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$600 Billion In Trades In Four Years: How Apple Puts Even The Most Aggressive...

Everyone knows that for the better part of the past year Apple, Inc. ("AAPL", or "The Company") was the world's biggest company by market cap, with Exxon finally regaining that title on Friday, following AAPL's latest price drop in the aftermath of its disappointing earnings. Most know that AAPL aggressively uses all legal tax loopholes to pay as little State and Federal tax as possible, despite being one of the world's most profitable companies.

Many also know, courtesy of our exclusive from September, that Apple also is the holding company for Braeburn Capital: a firm which with a few exceptions (Bridgewater; JPM's CIO prop trading desk) also happens to be one of the world's largest hedge funds, whose function is to manage Apple's massive cash hoard, with virtually zero requirements, and whose obligation is to make sure that AAPL's cash gets laundered legally and efficiently in a way that complies with prerogative #1: avoid paying taxes.

What few if any know, is that as part of its cash management obligations, Braeburn, and AAPL by extension, has conducted a mindboggling $600 billion worth of gross notional trades in just the past four years, consisting of buying and selling assorted unknown securities, or some $250 billion in 2012 alone: a grand total which represents some $1 billion per working day on average, and which puts the net turnover of some 99% of all hedge funds to shame!

Finally, what nobody knows, except for the recipients of course, is just how much in trade commissions AAPL has paid over the past four years on these hundreds of billions in trades to the brokering banks, many (or maybe all) of which may have found this commission revenue facilitating AAPL having a "Buy" recommendation: a rating shared by 52, or 83% of the raters, despite the company's wiping out of one year in capital gains in a few short months.

The Perfectly Legal Tax Evasion Scheme

Apple's massive cash hoard is something that gets its 15 minutes of fame each and every quarter, because for now at least, it keeps growing and growing and growing. However, that is not exactly correct. In fact, the company's cash and cash equivalents at December 31, 2012 is just $16.2 billion: barely $9 billion more than it was 4 years ago, on December 31, 2008. Where the bulk of AAPL's profits are kept, however, is not in cash and equivalents, but in various undisclosed short- and long-term securities.

It is these, and particularly the latter, that have soared in a near parabolic fashion in the past 4 years. As the chart below shows, while cash and short-term marketable securities have been virtually flat for the better part of the past 16 quarters, it is the long-term marketable securities that have exploded from just $2.5 billion to a whopping $97.3 billion.

So why does AAPL funnel its profits in a fashion that redirects it to investments instead of domestically hoarded cash? Simple: to take advantage of offshore venues which allow it to avoid paying any tax on the cash that gets redirected for trading purposes. As per the company's filings, of the massive $137.1 billion in cash and investments AAPL has access to, a near record 68.7%, or $94.2 billion, is held offshore.

The chart above means that contrary to popular disinformation, AAPL "only" has ready access to some $43 billion in domestically held cash for corporate purposes such as dividends, stock buybacks and local M&A. The rest of the cash is essentially in offshore lockboxes, which are non-recourse for domestic corporate purposes, absent repatriation. And herein lies the rub. From the latst 10-Q:

As of December 29, 2012 and September 29, 2012, $94.2 billion and $82.6 billion, respectively, of the Company’s cash, cash equivalents and marketable securities were held by foreign subsidiaries and are generally based in U.S. dollar-denominated holdings. Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S.

Apply a 30% tax to the offshore holdings and suddenly one can see why broad statements that AAPL has some $130/share in cash are largely meaningless: if AAPL wishes to have full access to dispose with this cash as it saw fit, it would first have to pay Uncle Sam some $30/share in cash before it had full recourse.

So why does AAPL chose to have cash stock up offshore instead of being able to dispose of it? Simple, and logical. Taxes, or rather the lack thereof.

The chart below shows that while AAPL has generated some $136 billion in operating profits in the past four years, the amount of cash taxes it has paid, as per the company's cash flow statements, has been a grand total of $18.6 billion: a 13.6% effective tax rate. And this $18.6 billion also includes taxes paid in offshore venues, so realistically the cash taxes paid in the US are likely well under 10% of profits.

The same on a quarter by quarter basis: operating income grows, cash taxes paid stay the same:

But far form us making an ethical claim here: AAPL is merely following the same legal loopholes that are available to all, yet made a mockery of the tax shelters used by recent presidential candidates. Perhaps one should ask Congress why these laws are there in the first place to allow the same companies that spend millions on lobbying members of Congress to retain billions in unpaid taxes via various tax shelters: a rather amazing IRR, if only for the corporations involved.

None of the above is news, and AAPL's aggressive use of tax loopholes has been known for years.

What has not been known is just how the cash from the company's seemingly endless profits gets moved from the Income Statement to the Balance Sheet: profits, which until recently were assumed would grow in perpetuity, until something strange happened: Samsung became cooler and faddier than AAPL, which coupled with accelerated margin erosion at AAPL grappling with an end-consumer who has increasingly less disposable cash flow, has led to a drubbing of the stock to new 52 week lows.

A Hedge Fund On Stroids

The conventional wisdom of Apple, and by implication of Braeburn, is of a boring old shop which invests its money prudently and cautiously in ultra-safe securities.

This is what AAPL itself has to say about its allocation of capital. From the just released 10-Q:

The Company’s marketable securities investment portfolio is invested primarily in highly-rated securities and its investment policy generally limits the amount of credit exposure to any one issuer. The policy requires investments generally to be investment grade with the objective of minimizing the potential risk of principal loss.

Good but... "primarily" and "generally"? One doesn't have to be an MF Global and JPM London Whale fallout expert to know that Jon Corzine's or Jamie Dimon's (or any other prop trading institution for that matter), was "primarily and "generally" supposed to be invested in highly-rated securities whose objective was avoiding risk and loss. Until it was uncovered they aren't. And as we explained previously, when we dissected AAPL's arm's length asset manager Braeburn, there is little more out there:

Braeburn has no reporting obligations: there is no Investment Advisor Public Disclosure (IAPD) entry on Braeburn for the logical reason that it is not an investment advisor: it merely manages an ungodly amount of cash for AAPL's millions of shareholders. There is also no SEC filing 13-F filing on Braeburn's holdings. As such, not confined by the limitations of being a "long-only", it is in its full right to hold any assets it feels like, up to and including CDS on housing, puts on Samsung, or Constant Maturity Swaps that pay if the 10 Year collapses. It just doesn't have to report any of them.

Nobody knows: and that's the beauty of Braeburn. It is the world's largest hedge fund that is not really a hedge fund, nobody has heard of, and nobody knows just what assets it holds.

Indeed nobody does know just what goes on behind the door of Suite 225 at 730 Sandhill Road in Reno, Nevada where Braeburn in situated. However, one can extrapolate some rather curious things.

Such as that starting December 2008, and through December 2012, according to its own filings, AAPL has bought and sold a grand total of $600 billion in "marketable securities", of which the sales alone amount to a whopping 205 billion!

What is not shown above is that over the same period, maturities on AAPL's ever-growing portfolio amount to some $82 billion. In other words, between maturities and sales, AAPL has generated nearly $300 billion in cash for investment and reinvestment purposes.

Shortening the time frame somewhat, just in 2012 AAPL's gross trading on its securities holdings amounts to a whopping $250 billion, or nearly $1 billion for every working day of the year: an amount that would put the turnover of some 99% of the most active daytrading hedge funds in the US to shame!

What is very curious is that even as AAPL's overall portfolio rose and rose, with purchases "primarily" of supposedly safe investment grade securities, an amount which has peaked at $121 billion as of December 31, 2012, the actual quarterly maturity of AAPL's portfolio, or the natural roll off, has decline to a near record low, or just 2.9% of total. How it is possible that the quarterly maturing notional continues to decline even as the portfolio, of both short- and long-term securities grows, is frankly, beyond our meager comprehension skills.

What is even more curious is that AAPL can't even make the excuse that it is merely churning its short-term marketable securitie. As the chart below shows, beginning in March 2011, the total amount of sales and maturities exceeds the quarterly total holdings of short-term securities, which naturally implies that a substantial portion of the long-term securities is also being sold.

So why would AAPL engage in what increasingly appears to be not only active portfolio management, but extremely aggressive and overzealous portfolio management, one which includes massive trades - buys but more importlanly sales - on a day to day basis?

Said otherwise: why is the world's premier maker of gizmos also one of the biggest under-the-radar day traders of unknown securities nobody has ever heard of?

* * *

We don't know the answer to these questions. We do know however, that if one is indeed engaged in plain vanilla money management, such as investing in ultra safe investments, there would be no need of such aggressive purchases and dispositions of securities.

In fact, adding the simple average of the short- and long-term marketable securities holdings of AAPL over the past 4 years amounts to some $59 billion. Yet, as noted above, the total amount of gross trades -buys and sales - over the same period is $600 billion, or a total portfolio turnover of some ten mindboggling times!

This is hardly what one would call boring investing in safe securities, and certainly something one would call aggressive to quite aggressive money management, one that not even some of the world's most successful hedge fund managers are equipped or willing to do.

Yet Braeburn Capital, a/k/a AAPL, has been doing it for the past 4 years, and does so to the tune of $1 billion per day.

* * *

Finally, there is the minor question of who exactly is it that executes these trades, or, in other words, which are the banks that have pocketed billions in commissions on AAPL's furiously traded portfolio?

We don't know, but we wonder: could it be the same banks that come rain or shine, gave AAPL a Buy rating, one which is still held by some 52 of the 63 banks covering the company, among which naturally are the most prominent brokers of "investment grade" securities:

Perhaps it would be very informative one day, years after the AAPL craze is long gone, to inquire just how much money AAPL paid out to any/all of the banks listed above in the form of trade commissions and other forms of "soft dollar" compensation. After all, any client which has conducted some $600 billion in trades in the past 16 quarters is known by one word at every single bank: "dream."

And parallel to that, one wonders what AAPL's total profits would have been and thus total marketable securities holdings, how much less the total trading churn and commissions to the sell side would have been had the downgrade battery started long ago, and thus broken the hypnotic and very much reflexive relationship between the world's most profitable company and its "coolness" factor, which in a feedback loop made it sell more products, making its market cap bigger, making its securities holdings larger, and making sellside profits greater, and so on ad inf... until one day it all snapped.

* * *
The point of the above analysis is not to take away from the operational side of the business: the fact that AAPL created and dominated the smartphone and tablet sector for years is undisputable. Yet now that many challengers are emerging, both new and old, both premium and commoditized, more and more attention is shifting to AAPL's balance sheet, and the main asset thereon: the company's cash and marketable securities.

The point of the above analysis is to show that when it comes to said cash and marketable securities there is much more than meet the superficial eye, and certainly much, much more than just a summary assessment that "AAPL has nearly $140 billion in cash so it has to hand this cash out to investors."

If there is one thing that the above should have made quite clear, it is that just as the AAPL product ecosystem is supposed to ensnare customers into always and only buying AAPL products, so the AAPL's portfolio management "ecosystem" may have made it impossible for AAPL to break away from what is now 4 years of uber-aggressive asset management in the vein of some of the world's most aggressive investors.

And that any hopes for a quick and easy disposal of cash to the benefit of shareholders may well not be coming any time soon.

* * *

Finally, a tangent: if indeed AAPL is invested in plain vanilla fixed income securities, as it reports, amounting to well over $120 billion which have a DV01 in the tens if not hundreds of millions, and if indeed, the great rotation from bonds into stocks has begun, AAPL, which many have jokingly called Fed-lite will suddenly develop a very, very big headache: how to dump over a hundred billion in debt in a market that suddenly has gone if not bidless, the bidweak.

Because while the Fed can print its own liquidity, AAPL, well, can't...

Source: AAPL public filings

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Hedge Funds Most Levered And Long Since 2004

In the last days of 2012 we penned an article describing the current situation of the market as follows: "Margin Debt Soars To 2008 Levels As Everyone Is "All In", Levered, And Selling Vol." Today, Bloomberg catches up with this rather critical topic, and confirms that the buying power of the biggest marginal traders left in the market who do not recycled deposits into stocks - hedge funds - is nothing more than debt piled upon debt, as "Leverage among managers who speculate on rising and falling shares climbed to the highest level to start any year since at least 2004, according to data compiled by Morgan Stanley." BBG also recaps what our readers already know: "Margin debt at NYSE firms rose in November to the most since February 2008, data from NYSE Euronext show." In other words: everyone is all in and levered. And soon, in about two weeks, Bloomberg will figure out that everyone, or at least a central bank here or there, is, indeed, "selling vol."

From Bloomberg:

Gross leverage, a measure of hedge fund borrowing that shows how much their holdings exceed the cash invested by clients, was 153 percent in the week ended Jan. 4, up from an average of 152 percent in 2012 and 143 percent a year ago, according to data from New York-based Morgan Stanley. The level has averaged 143 percent since 2005, the data show.

Managers are borrowing more amid a 15 percent rally in the S&P 500 since June, a gain that was mostly missed by professional investors who speculated shares would fall, according to data from Hedge Fund Research Inc. and International Strategy & Investment Group.

Borrowing increased as President Barack Obama and Republican lawmakers reached an agreement averting more than $600 billion in automatic tax increases and spending cuts.

Sadly, Bloomberg's conclusion is off:

The rising use of borrowed money shows that everyone from the biggest firms to individuals is willing to take more risks after missing the rewards of the bull market that began in 2009. While leverage means bigger losses should stocks decline, investors are betting that record earnings and valuations 9.8 percent below the six-decade average will help push the Standard & Poor’s 500 Index toward the record it set in October 2007.

“The first step of increasing risk is just going long, the second part of that is levering up in order to go longer,” James Dunigan, who helps oversee $112 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a Jan. 8 telephone interview. “Leverage increasing in the hedge-fund area suggests they’re now getting on board.”

Actually no.

What near record leverage means is that hedge funds have absolutely zero tolerance for even the smallest drop in prices, which are priced to absolute and endless central bank-intervention perfection - sorry, fundamentals in a time when global GDP growth is declining, when Europe and Japan are in a double dip recession, when the US is expected to report its first sub 1% GDP quarter in years, when corporate revenues and EPS are declining just don't lead to soaring stock prices. 

It also means that with virtually all hedge funds in such hedge fund hotel names as AAPL (the stock held by more hedge funds - over 230 - than any other), any major drop in the price would likely lead to a wipe out of the equity tranche at the bulk of AAPL "investors", sending them scrambling to beg for either more LP generosity, or to have their prime broker repo desk offer them even more debt. And while the former is a non-starter, the latter has so far worked, which means that most hedge funds have been masking losses with more debt, which then suffers even more losses, and so on.

Is this sustainable? Find out soon, perhaps in as soon as one month, when it will finally be up to the flailing market, not some trillion dollar nonsense, to get Congress to a debt-ceiling compromise (because it is not different this time). It is at that point that we will find out just how much the surge in leverage is due to optimism, and how much due to being held hostage by a market in which to keep up with the beta rally one has no choice but to layer debt upon debt upon debt to pretend alpha still works in the New Normal.

Or else: "career risk."

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Vox Hedges Headline in Fit of Single-Payer Skepticism

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Apple, Big Hedge Fund Stars & The Sell Side/Vaudeville Act To Burn Your Hard...

I see many pundits on CNBC commenting on Apple. I believe they are ALL wrong! To begin with, nearly all of them are coming up with revaluations after the fact - which is simply too late and lacks credibility. Second, Apple has someserious steps to take if it is to get back into the mobile computing race. David Einhorn's recommendation to return cash to shareholders (on the CNBC front page today) is not one of them. He's approaching this from a trader's perspective, and not from the perspective of a strategic long term investor. To date, Apple has outperformed nearly all hedge funds in the reinvestment of its cash. If Apple does the right thing, the  ability to replicate this performance by only 50% will whip the pants off of nearly every hedge fund, Einhorn's included. In addition, Apple is about to go through a depression style bout of margin compression that it will need cash to battle. I explained this to a group of entrepeneurs last year. Basically, Apple's $137B+ in cash is a call option on future opportunities and a put option on future mishaps. Einhorn is asking management to sell that call/put option straddle now, and forgo the ability to capitalize on future opportunities while running naked against margin compression at the same time that Apple's competition has surpassed it in technical ability (product/service wise) while Apple has shown ineptitude in competing in the cloud (see the maps fiasco), the next battle ground for the end user. This option sale will be had for the one time premium of a cash distribution. Wise, eh?

Does this mentality smack of the short term-ism indicative of a trader to you, or is it the mentality of the long term, innovative vision of Steve Jobs that got Apple where it is now? See the video below where I delve into this in detail...

Since I was practically the only one (at least that I know of) to accurately and timely call the turn on Apple BEFORE THE FACT, I would love to take this time to point out what it is that's wrong with Apple and what it would take for it to regain its shine. Just to illustrate this point, let's reminisce, shall we...

Let's contrast this to what I have espoused over a similar time frame...

Now, what do we have in sell sidevaudville today? CNBC reports Apple Heading Toward $200?: McLean.WTF???? What happen to $1,000????

Yes, I'm going after the sell side again. And I'll keep doing it. I'm a monster to the charlatan crew... A monster, I tell you...

Apple needs to start spending money, needs to spend wisely, needs to spend it in droves, and it needs to do ALL of this, NOW!!!! That is what Apple REALLY needs to do to compete with Google and enrich shareholders. Now, those shareholders with short term-ism will consider this Apple management burning cash in a desperate attempt to save the ship. These limited horizon guys will jump ship and drive the share price down. It is then that Apple will be a strong buy if, and only if, management succeeds in making leeway... Much in the same way that Google did in its acquisition spree that gave it some of its most valuable properties and multi-billion dollar franchises that literally run the web in their respective categories - to wit:

  • YouTube
  • Android
  • Google Voice
  • AdMob

For anyone who thinks this acquisition spree is a foolish endeavor, ask those who listened to the "short Google, long Apple" advice of the pros...

image001image001

Just as much (if not most, not withstanding the "Muppet Factor") of the Sell Side of Wall Street Doesn't Truly Understand Apple, many of them equally clueless regarding Google as well… Google has used it's call option of billions of dollars of cash and its cash producing cash cow business model of ad serving to literally buy value at discounted prices. Of course, those with short term vision can't see the value - just as fails to see a forest due to all of that tree bark in the way!!!

Google Final Report Sep 29 Page 53 copyGoogle Final Report Sep 29 Page 53 copyGoogle Final Report Sep 29 Page 54Google Final Report Sep 29 Page 54As a reminder, I warned in plenty of time to both avoid loss and profit on the short and long side for each company involved in these mobile computing wars. As a matter of fact, three years ago, I laid out in detail the entire mobile computing war map - along with the prospects of the major competitors - Google, Apple, Research in Motion and Microsoft/Nokia, reference "" series. How accurate were these predictions, predilections, and analyses?

