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

[freemason9]

And the Fed's reponse is......nothing!

What would you do?

Massive public spending on infrastructure, WPA-style. Put the unemployed back to work. Reinstate Glass-Steagall. For starters.

trouble with this, from a female point of view, is that infrastructure 'make work projects' really only employ males. Which is better than nothing, I guess, but it drastically shifts micro economies and balances of power.

No, this isn't true. Construction projects require a good deal of planning, logistical coordination, purchasing, project management, etc. Plus, women are increasingly involved in the traditional "blue collar" jobs of construction. Infrastructure development would encompass a good deal of job creation across genders.

[eyeno]

And the Fed's reponse is......nothing!

What would you do?

Massive public spending on infrastructure, WPA-style. Put the unemployed back to work. Reinstate Glass-Steagall. For starters.

trouble with this, from a female point of view, is that infrastructure 'make work projects' really only employ males. Which is better than nothing, I guess, but it drastically shifts micro economies and balances of power.

No, this isn't true. Construction projects require a good deal of planning, logistical coordination, purchasing, project management, etc. Plus, women are increasingly involved in the traditional "blue collar" jobs of construction. Infrastructure development would encompass a good deal of job creation across genders.

I agree the celery in the salad sucks. but your point is???

[Stephen Morgan]

No-one's got any ideas as to what the Fed could do to improve matters, then? Pity they're not a massive all-consuming conspiracy, then they could fix things.

[justdrew]

what could the Fed do?

I'll tell you...

Open up their discount window for the rest of us. Allow people to go to them to refinance their mortgages, credit and other debt, ie offer a debt consolidation service to human Americans at these low low rates. Each person could get one non-collateralized consolidation loan, and handle sending the checks out to the creditors too. It could all be handled with a relatively simple web-app. Repayment can be differed if unemployed, though tax rebates go to payoff the loan if there are any, and otherwise, reasonable monthly payments can be arranged.

This would massivly spke the economy, as people would get credit cards and max them out, etc before they get their one time "bailout" consolidation loans.

[Elihu]

What would you do?

http://professorfekete.com/articles%5CA ... siness.pdf

"after all, crimes aren't "how done its" they are "who dunnits?"
-Jeff Wells

declare independence?

[Bruce Dazzling]

what could the Fed do?

I'll tell you...

Open up their discount window for the rest of us. Allow people to go to them to refinance their mortgages, credit and other debt, ie offer a debt consolidation service to human Americans at these low low rates. Each person could get one non-collateralized consolidation loan, and handle sending the checks out to the creditors too. It could all be handled with a relatively simple web-app. Repayment can be differed if unemployed, though tax rebates go to payoff the loan if there are any, and otherwise, reasonable monthly payments can be arranged.

This would massivly spke the economy, as people would get credit cards and max them out, etc before they get their one time "bailout" consolidation loans.

[Elihu]

'll tell you...

Open up their discount window for the rest of us. Allow people to go to them to...

there's a reason this doesn't and won't happen:

http://thedailybell.com/1410/Who-Needs-Banks.html

from the article: "If banks did not exist, then it would be seen that central banks could just as easily distribute "money" directly to people from some central location like a post office. But if central banks did so, receivers would immediately understand the fraud that lies at the heart of modern banking – that there is no real money, only printed paper and electronic digits. For this reason, banks provide the necessary curtain behind which OZ resides.

The other reason for modern banking is to control the money-stuff. The privilege of printing money is an awesome one – literally a God-like power. It must be managed very carefully so people do not see too deeply into the process. Thus, printed money is distributed through various elaborate mechanisms, but mostly through dissemination to chosen "money center" banks. These banks, in turn, determine who gets the privilege of borrowing for various endeavors. The money trickles out, and sometimes (as today) it moves most sluggishly indeed.

It is a well-thought-out and rigorously controlled process. The promotion surrounding the process, as we have written, is quasi-religious. As with all such processes, there are vestments (gray suits), ceremonies (wherein the money-priests meet deep in the heart of the banking temple) and public announcements of what has been decided (proclamations by the major media). Occasionally, the chief central banker himself opines on economic circumstances – usually within the ambit of a carefully controlled public ceremony.

It is also noteworthy that much of the process of central banking has to do with divining the future (impossible of course). But this is an important part of the ritual. Only seers and prophets can foresee what the future holds, and central bankers especially are granted this gift by those around them.

One could go on and on about the religious parallels but you, dear reader, have probably figured them out already. "

[seemslikeadream]

Was S&P Downgrade a Preemptive Strike Against Prosecution?

[freemason9]

I agree the celery in the salad sucks. but your point is???

My point is that infrastructure spending on needed projects is a perfect investment and creates good jobs.

I think. That celery messed with me badly.

[eyeno]

My point is that infrastructure spending on needed projects is a perfect investment and creates good jobs.

I'm down with that.

but back away from the celery. that shit is evil...

I can always tell when you have been eating it. It makes you kind of giddy...

[2012 Countdown]

The S&P Downgrade and the Bilderbergers: All Part of the Plan?

by Ellen Brown

What just happened in the stock market?

Last week, the Dow Jones Industrial Average rose or fell by at least 400 points for four straight days, a stock market first.

