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Timothy Geithner’s new book about the financial crisis, “Stress Test,” is basically an argument that the Wall Street bailout succeeded. That’s hardly surprising, given that Geithner was in charge of the bailout when Treasury Secretary (as was his predecessor at Treasury, Hank Paulson), and so has an inherent interest in telling the public it succeeded.
Even so, the bailout clearly did succeed, if success means avoiding another Great Depression.
But another Great Depression might have been avoided if the crisis had been handled differently — for example, by allowing the bankruptcy laws to do what they were intended to do, and forcing the big Wall Street banks to reorganize under them.
In fact, the bailout was a colossal failure in several respects Geithner barely mentions in his book, or avoids completely:
(1) The biggest Wall Street banks are now bigger than ever, and no sane person on or off the Street now believes Washington will ever allow them to fail – which means they’ll continue to make big, risky bets because they know they can’t fail. And they’ll get even bigger because big depositors and lenders know they’ll never fail and therefore demand lower interest rates than demanded from smaller banks.
(2) No Wall Street executives have ever been prosecuted for what they did to the country, which means even more rampant irresponsibility in executive suites as well as even deeper cynicism in the public about the political power of Wall Street.
(3) The bailout helped the banks but did little or nothing for the tens of millions of Americans who lost billions of dollars in home equity and savings, and the millions more who lost their jobs. The toll was greatest on the poor and the middle class, who still haven’t recovered their losses, even though Wall Street has fully recovered (and then some). Nor have reforms been enacted that will help the middle class and the poor the next time Wall Street implodes.
So pardon me if I take issue with Tim Geithner. The bailout was a success in the narrowest terms. Seen more broadly it was a terrible failure.
We’d have done better had we forced the biggest Wall Street banks, including the giant insurer AIG, to reorganize under bankruptcy rather than bail them out.
“As things stand, the banks are the permanent government of the country, whichever party is in power.”
– Lord Skidelsky, House of Lords, UK Parliament, 31 March 2011)
On March 20, 2014, European Union officials reached an historic agreement to create a single agency to handle failing banks. Media attention has focused on the agreement involving the single resolution mechanism (SRM), a uniform system for closing failed banks. But the real story for taxpayers and depositors is the heightened threat to their pocketbooks of a deal that now authorizes both bailouts and “bail-ins” – the confiscation of depositor funds. The deal involves multiple concessions to different countries and may be illegal under the rules of the EU Parliament; but it is being rushed through to lock taxpayer and depositor liability into place before the dire state of Eurozone banks is exposed.
The bail-in provisions were agreed to last summer. According to Bruno Waterfield, writing in the UK Telegraph in June 2013:
Under the deal, after 2018 bank shareholders will be first in line for assuming the losses of a failed bank before bondholders and certain large depositors. Insured deposits under £85,000 (€100,000) are exempt and, with specific exemptions, uninsured deposits of individuals and small companies are given preferred status in the bail-in pecking order for taking losses . . . Under the deal all unsecured bondholders must be hit for losses before a bank can be eligible to receive capital injections directly from the ESM, with no retrospective use of the fund before 2018.
As noted in my earlier articles, the ESM (European Stability Mechanism) imposes an open-ended debt on EU member governments, putting taxpayers on the hook for whatever the Eurocrats (EU officials) demand. And it’s not just the EU that has bail-in plans for their troubled too-big-to-fail banks. It is also the US, UK, Canada, Australia, New Zealand and other G20 nations. Recall that a depositor is an unsecured creditor of a bank. When you deposit money in a bank, the bank “owns” the money and you have an IOU or promise to pay.
Under the new EU banking union, before the taxpayer-financed single resolution fund can be deployed, shareholders and depositors will be “bailed in” for a significant portion of the losses. The bankers thus win both ways: they can tap up the taxpayers’ money and the depositors’ money.
The Unsettled Question of Deposit Insurance
But at least, you may say, it’s only the uninsured deposits that are at risk (those over €100,000—about $137,000). Right?
Not necessarily. According to ABC News, “Thursday’s result is a compromise that differs from the original banking union idea put forward in 2012. The original proposals had a third pillar, Europe-wide deposit insurance. But that idea has stalled.”
European Central Bank President Mario Draghi, speaking before the March 20th meeting in the Belgian capital, hailed the compromise plan as “great progress for a better banking union. Two pillars are now in place” – two but not the third. And two are not enough to protect the public.As observed in The Economist in June 2013, without Europe-wide deposit insurance, the banking union is a failure:
[T]he third pillar, sadly ignored, [is] a joint deposit-guarantee scheme in which the costs of making insured depositors whole are shared among euro-zone members. Annual contributions from banks should cover depositors in normal years, but they cannot credibly protect the system in meltdown (America’s prefunded scheme would cover a mere 1.35% of insured deposits). Any deposit-insurance scheme must have recourse to government backing. . . . [T]he banking union—and thus the euro—will make little sense without it.
All deposits could be at risk in a meltdown. But how likely is that?
Pretty likely, it seems . . . .
What the Eurocrats Don’t Want You to Know
Mario Draghi was vice president of Goldman Sachs Europe before he became president of the ECB. He had a major hand in shaping the banking union. And according to Wolf Richter, writing in October 2013, the goal of Draghi and other Eurocrats is to lock taxpayer and depositor liability in place before the panic button is hit over the extreme vulnerability of Eurozone banks:
European banks, like all banks, have long been hermetically sealed black boxes. . . . The only thing known about the holes in the balance sheets of these black boxes, left behind by assets that have quietly decomposed, is that they’re deep. But no one knows how deep. And no one is allowed to know – not until Eurocrats decide who is going to pay for bailing out these banks.
When the ECB becomes the regulator of the 130 largest ECB banks, says Richter, it intends to subject them to more realistic evaluations than the earlier “stress tests” that were nothing but “banking agitprop.” But these realistic evaluations won’t happen until the banking union is in place. How does Richter know? Draghi himself said so. Draghi said:
“The effectiveness of this exercise will depend on the availability of necessary arrangements for recapitalizing banks … including through the provision of a public backstop. . . . These arrangements must be in place before we conclude our assessment.”
Richter translates that to mean:
The truth shall not be known until after the Eurocrats decided who would have to pay for the bailouts. And the bank examinations won’t be completed until then, because if any of it seeped out – Draghi forbid – the whole house of cards would collapse, with no taxpayers willing to pick up the tab as its magnificent size would finally be out in the open!
Only after the taxpayers – and the depositors – are stuck with the tab will the curtain be lifted and the crippling insolvency of the banks be revealed. Predictably, panic will then set in, credit will freeze, and the banks will collapse, leaving the unsuspecting public to foot the bill.
What Happened to Nationalizing Failed Banks?
Underlying all this frantic wheeling and dealing is the presumption that the “zombie banks” must be kept alive at all costs – alive and in the hands of private bankers, who can then continue to speculate and reap outsized bonuses while the people bear the losses.
But that’s not the only alternative. In the 1990s, the expectation even in the United States was that failed megabanks would be nationalized. That route was pursued quite successfully not only in Sweden and Finland but in the US in the case of Continental Illinois, then the fourth-largest bank in the country and the largest-ever bankruptcy. According to William Engdahl, writing in September 2008:
[I]n almost every case of recent banking crises in which emergency action was needed to save the financial system, the most economical (to taxpayers) method was to have the Government, as in Sweden or Finland in the early 1990’s, nationalize the troubled banks [and] take over their management and assets … In the Swedish case the end cost to taxpayers was estimated to have been almost nil.
Typically, nationalization involves taking on the insolvent bank’s bad debts, getting the bank back on its feet, and returning it to private owners, who are then free to put depositors’ money at risk again. But better would be to keep the nationalized mega-bank as a public utility, serving the needs of the people because it is owned by the people.
As argued by George Irvin in Social Europe Journal in October 2011:
[T]he financial sector needs more than just regulation; it needs a large measure of public sector control—that’s right, the n-word: nationalisation. Finance is a public good, far too important to be run entirely for private bankers. At the very least, we need a large public investment bank tasked with modernising and greening our infrastructure . . . . [I]nstead of trashing the Eurozone and going back to a dozen minor currencies fluctuating daily, let’s have a Eurozone Ministry of Finance (Treasury) with the necessary fiscal muscle to deliver European public goods like more jobs, better wages and pensions and a sustainable environment.
A Third Alternative – Turn the Government Money Tap Back On
A giant flaw in the current banking scheme is that private banks, not governments, now create virtually the entire money supply; and they do it by creating interest-bearing debt. The debt inevitably grows faster than the money supply, because the interest is not created along with the principal in the original loan.
For a clever explanation of how all this works in graphic cartoon form, see the short French video “Government Debt Explained,” linked here.
The problem is exacerbated in the Eurozone, because no one has the power to create money ex nihilo as needed to balance the system, not even the central bank itself. This flaw could be remedied either by allowing nations individually to issue money debt-free or, as suggested by George Irvin, by giving a joint Eurozone Treasury that power.
The Bank of England just admitted in its Quarterly Bulletin that banks do not actually lend the money of their depositors. What they lend is bank credit created on their books. In the U.S. today, finance charges on this credit-money amount to between 30 and 40% of the economy, depending on whose numbers you believe. In a monetary system in which money is issued by the government and credit is issued by public banks, this “rentiering” can be avoided. Government money will not come into existence as a debt at interest, and any finance costs incurred by the public banks’ debtors will represent Treasury income that offsets taxation.
New money can be added to the money supply without creating inflation, at least to the extent of the “output gap” – the difference between actual GDP or actual output and potential GDP. In the US, that figure is about $1 trillion annually; and for the EU is roughly €520 billion ($715 billion). A joint Eurozone Treasury could add this sum to the money supply debt-free, creating the euros necessary to create jobs, rebuild infrastructure, protect the environment, and maintain a flourishing economy.
Ellen Brown is an attorney, founder of the Public Banking Institute, and a candidate for California State Treasurer running on a state bank platform. She is the author of twelve books, including the best-selling Web of Debt and her latest book, The Public Bank Solution, which explores successful public banking models historically and globally.
Scores of Cypriot students have flocked to the presidential palace, chanting slogans and waving banners, following the announcement that banks will not reopen until Thursday. The eurozone bailout has heightened frustration at the government.
“People wake up, they are sucking your blood,” said one sign. “Death to Merkel,” said another.
The country’s youth are also expressing concerns about their future: “‘Troika’ will bring us to the point that we have no future. We cannot find a job,” a Cypriot student told RIA Novosti.
Unrest has widened following the $13-billion bailout deal which has seen the freezing of deposits over €100,000. A withdrawal limit has been imposed on ATMs, and capital controls are in place to prevent the movement of funds.
The eurozone bailout did not alleviate the island nation's worries. Residents who have not taken to the streets in anger are also feeling the pinch, especially with the central bank remaining closed. Cypriots feel that a line has been crossed, and are worried about cash flow, jobs and savings.
Even the manager of the Bank of Cyprus, Demetris Antoniou, fears for his employment prospects: “For the first time in my life – for 30 years – I worried. And the last week, and especially in the last two days. I worried a lot. It was like… I was going to wake up, and listen to the news that I don’t have a job anymore. And I’m 50. I’m not 20. To start my life and say ‘okay.’”
“It is like they want to push us – the Bank of Cyprus – after a few months, to collapse? I wonder – what is this? It’s not fair,” he added.
The bailout plan has been met with widespread anger, with few residents welcoming the deal.