Now, for all of you senstive types who may consider this bragging or boasting, it is far from such. As a matter of distinct fact, the contents of this entire post should have been glaringly obvious to anyone years ago who actively used and followed the products and services of the companies herein, and had even a rudimentary understanding of business valuation. You know, it's amazing how far an awareness of cognitive biases (Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All) and a mastery of second grade math () can get you on Wall Street.

The Sell Side analytical community and the (sheeple) investors which they serve is another matter though. Subscribers can download the data that shows the blatant game being played between Apple and the Sell Side here: File Icon Apple Earnings Guidance Analysis. Those who need to subscribe can do so here.

Below, I drilled down on the date and used a percentage difference view to illustrate the improvement in P/E stemming from the earnings beats.

Again, a master of the basics, the fundamentals, common sense and 2nd grade math can actually bring you tomorrows news yesterday! For those interested in the research behind these many calls, as well as many others,Subscribe to BoomBustBlog today!

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“Return = Cash + Beta + Alpha”: An Inside Look At The World’s Biggest...

Some time ago when we looked at the the performance of the world's largest and best returning hedge fund, Ray Dalio's Bridgewater (split roughly evenly between his Pure Alpha and All Weather strategies), it had some $138 billion in assets. This number subsequently rose by $4 billion to $142 billion a week ago, however one thing remained the same: on a dollar for dollar basis, it is still the best performing and largest hedge fund of the past 20 years (assuming of course, JPM's $350 billion AUM Whale office has finally been "beached" and its positions unwound), and one which also has a remarkably low standard deviation of returns to boast. This is known to most people.

What is less known, however, is that the two funds that comprise the entity known as "Bridgewater" serve two distinct purposes: while the Pure Alpha fund is, as its name implies, a chaser of alpha, or the 'tactical', active return component of an investment, the All Weather fund has a simple "beta isolate and capture" premise, and seeks to generate a modestly better return than the market using a mixture of equity and bonds investments and leverage.

Ironically, as we foretold back in 2009, in the age of ZIRP, virtually every "actively managed" hedge fund would soon become not more than a massively levered beta chaser however charging an "alpha" fund's 2 and 20 fee structure. At least Ray Dalio is honest about where the return comes from without hiding behind meaningless concepts and lugubrious econospeak drollery. Courtesy of "The All Weather Story: How Bridgewater created the All Weather investment strategy, the foundation of the "risk parity" movement" everyone else can learn that answer too.

And while we absolutely agree with Dalio that "there is a way of looking at things that overly complicates things in a desire to be overly precise and easily lose sight of the important basic ingredients that are making those things up" (they need those Econ PhDs for something), we certainly don't agree with Bob Prince's assessment that the entire world is merely a "machine" which can be understood, in terms of its cause-effect linkages.

While this may be true in simple two actor environments, and in theoretical, textbook markets, it is certainly not the case in a enviornment filled with irrational actors, who respond in times of crises - so vritually all market inflection points - with their feelings, instincts, phobias and gut reactions, than with anything resembling logic and reason. And especially not in times of "New Normal" central planning.

Then again, it is Prince and Dalio who are multi-billionaires and run a $125 billion hedge fund, so perhaps they are on to something...

The annotated presentation of how one half of Bridgewater's bread and butter operates:

And the unabridged:

The All Weather Story

How Bridgewater associates created the all weather investment strategy, the foundation of the ‘risk parity’ movement

President Richard Nixon sat in the Oval Office staring into a television camera and addressed the nation: “I directed Secretary Connelly to suspend temporarily the convertibility of the dollar into gold.” After 27 years of relative monetary stability, the United States was breaking from the Bretton Woods system of fixed exchange rates that had tied the dollar’s value to gold.

Ray Dalio, fresh out of college, was then a clerk on the New York Stock Exchange. Watching Nixon’s speech in his apartment, he tried to fathom the implications. Paper money derived its value from being a claim on gold. Now those claims wouldn't be honored. The next morning he walked on to the chaotic floor of the NYSE expecting stocks to plummet. Instead the Dow Jones Industrial Average rose almost 4% and gold shot higher in what was later dubbed the “Nixon rally.” Ray had heard Nixon’s announcement but misunderstood its implications.

This event transformed Ray’s thinking about markets. Nothing like it had ever happened to him before, so it came as a shock. He quickly realized he couldn’t trust his own experience: anyone’s lifetime is too narrow a perspective. So he began to study the cause-effect linkages at work in the dollar devaluation and subsequent market pop. He discovered the Bretton Woods breakup was one of many seemingly unique occurrences that, in truth, are more infrequent than unprecedented. A broader perspective revealed that currency devaluations had occurred many times throughout history and across countries, and were the result of the same essential dynamics playing out under different circumstances. Ray dedicated himself to understanding what he would in time call the ‘economic machine’: the timeless and universal relationships that both explain economic outcomes and repeat throughout history.

Ray is now in his 60s. He founded Bridgewater Associates four years after the Nixon speech. Reflecting back on that incident, Ray said, “that was a lesson for me. I developed a modus operandi to expect surprises. I learned not to let my experiences dominate my thinking; I could go beyond my experiences to see how the machine works."

Ray realized he could understand the economic machine by breaking down economies and markets into their component pieces, and studying the relationships of these pieces through time. This type of thinking is central to All Weather. For instance, any market move can be broken down into a few key components. Markets move based on shifts in conditions relative to the conditions that are priced in. This is the definition of a surprise. The greater the discrepancy, the larger the surprise. That explained the Nixon rally. When countries have too much debt and their lenders won’t lend them more, they are squeezed. They, in this case the US, invariably print money to relieve the squeeze. The unexpected wave of new money cheapens its value and alleviates the pressure from tight monetary conditions sending stocks and gold higher. What Ray observed was 'another one of those' - a shift in conditions relative to what people had expected.

The principles behind All Weather relate to answering a deceptively straight-forward question explored by Ray with co-Chief Investment Officer Bob Prince and other early colleagues at Bridgewater - what kind of investment portfolio would you hold that would perform well across all environments, be it a devaluation or something completely different?

After decades of study Ray, Bob, Greg Jensen, Dan Bernstein and others at Bridgewater created an investment strategy structured to be indifferent to shifts in discounted economic conditions. Launched in 1996, All Weather was originally created for Ray’s trust assets. It is predicated on the notion that asset classes react in understandable ways based on the relationship of their cash flows to the economic environment. By balancing assets based on these structural characteristics the impact of economic surprises can be minimized. Market participants might be surprised by inflation shifts or a growth bust and All Weather would chug along, providing attractive, relatively stable returns. The strategy was and is passive; in other words, this was the best portfolio Ray and his close associates could build without any requirement to predict future conditions. Today the All Weather strategy and the concepts behind it are fundamentally changing how the biggest capital pools in the world manage money. What began as a series of questions has blossomed into a movement. This article tells the story of how All Weather came into being. It recounts how a series of conversations hardened into principles that are the foundation of a coherent and practical investment philosophy.

A Discovery Process

Ray founded Bridgewater in 1975 in his New York City brownstone apartment. At the time, he actively traded commodities, currencies and credit markets. His initial business was providing risk consulting to corporate clients as well as offering a daily written market commentary titled Bridgewater Daily Observations that is still produced. The competitive edge was creative, quality analysis.

Among his clients were McDonalds and one of the country’s largest chicken producers. McDonalds was about to come out with Chicken McNuggets and was concerned that chicken prices might rise, forcing them to choose between raising their menu prices or having their profit margins squeezed. They wanted to hedge but there was no viable chicken futures market. Chicken producers wouldn’t agree to sell at a fixed price because they were worried that their costs would go up and they would then take a loss on their supply contracts. After some thought, Ray went to the largest producer with an idea. A chicken is nothing more than the price of the chick (which is cheap), corn, and soymeal. The corn and soymeal prices were the volatile costs the chicken producer needed to worry about. Ray suggested combining the two into a synthetic future that would effectively hedge the producer’s exposure to price fluctuations, allowing them to quote a fixed price to McDonalds. The poultry producer closed the deal and McDonald’s introduced the McNugget in 1983.

This early work reflected a truth. Any return stream can be broken down into its component parts and analyzed more accurately by first examining the drivers of those individual parts. The price of poultry depends on the price of corn and soymeal. The price of a nominal bond can be broken down into a real yield and an inflation component. A corporate bond is a nominal bond plus a credit spread. This way of thinking laid the groundwork for constructing All Weather. If assets can be broken down into different component parts and then summed up to a whole, so too could a portfolio.

Portfolio Building Blocks

In time, Ray and Bob set their sights on managing liabilities, not merely advising on what to do with them. For any asset there is a corresponding liability and, relative to asset management, liability management appeared to be an underserved market. There was a long education process to convey the value proposition to a corporate treasurer, however. To do so, Ray, Bob and others would write a “Risk Management Plan.” These were tailored analyses that generally followed three steps; a) identify the risk neutral position for the corporation b) design a hedging program to reach that exposure and c) actively manage around that exposure, hiring Bridgewater and paying them based on performance around this neutral position. Over time this approach had Ray, Bob and others managing $700 million in corporate liabilities.

The evolution to managing assets occurred in 1987. The World Bank pension fund had been following Bridgewater‘s research. On the basis of this research and Bridgewater's track record managing liabilities, they opened a $5 million bond account. Given the decade plus of experience managing liabilities, Bridgewater approached the asset portfolio in the same way. The bond benchmark was the risk neutral position; the active management was the value added, or alpha, gained from deviating from the benchmark. The two are completely separate.

This is an important insight. While there are thousands of investment products, there are only three moving parts in any of them. Consider buying a conventional mutual fund. The investment may be marketed as a ‘large cap growth fund.’ The reality is that the return of that product, or any product, is a function of a) the return on cash b) the excess return of a market (beta) above the cash rate and c) the ‘tilts’ or manager stock selection (alpha). The mutual fund blurs the distinction between the moving parts, which makes it hard to accurately assess the attributes of any one part or the whole. In summary:

return = cash + beta + alpha

Many people, perhaps most, don’t look at investment returns from this perspective and as a result miss a lot. The cash rate is after all controlled by a central bank, not the investor, and can move up or down significantly. In the US after peaking above 15% in the 1980s, cash rates are now zero. Stocks and bonds price relative to and in excess of cash rates. A 10-year bond yield of 2% is low relative to history but high relative to 0% cash rates. What is unusual about the recent environment is the price of cash, not the pricing of assets relative to cash.

The characteristics of betas and alphas are distinct. Betas are few in number and cheap to obtain. Alphas (i.e. a trading strategy) are unlimited and expensive. The most important difference is the expected return. Betas in aggregate and over time outperform cash. There are few ‘sure things’ in investing. That betas rise over time relative to cash is one of them. Once one strips out the return of cash and betas, alpha is a zero sum game. If you buy and I sell, only one of us can be right. The key for most investors is fixing their beta asset allocation, not trading the market well. The trick is to figure out what proportion of stocks, bonds and commodities to hold such that a static portfolio is reliable. That is the question (‘what kind of investment portfolio would you hold that would perform well across all environments”) Ray, Bob, Dan and others were trying to answer. The first step was to separate out the beta from cash and alpha.

Balancing and Risk-adjusting Assets

By this time Bridgewater had decamped from Manhattan to rural Connecticut, eventually ending up in Westport. Now that Bridgewater was managing pension assets, other pension funds began exploring Bridgewater’s capabilities. Among those for whom Bridgewater provided advice was Rusty Olson, the CIO of a large US-based consumer goods manufacturer pension plan. Rusty asked what Bridgewater thought about his plan of using long duration zero coupon bonds in the pension portfolio. Ray gave a quick answer on the spot, suggesting it was a great idea but that they should use futures to implement it so that they could create any duration they desired. Ray said he would get back to Rusty with a more fully fleshed out idea. The brainstorming happened on a Friday. Merely getting asked the question was a coup. Not that long ago Bridgewater had been a niche investment adviser and at the time it had very little money under management. Now an iconic CIO was asking their counsel. Ray, Bob, Dan and a few other Bridgewater employees at the time worked all weekend to get Rusty an answer on how to do this best.

Step one in the pension analysis was breaking down this manufacturer’s pension portfolio into the three key components described above (cash or the risk free position, beta, and alpha). The typical institutional portfolio had (and still has) roughly 60% of its dollars invested in equities and as a result almost all of its risk. The rest of the money was invested in government bonds as well as a few other small investments, which are not as volatile as the stocks. This is the type of asset allocation many investors held at the time and remains the basic advice many investors still adhere to. Rusty was an innovative thinker and had begun deviating from conventional wisdom by trying to construct a high-returning portfolio out of uncorrelated returns, while maintaining a high commitment to equities. Rusty was struggling with what to do about nominal zero coupon government bonds. He thought they had too low a return to justify a place in his portfolio and were cash intensive, yet, at the same time, he correctly feared his portfolio was vulnerable in a deflationary economic contraction. So he had begun a program to protect his portfolio using long duration treasury bonds, which used much less cash than normal bonds. He wondered what Bridgewater could add to this approach.

Bridgewater's response documented two key ideas that would later reappear in All Weather – environmental bias and risk balancing assets. Ray, Bob and others knew that holding equities made an investor vulnerable to an economic contraction, particularly a deflationary one. The Great Depression was the classic example of this. Stocks were decimated. It was also true as Rusty suspected that nominal government bonds provided excellent protection in these environments. The goal was an asset allocation that didn’t rely on predicting when the deflationary shift would occur but would provide balance nonetheless.

The 1990 memo to Rusty put it this way, “Bonds will perform best during times of disinflationary recession, stocks will perform best during periods of … growth, and cash will be the most attractive when money is tight.” Translation: all asset classes have environmental biases. They do well in certain environments and poorly in others. As a result, owning the traditional, equity heavy portfolio is akin to taking a huge bet on stocks and, at a more fundamental level, that growth will be above expectations.

The second key idea stemmed from their work helping corporations hedge unwanted balance sheet exposures. Ray, Bob, Dan and others always thought first about risk. If the risks didn’t offset, the client would be exposed. Due to his equity holdings Rusty was exposed to the risk that growth in the economy would be less than discounted by the market. To 'hedge' this risk, the equities needed to be paired with another asset class that also had a positive expected return (i.e. a beta) but would rise when equities fell and do so in a roughly similar magnitude to the decline in the stocks. The Bridgewater memo agreed that Rusty should hedge this risk with long duration bonds that would have roughly the same risk as his stocks. Quoting from the study: “low-risk/low-return assets can be converted into high-risk/high-return assets.” Translation: when viewed in terms of return per unit of risk, all assets are more or less the same. Investing in bonds, when risk-adjusted to stock-like risk, didn’t require an investor to sacrifice return in the service of diversification. This made sense. Investors should basically be compensated in proportion to the risk they take on: the more risk, the higher the reward.

As a result of this work, Ray wrote Rusty, “I think your approach to managing the overall portfolio makes sense. In fact, I would go so far as to say that I think it makes more sense than any strategy I have seen employed by any other plan sponsor.” The long duration bonds, or futures equivalents, would make the portfolio roughly balanced to surprises in economic growth while not giving up return. Bridgewater began managing Rusty’s bond portfolio and also overlaid their own alpha (this portfolio became their first ‘alpha overlay’ account).

Balancing Growth and Inflation

Over time these discrete discoveries - breaking a portfolio into its parts, recognizing environmental biases, risk adjusting asset classes – began to harden into principles, concepts that could be applied over and over again. Running these portfolios in real time, particularly through economic shocks ranging from stock market crashes to banking crises to emerging market blow ups reinforced a confidence in the principles. Yet, there were a few additional insights that would come before All Weather would grow into a mature concept. A key step was framing growth and inflation as the environmental drivers that mattered and mapping asset classes to these environments.

Ray, Bob and their other close associates knew stocks and bonds could offset each other in growth shocks, such as they had mapped out for Rusty. They also knew there were other environments that hurt both stocks and bonds, such as rising inflation. That was obvious because they lived through these shifts. For a 1970s style environment it was much better to hold commodities than it was to hold stocks and nominal bonds. This notion was rattling around in conversations and became fully formed for Bob in a simple experiment.

Since the invention of the PC early Bridgewater employees had utilized technology to collect and chart data and process decision rules. They called these rules 'indicators.' These were the ‘timeless and universal’ linkages Ray had set out to understand in the 1970s. A PC was a big step up in efficiency from a slide rule or an HP hand-held calculator and graphs plotted by hand with colored pencils, which was what they used early on. Bob was fiddling around with a new computer program, Microsoft Excel. Microsoft had released the first windows based version of it in 1987. With these tools Bob began playing around to see how shifting asset weights would impact portfolio returns. He found that the best performing portfolio was 'balanced' to inflation surprises. This made some sense coming after the inflationary 1970s and the dis-inflationary 1980s. It also held true for more extreme shocks, like the 1920s German hyperinflation or the US Depression. Bob shared his discovery with Ray. “I showed it to Ray and he goes, ‘that makes sense,’” Bob recalled years later. “Then he goes, ‘But it really should go beyond that, it should really also be balanced to growth.’”

This was classic Bridgewater. Though the ‘data’ indicated one thing (to balance assets via inflation sensitivity) common sense suggested another. The message - don’t blindly follow the data. Ray proceeded to sketch out the four boxes diagram below as a way of describing the range of economic environments any investor has faced in the past or might face in the future. The key was to put equal risk on each scenario to achieve balance. Investors are always discounting future conditions and they have equal odds of being right about any one scenario.

This diagram tied key principles together and became a template for All Weather. Much as a portfolio can be boiled down to three key drivers, economic scenarios can be broken down to four. There are all sorts of surprises in markets, but the general pattern of surprises follows this framework, because the value of any investment is primarily determined by the volume of economic activity (growth) and its pricing (inflation). Surprises impact markets due to changes in one or both of those factors. Think about any stress scenario and it ends up putting a portfolio in one or two of these sectors unexpectedly. The 1970’s oil shocks, the disinflation of the 1980’s or the growth disappointments post 2000 were all shifts in the environment relative to expectations. This framework captured them all. More importantly, it captured future, yet unknown surprises. There were many economic surprises after Bridgewater started running All Weather, and they were different from the surprises that preceded the strategy but the strategy weathered them all. The framework is built for surprises in general, not specific surprises, the very issue Ray had been wrestling with at the outset.