The worst drop was on Monday, 8-8-11, when the Dow plunged 624 points. Monday was the first day of trading after US Treasury bonds were downgraded from AAA to AA+ by Standard and Poor’s.

But the roller coaster actually began on Tuesday, 8-2-11, the day after the last-minute deal to raise the U.S. debt ceiling -- a deal that was supposed to avoid the downgrade that happened anyway five days later. The Dow changed directions for eight consecutive trading sessions after that, another first.

The volatility was unprecedented, leaving analysts at a loss to explain it. High frequency program trading no doubt added to the wild swings, but why the daily reversals? Why didn’t the market head down and just keep going, as it did in September 2008?

The plunge on 8-8-11 was the worst since 2008 and the sixth largest stock market crash ever. According to Der Spiegel, one of the most widely read periodicals in Europe:

Many economists have been pointing out that last week's panic resembled the fear that swept financial markets after the collapse of US investment bank Lehman Brothers in September 2008.

Then as now, banks stopped lending each other money. Then as now, banks' cash deposits at the central bank doubled within days.

But on Tuesday, August 9, the market gained more points from its low than it lost on Monday. Why? A tug of war seemed to be going on between two titanic forces, one bent on crashing the market, the other on propping it up.

The Dubious S&P Downgrade

Many commentators questioned the validity of the downgrade that threatened to be another Lehman Brothers. Dean Baker, co-director of the Center for Economic and Policy Research, said in a statement:

"The Treasury Department revealed that S&P’s decision was initially based on a $2 trillion error in accounting. However, even after this enormous error was corrected, S&P went ahead with the downgrade. This suggests that S&P had made the decision to downgrade independent of the evidence. [Emphasis added.]

Paul Krugman, writing in the New York Times, was also skeptical, stating:

[E]verything I’ve heard about S&P’s demands suggests that it’s talking nonsense about the US fiscal situation. The agency has suggested that the downgrade depended on the size of agreed deficit reduction over the next decade, with $4 trillion apparently the magic number. Yet US solvency depends hardly at all on what happens in the near or even medium term: an extra trillion in debt adds only a fraction of a percent of GDP to future interest costs . . . .

In short, S&P is just making stuff up — and after the mortgage debacle, they really don’t have that right.

In an illuminating expose posted on Firedoglake on August 5, Jane Hamsher concluded:

It’s becoming more and more obvious that Standard and Poor’s has a political agenda riding on the notion that the US is at risk of default on its debt based on some arbitrary limit to the debt-to-GDP ratio. There is no sound basis for that limit, or for S&P’s insistence on at least a $4 trillion down payment on debt reduction, any more than there is for the crackpot notion that a non-crazy US can be forced to default on its debt. . . .

It’s time the media and Congress started asking Standard and Poors what their political agenda is and whom it serves.

Who Drove the S&P Agenda?

Jason Schwarz shed light on this question in an article on Seeking Alpha titled “The Rise of Financial Terrorism”. He wrote:

[A]fter the market close on Friday August 5th, we received word that S&P CEO Deven Sharma had taken control of the ratings agency and personally led the push for a U.S. downgrade. There is a lot of evidence that he has deliberately tried to trash the U.S. economy. Even after discovering that the S&P debt calculations were off by $2 trillion, Sharma made the decision to go ahead with the unethical downgrade. This is a guy who was a key contributor at the 2009 Bilderberg Summit that organized 120 of the world's richest men and women to push for an end to the dollar as the global reserve currency.

[T]hrough his writings on “competitive strategy” S&P CEO Sharma considers the United States the PROBLEM in today’s world, operating with what he implies is an unfair and reckless advantage. The brutal reality is that for "globalization" to succeed the United States must be torn asunder . . .

Also named by Schwarz as a suspect in the market manipulations was Michel Barnier, head of European Regulation. Barnier triggered an alarming 513-point drop in the Dow on August 4, when he blocked the plan of Hans Hoogervorst, newly appointed Chairman of the International Accounting Standards Board, to save Europe by adopting a new rule called IFRS 9. The rule would have eliminated mark-to-market accounting of sovereign debt from European bank balance sheets. Schwarz writes:

We all should be experts on the dangers of mark-to-market accounting after observing the U.S. banking crisis of 2008/2009 and the Great Depression in the 1930s. Mark-to-market was repealed at 8:45 a.m on April 2, 2009, which finally put a stop to the short term liquidity crisis and at the same time ushered in a stock market recovery. Banks no longer had to raise capital as long term stability was brought back to the system. The exact same scenario would have happened in 2011 Europe under Hoogervorst's plan. Without the threat of failure by those banks who hold high amounts of euro sovereign debt, investors would be free to move on from the European crisis and the stock market could resume its fundamental course.

Schwarz notes that Barnier, like Sharma, was a confirmed attendee at past Bilderberger conferences. What, then, is the agenda of the Bilderbergers?

The One World Company

Daniel Estulin, noted expert on the Bilderbergers, describes that secretive globalist group as “a medium of bringing together financial institutions which are the world’s most powerful and most predatory financial interests.” Writing in June 2011, he said:

Bilderberg isn’t a secret society. . . . It’s a meeting of people who represent a certain ideology. . . . Not OWG [One World Government] or NWO [New World Order] as too many people mistakenly believe. Rather, the ideology is of a ONE WORLD COMPANY LIMITED.

