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

[vanlose kid]

page 52 of this thread is looooong, yo.

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The First Step to Solving a Problem is Stating it Correctly
By Brad L

In "1984," George Orwell describes a totalitarian state that employs "newspeak" to enforce its aims. Rather than merely suppressing statements that endanger the ruling party, newspeak constricts the language itself, making dangerous ideas impossible to formulate. This proves to work far better than post-hoc crackdowns on radical speech, inspiring one state functionary, Syme, to exude, "It's a beautiful thing, the destruction of words."

With that in mind, I'd like to explore a problem I see in the current economic debate. The path before the nation in general, and the federal government in particular, is usually framed as a choice between "quantitative easing" and "austerity," and even those who oppose the action represented by the former phrase, and support the course represented by the latter, tend to use these terms as if they truly described the two paths that might be taken.

But of course they don't.

"Quantitative easing" is, linguistically speaking, quite new. The original Japanese expression for "quantitative easing" ryoteki kinyu kanwa was minted in the mid-1990s, and became official Japanese monetary policy after Toshihiko Fukui was appointed governor in February 2003. It did not pass into American parlance until roughly 2005, but in a mere six years, it's a linguistic bestseller - a Google search for "quantitative easing" garners over a million hits.

It's easy to see why the term was pushed vigorously by the forces that support the action it represents. Evolutionary psychology asserts that humans have two basic drives - accumulating resources and minimizing effort. Throughout human history, anyone who could gather real resources without expending much time or energy had a huge survival advantage. "Quantitative easing," has, then, a hugely positive emotional valence, as it embraces the two things humans prize most - quantity and ease.

Of course, in reality, "quantitative easing" offers no such thing. It creates no real resources whatsoever, and whatever "ease" it might provide will be more than counterbalanced by painful side- and aftereffects.

An alternative phrase that policy critics sometimes advance - "money printing" - is, ironically, almost as attractive. The reason is that "money" has multiple meanings, and in the popular mind is conflated with possessions that can be purchased with currency. In other words, at a fundamental level, "money printing" sounds like a pretty good idea - the creation of a real resource with little effort. Sign me up!

So let's be clear. The most accurate description for the action described by "quantitative easing" is actually "fiat creation." Here, the type of money being created is specified - a fiat currency, untethered to any real resource, with no more intrinsic worth than the paper (or electrons) that constitute it. And "creation" reveals the voluntary bringing-into-being of this intrinsically valueless commodity. Using these words makes it clear that there is no imaginary constraint at which the fiat strains in search of "easing," instead, human beings make choices and perform actions to create it.

The fact that the average American has no idea what fiat is, is no excuse for those who do understand it failing to employ the phrase often in writing and speaking. If it is used enough, even Americans can learn a new word.

So use it, please.

Next is the term, "austerity," which is used, in government-budget discussions, to describe spending cutbacks necessary to balance tax inflows to spending outflows. The first-listed synonyms for this term are "harshness," "strictness" and "ascetisim," all of which have a strong negative emotional valence. Absent from these synonyms are any positive results that might come from actions described as austere; the entirety of the word's meaning is unrelieved by any awareness that austerity might have a benefit.

So again, let's be clear. The most accurate description for the set of measures described as "austerity" is expressed by the phrase "living within our means." This expression aligns with the average person's understanding that he or she must personally balance revenue inflows and outflows - even people who don't do this are usually painfully aware that they should. "Living within our means" then, has a positive valence that is hard to over-state - immediately, intuitively, it just makes sense.

Reframing the choices before us from a battle between "quantitative easing" and "austerity" to one between "fiat creation" and "living within our means" is a necessary first step to making the right choices as a culture. If we can't even properly state the problem, we'll never arrive at a solution.

http://www.zerohedge.com/article/guest- ... -correctly

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edit: hey! page 53.

[gnosticheresy_2]

Goldman and AIG redux x1000

Hey Matt,
I'm on my third reading of your "Hot Potato" chapter from Griftopia and I want to thank you for it, because I never would have even attempted to understand this stuff had you not made it seem as understandable as you did in your book. However, I keep stumbling over one point, which may turn out to be trivial, in regards to the collateral that Goldman was demanding from AIG. How were they allowed to demand collateral? The credit default swap was insurance right? You can't demand money from your insurance company if you aren't making a claim. What is this collateral against? Also, feel free to address this question by suggesting further reading to me, or simply suggesting that I read the chapter again. I may well have missed it. Regardless, I am now determined to figure this shit out.
Tom

Tom,
Coincidentally, I have a story that covers this in some detail coming out in a few days. The collateral calls that AIG faced from Goldman and other companies actually had nothing, or very little, to do with the credit default swaps in the actual deals. What happened was this: the subsidiary of AIG that wrote those contacts, a company called AIG Financial Products (AIGFP), wrote them in such a way that their customers could demand cash collateral in the event that the parent company, AIG, suffered a downgrade in its credit rating. At the time the contracts were written, primarily before 2006, the idea that AIG would suffer a downgrade was almost unthinkable; it was the world’s largest insurance company and considered one of the strongest firms in the world.

However, in 2006, AIG got wrapped up in a major securities fraud scandal in which the company was caught using sham transactions to hide losses. AIG ended up having to pay $800 million in fines and the scandal led to a downgrade of AIG’s credit rating, which in turn led to Goldman making the first of its collateral calls in the summer of 2007. Collateral calls happen when an investor or customer is sufficiently worried about your long-term liquidity that it demands cash to make itself feel better about having tons of money tied up in your future. AIGFP’s contracts allowed customers to make such calls in the event of a downgrade, and that’s why the firm became vulnerable so shortly after the 2006 scandal.

http://www.rollingstone.com/politics/bl ... d-20110214

Correlation does not imply causation and all that, yadda yadda yadda

[bks]

Next is the term, "austerity," which is used, in government-budget discussions, to describe spending cutbacks necessary to balance tax inflows to spending outflows. The first-listed synonyms for this term are "harshness," "strictness" and "ascetisim," all of which have a strong negative emotional valence. Absent from these synonyms are any positive results that might come from actions described as austere; the entirety of the word's meaning is unrelieved by any awareness that austerity might have a benefit.

Reframing the choices before us from a battle between "quantitative easing" and "austerity" to one between "fiat creation" and "living within our means" is a necessary first step to making the right choices as a culture. If we can't even properly state the problem, we'll never arrive at a solution.

Well, I'm not sure his article will help much. The way "austerity" is intended has very little to do with "living within our means". It's a euphemism for gutting areas of state spending that actually benefit people, things that give the stick to the social glue that holds us together. 'Austerity" is the phony corrective to a real problem that wouldn't exist, or at least wouldn't exist in the dire terms it's now talked about, without the FIRE sector hucksterism, crimes and bailouts, the latter of which were engineered against the wishes of the populations now being fed the austerity pill.

