awkwardness and blind rage that characterized the first days of the movement have given way to enthusiasm. The masses have acquired a sense of confidence through the collective show of strength. While the early days were focused on the idea of a silent angry people, yesterday the mood had changed. The people shouted ingenious slogans against the government and the “Troika”, and everywhere groups of people were spontaneously formed in which everyone wanted to express an opinion on the movement and on the next steps to be taken.

At the same time, in the most advanced part of the protesters, especially in the youth, an interest to seek a political solution for the "next day" was evident. This explains the enormous interest in participating in the People's Assembly of Syntagma Square, which was attended by 10,000 people, patiently waiting to participate, although very few were able to speak.

From 9.30 pm onwards, the density of the protest made it impossible even to approach the site of the assembly. The predominant element in the meeting was the spontaneous opinions voiced by ordinary workers, unemployed and young people expressing the need to continue the struggle.

Many proposals were made: "to besiege the parliament on the day the austerity measures are put to the vote"; "to fight to set up popular meetings in every neighborhood"; "to put into practice the decision of the People's Assembly for an indefinite general political strike"; "to fight the media propaganda with an organized campaign in the neighborhoods and squares”. On one point all were agreed: "next Sunday there will be a million people in the streets of Athens!”

The situation becomes revolutionary

The masses are erupting onto the scene very dramatically and are consistently to the forefront. The climate in the neighborhoods this week highlights the potential for mass assemblies. The enthusiasm from the protests is being carried into every workplace, thereby putting tremendous pressure on the leadership of the unions to take action. Already the GSEE leadership has been forced to call a 24 hour strike of all those companies that are soon to be privatized on Thursday 9th June. For the first time these workers will be engaged in coordinated action, while another 24 hour general strike was announced for 15th June.

It is certain that this general strike will be different to those we saw last year. Coming as part of the general escalation of the mass movement that has developed in the squares, it will have a much greater participation than before in the private sector. And it will be combined with the most widespread popular protests in decades. This strike will not mobilize only a part of the working class, but will tend to embrace the vast majority of the working class and trade unions. It will put the proletariat at the head of a struggle that is not a struggle for economic demands alone, but a political struggle of the masses in the streets. This strike therefore will have an inner tendency to become a lasting general strike, regardless of the intentions of the bureaucracy.

What is revolutionary situation?

In the writings of Lenin and Trotsky, we can find the definition of what is a revolutionary situation. In his book "The failure of the Second International" (1916) Lenin explained:

“What, generally speaking, are the symptoms of a revolutionary situation? We shall certainly not be mistaken if we indicate the following three major symptoms: (1) when it is impossible for the ruling classes to maintain their rule without any change; when there is a crisis, in one form or another, among the “upper classes”, a crisis in the policy of the ruling class, leading to a fissure through which the discontent and indignation of the oppressed classes burst forth. For a revolution to take place, it is usually insufficient for “the lower classes not to want” to live in the old way; it is also necessary that “the upper classes should be unable” to live in the old way; (2) when the suffering and want of the oppressed classes have grown more acute than usual; (3) when, as a consequence of the above causes, there is a considerable increase in the activity of the masses, who uncomplainingly allow themselves to be robbed in “peace time”, but, in turbulent times, are drawn both by all the circumstances of the crisis and by the “upper classes” themselves into independent historical action.

“.....The totality of all these objective changes is called a revolutionary situation. Such a situation existed in 1905 in Russia, and in all revolutionary periods in the West;...”

Trotsky in 1940, in the Emergency Manifesto explained the necessary conditions for the victory of the proletariat:

“The basic conditions for the victory of the proletarian revolution have been established by historical experience and clarified theoretically: (1) the bourgeois impasse and the resulting confusion of the ruling class; (2) the sharp dissatisfaction and the striving towards decisive changes in the ranks of the petty bourgeoisie, without whose support the big bourgeoisie cannot maintain itself; (3) the consciousness of the intolerable situation and readiness for revolutionary actions in the ranks of the proletariat; (4) a clear program and a firm leadership of the proletarian vanguard—these are the four conditions for the victory of the proletarian revolution.” (Manifesto of the Fourth International on Imperialist War and the Imperialist War).

All these elements have developed in Greece today. The ruling class begins to understand that they cannot govern as before; to lie and deceive the masses, i.e. with the old, gentle, "democratic" means. The suffering and indignation of the masses have been growing over a long period. The masses have already begun to move independently of the ruling class.

The ruling class finds itself in a state of unprecedented confusion because of the impasse. They are absolutely unable to reach to a unified strategy. Some say: “we must completely capitulate to the foreign lenders and see where we can go from there". Others suggest that Greece should "renegotiate with the troika”, while still others say we must "get out of the euro now in order to strengthen the country's competitiveness." Some say: "let’s form a national government", while others urge Papandreou to continue carrying out the dirty work until he gets the boot. Some, are even secretly studying the possibility of a coup, in an attempt to put the brake on the movement of the masses. This scenario was outlined in a leaked report by the CIA in the bourgeois press last week.

The desertion of 16 PASOK MPs from the government over the issue of new cuts and taxes, shows that the pressure of the movement has destabilized the government’s parliamentary group for good. New Democracy and LAOS, fearing that they will go down together with Papandreou’s sinking ship, are now keeping their distance from the government, trying to speculate on the result of a future election.

The traditional mainstay of the bourgeoisie, the middle classes have been radicalized and are now in the streets. The proletariat again and again shows its readiness to act. All the basic elements for a revolutionary situation have matured. The only thing that is lacking is a clear programme and firm leadership of the proletarian vanguard. That is all that is needed quickly to convert the revolutionary situation into a victorious revolution which will expropriate the exploiters and eliminate capitalism, setting in motion a movement that can lead to the victory of socialism in Greece, the Mediterranean and throughout Europe.

The leadership of the Left is acting criminally

Ever since the beginning of mass movement on the streets, the Left leaders have adopted an unacceptable attitude. The leadership of the Communist Party sends ultimatums to the people located in squares, urging them to "finally make the right policy proposals!" (See main article in Rizospastis on 3 / 6). The task of a Communist Party leadership is not to ask the movement to “make the right policy proposals”, but to participate actively in the movement, to try to raise the of consciousness and help the masses to formulate the correct demands.

Last Friday, the Stalinist leadership of the Communist Party made complete fools of themselves in front of the eyes of thousands gathered in the Syntagma Square. That afternoon a demonstration of PAME, the trade union faction of the Communist Party, ended up in the Square. There they delivered a 15-minute speech, during which the Communist Party called on the people assembled on the squares ex cathedra "not to trust anybody else except PAME".

When the speech was over, in order to avoid mixing up the protesters in the square with the Communist workers, the organizers of the PAME demo immediately ordered members of the Communist Youth to form "chains" and immediately, the "Communist" left the square. In this way, the Stalinist leadership of the Communist Party has proved eloquently their organic inability to connect with the real mass movement. They have shown that they regard it simply as a means of strengthening the Party’s position in the parliamentary elections.

On the other hand, the leadership of SYRIZA refuses to enter the movement openly and boldly. It is a very serious mistake just to ask for elections, without making any proposal on how to further develop the movement, when people are on the streets, getting self-organized, ready to get rid of the government and the "troika" altogether. It is also an incorrect attitude of the CC of Synaspismos (decision 29 / 5) to ask Party members to participate in the movement, while pretending to be “non-partisan"; " ... In this movement we participate as citizens, trying to listen and learn, we take part in uniting our voice with thousands of angry in each square of the country .... ".

The rank and file of the Left parties should respond to this damaging attitude. The position of comrade Alexis Tsipras (President of Synaspismos) and comrade Aleka Papariga (Secretary of the Communist Party) must not be confined to party offices and television panels. The place of the leaders of the Left in these moments is in Syntigma and the other squares. If the Left fails to participate openly and boldly in the movement, with appropriate ideas and suggestions that will help lead to victory and the final overthrow of the capitalist system of slavery, the core of the movement will be occupied by all sorts of petty-bourgeois and professional "patriots" who are trying to obscure the social content of the movement, replacing the class struggle with nationalist confusion.

The working class must lead the struggle!

The outbreak of this mass movement in the squares, found the labour movement in a state of fatigue and frustration, mainly because of the devastating role of the union bureaucracy, which up to now imagined they could defuse the militant mood of hundreds of thousands of workers with an occasional 24-hour general strike. So naturally, the initiative in the fight against the government and the “Troika”, passed from the unions to broader sections of people, who had not been involved in mobilizations in the last few years.

Unemployed university graduates, skilled and unskilled unemployed, young people without work experience, middle class people devastated by taxes and robbing banks and the collapse of the market, workers without any union or political affiliation, students who are just beginning to be politicized, pensioners and housewives: people from all layers of the working society form the main basis of this mass movement in the squares.

These layers have a fresh and combative mood. They don’t have bureaucratic leaders above them to put the brake on the mobilization and so far, they have created a movement that has proved to be persistent and long lasting. On the other hand, as is perfectly natural, these layers’ together with explosive anger and militancy, display inexperience of mass protests and are desperately seeking appropriate political slogans, appropriate fighting methods and specific political demands.

In these circumstances, therefore, the need for a distinct contribution of the working class and the labour movement in the struggle is decisive. The decisions of the People's Assembly of Syntagma Square calling for a general strike clearly recognize this need. Without paralyzing the economic centers of the system, there cannot be any fundamental change in society. But very little has been done until now to realize the general political strike demand.

Most of the leading layer in the Popular Assembly in Syntagma Square are under the false impression that the general strike is a merely a militant auxiliary to the demonstrations in the squares. In reality, it represents a decisive escalation of struggle and reflects a new, higher stage of this struggle. We must understand that the general strike cannot be organized by shouting slogans outside the union offices and workplaces, but must flow from the demands of the workers themselves through the trade unions and workplaces.

In working-class neighborhoods and workplaces, we must create action committees and elect strike committees to prepare for the strike. That is the only way to guarantee its success. Finally, it is vital to make clear that a general political strike will lead to the downfall of the government. It must not bring to power a government of bourgeois political careerists, but rather one of elected representatives of the people coming out of the movement itself.

Therefore, the democratic organization of the movement is a crucial issue, not only for the growth but also for the solution of the question of power in order to serve the interests and aspirations of the indignant working people. The views put forward by different groups of intellectuals within the movement on "direct procedures” and “democracy through sms and e-mails”, which are portrayed as "direct democracy”, have nothing to do either with the immediate issues or democracy.

What we need now

What we need now is:

• Popular Assemblies in every neighborhood, with assemblies in the workplaces to elect recallable action committees everywhere.
• Popular Assemblies in the central squares of all major cities that are composed of elected and recallable representatives at neighborhood workplaces meetings and.
• The creat[ion] of a Pan-Hellenic Central Committee elected by the recallable representatives of the Popular Assemblies of the different cities.

Finally, at the heart of the struggle should be the following two demands:

• A complete write-off of the debt created by Greek and foreign exploiters and thieves!
• To abolish forever the nightmare of debt, poverty and unemployment we need to place the control of the financial centers and the concentrated wealth of the country (banks, insurance companies, infrastructure, transport and big firms in every industry) under social ownership, through the democratic control of the working people, as a step forward the victory of the revolution throughout Europe and the world!

Athens, 6 June, 2011.

http://www.marxist.com/greece-on-the-br ... uation.htm

Debtocracy: the samizdat of Greek debt

Made for just £7,000, a compelling film about Greek's financial crisis makes the case that the entire euro system was rotten from the start

Aditya Chakrabortty
guardian.co.uk, Thursday 9 June 2011 22.15 BST

One might not expect a butcher in rural Greece to recognise Costas Lapavitsas. He is, after all, an economist, a professor at the School of Oriental and African Studies in London. His research interests include the evolution and function of the Japanese financial system and his books include The Political Economy of Money and Finance – probably not staples of discussion among rural Greek butchers.

But when, just before Easter, the Lapavitsas went shopping for groceries in Kopanos ("A godforsaken village," apparently, "ugly as hell"), said butcher spotted his name. "I know of a Costas Lapavitsas," he said. "I have seen him in a video on the internet." On being told that video star and customer were one and the same, the butcher responded with more excitement than is desirable from someone wielding a cleaver: "Ah, Debtocracy!"

Lapavitsas does have a star turn in Debtocracy, a film whose success is as unlikely as the academic's celebrity. It's a documentary about the financial crisis that has struck Greece; the collapse of public finances; the €110bn loan from Europe and the International Monetary Fund; and the savage spending cuts to come.

Unlike other entries to the nascent credit-crunch movie genre, the film-makers do not go looking for guilty men and women. No Inside Job, this. Instead what you get is a polemic against the European system; an explanation of how Greece was always doomed to struggle against the likes of Germany. "So are we the black sheep of an all-successful Europe?" asks the voiceover. "Or has the system been ailing since its youth?"