Initially the four box framework was used to explain alpha diversification with prospective clients. The framework explained the concept in such an intuitive and clear way that it became the starting point of their conversations. To be sure, at this time the focus of the key Bridgewater personnel was on alpha, not beta. To do so, Ray, Bob and Dan were obsessed with identifying and articulating timeless and universal tactical decision-making rules across most liquid financial markets. The tactical strategy that resulted from this work, Pure Alpha, was launched in 1991, years before All Weather came into being.

The final ingredient: inflation-linked bonds

If Bridgewater is the pioneer of risk parity, it is also true the firm played a critical role in the acceptance of inflation-linked bonds in institutional portfolios. Inflation-linked bonds play an important role in All Weather. The concept of a security whose principal value is tied to inflation dates to at least the 18th century but in the early 1990s inflation-linked bonds were not playing a significant role in institutional portfolios. Like the other discoveries along the way, this one came out of a conversation, or a series of them. A US foundation came to Bridgewater with a question: how could they consistently achieve a 5% real return? By law the foundation had to spend 5% of its money every year, so for it to keep operating in perpetuity it had to generate a 5% real return.

Going back to the building blocks of a given portfolio, the client’s “risk-free position” was no longer cash, but rather a portfolio that provided a real return. Inflation-linked bonds, bonds that pay out some real return plus actual inflation, would ‘guarantee’ this 5% hurdle, as long as one could find bonds paying 5% real coupons. The main problem, however, was that there weren’t any of these bonds in the US at the time. They were issued widely in the UK, Australia, Canada and a few other countries. As currency and bond managers, Ray, Bob and Dan knew how to hedge a bond portfolio back to dollars, eliminating the currency impact. The three of them sought to construct a global inflation-linked bond portfolio and hedge it back to the US dollar as a solution for the endowment. At the time, global real yields were around 4% so a little bit of leverage had to be applied to the inflation linked bonds to reach the endowment’s target.

Through their work for the foundation it became clear inflation-linked bonds were a viable, underutilized asset class relative to their structural correlation benefits. Inflation-linked bonds do well in environments of rising inflation, whereas stocks and nominal government bonds do not. As a result, the bonds filled a diversification gap that existed (and continues to exist) in the conventional portfolio. Most investors do not hold any assets that perform well when inflation surprises to the upside outside of commodities, which tend to comprise a tiny fraction of their overall portfolio. From the environmental perspective Bridgewater established, inflation-linked bonds helped balance out both boxes and other asset classes in a way no other asset class could (inflation-linked bonds are also negatively correlated to commodities relative to growth, an added benefit). Unsurprisingly, when the US Treasury decided to issue inflation-linked bonds, officials came to Bridgewater to seek advice on how to structure the securities. Bridgewater’s recommendations in 1997 led to TIPS being designed as they now are.
25 years in the making:

The All Weather Strategy

The fully formed All Weather emerged in 1996 as Ray, Bob and by this point the third CIO, Greg Jensen, who had joined Bridgewater out of college, sought to distill decades of learning into a single portfolio. The impetus was Ray's desire to put together a family trust and create an asset allocation mix that he believed would prove reliable long after he was gone. The accumulation and compounding of the investment principles Bridgewater had discovered, while hedging McNuggets, helping Rusty balance his portfolio, or managing inflation-linked bonds, came together into a real portfolio. The ultimate asset allocation mapped asset classes onto the environmental boxes framework, as shown in the diagram below.

Bridgewater had learned to map asset classes to the environments through study. They also knew that all the asset classes in the boxes would rise over time. This is how a capitalist system works. A central bank creates money, and then those who have good uses for the money borrow it and use it to achieve a higher return. These securities by and large come in two forms: equity (ownership) and bonds (loans). As a result, the boxes don’t offset each other entirely; the net return of the assets in aggregate are positive over time relative to cash. The environmental exposures cancel each other out, which leaves just the risk premium to collect.

Ray described creating the portfolio “like inventing a plane that’s never flown before.” It looked right, but would it fly? He started running a pilot with his assets, and it was someone’s part-time job to rebalance the portfolio from time to time. The portfolio flew the way Bridgewater expected, but it remained purely for Ray’s trusts. All Weather was never envisaged as a product. It was profound enough that no one was doing it but at the same time so straightforward that anyone could seemingly do it for themselves. While US equities were in the early stages of the tech bubble, Ray and others began propounding the concepts of balance, initially to rather indifferent interest.

The crash of 2000 changed that. With the bursting of the bubble came the realization that equities were by no means a “sure thing.” The tech bubble implosion shifted the mindset of the average investor, reminiscent of the disruptions of Bretton Woods, the oil shocks and the 1987 stock market crash. Many money managers began shifting towards alpha (tactical bets) as a way to cope with what they perceived as a now-unstable stock market.

Early Investors

Around that time, Bob began talking with Britt Harris, then CIO of a major corporate pension fund, which was a client of Bridgewater’s. Bob and Britt knew each other from coaching their children together and their children’s’ common nursery school. Britt called Bob up one Sunday and asked about inflation-linked bonds and how they would fit into an investment portfolio. Bob told Britt, “Let me tell you what I would do if I were in your shoes.” The portfolio he described and they built for Britt’s pension plan – as you might expect – was All Weather. It was so unorthodox that Britt insisted on a massive due diligence process, which further helped codify the principles underlying the All Weather approach. As Bob recounts, “Britt said, ’when the regulators come and ask me the question, I want to be able to pull the book off the shelf and show them all the work we did to show that this makes sense.’” The pension fund started with a $200mm allocation.

The second large client to adopt the All Weather approach was a major automobile company. They had just issued pension obligation bonds because they were severely underfunded in the aftermath of the 2001 stock market crash. The CIO wanted to manage this “new money” from the bond issuance in a “new way.” The CIO sent out perhaps 30 letters to the top institutional money managers in the world and ended up hiring five to manage his “new money”; Bridgewater was one of them.

Ray, Bob and Greg advised this company to build a portfolio based on principles the CIO could use for the entire fund: find the best asset allocation, find the best alpha, and then combine the two in such a way so as to reflect your relative confidence in each. The eventual total portfolio ended up being a roughly 70/30 split between beta and alpha (All Weather and Pure Alpha, Bridgewater’s actively-traded portfolio). The novelty was the All Weather component. It was slowly becoming apparent that some of their clients were recognizing the benefits of environmental balance and diversification and would be willing to hire Bridgewater to implement this for them.

To be sure, there was still resistance to the All Weather concepts. Peer risk dissuaded some investors for fear that they wouldn’t track their benchmark or peer group. The idea of leverage also raised questions. Some were wholly unfamiliar with the concepts of financial engineering and therefore were initially uncomfortable with derivative instruments (e.g., futures and swaps). And last, there was a big question over where exactly All Weather would fit in or who would own the profit and loss. However, after nearly a decade of poor performance and the credit crises of 2008, investors were hungry for an alternative. A clever consultant adopted the term “Risk Parity” and created an asset allocation bucket thereby opening the floodgates to strategies that one way or another seek to balance risks in a portfolio.

Gradually objections surrounding All Weather eased. As investors grew accustomed to looking at leverage in a less black-and-white way – “no leverage is good and any leverage is bad” – many have come to understand that a moderately-levered, highly-diversified portfolio is less risky than an unleveraged, un-diversified portfolio. Leverage is an implementation tool. If you can’t predict the future with much certainty and you don’t know which particular economic conditions will unfold, then it seems reasonable to hold a mix of assets that can perform well across all different types of economic environments. Leverage helps make the impact of the asset classes similar.2

The Elegant Solution

Fast forward to today. There is no limit to how the All Weather principles of balance can be applied and over time could perhaps contribute to a more stable financial system. One of the largest Canadian pension plans adopted All Weather as the benchmark for their entire plan. Other organizations have completely revamped their structure into alpha and beta teams. Some are introducing these concepts into defined contribution plans as an investment choice. A recent survey indicated most institutional investors are familiar with the concept and 25% are using it in their portfolio, though that of course means the vast majority of investors aren’t yet using what is effectively new technology.

All Weather grew out of Bridgewater’s effort to make sense of the world, to hold the portfolio today that will do reasonably well 20 years from now even if no one can predict what form of growth and inflation will prevail. When investing over the long run, all you can have confidence in is that (1) holding assets should provide a return above cash, and (2) asset volatility will be largely driven by how economic conditions unfold relative to current expectations (as well as how these expectations change). That’s it. Anything else (asset class returns, correlations, or even precise volatilities) is an attempt to predict the future. In essence, All Weather can be sketched out on a napkin. It is as simple as holding four different portfolios each with the same risk, each of which does well in a particular environment: when (1) inflation rises, (2) inflation falls, (3) growth rises, and (4) growth falls relative to expectations.

Overconfidence often pushes people to tinker with things they do not deeply understand, leading them to over-complicate, over-engineer, and over-optimize. All Weather is built very intentionally to not be that way. With the All Weather approach to investing, Bridgewater instead accepts the fact that they don’t know what the future holds, and thus choose to invest in balance for the long-run. Often Bridgewater people are asked at a cocktail party or a family gathering what to invest in. They don’t delve into the active alpha portfolio. That wouldn’t be useful anyway – the portfolio moves around. What the average person needs is a good, reliable asset allocation they can hold for the long-run. Bridgewater’s answer is All Weather, the result of three decades of learning how to invest in the face of uncertainty. Ray's trust assets remain invested in All Weather.

1. As an example, if you invest $10 in the S&P 500 and $10 in US bonds, the portfolio risk is dominated by the S&P because it is much riskier than the bonds. If instead you invest $5 in the S&P and $15 in 10 year bonds the portfolio is much more balanced, though with a lower return. Invest $5 and $15 in the manner described and add a bit of leverage and the portfolio has the same return as the stocks but less risk.

Your rating: None

So Much For That “Record Inflow” Into Equity Funds – Domestic Equities See $4.2...

The most talked about story of the last week was undoubtedly the relentless chatter about that massive $18 billion in equity fund inflows as reported by Lipper (not ICI), which tracks primarily institutional and ETF flow of funds, and which, as we explained even before the Lipper data came out, was driven exclusively by a surge in bank deposits into the year end, to be recycled for risk investment purposes by the commercial banks' own prop desks. The details, however, were largely ignored by the mainstream media which took that inflow as an indication that the tide has finally turned and that the great rotation out of bonds into stocks is on. Turns out that just as we expected it was a year end calendar asset rebalancing. As Lipper reported earlier, the enthusiasm for US stocks appears to have abruptly ended, with a whopping $4.2 billion pumped out of domestic equities, offset by some $4.5 billion invested in non-domestic equities. The blended flow? Just $286 million going into equities. Now our math may be a little rusty, but $18 billion followed by $0.2 is not really indicative of an ongoing rotation out of bonds and into stocks, and is more indicative of a one-time, non-recurring event, just the opposite of all the Bank of America addbacks.

To summarize:

Sector                             Flow     Chg  %        Assets     Count
                                     ($Bil)    Assets 

 All Equity Funds              0.286      0.01     3,042.918  10,145
 Domestic Equities           -4.181    -0.19     2,255.468   7,523
 Non-Domestic Equities     4.467      0.57     787.450     2,622
 All Taxable Bond Funds    4.625      0.30     1,531.942  4,824
 All Money Market Funds   -9.603    -0.40     2,402.327   1,363
 All Municipal Bond Funds   1.443     0.45     324.824     1,348

From Reuters:

When combined, the sizeable inflows into stock mutual funds and the big outflows from stock ETFs produce a total figure of just $286 million into equity funds overall, which is sharply lower than the previous week's total inflow of $18.32 billion, which was the most net new cash into equity funds since 2008.

The S&P 500 rose a slight 0.8 percent over the reporting period. Federal Reserve Presidents James Bullard, Charles Plosser and Charles Evans voiced their optimism about U.S. growth for 2013, while upbeat U.S. retail sales for December and strong corporate earnings for major banks JPMorgan Chase  and Goldman Sachs also boosted markets.

Investors remained cautious, however, in light of Republican opposition in Congress to increase the $16.4 trillion U.S. debt ceiling. A failure to raise the government's borrowing limit could cause the United States to default on its debt in coming months.

With regard to the $3.75 billion inflow into stock mutual funds, those that specialize in U.S. stocks attracted $1.41 billion of that sum, while mutual funds that hold international stocks attracted the remaining $2.34 billion.

The enthusiasm for stock mutual funds did not apply to stock ETFs, which suffered outflows of $3.5 billion. The outflows are the first losses for the funds in eight weeks, and mark a reversal from the previous week's big gains of $10.78 billion. Investors turned particularly cold toward the SPDR S&P 500 ETF fund,  from which they pulled $4.21 billion.

Sadly for the prepared talking points, the flows into bond funds are back.

Investors in bond funds favored higher quality and gave $2.02 billion to investment-grade corporate bond funds. The figure represents the total amount pumped into both mutual funds and ETFs that hold investment-grade bonds.

Lemieux of Lipper said that consistent inflows into investment-grade corporate bond funds show that investors are still opting for some safety.

High-yield "junk" bond funds attracted just $571 million overall, indicating the decreased appetite for risky bonds compared with the previous week, when the funds attracted $1.11 billion in new cash.

We, for one, can't wait to see how much non discussion this latest weekly fund flow update gets on the mainstream financial media, or whether last week's flow aberation will be locked in time and referred to by the pundits on an ongoing basis indefinitely

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Financial Manipulation? Hedge Fund Operations Are Affecting the Gold Market

The price of gold has been kept down by hedge fund redemptions. These redemptions will end in a week and after that a nasty hand that has been holding the price of gold down will be lifted. As we begin this new year news is starting to trickle out demonstrating that hedge funds as a whole have had a horrid performance last year.

According to incoming data nine out of ten hedge funds failed to beat the S&P 500 last year. According to a recent report by Goldman Sachs their average return was 8% while the S&P 500 posted a 13% gain for 2012.

What is worse is that the third worst fund tracked by HSBC was the Paulson Advantage Fund. This fund of 19 billion dollars lost 19% last year due to bets that the European euro crisis would continue and that gold would rise. It is one of the largest holders of the SPDR Gold Trust ETF (NYSE: GLD) and has been forced to meet investor redemptions.

These redemptions have undoubtedly caused selling in GLD in the past few weeks and will probably continue to hold gold prices down for another week. John Paulson also runs a gold fund that gave its investors a negative 25% return last year too. Paulson is not the only hedge fund manager facing big losses being forced to sell to meet investor redemption requests.

Most funds though didn’t generate huge losses, their program trading algorithms simply failed to beat the market. Ironically a few funds did beat the market last year by investing in places others wouldn’t. Dan Loeb’s Third Point hedge fund posted a 21% gain in 2012 by betting big on Yahoo and by buying Greek bonds. Pine River Capital Management also made 30% by holding depressed mortgage securities.

If you are a gold investor I do not think you should worry. Gold prices peaked out in the Fall of 2011 and since then have been consolidating in what I believe is a mere pause in a long-term secular bull market. The price of gold now has resistance at 1800 and support in the 1550-1600 zone. I think it will likely break out above its 1800 resistance level later this year, probably in the summer, and then begin a new bull run.

I know it’s easy to get anxious and worried when you see gold just slug around. I want you to know that much of the recent selling from hedge funds will soon be over. That will take one force of selling in gold out of the market. For disclosure purposes I have a position in GLD. We have seen several similar periods of consolidation in this secular gold bull market that have lasted well over a year. This one will come to an end the same way they did – with gold prices reigniting and leaving those that doubt the power of gold behind.

US Agribusiness, GMOs And The Plundering Of The Planet

RINF, Counterpunch, Countercurrents, Global Research

Small family/peasant farms produce most of the world’s food. They form the bedrock of global food production. Yet they are being squeezed onto less than a quarter of the planet's farmland. The world is fast losing farms and farmers through the concentration of land into the hands of rich and powerful land speculators and agribusiness corporations.

By definition, peasant agriculture prioritises food production for local and national markets as well as for farmers’ own families. Big agritech corporations on the other hand take over scarce fertile land and prioritise commodities or export crops for profit and foreign markets that tend to cater for the needs of the urban affluent. This process displaces farmers from their land and brings about food insecurity, poverty and hunger.

What big agribusiness with its industrial model of globalised agriculture claims to be doing - addressing global hunger and food shortages - is doing nothing of the sort. There is enough evidence to show that its activities actually lead to hunger and poverty - something that the likes of GMO-agribusiness-neoliberal apoligists might like to consider when they propagandize about choice, democracy and hunger: issues that they seem unable to grasp, at least beyond a self-serving superficial level.

Small farmers are being criminalised, taken to court and even made to disappear when it comes to the struggle for land. They are constantly exposed to systematic expulsion from their land by foreign corporations. The Oakland Institute has stated that now a new generation of institutional investors, including hedge funds, private equity and pension funds, is eager to capitalise on global farmland as a new and highly desirable asset class. Financial returns are what matter to these entities, not ensuring food security.

Consider Ukraine, for example. Small farmers operate 16% of agricultural land, but provide 55% of agricultural output, including: 97% of potatoes, 97% of honey, 88% of vegetables, 83% of fruits and berries and 80% of milk. It is clear that Ukraine’s small farms are delivering impressive outputs.

However, The US-backed toppling of that country’s government seems likely to change this with the installed puppet regime handing over agriculture to US agribusiness. Current ‘aid’ packages are contingent on the plundering of the economy under the guise of ‘austerity’ reforms and will have a devastating impact on Ukrainians’ standard of living and increase poverty in the country.

Reforms mandated by the EU-backed loan include agricultural deregulation that is intended to benefit foreign agribusiness corporations. Natural resource and land policy shifts are intended to facilitate the foreign corporate takeover of enormous tracts of land. (From 2016, foreign private investors will no longer be prohibited from buying land.) Moreover, the EU Association Agreement includes a clause requiring both parties to cooperate to extend the use of biotechnology, including GMOs.

In other words, events in Ukraine are helping (and were designed to help) the likes of Monsanto to gain a firm hold over the country’s agriculture.

Frederic Mousseau, Policy Director of the Oakland Institute last year stated that the World Bank and IMF are intent on opening up foreign markets to Western corporations and that the high stakes around control of Ukraine’s vast agricultural sector, the world’s third largest exporter of corn and fifth largest exporter of wheat, constitute an oft-overlooked critical factor. He added that in recent years, foreign corporations have acquired more than 1.6 million hectares of Ukrainian land.

Western agribusiness had been coveting Ukraine’s agriculture sector for quite some time, long before the coup. It after all contains one third of all arable land in Europe.

An article posted on Oriental Review notes that since the mid-90s the Ukrainian-Americans at the helm of the US-Ukraine Business Council had been instrumental in encouraging the foreign control of Ukrainian agriculture.