[vanlose kid]

How a bank like Barclays makes us pay
Barclays avoided nationalisation during the crisis, but like other banks it profits from hidden subsidies

Tony Greenham guardian.co.uk, Tuesday 15 February 2011 13.42 GMT

When Barclays turned to Qatar, Abu Dhabi and China in 2008 to shore up its balance sheet, rather than the UK government, did it have half a mind on future results announcements and bonus rounds such as the one we've just had? It would have been easy to guess that generous bonuses at taxpayer-owned banks would be controversial. Perhaps chief executive Bob Diamond thought it had avoided this potential bear trap by looking east for new capital instead of to Westminster, and that is why he was unwilling, under prompting from the Treasury select committee, to offer his thanks to UK taxpayers.

He did concede that Barclays benefited from the system as a whole being bailed out with taxpayer support. But is there more to the story than this? What if Barclays' profits are propped up in other ways by taxpayers and swollen by lack of real competition?

Banks make too much money. Of course banks need earn a reasonable return, but we at Nef (the New Economics Foundation) have set out several ways in which banks profit excessively at the expense of taxpayers, customers, investors and corporate clients. Not only is this bad news for the broader economy, but it also calls into question whether the extraordinarily high levels of "performance-related" pay in the banking industry are quite so performance related.

The free-market theory is that excess profits are competed away, yet since the great neoliberal experiment of laissez-faire banking began in the 1970s,banks' profitability has more than doubled and has outstripped non-financial sectors. Why?

To start with, being "too big to fail" is profitable. Based on calculations by Andrew Haldane, the executive director of financial stability at the Bank of England, we estimate the value of this subsidy to UK banks to be around £30bn a year. The subsidy arises because banks, effectively guaranteed by the government, are able to access much cheaper wholesale funds than would otherwise be the case.

But this is far from the end of the matter. We also identified windfall profits to banks from the additional trading in gilts required by the Bank of England's programme of quantitative easing. This is ironic to say the least, as QE was brought in to revive the economy after a banking crash.

Customers are proving a good source of profits, too. The interest spread – the difference between the interest rate that banks pay for funds and how much they charge us – has widened dramatically since 2008. Although arguably too narrow before the crash, this suggests that the burden of rebuilding banks' balance sheets is falling disproportionately on customers instead of shareholders, executives and bondholders.

Institutional investors and corporate customers are also getting a raw deal from investment banks. In the case of rights issues we identify a near trebling of investment banking fees since 2000, having been at a steady level for decades. This has reaped an additional £1bn in fees just through a rise in commission rates.

The British Bankers' Association likes to assert that banks create wealth. This is stretching the meaning of the phrase to breaking point. Banks are intermediaries between wealth creators and investors, and the higher their cut the bigger the drag on wealth creation in the real economy. This is far from underplaying the importance of banks; theirs is a vital role for economic health. But as with all other vital support services (including public services), we need them to offer high levels of customer service at the lowest possible cost, not the other way round. If these hidden subsidies and causes of excess profits were eliminated, not only might we find the UK more prosperous, but we would also be likely to find that the source of the lavish and contentious bonus culture suddenly dries up. Not so much tough on bonuses, as tough on the causes of bonuses.

http://www.guardian.co.uk/commentisfree ... er-subsidy

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[JackRiddler]

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Monikers like Brad L make me imagine a young man. A shame and a bad sign if that cranky grampa rant came from anyone under 60!

First of all, terms are always in contest. It's the stuff of politics since forever. Not every euphemism we wish to challenge needs the grand Orwell speech.

But moving on to the meat...

First, "fiat." With the exception of a few community currency and labor barter experiments, all money ever used since the invention of money has been fiat. Gold is fiat. Like paper, it is money only by decree, or at best by an arbitrary convention that parties to transactions adopt out of a desire for a portable, fungible, universal medium of exchange. The shiny ingredient in gold coins is limited, but it is still only representative, no different from the fancy patterns on paper. Unless you are trading gold for gold, it has no relation to the values being traded, which are made of natural resources (primarily energy) plus labor. Gold can and has been counterfeited. Gold can and has been diluted, multiplied, limited and controlled. The only non-fiat currencies in theory would be units representing amounts of energy or hours of labor. But given the complexity of the means of production in modern civilizaiton, these would also be representative and subject to faking, dilution, multiplication, limits and controls. There is no way to get around the negotiation and relations of power and authority inherent in all monetary relations. That insight allows the real debate to begin. What is value and how should it be produced, distributed, quantified and traded?

Second, austerity. I'm not even going to bother. This is a euphemism, but for something opposite to what Brad L thinks after his latest reading of Friedman or whoever. It is a euphemism for intensified class war. All government is a vehicle for redistributing income. Under capitalism, the state existst to assure the distribution of wealth to the richest among the ownership class. Without an active state or public sector providing ownership forms, rules and rulings, protection, subsidies, development costs, reboot costs after the invetibable crashes of all free markets in their "natural" state, and accepting the externalized costs of environmental and health disasters, capitalism and its misnamed "free market" would have never come to be and would have never existed for as long as they have. Brad L is satisfied with the statist redistribution of income to the rich falsely called a "free market," and wants to make it much worse. Therefore the class war now being intensified on the poor and middle class, with literal deaths as the casualties, should (in Brad L's view) be given a more appealing brand-name than "austerity" (although this already has noble connotations).

Fuck Brad L and the plunder class for whom he shills.

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Apropos, why gnosticheresy not post rant to Hulkish thread? Hulk sad!

They post some interesting financial information about things that you won't find much in the mainstream financial press. However, the tone is that of the crayon scribblings of a deranged libertarian child. Vis:

All gummint is bad. All of it. Every single intsy-wintsy tiny bit of gummint is a parasitical socialist cancer on the face of good ol hard working financiers who would easily be able to sort out our current mess if the dead socialist hand of socialist gummint regulation was lifted from every sector of society. That nice old lady in the post office who weighs your parcels for you? Fucking socialist bloodsucker who kills babies for fun. The lollipop man?* A festering pustule of socialist ineptitude kept in pies and gravy by OUR TAXES.

All welfare is bad. All of it. All unemployment could instantly be solved by prising the socialist lips of the lazy socialist parasite poor from the teat of big gummint and letting them "sink" or "swim" on their own. Benefits to help young mothers and babies? It's a slippery slope I tell you! Giving money to babies only encourages a "culture of dependency" where people elect to stay poor and die early as they're too fat and lazy to get one of the millions of jobs that are out there. And also babies tend to just eat the money that you give them so we must end this horrific socialist hangover from the socialist days of most of the last socialist century and stop subsidising the lazy smelly socialist poor with OUR TAXES.