Debtocracy makes a compelling case that the entire euro system was rotten from the start, with bankers in Frankfurt and Paris left with piles of surplus cash, and southern Europeans getting by on cheap loans. Made on a budget of €8,000 (£7,110) and with very little flashy camera work or fancy use of archive, this is still – I can confidently say, without delving too far into history – the best film of Marxian economic analysis yet produced.

Stuck up on a website and YouTube in early April, Debtocracy has garnered something close to a million views and has been broadcast on small Greek television channels, gradually building an audience. "At first, it was young Greeks with broadband connections," says Aris Chatzistefanou – who co-wrote and co-directed the film with Katerina Kitidi. "But then we heard stories of how small villages were screening it, and how old men in the countryside were asking their sons to download it on to DVDs." In the process, the film has become an artefact in the popular resistance to the austerity package imposed on Greece – and across southern Europe. In Portugal, the Left Bloc put on a showing of Debtocracy in a small cinema to launch its recent election campaign. The film was also scheduled to be screened to 4,000 protesters in Barcelona's Plaza Catalunya before the authorities broke up proceedings.

When I speak to Chatzistefanou, he is still recovering from showing his film in the central Syntagma square in Athens. The screening only got going at 2.30am "and then the audience wanted to discuss it. We still had 400 people arguing over the Greek financial crisis at five in the morning."

Timing has a lot to do with Debtocracy's success. Greece's economy has sunk deeper into crisis, buttressing the film's argument that the nation is being broken, not fixed, by the IMF and the eurozone. Yet the film's suggestion that Greeks should renegotiate, and refuse to pay some of its ruinous debts, still barely features in mainstream Greek politics or media. Which leaves one video on the internet to be passed around a swelling band of dissenters.

After returning from Kopanos to London, Lapavitsas received an email: "Greetings from the village!" began the butcher. "I just want to congratulate you on your film. When you come back we can have a proper discussion."

• See the film at: debtocracy.gr [DailyMotion version, youtube below]

http://www.guardian.co.uk/film/2011/jun ... cracy-film

[JackRiddler]

In Radical Change To ECB's Tune, Bundesbank Confident Euro Can Withstand Greek Default

In yet another bad omen for Greece, now that Bailout Plan #2 has been demonstrated to be impractical and every question related to it is met at best with silence, it is back to plan B: letting Greece default. And in what is very good news for longs in the Drachma black market (which is already offered on an "when issued" basis by several large financial institutions), the Bundesbank's president Jens Weidmann just announced that “If the [Greek] commitments are not met, that cancels the basis for further funds from the aid package,” Weidmann told the newspaper. “This would be Greece’s decision, and the country then would have to bear the surely dramatic economic consequences of a default. I don’t think this would be sensible, and it would surely put partner countries in a difficult situation. But the euro would even in this case remain stable.” Translation: we now believe our banks are well enough reserved for what comes next. It also means that the rift with the ECB, which will be exposed as near-insolvent courtesy of using Greek collateral for tens of billions of loans that will have to be impaired, is now terminal. As for the far trickier, and now answered, question where the money to withstand this upcoming systemic shock comes from, just read this expose on the Fed's use of QE2 reserves.

From Bloomberg:

Weidmann’s depiction of a default as a liveable outcome contrasts with warnings from fellow ECB officials Lorenzo Bini Smaghi and Christian Noyer, as well as European Union Economic and Monetary Affairs Commissioner Olli Rehn, who described it as a “Lehman Brothers catastrophe” last week.

European officials are racing to find a plan to stem Greece’s debt crisis by June 24 while sharing the cost of a new rescue with bondholders. German Finance Minister Wolfgang Schaeuble is calling for Greek bondholders to extend the maturities of their debt by seven years, a move ECB officials say is akin to a default.

A bailout for Greece must include “voluntary” investor participation and meet the approval of central bankers, Luxembourg’s Jean-Claude Juncker said yesterday in an effort to narrow the dispute.

“We cannot push through private investor participation without, or against, the ECB,” Juncker said on Radio Berlin- Brandenburg. “A default would mean the ECB would have to end its accompanying programs. A default would mean we have reached the end of the line.”

Naturally, those German banks that did not have enough time to soak up Federal Reserve indulgences, are nervous:

Forcing losses on creditors may also hurt confidence, Commerzbank AG Chief Executive Officer Martin Blessing said in an interview published today in Welt am Sonntag. Investors had been told they wouldn’t need to join any efforts before 2013, and reneging on that pledge would “not exactly help build trust in the markets,” Blessing said, according to the newspaper.

Alas poor Angela, who is now caught between her electorate which will have her scalp should Germany proceed with some impractical Greek bailout, her bankers, which now are convinced they have enough cash to face principal writedowns, and the ECB and the europarliament which realize that a Greek bankruptcy is far from a contained exercise in Lehmanism, has to pick her words very carefully:

“We cannot accept an uncontrolled bankruptcy of a country,” German Chancellor Angela Merkel said yesterday in her weekly video message. Such an event may endanger the recovery of Germany’s economy, she said.

As usual, with a healthy dose of grandstanding, posturing and jawboning over the weekend, we expect the delayed reaction in the gravitational pull on the EURUSD to continue with full force in 5 hours.

http://www.zerohedge.com/article/radica ... ek-default

Exclusive: The Fed's $600 Billion Stealth Bailout Of Foreign Banks Continues At The Expense Of The Domestic Economy, Or Explaining Where All The QE2 Money Went
Submitted by Tyler Durden on 06/12/2011 00:25 -0400

Courtesy of the recently declassified Fed discount window documents, we now know that the biggest beneficiaries of the Fed's generosity during the peak of the credit crisis were foreign banks, among which Belgium's Dexia was the most troubled, and thus most lent to, bank. Having been thus exposed, many speculated that going forward the US central bank would primarily focus its "rescue" efforts on US banks, not US-based (or local branches) of foreign (read European) banks: after all that's what the ECB is for, while the Fed's role is to stimulate US employment and to keep US inflation modest. And furthermore, should the ECB need to bail out its banks, it could simply do what the Fed does, and monetize debt, thus boosting its assets, while concurrently expanding its excess reserves thus generating fungible capital which would go to European banks. Wrong. Below we present that not only has the Fed's bailout of foreign banks not terminated with the drop in discount window borrowings or the unwind of the Primary Dealer Credit Facility, but that the only beneficiary of the reserves generated were US-based branches of foreign banks (which in turn turned around and funnelled the cash back to their domestic branches), a shocking finding which explains not only why US banks have been unwilling and, far more importantly, unable to lend out these reserves, but that anyone retaining hopes that with the end of QE2 the reserves that hypothetically had been accumulated at US banks would be flipped to purchase Treasurys, has been dead wrong, therefore making the case for QE3 a done deal. In summary, instead of doing everything in its power to stimulate reserve, and thus cash, accumulation at domestic (US) banks which would in turn encourage lending to US borrowers, the Fed has been conducting yet another stealthy foreign bank rescue operation, which rerouted $600 billion in capital from potential borrowers to insolvent foreign financial institutions in the past 7 months. QE2 was nothing more (or less) than another European bank rescue operation!

For those who can't wait for the punchline, here it is. Below we chart the total cash holdings of Foreign-related banks in the US using weekly H.8 data.



Note the $630 billion increase in foreign bank cash balances since November 3, which just so happens is the date when the Fed commenced QE2 operations in the form of adding excess reserves to the liability side of its balance sheet. Here is the change in Fed reserves during QE2 (from the Fed's H.4.1 statement, ending with the week of June 1).



Above, note that Fed reserves increased by $610 billion for the duration of QE2 through the week ending June 1 (and by another $70 billion in the week ending June 8, although since we only have bank cash data through June 1, we use the former number, although we are certain that the bulk of this incremental cash once again went to foreign financial institutions).

So how did cash held by US banks fare during QE2? Well, not good. The chart below demonstrates cash balances at small and large US domestic banks, as well as the cash at foreign banks, all of which is compared to total Fed reserves plotted on the same axis. It pretty much explains it all.



The chart above has tremendous implications for everything from US and European monetary policy, to exhange rate and trade policy, to the current account on both sides of the Atlantic, to US fiscal policy, to borrowing and lending activity in the US, and, lastly, to QE 3.

What is the first notable thing about the above chart is that while cash levels in US and US-based foreign-banks correlate almost perfectly with the Fed's reserve balances, as they should, there is a notable divergence beginning around May of 2010, or the first Greek bailout, when Europe was in a state of turmoil, and when cash assets of foreign banks jumped by $200 billion, independent of the Fed and of cash holdings by US banks. About 6 months later, this jump in foreign bank cash balances had plunged to the lowest in years, due to repatriated fungible cash being used to plug undercapitalized local operations, with total cash just $265 billion as of November 17, just as QE2 was commencing. Incidentally, the last time foreign banks had this little cash was April 2009... Just as QE1 was beginning. As to what happens next, the first chart above says it all: cash held by foreign banks jumps from $308 billion on November 3, or the official start of QE2, to $940 billion as of June 1: an almost dollar for dollar increase with the increase in Fed reserve balances. In other words, while the Fed did nothing to rescue foreign banks in the aftermath of the first Greek crisis, aside from opening up FX swap lines, one can argue that the whole point of QE2 was not so much to spike equity markets, or the proverbial "third mandate" of Ben Bernanke, but solely to rescue European banks!

What this observation also means, is that the bulk of risk asset purchasing by dealer desks (if any), has not been performed by US-based primary dealers, as has been widely speculated, but by foreign dealers, which have the designatin of "Primary" with the Federal Reserve. Below is the list of 20 Primary Dealers currently recognized by the New York Fed. The foreign ones, with US-based operations, are bolded:

• BNP Paribas Securities Corp.
• Barclays Capital Inc.
• Cantor Fitzgerald & Co.
• Citigroup Global Markets Inc.
• Credit Suisse Securities (USA) LLC
• Daiwa Capital Markets America Inc.
• Deutsche Bank Securities Inc.
• Goldman, Sachs & Co.
• HSBC Securities (USA) Inc.
• Jefferies & Company, Inc.
• J.P. Morgan Securities LLC
• MF Global Inc.
• Merrill Lynch, Pierce, Fenner & Smith Incorporated
• Mizuho Securities USA Inc.
• Morgan Stanley & Co. LLC
• Nomura Securities International, Inc.
• RBC Capital Markets, LLC
• RBS Securities Inc.
• SG Americas Securities, LLC
• UBS Securities LLC.

That's right, out of 20 Primary Dealers, 12 are.... foreign. And incidentally, the reason why we added the (if any) above, is that since this cash is fungible between on and off-shore operations, what happened is that the $600 billion in cash was promptly repatriated and used by domestic branches of foreign banks to fill undercapitalization voids left by exposure to insolvent European PIIGS and for all other bankruptcy-related capital needs. And one wonders why suddenly German banks are so willing to take haircuts on Greek bonds: it is simply because courtesy of their US based branches which have been getting the bulk of the Fed's dollars in 1 and 0 format, they suddenly find themselves willing and ready to face the mark to market on Greek debt from par to 50 cents on the dollar. And not only Greek, but all other PIIGS, which will inevitably happen once Greece goes bankrupt, either volutnarily or otherwise. In fact, the $600 billion in cash that was repatriated to Europe will mean that European banks likely are fully covered to face the capitalization shortfall that will occur once Portugal, Ireland, Greece, Spain and possibly Italy are forced to face the inevitable Event of Default that will see their bonds marked down anywhere between 20% and 60%. Of course, this will also expose the ECB as an insolvent central bank, but that largely explains why Germany has been so willing to allow Mario Draghi to take the helm at an institution that will soon be left insolvent, and also explains the recent shocking animosity between Angela Merkel and Jean Claude Trichet: the German are preparing for the end of the ECB, and thanks to Ben Bernanke they are certainly capitalized well enough to handle the end of Europe's lender of first and last resort. But don't take our word for this: here is Stone McCarthy's explanation of what massive reserve sequestering by foreign banks means: "Foreign banks operating in the US often lend reserves to home offices or other banks operating outside the US. These loans do not change the volume of excess reserves in the system, but do support the funding of dollar denominated assets outside the US....Foreign banks operating in the US do not present a large source of C&I, Consumer, or Real Estate Loans. These banks represent about 16% of commercial bank assets, but only about 9% of bank credit. Thus, the concern that excess reserves will quickly fuel lending activities and money growth is probably diminished by the skewing of excess reserve balances towards foreign banks."

Which brings us to point #2: prepare for the Bernanke hearings and possible impeachment. For if it becomes popular knowledge that the Chairman of the Fed, despite explicit instructions to enforce the trickle down of "printed" dollars to US banks, was only concerned about rescuing foreign banks with the $600 billion in excess cash created out of QE2, then all political hell is about to break loose, and not even Democrats will be able to defend Bernanke's actions to a public furious with the complete inability to procure a loan. Any loan. Furthermore the data above proves beyond a reasonable doubt why there has been no excess lending by US banks to US borrowers: none of the cash ever even made it to US banks! This also resolves the mystery of the broken money multiplier and why the velocity of money has imploded.