It seems the Bilderbergers are less interested in governing the world than in owning the world. The “world company” was a term first used at a Bilderberger meeting in Canada in 1968 by George Ball, U.S. Undersecretary of State for Economic Affairs and a managing director of banking giants Lehman Brothers and Kuhn Loeb. The world company was to be a new form of colonialism, in which global assets would be acquired by economic rather than military coercion. The company would extend across national boundaries, aggressively engaging in mergers and acquisitions until the assets of the world were subsumed under one privately-owned corporation, with nation-states subservient to a private international central banking system.

Estulin continues:

The idea behind each and every Bilderberg meeting is to create what they themselves call THE ARISTOCRACY OF PURPOSE between European and North American elites on the best way to manage the planet. In other words, the creation of a global network of giant cartels, more powerful than any nation on Earth, destined to control the necessities of life of the rest of humanity.

. . . This explains what George Ball . . . said back in 1968, at a Bilderberg meeting in Canada: “Where does one find a legitimate base for the power of corporate management to make decisions that can profoundly affect the economic life of nations to whose governments they have only limited responsibility?”

That base of power was found in the private global banking system. Estulin goes on:

The problem with today’s system is that the world is run by monetary systems, not by national credit systems. . . . [Y]ou don’t want a monetary system to run the world. You want sovereign nation-states to have their own credit systems, which is the system of their currency. . . . [T]he possibility of productive, non-inflationary credit creation by the state, which is firmly stated in the US Constitution, was excluded by Maastricht [the Treaty of the European Union] as a method of determining economic and financial policy.

The world company acquires assets by preventing governments from issuing their own currencies and credit. Money is created instead by banks as loans at interest. The debts inexorably grow, since more is always owed back than was created in the original loans. (For more on this, see here.) If currencies are not allowed to expand to meet increased costs and growth, the inevitable result is a wave of bankruptcies, foreclosures, and sales of assets at firesale prices. Sales to whom? To the “world company.”

Battle of the Titans

If that was the plan behind the market assaults on August 4 and August 8, however, it evidently failed. What turned the market around, according to Der Spiegel, was the European Central Bank, which saved the day by embarking on a program of buying Spanish and Italian bonds. Sidestepping the Maastricht Treaty, the ECB said it would engage in the equivalent of “quantitative easing,” purchasing bonds with money created with accounting entries on its books. It had done this earlier with Greek and Irish sovereign debt but had resisted doing it with Spanish and Italian bonds, which were much larger obligations. On Tuesday, August 16, the ECB announced that it was engaging in a record $32 billion bond-buying spree in an attempt to appease the markets and save the Eurozone from collapse.

Federal Reserve Chairman Ben Bernanke was also expected to come through with another round of quantitative easing, but his speech on August 9 made no mention of QE3. As blogger Jesse Livermore summarized the market’s response:

. . [T]he markets sold off rather rapidly as no announcement was made about QE3. . . . It wasn’t until . . . the last 75 min of market activity [that] the DJIA gained 639 pts to close at a day high of 11,242. That begs the question, where did that injection of capital come from? The President’s Working Group on Financial Markets? Or did the “policy tools” to promote price stability by any chance include the next round of Quantitative Easing unannounced?

Was that QE3 Incognito, Ben?

Titanic Battle or Insider Trading?

That leaves the question, why the suspicious downgrade on August 5, AFTER the government had made major concessions just to avoid default, and despite the embarrassing revelation that S&P’s figures were off by $2 trillion? Suspicious bloggers have pointed out that Lehman Brothers was brought down by a massive bear raid on 9-11-08, echoing the disaster of 9-11-01; that the S&P downgrade hit the market on 8-8-11; and that the S&P fell exactly 6.66% and the Dow fell exactly 5.55% on that date. In Illuminati lore, these are power numbers, of the sort chosen for power moves.

But we don’t need to turn to numerology to find a motive for proceeding with the downgrade. On August 12, MSN.Money reported that it “wasn't much of a surprise”:

Wall Street had heard a rumor early on that the downgrade was coming. News sites reported the rumor all day.

Unless it was all a huge coincidence, it's likely that someone in the know leaked the information. The questions are who and whether the leak led to early insider trading.

The Daily Mail had the story of someone placing an $850 million bet in the futures market on the prospects of a US debt downgrade:

The latest bet was made on July 21 on trades of 5,370 ten-year Treasury futures and 3,100 Treasury bond futures, reported ETF Daily News.

Now the investor’s gamble seems to have paid off after Standard and Poor’s issued a credit rating downgrade from AAA to AA+ last Friday.

Whoever it is stands to earn a 1,000 per cent return on their money, with the expectation that interest rates will be going up after the downgrade.

The Securities Exchange Commission announced on August 8 that it is investigating the downgrade. According to the Financial Times, the move is part of a preliminary examination into potential insider trading.

Whatever can be said about the first two weeks of August, their market action was unprecedented, unnatural, and bears close observation.