“They’re very frustrated,” said RT correspondent Tesa Arcilla, who is in Cyprus. “This has really sent a very bad message to people. They’ve lost confidence, they’ve lost trust.”
All Cypriot banks will remain closed until Thursday, despite an announcement late on Monday that they would reopen on Tuesday morning. The move has prompted concern that the country’s financial institutions are even lower on cash than expected.
Laiki Bank will essentially be shut down, resulting in widespread job-losses, which also prompted hundreds to protest over the past few days. Demonstrators at previous rallies wielded signs declaring that they would rather die standing than live in debt: “We won’t [be] Germany’s slaves,” one read.
Capital controls are still in place in Cyprus, meaning that banks are able to impose restrictions on the amount of money citizens are able to take from the ATMs, or how much money they can move around.
“We have no cash. We are just… queueing behind the ATM machines, waiting to get some cash. For how long?” one resident said.
The restrictions are creating an intense atmosphere of uncertainty, and some mild hoarding of cash supplies. “Everybody is trying to hold onto those 5 or 10 euros that they have just in case there’re even lower limits, because right now they can only take about 100 euros,” Arcilla reported.
Some are even feeling nostalgic for the old Cypriot pound. “With the pounds – peace and quiet,” another resident said. “It’s better to go back to the pound.”
The recent events in Cyprus have prompted fears that similar moves could be enforced in other countries, and could be a template for how problems are dealt with in the future.
“If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalize yourself?' If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalizing the bank, and if necessary the uninsured deposit holders,” Dutch Finance Minister Jeroen Dijsselbloem told Reuters.
There is additional concern that Germany may have been trying to make an example of the country, and that a precedent has been set for potential future bailouts.
“If there’s unrest in Cyprus – it’s not Portugal. It’s not Spain, it’s not Greece – it’s not a massive country. So what Germany was actually able to do was to enforce its might on a small country in which any kind of unrest, violence or protest will be relatively contained,” said Financial Advisor Margaret Bogenrief, co-founder of ACM Partners.
“If you’ve been reading the press – they’ve been extremely upset about footing the bills for these other countries, and I think what they were saying was ‘look, just to let you guys know – we can do this,’” she concluded.
Russia has strongly condemned a new bailout deal brokered between Cyprus and its international lenders, saying the agreement is tantamount to theft.
"The stealing of what has already been stolen continues," Russian Prime Minister Dmitry Medvedev said on Monday, referring to the bailout deal between Nicosia and the troika of lenders namely the European Central Bank (ECB), the International Monetary Fund (IMF) and the European Union (EU).
Medvedev said the agreement will save Cyprus from bankruptcy at the cost of forcing heavy losses for uninsured depositors on many bank deposits.
The deal will include a tax of up to 40 percent on deposits of over 100,000 euros in Cyprus’ two biggest banks.
Russian citizens hold as much as 20 billion euros (USD 26 billion) in Cypriot banks.
Moscow announced plans to study the consequences of the bailout deal including restructuring a 2.5-billion-euro Russian loan previously issued to Nicosia.
The bailout deal also drew heavy criticism from Speaker of the Cypriot Parliament Yiannakis Omirou who said “...this decision is painful for Cypriot people - this decision is a defeat.”
People in Cyprus have taken to the streets to protest the bailout deal. The protesters gathered outside the parliament in the capital Nicosia.
Cypriot protesters denounced their government, the EU and the IMF for their austerity policies.
The bailout agreement was reached early on Monday in Brussels. The deal paves the way for the country to receive a 10-billion-euro (USD 13 billion) bailout.
A bailout deal between Nicosia and the troika of lenders namely the European Central Bank (ECB), the International Monetary Fund (IMF) and the European Union (EU) has drawn criticism from the speaker of the Cypriot parliament.
“We had the decision from the Euro group, this decision is painful for Cypriot people. This decision was a defeat…,” Yiannakis Omirou said on Monday.
Omirou made the remarks after Cyprus and international lenders reportedly reached a bailout agreement to save the cash-strapped island nation from bankruptcy.
European Union sources said that the agreement was reached early on Monday in Brussels. The deal paves the way for the country to receive a 10-billion-euro (USD 13 billion) bailout.
Later in the day, in another meeting in the same building in Brussels, the eurozone's finance ministers also approved the deal.
The sources said that the deal will include a tax of up to 40 percent on deposits of over 100,000 euros in Cyprus’ two biggest banks.
The country’s banks are shut nationwide until March 26 to prevent cash withdrawals, prompting people to form long lines at cash machines, which only dispense a lowered daily amount of 260 euros for each individual account.
The 10-billion-euro bailout would also save Cyprus from bankruptcy and possibly guarantee its future in the 17-nation eurozone, reports say.
People in Cyprus have taken to the streets to protest the bailout deal. The protesters gathered outside the parliament in the capital Nicosia.
Cypriot protesters denounced their government, the EU and the IMF for their austerity policies.
A draft bailout deal for Cyprus has been agreed between the EU, the IMF and the Cypriot leadership. The proposal will now be presented to eurozone finance ministers for approval.
The new proposal will set up a "good bank" and a "bad bank" and will mean that the country’s second largest bank Laiki will effectively be shut down, Reuters reports.
"It seems that the whole process is nearing an agreement," the speaker of Cypriot parliament Yiannakis Omirou told reporters in Nicosia. "A proposal is taking shape, an agreement, a program ... that will put in the next half hour, or hour, to the Eurogroup," he said.
DETAILS TO FOLLOW
Despite public opposition, the threat of bank runs and a reverberation of financial pain for average Cypriots, officials in Cyprus close to the negotiations on Saturday say that a levy on depositors will remain part of the multi-billion euro bailout deal designed to secure funds from central Europe's financial powers.
Cyprus protest outside the finance ministry 23 March 2013. (REUTERS/Yannis Behrakis) Bank workers and others took to the streets on Saturday in the capital of Nicosia to protest the restructuring of major institutions on Friday, fearing that their jobs would be lost and chaos would ensue if the deal goes through.
Cyprus has agreed with EU/IMF lenders a 20-percent levy on deposits over 100,000 euros ($130,000) at leading lender Bank of Cyprus and a 4-percent levy on deposits of the same amount at other lenders, a senior Cypriot official said on Saturday.
The official, who spoke on condition of anonymity, said a Cypriot plan to tap nationalized pension funds, opposed by Germany, would not be part of a plan to raise billions of euros in return for a bailout from the European Union.
Though widely discussed as an oversized financial center for Russian oligarchs and "shady business deals," economist Economist Fiona Mullen tells Agence France-Presse that Cypriot pensioners—who did nothing to cause the crisis—also face being caught up in the bank restructuring plan.
"Everyone thinks this will only affect Russians but people's pensions are involved here," she said.
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Nicosia, Cyprus - Lawmakers took steps late Friday to revise a formula for obtaining a bailout of Cyprus’s banks but faced strong signals that the plan would not pass muster with international lenders.
The Parliament put off until later this weekend a vote on a crucial new proposal that would confiscate 22 to 25 percent of uninsured deposits above 100,000 euros through a new tax on account holders in one of the nation’s most troubled banks.
So with a deadline imposed by the European Central Bank looming on Monday, it appeared there was still no immediate path to a lifeline of 10 billion euros, or $13 billion, that Cyprus needs to keep its banks from collapsing.
Cyprus’s so-called troika of lenders — the International Monetary Fund, the European Commission and the European Central Bank — must still approve any plan. President Nicos Anastasiades was scheduled to fly to Brussels on Saturday to meet with European Union leaders, a spokesman said.
Monday is a national holiday in Cyprus, but banks are supposed to reopen on Tuesday for the first time in more than a week. There is widespread fear of a classic bank run.
On Friday, Cypriots jammed into supermarkets after lining up all day Thursday at automated teller machines to withdraw as much cash as possible. Gas stations were taking cash only, and some retailers reported that they would no longer accept credit.
One of the provisions Parliament approved Friday would impose new restrictions on withdrawing cash or moving money out of the country when the banks reopen. These new capital controls would prohibit or restrict check-cashing and bar “premature” account closings or any other transaction the authorities deemed unwarranted.
Lawmakers also voted to restructure the nation’s largest and most troubled bank, Laiki Bank, by splitting off its troubled assets into a so-called bad bank. Accounts with no problem would be transferred to the nation’s largest financial institution, the Bank of Cyprus. Lawmakers also voted to require that any bank on the verge of bankruptcy be split apart in the same way.
By effectively shutting down one of the banks needing support, the government could lower the 5.8-billion-euro sum that international lenders are demanding in exchange for a bailout. The consolidation of Laiki, also known as Cyprus Popular Bank, effectively relieves the government of a large expense of supporting the banking system, which is on the verge of collapsing under a mountain of souring loans to Greek businesses and individuals.
Still to be voted on is the measure to impose a tax of 22 to 25 percent on uninsured deposits at the Bank of Cyprus. That proposal was made after lawmakers rejected a plan earlier in the week to tax insured deposits to help raise the amount needed to secure the bailout. The Parliament appears to be trying to make up the difference in part by shifting the burden to large account holders.
When euro zone finance ministers negotiated the original bailout terms last weekend, Cypriot officials had resisted limiting the tax to large accounts, evidently to avoid damaging the country’s reputation as a haven for wealthy banking clients. Many of the wealthiest citizens of Russia have euro-denominated bank accounts in Cyprus, which is one reason that euro zone finance ministers have taken such a hard line.
The decision to tax uninsured deposits came after Cyprus proposed nationalizing the pension funds of state-owned Cypriot companies.
Lawmakers approved the pension takeover on Friday, but the move was denounced in Germany, whose political and financial influence in the euro zone tends to dictate policy.
“When you consider that there was massive resistance against involving the savings, then it is not easy to see how tapping the pension funds, which we view as socially a much more drastic step, is a very good idea,” Steffen Seibert, a spokesman for the German chancellor, Angela Merkel, told reporters.
The suggestion of tapping pension funds touches off a visceral response in Germany, where history has proved the dangers of such ideas. German pensions were tapped to finance both world wars, and the idea remains anathema to German leaders today.
“The German reaction to such suggestions quickly becomes emotional,” said Bernd Raffelhüschen, a professor of economics at the Albert-Ludwig University in Freiburg. “But looking at it rationally, it must be said that the German reaction is not stupid.”
Mr. Seibert, the Merkel spokesman, urged Cyprus to return to the bailout plan negotiated last weekend, including the deposit tax on ordinary investors, even though Parliament roundly rejected that measure on Tuesday.
The Cypriot government has ordered banks to keep A.T.M.’s filled with cash so long as the banks themselves remain closed. But that has been of little help to the thousands of international companies that bank in Cyprus, which cannot transfer money in and out of those accounts to conduct business.
The European authorities said Friday that members of the troika were focused mainly on the laws being drafted by the Cypriots to deal with failing banks and restrict flows of money out of the country.
“The law on bank resolution that is adopted needs to be a law applicable in a generic fashion, so not a law that would be applicable in only one particular case,” Simon O’Connor, a spokesman for Olli Rehn, the European commissioner for economic and monetary affairs, said at a news conference in Brussels.
Those comments seemed to suggest that troika officials want the Cypriots to be ready to shut down troubled lenders in addition to Laiki Bank, like the Bank of Cyprus, with the option of imposing significant losses on large depositors.
Other officials gave assurances Friday that Cyprus could impose capital controls, like strict curbs on daily withdrawals and withdrawals of savings deposits, without violating European Union rules that are meant to foster flows of capital between member states.