Workers rights are bad. All of them. Giving rights to workers is the unaccaptable face of big socialist gummint intrusion into the pristine workings of free market capitalism. Things like health and safety legislation and the right to strike only hinder the creation of wealth that benefits us all. Only once the dead socialist hand of socialist gummint regulation is lifted can we be free to grind another half percentage point of productivity out of the workforce for the greater good! I mean for the good of the ownership class! Who will spend their profits on, er...things.....investment...er...TAXES...<collapses in a heap drooling>

I mean really, this is subtext to virtually every single article that they post. It's annoying because the underlying info is interesting and very relevent at the moment. Things like HFT and capital outflows from the stock market I wasn't previously aware of, but to get there I have to wade through acres of childish bullshit. For example, they get the regulatory capture of the institutions who are supposedly there to regulate the financial industry, but there's zero awareness that the free market capitalism they think is so great is the thing that leads to that situation. Regulatory capture, high level corruption, market rigging, they aren't bugs, they're features.

And again, when the talk turns to gummint spending and taxation, apparently spending cuts are necessary because the gummint has been splashing cash around like there's no tomorrow and not because the tax base of the economy has been totally skewed so the rich and the corporations pay next to nothing. There just doesn't seem to be any joined up thinking going on and it's a pity because the news they focus on is good and needs a wider audience.

(Also their comments are approaching Youtube levels of retard. Plus also anyone who takes the name "Tyler Durden" as an internet nom de plume you just know is some weedy nerd with delusions of macho grandeur).


*http://en.wikipedia.org/wiki/Lollipop_man

edited to remove naughty word from title

From viewtopic.php?f=8&t=31228

[Laodicean]

Obama will hang the Medal of Freedom around Warren Buffett's neck today.

[vanlose kid]

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[anothershamus]

http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216?page=1

Why Isn't Wall Street in Jail?
Financial crooks brought down the world's economy — but the feds are doing more to protect them than to prosecute them

By Matt Taibbi
February 16, 2011 9:00 AM ET

Over drinks at a bar on a dreary, snowy night in Washington this past month, a former Senate investigator laughed as he polished off his beer.

"Everything's fucked up, and nobody goes to jail," he said. "That's your whole story right there. Hell, you don't even have to write the rest of it. Just write that."

I put down my notebook. "Just that?"

"That's right," he said, signaling to the waitress for the check. "Everything's fucked up, and nobody goes to jail. You can end the piece right there."

Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world's wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people.

This article appears in the March 3, 2011 issue of Rolling Stone. The issue is available now on newsstands and will appear in the online archive February 18.

The rest of them, all of them, got off. Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted. Their names by now are familiar to even the most casual Middle American news consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley. Most of these firms were directly involved in elaborate fraud and theft. Lehman Brothers hid billions in loans from its investors. Bank of America lied about billions in bonuses. Goldman Sachs failed to tell clients how it put together the born-to-lose toxic mortgage deals it was selling. What's more, many of these companies had corporate chieftains whose actions cost investors billions — from AIG derivatives chief Joe Cassano, who assured investors they would not lose even "one dollar" just months before his unit imploded, to the $263 million in compensation that former Lehman chief Dick "The Gorilla" Fuld conveniently failed to disclose. Yet not one of them has faced time behind bars.

Invasion of the Home Snatchers

Instead, federal regulators and prosecutors have let the banks and finance companies that tried to burn the world economy to the ground get off with carefully orchestrated settlements — whitewash jobs that involve the firms paying pathetically small fines without even being required to admit wrongdoing. To add insult to injury, the people who actually committed the crimes almost never pay the fines themselves; banks caught defrauding their shareholders often use shareholder money to foot the tab of justice. "If the allegations in these settlements are true," says Jed Rakoff, a federal judge in the Southern District of New York, "it's management buying its way off cheap, from the pockets of their victims."

Taibblog: Commentary on politics and the economy by Matt Taibbi

To understand the significance of this, one has to think carefully about the efficacy of fines as a punishment for a defendant pool that includes the richest people on earth — people who simply get their companies to pay their fines for them. Conversely, one has to consider the powerful deterrent to further wrongdoing that the state is missing by not introducing this particular class of people to the experience of incarceration. "You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street," says a former congressional aide. "That's all it would take. Just once."

But that hasn't happened. Because the entire system set up to monitor and regulate Wall Street is fucked up.

Just ask the people who tried to do the right thing.

These two stories go together.

http://ourfuture.org/blog-entry/2011020612/understanding-extreme-incomewealth-gap


Nine Pictures Of The Extreme Income/Wealth Gap
Dave Johnson's picture

By Dave Johnson

February 14, 2011 - 10:18am ET


Many people don’t understand our country’s problem of concentration of income and wealth because they don’t see it. People just don't understand how much wealth there is at the top now. The wealth at the top is so extreme that it is beyond most people’s ability to comprehend.

If people understood just how concentrated wealth has become in our country and the effect is has on our politics, our democracy and our people, they would demand our politicians do something about it.

How Much Is A Billion?

Some Wall Street types (and others) make over a billion dollars a year – each year. How much is a billion dollars? How can you visualize an amount of money so high? Here is one way to think about it: The median income in the US is around $29,000, meaning half of us make less and half make more. If you make $29,000 a year, and don’t spend a single penny of it, it will take you 34,482 years to save a billion dollars. . . . (Please come back and read the rest of this after you have recovered.)

What Do People Do With SO Much?

What do people do with all that money? Good question. After you own a stable of politicians who will cut your taxes, there are still a few more things you can buy. Let’s see what $1 billion will buy.

Cars

This is a Maybach. Most people don’t even know there is something called a Maybach. The one in the picture, the Landaulet model, costs $1 million. (Rush Limbaugh, who has 5 homes in Palm Beach, drives a cheaper Maybach 57 S -- but makes up for it by owning 6 of them.)

Your $1 billion will only buy you a thousand Maybach Landaulets.

Here are pics of just some of Ralph Lauren’s collection of cars. This is not a museum, this is one person’s private collection. You don't get to go look at them.

Luxury Hotels

This is the Mardan Palace Hotel in Turkey, Burj Al Arab in Dubai.

Here is a photo gallery of some other expensive hotels, where people pay $20-30,000 per night. Yes, there are people who pay that much. Remember to send me a postcard!

A billion dollars will buy you a $20,000 room every night for 137 years.

Yachts

Le Grand Bleu - $90 million.

Some people spend as much as $200 million or more on yachts.

You can buy ten $100 million yachts with a billion dollars.

Private Jets

Of course, there are private jets. There are approx. 15,000 private jets registered in the US according to NBAA. (Note: See the IPS High-Flyers study.)

This is a Gulfstream G550. You can pick one up for around $40 million, depending. Maybe $60 million top-of-the-line.

Your billion will buy you 25 of these.