In November 2013, the Ukrainian Agrarian Confederation drafted a legal amendment that would benefit global agribusiness producers by allowing the widespread use of genetically modified seeds. Oriental Review notes that when GMO crops were legally introduced onto the Ukrainian market in 2013, they were planted in up to 70% of all soybean fields, 10-20% of cornfields, and over 10% of all sunflower fields, according to various estimates (or 3% of the country’s total farmland).

According to Oriental Review, “within two to three years, as the relevant provisions of the Association Agreement between Ukraine and the EU go into effect, Monsanto’s lobbying efforts will transform the Ukrainian market into an oligopoly consisting of American corporations.”

It amounts to little more than the start of the US colonisation of Ukraine’s seed and agriculture sector. This corporate power grab will be assisted by local banks. Oriental Review says they will only offer favourable credit terms to those farmers who agree to use certified herbicides: those that are manufactured by Monsanto.

Interestingly, the investment fund Siguler Guff & Co has recently acquired a 50% stake in the Ukrainian Port of Illichivsk, which specialises in agricultural exports.

We need look no further than to Ukraine's immediate neighbour Poland to see the devastating impact on farmers that Western agribusiness concerns are having there. Land grabs by foreign capital and the threat to traditional (often organic) agriculture have sparked mass protests as big agribusiness seeks to monopolise the food supply from field to plate. The writing is on the wall for Ukraine.

The situation is not unique to Poland, though; the impact of policies that favour big agribusiness and foreign capital are causing hardship, impacting health and destroying traditional agriculture across the world, from India and Argentina to Brazil and Mexico and beyond.

In an article by Christina Sarich, Hilliary Martin, a farmer from Vermont in the US, encapsulates the situation by saying:
"We are here at the [US-Canadian] border to demonstrate the global solidarity of farmers in the face of globalization. The corporate takeover of agriculture has impoverished farmers, starved communities and force-fed us genetically-engineered crops, only to line the pockets of a handful of multinational corporations like Monsanto at the expense of farmers who are struggling for land and livelihood around the world."
The US has since 1945 used agriculture as a tool with which to control countries. And today what is happening in Ukraine is part of the wider US geopolitical plan to drive a wedge between Ukraine and Russia and to subjugate the country.

While the Transatlantic Trade and Investment Partnership (TTIP) is intended to integrate the wider EU region with the US economy (again 'subjugate' may be a more apt word), by introducing GMOs into Ukraine and striving to eventually incorporate the country into the EU the hope is that under the banner of ‘free trade’ Monsanto’s aim of getting this technology into the EU and onto the plates of Europeans will become that much easier.

Can Malaysia withstand the next financial crisis?

As developed economies of the world still continue their struggle to recover from the global financial crisis in 2008, the lack of confidence in global economic stability has placed greater demand on emerging markets to cushion themselves for the next crash. While woefully unsustainable debt levels deepen and weak regulatory oversight persist, the lack of tangible reforms creates an imperative for countries like Malaysia to stay ahead of the curve.

This was the theme of the Perdana Leadership Foundation’s sixth CEO Forum held in Kuala Lumpur last week, where more than thirty panelists analyzed the shaky state of the global economy and offered insights into Malaysia’s strengths and vulnerabilities, as well as the country’s susceptibility to external economic turbulence. In addition to market-related vulnerabilities, panelists also identified inter-religious anxieties between communities as factors that could put national unity and political stability at risk. 

Tan Sri Dato’ Dr. Lin See Yan, a trustee of the Tan Sri Jeffrey Cheah Foundation, identified how high fences built to withstand economic shocks and de-risk the financial system are seldom designed for all possibilities. He branded the European Union as the weakest link in the global financial system, noting that the bloc’s debt problems kept growing, austerity has proven to be counter productive, the euro currency remains overvalued, and the European Central Bank (ECB) has stagnated in the midst of its bond-buying strategy.

Lin also noted the possibility of another crisis originating from within the United States due to vulnerabilities posed by the country’s ballooning $17 trillion debt levels, the growing housing bubble, and the persistence of trading high-risk financial products backed by complex securitizations. He also raised concerns over recent data on the Chinese economy, which has shown a decline in fixed asset investments, raising speculation about whether or not the Chinese authorities would introduce a stimulus package. 

Tan Sri Azman Yahya, executive chairman of Symphony Life, believes that growth in China will continue to be on the upswing despite concerns of deceleration, even without significant investment, by virtue of Beijing’s prudent economic reforms. China has already announced at the recent G20 meeting of finance ministers that it will not make major policy adjustments in the form of stimulus despite slightly lower growth indicators. Reforms will be prioritized to stabilize employment and contain systemic risks such as widespread default. 

High government deficits, unprecedented government and private sector debt levels, and low household savings are deeply worrying trends in mature economies, according to Yahya, who claims that eventual tapering by the US Federal Reserve to cease quantitative easing (QE) measures could trigger a loss of confidence in the US dollar, causing an offloading and crash of US securities capable of tanking global markets. 

Yahya identified the risks posed by the lack of tangible financial sector reforms, the unsustainable US debt bubble, the growing loss of confidence in the US dollar, and surmised that the next crisis may strike within five years. He identified the high growth levels of Asia-Pacific countries as a buffer to crises emanating from stagnate western economies, noting how China’s middle class is set to expand to one billion by 2025, while growth will be increasingly be powered by consumption. 

Panelists at the forum generally agreed that the Asia-Pacific region is in a far healthier state today in comparison to the 1997 crisis, as China’s growth strategy moves away from the investment-driven template to more sustainable consumption-led expansion. Countries in the ASEAN region are also cooperating at higher levels. Analysts agree that Malaysia has proven to be fairly resilient and adept at crisis management, as it managed to navigate through treacherous economic periods while retaining consistently healthy growth levels over the past two decades. 

The country defied the IMF’s economic orthodoxy and introduced capital control measures during the 1997 Asian financial crisis to counter the short selling of the Malaysian ringgit by currency speculators, which triggered dramatic depreciation and rapid falls in stock market capitalization. Malaysia recovered faster than its neighbors and consolidated its banking system, putting buffers in place by introducing broader market regulations and strengthening banks to withstand shocks. 

During the global financial crisis in 2008, triggered by the bursting of the US housing bubble and the subsequent collapse of large financial institutions trading toxic mortgage-related financial products, the country found itself better prepared. The way the crisis struck in 1997 took Malaysian policymakers totally off guard. The country’s economy was highly stable and experiencing growth at 8 percent; loans were being repeatedly prepaid and Malaysia was stepping in rescue Thailand after attacks on the baht.

The current scenario also demands that countries expect the unexpected. The general consensus among panelists the Perdana forum was that a new financial crisis could present itself at some point within the next eighteen months to five years, with the potential for several mini-crises to bubble up and trigger recessionary depression. It is nearly impossible to accurately pinpoint when the next crisis will hit, but there are numerous flashpoints to consider.

In addition to vulnerabilities stemming from uncontrolled derivative trading and speculative hot money flows, debt and bubbles loom. During the 2008 crisis, insolvent private banks and lending institutions were deemed too-big-to-fail, but today, central banks are on the road to inheriting that status. Debt levels have ballooned to unprecedented levels driven by QE and low interest rates. Stagnate wages and easy credit has goaded consumers to keep borrowing to maintain consumption.

Both the United States and the United Kingdom are experiencing high unemployment levels and dramatic income inequality, giving rise to greater levels of social unrest while the stock markets of both countries have performed above par – surpassing the highs of pre-crisis levels. The sharp ascent of share prices, which has been heralded as proof of an economic recovery, does not correlate with rising activity in the productive economy or with per capita income.

The distinguished economist Ha-Joon Chang has referred to these developments as ‘the biggest stock market bubble in modern history.’ It is clear that share prices do not reflect real economic activity. The core of the problem is that successive rounds of QE have increased liquidity rates and fuelled asset bubbles rather than being channeled into productive assets.

Panelists addressed how many of the new jobs being created in mature economies are low-wage positions that offer little career mobility. The broad appeal of protest campaigns organized by fast-food workers to demand a living wage is a testament to the strains on ordinary people who are unable to meet the cost of living. Americans are pessimistic about their nation’s economic recovery policies because many find themselves facing more trying domestic circumstances.

Tun Dr. Mahathir Mohamad attended the Perdana forum to give the closing keynote address, where he likened the implementation of solutions to avert economic crises to a medical doctor treating a patient, stressing the need to understand the systemic contradictions of the global financial system. Dr. Mahathir denounced fractional reserve banking practices, which result in banks lending far greater amounts of money than they actually possess in cash reserves, and the leveraging practices taken advantage of by currency speculators and hedge funds.

The former Malaysian prime minister accused Europe and the US of being in a state of denial as to how markets are manipulated, primarily because the political classes themselves benefit from speculation. Dr. Mahathir believes that the role of the financial sector is overemphasized in national economies and advised greater market regulation. Governments must be ready to step in to limit the abuses of the banking system, according to Mahathir, who characterized the inherent inequality of the modern age as one where 99 percent of people are beholden to the ultra-wealthy 1 percent, citing the slogan popularized by the Occupy Wall Street protest movement.

Mass protest movements demanding accountability from Wall Street have remained potent because the underlying conditions that generated the crisis have not been addressed in any meaningful way. Instead of steering monetary policies in a sensible direction and broadening regulatory oversight to identify risky financial products and prevent predatory speculation, the banking lobby has strong-armed western politicians into accepting a growth model where short-term profits for the few take precedence over long-term investments in productive assets for the many.

Elsewhere in the world, the economic power and political autonomy of BRICS countries and their plans to establish a development bank to finance infrastructure growth throughout the developing world offers a far more sustainable investment model. To offset the risks of future crises, it is imperative to find the political courage to reduce the importance of the non-productive financial sector in national economies in favor of investments into productive assets that create infrastructure and job opportunities.

Panelists at the Perdana forum argued that even if measures are taken to bolster productive assets, financial and economic crises may strike in unexpected ways: resulting from cyber threat vulnerabilities, sudden geopolitical instability, conflicts over resources and the pricing of resources, and complications that can result from the use of non-traditional currencies.

Malaysia is considered a safe investment destination due to its political stability and imperviousness to natural disasters; the country’s competent young workforce is eager to enter innovative service sector positions, a major asset in contrast to other Asian countries struggling to maintain population growth. To meet the present development aspirations, it is necessary for the country to protect against both external and internal crises.

The Malaysian leadership faces a difficult balancing act on all fronts. It must do more to improve inter-communal harmony without rolling back civil liberties. Despite the country’s strong performance legitimacy, trust and confidence in the government and the integrity of institutions remains low due to endemic corruption. There is a need for a comprehensive social safety net system to address rising income inequality on a needs-basis.

Simultaneously, economic circumstances demand that developing countries remove energy and social subsidies in order to increase efficiency and become a more attractive destination for capital. Navigating through the crises ahead will require bold leadership. Malaysia will be in a better position to withstand turbulence if it takes meaningful steps to reduce income disparities and pursues inclusive social policies that will restore grassroots trust in the leadership.

This article appeared in the September 29, 2014 print edition of The Malaysian Reserve newspaper.

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].

Financial Tyranny in Puerto Rico: The Puerto Rico Government and the Creation of the...

Timothy Alexander Guzman, Silent Crow News - Puerto Rico has hit a brick wall. A financial tyranny is slowly emerging as desperation is starting to reflect on the Puerto Rican Government. Not only Puerto Rico’s underground economy will face a tax burden that will be enforced by the government, but also businesses, both small and large. According to Reuters they claim that Puerto Rico is hiring “tax specialists” but it seems that they are much more than just tax specialists according to the article:

The Treasury is hiring about 200 more tax specialists. Some of those will be checking on the books of businesses across the island, but some will be mystery shopping – making purchases at specially selected stores without identifying themselves to check for violators. 

Sales tax evaders could get slapped with a maximum $20,000 fine.

But $20,000 for a small business could mean a hefty chunk of revenues. That means a delicate balance for the government: Changing attitudes so that more businesses register and pay their taxes and fees, while not piling so many bills onto small businesses that they collapse

Can you imagine a $20,000 fine imposed on both small and large businesses by the Puerto Rican Government? This will destroy business activities all across the island; even if they managed to collect half of the debt at $35 billion not counting the added interest rates that accumulates over time would help the debt burden:

From the western mountain town of Lares to the capital San Juan, officials are wrestling with how to bring the underground economy out of the shadows and onto the tax rolls without creating such an onerous financial burden that thousands of small and medium businesses can’t survive.

More than a quarter of the island’s economy is informal, some studies say, from large companies evading taxes to individuals selling items for cash at roadside stands. But estimates vary widely because the activity can be so hard to track. 

While not new, the problem has become urgent of late. The government desperately needs to find new revenue to bolster a budget full of holes and turn around an economy now eight years in recession. It is scrambling to avoid a painful debt restructuring some view as almost inevitable

Imposing tax collections or even adding new taxes while Puerto Rico is in a deep recession to meet Wall Street’s demands would destroy whatever is left of the economy. Foreign investors including American and European companies both small and large are becoming more hesitant to invest in Puerto Rican Industries and its real estate markets as the debt crisis continues to spark major concerns. The Associated Press also reported in February that the government has set up a task force that would “target” business owners and individuals. The report stated the following:

Treasury Secretary Melba Acosta said a task force has been set up to target both business owners and individuals, adding that authorities are investigating more than 100 cases and more are expected to follow. Puerto Rico currently has only a 56 percent “capture” rate on tax revenues that should be taken in, losing some $800 million annually as a result, economist Gustavo Velez says.   

The Treasury Department already has referred 12 cases representing a total of more than $8 million in unpaid taxes to the island’s justice department. “This money belongs to the people of Puerto Rico,” Justice Secretary Cesar Miranda said. “It represents a teacher’s salary, a town’s road, a police officer’s uniform.”  

Two business owners have been charged with 36 counts of tax evasion and illegal appropriation, and officials warned that dozens of others could face similar accusations 

Puerto Rico’s government is in a bind. They are indebted to Wall Street and its Hedge Fund partners as they are to Washington. Hedge funds do not include Puerto Rico’s Government officials in their meetings. Bloomberg News reported that Jones Law Firm (who was one of the law firms restructuring Detroit’s bankruptcy) had a meeting that did not include Puerto Rican officials, “Commonwealth officials aren’t involved in the Jones Day meeting and didn’t call for it, according to the statement.” But Puerto Rico’s Government Development Bank’s statement said that “We made significant progress in implementing our fiscal and economic development plans in 2013, and are determined to continue that progress in 2014.” The Puerto Rico government will proceed to actions dictated by Washington and Wall Street duopoly that will undermine the economy.

$70 Billion in debt will increase as the islands residents continue to flee towards other depressed states for job opportunities within the US, including Florida, New York and Chicago. All states mentioned have high unemployment rates, foreclosures as more business and individual bankruptcies continue to rise. Florida now leads the United States in what you would call “Zombie Foreclosures.” In a 2014 article by www.Bizjournals.com called ‘Florida leads nation in ‘zombie foreclosures,’ RealtyTrac says’ claimed that “RealtyTrac considers a “Zombie Foreclosure” when a homeowner abandons a house that is facing a pending foreclosure action. There are about 55,000 of those in Florida, more than triple the nearest state of Illinois.” An economic situation Puerto Ricans arriving in Florida would find to be as dire as it was in their homeland. Increasing tax collections on Puerto Rican businesses and people would only elevate the economic situation to an even worst state of economic affairs. This would create insecurities even among the small business owners who sell produce or ice cream on the road. As you tax more businesses to pay the States debts, you reduce profits that would be used to reinvest in equipment, supplies and even create or maintain jobs to grow the economy.

Not only would it place the burden on the Puerto Rican people, it would frighten foreign businesses, private investors and individuals from investing on the island’s economy that can create jobs. Puerto Rico’s government under Governor Padilla is just another administration under Washington’s rule. Taxing businesses and individuals was the only option the Puerto Rican Government had with regards to their enormous debt burden they face. Besides, Puerto Rico’s largest employer is the government; a bureaucracy that does not produce any goods for trade besides Pharmaceuticals and a handful of other products for the US market. The new actions taken by the Padilla government on behalf of the financial elites is at the expense of those who are financially struggling. It is just business as usual.

 

Interview 838 — New World Next Week with James Evan Pilato

This week on the New World Next Week: the mystery of the missing flight MH370 continues to deepen; hedge funds bet against businesses and then lobby to bring them down; and the puppet-in-chief pimps Obamacare on an online comedy show.

The Ongoing Neoliberal Assault On Ordinary Working Class People In Britain


The Market Oracle, Global Research and Countercurrents 8/1/2014

British Chancellor George Osborne this week announced massive cuts of £25 billion after 2015. This included further welfare cuts of £12bn. Osbourne said that 2014 would be a year of hard truths. He claimed that his economic policies were working, but admitted that the bad news is there's still a long way to go.

He warned of more years of cuts to public services and the public sector by saying £25bn would be cut over two years after 2015. That is in addition to £17bn cuts this year and £20bn next year. Osbourne argued that government is going to have to be permanently smaller and so too is the welfare system.


When he says ‘welfare system’ does he also include cutting back the massive handouts given to the arms industry, for example, which amounts to £890 million per year according to the Campaign Against the Arms Trade (1), or the billions given to the private sector via the ‘corporate dole office’, the Department of Trade and Industry (now called the Department for Business Innovation and Skills)? Or does he exclude such types of corporate welfare dependency (2)?


What is interesting about this attack on the public sector by millionaire Osbourne and the rest of the millionaires in the British Cabinet is that the mantra that such cuts are necessary has been repeated endlessly over the past few years to the point that many of the public believe it’s true. But it’s not. Cuts are not necessary. It is ideology wrapped up in neo-liberal economic dogma that masquerades as ‘truth’. But it’s a big lie. It’s secular theology that the mainstream media never challenges and simply perpetuates.


Britain’s problems are not the result of spending on public services. In 1945, the debt was bigger than today, but Britain created the welfare state. In the 1960s, during an era of full employment, the debt was also bigger than now. In 2006, before the crisis, Britain spent more on public services than now, but there was no talk of cutting back the public sector.


The roots of the crisis (across Western economies) lie not in public sector spending but in a process that has seen the shifting balance of political and economic power towards elite interests. In the 1980s, much of Britain’s manufacturing industry was outsourced or run down, the union movement was attacked and almost decimated and wages have been depressed or have fallen in real terms over a number of years. To compensate for the hollowing out of the economy and driving down wages, low pay and increasing underemployment, credit became the short-term remedy for stimulating demand.