“It’s a unilateral decision by the member state and it does not require prior approval from the commission,” Chantal Hughes, a spokeswoman for Michel Barnier, the European commissioner for financial services, said at the same news conference. A country like Cyprus “can impose those restrictions as long as the criteria laid out in the treaties are met,” she said.
But she underlined that imposing capital controls was “not meant to be a never-ending situation” and that reaching an overall deal was vital.
On Friday, Greece also struck a deal to have one of its biggest lenders, Piraeus Bank, take over the Greek-based units of Cyprus’s three main banks. That move was meant to relieve Cyprus of the cost of supporting those units, while ensuring that Greek savers in those banks would be insulated from whatever new bailout terms might be struck.
A delegation of Cypriot officials led by the finance minister, Michalis Sarris, remained in Moscow until Friday morning to press the case for additional aid, but there were no reports of progress, and the officials stayed out of sight.
The Russian prime minister, Dmitri A. Medvedev, said on Friday at a joint news conference in Moscow with José Manuel Barroso, the president of the European Commission, that his country was not walking away from Cyprus.
Instead, Mr. Medvedev said, Russia will wait until a broader bailout deal is done before extending additional help.
“Regarding our participation in this process, we haven’t shut the doors,” Mr. Medvedev said. “Of course we’ve got our own economic interests at stake.”
Additional efforts to help Cyprus will come “only after a final settlement scheme” involving the European Union, he said.
The situation in Cyprus “is very dramatic and should be addressed as soon as possible,” Mr. Medvedev added.
Contributing reporting were Melissa Eddy in Berlin, James Kanter in Brussels, David M. Herszenhorn in Moscow, Niki Kitsantonis in Athens and Andreas Riris in Nicosia.
Cypriots gathered outside the parliament in Nicosia during a protest on March 22, 2013.
Protesters have taken to the streets in the Cypriot capital, Nicosia, as MPs are set to debate an emergency government legislation to avoid a financial collapse.
On Friday, protesters including bank employees and depositors gathered outside the parliament building to oppose the new plan or the so-called Plan B.
Restructuring Cyprus Laiki (Popular) Bank is part of an alternative plan aimed at raising up to 5.8 billion euros to secure a larger EU rescue package. Protesters fear the new plan could hit the country’s second largest lender hard if it includes a levy on some deposits.
The Mediterranean nation must raise 5.8 billion euros (USD 7.5 billion) in funds by Monday in order to secure a 10-billion-euro (USD 12.9-billion) bailout loan from the European Central Bank (ECB) and the International Monetary Fund (IMF).
The country’s lawmakers will meet on Friday afternoon to vote on a new draft legislation made up of nine bills to raise the funds, after they rejected a proposed plan to tax bank deposits by almost ten percent earlier this week.
The country’s banks are shut nationwide until March 26 to prevent cash withdrawals, prompting people to form long lines at cash machines, which only dispense a lowered daily amount of 260 euros for each individual account.
The long-drawn-out eurozone debt crisis is viewed as a threat not only to Europe, but also many other developed economies in the world.
Fears of bank runs, a Lehman-like collapse, and widespread panic are building.
Photo Credit: Shutterstock.com
March 17, 2013 |
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In a small island nation far, far away, the financial shit is hitting the fan. A new bailout package in the euro zone comes with terms that are causing a tsunami of anxiety across Europe and beyond. Here’s what’s happening and why it matters.
1. What the heck is going on?
Since 2008 , the Greek economy has gone from bad to worse. As Greece’s economy collapsed, the European and Greek banks that held the nation’s debts should have been told to eat their losses, write off the debts, and replace their managements. Instead, the European Union stepped in to engineer one bailout after another. The prices for the bailouts were high: austerity policies that didn’t work. The result everywhere is that national income has fallen steeply, while the countries fall further into debt.
Cypriot banks got into trouble from their exposure to neighboring Greece. Finance ministers from euro countries and representatives from the IMF and the European Central Bank came up with a radical plan for a bailout to Cyprus’ banks: In exchange for €10 billion ($13 billion) in rescue money, creditors would impose a one-time tax of 6.75 percent on all bank deposits under €100,000 ($131,000) and 9.9 percent over that amount, while Cyprus cut government spending and raised revenues. The decision to make depositors pay was a stunning departure from past EU-led bailouts.
On Saturday, freaked-out bank customers rushed to ATMs to withdraw as much of their cash as possible. The Cyprus government announced a bank holiday on Monday (a national holiday) and temporarily halted all electronic bank transfers. The bank holiday has now been extended until Tuesday.
The Cypriot Parliament was originally supposed to meet on Sunday to vote on the deal, but the vote has been postponed until Monday. Cypriot officials fear a full-on bank run once lenders reopen their doors.
2. Where would the money go?
Money obtained through the one-time tax would go to recapitalize Cyprus banks and service the country's debt.
3. Who would get hit by this deal?
Bank owners, unsurprisingly, are not being asked to pay into the package. Bank depositors are. This number includes ordinary Cypriots, British pensioners, and others who have their money in the banks, including a large number of wealthy Russian and Middle Eastern depositors. The depositors have been promised bank shares in exchange for the money that gets grabbed. But, um, who wants shares in banks that are in the financial toilet? Exactly no one. There has also been chatter that depositors will be given some kind of interest in bonds from gas fields presumably controlled by Cyprus.
4. Who wants the bailout?
The European Central Bank, the IMF, and the EU are the ones pushing this deal. Cyprus Prime Minister Nicos Anastasiades says he doesn’t like the deal and claims to be trying to soften it so that depositors with small accounts don’t get hit so hard.
5. Who opposes it?
Depositors hate the deal, obviously. Most of the population of Cyprus correctly believes they are being asked to pay for the sins of the banks. Well, “forced” is a better term, because no one’s really asking. According to the Wall Street Journal, one incensed resident of the town of Limassol parked a backhoe in front of a local bank to express the widespread sentiment about the deal.
6. What’s at stake?
Unfortunately, this is going to be ugly any way you slice it. On Monday, if Cyprus’ Parliament says no to the deal, there will be chaos because everybody will think the banks are belly up and there will be a bank run. That could be something like Lehman Brothers, meaning chain bankruptcies and panic throughout Europe.
Bloomberg noted last year that 77% of JP Morgan’s net income comes from government subsidies.
Bloomberg reported yesterday:
What if we told you that, by our calculations, the largest U.S. banks aren’t really profitable at all? What if the billions of dollars they allegedly earn for their shareholders were almost entirely a gift from U.S. taxpayers?
Lately, economists have tried to pin down exactly how much the subsidy lowers big banks’ borrowing costs. In one relatively thorough effort, two researchers — Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz — put the number at about 0.8 percentage point. The discount applies to all their liabilities, including bonds and customer deposits.
Small as it might sound, 0.8 percentage point makes a big difference. Multiplied by the total liabilities of the 10 largest U.S. banks by assets, it amounts to a taxpayer subsidy of$83 billion a year. To put the figure in perspective, it’s tantamount to the government giving the banks about 3 cents of every tax dollar collected.
The top five banks — JPMorgan, Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc. – – account for $64 billion of the total subsidy, an amount roughly equal to their typical annual profits (see tables for data on individual banks). In other words, the banks occupying the commanding heights of the U.S. financial industry — with almost $9 trillion in assets, more than half the size of the U.S. economy — would just about break even in the absence of corporate welfare. In large part, the profits they report are essentially transfers from taxpayers to their shareholders.
The money hasn’t just gone to the banks shareholders … It has also gone to line the pockets of bank management:
- Bailout money is being used to subsidize companies run by horrible business men, allowing the bankers to receive fat bonuses, to redecorate their offices, and to buy gold toilets and prostitutes
Economist Steve Keen says:
“This is the biggest transfer of wealth in history”, as the giant banks have handed their toxic debts from fraudulent activities to the countries and their people.
Nobel economist Joseph Stiglitz said in 2009 that Geithner’s toxic asset plan “amounts to robbery of the American people”.
Breaking up the big banks would stabilize the economy … and dramatically increase Main Street’s access to credit.
But the government has chosen the banks over the little guy … dooming both:
The big banks were all insolvent during the 1980s.
The bailouts were certainly rammed down our throats under false pretenses.
But here’s the more important point. Paulson and Bernanke falsely stated that the big banks receiving Tarp money were healthy, when they were not. They were insolvent.
Tim Geithner falsely stated that the banks passed some time of an objective stress test but they did not. They were insolvent.
Both the creditors and the debtors were mortally wounded by the 2008 financial crisis. The big banks wouldn’t have survived without trillions in handouts, guarantees, loans, idiot-proof profits courtesy of the government.
So the government chose sides. The creditors were wiped out, just like a lot of Main Street was wiped out. In one sense, the government chose who would live (the giant banks and other bailed out and favored companies) and who would die (the other 99%).
But in fact, the big banks were no longer creditors after the 2008 crash. Specifically, the big banks which held the mortgages and the loans were wiped out.
The government moved the arms and legs of the big banks to pretend they were still alive … and have been doing so ever since. But they were no longer going concerns after they went bust.
The government pumped blood back in these dead banks and turned them into zombies. They will never come back to life in a real sense … they are still zombies, 3 years later.
The big zombie banks can never come back to life, and – by trying to save them – the government is bleeding out the little guy.
By choosing the big banks over the little guy, the government is dooming both.
Remember, the Federal Reserve has paid banks high interest rates to stash money (their “excess reserves”) with the Fed for the express purpose of preventing loans to Main Street.
And the Fed plans to throw more money at the banks when the Federal Reserve starts to tighten. As FTreports:
US Federal Reserve officials fear a backlash from paying billions of dollars tocommercial banks when the time comes to raise interest rates.
The growth of the Fed’s balance sheet means it could pay $50bn-$75bn a year in interest on bank reserves at the same time as it makes losses and has to stop sending money to the Treasury.
In an interview with the Financial Times, James Bullard, president of the St Louis Fed, said: “If you think of the profitability of the biggest banks, if you’re going to talk about paying them something of the order of $50bn – well that’s more than the entire profits of the largest banks.”
At the moment it only pays 0.25 per cent interest on those reserves. But according to its exit strategy, published in June 2011, the Fed plans to raise interest rates before it sells assets. Interest of 2 per cent on $2.5tn of reserves would run to $50bn a year.
The eventual tightening could lead to substantial amounts being transferred to commercial banks from the Fed, given the amounts of cash they have parked there. Wells Fargo has $97.1bn sitting at the Fed, the largest amount of any bank, ahead of JPMorgan Chase at $88.6bn and Goldman Sachs at $58.7bn, according to an FT analysis of SNL data.
Foreign banks also have a striking amount of cash at the Fed, potentially aggravating the Fed’s PR problem. Analysts at Stone & McCarthy noted recently that there had been a steep increase in foreign banks placing reserves at the Fed and suggested that “US banks may have distaste for the opportunistic arbitrage”, between lower market rates and the interest on reserves, whereas overseas institutions “might not feel encumbered in the same fashion”.
And while this post focuses on bailouts and subsidies to big American banks, a large percentage of the bailouts went to foreign banks (and see this). And so did a huge portion of the money from quantitative easing. More here and here.
Gretchen Morgenson of the New York Times had this little bombshell tucked into the business section Saturday: The Federal Reserve is still giving bailouts to big banks. Not only that, they're giving away billions in legal claims:
The existence of one such secret deal, struck in July between the Federal Reserve Bank of New York and Bank of America, came to light just last week in court filings.