Ellen Brown is president of the Public Banking Institute and the author of eleven books. She developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, she turns those skills to an analysis of the Federal Reserve and “the money trust.” Her websites are http://WebofDebt.com and http://PublicBankingInstitute.org.

Ellen Brown is a frequent contributor to Global Research.
---
http://www.globalresearch.ca/index.php? ... &aid=26054

[Canadian_watcher]

And the Fed's reponse is......nothing!

What would you do?

Massive public spending on infrastructure, WPA-style. Put the unemployed back to work. Reinstate Glass-Steagall. For starters.

trouble with this, from a female point of view, is that infrastructure 'make work projects' really only employ males. Which is better than nothing, I guess, but it drastically shifts micro economies and balances of power.

No, this isn't true. Construction projects require a good deal of planning, logistical coordination, purchasing, project management, etc. Plus, women are increasingly involved in the traditional "blue collar" jobs of construction. Infrastructure development would encompass a good deal of job creation across genders.

You'd like to think this, I see. I'm not going to try and stop you.

[Bruce Dazzling]

MOODY'S ANALYST BREAKS SILENCE: Says Ratings Agency Rotten To Core With Conflicts
Business Insider
Henry Blodget
8/19/2011

A former senior analyst at Moody's has gone public with his story of how one of the country's most important rating agencies is corrupted to the core.

The analyst, William J. Harrington, worked for Moody's for 11 years, from 1999 until his resignation last year.

From 2006 to 2010, Harrington was a Senior Vice President in the derivative products group, which was responsible for producing many of the disastrous ratings Moody's issued during the housing bubble.

Harrington has made his story public in the form of a 78-page "comment" to the SEC's proposed rules about rating agency reform, which he submitted to the agency on August 8th. The comment is a scathing indictment of Moody's processes, conflicts of interests, and management, and it will likely make Harrington a star witness at any future litigation or hearings on this topic.

The primary conflict of interest at Moody's is well known: The company is paid by the same "issuers" (banks and companies) whose securities it is supposed to objectively rate. This conflict pervades every aspect of Moody's operations, Harrington says. It incentivizes everyone at the company, including analysts, to give Moody's clients the ratings they want, lest the clients fire Moody's and take their business to other ratings agencies.

Moody's analysts whose conclusions prevent Moody's clients from getting what they want, Harrington says, are viewed as "impeding deals" and, thus, harming Moody's business. These analysts are often transferred, disciplined, "harassed," or fired.

In short, Harrington describes a culture of conflict that is so pervasive that it often renders Moody's ratings useless at best and harmful at worst.

Harrington believes the SEC's proposed rules will make the integrity of Moody's ratings worse, not better. He also believes that Moody's recent attempts to reform itself are nothing more than a pretty-looking PR campaign.

We've included highlights of Harrington's story below. Here are some key points:

Moody's ratings often do not reflect its analysts' private conclusions. Instead, rating committees privately conclude that certain securities deserve certain ratings--but then vote with management to give the securities the higher ratings that issuer clients want.

Moody's management and "compliance" officers do everything possible to make issuer clients happy--and they view analysts who do not do the same as "troublesome." Management employs a variety of tactics to transform these troublesome analysts into "pliant corporate citizens" who have Moody's best interests at heart.

Moody's product managers participate in--and vote on--ratings decisions. These product managers are the same people who are directly responsible for keeping clients happy and growing Moody's business.

At least one senior executive lied under oath at the hearings into rating agency conduct. Another executive, who Harrington says exemplified management's emphasis on giving issuers what they wanted, skipped the hearings altogether.

Harrington's story at times reads like score-settling: The constant conflicts and pressures at Moody's clearly grated on him, especially as it became ever clearer that his only incentive not to "cave" to an issuer's every demand was his own self-respect.

But Harrington's story also makes clear just how imperative it is that the ratings-agency problem be addressed and fixed. The current system, in which the government blesses organizations as deeply conflicted as Moody's with the power to determine sanctioned bond ratings is untenable. And the SEC's proposed rule changes won't fix a thing.

Harrington's story is startling, both in its allegations and specificity. (He names many Moody's executives and describes many instances that regulators and plaintiffs will probably want to take a closer look at.)

Given this, we expected Moody's might want to share its side of the story--or denounce Harrington as a disgruntled ex-employee. Instead, Moody's did not return multiple calls seeking comment.

More at the link.

[JackRiddler]

.

Hudson does it again. Read this especially for the two useful-to-know case studies of how ratings agencies directly intervened in politics as bankster-enforcers: that of the Cleveland Muni fight in 1977 (young Mayor Kucinich) and that of Georgia's attempt to regulate fraud in mortgage securities in 2003. And the big picture, of course. The pro-class war column by Robert Barro cited at the end (calling for several varieties of tax increases on the bottom 50 percent, while slashing "entitlements" and cutting taxes further for the top) showed me that I can still be surprised by the temerity of these fuckers...

http://counterpunch.org/hudson08192011.html

August 19 - 21, 2011

Guard-Dogs for the Banks
The Case Against Rating Agencies

By MICHAEL HUDSON

In today’s looming confrontation the ratings agencies are playing the political role of “enforcer” as the gatekeepers to credit, to put pressure on Iceland, Greece and even the United States to pursue creditor-oriented policies that lead inevitably to financial crises. These crises in turn force debtor governments to sell off their assets under distress conditions. In pursuing this guard-dog service to the world’s bankers, the ratings agencies are escalating a political strategy they have long been refined over a generation in the corrupt arena of local U.S. politics.