Implication #3 explains why the US dollar has been as week as it has since the start of QE 2. Instead of repricing the EUR to a fair value, somewhere around parity with the USD, this stealthy fund flow from the US to Europe to the tune of $600 billion has likely resulted in an artificial boost in the european currency to the tune of 2000-3000 pips, keeping it far from its fair value of about 1.1 EURUSD. If this data does not send European (read German) exporters into a blind rage, after the realization that the Fed (most certainly with the complicity of the G7) was willing to sacrifice European economic output in order to plug European bank undercapitalization, then nothing will.

But implication #4 is by far the most important. Recall that Bill Gross has long been asking where the cash to purchase bonds come the end of QE 2 would come from. Well, the punditry, in its parroting groupthink stupidity (validated by precisely zero actual research), immediately set forth the thesis that there is no problem: after all banks would simply reverse the process of reserve expansion and use the $750 billion in Cash that will be accumulated by the end of QE 2 on June 30 to purchase US Treasurys.

Wrong.

The above data destroys this thesis completely: since the bulk of the reserve induced bank cash has long since departed US shores and is now being used to ratably fill European bank balance sheet voids, and since US banks have benefited precisely not at all from any of the reserves generated by QE 2, there is exactly zero dry powder for the US Primary Dealers to purchase Treasurys starting July 1.

This observation may well be the missing link that justifies the Gross argument, as it puts to rest any speculation that there is any buyer remaining for Treasurys. Alas: the digital cash generated by the Fed's computers has long since been spent... a few thousand miles east of the US.

Which leads us to implication #5. QE 3 is a certainty. The one thing people focus on during every episode of monetary easing is the change in Fed assets, which courtesy of LSAP means a jump in Treasurys, MBS, Agency paper, or (for the tin foil brigade) ES: the truth is all these are a distraction. The one thing people always forget is the change in Fed liabilities, all of them: currency in circulation, which has barely budged in the past 3 years, and far more importantly- excess reserves, which as this article demonstrates, is the electronic "cash" that goes to needy banks the world over in order to fund this need or that. In fact, it is the need to expand the Fed's liabilities that is and has always been a driver of monetary stimulus, not the need to boost Fed assets. The latter is, counterintuitively, merely a mathematical aftereffect of matching an asset-for-liability expansion. This means that as banks are about to face yet another risk flaring episode in the next several months, the Fed will need to release another $500-$1000 billion in excess reserves. As to what asset will be used to match this balance sheet expansion, why take your picK; the Fed could buy MBS, Muni bonds, Treasurys, or go Japanese, and purchase ETFs, REITs, or just go ahead and outright buy up every underwater mortgage in the US. This side of the ledger is largely irrelevant, and will serve only two functions: to send the S&P surging, and to send the precious metal complex surging2 as it becomes clear that the dollar is now entirely worthless.

That said, of all of the above, the one we are most looking forward to is the impeachment of Ben Bernanke: because if there is one definitive proof of the Fed abdicating any and all of its mandates, and merely playing the role of globofunder explicitly at the expense of US consumers and borrowers, not to mention lackey for the banking syndicate, this is it.

http://www.zerohedge.com/article/exclus ... c-economy-

[JackRiddler]

The Battle against Neoliberalism: Massive Popular Uprising in Greece

by Yorgos Mitralias
Global Research, June 11, 2011
Greek Committee Against the Debt and CADTM

Hundreds of thousands of Greek ‘Indignés’ (‘Outraged’) walk out to wage war against their neoliberal persecutors

Two weeks after it started the Greek movement of ‘outraged’ people has the main squares in all cities overflowing with crowds that shout their anger, and makes the Papandreou government and its local and international supporters tremble. It is now more than just a protest movement or even a massive mobilization against austerity measures. It has turned into a genuine popular uprising that is sweeping over the country. An uprising that makes it know at large its refusal to pay for ‘their crisis’ or ‘their debt’ while vomiting the two big neoliberal parties, if not the whole political world in complete disarray.

How many were there on Syntagma square (Constitution square) in the centre of Athens, just in front of the Parliament building on Sunday 5 June 2011? Difficult to say since one of the characteristic features of such popular gatherings is that there is no key event (speech or concert) and that people come and go. But according to people in charge of the Athens underground, who know how to assess the numbers of passengers, there were at least 250,000 people converging on Syntagma on that memorable night! Actually several hundreds of thousands of people if we add the ‘historic’ gatherings that took place on the main squares of other Greek cities (see map).

At this juncture we should however raise the question: how can such a mass movement that is shaking the Greek government (in which the EU has a particular interest) not be mentioned at all in Western medias? For these first twelve days there was virtually not a word, not an image of those unprecedented crowds shouting their anger against the IMF, the European Commission, the ‘Troika’ (IMF, European Commission, and European Central Bank), and against Frau Merkel and the international neoliberal leaders. Nothing. Except occasionally a few lines about ‘hundreds of demonstrators’ in the streets of Athens, after a call by the Greek trade unions. This testifies to a strange predilection for scrawny demos of TU bureaucrats while a few hundred yards further huge crowds were demonstrating late into the night for days and weeks on end.

This is indeed a new form of censorship. A well-organized political censorship motivated by the fear this Greek movement might contaminate the rest of Europe! Confronted as we are with this new weapon used by the Holy Alliance of modern times, we have to respond together both to expose this scandal and to find ways of circumventing such prohibition to inform public opinions, through developing communication among social movements throughout Europe and at once creating and reinforcing our own alternative media…

Going back to the Greek ‘Outraged’, or ‘Indignés’ or Aganaktismeni, we have to note that the movement is getting more and more rooted among lower classes against a Greek society that has been shaped by 25 years of an absolute domination of a cynic, nationalist, racist and individualist neoliberal ideology that turned everything into commodities. This is why the resulting image is often contradictory, mixing as it does the best and the worst among ideas and actions! For instance when the same person displays a Greek nationalism verging on racism while waving a Tunisian (or Spanish, Egyptian, Portuguese, Irish, Argentinian) flag to show his internationalist solidarity with those peoples.

Should we therefore conclude that those demonstrators are schizophrenic? Of course not. As there are no miracles, or politically ‘pure’ social uprisings, the movement is becoming gradually more radical while still branded by those 25 years of moral and social disaster. But mind: all its ‘shortcomings’ are subsume into its main feature, namely its radical rejection of the Memorandum, of the Troika, the public debt, the government, austerity, corruption, a fictional parliamentary democracy, the European Commission, in short of the whole system!

It is surely not by chance if for the past two weeks demonstrators shout such phrases as ‘We owe nothing, we sell nothing, we pay nothing’, ‘We do not sell or sell ourselves’, ‘Let them all go, Memorandum, Troika, government and debt’ or ‘We’ll stay until they go’. Such catchwords do unite all demonstrators as indeed all that is related to their refusal to pay for the public debt.[2] This is why the campaign for an audit Commission of the public debt is a great success throughout the country. Its stall in the middle of Syntagma square is constantly besieged by a crowd of people eager to sign the call or to offer their services as voluntary helpers…[3]

While they were first completely disorganized the Syntagma Aganaktismeni have gradually developed an organization that culminates in the popular Assembly held every night at 9 and drawing several hundreds speakers in front of an attentive audience of thousands. Debates are often of really great quality (for instance on the public debt), actually much better than anything that can be seen on the major television channels. This in spite of the surrounding noise (we stand in the middle of a city with 4 million inhabitants), dozens of thousands of people constantly moving, and particularly the very diverse composition of those huge audiences in the midst of a permanent encampment that looks at times like some Tower of Babel.

All the qualities of direct democracy as experimented day after day on Syntagma should not blind us to its weaknesses, its ambiguities or indeed its defects as its initial allergy to anything that might remind of a political party or a trade union or an established collectivity. While it has to be acknowledged that such rejection is a dominant feature among the Aganaktismeni, who tend to reject the political world as a whole, we should note the dramatic development of the Popular Assembly, both in Athens and in Thessaloniki, that shifted from a rejection of trade unions to the invitation that they should come and demonstrate with them on Syntagma.

Obviously, as days went by, the political landscape on Syntagma square clarified, with the popular right and far right located in the higher section, in front of Parliament, and the anarchist and radical left on the square itself, with control on the popular assembly and the permanent encampment. Of course, though the radical left is dominant and tinges with deep red all events and demonstrations on Syntagma, this does not mean that the various components of the right, from populist, to nationalist, to racist and even neonazi, do not further attempt to highjack this massive popular movement. They will endure and it will very much depend on the ability of the movement’s avant-garde to root it properly in neighbourhoods, workplaces and schools while defining clear goals that throw bridges between huge immediate needs and a vindictive outrage against the system.

While fairly different from the similar movement in Spain through its dimensions, its social composition, its radical nature and its political heterogeneity, the movement on Syntagma shares with Tahrir square in Cairo and Puerta del Sol in Madrid the same hatred against the economic and political elite that has grabbed and emptied of any significance bourgeois parliamentary democracy in times of arrogant and inhuman neoliberalism. The movement is stirred by the same non violent democratic and participative urge that is to be found in all popular uprisings in the early 21st century.

Our conclusion can only provisional: whatever is to come (and the consequences may be cataclysmic), the current Greek movement will have marked a turning point in the history of the country. From now on everything is possible and nothing will ever be the same again.

Translated by Christine Pagnoulle

Yorgos Mitralias is founding member of the Greek Committee Against the Debt, which is affiliated to the international network of CADTM (http://www.cadtm.org ). See the web site of the Greek Committee : http://www.contra-xreos.gr/

Notes

[2] See http://www.cadtm.org/Greece-the-very-symbol-of and http://www.cadtm.org/ La-campagne-pour-un-audit-de-la (in French).

[3] http://www.cadtm.org/Why-a-debt-audit-in-Greece

http://www.globalresearch.ca/index.php? ... &aid=25219

Why a debt audit in Greece

13 May by Maria Lucia Fattorelli
printer Save this article in PDF

After 6 days in Greece, all I could hear from many Greek people is: “we don’t know what is our public debt; we can’t understand how come it became so immense, because we don’t see it’s correspondence in investments, benefits, or anything to the country; workers only know we are paying too much taxes and having our rights being cut down every day with closing of schools, hospitals, kindergartens; employee going high and we’re are hit every day with terrorist information about the future of our country’s economy and even risk for our historical monuments”.

The women are the main victims of these measures, because they are the first ones to be filled from their jobs, and the last ones in line for new jobs. Also, when social services are cut down or eliminated, it’s expected that women will take care of services like health, education, assistance, children care, and many others, without any payment.

People is confused because everything is going on too fast and day by day new adjustment measures are announced, with the strong interference of IMF, European Central Bank and European Commission – the Troika - in the internal matters of Greece economy and policies, interfering directly in the people’s life and in Greek’s sovereignty.

One year ago, the memorandum was signed with IMF. Since then, currently new revisions and new measures are imposed directly to the Greek society, because the Greek Parliament is not even voting these measures that are recommended by the Troika and, in the next day, are already being practiced. The direct intervention of the Troika is a completely new situation for a society who gave birth to democratic way of government in the world history.

All this social, economic and political damage is a consequence of the so called “debt” crisis. But we must remember that it didn’t start as a debt crisis, but as a bank crisis: a financial private sector problem.

In 2008, the largest financial crisis beat the main financial institutions in the USA, because of a huge “bubble” originated by the issuing of an immeasurable amount of series and series of derivatives and other kinds of financial products without any real value, which loaded the financial market of “garbage”. This procedures were possible because the existing controls under the SEC |1| - that had the role, since the 1929 crisis, to control the “quality and authentic” of papers deal in the financial market – were disrespected and bypassed for the many financial institutions.

The media generally nominates these “garbage” papers as “toxic assets”. The amount of derivatives and all toxic papers was so large that Obama thought about creating “bad banks” in order to “clean up” the financial system. That idea also came up in Europe in early 2009:


It’s very important to know that the institutions who issued these papers are the largest and most important ones of the financial world, because they are the ones who have “credibility” to have their own papers accepted and negotiated in the financial market. Only very few of these important institutions broke up - Lehman Brothers, for example - but soon the USA approved a plan to bailout the financial system, by transferring great amount of public resources into financial institutions in order to rescue them, saving them from bankruptcy. The same plan went on in Europe in 2009, and since the beginning, everyone knew this plan represented a serious risk for all countries, as shown on the Feb 2009 new:


Thus, in a certain point, besides aware of the risk of economic ruin, all countries in the North started to put a lot of money in the financial sector, in order to rescue institutions. There is no transparency about this amount of money that has been given by countries to the financial sector. Estimative goes up to trillions, but no country has revealed clearly the right amount that has been given to bailout banks since 2008, and many “secret” documents – as mentioned in the notice above – has been produced.

The worry part of the history is that the northern countries didn’t have, on their budgets, all the money they decided to give to banks. This way, countries created public debt by issuing public bonds to give to banks in order to fill up the big role created by their “toxic assets”. So, a significant part or the “sovereign bonds” of these countries did not represent real “public debt”, or bond issuing to obtain resources to the country, but simply the utilization of debt mechanism to guaranty funds to financial institutions.