That the New York Fed would shower favors on a big financial institution may not surprise. It has long shielded large banks from assertive regulation and increased capital requirements.
Still, last week’s details of the undisclosed settlement between the New York Fed and Bank of America are remarkable. Not only do the filings show the New York Fed helping to thwart another institution’s fraud case against the bank, they also reveal that the New York Fed agreed to give away what may be billions of dollars in potential legal claims.
Here’s the skinny: Late last Wednesday, the New York Fed said in a court filing that in July it had released Bank of America from all legal claims arising from losses in some mortgage-backed securities the Fed received when the government bailed out the American International Group in 2008. One surprise in the filing, which was part of a case brought by A.I.G., was that the New York Fed let Bank of America off the hook even as A.I.G. was seeking to recover $7 billion in losses on those very mortgage securities.
It gets better.
What did the New York Fed get from Bank of America in this settlement? Some $43 million, it seems, from a small dispute the New York Fed had with the bank on two of the mortgage securities. At the same time, and for no compensation, it released Bank of America from all other legal claims.
[...] To anyone interested in holding banks accountable for mortgage improprieties, the Fed’s actions are bewildering. If the Fed intended that Maiden Lane II own the right to sue Bank of America for fraud, why didn’t it pursue such a potentially rich claim on behalf of taxpayers? The Fed made $2.8 billion on the Maiden Lane II deal, but the recovery from Bank of America could have been much greater. Why did it instead release Bank of America from these liabilities and supply declarations that seem to support the bank in its case against A.I.G.?
The New York Fed would not discuss this matter, citing the litigation. But taxpayers, who might have benefited had the New York Fed brought fraud claims, deserve answers to these questions.
[...] A New York Fed spokesman said it supported the settlement because it would generate significant value without potentially high litigation costs.
And of course, without disclosing any embarrassing details. That's how we do things now.
"And the hits just keep on coming."
It was about a week ago when Bloomberg reported that the world's oldest bank, Sienna's Banca Monte dei Paschi (BMPS) had masked a massive (for its size) loss courtesy of a Deutsche Bank-facilitated derivative transaction dubbed "Project Santoini." The trade, which led to a $2 billion loan from Deutsche Bank in December 2008, helped Monte Paschi mitigate a €367 loss from an older derivative contract with Deutsche Bank. As part of the arrangement, the Italian lender made a losing bet on the value of the country’s government bonds: one wonders if DB made BMPS buy some of its Italian holdings because, as is well-known, it was about this time that the German bank was getting uber bearish on all the periphery (for more on the details of the derivative read here).
This was the first time anyone in the general public had head about "Project Santorini."
Not surprisingly "Santorini" did not help the firm and in a few months later, the firm sought a €1.9 billion bailout from the Italian government - the first of many. Then in 2012, the bank requested more bailout funds after it became the only bank to fail the minimum capital requirement set by European regulators. CEO Fabrizio Viola, 55, requested an additional 500 million euros, bringing the total cost of the bailout to 3.9 billion euros, after the lender said in November that structured financings linked to government securities had soured. It is likely that yet another bailout of BMPS is imminent.
Then yesterday, as we reported, that BMPS had engaged in yet another previously undisclosed derivative trade named "Alexandria", this time with Nomura whose impact we immediately unclear but one which would result in an earnings hit of €220 million. However, while previously BMPS tried to get off the hook and put the blame on Deutsche, in this case Nomura said the bank's Chairman, Giuseppe Mussari, had "fully reviews and approved" the trade.
This was the first time anyone in the general public had head about "Project Alexandria."
And the market finally took notice, maybe because of the news of two previously unknown and losing derivative deals with two separate banks, both of which had supposedly gotten the blessing of the regulator - the Bank of Italy - coming to light in under one week, or maybe because the abovementioned Mussari promptly quit his post as Italy's top banking lobbyist in the aftermath of the disclosures: in all ways analogous to the departure of the US assistant attorney general yesterday in the aftermath of the "Untouchables" Frontline episode. Because if there is a departure, there is fire.
The result: the stock plunged.
Today it's deja vu again, as the news keeps on coming, this time from Reuters, which reported that BMPS could face total losses as much as $1 billion on prior derivatives trades which have only recently been discovered. The shares promptly plunged, and BMPS was halted for trading minutes before the Italian market closed:
the world's oldest bank has now said it is reviewing three loss-making structured trades related to its Italian sovereign bond holdings which only recently came to light and were negotiated by its previous management.
"Yes. The actualized shortfall is around that amount," the bank's chief executive Fabrizio Viola was quoted by daily newspaper Il Messaggero as saying when asked if 720 million euros was a certain loss rather than simply a maximum risk.
UBS said in a research note on Thursday it was including in its estimates a loss of 720 million euros on the derivative trades, pending more clarity, pushing the full-year expected loss to over 2 billion euros.
"Since the bank's statement spoke of an analysis exclusively of three products, the worry is there could be more and that's spooking the market," one analyst said, asking not to be named.
Viola, who has said the three products were never submitted to the bank's board, told Il Messaggero the management would now open every drawer in the bank for caution's sake. "But I think we're very close to completing the (clean-up) job," he said.
A spokesman for main shareholder Fondazione Monte dei Paschi di Siena told Reuters it did not exclude taking legal action depending on the outcome of analyses under way.
The bank said on Wednesday that 500 million euros requested in extra state aid in November would be enough to absorb a hit on its capital from the structured trades, which were linked to its massive 24 billion-euro Italian government bond portfolio.
Naturally, the implication is that after 4 years of endless bailouts and "recovery", nobody has any clue still just what is on Europe's bank balance sheets. And the further implication is that if BMPS was doing it, everyone else was, of course, doing it, and much more dirty laundry is soon set to be uncovered, especially since the Italian banking business puts simple incest to shame:
The central bank also said the new management, headed by Chairman Alessandro Profumo, had produced documents that had previously been hidden.
Profumo, former CEO at Italy's biggest bank UniCredit, took up his new role at Monte Paschi last April in place of Giuseppe Mussari while Viola took over as CEO in February from Antonio Vigni.
Mussari stepped down as head of Italy's banking association late on Tuesday, although he has denied any wrongdoing.
"You'll have to ask them (the old management). I can only make suppositions. And I prefer to keep them to myself," Viola told Il Messaggero when asked why the Bank of Italy had not been informed.
On Thursday, Italy's Treasury minister Vittorio Grilli said there was no sign that other Italian lenders could face problems similar to those at Monte Paschi.
"It's an isolated case and I don't see any reputational risk for other Italian banks which are much more solid than foreign banks as regards their exposure to derivative," said Giovanni Fiori, professor of accounting and business at Rome's LUISS Guido Carli university.
Of course there will be more "cases" - to assume this is isolated is the height of stupidity and naivete, but what else is an Italian minister to do to preserve the precarious stability attained after months of endless bluster from the ECB that Europe is "fine" -why pull a Juncker and lie of course.
But not even that is the biggest issue. Because should the BMPS dirty laundry be truly exposed for all to see, then the stench will go far. Very far. As far as Frankfurt and the ECB headquarters, because as we first explained yesterday, the person who may well be held accountable for BMPS' endless transgressions is none other than ECB head, and former Goldmanite, and prior head of the Bank of Italy: Mario Draghi.
Recall from Yesterday:
Bank Of Italy Throws The Book At Monte Paschi For "Hiding Derivative Documents"
As we reported previously, the stock of the oldest bank in the world, Italy's venerable Banca Monte Dei Paschi of Siena, was halted in early trade after plunging on news that the bank had engaged in not only the previously reported secret derivative transaction with Deustche Bank to hide losses before a prior government bailout, but yet another derivative transaction, this time with Nomura, signed three years ago and whose intention, ironically, was to reduce 2012 earnings by some €220 million.
What the ultimate purpose of these deals was is still unclear and will likely become apparent eventually, however it will likely require the former Chairman of the bank, Giuseppe Mussari, who served as Chair from 2006 until April 2012, and who officially quit his post as Italy's top banking lobbyist after today's revelations, to testify. One person whom he may testify against is none other than current ECB head Mario Draghi, who just happened to be the head of the Bank of Italy from 2006 to 2011, or the entire period when Monte Paschi was engaging in what increasingly appears to have been fraudulent activity.
But don't worry: just like in the US, nobody of signfiicance is about to go down for this "glitch" which is about to be blamed on some poor mid-level shmuck, and which nobody in the senior level management had any idea about, and certainly not the person who ultimately would have had to give the green light: the current head of the ECB. Sure enough from Bloomberg:
- BANK OF ITALY SAYS MONTE PASCHI HID DOCUMENTS ON TRANSACTIONS
It was all Fabrice Tourre's fault. Or better, yet: an algo did it!
- BANK OF ITALY SAYS NEW BMPS MGMT DISCLOSED INFO ON DEALS
- BANK OF ITALY SAYS NEW BMPS MGMT COOPERATING WITH AUTHORITIES
- BANK OF ITALY SAYS ALSO MAGISTRATES REVIEWING TRANSACTIONS
Would it be the same magistrates who are also reviewing Berlusconi for "alleged" sex with minors?
* * *
Sure enough not even 24 hours later, Mario Monti, speaking in Davos, said something that immedately confirmed just what is at issue here:
- ITALY'S MONTI SAYS NO OVERSIGHT FAILURE ON PASCHI
Translation, it was not the Bank of Italy's fault, and that of its then-head, Mario Drahi, that it failed in supervising the iconic Sienna bank. Because, you see, it is all the evil management's fault. The same "management" whose Chairman just happened to be head of the entire Italian banking lobby. Until yesterday.
And another, less politically correct translation: a (super) Goldman brother is helping another (super) Goldman brother out before the reporters figure out just what happened.
Naturally, since justice no longer exists in a Ponzi empire doomed to less than beautiful deleveraging, there will be no heads rolling over this matter besides those that already have, however one wonders: if Mario Draghi allowed such glaring unreported transactions, whose significance nobody grasped or know about at the time, and whose impact is only now being appreciated, to happen under his nose while in Italy, just what has been happening now that he is head of the biggest central bank in the world?
The other question: if and when BMPS fails, and its shareholders sue the Bank of Italy, will they also sue the man who presided over the Bank of Italy from 2006 until 2011?
And if Monte Paschi is the canary in the 2013 Italian bailout coalmine, who will be next: first in Italy, and then all over Europe?
Because once the other cockroaches, to take literary freedom with mixing and matching metaphors, are exposed - what will happen to all those sworn vows that Europe is now, finally, fixed, uttered most recently by none other than the Super Goldman Mario brothers?
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JUAN GONZÁLEZ: We turn now to look at the state of Wall Street four years after the massive bailout and the news of this week's mortgage settlements with the major banks. Matt Taibbi has just written a new piece for Rolling Stone titled "Secrets and Lies of the Bailout." Also still with us is former financial regulator William Black, author of The Best Way to Rob a Bank Is to Own One. He is an associate professor of economics and law at the University of Missouri-Kansas City.
Matt, beginning with you, the latest announcement of the agreement for some of the banks to pay several billion dollars now to—supposedly to homeowners who were cheated in one way or another in the foreclosure crisis?