Why ratings agencies favor public selloffs rather than sound tax policy: The Kucinich Case Study

In 1936, as part of the New Deal’s reform of America’s financial markets, regulators forbid banks and institutional money managers to buy securities deemed “speculative” by “recognized rating manuals.” Insurance companies, pension funds and mutual funds subject to public regulation are required to “take into account” the views of the credit ratings agencies, provided them with a government-sanctioned monopoly. These agencies make their money by offering their “opinions” (for which they have never been legally liable) as to the payment prospects of various grades of security, from AAA (as secure government debt, the top rating because governments always can print the money to pay) down to various depths of junk.

Moody’s, Standard and Poor’s and Fitch focus mainly on stocks and on corporate, state and local bond issues. They make money twice off the same transaction when cities and states balance their budgets by spinning off public enterprises into new corporate entities issuing new bonds and stocks. This business incentive gives the ratings agencies an antipathy to governments that finance themselves on a pay-as-you-go basis (as Adam Smith endorsed) by raising taxes on real estate and other property, income or sales taxes instead of borrowing to cover their spending. The effect of this inherent bias is not to give an opinion about what is economically best for a locality, but rather what makes the most profit for themselves.
Localities are pressured when their rising debt levels lead to a financial stringency. Banks pull back their credit lines, and urge cities and states to pay down their debts by selling off their most viable public enterprises. Offering opinions on this practice has become a big business for the ratings agencies. So it is understandable why their business model opposes policies – and political candidates – that support the idea of basing public financing on taxation rather than by borrowing. This self-interest colors their “opinions.”

If this seems too cynical an explanation for today’s ratings agencies self-serving views, there are sufficient examples going back over thirty years to illustrate their unethical behavior. The first and most notorious case occurred in Cleveland, Ohio, after Dennis Kucinich was elected mayor in 1977. The ratings agencies had been giving the city good marks despite the fact that it had been using bond funds improperly for general operating purposes to covered its budget shortfalls by borrowing, leaving Cleveland with $14.5 million owed to the banks on open short-term credit lines.

Cleveland had a potential cash cow in Municipal Light, which its Progressive Era mayor Tom Johnson had created in 1907 as one of America’s first publicly owned power utilities. It provided the electricity to light Cleveland’s streets and other public uses, as well as providing power to private users. Meanwhile, banks and their leading local clients were heavily invested in Muni Light’s privately owned competitor, the Cleveland Electric Illuminating Company. Members of the Cleveland Trust sat on CEI’s board and wielded a strong influence on the city council to try and take it over. In a series of moves that city officials, the U.S. Senate and regulatory agencies found to be improper (popular usage would say criminal), CEI caused a series of disruptions in service and worked with the banks and ratings agencies to try and force the city to sell it the utility. Banks for their part had their eye on financing a public buyout – and hoped to pressure the city into selling, threatening to pull the plug on its credit lines if it did not surrender Muni Light.

It was to block this privatization that Mr. Kucinich ran for mayor. To free the city from being liable to financial pressure from its vested interests – above all from the banks and private utilities – he sought to put the city’s finances on a sound footing by raising taxes. This threatened to slow borrowing from the banks (thereby shrinking the business of ratings agencies as well), while freeing Cleveland from the pressures that have risen across the United States for cities to start selling off their public enterprises, especially since the 1980s as tax-cutting politicians have left them deeper in debt.

The banks and ratings agencies told Mayor Kucinich that they would back his political career and even hinted financing a run for the governorship if he played ball with them and agreed to sell the electric utility. When he balked, the banks said that they could not renew credit lines to a city that was so reluctant to balance its books by privatizing its most profitable enterprises. This threat was like a credit-card company suddenly demanding payment of the full balance from a customer, saying that if it were not paid, the sheriff would come in and seize property to sell off (usually on credit extended to customers of the bankers).

The ratings agencies chimed in and threatened to downgrade Cleveland’s credit rating if the city did not privatize its utility. The financial tactic was to offer the carrot of corrupting the mayor politically, while using the threat of forcing the city into financial crisis and raising its interest rates. If the economy did not pay higher utility charges as a result of privatization, it would have to pay higher interest.

But standing on principle, the mayor refused to sell the utility, and voters elected to keep Muni light public by a 2-to-1 margin in a referendum. They proceeded to pay down the city’s debt by raising its income-tax rate in order to avoid paying higher rates for privatized electricity. Their choice was thoroughly in line with Book V of Adam Smith’s Wealth of Nations which provides a perspective on how borrowing ends up with a proliferation of taxes to pay the interest. This makes the private sector pay higher prices for its basic needs that Cleveland Mayor Tom Johnson and other Progressive Era leaders a century ago sought to socialize in order to lower the cost of living and doing business in the United States.