Private Islands

If the rabble are getting you down you can always escape to a private island.

This one is going for only $24.5 million – castle included. You can only buy 40 of these with your billion.

Mansions

This modest home (it actually is, for the neighborhood it is in) is offered right now at only about $8 million. I ride my bike past it on my regular exercise route, while I think about how the top tax rate used to be high enough to have good courts, schools & roads and counter the Soviet Union and we didn't even have deficits.

I ride there but that neighborhood is not like my neighborhood at all. While there is one family in that house, I live closer to the nearby soup kitchen that serves hundreds of families. One family in a huge estate and hundreds at a soup kitchen roughly matches the ratio of wealth concentration described below.

Here are a few nearby homes up for sale.

You can buy 125 houses like this one with your billion.

Luxury Items

Here is an article about ten watches that are more expensive than a Ferrari.

The one in this picture costs more than $5 million. You can buy 200 of these with your billion.

Medieval Castles

Just for fun, this is Derneburg Castle. Do you remember the big oil-price runup a few years ago that sent the price of a gallon at the pump up towards $5? One speculator who helped make that happen got a huge bonus paid with government bailout money. He owns this castle. He has filled it with rare art. You can’t go in and see any of the rare art.

Click here to see the layout in an aerial view. That’s as close as you're going to get, peasant.

Let's Go Shopping

So you say to yourself, "I want me some of that. I’d like to place the following order, please."

* One Maybach Landaulet for $1 million to drive around in. (Actually to be driven around in.)
* One $100 million yacht for when I want to get seasick.
* One Gulfstream G550 private jet for $40 million.
* One private island for $24.5 million (castle included) for when I want to escape the masses.
* One $8 million estate for when I have to go ashore and mingle with the masses (but not too close.)
* One $5 million watch so I can have one.
* Total: $178.5 million.


My change after paying with a billion-dollar bill is a meager $821.5 million left over. I might be hard up for cash after my spending spree, but I can still stay in a $20,000 room every night for 112 and 1/2 years.

So, as you see, $1 billion is more than enough to really live it up. People today are amassing multiples of billions, paying very little in taxes and using it in ways that harm the rest of us.

How Extreme Is The Concentration?

Now you have a way to visualize just how much money is concentrated at the very top. And the concentration is increasing. The top 1% took in 23.5% of all of the country’s income in 2007. In 1979 they only took in 8.9%.

It is concentrating at the expense of the rest of us. Between 1979 and 2008, the top 5% of American families saw their real incomes increase 73%, according to Census data. Over the same period, the lowest-income fifth (20% of us) saw a decrease in real income of 4.1%. The rest were just stagnant or saw very little increase. This is why people are borrowing more and more, falling further and further behind. (From the Working Group on Extreme Inequality)

Income VS Wealth

There are a few people who make hundreds of millions of income in a single year. Some people make more than $1 billion in a year But that is in a single year. If you make vast sums every year, after a while it starts to add up. (And then there is the story of inherited wealth, passed down and growing for generation after generation...)

Top 1% owns more than 90% of us combined. "In 2007, the latest year for which figures are available from the Federal Reserve Board, the richest 1% of U.S. households owned 33.8% of the nation’s private wealth. That’s more than the combined wealth of the bottom 90 percent." (Also from the Working Group on Extreme Inequality)

400 people have as much wealth as half of our population. The combined net worth of the Forbes 400 wealthiest Americans in 2007: $1.5 trillion. The combined net worth of the poorest 50% of American households: $1.6 trillion.

wealth1

Corporate wealth is also personal wealth. When you hear about corporations doing well, think about this chart:

wealth2

The top 1% also own 50.9% of all stocks, bonds, and mutual fund assets. The top 10% own 90.3%.

Worse Than Egypt

In fact our country's concentration of wealth is worse than Egypt. Richard Eskow writes,

Imagine: A government run by and for the rich and powerful. Leaders who lecture others about "sacrifice" and deficits while cutting taxes for corporations and the wealthy. A system so corrupt that rich executives can break the law without fear of being punished. Increasing poverty and hardship even as the stock market rises. And now, a nation caught between a broken political system and a populist movement that could be hijacked by religious extremists at any moment.

Here's the reality: Income inequality is actually greater in the United States than it is in Egypt. Politicians here have close financial ties to big corporations, both personally and through their campaigns. Corporate lawbreakers often do go unpunished. Poverty and unemployment statistics for US minorities are surprisingly similar to Egypt's.

The Harmful Effect on The Rest Of Us

This concentration is having a harmful effect on the rest of us, and even on the wealthy. When income becomes so concentrated people who would otherwise think they are well off look up the ladder, see vastly more wealth accumulating, and think they are not doing all that well after all. This leads to dissatisfaction and risk-taking, in an effort to get even more. And this risk-taking is what leads to financial collapse.

Aside from the resultant risk of financial collapse, the effect of so much in the hands of so few is also bad psychologically. People need to feel they earned that they have earned what they have, and develop theories about why they have so much when others do not. Bizzare and cruel explanations like Ayn Rand's psychopathic theories about "producers" and "parasites" take hold. Regular people become little more than commodities, blamed for their misery ("personal responsibility") as they become ever poorer.

Teddy Roosevelt, speaking to the educators about "False Standards Resulting From Swollen Fortunes," warned that while teachers believe their ideals to be worth sacrifice and so do non-renumerative work for the good of others, seeing great wealth makes people think that obtaining wealth is itself a lofty ideal,

The chief harm done by men of swollen fortune to the community is not the harm that the demagogue is apt to depict as springing from their actions, but the effect that their success sets up a false standard, and serves as a bad example to the rest of us. If we do not ourselves attach an exaggerated importance to the rich man who is distinguished only by his riches, this rich man would have a most insignificant influence over us.

Societies that are more equal do better. In the book The Spirit Level: Why More Equal Societies Almost Always Do Better, Richard G. Wilkinson and Kate Pickett make the case that great inequality harms us physically as well as spiritually, and the these harmful effects show up across society. The book examines social relations, mental health, drug use, physical health, life expectancy, violence, social mobility and other effects and show how inequality worsens each.

Influence Buying

There is a problem of the effect on our democracy from the influence that extreme, concentrated wealth buys. In the book Winner-Take-All Politics: How Washington Made the Rich Richer--and Turned Its Back on the Middle Class, Jacob Hacker and Paul Pierson make the case that the anti-democracy changes we have seen in America since the late 1970s that led to intense concentration of wealth and income are the intentional result of an organized campaign by the wealthy and businesses to use their wealth to, well, buy even more wealth.