MATT TAIBBI: Yeah, I mean, I think this is just—to me, the most significant aspect of this is that it speaks to the failure of the government to address the foreclosure problem still, four and five years after the financial crisis. And one of the points I make in the piece I just wrote, "Secrets and Lies of the Bailout," is that foreclosure relief was originally written into the statute, the TARP statute, as a primary function of the original bailouts. It's right there in black and white, section 109, that TARP was supposed to provide all—a massive program of foreclosure relief, and they never got around to it. And the only bailout program that ever provided any foreclosure relief was HAMP, and that only—to date, they've only ended up spending about $3 [billion] or $4 billion out of all the bailout on that program. They have now—through litigation, there are these settlements that are starting to trickle in, but it's just too little, too late. And you contrast that with what happened at the beginning of the bailout, where the banks and the financial companies were instantly handed hundreds of billions, trillions of dollars of relief, and I think that that dichotomy is important for people to recognize, that the relief for ordinary people is still coming slowly and insufficiently years later, whereas relief for Wall Street came instantaneously and was excessive.
AMY GOODMAN: The latest news about AIG, the board has decided not to sue the American people—
MATT TAIBBI: Right.
AMY GOODMAN: —for not bailing them out enough, not joining the former CEO, Hank Greenberg.
MATT TAIBBI: I think they probably didn't want to become a Saturday Night Live routine this weekend, but yeah.
AMY GOODMAN: Can you talk about the significance of this and what actually is going on? Greenberg, the CEO, the former CEO, is suing.
MATT TAIBBI: Right, right, yes. This is a longstanding dispute between the former CEO of AIG, Hank Greenberg, and the government. And it's funny. If you actually read Greenberg's suit, there are some points in it that have a little bit of validity. I mean, it's still preposterous that Greenberg, who was, in a way, kind of like the Patient Zero of the financial crisis, because the scandal that he started at AIG back in the 2000—in the early 2000s. It was a reinsurance scandal where he was artificially inflating the balance sheet of AIG, that led to a downgrade of AIG, which led to the catastrophe of 2008, when the company went into—imploded. And that subsequently caused the entire financial crisis. You can really point to Hank Greenberg as maybe the guy who caused the financial crisis, and here he is suing the American government over the bailout.
But one of the things he says in this—his lawsuit is that the bailout of AIG was not really a bailout of AIG, it was a bailout of the companies that were owed money by AIG, because they gave 100 cents on the dollar to all the companies—the counterparties of AIG, like Goldman Sachs and Deutsche Bank and Barclays, and that if he were in that position, he would have negotiated a much tougher deal. That's probably true. I mean, there's actually some validity to that point, that there's no way, under any rational circumstances, that those companies should have gotten 100 cents on the dollar for the money they were owed by AIG.
JUAN GONZÁLEZ: William Black, I'd like to ask you about this whole issue of the mortgage settlement that was announced. It is really, to me, amazingly scandalous that, years later, justice has not been forthcoming for all of these homeowners who lost their homes. I think the settlement calls for about $3.5 billion in cash to some three million homeowners; that works out to maybe about $1,000 a homeowner. And here we had instances of banks, with the massive robo-signings, evicting people from homes that they didn't even legally own at the time. And the thing became such a mess that the government review ended up wasting about a billion dollars just on the consultants hired to review all the bank foreclosures. What do you make of this settlement?
WILLIAM BLACK: So, the first thing is, this is more of what Matt and people like me have been writing about for years: the complete immunity of the elite Wall Street folks who caused this crisis through fraud, who became wealthy because of those frauds, and were then bailed out as a result of their frauds. None of them are being prosecuted. So we have admissions—and, by the way, this would have continued but for the discovery of this fraud. In other words, the banks weren't stopping it on their own.
The robo-signing, that means what they were doing was lying systematically to the tune, typically, of the large places, of 10,000 times a month, so over 100,000 times a year, committing felonies that would lead to people being made homeless in America, in many cases. It's just an astonishing aspect that nobody has gone to prison for all of this and that they gave them one of the largest grants of immunity you'll ever see.
Second thing, as you say, the money in the press reports is grossly inflated. There's only about $3 billion in cash. You're quite correct, that works out to less than $1,000 per victim. So it is exactly what Barofsky quotes Geithner as saying, that these housing programs were not designed for the victims; they were designed to, quote, "foam the runways" for the banks to reduce their loss exposure. So the rest of the supposed $5 billion in settlement is really just what in the commercial world we call "troubled debt restructurings," which are the things you would do anyway if the government didn't exist, because in most cases it's better for the bank not to have the default, to instead reduce the principal slightly. So, none of that is actually a bailout. None of it is actually a settlement. It's just the banks doing that which will profit maximize for the banks anyway.
AMY GOODMAN: ...June, when JPMorgan Chase's Jamie Dimon testified on Capitol Hill. This is Oregon Democratic Senator Jeff Merkley questioning Dimon.
SEN. JEFF MERKLEY: In 2008, 2009, your company benefited from half-a-trillion dollars in low-cost federal loans, $25 billion in TARP loans, of TARP funds, untold billions indirectly through the bailout of AIG that helped address your massive exposure in repurchase agreements and derivatives. With all of that in mind, wouldn't JPMorgan have gone down without the massive federal intervention, both directly and indirectly, in 2008 or 2009?
JAMIE DIMON: I think you were misinformed. And I think that misinformation is leading to a lot of the problems we're having today. JPMorgan took TARP because we were asked to by the secretary of Treasury of the United States of America, with the FDIC in the room, head of the New York Fed, Tim Geithner, chairman of the Federal Reserve, Ben Bernanke. We did not, at that point, need TARP. We were asked to, because we were told—I think correctly so—that if the nine banks there—and some may have needed it—take this TARP, we can get it to the—all these other banks and stop the system from going down. We did not—
SEN. JEFF MERKLEY: I'm going to cut you—
JAMIE DIMON: We did not borrow from the Federal Reserve, except when they asked us to. They said, "Please use these facilities, because it makes it easier for other" —
SEN. JEFF MERKLEY: We would all like to be asking—
JAMIE DIMON: And we were not bailed out by AIG, OK? If AIG itself would have—we would have had a direct loss of maybe a billion or $2 billion if AIG went down, and we would have been OK.
SEN. JEFF MERKLEY: Then you have a difference of opinion with many analysts of the situation who felt the AIG bailout did benefit you enormously. And I'm not going to carry that argument with you now.
JAMIE DIMON: Well, but they're factually—
SEN. JEFF MERKLEY: Sir—
JAMIE DIMON: They're factually wrong.
SEN. JEFF MERKLEY: Sir, this is not your hearing. I'm asking you to respond to questions. And I also only have five minutes.
AMY GOODMAN: That was Oregon Democratic Senator Jeff Merkley questioning JPMorgan Chase's Jamie Dimon. Matt Taibbi, the significance of this exchange?
MATT TAIBBI: Well, I think that's one of the things that's really interesting. And one of the things that I write about in this article is that this is what Neil Barofsky, the bailout inspector, calls the "original sin" of the bailout, which is this moment in time where—right after TARP was passed, where the government elected to call companies that were unhealthy and insolvent "healthy" and "solvent." When they scrapped the plan to buy up troubled assets—remember, TARP was the Troubled Asset Relief Program—well, they scrapped that idea a few days after the bill was passed and decided to just dump a whole bunch of money onto the balance sheets of these banks. This was called the Capital Purchase Program. They spent $125 billion right off the bat. It was spent on nine companies. And one of the things they said was, all of these companies are healthy and viable. And it turned out later, according to numerous sources, including all the SIGTARP reports, including—according to Barofsky and other sources, that they didn't even check to see if these companies were solvent at the time. They had no interest in discovering that, one way or the other. And, in fact, many of these companies were on the brink of failure at the time. Barofsky was told specifically that Morgan Stanley and Goldman Sachs were both on the brink of disaster when they were given this money.
It's interesting that Jamie Dimon talks about how his company didn't need that Fed money. You know, it came out in the—in Bloomberg's Freedom of Information request, when they got all the data from the audit of the Federal Reserve, it came out that his company, at that time, in late 2008, had a $50 [billion] or $60 billion line of credit with the Fed on top of all the money they were getting through the TARP bailout, through the bailout of Bear Stearns and other facilities. So, apparently, they didn't need all that money, you know, that $100 billion or whatever it was they got from the federal government; it was just they were taking it because they were being polite, they were being—and they were asked to by the federal government. And this fiction, that they didn't need the money, that they were healthy all the time, the government—we not only gave them money, but we vouched for them, and now we're stuck vouching for them basically forever. And that's the ongoing bailout that has become the real problem.
JUAN GONZÁLEZ: I wanted to ask William Black—in the deal that the Obama administration reached on taxes recently with the House Republicans, there hasn't been a lot of attention to the issue of what happened to carried interest. The hedge fund moguls of the world were most concerned about that, their abililty to evade taxes by having their payments as capital gains instead of actual fees and salaries. Could you talk about what the Obama administration did there?
WILLIAM BLACK: Yeah. Let me mention just one thing, though, that fits to Matt's point. They also changed the accounting rules, so the banks didn't have to recognize their losses, so that they could hide them and pretend to be healthy. So that's a huge part of that story.
As to taxes, you know, this was, again, a classic example of the Obama administration snatching defeat from the jaws of victory, where it had all the leverage and negotiated against itself once again. And so, yes, the wealthiest folks—and this is the irony, of course, is we're talking about the George Romneys of the world—I'm sorry, the Mitt Romneys of the world—I grew up in Michigan; I'm dating myself—are the principal beneficiary through the—something that is completely unsupportable, on any policy ground, which is this carried interest, which simply treats income as if it weren't income anymore for the wealthiest Americans who receive their money from running hedge funds. And that's continued.
AMY GOODMAN: Let's end with the legacy of the outgoing treasury secretary, Timothy Geithner. On Thursday, President Obama praised his time in office.
PRESIDENT BARACK OBAMA: Thanks in large part to his steady hand, our economy has been growing again for the past three years. Our businesses have created nearly six million new jobs. The money that we spent to save the financial system has largely been paid back. We've put in place rules to prevent that kind of financial meltdown from ever happening again. An auto industry was saved. We made sure taxpayers are not on the hook if the biggest firms fail again. We've taken steps to help underwater homeowners come up for air and opened new markets to sell American goods overseas. And we've begun to reduce our deficit through a balanced mix of spending cuts and reforms to a tax code that, at the time that we both came in, was too skewed in favor of the wealthy at the expense of middle-class Americans. So, when the history books are written, Tim Geithner is going to go down as one of our finest secretaries of the Treasury.
AMY GOODMAN: That was President Obama. Professor Black, final seconds.
WILLIAM BLACK: OK. First, Geithner is a principled person who caused the crisis. He was supposed to be the top regulator preventing it in New York and did nothing. Second, he has created crony capitalism, American style. Third, those regulations in fact will not prevent future crises and were designed to make sure they were not. And I agree strongly with Matt that the choice of Jack Lew is to not only produce continuity with Geithner's disastrous failed policies, but to signal the administration's desire to continue the bailout of Wall Street.
AMY GOODMAN: Matt Taibbi?
MATT TAIBBI: Yeah, I think the legacy of Tim Geithner is simple. He's the architect of "too big to fail." And that's going to be, historically, his legacy. When this all blows up—and it's going to blow up, for sure, because it can't—things can't continue the way they are right now—people are going to look back in history, and they're going to say, "Who was to blame for this?" And Timothy Geithner is going to be the guy who designed this entire system.
JUAN GONZÁLEZ: Of course, and he will always be remembered as the first treasury secretary who neglected to pay his own taxes.
MATT TAIBBI: Right, right, there's that, true, exactly.