The bankers’ alliance with the Cleveland’s wealthy would-be power monopoly led it to be the first U.S. city to default since the Great Depression as the state of Ohio forced it into fiscal receivership in 1979. The banks used the crisis to make an easy gain in buying up bond anticipation notes that were sold under distress conditions exacerbated by the ratings agencies. The banks helped fund Mayor Kucinich’s opponent in the 1979 mayoral race.

But in saving Muni Light he had saved voters hundreds of millions of dollars that the privatizers would have built into their electric rates to cover higher interest charges and financial fees, dividends to stockholders, and exorbitant salaries and stock options. In due course voters came to recognize Kucinich’s achievement and have sent him to Congress since 1997. As for Mini Light’s privately owned rival, the Cleveland Electric Illuminating Company, it achieved notoriety for being primarily responsible for the northeastern United States power blackout in 2003 that left 50 million people without electricity.

The moral is that the ratings agencies’ criterion was simply what was best for the banks, not for the debtor economy issuing the bonds. They were eager to upgrade Cleveland’s credit ratings for doing something injurious – first, borrowing from the banks rather than covering their budget by raising property and income taxes; and second, raising the cost of doing business by selling Muni Light. They threatened to downgrade the city for acting to protect its economic interest and trying to keep its cost of living and doing business low.

The tactics by banks and credit rating agencies have been successful most easily in cities and states that have fallen deeply into debt dependency. The aim is to carve up national assets, by doing to Washington what they sought to do in Cleveland and other cities over the past generation. Similar pressure is being exerted on the international level on Greece and other countries. Ratings agencies act as political “enforcers” to knee-cap economies that refrain from privatization sell-offs to solve debt problems recognized by the markets before the ratings agencies acknowledge the bad financial mode that they endorse for self-serving business reasons.

Why ratings agencies oppose public checks against financial fraud

The danger posed by ratings agencies in pressing the global economy to a race into debt and privatization recently became even more blatant in their drive to give more leeway to abusive financial behavior by banks and underwriters. Former Congressional staffer Matt Stoller cites an example provided by Josh Rosner and Gretchen Morgenson in Reckless Endangerment regarding their support of creditor rights to engage in predatory lending and outright fraud. On January 12, 2003, the state of Georgia passed strong anti-fraud laws drafted by consumer advocates. Four days later, Standard & Poor announced that if Georgia passed anti-fraud penalties for corrupt mortgage brokers and lenders, packaging including such debts could not be given AAA ratings.

“Because of the state’s new Fair Lending Act, S&P said that it would no longer allow mortgage loans originated in Georgia to be placed in mortgage securities that it rated. Moody’s and Fitch soon followed with similar warnings.

“It was a critical blow. S&P’s move meant Georgia lenders would have no access to the securitization money machine; they would either have to keep the loans they made on their own books, or sell them one by one to other institutions. In turn, they made it clear to the public that there would be fewer mortgages funded, dashing “the dream” of homeownership.”

The message was that only bank loans free of legal threat against dishonest behavior were deemed legally risk-free for buyers of securities backed by predatory or fraudulent mortgages. The risk in question was that state agencies would reduce or even nullify payments being extracted by crooked real estate brokers, appraisers and bankers. As Rosner and Morgenson summarize:

“Standard & Poor’s said it was taking action because the new law created liability for any institution that participated in a securitization containing a loan that might be considered predatory. If a Wall Street firm purchased loans that ran afoul of the law and placed them in a mortgage pool, the firm could be liable under the law. Ditto for investors who bought into the pools.

“Transaction parties in securitizations, including depositors, issuers and servicers, might all be subject to penalties for violations under the Georgia Fair Lending Act,” S&P’s press release explained.”

The ratings agencies’ logic is that bondholders will not be able to collect if public entities prosecute financial fraud involved in packaging deceptive mortgage packages and bonds. It is a basic principle of law that receivers or other buyers of stolen property must forfeit it, and the asset returned to the victim. So prosecuting fraud is a threat to the buyer – much as an art collector who bought a stolen painting must give it back, regardless of how much money has been paid to the fence or intermediate art dealer. The ratings agencies do not want this principle to be followed in the financial markets.

We have fallen into quite a muddle when ratings agencies take the position that packaged mortgages can receive AAA ratings only from states that do not protect consumers and debtors against mortgage fraud and predatory finance. The logic is that giving courts the right to prosecute fraud threatens the viability of creditor claims and endorses a race to the bottom. If honesty and viable credit were the objective of ratings agencies, they would give AAA ratings only to states whose courts deterred lenders from engaging in the kind of fraud that has ended up destroying the securitized mortgage binge since September 2008. But protecting the interests of savers or bank customers – and hence even the viability of securitized mortgage packages – is not the task with which ratings agencies are charged.

Masquerading as objective think tanks and research organizations, the ratings agencies act as lobbyists for banks and underwriters by endorsing a race to the bottom – into debt, privatization sell-offs and an erosion of consumer rights and control over fraud. “S&P was aggressively killing mortgage servicing regulation and rules to prevent fraudulent or predatory mortgage lending,” Stoller concludes. “Naomi Klein wrote about S&P and Moody’s being used by Canadian bankers in the early 1990s to threaten a downgrade of that country unless unemployment insurance and health care were slashed.”