The secretive Koch Brothers are said to have a net worth of $21.5 billion each and are particularly influential. They financed the Tea Party movement and along with big corporations and other billionaires they financed the massive assault of TV ads in the midterm elections that helped change the makeup of the Congress. And now Congress is paying them back,

Nine of the 12 new Republicans on the panel signed a pledge distributed by a Koch-founded advocacy group — Americans for Prosperity — to oppose the Obama administration's proposal to regulate greenhouse gases. Of the six GOP freshman lawmakers on the panel, five benefited from the group's separate advertising and grassroots activity during the 2010 campaign.

... Republicans on the committee have launched an agenda of the sort long backed by the Koch brothers. A top early goal: restricting the reach of the Environmental Protection Agency, which oversees the Kochs' core energy businesses.

We Must Address This

We owe it to ourselves to come to grips with this problem. We owe it to democracy to begin taxing high incomes and inheritance again. We owe it to future generations to use a temporary wealth tax to pay off the debt.

The Working Group on Extreme Inequality explains why inequality matters in many more ways, and is well worth clicking through to study. They also have a page of resources for study with links to other organizations. Also, spend some time at Too Much, A commentary on excess and inequality because it is "Dedicated to the notion that our world would be considerably more caring, prosperous, and democratic if we narrowed the vast gap that divides our wealthy from everyone else." The Center on Budget and Policy Priorities has a Poverty and Income area of research with good resources. The Center for Economic and Policy Research has a research section on Inequality and Poverty.

[JackRiddler]

.

From http://www.nytimes.com/2011/02/13/opini ... nted=print

February 12, 2011

At Last, Bernie Madoff Gives Back

By FRANK RICH

WHEN Bernie Madoff was arrested in December 2008, America feasted vicariously on a cautionary tale of greed run amok. But like Rod Blagojevich, the stunt governor of Illinois who had been arrested days earlier, Madoff was something of a sideshow to that dark month’s main events. For a nation reeling from an often incomprehensible economic tsunami and unable to identify the culprits, he was, for the moment, the right made-to-order villain at the right time.

But Madoff was a second-tier player. Some in the upper echelons of New York’s financial world, including in the business press, had never heard of him. His firm’s accountant operated out of a strip mall and didn’t bother with electronic statements. The billions that vaporized in Madoff’s Ponzi scheme amounted to a rounding error next to the eye-popping federal bailouts, including those pouring into too-big-to-fail banks wrecked by their own Ponzi schemes of securitization. The suffering he inflicted on his mostly well-heeled dupes was piddling next to the national devastation of an economy in free fall. In a December when a half-million Americans lost their jobs — a calamitous rate not seen since 1974 — the video of a voiceless, combative Madoff in a baseball cap, skirmishing with photographers outside his Upper East Side apartment house, soon lost its punch.

A month later Barack Obama would be inaugurated and declare “a new era of responsibility.” Now, another two years have passed, and while the economy is no longer in free fall, we’re still waiting for that era to arrive. What’s extraordinary is that Madoff, unlike such tarnished titans of the bubble as Rubin or Fuld or Prince, is very much at center stage, even as he rots in prison. Perhaps that’s because he’s the only headline figure of the crash who did go to prison.

His evil deeds, in their afterlife, are now serving as a recurring wave of financial body scans. Each new Madoff revelation sheds light on an entire culture that allowed far loftier flimflams than his to succeed — though the loftier culprits, unlike him, usually escaped with the proceeds. That financial culture largely remains in place today.

The prime mover in connecting Madoff’s low-tech, relatively low-yield scam to the big Wall Street picture is Irving H. Picard, the bankruptcy trustee pursuing loss claims for Madoff’s victims. Most Americans haven’t heard of Picard. But each day that he accelerates his pursuit of Madoff’s collaborators, he steps further into the vacuum of leadership left by others, including the Obama administration’s Department of Justice.

Picard has also upstaged the Financial Crisis Inquiry Commission that is set to officially close its doors today. The hope had been that the commission, convened by Congress, would be what Ferdinand Pecora’s Senate inquisition of 1933 was to the Great Crash — a no-holds-barred dispensation of blame to tycoons who looted the Wall Street casino and then let ordinary Americans pay the consequences. Pecora’s cross-examination of Charles Mitchell, the chairman of National City Bank (the ancestor of Citigroup), caused a national sensation. But in its final report, our own Great Recession’s commission essentially found everyone guilty, thereby letting individual miscreants off the hook.

And so Madoff remains the only felon of the whole affair that Americans can identify by name. By taking this single card he’s been dealt and exploiting Madoff’s trail of crime to the max, Picard may yet prove the Pecora we’ve been waiting for.

He is pursuing hundreds of lawsuits to retrieve fictitious “profits” from the lucky coterie of Madoff investors who cashed out before his arrest. Now Picard has raised the stakes with two suits that reach deep into American institutions — the New York Mets, whose principal owners, the Wilpon family, seemed to constitute a Madoff financial farm team, and JPMorgan Chase, the main Madoff banker.

As a long-suffering Mets fan, I’ll leave the Wilpons to the Yankee vigilantes. JPMorgan is a more consequential target in any case — the sole big bank that survived the economic crisis with its balance sheet, image and chief executive, Jamie Dimon, more or less unscathed. Dimon, as a Times Magazine cover put it in December, is “America’s Least-Hated Banker,” an unpretentious guy (and lifelong Democrat) whose self-professed mantra is “do the right thing.”

Picard’s litigation asserts that JPMorgan saw red flags about Madoff’s legitimacy yet never bothered to notify either the authorities or its own Madoff-invested customers as long as there was money the bank could scoop off the craps table. In one internal JPMorgan e-mail cited in the lawsuit — dated June 2007, some 18 months before Madoff’s arrest — a Chase investment officer told colleagues that he had heard of “a well-known cloud” over Madoff, including speculation that he was “part of a Ponzi scheme.” And yet, according to Picard’s brief, Madoff could freely cycle billions of dollars of his clients’ money through Chase accounts until the end — even as the bank itself was busily dumping $241 million of its $276 million in Madoff investments.

Late last month, in the days before the Picard suit was unsealed, Dimon appeared on a panel at the World Economic Forum in Davos, Switzerland, titled “The Next Shock, Are We Better Prepared?” and complained not for the first time — or the 10th — about what he considers unfair treatment by the press and the Obama administration. He’s just sick, he said, of the “constant refrain” of “bankers, bankers, bankers.” His arrogance compelled even the French president, Nicolas Sarkozy, no socialist, to speak up and chastise American banks for repeatedly defying “simple common sense” over the last decade. “The world has paid with tens of millions of unemployed, who were in no way to blame and who paid for everything,” Sarkozy said. “Too much is too much.”