While profits during the last decade were higher than in the previous three decades, unemployment and underemployment have become a fact of life for millions (3). This is the outcome of the type of 'globalization' we have been witnessing and the lies that underpin it (4). It is the consequence of what David Rothkopf in this book 'The Global Power Elite and The World They are Making' says is the global elite's plundering of nations. 


The economic crisis is not due to lavish spending on public services, but the shattering of the post-war Keynesian consensus, based on notions of fairness, and consequent low demand and over investment, neo-liberal (low taxation - or no taxation for the corporate tax cheats) economic policies, a debt bubble economy and the massive welfare handout (bail out) to the banking sector. It is also a result of the manipulations within the unregulated financial sector (which was supposed to be the bedrock of the ‘new’ economy after the manufacturing base was deliberately destroyed), speculation, the criminal use of hedge funds and credit derivatives and all manner of secretive dodgy dealings that burst the bubbles they were intended to sustain. Ordinary folk are now being saddled with the consequences of a system they had no hand in shaping.


But mention the word ‘crisis’ and propaganda about the public sector being the root of all evil is sold to the masses by most politicians and the media.


Osbourne would never mention that the top 1,000 of Britain’s wealthiest people had an aggregate wealth of £333 bn in 2009. The national debt was half that. In 2009, they increased their wealth by a third (5). It doesn’t take a genius to see how the debt could be addressed. But Osbourne says: "There is no point in pretending that there is some magic wand that the Chancellor can wave to make the whole country feel richer than it actually is." 


And so the plunder of public resources continues. 


The priority of Osbourne and his millionaire cronies inside and outside the British Government is not the lives of ordinary people, but to maintain massive profit and to drive down wages and ‘costs’ and keep workers confused and weak.


Quoted in Britain’s Morning Star newspaper, Communist Party general secretary Rob Griffiths urges taxes on the rich and big business, plus public ownership of energy and public transport. The Unite union general secretary Len McCluskey accuses Mr Osborne of "continuing an unprecedented ideological attack on the state, with Britain's young people in the front line."


General union GMB general secretary Paul Kenny is also reported as demanding that big corporations must be made to pay their fair share of tax, bringing in billions of extra income. That would amount to a whopping £260 million a day according to economist and taxation specialist Richard Murphy (6).


What is happening in Britain is a continuation of what Thatcher did in the 1980s, with attacks on ordinary working people in order to allow an ever increasing concentration of power and wealth at the top. To help achieve it, we are witnessing the dismantling of the welfare state.


Mick McGahey, Vice President of the National Union of Mineworkers 1972-87:


"We understood the Conservative government's determination to use the state machine against us. In order to dismember the welfare state, they had to break the trade union movement and they needed to break the miners first."
McGahey was correct. The current Conservative-LibDem coalition is going further than Thatcher ever did. Osbourne and his cronies in government are mouthpieces for their powerful backers in the City ofLondon. As Labour MP Dennis Skinner observes:

"Osborne is busy lining the pockets of the people at the top of the pile."

Notes



Wall Street Pirates of the Caribbean: Puerto Rico’s Public Pension System Teetering on Collapse...

Timothy Alexander Guzman, Silent Crow News - Protests erupted this past Thursday in San Juan, Puerto Rico’s capitol building. The ongoing economic stagnation of Puerto Rico continues with proposed pension cuts for retired public school teachers according to the Associated Press:

The protest interrupted a special legislative session that Gov. Alejandro Garcia Padilla had called to debate reform measures amid pressure to appease Wall Street ratings agencies as the U.S. territory braces for its eighth year in recession. Garcia said the teachers’ pension system has a $10 billion deficit and will run out of funds by 2020 if nothing is done. 

“We cannot remain with our arms crossed,” he said. “Postponing this reform will worsen the state of the system, require more drastic measures to save it and contribute to the country’s worsening credit.” The government is seeking to change the system from a defined benefit plan to a defined contribution one and possibly increase the retirement age, among other things.

This means reducing monthly payments and increasing the retirement age. Wall Street is looking to profit from Puerto Rico’s debt problem through “trading revenue” according to Bloomberg News last month:

Lazard Capital held a meeting Oct. 10 at its New York office with about 75 participants said Peter Santry, head of fixed-income trading. As more hedge funds buy and sell commonwealth securities, the firm wants to capture that trading revenue, Santry said. “You want to get business out of it,” Santry said.  

Former Governor Luis Fortuno, who lost a re-election bid in November 2012 and is now a partner at Washington-based Steptoe & Johnson LLP, spoke at the Lazard Capital meeting on the legal structures of Puerto Rico debt and the commonwealth’s economy, Santry said. Fortuno declined to comment in an e-mail, saying he wouldn’t discuss current or potential clients.  

Citigroup hosted an Oct. 24 conference that attracted more than 200 attendees, eight times more than the company was expecting, according to two participants, who asked not to be identified because the meeting was private. Bank representatives said in the presentation that the company originally booked a conference room and had to find a bigger space, the attendees said.

Former Puerto Rico Governor Luis Fortuno’s decision not to mention his current and future potential cliental for Puerto Rico’s potential commonwealth securities is troubling. But Fortuno’s law firm Steptoe & Johnson LLP in the past represented CEO and Chairman of Goldman Sachs Lloyd Blankfein in relation to mortgage fraud in 2012 that resulted in no criminal charges for the banking institution after a year-long investigation. That should win the hearts and minds of the Puerto Rican people! The new governor Alejandro Garcia Padilla will bow to Wall Street’s demands. “Teachers protesting the proposed measures say they favor alternatives such as increasing taxes on foreign companies to generate more revenue and receiving unclaimed money from the island’s electronic lottery system” according to Bloomberg. Caribbean Business reported back on October 10th ‘García Padilla administration makes new pitch on Wall Street’:

Despite Moody’s ill-timed move, García Padilla’s top economic brass remain steadfast in a plan that they insist will be instrumental in achieving 2.6% growth by the end of 2016.

During an exclusive roundtable interview with CARIBBEAN BUSINESS, Economic Development & Commerce Secretary Alberto Bacó Bagué, Puerto Rico Industrial Development Co. Executive Director Antonio Medina, Puerto Rico Tourism Co. Executive Director Ingrid Rivera Rocafort and Puerto Rico Commerce & Export Co. Executive Director Francisco Chévere explained that a concerted effort is underway to showcase an integrated plan—the fiscal and economic teams together— in presentations to credit-rating agencies on Wall Street.

The idea is for the rating agencies to see the economic-development plan, not as an afterthought, but as an integral part of a strategy—the next step after raising taxes and fixing the government workers’ retirement plan—that will spur growth even in the face of austerity. To that end, they have commissioned a review of Puerto Rico’s economy by the Boston Consulting Group (BCG) that, they say, will certify 2.6% economic growth and the creation of 90,000 new jobs by the end of 2016—if they execute their plan to perfection.

The government of Puerto Rico and the teachers both agree to raise taxes on foreign companies. It is important to note that raising taxes on companies would force them to leave the island altogether in hopes of finding better tax shelters in other nations with a lower tax rate. In the process, jobs would be eliminated which will increase unemployment rates adding to an already struggling economy. Raising taxes on foreign companies is not the only bad idea. Using unclaimed money from the Puerto Rico lottery system would not “trickle down” down to the local economy. The Puerto Rico government would use unclaimed funds to repay its growing $70 billion debt to Wall Street. Puerto Rico’s austerity measures would not create 90,000 jobs with a 2.6%economic growth rate which will be certified by the Boston Consulting Group (BCG) is unrealistic. The only jobs that will exist in Puerto Rico will be through the US government and the military with its ever expanding defense department budgets and continuous wars. What is more disturbing for Puerto Rico’s retired teachers is that they fully depend on their pensions because they do not receive any form of social security benefits or any other retirement incentives. “Nearly 42,000 teachers contribute to a pension system that supports nearly 38,000 retired teachers. Unlike other government workers in Puerto Rico, teachers do not receive Social Security and depend completely on their pensions upon retirement” according to the Bloomberg report. Once austerity measures take place, Wall Street and other private investors would reap the benefits. Puerto Rico will suffer the economic consequences of their politicians because of their loyalties to Washington and Wall Street. Maybe when Governor Alejandro Garcia Padilla’s term expires or if he loses the next election, he will find himself in a cushy position in a Wall Street firm following his predecessor former Governor Luis Fortuno. Don’t be surprised.

The Financial Bearings of Manufactured Dissent

This article was originally published at Memory Hole and Global Research on August 3, 2012. It is reposted here for further consideration in light of Nolan Higdon’s article, “Disinfo Wars: Alex Jones’ War on Your Mind,” published by Project Censored’s in September 2013, and the exchange concerning that work taking place here earlier this month.

The following should not be seen as a blanket condemnation of progressive media outlets, which often produce important work. Rather, the observations suggest how, particularly when faced with the challenge of forthrightly addressing “deep events” and the equivalent, such media are arguably subject to similar institutional pressures and self-censorship more overtly exhibited by their corporate-owned counterparts.*

Why do the self-proclaimed left-progressive “independent” media repeatedly overlook, obfuscate or otherwise leave unexamined some of the most momentous geopolitical and environmental events—September 11th and related false flag terror events, the United Nations’ “Agenda 21,” the genuinely grave environmental threats posed by the Fukushima nuclear catastrophe, geoengineering (weather modification), and the dire health effects of genetically modified organisms?[1] In fact, these phenomena together point to a verifiable transnational political economic framework against which one or more mass social movements could readily emerge.

Yet over the past decade the actual function of such journalistic outlets has increasingly been to “manufacture dissent”–in other words, to act as the controlled opposition to the financial oligarchs and an encroaching scientific dictatorship that to an already significant degree controls the planet and oversees human thought and activity. Indeed, many alternative media outlets that appear to be independent of the power structure are funded by the very forces they are reporting on through their heavy reliance on the largesse of major philanthropic foundations.

With the across-the-board deregulation of the transnational financial system in the late 1990s and consequent enrichment of Wall Street and London-based investment banks and hedge funds, the resources of such foundations have increased tremendously. Consequently, the overall funding of “activist” organizations and “alternative” media has climbed sharply, making possible the broadly disseminated appearance of strident voices speaking truth to power. In fact, the protesters and journalists alike are often tethered to the purse strings of the powerful. As a result,

Dissent has been compartmentalized. Separate “issue oriented” protest movements (e.g. environment, anti-globalization, peace, women’s rights, climate change) are encouraged and generally funded as opposed to a cohesive mass movement.[2]

The efforts of financial elites to influence left-progressive political opinion goes back a century or more. In the early 1900s, for example, the Rockefeller and Carnegie Foundations decisively shaped the trajectory of elementary and higher education. Yet a less-examined development is how such influence extended to the mass media. A specific instance of such interests seeking to influence the Left community specifically is the establishment of The New Republic magazine at a decisive time in US history.

Purchased Political Opinion: The Founding of The New Republic

Throughout the twentieth century powerful financial interests have sought to anticipate and direct American left wing social movements and political activity by penetrating their opinion-shaping apparatus. This was seldom difficult because progressives were usually strapped for funds while at the same time eager for a mouthpiece to reach the masses. In 1914 Wall Street’s most powerful banking house, J.P. Morgan, was willing to provide both. “The purpose was not to destroy, dominate, or take over but was really threefold,” historian Carroll Quigley explains.

(1) to keep informed about the thinking of Left-wing or liberal groups; (2) to provide them with a mouthpiece so that they could “blow off steam,” and (3) to have a final veto on their publicity and possibly on their actions, if they ever went “radical.” There was nothing really new about this decision, since other financiers had talked about it and even attempted it earlier. What made it decisively important this time was the combination of its adoption by the dominant Wall Street financier, at a time when tax policy was driving all financiers to seek tax-exempt refuges for their fortunes, and at a time when the ultimate in Left-wing radicalism was about to appear under the banner of the Third International.[3]

As an example, in 1914 Morgan partner and East Asia agent Willard Straight established The New Republic with money from himself and his wife, Dorothy Payne Whitney of the Payne Whitney fortune. “’Use your wealth to put ideas into circulation,’ Straight had told his wife. ‘Others will give to churches and hospitals.’”[4]

The idea of funding such an organ partly developed between the wealthy couple after they read Herbert Croly’s The Promise of American Life, in which the well-known liberal author assailed the foundations of traditional Progressivism, with its Jeffersonian doctrine of free enterprise and inclination for decentralized, unrestrictive government. In such a laissez-faire arrangement, Croly reasoned, the strong would always take advantage of the weak. “Only a strong central government could control and equitably distribute the benefits of industrial capitalism. … guided by a strong and farsighted leader.” Toward this end Croly proposed a “constructive” or “New Nationalism”, and a medium to reach a captive audience could promote such ideals on a regular basis.[5]

As Croly recalls, Straight

hunted me up and asked me to make a report for him on the kind of social education which would be most fruitful in a democracy. Thereafter I saw him frequently, and in one of our conversations we discussed a plan for a new weekly which would apply to American life, as it developed, the political and social ideas which I had sketched in the book … We hoped to make it the mouthpiece of those Americans to whom disinterested thinking and its result in convictions were important agents of the adjustment between human beings and the society in which they live.[6]

Straight designated Croly editor-in-chief of The New Republic‘s and the young socialist writer Walter Lippmann, who by his mid-twenties was an adviser to presidents and a member of the shadowy Round Table Groups, was approached to be a founding editorial board member and subsequently entrusted with gearing the American readership toward a more favorable view of Britain.

Croly later noted how Straight was hardly liberal or progressive in his views. Rather, he was a regular international banker and saw the magazine’s purpose

simply [as] a medium for advancing certain designs of such international bankers, notably to blunt the isolationism and anti-British sentiments so prevalent among many American progressives, while providing them with a vehicle for expression of their progressive views in literature, art, music, social reform, and even domestic polices.[7]

Following establishment of The New Republic, Straight considered purchasing The New York Evening Post or The Washington Herald. “He longed for a daily newspaper,” Croly recalls, “which would communicate public information in the guise of news as well as in the guise of opinion and which would be read by hundreds of thousands of people instead of only tens of thousands, to serve as his personal medium of expression.”[8]

Straight and Payne Whitney’s son, “Mike” Straight, carried on The New Republic through the 1940s in close alignment with Left and labor organizations, even providing Henry Wallace with a position on the editorial staff in 1946 and backing Wallace’s 1948 presidential bid.

With Willard Straight’s early death in 1918 another Morgan partner, Tom Lamont, apparently became the bank’s representative to the Left, supporting The Saturday Review of Literature in the 1920s and 1930s, and owning the New York Post from 1918 to 1924. Lamont, his wife Flora, and son Corliss were major patrons to a variety of Left concerns, including the American Communist Party and Trade Union Services Incorporated, which in the late 1940s published fifteen union organs for CIO unions. Frederick Vanderbilt Field, another well-heeled Wall Street banker, sat on the editorial boards of The New Masses and the Daily Worker—New York’s official Communist newspapers.[9]

Progressive-Left Media’s Financing Today

Since the 1990s the framework for guiding the Left has developed into a vast combine of powerful, well-funded philanthropic foundations that function on the behalf of their wealthy owners as a well-oiled mechanism of opinion management. Such philanthropic entities oversee formidable wealth that today’s heirs to the Straight and Payne Whitney tradition seek to shield from taxation while. At the same time they are able to employ such resources to influence political thought, discourse, and action. Further, following the broad-based 1999 protests of the World Trade Organization in Seattle, global elite interests recognized the importance of developing the means to “manufacture dissent.”

Such foundations no doubt exert at least subtle influence over the editorial decisions of the vulnerable progressive media beholden to them for financing. This is partially due to the personnel of the foundations themselves. The task of doling out money frequently falls to foundation officials who are retired political advocates with certain notions about what organizations should be funded and, moreover, how the money should be spent. As Michael Shuman, former director of the Institute for Policy Studies observed in the late 1990s,

A number of program officers at progressive foundations are former activists who decided to move from the demand to the supply side to enjoy better salaries, benefits and working hours. Yet they still want to live like activists vicariously… by exercising influence over grantees through innumerable meetings, reports, conferences and “suggestions” . . . Many progressive funders treat their grantees like disobedient children who need to be constantly watched and disciplined.[10]

Doling out grant money to a journalistic outlet is especially controversial since genuine journalism is inherently political given its inclination toward pursuing and examining the decisions and policies of power elites. As Ron Curran of the Independent Media Institute notes, money from foundations “has engendered a climate of secrecy at IAJ (Institute for Alternative Journalism n/k/a Independent Media Institute [IMI]) that’s in direct conflict with IAJ’s role as a progressive media organization.” He continues, “the only money nonprofits can get these days is from private foundations–and those foundations want to control the political agenda.”[11]

If funding is any indication of sheer influence over progressive media, that influence has grown by leaps and bounds at the foremost left media outlets since the 1990s. For example, between 1990 and 1995 the four major progressive print news outlets, The Nation, The Progressive, In These Times, and Mother Jones received a combined $537,500 in grants and contributions.

In 2010, however, The Nation Institute (The Nation) alone received $2,267,184 in funding, The Progressive took in $1,310,889, the Institute for Public Affairs (In These Times) accepted $961,015, and the Foundation for National Progress (Mother Jones) collected $4,725,235.[12]

These figures are for grants and contributions alone and do not include revenue generated from subscription sales and other promotions. Alongside the overall compromised nature such funding can bring, the tremendous increase over the past decade suggests one reason for why specific subject matter that is off-limits for coverage or discussion.

With the development of the internet several new alternative-progressive outlets have emerged between the late 1990s and early 2000s, including Alternet, Democracy Now!, and satellite channel Link TV. Recognizing their influence, a vast array of “public support” has likewise made these multi-million dollar operations alongside their print-based forebears.

For example, between 2003 and 2010 Democracy Now! has taken in $25,577,243—an annual average of $3,197,155, with 2010 assets after liabilities of $11,760,006. Between 2006 and 2010 the Pacific News Service received $26,867,417, or $5,373,483 annually.  The Foundation for National Progress (Mother Jones) brought in $46,623,197, or $4,662,320, and Link TV raised $54,839,710 between 2001 and 2009 for average annual funding of $6,093,301.(Figure 1)

Media Organization
501(c) 3 Total Support 2001-2010 Average Annual Support 2001-2010
Net Assets After Liabilities (2010)
Democracy Now
Productions Inc.
Yes $25,577,243 (from 2003) $3,197,155 $11,760,006
Schumann Center for Media and Democracy
Yes NA $3,471,682 (2010) $33,314,688
Nation Institute (The Nation) Yes $22,246,533 $2,224,653 $4,798,831
Pacific News Service Yes $26,867,417 (2006-2010) $5,373,483 $712,011
Foundation for National Progress (Mother Jones) Yes $46,623,19

$4,662,320

-$1,189,040
The Progressive Yes $8,702,146 $870,215 $5,493,782
Link TV Yes $54,839,710 (excludes 2010) $6,093,301 $1,533,308
Institute for Public Affairs (In These Times) Yes $4,469,119 (excludes 2006, 2007) $558,640 -$114,532
Institute for Independent Media (Alternet) Yes $14,441,678 $1,444,168 $900,585

Figure 1. Grants, Gifts, Contributions, and Membership Fees of Select “Independent Progressive” Media or Media-Related Organizations 2001-2010 (unless otherwise noted). Based on 2001-2010 IRS Form 990s.