The basic conundrum is that anything that interferes with the arbitrary creditor power to make money by trickery, exploitation and outright fraud threatens the collectability of claims. The banks and ratings agencies have wielded this power with such intransigence that they have corrupted the financial system into junk mortgage lending, junk bonds to finance corporate raiders, and computerized gambles in “casino capitalism.” What then is the logic in giving these agencies a public monopoly to impose their “opinions” on behalf of their paying clients, blackballing policies that the financial sector opposes – rulings that institutional investors are legally obliged to obey?

Threats to downgrade the U.S. and other national economies to force pro-financial policies

At the point where claims for payment prove self-destructive, creditors move to their fallback position. Plan B is to foreclose, taking possession of the property of debtors. In the case of public debt, governments are told to privatize the public domain – with banks creating the credit for their customers to buy these assets, typically under fire-sale distress conditions that leave room for capital gains and other financial rake-offs. In cases where foreclosure and forced sell-offs are not able to make creditors whole (as when the economy breaks down), Plan C is for governments simply to bail out the banks, taking bad bank debts and other obligations onto the public balance sheet for taxpayers to make good on.

Standard and Poor’s threat to downgrade of U.S. Treasury bonds from AAA to AA+ would exacerbate the problem if it actually discouraged purchasers from buying these bonds. But on the Monday on August 8, following their Friday evening downgrade, Treasury borrowing rates fell, with short-term T-bills actually in negative territory. That meant that investors had to lose a small margin simply to keep their money safe. So S&P’s opinions are as ineffectual as being a useful guide to markets as they are as a guide to promote good economic policy.

But S&P’s intent was not really to affect the marketability of Treasury bonds. It was a political stunt to promote the idea that the solution to today’s budget deficit is to pursue economic austerity. The message is that President Obama should roll back Social Security and Medicare entitlements so as to free more money for more subsidies, bailouts and tax cuts for the top of the steepening wealth pyramid. Neoliberal Harvard economics professor Robert Barro made this point explicitly in a Wall Street Journal op-ed. Calling the S&P downgrade a “wake-up call” to deal with the budget deficit, he outlined the financial sector’s preferred solution: a vicious class war against labor to reduce living standards and further polarize the U.S. economy between creditors and debtors by shifting taxes off financial speculation and property onto employees and consumers.

“First, make structural reforms to the main entitlement programs, starting with increases in ages of eligibility and a shift to an economically appropriate indexing formula. Second, lower the structure of marginal tax rates in the individual income tax. Third, in the spirit of Reagan's 1986 tax reform, pay for the rate cuts by gradually phasing out the main tax-expenditure items, including preferences for home-mortgage interest, state and local income taxes, and employee fringe benefits—not to mention eliminating ethanol subsidies. Fourth, permanently eliminate corporate and estate taxes, levies that are inefficient and raise little money. Fifth, introduce a broad-based expenditure tax, such as a value-added tax (VAT), with a rate around 10%.”

Bank lobbyist Anders Aslund of the Peterson Institute of International Finance jumped onto the bandwagon by applauding Latvia’s economic disaster (a 20 per cent plunge in GDP, 30 per cent reduction of public-sector salaries and accelerating emigration as a success story for other European countries to follow. As they say, one can’t make this up.”

As the main advocate and ultimate beneficiary of privatization, the financial sector directs debtor economies to sell off their public property and cut social services – while increasing taxes on employees. Populations living in such economies call them hell and seek to emigrate to find work or simply to flee their debts. What else should someone call surging poverty, death rates and alcoholism while a few grow rich? The ratings agencies today are like the IMF in the 1970s and ‘80s. Countries that do not agree sell off their public domain (and give tax deductibility to the interest payments of buyers-on-credit, providing multinationals with income-tax exemption on their takings from the monopolies being privatized) are treated as outlaws and isolated Cuba- or Iran-style.

Such austerity plans are a failed economic model, but the financial sector has managed to gain even as economies are carved up. Their “Plan B” is foreclosure, extending to the national scale. By the 1980s, creditor-planned economies in Third World debtor countries had reached the limit of their credit-worthiness. Under World Bank coordination, a vast market in national infrastructure spending was set up for creditor-nation bank debt, bonds and exports. The projects being financed on credit were mainly to facilitate exports and provide electric power for foreign investments. After Mexico announced its insolvency in 1982 when it no longer could afford to service foreign-currency debt, where were creditors to turn?

Their solution was to use the debt crisis as a lever to start financing these same infrastructure projects all over again, now that most were largely paid for. This time, what was being financed was not new construction, but private-sector buyouts of property that had been financed by the World Bank and its allied consortia of international bankers. There is talk of the U.S. Government selling off its national parks and other real estate, national highways and infrastructure, perhaps the oil reserve, postal service and so forth.

S&P’s “opinion” was treated seriously enough by John Kerry, the 2004 Democratic Presidential nominee, as a warning that America should “get its house in order.” Despite the fact that on page 4 of its 8-page explanation of why it downgraded Treasury bonds, S&P’s stated: “We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act,” Democrat Kerry was one of the three senators appointed to the commission under the debt-ceiling agreement. He chimed in to endorse the S&P action as a helpful nudge for the country to deal with its “entitlements” program – as if Social Security and FICA withholding were a kind of welfare, not actual savings put in by labor, to be wiped out as the government empties its coffers to bail out Wall Street’s high rollers.