Indeed. As if the Picard charges about the Madoff-JPMorgan nexus weren’t enough, last week a Dimon underling had to publicly apologize before Congress to military families for the bank’s financial abuse of Americans fighting in Iraq and Afghanistan over the same period. In violation of the Servicemembers Civil Relief Act, designed to protect those serving overseas during their absences from home, JPMorgan overcharged at least 4,500 soldiers on their mortgages and illegally foreclosed on 18 of them. Many of these victims have been battling JPMorgan for years to get it to obey the law. Let us not forget that this is the one big bank that was considered Wall Street’s model citizen.

As for the question posed to Dimon’s Davos panel, the answer is No, for the most part, we’re not better prepared for the next shock. It’s not even clear we want to be prepared. The Financial Crisis Inquiry Commission was ridiculously under-supported by Congress — it had less than one-sixth the budget of the musical “Spider-Man” to shed light on years of opaque financial maneuvers by huge, lawyered-up institutions. Even its worthy final report’s release was drowned out, as bad luck would have it, by the uprising in Egypt. Now the new conservative attack dog of the House, Darrell Issa, is gearing up an inquiry of the financial crisis inquiry. His only conceivable purpose is to ward off any future attempts to pursue the still unanswered questions about the meltdown.

The commission’s report, full of fascinating detail, received mixed reviews. One critic, Yves Smith, of the financial blog Naked Capitalism, chastised it for not digging into how the financial industry profited obscenely (and in her view, fraudulently) by deliberately creating “toxic instruments” like subprime-mortgage-backed securities just to bet against them. Michael Lewis, author of “The Big Short,” was far more favorable about the report but scarcely less fatalistic. “I feel like we’re living in a house built on sand because we didn’t reform the system,” he said on MSNBC’s “Morning Joe.” Noting that banks have returned to huge profits while helping themselves to zero interest loans, Lewis concluded that we still have “socialism for capitalists, and capitalism for everybody else.”

But it’s not just financial reform that has fallen short. We still don’t have cops to catch those who break the law. Which brings us back full circle to Madoff. Not the least of his cautionary tale’s subplots was the one starring Harry Markopolos, a private financial investigator and whistle-blower who repeatedly contacted the Securities and Exchange Commission for nearly a decade with evidence of Madoff’s fraud — only to be ignored.

Markopolos was lionized on “60 Minutes” and published a book, “No One Would Listen,” dramatizing his lonely crusade. And where is the S.E.C. today? Caught in the federal budget freeze — and bracing for further cuts by the antigovernment, antiregulatory Republican House — the agency can’t hire the employees needed to enforce existing security laws, let alone new ones created by the Dodd-Frank financial overhaul. It must use archaic technology to chase high-tech trading systems that operate “at the speed of light,” as Mary Schapiro, the S.E.C. chairwoman, put it. The agency’s new whistle-blower office — created precisely to welcome informants like Markopolos — has been put on hold.

Determined as Picard, our accidental Pecora, may be, the fact remains that the time couldn’t be riper for the next Madoff, whether in a strip mall or in the elite gambling dens of Wall Street, to get in the game.

...........................

From http://dealbook.nytimes.com/2011/02/15/ ... mode=print

February 15, 2011, 9:43 pm
Madoff Says Banks ‘Had to Know’ of Fraud
By DEALBOOK
United States Marshall Service, via ReutersA booking photograph of Bernard L. Madoff, who pleaded guilty to fraud in March 2009.

Bernard L. Madoff said he never thought the collapse of his enormous Ponzi scheme would cause the sort of destruction that has befallen his family, Diana B. Henriques reports in The New York Times.

In his first interview for publication since his arrest in December 2008, Mr. Madoff — looking noticeably thinner and rumpled in khaki prison garb — maintained that family members knew nothing about his crimes.

But during a private two-hour interview in a visitor room at the Federal Correctional Complex in Butner, N.C., on Tuesday, and in earlier e-mail exchanges, he asserted that unidentified banks and hedge funds were somehow “complicit” in his elaborate fraud, an about-face from earlier claims that he was the only person involved in the fraud.

Mr. Madoff, who is serving a 150-year sentence, seemed frail and a bit agitated compared with the stoic calm he maintained before his incarceration in 2009, perhaps burdened by sadness over the suicide of his son Mark in December. In many ways, however, he is unchanged. He spoke with great intensity and fluency about his dealings with various banks and hedge funds.

In asserting the complicity of others, Mr. Madoff pointed to the “willful blindness” of many banks and hedge funds who dealt with his investment advisory business and their failure to examine discrepancies between his regulatory filings and other information available to them.

“They had to know,” Mr. Madoff said. “But the attitude was sort of, ‘If you’re doing something wrong, we don’t want to know.’ ”


Copyright 2011 The New York Times Company

Surely he can do better than that.

.

[vanlose kid]

these bloodsuckers are sick.

In The Wall Street Journal Guide to Investing in the Apocalypse, authors James Altucher and Douglas R. Sease provide investors with provocative and essential guidance that will enable them to take advantage of the lucrative investment opportunities that inevitably will arise when disaster strikes. The only book of its kind currently on the market, this indispensible handbook will help savvy investors make money by seeing opportunity where others see only peril.

Disasters happen every day.
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The investor who knows how to anticipate historically significant or earth-shattering events—who is prepared to act when others are frozen with fear—will always have a substantial advantage. By closely analyzing potential global threats and the opportunities they present, The Wall Street Journal Guide to Investing in the Apocalypse offers investors the key to finding a silver lining in almost any cataclysm. Even if the catastrophic does not occur, the strategies here can pay huge dividends even under more mundane circumstances.

The Wall Street Journal Guide to Investing in the Apocalypse provides readers with valuable information for investment success: the ability to see opportunity where others see peril. Whether a global disaster is natural or man-made, environmental or financial, every fearsome scenario contains the seeds of profit for the investor who stays calm and thinks rather than panics and runs.

http://www.harpercollins.com/browseinsi ... 0062001320

*

[2012 Countdown]

Special report: China flexed its muscles using U.S. Treasuries
By Emily Flitter
NEW YORK | Thu Feb 17, 2011 12:00pm EST




(Reuters) - Confidential diplomatic cables from the U.S. embassies in Beijing and Hong Kong lay bare China's growing influence as America's largest creditor.

As the U.S. Federal Reserve grappled with the aftershocks of financial crisis, the Chinese, like many others, suffered huge losses from their investments in American financial firms -- from Lehman Brothers to the Primary Reserve Fund, the money market fund that broke the buck.

The cables, obtained by WikiLeaks, show that escalating Chinese pressure prompted a procession of soothing visits from the U.S.Treasury Department. In one striking instance, a top Chinese money manager directly asked U.S. Treasury Secretary Timothy Geithner for a favor.

In June, 2009, the head of China's powerful sovereign wealth fund met with Geithner and requested that he lean on regulators at the U.S. Federal Reserve to speed up the approval of its $1.2 billion investment in Morgan Stanley, according to the cables, which were provided to Reuters by a third party.