Bill Moyers’ Schumann Center for Media and Democracy, which funds The Nation Institute and online news organ Truthout, has net assets of $33,314,688, and brought in $3,471,682 in 2010 income.[13] Because these organizations assert under their 501c3 status that they have no overt political agenda, all income is untaxed.[14] Nor are they required to list the sources of their funding—even especially generous contributions. As the early 1990s grant figures for The Nation, The Progressive, In These Times, and Mother Jones suggest, nickel-and-dime contributions constitute a small percentage of such outlets’ overall “public” support.

Funding and Self-Censorship / Conclusion

Given the extent of foundation funding for left-progressive media, it is not surprising how such venues police themselves and proceed with the wishes of their wealthy benefactors in mind. As Croly observed concerning The New Republic, the Straights and Payne Whitneys “could always withdraw their financial support, if they ceased to approve of the policy of the paper; and in that event it would go out of existence as a consequence of their disapproval.”[15] Indeed, this is the left news media’s greatest fear.

In light of these dynamics and the big money at stake the progressive media’s censorial practices are understandable. At the same time self-censorship involves a fairly implicit set of social and behavioral processes. As Warren Breed discovered several decades ago, journalists’ socialization and workplace routinization constitute a process whereby newsworkers themselves internalize the mindset and wishes of their publishers, thereby making overt censorship unnecessary.[16] We may conclude that a similar process is in play when today’s “progressive” journalists and their editors share or accept many of the same interests, sentiments and expectations of those who hold the purse strings–and who would likely disapprove of attending to certain “controversial” or “conspiratorial” topics and issues.

With this in mind the foremost concern with such media is the uniform declaration of their “alternative” and “independent” missions–claims that are as problematic and misleading as Fox News’ “fair and balanced” mantle. A more appropriate (and honest) moniker for the foundation-funded press is a caveat emptor-style proclamation: “The following content is intended to impart the illusion of empowerment and dissent, yet can leave you uninformed of the most pressing issues of our time, in accordance with the wishes of our sponsors.”

Notes

*An important and unusual contribution toward understanding this largely-overlooked phenomenon was recently published by Project Censored. See John Pilger, “Censorship That Dares Not Speak Its Name: The Strange Silencing of Liberal America,” in Mickey Huff and Andy Lee Roth with Project Censored (editors), Censored 2014: The Top Censored Stories and Media Analysis of 2012-2013, New York: Seven Stories Press, 2013, 287-296.

[1] On false flag terror see, for example, Daniele Ganser, NATO’s Secret Armies: Operation Gladio and Terrorism in Western Europe, New York: Routledge, 2005. On Fukushima see Fukushima: A Nuclear War without a War: The Ongoing Crisis of World Nuclear Radiation, ed. Michel Chossudovsky, Ottawa: Centre for Research on Globalization, January 25, 2012, http://www.globalresearch.ca/index.php?context=va&aid=28870. For ongoing reportage see Enviroreporter.com. On Agenda 21 see Rachel Koire, Behind the Green Mask: UN Agenda 21, The Post-Sustainability Press, 2011. On geoengineering and weather modification see Project Censored 2012 Story #9, “Government Sponsored Technologies for Weather Modification,” Censored 2012: The Top Censored Stories and Media Analysis of 2010-2011, New York: Seven Stories Press, 2011, 84-90, http://www.projectcensored.org/top-stories/articles/9-government-sponsored-technologies-for-weather-modification/. On genetically modified organisms see Jeffrey M. Smith, Genetic Roulette: The Documented Health Risks of Genetically Modified Foods, White River Junction, VT: Chelsea Green, 2007, and F. William Engdahl, Seeds of Destruction: The Hidden Agenda of Genetic Manipulation, Ottawa: Centre for Research on Globalization, 2007.

[2] Michel Chossudovsky, “Manufacturing Dissent: The Antiglobalization Movement is Funded by the Corporate Elites,” GlobalResearch.ca, September 20, 2011.

[3] Carroll Quigley, Tragedy and Hope: A History of the World In Our Time, New York: MacMillan, 1966, 938.

[4] Ronald Steele, Walter Lippmann and the American Century, Boston and Toronto: Little, Brown and Company, 1980, 60. Payne Whitney would continue to fund the publication until 1953.

[5] Steele, Walter Lippmann and the American Century, 59.

[6] Herbert Croly, Willard Straight, New York: Macmillan & Company, 1924, 472.

[7] Quigley, Tragedy and Hope, 940.

[8] Croly, Willard Straight, 474.

[9] Quigley, Tragedy and Hope, 945-946.

[10] Michael Shuman, “Why do Progressive Foundations Give too Little to too Many?” The Nation, January 12, 1998, 11-16, The Nation ( January 12): 11–16. Available at http://www.tni.org/archives/act/2112

[11] Ron Curran 1997. “Buying the News.” San Francisco Bay Guardian, October 8, 1997. Cited in Bob Feldman, “Reports from the Field: Left Media and Left Think Tanks—Foundation Managed Protest,” Critical Sociology 33 (2007), 427-446. Available at www.irasilver.org/ wp-content/ uploads/ 2011/ 08/Reading-Foundations-Feldman.pdf

[12] Feldman, “Reports from the Field.”

[13] All tax-related information obtained through GuideStar, http://www2.guidestar.org/Home.aspx, and Foundation Center, http://foundationcenter.org/

[14] Progressive-left finger pointers such as Center for American Progress and Media Matters for America are similarly awash in foundation funding and require separate treatment.

[15] Croly, Willard Straight, 474.

[16] Warren Breed, “Social Control in the Newsroom: A Functional Analysis,” Social Forces, 33:4 (May 1955), 326-335. Available at https://umdrive.memphis.edu/cbrown14/public/Mass%20Comm%20Theory/Week%208%20Journalism%20Studies/Breed%201955.pdf

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The Ghost of Authoritarianism in the Age of the Shutdown

http://www.truthdig.com/report/item/the_ghost_of_authoritarianism_in_the_age_of_the_shutdown_20131018/

Posted on Oct 18, 2013

By Henry A. Giroux, Truthout

This piece first appeared at Truthout before the government shutdown was resolved.

In the aftermath of the reign of Nazi terror in the 1940s, the philosopher Theodor Adorno wrote:

National Socialism lives on, and even today we still do not know whether it is merely the ghost of what was so monstrous that it lingers on after its own death, or whether it has not yet died at all, whether the willingness to commit the unspeakable survives in people as well as in the conditions that enclose them.

Adorno’s words are as relevant today as they were when he first wrote them. The threat of authoritarianism to citizen-based democracy is alive and well in the United States, and its presence can be felt in the historical conditions leading up to the partial government shutdown and the refusal on the part of the new extremists to raise the debt ceiling. Adorno believed that while the specific features and horrors of mid-century fascism such as the concentration camps and the control of governments by a political elite and the gestapo would not be reproduced in the same way, democracy as a political ideal and as a working proposition would be under assault once again by new anti-democratic forces all too willing to impose totalitarian systems on their adversaries.

For Adorno, the conditions for fascism would more than likely crystallize into new forms. For instance, they might be found in the economic organization of a society that renders “the majority of people dependent upon conditions beyond their control and thus maintains them in a state of political immaturity. If they want to live, then no other avenue remains but to adapt, submit themselves to the given conditions.” In part, this speaks to the role of corporate-controlled cultural apparatuses that normalize anti-democratic ideologies and practices as well as to the paramount role of education in creating a subject for whom politics was superfluous. For Adorno, fascism in its new guise particularly would launch a systemic assault on the remaining conditions for democracy through the elimination of public memory, public institutions in which people could be educated to think critically and the evisceration of public spaces where people could learn the art of social citizenship, thoughtfulness and critical engagement. He also believed that the residual elements of the police state would become emergent in any new expression of fascism in which the corporate and military establishments would be poised to take power. Adorno, like Hannah Arendt, understood that the seeds of authoritarianism lie in the “disappearance of politics: a form of government that destroys politics, methodically eliminating speaking and acting human beings and attacking the very humanity of first a selected group and then all groups. In this way, totalitarianism makes people superfluous as human beings.”

The American political, cultural, and economic landscape is inhabited by the renewed return of authoritarianism evident in the ideologies of religious and secular certainty that legitimate the reign of economic Darwinism, the unchecked power of capital, the culture of fear and the expanding national security state. The ghosts of fascism also are evident in what Charles Derber and Yale Magress call elements of “the Weimer Syndrome,” which include a severe and seemingly unresolvable economic crisis, liberals and moderate parties too weak to address the intensifying political and economic crises, the rise of far-right populist groups such as the Tea Party and white militia, and the emergence of the Christian Right, with its racist, anti-intellectual and fundamentalist ideology. The underpinnings of fascism are also evident in the reign of foreign and domestic terrorism that bears down on the so called enemies of the state (whistleblowers and nonviolent youthful protesters) and on those abroad who challenge America’s imperial mission; it is also visible in a growing pervasive surveillance system buttressed by the belief that everyone is a potential enemy of the state and should be rightfully subject to diverse and massive assaults on rights to privacy and assembly.

The return to authoritarianism can also be seen in the pervasive and racist war on youths, whether one points to a generation of young people saddled with unspeakable debt, poverty and unemployment, or the ongoing criminalization of behaviors that either represent trivial infractions, such as violating a dress code, or more serious forms of terrorism, such as incarcerating increasing numbers of low-income whites and poor minority youths. Americans live at a time when the history of those who have been cheated, murdered or excluded is being destroyed. Eliminated from this history are the collective narratives of struggle, resistance and rebellion against various forms of authoritarianism. We live in a time in which the politics of the moral coma is alive and well and is most visible in the ways in which the rise of the new extremism in the United States is being ignored. The repudiation of intellectual responsibility confirms what Leo Lowenthal once called the “regression to sheer Darwinism - or perhaps one should say infantilism,” along with any sense of moral accountability toward others or the common good. The government shutdown offers a clear case of a kind of historical and social amnesia and a rare glimpse of the parameters of the new authoritarianism.

During the past few decades, it has become clear that those who wield corporate, political and financial power in the United States thrive on the misery of others. Widening inequality, environmental destruction, growing poverty, the privatization of public goods, the attack on social provisions, the elimination of pensions and the ongoing attacks on workers, young protesters, Muslims and immigrants qualify as just a few of the injustices that have intensified with the rise of the corporate and financial elite since the 1970s. None of these issues are novel, but the intensification of the attacks and the visibility of unbridled power and arrogance of the financial, corporate and political elite that produces these ongoing problems are new and do not bode well for the promise of a democratic society.

Such failings are not reducible either to the moral deficiencies and unchecked greed of both major political parties or the rapacious power of the mega banks, hedge funds and investment houses. Those intellectuals writing to acknowledge the current state of politics in America understand the outgrowth of a mix of rabid racism, religious fundamentalism, civic illiteracy, class warfare and a savage hatred of the welfare state that now grips the leadership of the Republican Party. The new extremists and prophets of authoritarianism are diverse, and their roots are in what Chris Hedges calls the radical Christian right, Michael Lind calls the reincarnation of the old Jeffersonian-Jacksonian right and what Robert Parry and Andrew O’Hehir call racist zealots. All of these elements are present in American politics, but they are part of a new social formation in which they share, even in their heterogeneity, a set of organizing principles, values, policies, modes of governance and ideologies that have created a cultural formation, institutional structures, values and policies that support a range of anti-democratic practices ranging from the militarization of public life and acts of domestic terrorism to the destruction of the social state and all those public spheres capable of producing critical and engaged citizens.

Needless to say, all of these groups play an important role in the rise of the new extremism and culture of cruelty that now characterizes American politics and has produced the partial government shutdown and threatens economic disaster with the debt-ceiling standoff. What is new is that these various fundamentalist registers and ideological movements have produced a coalition, a totality that speaks to a new historical conjuncture, one that has ominous authoritarian overtones for the present and future. There is no talk among the new extremists of imposing only an extreme Christian religious orthodoxy on the American people or simply restoring a racial state; or for that matter is there a singular call for primarily controlling the economy. The new counter-revolutionaries and apostles of the Second Gilded age are more interested in imposing a mode of authoritarianism that contains all of these elements in the interest of governing the whole of social life. This suggests a historical conjuncture in which a number of anti-democratic forces come together to “fuse and form a kind of configuration” - a coming together of diverse political and ideological formations into a new totality. The partial government shutdown is a precondition and test run for a full coup d’état by the social formations driving this totality. And while they may lose the heated battle over the government shutdown and the debt ceiling, they have succeeded in executing their project and giving it some legitimacy in the dominant media.

Hiding beneath the discourse of partisan politics as usual, the authoritarian face of the new extremism is overlooked in the dominant media by terms such as “the opposing party,” “hard-line conservatives” or, in the words of New York Times columnist Sam Tanenhous, the party of “a post consensus politics.” In fact, even progressives such as Marian Wright Edelman fall into this trap in writing that “some members of Congress are acting like children - or, more accurately, worse than children.” In this case, the anti-democratic ideologies, practices and social formations at work in producing the shutdown and the potential debt-ceiling crisis are not merely overlooked but incorporated into a liberal discourse that personalizes, psychologizes or infantilizes behaviors that refuses to acknowledge or, in fact, succumbs to totalitarian tendencies.

There is no sense in the mainstream liberal and conservative discourses that a new authoritarianism haunts the current notion and ideal of governance and is the culmination of what Hannah Arendt once viewed as a historical trend toward the limiting, if not elimination, of the political as it relates to and furthers the promise of a democracy to come. The wider contexts of power and politics disappear in these discourses. We get a glimpse of this erasure in a statement by former Texas congressman and Republican Party House majority leader Dick Armey. In commenting on the shutdown, Armey raises the issue of “How does a guy like Ted Cruz, who’s relatively new in town, who nobody knows, who hasn’t even unpacked his bags, drive this whole process?” What Armey ignores in this revealing and stark assessment is that the very cultural, economic and political conditions that he has helped to put in place along with a range of other right-wing ideologues helped to create the perfect storm for Cruz to appear and set in motion the authoritarian tendencies that have been percolating in the social order since the late 1970s.

What is clear in the current impasse is that the Republican Party has held the U.S. government hostage, in part, because it disagrees with a health initiative that has been endorsed by a large segment of the American people, been deemed legal by the Supreme Court and played a significant role in getting Barack Obama re-elected. For some, these practices resemble a politics that appropriates the gangster tactics of extortion, but this understanding is only partially true. There is a deeper order of politics at work here, and there is more at stake than simply defunding the Affordable Care Act. As Bill Moyers points out, the attack on the Affordable Care Act is only one target in the sights of the new extremists. He writes:

Despite what they say, Obamacare is only one of their targets. Before they will allow the government to reopen, they demand employers be enabled to deny birth control coverage to female employees. They demand Obama cave on the Keystone pipeline. They demand the watchdogs over corporate pollution be muzzled, and the big, bad regulators of Wall Street sent home. Their ransom list goes on and on. The debt ceiling is next.

Moyers is correct, but his argument can be extended. What Americans are witnessing is a politics that celebrates a form of domestic terrorism, a kind of soft militarism and a hyper-masculine posturing in which communities are organized around resentment, racism and symbolic violence. With the partial government shutdown and the looming debt ceiling crisis engineered by the extremists driving the Republican Party, the amount of human suffering, violence and hardships that many individuals and families are experiencing border on catastrophic and open up a whole new act in the theater of cruelty, state violence, human misery and the exercise of raw and savage power.

The assassins now in power are cultivating a culture of fear, vengeance and hatred not only directed at disposable populations such as the poor, low-income minority youths, whistleblowers, immigrants and those who are disabled, uninsured and unemployed - but also at civil liberties, labor unions, women’s reproductive rights and voting rights. Neoliberal common sense now colonizes everyday life and spreads the market-driven gospel of privatization, commodification, deregulation and free trade. Competitiveness, self-interest and decentralization are the new mantras governing society and provide the ideological scaffolding for “moulding identities and characterizing social relations.” The pursuit of the public good, social justice and equality has been replaced by the crude discourse of commerce, the drive for profits and “rational choice models that internalize and thus normalize market-oriented behaviour.” Entrepreneurial identities replace all modes of solidarity invested in democratic principles, and self-interested actors supplant the discourse of the public good. The production of capital, services and material goods “are at the heart of the human experience.”

The connection between private troubles and public considerations has been broken. The many problems the American people now face - from unemployment and poverty to homelessness - regardless of the degree to which they are caused by larger social, economic and political forces are now individualized, placed on the shoulders of the victims who are now solely responsible for the terror, hardship and violence they experience. The shutdown is not another example of an egregiously inept and morally corrupt group of politicians, it is a flashpoint registering the degree to which the United States has become an authoritarian state, one now governed by a system in which economics drives politics, irrationality trumps reason, the public good is canceled out by an unchecked narcissism and ethical considerations are subordinated to the drive for profits at any cost.

For those who have refused to participate in the willful amnesia that marks the contemporary slide into authoritarianism, the totalitarian practices of the past few decades have been quite clear. Domestic spying; secret prisons; kill lists; military aggression; the rise of corporatism; the death-dealing culture of hyper-masculinity, drones and the spectacle of violence; and a monochromatic media have not only registered a shift from state power to corporate power but also a move from the welfare state to the warfare state. Consumer sovereignty erases the rights and obligations of citizens and eviscerates ethical claims and social responsibilities from the meaning of politics. Government is viewed as the enemy, except when it benefits the rich, corporations and hedge fund executives. At the same time that social programs are viewed as a pathology and drain on the state, intellectuals are incorporated into a spectacle of conformity where they lose their voices and become normalized.

The hijacking of democracy by extremists in and outside of the government appears completely disassociated from the needs of the American people, and as such the instruments of dominant politics, power and influence appear unaccountable. And unaccountability is the stuff of political tyrants, not simply religious fanatics or market fundamentalists; it has been a long time in the making and has been fed by a relentless culture of fear, warfare, greed, inequality, unbridled power formations, the destruction of civil liberties and a virulent racism that has a long history in the United States and has gone into overdrive since the 1980s, reaching its authoritarian tipping point after the tragedy of 9/11.