AMY GOODMAN: We want to thank you both for being with us. Matt Taibbi, a contributing editor at Rolling Stone, his latest piece, "Secrets and Lies of the Bailout." We'll link to it at democracynow.org. And William Black, professor of university—professor at University of Missouri-Kansas City. This is Democracy Now! We'll be back in a minute on this anniversary of the earthquake in Haiti. Stay with us.
We noted in 2011 that the Geithner, Bernanke and Paulson lied about the health of the big banks in pitching bailouts to Congress and the American people:
The big banks were all insolvent during the 1980s.
The bailouts were certainly rammed down our throats under false pretenses.
But here’s the more important point. Paulson and Bernanke falsely stated that the big banks receiving Tarp money were healthy, when they were not. They were insolvent.
Tim Geithner falsely stated that the banks passed some time of an objective stress test but they did not. They were insolvent.
[All of the big banks were] insolvent in the 1980s, but the government made aconcerted decision to cover that up.
“I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,” Roubini said at a conference in Dubai today. “If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion.”
“The problems of Citi, Bank of America and others suggest the system isbankrupt,” Roubini said. “In Europe, it’s the same thing.”
We noted earlier this year:
The American government’s zero interest rate policy is very much like the British Libor manipulation scandal … it’s nothing but an attempt to breathe life back into the insolvent banks, at the expense of the taxpayer. And see this.
And the “financial reform” laws passed in the wake of the crisis have, in some ways, actually weakened regulations of the financial markets, allowed the big banks to get a lot bigger, and have intentionally allowed fraudulent accounting (and see this).
Likewise, the “stress tests” in both Europe and America have been a total scam … a naked attempt to put lipstick on a pig to cover up the fact that the big banks are insolvent.
Matt Taibbi adds details to the bailout scam:
The main reason banks didn’t lend out bailout funds is actually pretty simple: Many of them needed the money just to survive. Which leads to another of the bailout’s broken promises – that taxpayer money would only be handed out to “viable” banks.
Soon after TARP passed, Paulson and other officials announced the guidelines for their unilaterally changed bailout plan. Congress had approved $700 billion to buy up toxic mortgages, but $250 billion of the money was now shifted to direct capital injections for banks. (Although Paulson claimed at the time that handing money directly to the banks was a faster way to restore market confidence than lending it to homeowners, he later confessed that he had been contemplating the direct-cash-injection plan even before the vote.) This new let’s-just-fork-over-cash portion of the bailout was called the Capital Purchase Program. Under the CPP, nine of America’s largest banks – including Citi, Wells Fargo, Goldman, Morgan Stanley, Bank of America, State Street and Bank of New York Mellon – received $125 billion, or half of the funds being doled out. Since those nine firms accounted for 75 percent of all assets held in America’s banks – $11 trillion – it made sense they would get the lion’s share of the money. But in announcing the CPP, Paulson and Co. promised that they would only be stuffing cash into “healthy and viable” banks. This, at the core, was the entire justification for the bailout: That the huge infusion of taxpayer cash would not be used to rescue individual banks, but to kick-start the economy as a whole by helping healthy banks start lending again.
This announcement marked the beginning of the legend that certain Wall Street banks only took the bailout money because they were forced to – they didn’t need all those billions, you understand, they just did it for the good of the country. “We did not, at that point, need TARP,” Chase chief Jamie Dimon later claimed, insisting that he only took the money “because we were asked to by the secretary of Treasury.” Goldman chief Lloyd Blankfein similarly claimed that his bank never needed the money, and that he wouldn’t have taken it if he’d known it was “this pregnant with potential for backlash.” A joint statement by Paulson, Bernanke and FDIC chief Sheila Bair praised the nine leading banks as “healthy institutions” that were taking the cash only to “enhance the overall performance of the U.S. economy.”
But right after the bailouts began, soon-to-be Treasury Secretary Tim Geithner admitted to Barofsky, the inspector general, that he and his cohorts had picked the first nine bailout recipients because of their size, without bothering to assess their health and viability. Paulson, meanwhile, later admitted that he had serious concerns about at least one of the nine firms he had publicly pronounced healthy. And in November 2009, Bernanke gave a closed-door interview to the Financial Crisis Inquiry Commission, the body charged with investigating the causes of the economic meltdown, in which he admitted that 12 of the 13 most prominent financial companies inAmerica were on the brink of failure during the time of the initial bailouts.
On the inside, at least, almost everyone connected with the bailout knew that the top banks were in deep trouble. “It became obvious pretty much as soon as I took the job that these companies weren’t really healthy and viable,” says Barofsky, who stepped down as TARP inspector in 2011.
A month or so after the bailout team called the top nine banks “healthy,” it became clear that the biggest recipient, Citigroup, had actually flat-lined on the ER table. Only weeks after Paulson and Co. gave the firm $25 billion in TARP funds, Citi – which was in the midst of posting a quarterly loss of more than $17 billion – came back begging for more. In November 2008, Citi received another $20 billion in cash and more than $300 billion in guarantees.
We’ve repeatedly noted that the government’s whole strategy in dealing with the financial crisis is to cover up the fraud, and Taibbi notes:
Now, instead of using the bailouts as a clear-the-air moment, the government decided to double down on such fraud, awarding healthy ratings to these failing banks and even twisting its numerical audits and assessments to fit the cooked-up narrative.
A key feature of the bailout: the government’s decision to use lies as a form of monetary aid. State hands over taxpayer money to functionally insolvent bank; state gives regulatory thumbs up to said bank; bank uses that thumbs up to sell stock; bank pays cash back to state. What’s critical here is not that investors actually buy the Fed’s bullshit accounting – all they have to do is believe the government will backstop Regions [bank, as one example] either way, healthy or not. “Clearly, the Fed wanted it to attract new investors,” observed Bloomberg, “and those who put fresh capital into Regions this week believe the government won’t let it die.”
Through behavior like this, the government has turned the entire financial system into a kind of vast confidence game – a Ponzi-like scam in which the value of just about everything in the system is inflated because of the widespread belief that the government will step in to prevent losses. [Exactly.] Clearly, a government that’s already in debt over its eyes for the next million years does not have enough capital on hand to rescue every Citigroup or Regions Bank in the land should they all go bust tomorrow. But the market is behaving as if Daddy will step in to once again pay the rent the next time any or all of these kids sets the couch on fire and skips out on his security deposit. Just like an actual Ponzi scheme, it works only as long as they don’t have to make good on all the promises they’ve made. They’re building an economy based not on real accounting and real numbers, but onbelief.
And see this.
The insurance giant AIG would like to thank you, America, for the kindly bailout money you handed over in 2008. It would also like another $25 billion.
January 9, 2013 |
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The insurance giant AIG would like to thank you, America, for the kindly bailout money you handed over in 2008. It would also like another $25 billion.
This week, in a bait-and-switch feat that could only be accomplished by a corporation with a massive PR budget, AIG continued to release a series of “Thank You” videos and threatened the federal government with a $25 billion lawsuit, alleging that the corporation received the short end of the stick during the 2008 bailouts.
First, let’s examine the company’s outrageous public message:
Shots pan through the storm-ravaged town of Joplin, Missouri. The narrator makes promises about helping rebuild New York City after Hurricane Sandy. Everyone stresses that the bailout money has been paid back in full—with a profit!—a claim that Rolling Stone’s Matt Taibbi viciously debunks. And smiling people repeats over and over again: Thank you, America.
But behind the glossy PR stunt, AIG isn’t, really, all that grateful. In fact, the insurance giant—which nearly collapsed in 2008 under the weight of the terribly bad decision to insure predatory mortgages worth (supposedly, but not really) trillions of dollars— is still fuming over the terms of this voluntary bailout.
In 2008, the U.S. taxpayers gave AIG $182 billion in bailout money. But AIG isn’t satisfied because, compared to other bailed-out banks, it claims that the government exacted harsher penalties and terms. In fact, AIG is going as far as to claim that the federal government violated the Fifth Amendment, which bans the government from taking private property without “just compensation.”
This claim is literally absurd, rail government officials.
Taxpayers across this country saved AIG from ruin, and it would be outrageous for this company to turn around and sue the federal government because they think the deal wasn’t generous enough,” said Elizabeth Warren. Even today, the government provides an ongoing, stealth bailout, propping up AIG with special tax breaks — tax breaks that Congress should stop.”
AIG isn’t the only bitter over the aftermath of the bailout.
As Taibbi writes:
Even worse was the incredible episode in which bailout recipient AIG paid more than $1 million each to 73 employees of AIG Financial Products, the tiny unit widely blamed for having destroyed the insurance giant (and perhaps even triggered the whole crisis) with its reckless issuance of nearly half a trillion dollars in toxic credit-default swaps. The "retention bonuses," paid after the bailout, went to 11 employees who no longer worked for AIG.
Meanwhile, earlier this week the New York Times reported that the banks reached a highly favorable settlement (favorable for Wall Street, that is) with regulators, another significant step in precluding anyone from facing criminal prosecution for crimes committed in the lead-up to 2008. Oh, and Bank of America plans to pay out out another $10 billion to cover its now-subsidiary Countrywide’s crimes of lying to Fannie Mae and generally screwing up the mortgage market. And no one from HSBC, which was recently found guilty of laundering money for Mexican drug cartels and breaking a whole host of banking laws, celebrated New Year’s behind bars.
Laura Gottesdiener is a freelance journalist and activist in New York City.
Video: “Democracy Cannot Be Blackmailed”: Greek Voters Overwhelmingly Reject Creditors’ Austerity Demand
Video: ‘Powerful stakeholders subordinate IMF for their own political agendas’ – IMF Executive Director
The Syriza coalition emerged from various offshoots of the Greek radical left, which set itself apart from the political mainstream by taking an anti-capitalist position emphasizing wealth redistribution and class struggle, while allying itself with alter-globalization movements and trade unions. The ascension of Syriza represents the most leftward shift in European politics in decades.
Once a negligible force at the ballot box, Syriza has gradually succeeded in commanding support among the wage-earning class and the urban unemployed, who view the coalition as the only political force capable of pulling the country off the trajectory of austerity, imposed by Greece’s creditors – primarily Germany.
Nile Bowie is an independent journalist and political analyst based in Kuala Lumpur, Malaysia. His articles have appeared in numerous international publications, including regular columns with Russia Today (RT) and newspapers such as the Global Times, the Malaysian Reserve and the New Straits Times. He is a research assistant with the International Movement for a Just World (JUST), a Malaysian NGO promoting social justice and anti-hegemony politics. He can be reached at [email protected].
For years, homeowners have been battling Wall Street in an attempt to recover some portion of their massive losses from the housing Ponzi scheme. But progress has been slow, as they have been outgunned and out-spent by the banking titans.
In June, however, the banks may have met their match, as some equally powerful titans strode onto the stage. Investors led by BlackRock, the world’s largest asset manager, and PIMCO, the world’s largest bond-fund manager, have sued some of the world’s largest banks for breach of fiduciary duty as trustees of their investment funds. The investors are seeking damages for losses surpassing $250 billion. That is the equivalent of one million homeowners with $250,000 in damages suing at one time.
The defendants are the so-called trust banks that oversee payments and enforce terms on more than $2 trillion in residential mortgage securities. They include units of Deutsche Bank AG, U.S. Bank, Wells Fargo, Citigroup, HSBC Holdings PLC, and Bank of New York Mellon Corp. Six nearly identical complaints charge the trust banks with breach of their duty to force lenders and sponsors of the mortgage-backed securities to repurchase defective loans.