Although the cables do not mention if Geithner took any action, China's deal to buy Morgan Stanley shares was announced the very next day.

The two Treasury officials to whom the cables were addressed, Deputy Assistant Secretary for Asia Robert Dohner and Deputy Assistant Secretary for International Monetary and Financial Policy Mark Sobel, declined through a spokesperson to comment for this story. The State Department also declined to comment.

China is America's biggest foreign lender, playing a crucial role in the U.S.Treasury auctions that allow Washington to borrow what it needs to keep its government running. At the same time, the United States is China's top export destination: America's trade deficit with the nation reached a record $273.1 billion in 2010. Most economists describe the two economies as co-dependent.

The concern in certain influential Washington and Wall Street circles is that Beijing would leverage its position as the main enabler of U.S. overspending. And the cables provide a glimpse into how much politics inform relations between the world's two largest economies.

One cable cites Chinese money managers expressing concern that U.S. arms sales to Taiwan -- a major, longstanding irritant in the relationship -- could sour the Chinese public on Treasury purchases.

The subject of Taiwan came up during an October 9, 2008 meeting the U.S. financial attache's office had with Liu Jiahua, Deputy Director General of China's foreign currency reserve manager, the secretive behemoth known as the State Administration for Foreign Exchange, or SAFE.

"Liu observed that the recent U.S. announcement of another arms sale to Taiwan made it more difficult for the Chinese government to explain its policies supportive of the U.S. to the Chinese public," reads an account of his comments in one of the cables.

The cables also indicate a high level of confidence among the Americans that China can't entirely stop buying U.S. debt, a sentiment shared by most economists who describe the dynamic as a form of mutually assured financial destruction.

But the cables do show that China can and will pull back, with financial repercussions. In the spring of 2009, with U.S.-China financial tensions running especially high, China's Treasury holdings fell to around $764 billion, down from nearly $900 billion. In July, after tensions between the two nations mostly subsided, its holdings rose to a record $940 billion.

During the financial turmoil, the cables show that Beijing also shifted its portfolio away from longer-term Treasury notes, which helped drive up America's long-term borrowing costs.


NOT TOO BIG TO FAIL


FULL-
http://www.reuters.com/article/2011/02/ ... geNumber=1

[JackRiddler]

these bloodsuckers are sick.

[The Wall Street Journal Guide to Investing in the Apocalypse, authors James Altucher and Douglas R. Sease]

Oh they are sick. Their PR is also fake, pretending they're first with a blueprint that's actually a moneybags' cliche. ("When there's blood in the streets - buy!") What makes Naomi Klein write The Shock Doctrine, and these charming little fellas write The Shock Doctrine: A How To Guide?

[seemslikeadream]

China Flexes Muscles With US As Biggest Creditor: WikiLeaks
Published: Thursday, 17 Feb 2011 | 11:49 AM ET
By: Reuters

Confidential diplomatic cables from the U.S. embassies in Beijing and Hong Kong lay bare China's growing influence as America's largest creditor.

As the U.S. Federal Reserve grappled with the aftershocks of financial crisis, the Chinese, like many others, suffered huge losses from their investments in American financial firms — from Lehman Brothers to the Primary Reserve Fund, the money market fund that broke the buck.


The cables, obtained by WikiLeaks, show that escalating Chinese pressure prompted a procession of soothing visits from the U.S. Treasury Department.

In one striking instance, a top Chinese money manager directly asked U.S. Treasury Secretary Timothy Geithner for a favor.

In June, 2009, the head of China's powerful sovereign wealth fund met with Geithner and requested that he lean on regulators at the U.S. Federal Reserve to speed up the approval of its $1.2 billion investment in Morgan Stanley [MS 30.88 0.19 (+0.62%) ], according to the cables, which were provided to Reuters by a third party.

Although the cables do not mention if Geithner took any action, China's deal to buy Morgan Stanley shares was announced the very next day.

The two Treasury officials to whom the cables were addressed, Deputy Assistant Secretary for Asia Robert Dohner and Deputy Assistant Secretary for International Monetary and Financial Policy Mark Sobel, declined through a spokesperson to comment for this story.

The State Department also declined to comment.

China is America's biggest foreign lender, playing a crucial role in the U.S. Treasury auctions that allow Washington to borrow what it needs to keep its government running. At the same time, the United States is China's top export destination: America's trade deficit with the nation reached a record $273.1 billion in 2010.

Most economists describe the two economies as co-dependent.

The concern in certain influential Washington and Wall Street circles is that Beijing would leverage its position as the main enabler of U.S. overspending. And the cables provide a glimpse into how much politics inform relations between the world's two largest economies.

One cable cites Chinese money managers expressing concern that U.S. arms sales to Taiwan — a major, longstanding irritant in the relationship — could sour the Chinese public on Treasury purchases.


"SAFE is very concerned over the danger involved in lending U.S. Treasuries to U.S. financial institutions in the repurchase agreement market.”

Liu Jiahua
Deputy Director, China's State Administration for Foreign Exchange
The subject of Taiwan came up during an Oct. 9, 2008 meeting the U.S. financial attache's office had with Liu Jiahua, Deputy Director General of China's foreign currency reserve manager, the secretive behemoth known as the State Administration for Foreign Exchange, or SAFE.

"Liu observed that the recent U.S. announcement of another arms sale to Taiwan made it more difficult for the Chinese government to explain its policies supportive of the U.S. to the Chinese public," reads an account of his comments in one of the cables.

The cables also indicate a high level of confidence among the Americans that China can't entirely stop buying U.S. debt, a sentiment shared by most economists who describe the dynamic as a form of mutually assured financial destruction. But the cables do show that China can and will pull back, with financial repercussions.

In the spring of 2009, with U.S.-China financial tensions running especially high, China's Treasury holdings fell to around $764 billion, down from nearly $900 billion. In July, after tensions between the two nations mostly subsided, its holdings rose to a record $940 billion.

During the financial turmoil, the cables show that Beijing also shifted its portfolio away from longer-term Treasury notes, which helped drive up America's long-term borrowing costs.

The collapse of Lehman had a swift and powerful impact on SAFE.

"Several interlocutors have told us that Lehman was a counterparty to SAFE in financial transactions and as a result SAFE suffered large losses when Lehman collapsed," Deputy Chief of Mission at the U.S. Embassy in Beijing Dan Piccuta wrote in a cable to Washington on March 20, 2009.

The hit to its balance sheet is likely what prompted a Chinese official to tell a U.S. diplomat months earlier that SAFE was afraid to re-enter the U.S. repo market — that is, it was reluctant to resume lending its short-term Treasuries to counterparties wanting to use them as collateral in cash loans.

On Oct. 9, 2008, officials from the U.S. embassy's office of the financial attache in Beijing met with SAFE Deputy Director General Liu Jiahua.