Obama may not be responsible for the government shutdown and the debt ceiling crisis, but he can be charged with furthering a climate of lawlessness that feeds the authoritarian culture supportive of a range of political, economic and cultural interests. The American anti-war activist Fred Branfman argues that:

Under Mr. Obama, America is still far from being a classic police-state of course. But no President has done more to create the infrastructure for a possible future police-state. This infrastructure will clearly pose a serious danger to democratic ideals should there be more 9/11s, and/or increased domestic unrest due to economic decline and growing inequality, and/or massive global disruption due to climate change.

The new extremists in the Republican Party are simply raising the bar for the authoritarian registers and illegal legalities that have emerged under Bush and Obama in the past decade - including the bailing out of banks guilty of the worst forms of corporate malfeasance, the refusal to prosecute government officials who committed torture, the undermining of civil liberties with the passage of the Patriot Act, the National Defense Authorization Act, the establishment of a presidential kill list and the authorization of widespread surveillance to be used against the American people without full transparency.

The current crisis has little to do with what some have called a standoff between the two major political parties. It is has been decades in the making and is part of a much broader coup d’état to benefit the financial elite, race baiters, war mongers and conservative ideologues such as the right-wing billionaires, David and Charles Koch, Rand Paul, Ted Cruz, Americans for Prosperity, the Club for Growth, the Heritage Foundation policy hacks and other extremist individuals and organizations that believe that democracy poses a threat to a government that should be firmly in the hands of Wall Street and other elements of the military-industrial-surveillance-prison complex.

The willingness and recklessness of the new extremists to throw most of the American people, if not all vestiges of economic security and democracy, into political and economic chaos is a measure of the depth and degree to which the United States has become subject to a new form of authoritarianism. Not only has the shutdown caused the American public $300 million a day and portends a financial catastrophe, but it has shut down programs such as WIC that provide funding for “nearly nine million pregnant women, recent mothers, and their children under age five who rely on the program’s supplemental vouchers for healthy food, expensive infant formula, and other necessities. Fifty-three percent of all infants born in the U.S. are fed through the WIC program.”  Nineteen thousand students in Head Start have lost their funding, 800,000 federal workers have been furloughed, and life-saving research for “children with serious medical needs has been affected.” In Maine, many of the poor will go without funds for heating, the Environmental Protection Agency has furloughed more than 16,000 workers, or 95 percent of its workforce, prompting what Sara Chieffo, the legislative director of the League of Conservation Voters, has called “a polluter’s heyday.”

It gets worse. Thousands of safety inspectors for the Federal Aviation Administration no longer on the job because of the shutdown will not be able to perform “included inspections for the de-icing of aircraft on the tarmac and checks that pilots do not fly longer than allowed.” As Think Progress has pointed out, this heavy-handed exercise of raw power means more people will get sick because routine food inspections by the FDA will be dramatically reduced, cutbacks in the staff of the Centers for Disease Control and Prevention (CDC) will put the country at risk for the spread of infectious diseases, many low-income poor will be cut off from needed nutritional assistance, agencies that conduct workplace inspections and ensure worker safety will not be on the job, and the work of public health researchers may be set back for years. In fact, the CDC and the Food and Drug Administration, which already were underfunded for years, are “scrambling to recall furloughed employees to deal with a dangerous food-borne salmonella outbreak and a lethal Hepatitis outbreak in Hawaii.”  As Michal Meurer and Candice Bernd point out, food-borne illnesses pose a real and dangerous threat to the American public, and the government shutdown should be seen as part of a broader right-wing plan to dismantle regulatory agencies, regardless of the lethal impact they may have on the American people. The food safety system is in crisis not for lack of resources and expertise but because of willful recklessness put into place through the right-wing policies of the new authoritarianism. There is more at work here than the recklessness of Senators Ted Cruz, Rand Paul, Marco Rubio and other Tea Party Republicans, bankrolled by a handful of billionaires; there is also the echo of authoritarianism that now saturates the American cultural and political landscape, endlessly normalizing itself in the media and other cultural apparatuses that showcase and normalize its corrupt politics, racist and class-based ideologies and culture of cruelty, all enabled under the sanctity of the market and in the name of state security. The shutdown and debt ceiling crisis signal the depth and degree to which the United States has become subject to a new form of authoritarianism.

A new type of criminal regime now drives American politics, one devoid of any sense of justice, equality and honor. It thrives on fear, the false promise of security and an egregious fusion of economic, religious and racist ideologies that have become normalized. This new dystopia wants nothing more than the complete destruction of the formative culture, collectives and the institutions that make democracy possible. Inequality is its engine, and disposability is the reward for large segments of the American public. It ideologies and structure of politics often have been hidden from the American public. The shutdown and debt-ceiling crisis have forced the new authoritarianism out of the shadows into the light. The lockdown state is on full display with its concentrated economic power and the willingness of the apostles of authoritarianism to push millions of people into ruin. Paraphrasing Eric Cazdyn, all of society is now at the mercy of a corporate, religious, and financial elite just as “all ideals are at the mercy of [a] larger economic logic.” The category of hell is alive and well in the racist and imperial enclaves of the rich, the bigoted, the bankers and hedge fund managers.

The question that remains is how can politics be redefined through a new language that is capable of articulating not only what has gone wrong with the United States but how the forces responsible can be challenged in new ways by new social formations and collective movements?  The crisis caused by the shutdown needs to be addressed through a discourse in which the ghosts and traces of historical modes of authoritarianism can be revealed in tandem with its newly revised edition. This is a daunting task, but too much is at stake to not take it up. The authoritarianism that rules American society functions as more than an apology for inequality, the ruthlessness of the market and the savage costs it imposes on the American public; it also represents a present danger that cannot be repeated in the future. Authoritarianism in its present form in America is the result of the formative culture, modes of civic education and sites of public pedagogy necessary for a viable democratic society degenerating into caricature, or what Adorno called an “empty and cold forgetting.” The ghost has become a reality, although it has been reconfigured to adjust to the specificity of the American political, economic and cultural landscape in the 21st century. In 2004, I wrote a book titled The Terror of Neoliberalism: The New Authoritarianism and the Eclipse of Democracy. What is different almost a decade later is a mode of state repression and an apparatus of symbolic and real violence that is not only more pervasive and visible but also more unaccountable, more daunting in its arrogance and disrespect for the most fundamental elements of justice, equality and civil liberties.

The new authoritarianism must be exposed as a politic of disaster and a new catastrophe, one that is rooted in large-scale terror and the death of the civic imagination. It has to be contoured with a sense of hope and possibility so that intellectuals, artists, workers, educators and young people can imagine otherwise in order to act otherwise.  If we have entered into an era of what Stanley Aronowitz calls “the repressive authoritarian state,” there are signs all over the globe that authoritarianism in its various versions is being challenged in countries that extend from Egypt and Greece to Chile and Mexico. The radical imagination is alive, but it has to be a site of struggle by those committed to creating a new politics, modes of identity, social relations, power arrangements and moral values that offer the glimpse of political and economic emancipation.

psyberartist (CC BY 2.0)

Frontrunning: October 18

  • Republican Civil War Erupts: Business Groups v. Tea Party (BBG)
  • Budget fight leaves Boehner 'damaged' but still standing (Reuters)
  • Madoff Was Like a God, Wizard of Oz, Lawyers Tell Jury (BBG) - just like Bernanke
  • Republicans press U.S. officials over Obamacare snags (Reuters)
  • Brilliant: Fed Unlikely to Trim Bond Buying in October (Hilsenrath)
  • More brilliant: Fed could taper as early as December (FT)
  • Russia Roofing Billionaires Seen Among Country’s Youngest (BBG)
  • Ford's Mulally won't dismiss Boeing, Microsoft speculation (Reuters)
  • China reverses first-half slowdown (FT)
  • NY Fed’s Fired Goldman Examiner Makes Weird Case (BBG)
  • Italian protests against Letta government disrupt transport (Reuters)
  • Transit workers strike again, will hamper Bay Area commute (Reuters)

Overnight Media Digest

WSJ

* SAC Capital and federal prosecutors have agreed in principle on a penalty exceeding $1 billion in a potential criminal settlement that would be the largest ever for an insider-trading case.

* Insurers say the federal healthcare marketplace is generating flawed data that is straining their ability to handle even the trickle of enrollees who have gotten through so far.

* Chinese PC maker Lenovo is actively considering a bid for all of BlackBerry and has signed a non-disclosure agreement with the smartphone maker. ()

* A late surge of cases against low-level offenders will push the SEC's case total close to last year's levels, masking a steep drop in enforcement actions related to the financial crisis. While the total hasn't been announced, it likely will be down at least 5 percent from a near-record high of 734 enforcement cases in fiscal 2012.

* Google posted a 12 percent increase in third-quarter revenue, as it tries to keep pace with its users' shift to mobile devices.

* Video-streaming service Hulu on Thursday named Mike Hopkins as its new chief executive, effective immediately. Hopkins has been president of Fox Networks Group, a division of 21st Century Fox Inc, since 2008 and a member of Hulu's board since 2011.

* A U.S. district judge ordered subprime lender Household International Inc - now part of HSBC Holdings PLC - to pay investors $2.46 billion in a class-action lawsuit, a move that comes several years after a jury found the company liable for securities fraud.

* IBM is shaking up leadership of its growth-markets unit, following disappointing third-quarter results that prompted a critical internal email from CEO Virginia Rometty. She wrote that IBM's strategy is correct, but criticized the company for failing to execute in sales of computer hardware as well as in the growth markets unit, whose sales territory includes markets in Southeast Asia, Eastern Europe, the Middle East and Latin America.

FT

Paul Tucker, the Bank of England's outgoing deputy governor, said regulators need to keep a stronger eye on hedge funds and shadow banks and added it would be disastrous if the economic fragility of banks was recreated outside the mainstream banking sector.

The U.S. Federal Reserve could begin reducing its asset purchases as early as December after the government shutdown sabotaged a crucial month of data and dealt a blow to the world's largest economy.

The next U.S. monthly employment report became a casualty of the U.S. government shutdown with the Department of Labor saying the data would be released after a delay of more than two weeks on Tuesday.

Scottish National Party leader and Scotland's first minister, Alex Salmond was involved in the talks between the management and workers Grangemouth refinery and petrochemicals complex. The management has closed off the refinery demanding that workers accept changes to pay, pensions and union representation in what has turned out to be Scotland's biggest industrial dispute in years.

Google shares rose 8 percent to a record high after the company managed a smooth transition of its advertising business to smartphones and tablets from PCs.

Goldman Sachs managed to protect its profits by slashing the amount of money set aside for year-end bonuses after its fixed-income trading was worse than any other large Wall Street bank's.

Barclays has approached the Court of Appeal to overturn an earlier ruling that allowed Guardian Care Homes, which is suing Barclays over interest-rate swaps, to amend its claim to include Libor-related allegations.

UK Ministers will look at the green measures that have contributed to rising fuel bills after British Gas became the second energy company to increase energy prices.

NYT

* Britain said on Thursday that it would allow Chinese firms to buy stakes in British nuclear power plants and eventually acquire majority holdings. The agreement, which comes with caveats, opens the way for China's fast-growing nuclear industry to play a significant role in Britain's plans to proceed with construction of its first new reactor in nearly two decades.

* The hedge fund SAC Capital Advisors is moving closer to a plea deal with prosecutors that would force it to wind down its business of managing money for outside investors, punctuating its decline from the envy of Wall Street to a firm caught in the government's cross hairs. An agreement to stop operating as an investment adviser is one feature of a larger agreement SAC is negotiating as it seeks to resolve insider trading charges, according to people briefed on the case.

* On Thursday Goldman Sachs Group Inc announced that revenue in its fixed-income, currency and commodities division, a powerful unit inside the bank that in better years has produced more than 35 percent of its entire revenue, dropped 44 percent from year-ago levels. The weakness renewed worries about the headwinds that Goldman and other banks are facing in big money-producing areas like fixed-income trading.

* Google Inc impressed investors, but people's changing behavior on mobile phones and even on desktops threatens the company's main business. The results revealed the company's deep challenges: as its desktop search and advertising businesses mature, along with overall business in the United States, its growth rate is slowing and the amount of money it makes from each ad it sells is falling.

* The United States government sputtered back to life Thursday after President Obama and Congress ended a 16-day shutdown, reopening tourist spots and clearing the way for federal agencies to deliver services and welcome back hundreds of thousands of furloughed workers.

* There is a confusion over the text of the deal that Congress just approved and President Obama signed, but it does not kill the debt ceiling. At first glance, the "default prevention" section of the bill seemed to imply that the president would have the authority in the future to increase the country's debt unilaterally, and that Congress could stop him only by passing a bill forbidding it.

* Roughly 1,500 fires burn above western North Dakota because of the deliberate burning of natural gas by companies rushing to drill for oil without having sufficient pipelines to transport their production. With cheap gas bubbling to the top with expensive oil, the companies do not have an economic incentive to build the necessary gas pipelines, so they flare the excess gas instead.

* As European interest in American craft beers begins to mirror the mania for them stateside, the Duvel Moortgat Brewery of Belgium on Thursday announced a deal to buy the Boulevard Brewing Co, a craft brewery in Kansas City, Missouri.

Canada

THE GLOBE AND MAIL

* Canadian provinces have approved the free-trade agreement with the European Union, but key players Ontario and Quebec are insisting the federal government open its wallet to mitigate some of the impact, notably by compensating dairy producers. Prime Minister Stephen Harper arrived in Brussels on Thursday night and plans to meet with Jose Manuel Barroso, president of the European Commission, on Friday afternoon to sign the agreement.

* The shortage of skilled employees in Canada is deepening, and government policies that tightened the rules governing foreign workers have made the situation worse. That is the message of a new study from global recruiting firm Hays Plc, which surveyed the skills gap in 30 developed countries around the world.

Reports in the business section:

* Lenovo Group Ltd is joining the list of suitors considering a bid for BlackBerry Ltd , raising concerns that the Canadian company's ultra-secure communications network for the global elite might end up owned by a firm based in China.

* Imperial Oil Ltd is looking at a major revamp of its Mackenzie gas project that would see the stalled northern venture reborn as part of an expansive liquefied natural gas development, the company's chief executive says. A shift to LNG is under "serious" consideration as the Mackenzie pipeline's economics remain weak due to the flood of cheap shale gas across the continent, CEO Rich Kruger said in an interview at the company's Calgary headquarters.

NATIONAL POST

* The Quebec government has announced that it will contest the latest nomination to the Supreme Court of Canada, adding a new layer of controversy to the process. The provincial government says it is weighing different options to block the Harper government's appointment of Marc Nadon, which is already under attack.

FINANCIAL POST

* Canada's campaign to win approval in the United States for the Keystone XL pipeline may seem pricey, aggressive, and perhaps out of character - but it is a drop in the bucket compared with the resources and tactics of those rallying against it.

* Air Canada's chief executive, Calin Rovinescu, says he is pleased investors are starting to get on board with the dramatic transformation underway at his airline, including the near-elimination of its multi-billion-dollar pension funding deficit that has twice threatened to upend the company in recent years. But he said there are still plenty of challenges ahead for the country's largest carrier.

China

CHINA SECURITIES JOURNAL

- The China Securities Regulatory Commission approved China Everbright Bank Co Ltd's request to list H shares on Wednesday, according to sources. The bank plans to list in Hong Kong as early as November, but listing is subject to Hong Kong Stock Exchange approval.

- China has started laying the foundations for its fifth-generation mobile telephony network, said Dai Xiaohui, the deputy director of the Ministry of Science and Technology on Thursday at a communications forum.

CHINA DAILY

- China has investigated 129 officials at prefectural level or higher for suspected corruption and bribery from January through August this year, the Supreme People's Procuratorate said on Thursday.

PEOPLE'S DAILY

- Chinese officials should not blindly follow customary practices if such practices lead to waste or are not legal, said a commentary in the paper that acts as the government's mouthpiece. The article highlighted extravagance during opening and closing ceremonies as an example of a traditional practice best curbed.

SHANGHAI DAILY

- Beijing will take half the cars off the city's roads and suspend school classes when there are three straight days of heavy pollution, an official said on Thursday. The plan includes measures to increase buses and extend subway operating hours.