Besides this, the deregulation of the financial market is permitting the use of sovereign debt bonds as if they were cards or chips of a casino, used for gamblers bets and games. How can a society be responsible for the losses of such irresponsible and immoral operations, which are taking money from essential services like Health, Education, Assistance, Security, Sanitation, provoking the loss of thousands of employee and, in the other side, making many gamblers very very rich?

Can the result of these operations be considered as “public debt”? The good economy books explain that public debt is an instrument that can be used to finance the stat needs. The bonds issued to bailout banks can’t be considered as public debt, but should be treated as a separated loan to be paid by the banks, not by the entire society.

The instrument of “public debt” is being used now in Europe as it has been used in Latin America since the 70’s. The experiences of debt audit – official audit in Ecuador and citizen initiative in Brazil – have proved that in the last 40 years the only beneficiary of the commercial external debt were the large international banks; instead of being an instrument to finance state activities, this kind of debt in bonds was a mechanism to transfer public resources into the private financial sector.

The debt-audit also proved that the financial crises we had in 1982 were provoked by the same international private creditors and that crises opened the opportunity for an intense interference of IMF in our economies with fiscal adjustment plans – just like it’s happening now in Europe – that cost as at least 2 decades of heavy social sacrifice (that we call lost decades) in order to guarantee benefits for the financial sector.

It’s very important that European countries, who are not under dictatorships as we were in the 80’s in South America, organize civil commissions, like our organization in Brazil - to research documents, encourage popular investigations, studies, social mobilization and elucidation about this debt process as soon as possible.

A debt-audit is an opportunity to have documents and proves of the real nature of the so called “public” debt. The findings of the audit can push concrete actions in all fields: popular, parliamentarian, legal and any other policies.

Most part of Greek public debt is reflected in sovereign bonds. The first question we must ask is: What part of Greek public debt comes from bonds issued to rescue banks? What part of this debt has never being really received by Greece, because is just a result of financial mechanisms, attacks, and speculations in financial market? Does anyone own what has never received? Is it right that all Greek people pay for this?

That’s why it’s so important to have a debt audit in Greece and the organizers of the recent Conference of Debt Audit in Athens and Seminar in Tessaloniki deserve all congratulations for opening this urgent debate.

Footnotes

|1| SEC - Securities and Exchange Comission in United States of America.
P.S.

Maria Lucia Fattorelli is Coordinator of Citizen Debt Audit-Brazil since 2001; Member of the Commission of Debt Audit of Ecuador (2007-2008) and Assessor of Brazilian Parliamentarian Investigation of Public Debt (2009-2010): CPI da Dívida da Câmara dos Deputados em Brasília. http://www.divida-auditoriacidada.org.br Citizen Debt Audit-Brazil is part of CADTM international network.

http://www.cadtm.org/Why-a-debt-audit-in-Greece

[JackRiddler]

.

Hacking the Greek president's site...

Papandreou doing cabinet reshuffle, looking for unity government, possibly a new election, and presumably anything other than a popular referendum on the austerity and bailout packages.

Will Greece find a Kirchner, a politician willing to reject the bailout, or will the fighting escalate?

SNIP

Here's a translation - it's a run-on so I punctuated to break up the phrases:

WE HAVE AWAKENED! We are here, strong and many - no one can bury us anymore - no one can exploit us - they owe us, we don't owe them - we want our dreams to become flesh and bones - we want to live, we want to breathe free.
WE WANT GREECE TO THE GREEKS!!

- orestis

The latter surely means: As opposed to giving Greece to the Troika. (I have heard nothing about xenophobic or anti-immigrant sentiments in the protests.)

June 14: The Greek paper in New York (the National Herald) today headlines a warning of Greece as the possible new Lehman (again?). They also urge Greek-Americans to visit the mother country this summer. They've been running an editorial campaign to guilt-trip Greek-Americans into vaguely feeling more connected and getting involved, without specifying on behalf of what. The presumption near as I can dope out the bourgeois euphemisms is that Greek-Americans will support the "responsible" option, but the paper is wise not to spell that out too explicitly. Also, we should lobby Obama for help against Mean Old Merkel.

They had a photo of a protester with a sign bearing the three slogans:

We don't owe
We won't sell
We won't pay

This rhymes and has good rhythm: De Hrostame, De Poulame, De Plironoume.

The paper's been backing Papandreou as the responsible steward in the face of the mean old troika, there's no choice about taking the medicine and bankruptcy would be terrible (as opposed to eternal debt slavery?!).

(I wake up - and nothing gets me down. You got to ro-o-oll with the punches! Just gotta say jump! Jump! Hey hey hey hey.)

.

June 15th: Massive demonstrations on both sides of the Syntagma. (Don't trust any one picture.) Riots started by masked miscreants whom the police allowed to run wild for a couple of hours. Only two arrests after hours of these, but 16 who had been taken were released? Stories made even the Greek commercial TV (Mega) of masked men being grabbed by the peaceful protesters and found to have police IDs on them. Pictures were broadcast of the police pushing a truckload of the sticks and weapons used by said protesters, but when I tuned in they were talking about it rather than showing it again because the cops were claiming these were confiscated weapons (without arrests? interesting!). Anyway, the riot went away and the crowds grew back to the full size.

[JackRiddler]

This one thanks to gnosticheresy2!

A good basic overview of where we are now by the ever readable Paul Mason of BBC's Newsnight

Ten points on the Euro crisis

1. The EU leaders are at loggerheads over the issue: should Greece be allowed to do a soft, controlled, partial default on its debts which forces banks and pension funds to lose some of the money they lent to Greece? Germany says yes, the European Central Bank chief Jean-Claude Trichet says no.

2. The question arises because the first Greek bailout, 110bn euros, did not work. Greece now needs another 85bn euros from the EU/IMF, and has to sell at least 30bn euros of assets on top of that because it cannot borrow in the global markets.

3. To justify the new bailout, both under its own rules and because voters in Finland, Netherlands and Germany resent the bailout, the EU is insisting on a new range of austerity measures, amounting to a 10% cut in public spending, a 1/3 cut in the public wage bill and 50bn euros worth of knockdown privatisation.

4. But the Greek PM George Papandreou could not get this through parliament. His majority fizzled to nothing as the details emerged and public pressure mounted. He offered a national unity government to New Democracy, the centre right, who refused; he offered to stand down on condition a new government signed up to the austerity plan, but no-one bought this.

5. So now, the one stable factor in the Euro crisis is gone. The Eurocrats were busy arguing over the terms of the bailout, but now their trusted dialogue partner has gone missing: even if a new government is sworn in on Thursday, how can the EU negotiate if there is no guarantee that the full spectrum of austerity measures can be got through the Greek parliament?

6. This is why the markets have long, already, discounted a hard default: 50 to 70% of the money is, as far as they are concerned, as good as gone.

7. But the moment of actually writing that into the account books will trigger a "credit event" for those who value and insure countries' sovereign debt. This will instantly raise people's aversion to risk: they will do instant de-risking of their own portfolios and you may come to a point where one bank refuses to lend to another. This is a credit crunch and is what the Euro policy makers fear. If it is triggered, it will negatively impact the whole world economy.

8. What's the fallback position? To let Greece default - chaotically or otherwise - but use taxpayers' money to bailout the affected north-European banks. That is what the German political elite is said to be considering. Market people are worried that Dexia, a Belgian bank, could be hit hard, bringing Belgian sovereign debt into the picture next.

9. Who will lose? Any pension fund or bank that lent money to Greece, Greek banks, or Greek people. And Greece will, if it drops out of the Eurozone, be forced to implement austerity anyway. However it will have economic sovereignty, which it does not have now.

10. Is there an alternative? Yes: a Marshall Plan for Europe, where German, French and British taxpayers voluntarily send money to Greece, Portugal and Ireland, shore-up their banks, shore-up their country finances, give them time to do structural reforms; in return they effectively seize control of south Europe's economic policy and impose a single Eurozone tax and spend regime. Another alternative is to let peripheral Europe leave the zone and rebuild it with Denmark and Sweden as a kind of "dark winter night" economic zone, based on sound principles and weak beer. Politics makes all of point 10 currently a non-starter.

11. Is there a wildcard? Yes: the Greek population. They will not accept any more austerity and if they succeed in resisting it, this will give Ireland and Portugal ideas. Another wildcard is the myopia of the Eurozone elite. It is not clear if they really understand points one to 10.

http://www.bbc.co.uk/news/world-europe-13791879

And again, vk:

Greek Math: €12 Billion In, €18.2 Billion Out... And That's IF The Impossible Happens
Submitted by Tyler Durden on 06/17/2011 10:46 -0400

Here is a simple summary of the Greek bailout math explained with just 2 numbers. First, the country has to do the impossible. As Citi's Jurgen Michels summarizes: "Once the whole new cabinet is announced, parliamentary discussions ahead of the vote of confidence will probably start on Sunday, with the vote actually taking place next week on Tuesday evening. Even if the new government manages to pass the vote of confidence, it will still have to submit to Parliament the new austerity package for approval, probably sometime later next week or the week thereafter. This will be key for the smooth disbursement of the next tranche of EU/IMF loans, of €12bn." In other words, the Greek government has to pass 2 near-Sysiphean tasks before it can even hope to sniff the IMF's €12 billion in rescue funding. That's number 1. Number 2 comes from the chart below, which shows the debt and interest payments through August. This number is €18.2 billion. This number does not include the billions in deficit spending that will also have to be funded somehow over and above debt paydown. Ergo, the math for a viable Greece is as follows: €12BN > €18.2BN + X. Simply said, unless somehow Greece discovers how to tax its citizens and actually record net revenue in July, the best the ECB can hope for before it has to mark its tens of billions in Greek bonds to about 45 cents on the dollar, is one month. So will someone please explain to us why again the EUR is up today? Actually the only possible reason is that Europe is now pricing in the fact that China will be the de facto owner of at least 2 European countries by this time next year, however not in an Asset Purchase Transaction but Stock, whereby China also acquires the liabilities. Which in turn may explain why Russia's just announced minutes ago that China may turn into "zone of risk" for the global economy.



http://www.zerohedge.com/article/greek- ... le-happens

[JackRiddler]

.

And in a final steal from the EU-MENA thread for now: Thanks to MacC!

Democracy vs Mythology: The Battle in Syntagma Square

http://sturdyblog.wordpress.com/2011/06 ... ma-square/

I have never been more desperate to explain and more hopeful for your understanding of any single fact than this: The protests in Greece concern all of you directly.

What is going on in Athens at the moment is resistance against an invasion; an invasion as brutal as that against Poland in 1939. The invading army wears suits instead of uniforms and holds laptops instead of guns, but make no mistake – the attack on our sovereignty is as violent and thorough. Private wealth interests are dictating policy to a sovereign nation, which is expressly and directly against its national interest. Ignore it at your peril. Say to yourselves, if you wish, that perhaps it will stop there. That perhaps the bailiffs will not go after the Portugal and Ireland next. And then Spain and the UK. But it is already beginning to happen. This is why you cannot afford to ignore these events.

The powers that be have suggested that there is plenty to sell. Josef Schlarmann, a senior member of Angela Merkel’s party, recently made the helpful suggestion that we should sell some of our islands to private buyers in order to pay the interest on these loans, which have been forced on us to stabilise financial institutions and a failed currency experiment. (Of course, it is not a coincidence that recent studies have shown immense reserves of natural gas under the Aegean sea).

China has waded in, because it holds vast currency reserves and more than a third are in Euros. Sites of historical interest like the Acropolis could be made private. If we do not as we are told, the explicit threat is that foreign and more responsible politicians will do it by force. Let’s make the Parthenon and the ancient Agora a Disney park, where badly paid locals dress like Plato or Socrates and play out the fantasies of the rich.

It is vital to understand that I do not wish to excuse my compatriots of all blame. We did plenty wrong. I left Greece in 1991 and did not return until 2006. For the first few months I looked around and saw an entirely different country to the one I had left behind. Every billboard, every bus shelter, every magazine page advertised low interest loans. It was a free money give-away. Do you have a loan that you cannot manage? Come and get an even bigger loan from us and we will give you a free lap-dance as a bonus. And the names underwriting those advertisements were not unfamiliar: HSBC, Citibank, Credit Agricole, Eurobank, etc.

Regretfully, it must be admitted that we took this bait “hook, line and sinker”. The Greek psyche has always had an Achilles’ heel; an impending identity crisis. We straddle three Continents and our culture has always been a melting pot reflective of that fact. Instead of embracing that richness, we decided we were going to be definitively European; Capitalist; Modern; Western. And, damn it, we were going to be bloody good at it. We were going to be the most European, the most Capitalist, the most Modern, the most Western. We were teenagers with their parents’ platinum card.