"SAFE is very concerned over the danger involved in lending U.S. Treasuries to U.S. financial institutions in the repurchase agreement market," Liu said.

Liu said SAFE's confidence in U.S. banks had been shaken.

SAFE had exited the repo market, which is a way for corporations and financial institutions to borrow overnight.

The cable continues, "Liu remained noncommittal on the possible resumption of lending, but agreed that SAFE had sufficient confidence in those institutions and would consider a system whereby the Federal Reserve or other U.S. government agency would act as a guarantor." Public opinion clearly rattled China's financial leaders.

One cable shows Liu citing an internet discussion forum, saying "the Chinese leadership must pay close attention to public opinion in forming policies." The U.S. government does not appear to have offered the Chinese a special setup guaranteeing U.S. banks.

Instead, the cables show, American diplomats reassured the Chinese by pointing out that Washington had infused banks' balance sheets with $700 billion in fresh capital, effectively propping up the banking system.

China holds hundreds of billions of dollars in debt issued by Fannie Mae and Freddie Mac, the housing agencies known as Government Sponsored Entities, or GSEs.

Like many other investors, it purchased agency debt before the crisis with the expectation that Fannie and Freddie were implicitly backed by the U.S. government.

In Sept. 2008, when the Treasury Department took control of the two GSEs, SAFE officials grew alarmed, the cables show.


CNBC
Suggestions that senior GSE debt holders would have to take a haircut sparked a public outcry in China. The media warned that the government's currency manager faced monstrous losses similar to those suffered earlier by the nation's sovereign wealth fund, China Investment, after its investments in U.S. financial institutions blew up.

Media outlets had already heavily criticized the government for CIC's losses — a Financial Times story circulated by outlets such as China Daily speculated that CIC had lost $80 billion of the government's foreign reserves. In late 2008 Chinese newspapers routinely ran headlines with the words "Fannie Mae" and "Freddie Mac" spelled out in English.

To defuse the situation, the Treasury Department sent Undersecretary for International Affairs David McCormick to Beijing for two days in October 2008. The gesture went over well.

"All of Undersecretary McCormick's counterparts appeared to appreciate his willingness to come to Beijing in the midst of a financial crisis," Piccuta wrote in a cable dated Oct. 29, 2008. "Interlocutors stressed that unless leaders' concerns about the viability of banks and U.S. government-sponsored enterprises (GSEs) are assuaged, lower-level officials will be constrained from taking on greater counter-party risks."

The cables show McCormick trying to reassure the Chinese.

"In each meeting, Undersecretary McCormick emphasized that even though the U.S. government did not explicitly guarantee GSE debt, it effectively did so by committing to inject up to $100 billion of equity in each institution to avoid insolvency and that this contractual commitment would remain for the life of these institutions," Piccuta wrote.

Pacific Rift

The U.S. Federal Reserve announced a program to buy agency mortgage-backed securities and Treasuries in early 2009 to help flood the financial system with liquidity and stop Treasury yields from rising. But at first the purchases had very little impact on yields, which climbed steadily while the Treasury Department's auctions of new debt wobbled.

In China, top officials began publicly criticizing the inflationary side-effects of the Fed's program. They said the expansion of the Fed's balance sheet would devalue their Treasury holdings — and indeed, the Chinese public watched as Treasury yields rose and the older debt the Chinese had sank in value.

On March 13, 2009, Chinese Premier Wen Jiabao said at a press conference he was "concerned" about the security of China's investments in U.S. Treasuries. The March 20 cable, titled "Premier Wen's comments on U.S. Treasuries: Protect China's investments," documents a score of Chinese officials discussing their worries about U.S. Treasuries and the potential consequences of their uncertainty.

One economist at Caijing Magazine, which diplomats described as a "respected" Chinese outlet, told U.S. officials in late February "there has been a 'huge debate' within the government about China's holdings of U.S. Treasuries."

According to the cable, the Chinese economist told U.S. embassy officials that "SAFE has been shifting its portfolio toward shorter-term assets to reduce the risk of capital losses from higher inflation."

That information dovetailed with data, released many months later, showing the Chinese had indeed sold longer-dated Treasuries and bought more T-bills, which surged to $210 billion by May 2009. The move likely contributed to the rise in long-term yields.

Geithner in Beijing

Tensions remained high during Geithner's visit to China — his first as Treasury Secretary — on June 1 and 2, 2009.

Geithner, who has lived in China and other parts of Asia and holds a master's in East Asian studies, met with top Chinese officials, including the head of CIC, China's $200 billion sovereign wealth fund, and the ministers of finance and commerce.


RELATED LINKS
China Downplays Surge in Illegal Foreign InvestmentChina's Inflation Fight Turns to Stronger Yuan: StrategistsFannie and Freddie Finally on the BlockChinese Analyst: Sell Fannie & FreddieWiki Cable: China Used 'Hostile' Audit to Scour Citi BooksGovernment and Economy Top News
The trip had been scheduled for months with a predictable agenda, but the meetings were full of spontaneous discussion and frank complaints from the Chinese, the cables reveal.

Xie Xuren, China's minister of finance, met with Geithner on June 1 and "expressed concern about the potential for inflation and the long-term sustainability of U.S. budget deficits," according to a cable detailing Geithner's visit, dated June 17, 2009.

The next day, June 2, CIC Chairman Lou Jiwei confided in Geithner that his fund had halted all new investments in 2008 after the financial crisis broke out, but had since scoped out a new stake in Morgan Stanley, the U.S. investment bank.

At the time of Geithner's visit, Morgan Stanley was planning a new share issue to raise funds to repay the government for the money it received during the financial crisis.

"Lou asked if it would be possible for the Fed to expedite approval of CIC's request that this investment be exempted from restrictions on investment by bank holding companies, as the customary two-week process for considering such exemption requests is too long to allow CIC to take advantage of this opportunity," according to the cable.

There's no record in the cable of how Geithner responded, but it was only a day later, on June 3, that CIC announced plans to purchase $1.2 billion in Morgan Stanley shares.

A spokesperson for the Fed said in the instance of the June 3 CIC investment, no application for an exemption was made to the Federal Reserve Board.

[Nordic]

http://www.stansberryresearch.com/pro/1 ... 424&r=Milo

I can't embed this, but this is a longish video going into detail as to how the monetary collapse of the United States is inevitable, and already happening. I'm about halfway through it now.

Seems to make perfect sense thus far ....

The U.S. is undeniably bankrupt.

[JackRiddler]

Who's going to be foreclosing on the US? In this case, bankruptcy happens when the creditors say so, not before. Furthermore, they've come up with a pretty obvious way to eliminate about 20 to 25 percent of US debt, which is to cancel y'all's pensions (the Social Security trust fund), which may actually please many of the private creditors.

.