Why the investors are only now suing is complicated, but it involves a recent court decision on the statute of limitations. Why the trust banks failed to sue the lenders evidently involves the cozy relationship between lenders and trustees. The trustees also securitized loans in pools where they were not trustees. If they had started filing suit demanding repurchases, they might wind up suedon other deals in retaliation. Better to ignore the repurchase provisions of the pooling and servicing agreements and let the investors take the losses—better, at least, until they sued.
Beyond the legal issues are the implications for the solvency of the banking system itself. Can even the largest banks withstand a $250 billion iceberg? The sum is more than 40 times the $6 billion “London Whale” that shook JPMorganChase to its foundations.
Who Will Pay – the Banks or the Depositors?
The world’s largest banks are considered “too big to fail” for a reason. The fractional reserve banking scheme is a form of shell game, which depends on “liquidity” borrowed at very low interest from other banks or the money market. When Lehman Brothers went bankrupt in 2008, triggering a run on the money market, the whole interconnected shadow banking system nearly went down with it.
Congress then came to the rescue with a taxpayer bailout, and the Federal Reserve followed with its quantitative easing fire hose. But in 2010, the Dodd Frank Act said there would be no more government bailouts. Instead, the banks were to save themselves with “bail ins,” meaning they were to recapitalize themselves by confiscating a portion of the funds of their creditors – including not only their shareholders and bondholders but the largest class of creditor of any bank, their depositors.
Theoretically, deposits under $250,000 are protected by FDIC deposit insurance. But the FDIC fund contains only about $47 billion – a mere 20% of the Black Rock/PIMCO damage claims. Before 2010, the FDIC could borrow from the Treasury if it ran short of money. But since the Dodd Frank Act eliminates government bailouts, the availability of Treasury funds for that purpose is now in doubt.
When depositors open their online accounts and see that their balances have shrunk or disappeared, a run on the banks is likely. And since banks rely on each other for liquidity, the banking system as we know it could collapse. The result could be drastic deleveraging, erasing trillions of dollars in national wealth.
Some pundits say the global economy would then come crashing down. But in a thought-provoking March 2014 article called “American Delusionalism, or Why History Matters,” John Michael Greer disagrees. He notes that historically, governments have responded by modifying their financial systems:
Massive credit collapses that erase very large sums of notional wealth and impact the global economy are hardly a new phenomenon . . . but one thing that has never happened as a result of any of them is the sort of self-feeding, irrevocable plunge into the abyss that current fast-crash theories require.
The reason for this is that credit is merely one way by which a society manages the distribution of goods and services. . . . A credit collapse . . . doesn’t make the energy, raw materials, and labor vanish into some fiscal equivalent of a black hole; they’re all still there, in whatever quantities they were before the credit collapse, and all that’s needed is some new way to allocate them to the production of goods and services.
This, in turn, governments promptly provide. In 1933, for example, faced with the most severe credit collapse in American history, Franklin Roosevelt temporarily nationalized the entire US banking system, seized nearly all the privately held gold in the country, unilaterally changed the national debt from “payable in gold” to “payable in Federal Reserve notes” (which amounted to a technical default), and launched a series of other emergency measures. The credit collapse came to a screeching halt, famously, in less than a hundred days. Other nations facing the same crisis took equally drastic measures, with similar results. . . .
Faced with a severe crisis, governments can slap on wage and price controls, freeze currency exchanges, impose rationing, raise trade barriers, default on their debts, nationalize whole industries, issue new currencies, allocate goods and services by fiat, and impose martial law to make sure the new economic rules are followed to the letter, if necessary, at gunpoint. Again, these aren’t theoretical possibilities; every one of them has actually been used by more than one government faced by a major economic crisis in the last century and a half.
That historical review is grounds for optimism, but confiscation of assets and enforcement at gunpoint are still not the most desirable outcomes. Better would be to have an alternative system in place and ready to implement before the boom drops.
The Better Mousetrap
North Dakota has established an effective alternative model that other states might do well to emulate. In 1919, the state legislature pulled its funds out of Wall Street banks and put them into the state’s own publicly-owned bank, establishing financial sovereignty for the state. The Bank of North Dakota has not only protected the state’s financial interests but has been a moneymaker for it ever since.
On a national level, when the Wall Street credit system fails, the government can turn to the innovative model devised by our colonial forebears and start issuing its own currency and credit—a power now usurped by private banks but written into the US Constitution as belonging to Congress.
The chief problem with the paper scrip of the colonial governments was the tendency to print and spend too much. The Pennsylvania colonists corrected that systemic flaw by establishing a publicly-owned bank, which lent money to farmers and tradespeople at interest. To get the funds into circulation to cover the interest, some extra scrip was printed and spent on government services. The money supply thus expanded and contracted naturally, not at the whim of government officials but in response to seasonal demands for credit. The interest returned to public coffers, to be spent on the common weal.
The result was a system of money and credit that was sustainable without taxes, price inflation or government debt – not to mention without credit default swaps, interest rate swaps, central bank manipulation, slicing and dicing of mortgages, rehypothecation in the repo market, and the assorted other fraudulent schemes underpinning our “systemically risky” banking system today.
Relief for Homeowners?
Will the BlackRock/PIMCO suit help homeowners? Not directly. But it will get some big guns on the scene, with the ability to do all sorts of discovery, and the staff to deal with the results.
Fraud is grounds for rescission, restitution and punitive damages. The homeowners may not have been parties to the pooling and servicing agreements governing the investor trusts, but if the whole business model is proven to be fraudulent, they could still make a case for damages.
In the end, however, it may be the titans themselves who take each other down, clearing the way for a new phoenix to rise from the ashes.
Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling Web of Debt. In The Public Bank Solution, her latest book, she explores successful public banking models historically and globally. Her websites are http://EllenBrown.com, http://PublicBankSolution.com, and http://PublicBankingInstitute.org.
Timothy Alexander Guzman, Silent Crow News – With growing anger in Greece due to austerity measures, the government under President Karolos Papoulias of the Panhellenic Socialist Movement (PASOK) is in talks with several Israeli firms to purchase surveillance drones to monitor the country’s borders due to an influx of illegal immigration, spy on organized crime syndicates and to prevent terrorist attacks. According to the online news source of www.ekathimerini.com who published a report titled ‘Drones to boost police security effort’ states:
The Public Order Ministry is in talks with Israeli firms regarding the acquisition of unmanned aerial vehicles (UAVs), commonly known as drones, to bolster the efforts of the Greek Police (ELAS) to monitor the country’s borders and curb illegal immigration as well as cracking down on organized crime and domestic terrorism, Kathimerini has learned. It remains unclear how many drones the ministry is seeking to acquire and what type. In any case the aircraft, once acquired, will be able to provide Greek security services with useful data including cell phone signals that could help avert crimes and terrorist attacks
Between 2010 and 2012, protests across Greece including general strikes by unions against the government’s plans to cut public spending and raise taxes across the board through austerity measures. The Greek government agreed with the European Union’s €110 billion bailout plan to solve the 2010-2011 Greek Debt Crises. In May 2011, anti-austerity protests were organized by the ‘Direct Democracy Now movement known as the Indignant Citizens Movement. Major protests began all across Greece, some turned violent. Violence between riot police and protesters erupted when the Greek parliament accepted the EU’s austerity requirements. It was reported that the police used excessive force and used tear gas against protesters. Now, the Greek government wants unmanned aerial vehicles (UAVs), or drones to monitor an increasing dire situation within Greece. According to the report:
According to an extremely well-informed source, Greek authorities first considered the acquisition of such aircraft during the summer of 2011 when the “Indignants” movement of citizens opposed to austerity was growing rapidly with thousands gathering in Syntagma Square day and night. A drone was used to trace several Albanian convicts who escaped from Trikala Prison in central Greece in March last year. It is likely that European Union subsidies will be used for the purchase of the UAVs though it remains unclear what sum has been earmarked for the investment
Greece unemployment is close to 30%, with more than 50% affecting those under 25 years old. The European Union is a colossal failure as Portugal, Italy and Spain continue to suffer from high-unemployment and a mass exodus of its citizens to other countries that might offer economic opportunities. Governments within the EU are concerned that more protests across the region will increase and in many circumstances can turn violent. The rise of extreme right-wing groups is on the increase. According to a the Guardian earlier this year, the leader of the United Kingdom Independence Party Nigel Farage spoke out in the European Parliament when he criticized Greek Prime Minister Antonis Samaras for allowing the EU and IMF to control the Greek economy. The Article titled ‘Nigel Farage becomes popular in Greece after outburst against the PM’ Farage was quoted as saying:
You come here, Mr Samaras, and tell us that you represent the ‘sovereign will of the Greek people’. Well, I am sorry but you are not in charge of Greece, and I suggest you rename and rebrand your party,” railed Farage last week as Samaras, slumped in his seat, looked on haplessly. “It is called New Democracy; I suggest you call it No Democracy because Greece is now under foreign control. You can’t make any decisions, you have been bailed out and you have surrendered democracy, the thing your country invented in the first place
The article also stated:
Reminding Samaras of the heavy price Greece had paid to be rescued from insolvency by creditors at the EU and IMF, he said: “I must congratulate you for getting the Greek presidency off to such a cracking start. Your overnight successful negotiation … will have them dancing in the streets of Athens. “No matter that your country, very poorly advised by Goldman Sachs, joined a currency that it was never suited to. No matter that 30% of its people are unemployed, that 60% of youth are unemployed, that a neo-Nazi party is on the march, that there was a terrorist attack on the German embassy.”
The Greek government’s decision to accept the EU’s recommendations on the economy will increase anger and resentment among the Greek people as the economy continues to worsen. They are concerned that a civil war can possibly take place. With the possibility of the Greek government purchasing Israeli made drones, I assume that is what they are expecting.
What’s the reason for the tempest in the teapot of Hillary and Bill Clinton’s personal finances?
It can’t be about how much money they have. Wealth has never disqualified someone from high office. Several of the nation’s greatest presidents, who came to office with vast fortunes – JFK, Franklin D. Roosevelt, and his fifth cousin, Teddy – notably improved the lives of ordinary Americans.
The tempest can’t be about Hillary Clinton’s veracity. It may have been a stretch for her to say she and her husband were “dead broke” when they left the White House, as she told ABC’s Diane Sawyer. But they did have large legal bills to pay off.
And it’s probably true that, unlike many of the “truly well off,” as she termed them in an interview with the Guardian newspaper, the Clintons pay their full income taxes and work hard.
Nor can the tempest be about how they earned their money. Most has come from public speaking and book royalties, the same sources as for most ex-presidents and former First Ladies.
Then what’s it about?
The story behind story is that America is in an era of sharply rising inequality, with a few at the top doing fabulously well but most Americans on a downward economic escalator.
That’s why Diane Sawyer asked Hillary about the huge speaking fees, and why the Guardian asked whether she could be credible on the issue of inequality.
And it’s why Hillary’s answers – that the couple needed money when they left the White House, and have paid their taxes and worked hard for it — seemed oddly beside the point.
The questions had nothing to do with whether the former first couple deserved the money. They were really about whether all that income from big corporations and Wall Street put them on the side of the privileged and powerful, rather than on the side of ordinary Americans.
These days, voters want to know which side candidates are on because they believe the game is rigged against them.
According to new Pew survey, 62 percent of Americans now think economic system unfairly favors the powerful, and 78 percent think too much power is concentrated in too few companies. Even 69 percent of young conservative-leaning voters agree the system favors the powerful.