I did not see a pair of sunglasses not emblazoned with Diesel or Prada. I did not see a pair of flip-flops not bearing the logo of Versace or D&G. The cars around me were predominantly Mercedes and BMWs. If anyone took a holiday anywhere closer than Thailand, they kept it a secret. There was an incredible lack of common sense and no warning that this spring of wealth may not be inexhaustible. We became a nation sleepwalking toward the deep end of our newly-built, Italian-tiled swimming pool without a care that at some point our toes may not be able to touch the bottom.

That irresponsibility, however, was only a very small part of the problem. The much bigger part was the emergence of a new class of foreign business interests ruled by plutocracy, a church dominated by greed and a political dynasticism which made a candidate’s surname the only relevant consideration when voting. And while we were borrowing and spending (which is affectionately known as “growth”), they were squeezing every ounce of blood from the other end through a system of corruption so gross that it was worthy of any banana republic; so prevalent and brazen that everyone just shrugged their shoulders and accepted it or became part of it.

I know it is impossible to share in a single post the history, geography and mentality which has brought this most beautiful corner of our Continent to its knees and has turned one of the oldest civilisations in the world from a source of inspiration to the punchline of cheap jokes. I know it is impossible to impart the sense of increasing despair and helplessness that underlies every conversation I have had with friends and family over the last few months. But it is vital that I try, because the dehumanisation and demonisation of my people appears to be in full swing.

I read, agog, an article in a well-known publication which essentially advocated that the Mafia knew how to deal properly with people who didn’t repay their debts; that “a baseball bat may be what’s needed to fix the never ending Greek debt mess”. The article proceeded to justify this by rolling out a series of generalisations and prejudices so inaccurate and so venomous that, had one substituted the word “Greeks” with “Blacks” or “Jews”, the author would have been hauled in by the police and charged with hate crimes. (I always include links, but not in this case – I am damned if I will create more traffic for that harpy).

So let me deal with some of that media Mythology.

* Greeks are lazy. This underlies much of what is said and written about the crisis, the implication presumably being that our lax Mediterranean work-ethic is at the heart of our self-inflicted downfall. And yet, OECD data among its members show that in 2008, Greeks worked on average 2120 hours a year. That is 690 hours more than the average German, 467 more than the average Brit and 356 more than the OECD average. Only Koreans work longer hours. Further, the paid leave entitlement in Greece is on average 23 days, lower than most EU countries including the UK’s minimum 28 and Germany’s whopping 30.

* Greeks retire early. The figure of 53 years old as an average retirement age is being bandied about. So much, in fact, that it is being seen as fact. The figure actually originates from a lazy comment on the NY Times website. It was then repeated by Fox News and printed on other publications. Greek civil servants have the option to retire after 17.5 years of service, but this is on half benefits. The figure of 53 is a misinformed conflation of the number of people who choose to do this (in most cases to go on to different careers) and those who stay in public service until their full entitlement becomes available. Looking at Eurostat’s data from 2005 the average age of exit from the labour force in Greece (indicated in the graph below as EL for Ellas) was 61.7; higher than Germany, France or Italy and higher than the EU27 average. Since then Greece have had to raise the minimum age of retirement twice under bail-out conditions and so this figure is likely to rise further.

* Greece is a weak economy that should never have been a part of the EU. One of the assertions frequently levelled at Greece is that its membership to the European Union was granted on emotional “cradle of democracy” grounds. This could not be further from the truth. Greece became the first associate member of the EEC outside the bloc of six founding members (Germany, France, Italy and the Benelux countries) in 1962, much before the UK. It has been a member of the EU for 30 years. It is classified by the World Bank as a “high income economy” and in 2005 boasted the 22nd highest human development and quality of life index in the world – higher than the UK, Germany or France. As late as 2009 it had the 24th highest per capita GDP according to the World Bank. Moreover, according to the University of Pennsylvania’s Centre for International Comparisons, Greece’s productivity in terms of real GDP per person per hour worked, is higher than that of France, Germany or the US and more than 20% higher than the UK’s.

* The first bail-out was designed to help Greek people, but unfortunately failed. It was not. The first bail-out was designed to stabilise and buy time for the Eurozone. It was designed to avoid another Lehman-Bros-type market shock, at a time when financial institutions were too weak to withstand it. In the words of BBC economist Stephanie Flanders: “Put it another way: Greece looks less able to repay than it did a year ago – while the system as a whole looks in better shape to withstand a default… From their perspective, buying time has worked for the eurozone. It just hasn’t been working out so well for Greece.” If the bail-out were designed to help Greece get out of debt, then France and Germany would not have insisted on future multi-billion military contracts. As Daniel Cohn-Bendit, the MEP and leader of the Green group in the European Parliament, explained: “In the past three months we have forced Greece to confirm several billion dollars in arms contracts. French frigates that the Greeks will have to buy for 2.5 billion euros. Helicopters, planes, German submarines.”

* The second bail-out is designed to help Greek people and will definitely succeed. I watched as Merkel and Sarkozy made their joint statement yesterday. It was dotted with phrases like “Markets are worried”, “Investors need reassurance” and packed with the technical language of monetarism. It sounded like a set of engineers making minor adjustments to an unmanned probe about to be launched into space. It was utterly devoid of any sense that at the centre of what was being discussed was the proposed extent of misery, poverty, pain and even death that a sovereign European partner, an entire nation was to endure. In fact most commentators agree, that this second package is designed to do exactly what the first one did: buy more time for the banks, at considerable expense to the Greek people. There is no chance of Greece ever being able to repay its debt – default is inevitable. It is simply servicing interest and will continue to do so in perpetuity.

And the biggest myth of them all: Greeks are protesting because they want the bail-out but not the austerity that goes with it. This is a fundamental untruth. Greeks are protesting because they do not want the bail-out at all. They have already accepted cuts which would be unfathomable in the UK – think of what Cameron is doing and multiply it by ten. Benefits have not been paid in over six months. Basic salaries have been cut to 550 Euros (£440) a month.

My mother, who is nearly 70, who worked all her life for the Archaeology Department of the Ministry of Culture, who paid tax, national insurance and pension contributions for over 45 years, deducted at the source (as they are for the vast majority of decent hard-working people – it is the rich that can evade), has had her pension cut to less than £400 a month. She faces the same rampantly inflationary energy and food prices as the rest of Europe.

A good friend’s grandad, Panagiotis K., fought a war 70 years ago – on the same side as the rest of Western democracy. He returned and worked 50 years in a shipyard, paid his taxes, built his pension. At the age of 87 he has had to move back to his village so he can work his “pervoli” – a small arable garden – planting vegetables and keeping four chickens. So that he and his 83 year old wife might have something to eat.

A doctor talking on Al Jazeera yesterday explained how even GPs and nurses have become so desperate that they ask people for money under the table in order to treat them, in what are meant to be free state hospitals. Those who cannot afford to do this, go away to live with their ailment, or die from it. The Hippocratic oath violated out of despair, at the place of its inception.

So, the case is not that Greeks are fighting cuts. There is nothing left to cut. The IMF filleting knife has gotten to pure, white, arthritis-afflicted bone. The Greeks understand that a second bail-out is simply “kicking the can down the road”. Greece’s primary budget deficit is, in fact, under 5bn Euros. The other 48bn Euros are servicing the debt, including that of the first bail-out, with one third being purely interest. The EU, ECB and IMF now wish to add another pile of debt on top of that, which will be used to satisfy interest payments for another year. And the Greeks have called their bluff. They have said “Enough is enough. Keep your money.”

____________________________________________________________

My land has always attracted aggressive occupiers. Its vital strategic position combined with its extraordinary natural beauty and history, have always made it the trinket of choice for the forces of evil. But we are a tenacious lot. We emerged after 400 years of Ottoman occupation, 25 generations during which our national identity was outlawed with penalty of death, with our language, tradition, religion and music intact.

Finally, we have woken up and taken to the streets. My sister tells me that what is happening in Syntagma Square is beautiful; filled with hope; gloriously democratic. A totally bi-partisan crowd of hundreds of thousands of people have occupied the area in front of our Parliament. They share what little food and drink there is. A microphone stands in the middle, on which anyone can speak for two minutes at a time – even propose things which are voted by a show of thumbs. Citizenship.

And what they say is this: We will not suffer any more so that we can make the rich, even richer. We do not authorise any of the politicians, who failed so spectacularly, to borrow any more money in our name. We do not trust you or the people that are lending it. We want a completely new set of accountable people at the helm, untainted by the fiascos of the past. You have run out of ideas.

Wherever in the world you are, their statement applies.

Money is a commodity, invented to help people by facilitating transactions. It is not wealth in itself. Wealth is natural resources, water, food, land, education, skill, spirit, ingenuity, art. In those terms, the people of Greece are no poorer than they were two years ago. Neither are the people of Spain or Ireland or the UK. And yet, we are all being put through various levels of suffering, in order for numbers (representing money which never existed) to be transferred from one column of a spreadsheet to another.

This is why the matter concerns you directly. Because this is a battle between our right to self-determine, to demand a new political process, to be sovereign, and private corporate interests which appear determined to treat us like a herd, which only exists for their benefit. It is the battle against a system which ensures that those who fuck up, are never those that are punished – it is always the poorest, the most decent, the most hard-working that bear the brunt. The Greeks have said “Enough is enough”. What do you say?

____________________________________________________________

Help us by spreading this message to others – don’t let the media airbrush it out of existence, like they have done with the people of Madison, Wisconsin and the Indignados in Spain. Use the comments below (no registration is needed) to express your solidarity with the people of Greece. If you have any questions, again use the comments and I will do my best to answer. Raise the matter with people in power. Ask questions. Talk about it in the pub. Most of all, wake up before you find yourself in our situation.

Nassim Nicholas Taleb is the Lebanese-American philosopher who formulated the theory of “Black Swan Events” – unpredictable, unforeseen events which have a huge impact and can only be explained afterwards. Last week, on Newsnight, he was asked by Jeremy Paxman whether the people taking to the streets in Athens was a Black Swan Event. He replied: “No. The real Black Swan Event is that people are not rioting against the banks in London and New York.”

http://sturdyblog.wordpress.com/2011/06 ... ma-square/

- From the comments:

StuartKing

For those on here who harp on “it’s your own fault, you borrowed too much money”, bear in mind the words of Bank of England governor Mervyn King, speaking to the Commons treasury select committee on March 1 this year:

“The price of this financial crisis is being borne by people who absolutely did not cause it,” he said. “Now is the period when the cost is being paid, I’m surprised that the degree of public anger has not been greater than it has.”

The volcano is rumbling…

June 19, 2011 at 12:48 am

http://sturdyblog.wordpress.com/2011/06 ... ma-square/

[JackRiddler]

http://counterpunch.org/weissman06172011.html

June 17 - 19, 2011

Wall Street's Tax on Us
The Oil Speculators

By ROBERT WEISSMAN

Where are the anti-tax activists when you need them?

They should be protesting outside of the Commodity Futures Trading Commission, denouncing the agency for failing to take action. And they should be applauding a new legislative proposal by Senator Bernie Sanders.

Right now, Wall Street speculators are imposing an enormous tax on consumers, and the overall economy.

Where are the anti-tax activists?

There's no question that illegal, collusive activity is far too frequent in energy markets. But the much bigger problem is legal speculation.

Wall Street speculation in oil and energy markets is jacking up the price of oil, and thereby siphoning money from the pockets and pocketbooks of consumers.

Even Goldman Sachs suggests that legal speculation may be adding 65-70 cents to the price of a gallon of gasoline. Exxon CEO Rex Tillerson says supply-and-demand fundamentals suggest the price of oil should be $65-$70 a barrel, about a third less than the current price. Experts from the home heating oil industry believe even the $65 figure is too high.

The speculation component of the price of gasoline is exactly like a tax on consumers.

Except that it is the worst kind of tax imaginable.

A government imposed-tax on oil or carbon would go to the U.S. Treasury, for use to advance public purposes, such as investing in renewable energy and energy efficiency. By contrast, the proceeds of this Wall Street-imposed tax are going to Wall Street interests, giant oil companies and foreign oil interests. Wall Street gamblers are benefiting from the higher prices in oil markets. The higher prices of oil -- which have nothing to do with the cost of drilling or refining -- are driving Big Oil's profits to the stratosphere. The formula for success for Exxon, Chevron, BP and the rest is simple: keep costs constant and reap the profits from prices driven higher by oil speculators. Foreign oil interests get the same benefits -- at the expense of worsening the U.S. trade deficit.

The Wall Street-imposed tax is regressive, with working families hit the hardest.

And the unpredictability and impermanence of this Wall Street-imposed tax means that -- while it imposes costs on consumers and the economy -- it does not do much to shift consumer and business decisions. There is a strong case to be made for putting a price on carbon, to encourage consumer and business investments in efficiency and renewable energy technologies. But the Wall Street-imposed tax does little to achieve these objectives. The tax is temporary -- at some point, speculators will race out of the market, driving prices back down -- so it does not send a clear price signal to consumers and businesses to redirect investments to efficiency and renewables.

We, the People are not helpless in the face of this legalized rip-off. We can crack down on out-of-control legal speculation.