No less a financial publication than the Wall Street Journal has come to the conclusion that “in a perfect world, S&P wouldn't exist. And neither would its rivals Moody's Investors Service and Fitch Ratings Ltd. At least not in their current roles as global judges and juries of corporate and government bonds.” As its financial editor Francesco Guerrera wrote quite eloquently in the aftermath of S&P’s bold threat to downgrade the U.S. Treasury’s credit rating: “The historic decision taken by S&P on Aug. 5 is the culmination of 75 years of policy mistakes that ended up delegating a key regulatory function to three for-profit entities.”

The behavior of leading banks and ratings agencies with Cleveland and other similar cases – of promising to give good ratings to states, counties and cities that agree to pay off short-term bank debt by selling off their crown jewels – is not ostensibly criminal under the law (except when their hit men actually succeed in assassination). But the ratings agencies have made an compact with crooks to endorse only public borrowers that agree to pursue such policies and not to prosecute financial fraud.

To acquiescence in such economically destructive financial behavior is the opposite of fiscal responsibility. Cutting federal taxes and Social Security payments to obtain a more positive S&P “opinion” would give banks an ability to “pull the plug” and force privatization and anti-labor austerity plans by refraining from rolling over the U.S. debt – and cutting taxes Tea-Party style rather than funding spending by taxation on a pay-as-you-go-basis.

The present meltdown of the euro provides an object lesson for why policy-making never should be left to central bankers, because their mentality is pro-creditor. Otherwise they would not have the political reliability demanded by the financial sector that has captured the central bank, Treasury and regulatory agencies to gain veto power over who is appointed. Given their preference for debt deflation of the “real” economy – while trying to inflate asset prices by promoting the banks’ product (debt creation) – central bank and Treasury solutions tend to aggravate economic downturns. This is self-destructive because today’s major problem blocking recovery is over-indebtedness.


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

[eyeno]

I agree the celery in the salad sucks. but your point is???

My point is that infrastructure spending on needed projects is a perfect investment and creates good jobs.

I think. That celery messed with me badly.

After further research I was wrong about the celery. You should eat a lot of it.

The Power of Juicing
by Tatia Nelson M.H., Iridologist - Utah

Celery juice or pain killers? If asked this question today, Al Godsey would say, "I'll take the celery juice any day!" For a man who was once crippled with severe and painful arthritis, his story is one we can all learn from.

The year was 1959 aboard the USS Ticonderoga, Al was a Navy Structural Mechanic who could hardly walk after 13 months on the ship, due to pain and deformities in his feet. He was moved to the Oakland Navel Hospital in California for medical care where he was diagnosed with a debilitating case of arthritis. In just over a year of service, his athletic running feet had developed heel spurs, an extreme high instep and "hammer toes". The bone spurs felt like knives cutting into the flesh of his heels causing bad enough pain that he was confined to bed rest for three weeks.

One day, while gazing out the hospital window, he felt a strong impression that changing his diet would heal him. When he asked his doctor about nutrition, the young lieutenant, fresh out of medical school, quickly rejected the idea that a diet change could help. Surgery was advised, but other patients who opted for surgeries said their condition never improved and their doctors "just kept cutting" with no results.

Opting out of surgery, he took a prescription for pain of 5 aspirin, 4 times daily. With pain numbed, he moved to a wheel chair, then crutches, and finally used only a cane, but his condition never got better, just manageable with pain killers. After a couple of months in the hospital, his time of service was up, so he went home, still walking with a cane.

At home, Al took a 180 degree turn with his diet and his healing process finally began. He ditched the aspirin and turned to whole foods. He switched to whole grains and cut out white sugar, white flour, and other processed foods. He ate at least three pounds of green and yellow fruits and vegetables daily. For protein he enjoyed nuts and seeds and if he ate meat, it was very sparing. No pork was consumed and meat choices were very lean, fish being a favorite. For probiotics, he consumed fresh, homemade yoghurt or bought it with live cultures at the health food store.

He read books by alternative doctors to find ways to improve his health. Many wrote about juicing live foods for health. So, he got a juicer and began juicing daily. His favorite juice combinations included: Carrot, celery & apple, apple & parsley, apple & beet, and other mixtures including lots of alfalfa sprouts, watercress, wheat grass, spinach, etc.

Al first experienced a dramatic change in his health after a juice fast consisting of a quart or more of juice a day for 6 weeks. Celery juice offered the most pain relief, so most of his recipes consisted of 1/3 to 1/2 celery. Within a couple more months, he stopped using a cane, and his bone spurs were gone. He was once again running the full track of 2.7 miles around Green Lake near his home in Seattle, pain free!

Al is my father, and now at the age of 73... he is still juicing! He bottle fed me fresh juices and taught our large family to juice daily. My dad is most grateful for celery juice, because after 52 years, the pain in his feet has never come back!

Tatia Nelson is a certified Iridologist and a Master Herbalist - graduate of The School of Natural Healing. Tatia currently consults in Utah, teaches in the community, and writes for local health food stores.

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