Other potential presidential candidates are using every opportunity to tell voters they’re on their side. Speaking at last week’s White House summit on financial hardships facing working families, Vice President Joe Biden revealed he has “no savings account” and “doesn’t own a single stock or bond.”
The same concern haunts the Republican Party and is fueling the Tea Party rebellion. In his stunning campaign upset, David Brat charged that Eric Cantor “does not represent the citizens of the 7th district, but rather large corporations seeking insider deals, crony bailouts, and constant supply of low-wage workers.”
But the Republican establishment doesn’t think it has to choose sides. It assumes it can continue to represent the interests of big business and Wall Street, yet still lure much of the white working class though thinly-veiled racism, anti-immigrant posturing, and steadfast opposition to abortion and gay marriage.
The Democratic Party, including Hillary Clinton, doesn’t have that option.
Which means that, as the ranks of the anxious middle class grow, the winning formula used by Bill Clinton and Barack Obama may no longer be able to deliver.
That formula was not just to court minorities and women but also to appeal to upscale Republican-leaning suburbs, professionals, moderates on Wall Street, and centrist business interests.
Accordingly, both Bill Clinton’s and Barack Obama’s economic plans called for deficit reduction as part of a “responsible” fiscal policy, trade expansion, and “investments” in infrastructure and education to promote economic growth.
But in a world of downward mobility for the majority, Democrats need to acknowledge the widening divide and propose specific ways to reverse it.
These might include, for example, raising taxes on the wealthy and closing their favorite tax loopholes in order to pay for world-class schools for everyone else; enacting a living wage and minimum guaranteed income; making it easier to unionize; and changing corporate and tax laws to limit CEO pay, and promote gain-sharing, profit-sharing, and employee ownership.
In this scenario, Democrats would seek to forge a new political coalition of all the nation’s downwardly mobile – poor, working class, and middle class; white and black and brown.
It’s a gamble. It would make big business and Wall Street nervous, while ignoring Republican-leaning suburbs and upper-middle class professionals. The GOP would move in to fill the void.
But as the middle class shrinks and distrust of the establishment grows, a new Democratic strategy for the downwardly mobile may be both necessary and inevitable. If she runs, Hillary may have to take the gamble.
And if America is to have half a chance of saving the middle class and preserving equal opportunity, it’s a gamble worth taking.
The People Struggle to Find and Retain Representation Paul Craig Roberts Dave Brat, a professor of economics at Virginia’s Randolph-Macon College, is a marked man. Professor Brat defeated Republican House Majority Leader Eric Cantor, a prime trophy of the Israel…
The post The People Struggle to Find and Retain Representation — Paul Craig Roberts appeared first on PaulCraigRoberts.org.
Prior to the recent national elections in
“Repression and displacement, often violent, of remaining rural populations, illness, falling local food production have all featured in this picture. Indigenous communities have been displaced and reduced to living on the capital's rubbish dumps. This is a crime that we can rightly call genocide - the extinguishment of entire Peoples, their culture, their way of life and their environment.” (19)
Timothy Alexander Guzman, Silent Crow News – In 2009, US President Barack Obama and the Secretary of Education Arne Duncan had announced the “Race to the Top” initiative to reform the American education system. But there is a lot more to know about the new education standards known as the ‘Common Core State Standards Initiative (CCSSI).’ It is not about educating students for a better life or for a successful career, it sounds more like a domestic spy program. In a 2010, Arne Duncan gave a speech on Obama’s education agenda at the UNESCO headquarters in Paris and said:
The North Star guiding the alignment of our cradle-to-career education agenda is President Obama’s goal that, by the end of the decade, America will once again have the highest proportion of college graduates in the world. That goal can only be achieved by creating a strong cradle-to-career continuum that starts with early childhood learning and extends all the way to college and careers
It is bizarre just to think that the government may want to continue to monitor your progress after high school right through your first job or career. What happens if you don’t get along with the manager? Will they send you to a re-education camp? Of course I am being sarcastic, but with Washington’s growing police state, who knows? The Department of Education (DOE) released in October 2012 an “Issue Brief” titled ‘Enhancing, Teaching and Learning through Educational Data Mining and Learning Analytics.’ The Educational data mining procedures were described as a program to track student’s progress through their behavioural patterns so that school officials can predict which career path they will most likely choose or if there is enough evidence to suggest that they were most likely to drop out of school. The Issue Brief clearly states how data mining technology would operate:
A student learning database (or other big data repository) stores time-stamped student input and behaviors captured as students work within the system” and “A predictive model combines demographic data (from an external student information system) and learning/behavior data from the student learning database to track a student’s progress and make predictions about his or her future behaviors or performance, such as future course outcomes and dropouts
The US Department of Education’s Common Core standards does raise an important question. Why does the federal government want student’s personal information in order to achieve educational success? The DOE’s “Issue Brief” also stated how predictions must be proven. If they cannot prove that their assessment is correct, then they may collect even more data on the student’s behalf if necessary:
Policymakers bear an ethical responsibility to investigate the validity of any predictive model that is used to make consequential decisions about students. Policymakers must be able to explain the evidence for predictions and the actions taken by the computer system on the basis of learning analytics. Analysts conducting data mining may discover patterns or associations that were previously unknown and that involve sensitive information (e.g., teacher performance or student’s family situation), and validating them with external observations and further data collection will be needed
The 2009 Stimulus bill included the State Fiscal Stabilization Fund (SFSF) which offered governors bailout money for state educational purposes such as the ‘Race to the Top’ program. Competitive grants were offered as an incentive for states to accept Common Core standards for their schools. To be eligible, states had to adopt standards and assessment procedures provided by the DOE to prepare students for success in college and in their chosen careers after they graduate from high school. It requires states to build student databases such as the Statewide Longitudinal Data Systems (SLDS) to track over “400 data points” including behavior, disciplinary history, family problems, interests and other personal information. Data will then be given to the “Smarter Balanced consortium” which is a state-led consortium working in collaboration with educators, researchers, policymakers, community groups and government bureaucrats to develop assessments that measures student progress toward college and their chosen careers. It is part of the national testing standards that sends completed assessments to the Department of Education so that they can share data with public and private interests. One particular area concerning the State Fiscal Stabilization Fund’s recommendation is to establish a student data system starting from pre-K. Then States would be eligible to receive funds if they followed the basic requirements:
As part of its application for initial funding, the state must assure that it will take actions to: (a) increase teacher effectiveness and address inequities in the distribution of highly qualified teachers; (b) establish and use pre-K-through-college and career data systems to track progress and foster continuous improvement; (c) make progress toward rigorous college- and career-ready standards and high-quality assessments; and (d) support targeted, intensive support and effective interventions to turn around schools identified for corrective action and restructuring
The standards focus on concepts and procedures of certain areas of concentration for example, English or math. However, each standard is labeled with an alphanumeric code for identification purposes, which is then used to identify which standards are successfully met by the lessons taught to the student. By using a coding system it allows them to track which standards were applied to the student whether in the classroom or through online learning (where third party apps can also keep a record). It can also track how much time was spent on each standard.
Who is behind “Common Core”?
Common Core Standards was supported and funded by the Bill and Melinda Gates Foundation, Pearson Publishing Company, the Charles Stewart Mott Foundation, the Carnegie Corporation of New York, several Governors and school officials from various states. It is also funded by Rupert Murdock’s News Corp called ‘Amplify Education.’ In 2012, Bob Corcoran of General Electric donated more than $33 million to the Common Core project. In 2013, Reuters reported who funded the $100 million project in an article titled ‘K-12 student database jazzes tech startups, spooks parents’:
The database is a joint project of the Bill & Melinda Gates Foundation, which provided most of the funding, the Carnegie Corporation of New York and school officials from several states. Amplify Education, a division of Rupert Murdoch’s News Corp, built the infrastructure over the past 18 months. When it was ready, the Gates Foundation turned the database over to a newly created nonprofit, inBloom Inc, which will run it.
States and school districts can choose whether they want to input their student records into the system; the service is free for now, though inBloom officials say they will likely start to charge fees in 2015. So far, seven states – Colorado, Delaware, Georgia, Illinois, Kentucky, North Carolina, and Massachusetts – have committed to enter data from select school districts. Louisiana and New York will be entering nearly all student records statewide
The article also stated how the database would operate on a local and federal level:
But the most influential new product may be the least flashy: a $100 million database built to chart the academic paths of public school students from kindergarten through high school. In operation just three months, the database already holds files on millions of children identified by name, address and sometimes social security number. Learning disabilities are documented, test scores recorded, attendance noted. In some cases, the database tracks student hobbies, career goals, attitudes toward school – even homework completion.
Local education officials retain legal control over their students’ information. But federal law allows them to share files in their portion of the database with private companies selling educational products and services
The Bill and Melinda Gates Foundation and their ‘inBloom’ database were one of the data mining programs associated with Common Core. But it has recently failed because New York state legislature forced its state education bureaucrats to shut down the Gates-funded project amid growing opposition of parents and privacy advocates. It was designed to collect student data and store the information in a cloud service and make it available to commercial vendors and apps so that teachers can eventually track student’s progress. Bill Gates and his project has failed and that is only one battle both parents and privacy advocates has won and that is a good start. But it is only one battle, with many more to come. Although the Bill Gates project inBloom has failed, the DOE will still manage to track students.
Collecting Data from “Pre-K through workforce”
Common Core standards require an invasion of privacy in order to educate students, but it comes at a cost. It should concern both students and their families. Will Estrada, director of federal relations for the Home School Legal Defense Association (HSLDA) told World Net Daily what common core’s data collection is capable of achieving once it is fully implemented. He said “It’s their likes and dislikes, grade-point average all the way through school, their home situation, health questions,” he said. “It’s an incredibly invasive collection of information that they are trying to collect in what they call P-20, or pre-K through workforce.”
Private interests in Washington decided back in 2007 to move full force in an attempt to nationalize educational standards and curriculums, which started the early development of the Common Core project. After the stimulus bill was signed in 2009, the DOE’s “Race to the Top” program was born. The DOE made ‘Race to the Top’ grants competitive so that states would jump aboard rapidly and agree to implement Common Core standards that would be aligned with mandatory national tests. Most US states adopted Common Core for federal money without any approval or votes from legislators’ and without public knowledge. Parents and communities were not even aware that their states and their elected representatives had adopted Common Core in the first place. Besides data collection, the education Common Core provides is based on rigorous test taking procedures and memorization. Parents in Brooklyn, New York pulled their children in protest against the standardized tests saying that it brought unnecessary stress onto their children.
Washington’s goal is for Common Core to be implemented in every state by 2015. So far 44 states adopted Common Core standards although it has been an uphill battle for Washington’s education plan, especially when it comes to privacy concerns regarding students’ personal data. With a majority of states adopting Common Core Standards, it seems that there is an uphill battle for the growing anti-common core movement as well. Will parents, privacy advocates and even teachers who oppose Common Core continue the battle well into the future? I believe they will, especially when it involves their children’s education. What is the real agenda behind Common Core? Does collecting personal data so that bureaucrats can analyze your progress over a period of time improve your chances of getting a better education and a career? After all, they can barely create any new jobs for recent college graduates, yet Secretary Duncan says the US will have the “highest proportion of college graduates” in the world. With NSA revelations spying on the entire planet, it would not surprise me that the Department of Education is setting the stage for a domestic spy program on a personal level.