The Wall Street Reform and Consumer Protection Act -- the Dodd-Frank Act -- directed the Commodity Futures Trading Commission (CFTC) to enact "position limits" to eliminate excessive speculation in energy markets. Such a rule would limit the amount of oil that Wall Street speculators could trade in the energy futures market, taking control over the oil futures market away from speculators and returning it to those who actually use and supply oil. But under pressure from Wall Street and its allies, the CFTC has failed to act by the mid-January deadline it was given.

To force immediate action, Senator Bernie Sanders -- along with Senators Blumenthal, Merkley, Franken, Whitehouse and Bill Nelson -- earlier this week introduced the End Excessive Oil Speculation Now Act. It would mandate immediate action by the CFTC to end the Wall Street-imposed oil tax. The legislation would end Wall Street's authority to rip off consumers via a privately imposed tax.

Ending the Wall Street-imposed tax would save Americans tens of billions of dollars. But for political opposition from obvious sources, this legislation would win immediate passage.

Where are the anti-tax activists?

Robert Weissman is president of Public Citizen.

[American Dream]

Here's a video montage of some of Loukanikos' appearances at riots from just a few days ago done by some folks at BBC:

www.bbc.co.uk/news/world-europe-13802940

[JackRiddler]

http://www.baseballprospectus.com/artic ... leid=14332

June 23, 2011
The BP Broadside

Billions for Bankers, But Not One Penny for the McCourts!

by Steven Goldman


The great irony of the Frank and Jamie McCourt looting of the Dodgers’ treasury to support their personal lifestyle is that anybody cares.

The McCourts spun off various Dodgers operations into separate companies, then awarded themselves extravagant salaries for “managing” them. They put two of their children on the payroll, even though they were apparently not working for the team at the time. They spent money on healer Vladimir Shpunt to send “positive energy” to the Dodgers from Boston, and threw away $100,000 on flowers, but somehow turned making payroll each month into an Indiana Jones-style cliffhanger.

Were the Dodgers a public company, with both small and large shareholders to answer to, you would think there would be outrage and a demand for the removal of these oxpeckers from the corporate back. Yet, given the debauched state of Wall Street and our own complacency about the diversion of wealth from the middle of the economy to the pointiest part of the pyramid, it’s entirely possible that even profligate plunderers as obvious as the McCourts would skate on by.

On June 18, the Washington Post published a lengthy story on how the growing income inequality in America is driven by executive pay:

[I]t has reached levels not seen since the Great Depression. In 2008, the last year for which data are available, for example, the top 0.1 percent of earners took in more than 10 percent of the personal income in the United States, including capital gains, and the top 1 percent took in more than 20 percent… A mounting body of economic research indicates that the rise in pay for company executives is a critical feature in the widening income gap. The largest single chunk of the highest-income earners, it turns out, are executives and other managers in firms, according to a landmark analysis of tax returns by economists Jon Bakija, Adam Cole and Bradley T. Heim. These are not just executives from Wall Street, either, but from companies in even relatively mundane fields such as the milk business.

Relative to the economy, most Americans have either made the same amount of money or gone backwards since the 1970s. Yet the economy is much larger than what it was back in the stagflation days of Nixon, Ford, and Carter, and although we have had more than our share of doldrums since then, particularly now, there have been periods of growth as well. So why didn’t a rising tide lift all boats, as the cliché promises? Christmas got diverted into a select few pants pockets.

We are now venturing out of baseball and into the realm of executive compensation, for many years now a controversial subject. Executives supposedly mastermind the plots that improve company performance (or at least their stock market performance, which isn’t always the same thing), but are they really worth as much as they’re getting? Are they worth $1 million plus benefits, stock options, perks like jet planes? $5 million?

That is not a question I feel qualified to answer, but what is fascinating is that given the controversy of the subject, there hasn’t been much in the way of protest. After all, it is not just successful companies that are in the habit of paying their executives millions, but unsuccessful ones as well; they walk away with big bucks even as their companies crash and burn. The rank-and-file employee defaults on his mortgage when he loses his job, whereas these guys walk away with big payouts. Two examples: Borders, still in bankruptcy, stores shuttering faster than cicadas after their 24 hours are up, asked “to hand out more than $8 million in executive bonuses, including nearly $1.7 million to President Mike Edwards.” Then there is the infamous case of AIG, which took billions from the federal government only to hand back over $200 million to its own managers.

That last one angered a lot of people, but think about it: AIG was just one company, and similar payments (in differing amounts) are made every day across the country for a total that must reach into the billions of dollars. Yet, $200 million is a good enough example. There are 4,000 $50,000-a-year workers hidden in $200 million in bonuses, 4,000 breadwinners that aren’t working because the bonuses got prioritized. But more to the point, that’s a hefty chunk of assets that aren’t being put back into the operation (whatever the operation) because they’ve been thrown into the pockets of people you’re already paying.

Again, it’s not my intention to litigate this particular issue in the pages of Baseball Prospectus, but to point out that although the McCourts are a particularly inept and grasping version of kleptocratic management in action, they are in no way unrecognizable. They are a common type who happened to overreach and get caught. They are not too different from those that ran the banks that wound up with all that worthless debt after the subprime mortgage market imploded. They pushed their companies to do things that weren’t sensible because, well, they could, and in the short term it brought them gratifying amounts of money. The long term was less of a concern.

The rest of this article is restricted to Baseball Prospectus Subscribers.

[Pele'sDaughter]

http://www.bloomberg.com/news/2011-06-2 ... sight.html

Investors May Pay the Price as Congress Foists Adviser Oversight on Finra
By Alexis Leondis and Zeke Faux - Jun 27, 2011 11:01 PM CT

Congress may hand oversight of almost 12,000 investment advisers to Wall Street’s self-funded regulator as a cost-saving measure. The price could be paid by investors.

The Financial Industry Regulatory Authority, deputized by the government to oversee brokers, is lobbying to replace the U.S. Securities and Exchange Commission as a regulator of registered investment advisers who manage about $40 trillion. Congress is considering the move as a cheaper alternative to increasing resources for the SEC, since Finra’s $877 million budget is paid by the brokers it regulates.

“It’s a very bad idea to expand the notion of self- regulation,” said Denise Voigt Crawford, former commissioner of the Texas State Securities Board. “They’re supposed to oversee the activity of the industry, but they are industry.”

Finra, established in 2007 by the merger of the National Association of Securities Dealers and most of the New York Stock Exchange’s regulatory unit, has done a poor job of protecting investors, said Crawford, who retired in February after 17 years as a securities commissioner. Fines imposed are usually a fraction of the damages suffered, and Finra fails to share information regularly with state regulators, she said.

The regulator fined members almost $43 million last year, while the SEC, working with a similar budget, issued more than $1 billion in penalties.

The Finra arbitration process is flawed, said Lynn E. Turner, who served as the SEC’s chief accountant from 1998 to 2001. Investors who won Finra arbitration awards last year got back less than half of what they sought, data from Securities Arbitration Commentator Inc. show.

Strained Resources

Compensation exceeding $11 million in 2009 for the top 10 Finra executives makes them reluctant to “make waves” in the industry that provides the funding, Turner said. Finra’s chairman and chief executive officer, Richard Ketchum, said that level of pay keeps them from losing their best staff.

In a January report required by the Dodd-Frank financial- overhaul bill, the SEC gave Congress the option of naming an outside regulator to strengthen oversight of investment advisers as the agency faces strained resources. Only about 9 percent of advisers registered with the SEC were examined in 2010 because of decreased numbers of agency examiners, the report said.

Advisers are currently required to register with the SEC if they are paid to give retail investment advice about securities and have more than $25 million in assets under management. The limit is scheduled to switch to $100 million next year.

‘Natural Organization’

Investment advisers must uphold a fiduciary duty to put their clients’ best interests first, generally charge fees and may provide services ranging from saving for retirement to tax planning. Brokers usually are held to a suitability standard that only requires that advice meets their clients’ needs when a product is sold. They generally charge commissions. The number of registered investment advisers increased by almost 40 percent to 11,888 advisers as of Sept. 30 since October 2004, the SEC report said.

“The likelihood of an SEC government solution working and working consistently in a difficult budget environment I think is low,” Ketchum, 60, said in an interview last month on the 48th floor of the agency’s New York office. The current environment “is simply not an appropriate level of investor protection.”

Finra is a “natural organization to be part of the solution” because of its infrastructure and technological capabilities and the fact that most advisers are affiliated with broker-dealers already, Ketchum said.

Upping Enforcement

The regulator would need as many as 200 more people to do the job and would create a new board to represent members of the adviser community, he said. Michael Oxley, the former congressman who co-sponsored the Sarbanes-Oxley Act of 2002, registered earlier this year as a lobbyist for Finra to advance its case. The regulator spent $300,000 in the first quarter lobbying Congress on issues including adviser oversight.

Finra has stepped up its enforcement efforts this year. From January through May, fines levied by Finra increased by 118 percent to $28.1 million compared with a year earlier. During the first five months of 2009, in the wake of the financial crisis, fines were $30.5 million. The number of disciplinary actions taken this year through May was 463, the most in at least five years.

Morgan Keegan, a division of Birmingham, Alabama-based Regions Financial Corp. (RF), agreed to pay about $200 million to settle investigations into subprime mortgage-backed securities by the SEC, Finra and state regulators, the company said last week. Morgan Keegan’s actions may have resulted in $1.5 billion of losses, Joseph Borg, director of the Alabama Securities Commission, said during a call with reporters. The investigation was a “collaborative effort,” said Nancy Condon, a Finra spokeswoman.

Structured Products

The regulator has been “digging deeper” into “areas of concern” such as structured products and private placements, Ketchum said last month at Finra’s annual conference in Washington. Finra has fined brokerage firms for misleading investors about the safety of “principal-protected” notes and ignoring signs of fraud when selling high-yield securities issued by Provident Royalties LLC and Medical Capital Holdings Inc.

Investors lost about $2.5 billion on those three products after Lehman Brothers Holdings Inc. (LEHMQ) failed and the SEC shut down Provident and Medical Capital. Finra has fined the brokers who sold those securities a total of about $3.25 million, according to the regulator’s data.

$6 Million Restitution

Customers filed 3,208 complaints last year either online or through the mail with Finra. Every complaint was reviewed, responded to and investigated when warranted, Condon said.

The total amount of fines brought by Finra was about $42.5 million in 2010, compared with about $1.03 billion by the SEC last fiscal year. The SEC figure includes a $535 million penalty for Goldman Sachs Group Inc. (GS) to settle claims that it misled investors in collateralized debt obligations linked to subprime mortgages. The SEC doesn’t break out separate numbers for fines of brokers, said John Nester, a spokesman for the SEC. Finra may refer cases to the SEC, which has civil law enforcement powers.

Finra also ordered $6 million in restitution to harmed investors last year. That compares with about $1.82 billion in illegal profits that the SEC has ordered repaid and returned to investors when possible. This year through May, Finra restitution was $9.8 million. The self-regulator has almost as much funding as the SEC, which had a budget of $960 million in 2009.

‘Nasty Blow’

“When you look at the types of misconduct compared to the fines, you have to wonder if it will really deter the misconduct they’re tasked with cracking down on,” said Michael Smallberg, an investigator at the Washington-based nonprofit Project on Government Oversight. “Would Finra ever take serious action against who it’s relying on for its funding?”

Richard and Anne Laese, retirees in Casselberry, Florida, sunk $250,000 into Provident oil and gas partnerships on the advice of John Michael Leonard, a broker who worked for brokerage firm Workman Securities Corp. Most of the high-yield investments turned out to be worthless when the SEC sued Provident for fraud in July 2009. Provident is in receivership and the SEC settled its case against the firm in March.

“We’re not rolling in dough,” said Richard Laese, a 72- year-old former police officer. “It was a pretty nasty blow.” The Laeses settled with Workman last year for $81,250.
Credit for Claims

Workman didn’t conduct adequate due diligence of the Provident and Medical Capital securities and kept selling the Medical Capital notes even after it found out that Medical Capital was missing interest payments, Finra said in its settlement with the firm. The firm sold $9.3 million of certain Provident and Medical Capital notes, Finra said.

Finra ordered Workman, based in Eden Prairie, Minnesota, to repay $700,000 to investors and allowed Workman to count the $642,802 it had already paid to settle claims toward its sanction.

“We were settling cases for business reasons,” said Benjamin Skjold, a lawyer in Minneapolis who represents Workman. “I presume they looked at our overall business methodology and how we were resolving claims and said, ‘We would rather encourage this kind of behavior.’”

The decision to give Workman credit for settlements was determined in part by the firm’s resources, said Steve Luparello, Finra’s vice chairman who oversees regulatory operations. The regulator has sanction guidelines that help determine what appropriate fines are in general, Luparello said.
Arbitration Awards

Finra hasn’t sanctioned Leonard, whose Florida regulatory record shows more than 21 complaints from his clients at Workman, claiming more than $8 million in losses. Leonard, who couldn’t be located, denied wrongdoing in the Florida regulatory record. Finra is still investigating individuals associated with Workman, Condon said.

Clients must generally resolve disputes with brokers through arbitration rather than through lawsuits because of clauses in their contracts. In 2010, the median amount won by investors through Finra arbitration was $129,800, or 42 percent of the median amount of $310,000 in compensatory damages sought by investors who won, according to data compiled by Securities Arbitration Commentator Inc., a Maplewood, New Jersey-based legal publishing and research firm.

The firm excluded cases where the customer asked for less than $25,000 as well as cases that didn’t specify the amount of compensatory damages requested. Of the 882 arbitration cases that were decided in 2010, 47 percent resulted in customers being awarded damages, based on Finra data.
All-Public Panels

Arbitration is “far from perfect,” but it’s cheaper and faster than the public courts, said Finra’s Ketchum. Starting in February, investors were given the option to pick an all-public panel of three arbitrators to decide the case instead of a panel composed of two public arbitrators and one from the industry. Since February, 77 percent of claims filed have selected the all-public panel, Condon said. It can take up to two years from when investors file their arbitration claims until the case is closed, said Jeffrey Erez, a securities attorney in Fort Lauderdale, Florida.

It’s rare that arbitration claims lead to disciplinary actions such as fines or suspensions, according to Stuart Meissner, a securities attorney in New York and former state assistant attorney general.

“There’s a breakdown between arbitration claims and enforcement actions,” Meissner said. “It’s only the most egregious cases.”
Filing Claims

Less than 1 percent of arbitration cases on average have resulted in disciplinary actions against brokers or brokerage firms, based on interviews with five securities attorneys around the country including Steve Miller, an attorney in Denver who also serves as a Finra arbitrator.

Every arbitration claim is reviewed and may be a source of future cases, Finra’s Luparello said. A single enforcement action may result from multiple arbitration claims.

Investors aren’t contacted by Finra as often as they should be after filing claims, which could help its enforcement arm take faster disciplinary action since they would hear from customers directly, said Brian Levin, who focuses on securities arbitration at Miami-based Dimond Kaplan & Rothstein.

One of his clients, Coralie Marlowe, a 74-year-old retiree, filed a claim with Finra in 2009 after she and her husband lost their $50,000 investment in a structured product recommended by a UBS AG (UBSN) broker. The securities became almost worthless when Lehman failed in September 2008. Marlowe said she was misled by the investment’s name: “100 Percent Principal-Protection Notes.”
‘Ill-Prepared’

“It’s a lot of money for us. We were ill-prepared for retirement,” said Marlowe, who lives in Calabasas, California. Finra’s investigators never called her after she filed the claim, she said. Marlowe reached a confidential settlement with UBS in March.

Finra contacted about 100 investors who bought the Lehman notes out of 170 who either filed complaints or arbitration claims, said Condon, the regulator’s spokeswoman.

UBS, Switzerland’s biggest bank, sold $1 billion of the notes to U.S. investors like Marlowe. Finra took action against the Zurich-based bank saying it “effectively misled” some investors when selling the products about two and a half years after Lehman’s failure. UBS agreed to pay $8.25 million to some investors and a $2.5 million fine. The bank was represented by Barry Goldsmith, an attorney at law firm Gibson Dunn & Crutcher LLP in New York who used to be executive vice president for enforcement at Finra’s predecessor, NASD. He declined to comment.
No Waves

The $2.5 million fine of UBS is “the biggest crime of the century since Madoff,” said Seth Lipner, a Garden City, New York-based attorney, who has represented more than 50 investors in Lehman notes. “They pay more for paperclips.” UBS used about $9 million worth of paper last year, according to calculations based on numbers in its annual report.

Allison Chin-Leong, a UBS spokeswoman in New York, said the “significant majority” of its sales were conducted properly and losses resulted from Lehman’s “unprecedented and unexpected” failure.

High compensation packages for top executives at Finra may hinder forceful action that protects investors, according to Turner, the former chief accountant for the SEC.

“The economic incentives are so strong and these executives don’t want to make waves and upset the industry,” Turner said.

$8.99 Million

SEC Chairman Mary Schapiro, who was head of Finra and had worked at its predecessor NASD since 1996, received $8.99 million as a “final distribution,” including $7.6 million in vested retirement benefits, when she left for the SEC, according to a Finra report. She makes $163,500 at the SEC. Schapiro recused herself from voting on the report about regulation of investment advisers.

Finra paid its top 10 executives a combined $11.6 million in 2009, based on data in an annual report. Ketchum received $2.24 million in salary, incentive pay and retirement benefits in 2009, the annual report said.

Compensation doesn’t affect Finra’s independence and helps prevent turnover, said Ketchum. “It hopefully impacts the willingness of people to make a career out of regulation. I’m not sure that it is a great strategy if you’re looking for effective oversight to underpay regulators,” he said.

“I can promise you that nobody in the industry thinks that Finra is their friend or Finra is on their side,” said Mark Astarita, who has been representing brokers and firms in Finra investigations since 1984. “It’s almost comical that that’s the perception because that is completely untrue.”
Missing Madoff

The regulator, along with the SEC, missed schemes operated by Bernard L. Madoff and R. Allen Stanford, whose brokerage firms were registered with Finra. Madoff’s brother Peter, deceased son Mark and niece Shana served on NASD or Finra committees. Madoff didn’t receive lenient treatment because of these ties, Finra said in a 2009 report.

Stanford hired the former head of Finra’s Dallas office as managing director of compliance in 2006. The group’s probe of Stanford resulted in a $10,000 fine for advertising violations in November 2007, about a year before the SEC shut down the alleged $7 billion fraud.

“Any regulatory organization can be noted as missing things,” Ketchum said. “The question is not whether we’re going to miss things, the question is what we effectively find and how we can continue to make steps to try to make us continuously better.”

Lack of Jurisdiction

One of the reasons Finra may have missed the Madoff Ponzi scheme was because of a lack of jurisdiction over the investment advisory side of dually registered firms, the 2009 report said. “We at Finra are limited in our ability to look fully at what is an equally integrated business,” Ketchum said in prepared remarks for a March 22 speech.

Although Finra examines more than half of its broker-dealer firm members, it doesn’t mean that the quality of those examinations is good, said Smallberg of the Project on Government Oversight. There also aren’t enough mechanisms in place to review their regulatory operations, he said.

“Giving more authority to Finra should come with additional transparency and accountability,” Smallberg said. “I worry sometimes about the façade of a really robust examination or investigation process providing a false sense of confidence for investors.”

Outraged Regulators

State securities regulators say the issue for them with Finra is a lack of cooperation on sharing examination information. About two years ago, Finra stopped routinely sending examination reports on brokers to state securities regulators, said Bob Webster, a spokesman for the North American Securities Administrators Association.

“State securities regulators were outraged,” said Crawford, a former NASAA president. Regulators relied on the reports to help spot potential fraud committed by brokers in their own states, she said.

Finra told the regulators it couldn’t routinely share investigative information with them because active collaboration could make Finra a “government actor,” Webster said. That would mean Finra would have to give certain rights to brokers during investigations that it doesn’t currently.

Finra received more than 100 access requests from state regulators in the past year and fulfilled all of them, Finra’s Luparello said. “I know of no example where we didn’t provide information when we would have before,” he said.

State regulators won’t know to request examination results if they don’t know that there’s something they should be on the lookout for, said Borg of the Alabama Securities Commission. “Just like the Morgan Keegan case, I’m hoping that all of our cases working with Finra in the future will work out just as cooperatively,” Borg said.

SEC Oversight

Self-regulatory organizations work if there’s aggressive SEC oversight, and the SEC has an “effective program” in place for overseeing Finra, Ketchum said.

The Boston Consulting Group found in a March report ordered by the Dodd-Frank Act that self-regulatory organizations, including Finra, don’t have to regularly disclose information to the SEC regarding their regulatory operations. The SEC also doesn’t have a consistent set of metrics or standards to assess Finra, the report said. Nester, the SEC spokesman, declined to comment on the agency’s oversight of Finra or Finra’s regulation of brokers.

As more investors turn to investment advisers for financial help, who regulates them will matter even more, said Lipner, the attorney who’s also a law professor at Baruch College in New York. “If we want to seriously regulate investment advisers, we would not give it to Finra because it hasn’t proved it’s competent to protect the public interest.”

[Bruce Dazzling]

The U.S. Is a Kleptocracy

If we dare look at the plain facts of the matter, we have to conclude the U.S. is a kleptocracy not unlike Greece, only on a larger and slightly more sophisticated scale.

Yesterday, I noted that Greece Is a Kleptocracy; the U.S. is a kleptocracy, too. Before you object with a florid speech about the Bill of Rights and free enterprise, please consider the following evidence that the U.S. is now a kleptocracy worthy of comparison to Greece:

1. Neither party has any interest in limiting the banking/financial cartel. The original Glass-Steagal bill partitioning investment banking from commercial banking was a few pages long, and it was passed in a few days. Our present political oligrachy spends months passing thousands of pages of complex legislation that accomplishes essentially nothing.

As Federal Reserve Bank of Kansas City President Thomas Hoenig recently noted (in a rare admission by an insider—I wonder how long it will be before he “resigns to pursue other opportunities,” i.e. is muzzled):

The problem with SIFIs (“systemically important financial institutions,” a.k.a. too big to fail banks) is they are fundamentally inconsistent with capitalism. They are inherently destabilizing to global markets and detrimental to world growth. So long as the concept of a SIFI exists, and there are institutions so powerful and considered so important that they require special support and different rules, the future of capitalism is at risk and our market economy is in peril.

Do you really think Dodd-Frank and all the other “fooled by complexity” legislation has accomplished anything? Hoenig cuts that fantasy off at the knees:

As late as 1980, the U.S. banking industry was relatively unconcentrated, with 14,000 commercial banks and the assets of the five largest amounting to 29 percent of total banking organization assets and 14 percent of GDP.

Today, we have a far more concentrated and less competitive banking system. There are fewer banks operating across the country, and the five largest institutions control more than half of the industry’s assets, which is equal to almost 60 percent of GDP. The largest 20 institutions control 80 percent of the industry’s assets, which amounts to about 86 percent of GDP.

In other words, nothing has really changed from 2008 except the domination of the political process and economy by the financial cartel has been masked by a welter of purposefully obfuscating legislation. This is of course the exact same trick Wall Street used to cloak the risk of the mortgage-backed derivatives it sold as “low risk” AAA rated securities: by design, the instruments were so complex that only the originators understood how they worked.

That is the current legislative process in a nutshell. Much of the 60,000 pages of tax code are arcane because they describe loopholes and exclusions written specifically to exempt a single corporation or cartel from Federal taxes.

The U.S. is truly a kleptocracy because its political leadership actually has no interest in limiting the banking/financial cartel. When questioned why their “reforms” are so toothless, legislators wring their hands and bleat, “Honest, I wanted to limit the banks but they’re too powerful.” Spoken like a true kleptocrat.

2. Our stock markets are dominated by insiders. It is estimated that some 70% of all shares traded are exchanged in private “dark pools” operated by the TBTF banks and Wall Street, and the majority of the remaining 30% of publicly traded shares are traded by high-frequency trading machines that hold the shares for a few seconds, or however long is needed to skim the advantages offered by proximity to the exchange and speed.

If that’s your idea of an “open market,” then you’re the ideal citizen for a kleptocracy.

3. The rule of law in the U.S. has been divided into two branches: one in name only for the financial Elites and corporate cartels, and one for the rest of us mere citizens. Between corporate toadies on the Supreme Court who have granted corporations rights to spend unlimited money lobbying and buying legislators as a form of “free speech”—ahem, how can something that costs billions of dollars be “free”?—and vast regulatory brueacracies that saw nothing wrong with MERS and the complete corruption of land and mortgage transfer rules, the U.S. legal system is now a perfection of kleptocracy.

As economist Hernando de Soto observed in The Destruction of Economic Facts, the ForeclosureGate mortgage mess is not just a series of petty paperwork mistakes—it is the destruction of the entire system of trustworthy transfer of property rights for non-Elites:

Knowing who owned and owed, and fixing that information in public records, made it possible for investors to infer value, take risks, and track results. The final product was a revolutionary form of knowledge: “economic facts.”

Over the past 20 years, Americans and Europeans have quietly gone about destroying these facts. The very systems that could have provided markets and governments with the means to understand the global financial crisis—and to prevent another one—are being eroded. Governments have allowed shadow markets to develop and reach a size beyond comprehension. Mortgages have been granted and recorded with such inattention that homeowners and banks often don’t know and can’t prove who owns their homes. In a few short decades the West undercut 150 years of legal reforms that made the global economy possible.

The results are hardly surprising. In the U.S., trust has broken down between banks and subprime mortgage holders; between foreclosing agents and courts; between banks and their investors—even between banks and other banks.

Frequent contributor Harun I. summarized the reality of this political and financial coup by kleptocrats:

As described by Georgetown University bankruptcy expert Adam Levitin, in testimony to subcommittee of the House Financial Services Committee, “If mortgages were not properly transferred in the securitization process, then mortgage-backed securities would in fact not be backed by any mortgages whatsoever, [and] could cloud title to nearly every property in the United States.” It would also raise the question of the legality of the resulting millions of foreclosures on American homeowners, since the banks cannot prove “ownership” of the foreclosed property.

The statement above gets to the elemental issue that apparently is lost on many otherwise intelligent people. This is not about frivolous claims based on technicalities. This is about securities fraud (theft) on a ludicrously massive scale. These so-called securities were sold to governments, pension funds and other financial institutions globally. Trillions were made by banks selling what is becoming clearly understood to be worthless pieces of paper and when the jig was up, which ultimately led to the destruction of economies globally, they made ordinary citizens the losers by sliding their worthless pieces of paper to the balance sheet of taxpayers worldwide.

And while some are quibbling over whether someone should get a free house, those who have perpetrated the greatest swindle in the history of mankind are about to get away with it, because they are “systemically important”, code for TBTF (too big to fail).

You think money laundering and tax evasion is a specialty only of Caribbean island “banking centers”? Think again; we have corporate oversight equivalent to that of Somalia. U.S.A. a haven for corporate money laundering: A little house of secrets on the Great Plains:

Among the firm’s offerings is a variety of shell known as a “shelf” company, which comes with years of regulatory filings behind it, lending a greater feeling of solidity. “A corporation is a legal person created by state statute that can be used as a fall guy, a servant, a good friend or a decoy,” the company’s website boasts. “A person you control… yet cannot be held accountable for its actions. Imagine the possibilities!”

“In the U.S., (business incorporation) is completely unregulated,” says Jason Sharman, a professor at Griffith University in Nathan, Australia, who is preparing a study for the World Bank on corporate formation worldwide. “Somalia has slightly higher standards than Wyoming and Nevada.”

The U.S. was declared “non-compliant” in four out of 40 categories monitored by the Financial Action Task Force, an international group fighting money laundering and terrorism finance, in a 2006 evaluation report, its most recent. Two of those ratings relate to scant information collected on the owners of corporations. The task force named Wyoming, Nevada and Delaware as secrecy havens. Only three states - Alaska, Arizona and Montana - require regular disclosure of corporate shareholders in some form.

4. Just as in Greece, taxes are optional for the nation’s financial Elites. In Greece, you don’t mention your swimming pool to avoid the “swimming pool tax.” Here in the U.S., that sort of tax avoidance is against the law (smirk). Here, you hire a Panzer division of sharp tax attorneys and escape taxation legally (well, mostly legally—whatever it takes to win).

If you are unfortunate enough to be a successful small entrepreneur who nets $100,000 a year, you pay 15.3% self-employment and 25% Federal tax on the bulk of your income, a combined rate of 40.3%, and a combined rate of 43.3% on all income above $82,400.

Those who net millions pay less than half that amount, somewhere between 17% for the top 1/10th of 1% and 21% for the top 1%: Citizens for Tax Justice, which looks at all taxes paid including federal, state and local taxes, said that in 2010 the top 1 percent of earners will pay 21.5 percent of taxes.

Note that the 21.5% paid by the top 1% includes all state and local taxes. Here in California, the small businessperson earning $100,000 pays between 5% and 9% state tax, so their combined state and Federal tax burden on their highest earnings is a whopping 50%. Then there are property taxes and the 9.5% sales tax, and endless junk fees skimmed from small business. Add all that together and the total taxes paid rises to the 60% level, or roughly triple what the top 1% pay.

(Bitter note from a tax donkey: To all those tax-and-spenders who whine that California has “low taxes,” please pay my “low” property tax bill, will you? It’s “only” $11,000 a year.)

Super Rich See Federal Taxes Drop Dramatically:

The Internal Revenue Service tracks the tax returns with the 400 highest adjusted gross incomes each year. The average income on those returns in 2007, the latest year for IRS data, was nearly $345 million. Their average federal income tax rate was 17 percent, down from 26 percent in 1992.

Eric Schoenberg says to sign him up for paying higher taxes. Schoenberg, who inherited money and has a healthy portfolio from his days as an investment banker, has joined a group of other wealthy Americans called United for a Fair Economy. Their goal: Raise taxes on rich people like themselves.

Schoenberg, who now teaches a business class at Columbia University, said his income is usually “north of half a million a year.” But 2009 was a bad year for investments, so his income dropped to a little over $200,000. His federal income tax bill was a little more than $2,000.

“I simply point out to people, ‘Do you think this is reasonable, that somebody in my circumstances should only be paying 1 percent of their income in tax?’” Schoenberg said.

Do you really think you don’t live in a kleptocracy? Why? Because the truth hurts?

[JackRiddler]

The most startling change that I’ve noticed, without doubt, is the inflation. Literally everything I’ve looked at– food prices at the local market, restaurant tabs, local electronics, highway tolls, raw material construction costs, mobile phone tariffs, taxi fare, etc. are much more expensive, to the tune of 10% to 25%.

So much for the theory that an economic slowdown would decrease prices.

John Maynard Keynes, who is consistently held up as the father of modern macroeconomics, suggested in his General Theory that keeping interest rates low and government spending high in order to sustain a boom (or get an economy moving again) would likely NOT result in inflation.

This has been the underpinning economic theory behind worldwide government efforts since the Lehman collapse… it’s the old “spend your way out of recession” play. Politicians and central bankers alike seem to believe, as Keynes did, that inflation is a low risk consequence.

Spain is one of many examples that proves this theory to be utter nonsense. Everyone on the ground knows that inflation is high; local newspapers are even running stories about how to best deal with inflation and preserve your savings.

This is insulting. Spain like the rest of the EU periphery has imposed harsh austerity measures throughout the crisis, and thus did not intentionally raise government spending. If the deficit has risen, that's because of the economic stagnation, meaning decline in revenues and persistence of high unemployment, which has nothing to do with Keynesian philosophy. In fact, the recent European experience suggests that cutting public spending by removing stimulus actually raises the next year's public deficit! The correlation of spending cuts followed by higher deficits is, at any rate, indisputable for the periphery nations. The rising prices Black blames on spending have also correlated with austerity and with bank bailouts -- the latter not strictly Keynesian (Hoover also did bank bailouts). He omits factors like the global rises and volatility in fuel and food prices. And that is in part a product of allowing unregulated financial speculation, as the economic libertarians desired.

Keynes has not been the guiding economic philosopher of the modern age or the accepted father of modern macroeconomics for decades. Since the late 1970s, the guiding role has been played by the Hayek-inspired Milton Friedman, the Chicago school shock-doctrinaires, and the neoliberal globalist consensus of IMF and World Bank. That was the case until their paradigms, which never made sense except as a means of concentrating wealth, were shattered in 2008 by the biggest (of many) crashes they had necessarily induced. Since then an image of "Keynes" has been re-enthroned, but as a joke: to justify the bankster bailouts and other monetarist measures, not the fiscal stimulus and direct public investment that Keynes himself surely would have emphasized. In other words, the economic libertarians (a misnomer: in practice, their policies mean the dictatorship of private capital via the means of the "market") are now retroactively trying to pin decades worth of the policies they helped shape on their favorite patsy, Lord Keynes. In reality, Keynesian thinking has not been ascendant since the golden age of Western capitalism (1948-1973, RIP). Unless you want to count the "military Keynesianism" of war, military and security budgets. That's a perennial.

.

[JackRiddler]

http://www.wallstreetdaily.com/2011/04/ ... computers/


Wall Street’s White-Collar “Pickpockets” Are Scalping Your Profits

Posted By Matthew Weinschenk On April 4, 2011 @ 3:29 pm In 2011Archive,Tech & Innovation,featured | No Comments

Thought “Watson’s” dominant performance against human competitors on “Jeopardy” was impressive?

The super computers on Wall Street could give Watson a real run for his money. Literally.

Unfortunately, they’re also gouging “regular” investors like you and me.

Rapid-Fire Trading Creates Rapid Profits

They’re called high-frequency trading (HFT) computers – ones that buy and sell massive amounts of shares in a matter of seconds.

And speaking of seconds, the average holding time is just 11 seconds, too. This kind of trading activity accounts for about 70% of the volume on our stock exchanges now. (However, these numbers are rough estimates at best [1]. The HFT shops are too secretive to provide real numbers.)

In terms of profits, we’re talking about a few pennies at a time here. But when you’ve got such frenetic trading activity, those profits can seriously mount up.

But that’s not the whole story. A new paper from researchers at Cornell University and Columbia University exposes another of Wall Street’s hidden lies…

High Frequency for the Big Boys… Low Profits for the Little Guys

Simply put, the researchers show the mechanism by which these HFT funds create a mispricing that they then exploit… thereby reducing all other investors’ returns in the process.

This goes against prior research, which was generally positive on HFT. After all, it gives the market a lot of liquidity. If you want to buy or sell shares quickly, you can theoretically get a better, faster fill price. Early evidence suggested that HFT reduced bid/ask spreads and decreased market volatility.

But freak events like the “flash crash” of May 2010 raised questions about how these traders affect our market.

The research paper “A Dysfunctional Role of High Frequency Trading in Electronic Markets,” [2] by Robert A. Jarrow and Philip Protter, shows how HFT could actually create a less efficient market and reduce investors’ returns in the process.

The HFT Advantage

Essentially, the problem stems from the fact that most of these HFT firms identify the same signals – and then trade on them together. So when signals are tripped, HFT firms all pile in at once to buy or sell.

This activity changes the price of the stocks in question and creates a self-fulfilling trend that earns profits for the HFT firms.

To understand how this creates an unfair advantage, think of it in a similar way as a stock pump-and-dump scheme…

In this scenario, a nefarious outfit buys up shares of a penny stock. It then pushes out spam emails and other reports that encourage unsophisticated investors to buy, too. This drives up the price. The scammers then dump their shares at the peak, the price collapses, and average investors take a big loss.

In these cases, individual investors lose because they don’t know when the scammers are going to dump the stock.

In HFT cases, when the prices get pushed up, traditional investors like mutual funds and pension funds lose money on trades because they don’t have the technology to react in microseconds like the high-frequency traders.

So how much does this cost you?

Well, while you may not trade often, your mutual funds and ETFs do. And with each trade, HFTs skim a few pennies for themselves. Considering the effects of compounding, even a tiny drag on your returns adds up to real money in your retirement account.

So how can we stop this practice and get our money back?

The Epitome of Free Market Economics… Or Just Petty Theft?

Well, even the most free-market libertarian would say that since these firms have developed this expertise, they should be able to profit.

In this case, however, that’s like telling a pickpocket to continue stealing wallets because he’s developed the skill to do so.

But the problem is that there’s no sure-fire way to stop this practice. The HFTs aren’t mounting coordinated attacks to move prices like a pump-and-dump scheme. Instead, they just happen to have discovered the same triggers.

It would take a shift in the basic structure of the exchanges to put a halt to this type of trading. But because higher trading volume produces more money for the exchanges, I wouldn’t expect them to kill their golden goose anytime soon.

Good investing,

Matthew Weinschenk

----------------------------------

URLs in this post:

[1] rough estimates at best: http://www.ritholtz.com/blog/2010/10/av ... 1-seconds/

[2] “A Dysfunctional Role of High Frequency Trading in Electronic Markets,”: http://papers.ssrn.com/sol3/papers.cfm? ... id=1781124

[3] What Wall Street Isn’t Telling You About Buying Japanese Stocks: http://www.wallstreetdaily.com/2011/03/ ... se-stocks/

[4] Survive the Next Sell Off in Five Easy Steps: http://www.wallstreetdaily.com/2011/06/ ... asy-steps/

[5] Glencore’s No LinkedIn as IPO Limps Out of the Gates: http://www.wallstreetdaily.com/2011/05/ ... eak-start/

[6] Value Trap Alert: Avoid These Two Recent IPOs: http://www.wallstreetdaily.com/2011/04/ ... pital-ipo/

[7] These Stocks Could Kill Your Portfolio: http://www.wallstreetdaily.com/2011/06/ ... cam-stock/

[8] (What's this?): http://www.wikinvest.com/blogger/wikinvest_wire

[9] Joe Saluzzi Interview with Chris Martenson on HFT: http://shoulda-coulda-trade.blogspot.co ... chris.html

[10] Music Streaming First Salvo in Battle to Dominate Cloud-Based Computing: http://moneymorning.com/2011/04/10/musi ... -computing

[11] More career-limiting moves: http://blog.canadianbusiness.com/more-c ... ting-moves

[12] #Fukushima I Nuke Plant: TEPCO Bans Public Access to Webcam: http://ex-skf.blogspot.com/2011/03/fuku ... -bans.html

[13] High-Frequency Trading (HFT): http://www.wikinvest.com/wiki/High-Freq ... ading_(HFT)

[14] Computing: http://www.wikinvest.com/industry/Computing

[15] Wikinvest: http://www.wikinvest.com


Click here to print.

Copyright © 2011 Wall Street Daily. All rights reserved.