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

AMAG Pharmaceuticals (AMAG) upgraded to Outperform from Neutral at RW Baird
Align Technology (ALGN) upgraded to Buy from Hold at Cantor
Amazon.com (AMZN) upgraded to Buy from Neutral at UBS
CBOE Holdings (CBOE) upgraded to Buy from Neutral at UBS
Essex Property Trust (ESS) upgraded to Buy from Neutral at UBS
Intuit (INTU) upgraded to Buy from Neutral at BofA/Merrill
Peabody Energy (BTU) upgraded to Outperform from Market Perform at BMO Capital
Union Pacific (UNP) upgraded to Buy from Neutral at Goldman
VMware (VMW) upgraded to Overweight from Neutral at JPMorgan
Verizon (VZ) upgraded to Buy from Hold at Deutsche Bank

Downgrades

AMD (AMD) downgraded to Neutral from Buy at BofA/Merrill
Alpha Natural (ANR) downgraded to Underperform from Market Perform at BMO Capital
Amarin (AMRN) downgraded to Neutral from Buy at Citigroup
Aspen Technology (AZPN) downgraded to Neutral from Overweight at JPMorgan
Baxter (BAX) downgraded to Market Perform from Outperform at Raymond James
Fairchild Semiconductor (FCS) downgraded to Hold from Buy at Canaccord
Home Bancshares (HOMB) downgraded to Market Perform from Outperform at Raymond James
International Rectifier (IRF) downgraded to Market Perform at Wells Fargo
LG Display (LPL) downgraded to Neutral from Outperform at Credit Suisse
Monolithic Power (MPWR) downgraded to Market Perform from Outperform at Wells Fargo
Navistar (NAV) downgraded to Underweight from Equal Weight at Barclays
Qualys (QLYS) downgraded to Neutral from Overweight at JPMorgan
SL Green Realty (SLG) downgraded to Hold from Buy at Cantor
Total (TOT) downgraded to Neutral from Buy at UBS
Ultratech (UTEK) downgraded to Hold from Buy at Canaccord
UnitedHealth (UNH) downgraded to Hold from Buy at Cantor

Initiations

Clean Harbors (CLH) initiated with an In-Line at Imperial Capital
Covanta (CVA) initiated with a Hold at Stifel
Fidelity National (FNF) initiated with a Neutral at Janney Capital
Finish Line (FINL) initiated with a Neutral at UBS
First American (FAF) initiated with a Buy at Janney Capital
Gaming & Leisure (GLPIV) initiated with an In-Line at Imperial Capital
Masonite International (DOOR) initiated with an Outperform at RBC Capital
New Residential (NRZ) initiated with a Buy at Sterne Agee
Spectrum Brands (SPB) initiated with an Outperform at BMO Capital
Stewart (STC) initiated with a Neutral at Janney Capital
U.S. Cellular (USM) initiated with an Underperform at FBR Capital

HOT STOCKS

Google CEO said 40% of YouTube traffic comes from mobile
Schlumberger (SLB) said global economic outlook remains unchanged
Fitch cut Darden (DRI) IDR to 'BBB-' from 'BBB', outlook stable
LabCorp (LH) board authorized additional $1B share repurchase program
AMD (AMD) sees PC shipments down 10% in 2013 and 2014
Waste Management (WM) to build renewable natural gas facility

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Sensient (SXT), F.N.B. Corp. (FNB), AMD (AMD), Las Vegas Sands (LVS), Capital One (COF), Covenant Transportation (CVTI), WD-40 (WDFC), Google (GOOG), Align Technology (ALGN)

Companies that missed consensus earnings expectations include:
Valmont (VMI), Kaiser Aluminum (KALU), B&G Foods (BGS), athenahealth (ATHN), Greenhill & Co. (GHL), Acacia Research (ACTG), Stryker (SYK), Chipotle (CMG)

Companies that matched consensus earnings expectations include:
OceanFirst Financial (OCFC), Western Alliance (WAL), Werner (WERN)

NEWSPAPERS/WEBSITES

  • The long-running drama about when the Fed will start scaling back its $85B a-month bond-buying program might now last longer. It isn't clear when the first move will occur. The Fed is unlikely to start curtailing its bond buying at its next policy meeting Oct. 29-30, the Wall Street Journal reports
  • Bank of America (BAC) is considering a checking account that wouldn't permit customers to overdraw their balances at an ATM or when making an automatic bill payment, sources say, the Wall Street Journal reports
  • Ford (F) CEO Alan Mulally would not confirm or deny media reports that he is being sought to join Boeing (BA) and Microsoft (MSFT), Reuters reports
  • Air France -KLM (AFLYY) is open to giving Alitalia its rightful role in a merged entity but only if certain conditions are met, CEO Alexandre de Juniac told French television. He said Alitalia needs deeper restructuring if Air France is to eventually hike its 25% stake and take control, Reuters reports
  • DBS Group (DBSDY) is among banks that have advanced in bidding for Societe Generale’s (SCGLY) SA’s private banking assets in Asia, sources say. The division oversees about $13B, Bloomberg reports
  • JPMorgan Chase (JPM) agreed to sell 1 Chase Manhattan Plaza to Fosun International, the investment arm of China’s biggest closely held industrial group, for $725M, Bloomberg reports

SYNDICATE

Cinedigm Digital (CIDM) files to sell 7.91M shares of Class A common stock
Crestwood Midstream (CMLP) files to sell 14M common units for limited partners
EV Energy (EVEP) files to sell 5M common units for limited partners
Evercore Partners (EVR) files to sell 3M shares of common stock
Stemline (STML) files to sell $90M of common stock
Voxeljet (VJET) 6.5M share IPO priced at $13.00

Your rating: None

Is Homeland Security Preparing for the Next Wall Street Collapse?

Reports are that the Department of Homeland Security (DHS) is engaged in a massive, covert military buildup. An article in the Associated Press in February confirmed an open purchase order by DHS for 1.6 billion rounds of ammunition. According to an op-ed in Forbes, that’s enough to sustain an Iraq-sized war for over twenty years. DHS has also acquired heavily armored tanks, which have been seen roaming the streets. Evidently somebody in government is expecting some serious civil unrest. The question is, why?

Recently revealed statements by former UK Prime Minister Gordon Brown at the height of the banking crisis in October 2008 could give some insights into that question. An article on BBC News on September 21, 2013, drew from an explosive autobiography called Power Trip by Brown’s spin doctor Damian McBride, who said the prime minister was worried that law and order could collapse during the financial crisis. McBride quoted Brown as saying:

If the banks are shutting their doors, and the cash points aren’t working, and people go to Tesco [a grocery chain] and their cards aren’t being accepted, the whole thing will just explode.

If you can’t buy food or petrol or medicine for your kids, people will just start breaking the windows and helping themselves.

And as soon as people see that on TV, that’s the end, because everyone will think that’s OK now, that’s just what we all have to do. It’ll be anarchy. That’s what could happen tomorrow.

How to deal with that threat? Brown said, “We’d have to think: do we have curfews, do we put the Army on the streets, how do we get order back?”

McBride wrote in his book Power Trip, “It was extraordinary to see Gordon so totally gripped by the danger of what he was about to do, but equally convinced that decisive action had to be taken immediately.” He compared the threat to the Cuban Missile Crisis.

Fear of this threat was echoed in September 2008 by US Treasury Secretary Hank Paulson, who reportedly warned that the US government might have to resort to martial law if Wall Street were not bailed out from the credit collapse.

In both countries, martial law was avoided when their legislatures succumbed to pressure and bailed out the banks. But many pundits are saying that another collapse is imminent; and this time, governments may not be so willing to step up to the plate.

The Next Time WILL Be Different

What triggered the 2008 crisis was a run, not in the conventional banking system, but in the “shadow” banking system, a collection of non-bank financial intermediaries that provide services similar to traditional commercial banks but are unregulated.  They include hedge funds, money market funds, credit investment funds, exchange-traded funds, private equity funds, securities broker dealers, securitization and finance companies. Investment banks and commercial banks may also conduct much of their business in the shadows of this unregulated system.

The shadow financial casino has only grown larger since 2008; and in the next Lehman-style collapse, government bailouts may not be available. According to President Obama in his remarks on the Dodd-Frank Act on July 15, 2010, “Because of this reform, . . . there will be no more taxpayer funded bailouts – period.”

Governments in Europe are also shying away from further bailouts. The Financial Stability Board (FSB) in Switzerland has therefore required the systemically risky banks to devise “living wills” setting forth what they will do in the event of insolvency. The template established by the FSB requires them to “bail in” their creditors; and depositors, it turns out, are the largest class of bank creditor. (For fuller discussion, see my earlier article here.)

When depositors cannot access their bank accounts to get money for food for the kids, they could well start breaking store windows and helping themselves. Worse, they might plot to overthrow the financier-controlled government. Witness Greece, where increasing disillusionment with the ability of the government to rescue the citizens from the worst depression since 1929 has precipitated riots and threats of violent overthrow.

Fear of that result could explain the massive, government-authorized spying on American citizens, the domestic use of drones, and the elimination of due process and of “posse comitatus” (the federal law prohibiting the military from enforcing “law and order” on non-federal property). Constitutional protections are being thrown out the window in favor of protecting the elite class in power.

The Looming Debt Ceiling Crisis

The next crisis on the agenda appears to be the October 17th deadline for agreeing on a federal budget or risking default on the government’s loans. It may only be a coincidence, but two large-scale drills are scheduled to take place the same day, the “Great ShakeOut Earthquake Drill” and the “Quantum Dawn 2 Cyber Attack Bank Drill.” According to a Bloomberg news clip on the bank drill, the attacks being prepared for are from hackers, state-sponsored espionage, and organized crime (financial fraud). One interviewee stated, “You might experience that your online banking is down . . . . You might experience that you can’t log in.” It sounds like a dress rehearsal for the Great American Bail-in.

Ominous as all this is, it has a bright side. Bail-ins and martial law can be seen as the last desperate thrashings of a dinosaur. The exploitative financial scheme responsible for turning millions out of their jobs and their homes has reached the end of the line. Crisis in the current scheme means opportunity for those more sustainable solutions waiting in the wings.

Other countries faced with a collapse in their debt-based borrowed currencies have survived and thrived by issuing their own. When the dollar-pegged currency collapsed in Argentina in 2001, the national government returned to issuing its own pesos; municipal governments paid with “debt-canceling bonds” that circulated as currency; and neighborhoods traded with community currencies. After the German currency collapsed in the 1920s, the government turned the economy around in the 1930s by issuing “MEFO” bills that circulated as currency. When England ran out of gold in 1914, the government issued “Bradbury pounds” similar to the Greenbacks issued by Abraham Lincoln during the US Civil War.

Today our government could avoid the debt ceiling crisis by doing something similar: it could simply mint some trillion dollar coins and deposit them in an account. That alternative could be pursued by the Administration immediately, without going to Congress or changing the law, as discussed in my earlier article here. It need not be inflationary, since Congress could still spend only what it passed in its budget. And if Congress did expand its budget for infrastructure and job creation, that would actually be good for the economy, since hoarding cash and paying down loans have significantly shrunk the circulating money supply.

 Peer-to-peer Trading and Public Banks

At the local level, we need to set up an alternative system that provides safety for depositors, funds small and medium-sized businesses, and serves the needs of the community.

Much progress has already been made on that front in the peer-to-peer economy.  In a September 27th article titled “Peer-to-Peer Economy Thrives as Activists Vacate the System,” Eric Blair reports that the Occupy Movement is engaged in a peaceful revolution in which people are abandoning the established system in favor of a “sharing economy.” Trading occurs between individuals, without taxes, regulations or licenses, and in some cases without government-issued currency.

Peer-to-peer trading happens largely on the Internet, where customer reviews rather than regulation keep sellers honest. It started with eBay and Craigslist and has grown exponentially since. Bitcoin is a private currency outside the prying eyes of regulators. Software is being devised that circumvents NSA spying. Bank loans are being shunned in favor of crowdfunding. Local food co-ops are also a form of opting out of the corporate-government system.

Peer-to-peer trading works for local exchange, but we also need a way to protect our dollars, both public and private. We need dollars to pay at least some of our bills, and businesses need them to acquire raw materials. We also need a way to protect our public revenues, which are currently deposited and invested in Wall Street banks that have heavy derivatives exposure.

To meet those needs, we can set up publicly-owned banks on the model of the Bank of North Dakota, currently our only state-owned depository bank. The BND is mandated by law to receive all the state’s deposits and to serve the public interest. Ideally, every state would have one of these “mini-Feds.” Counties and cities could have them as well. For more information, see http://PublicBankingInstitute.org.

Preparations for martial law have been reported for decades, and it hasn’t happened yet. Hopefully, we can sidestep that danger by moving into a saner, more sustainable system that makes military action against American citizens unnecessary.

______________

Ellen Brown is an attorney, president 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 200-plus blog articles are at EllenBrown.com.

 

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SIGTUR — A movement of democratic unions of the Global South

Trade unions are still searching for an adequate response to the onslaught on workers’ rights as a result of neo-liberal globalisation, manifested in an increasing transnationalisation of production processes, the emergence of an integrated global financial market and the informalisation of working contracts. Employers increasingly play off different national labour movements against each other as a result of global restructuring. SIGTUR, the Southern Initiative on Globalisation and Trade Union Rights, is a specific international response by labour movements from the Global South. In this guest post, Rob Lambert, the co-ordinator of SIGTUR, outlines the organisation’s objectives, history and strategies towards a better world order.


What is SIGTUR?

SIGTUR is an alliance forming movement of democratic unions in the Global South (Latin America, Africa, Asia and Australia).

A Brazilian leader recently argued,

‘SIGTUR is a unique space of like-minded unions in the global south. This is a space where we can discuss freely amongst friends, where we have built a deep unity of purpose, which is not contaminated by the conflicts between WFTU and ITUC. Inside SIGTUR we can debate without conditionalities’ (Johannesburg, June 2013).

Such a voice is shaped by the historical experience of workers in the Global South. This is an experience of plunder and exploitation through trade in resources and persons (the slave trade and indentured labour systems). In this we witness how capital came into being, ‘dripping from head to toe, from every pore, with blood and dirt’. This was the experience of the colonial period, which many activists know only too well through their family stories over generations.

As Malaysian trade union leader Arokia Dass stated,

I am a product of the indentured labor system. My father was forcibly transported from India to Malaysia. I grew up in semi-slave conditions. I experienced inner feelings of racial domination my whole life.

This past has shaped the present as new forms of imperialism reflected in the strategies of global corporations continue the pillage of the Global South, promoting and reinforcing slave like, cheap labour conditions across all continents.

SIGTUR as a space to share our experiences creates a new identity unique to the Global South, which is a potential source of power and commitment.

Past and present repression against unions (see how Korean union leaders are constantly being thrown into jail by their ‘democratic’ government) has formed a particular culture of struggle in the Global South.

The space SIGTUR creates also enables a sharing of organisational experience, so the stronger more well established federations can share their methods of organising and struggle with the newer unions.

SIGTUR is not just a space to share a common southern experience, even though this emerging wider social consciousness is vital to drive the struggle. SIGTUR is a space to develop an alternative vision to that of neo-liberal globalisation.

It is a space to forge, over time, a new, anti-free market politics. This has grown out of the mass protests across the south over the past two decades.

It is a space to challenge global corporations, the banking system and the elites who profit from their exploitation.

Finally, it is a space to find new sources of power and new strategies and to organise action, linking the local to the global to mobilise against these forces. (See section below).

Photo by Rob Lambert


How did SIGTUR come into being?

SIGTUR is the realization of a vision, which COSATU leaders had in the late 1980s, when they sensed that the advent of the free market ideology spelt disaster for working people across the globe and in the Global South in particular.

The then General Secretary of COSATU, Jay Naidoo, asserted that a south/south internationalism needed to be constructed.

COSATU found a willing ally in the Australian trade union movement (the ACTU: Australian Council of Trade Unions) who were themselves concerned about the ‘race to the bottom’ that neo-liberal globalisation represented.

The Australian unions had a strong historical tradition of an activist labor internationalism. After the Second World War they blocked Dutch ships carrying troops to retake ‘their colony’ Indonesia. During the Apartheid era, they placed bans on South African shipping.

And so SIGTUR was born out of a creative, proactive response to the radical market ideology of neo-liberalism, which has created such destruction across the globe.

SIGTUR was launched at a meeting of democratic unions from the Global South in May 1991 in Western Australia.

Members at the founding meeting of SIGTUR, Photo by Rob Lambert


From this small beginning of two labor movements coming together to create something new, the initiative has grown over the past twenty years and now embraces movements in 35 countries and four continents.


What kind of labour internationalism?

COSATU leaders had a simple proposition: if a new style of democratic unionism at a national level in South Africa empowered workers in the bitter struggle against racial capitalism in South Africa, could this model not be applied to organising at an international level.

A new style of democratic unionism evolved in South Africa during the 1970s, one that created space for workers to participate actively. It gave them a voice for it was based on the principle of worker control. It reclaimed their humanity, their dignity. This is the style applied to this southern initiative.

Free market (neo-liberal) globalisation has been socially destructive on a massive scale, right the way across the globe and in the Global South in particular.

The United Nations report

Today the net worth of the 358 richest people in the world, the $ Billionaires, is equal to the combined income of the poorest 45% of the world’s population, 2.3 billion people.

The free market system on a global scale leads to a massive concentration of corporate power. In all sectors, just ten global corporations control 70 per cent of the market. This gives them power greater than most nation states.

Photo by Rob Lambert


They are able to bend governments to their will: undermining laws everywhere, which defend nature and society.

These corporations are themselves driven by the dominance of finance capital. Investment banks, private equity and hedge funds have turned stock markets into casinos, speculating and destabilizing societies across the globe. The ongoing global financial crisis is wreaking havoc across the Global South and in the north, yet no persons or banks have been held to account for the massive losses.

Without doubt, it is hard not to be pessimistic in the face of this combined and coordinated power of capital. However, there is another side to this phenomenal concentration of power. Neoliberalism has led to a very tight integration of the global economy.

Just in time production systems means that companies keep no stock. They are highly dependent on smooth running transport and communications systems.Through systems of outsourcing, global production networks have been created. These systems are highly integrated. Companies are utterly dependent on the smooth flow of commodities through these systems.

In short, the neo-liberal freedoms of trade, investment and finance, will become the gravediggers of the system, if the working class becomes globally coordinated and if unions imagine and organise new forms of power to massively disrupt these systems until capital and its political allies come to the bargaining table.

The democratic union movement in the Global South has the capacity to imagine, plan and organise new forms of resistance to defend society and nature because they have been down that road at a national level as they engaged in national liberation struggles.


So what has SIGTUR done?

Shipping Boycotts

In its relatively short history, SIGTUR was the first union body in the world to experiment with disrupting the tight integration of the global economy that neo-liberalism had created when it successfully organised three shipping boycotts to defeat the neo-liberal agenda in Australia.

The first shipping boycott was planned as a global strategy in 1995, when the Western Australian state government prepared new anti-union labor laws, based on a system of individual contracts. SIGTUR communicated the predicament of Australian workers and boycott plans were developed. The COSATU NEC stated that they could not stand idly by while Australian workers were being attacked. The solidarity actions of Australian workers (shipping bans) were still fresh in the memory of the NEC members.

As a result of this action, these laws were withdrawn. The same tactic was utilised in April 1998, when the Conservative government in Australia developed an illegal scheme to de-unionise the Australian docks. COSATU in league with the International Transport Federation (ITF) again triggered a shipping boycott.

Global Campaigning

When the Australian Construction and Mining union (CFMEU) organized a global campaign against the UK headquartered Rio Tinto mining corporation SIGTUR played a key role in the Global South, organizing street protests across a wide range of countries. SIGTUR also participated in share-holder meeting interventions.

SIGTUR also organised various global protest actions at Embassies with regard to imprisonments in Korea, the Philippines and Thailand.

Photo by Rob Lambert


Global Responses to National Level Collective Bargaining

When an Australian construction company, Boral Australia, refused to bargain with the democratic union in the Indonesian branch of the company, P T Jaya Ready Mix, SIGTUR organised a global campaign of support in which the Australian Manufacturing Workers Union (AMWU), played a key role. The company caved in and Boral ordered its Indonesian branch to recognize the union. 

Indonesian activists commented,

‘We understand that all victories seem small victories, however the victories evoke a spirit of resistance where workers unite and fight for all.’

A second illustration of this mode of action that SIGTUR has promoted and developed is the Hyundai struggle in Chennai India. CITU, the leading Indian federation, led a campaign for union rights in the Hyundai plant. These rights were refused. Management had a shocking attitude to Hindu culture, smashing icons at work stations. There were strikes and Gandhi styled passive resistance in the community. The KCTU from Korea participated in these protests as a mark of solidarity with the Indian workforce. They joined a human chain around the factory.

In turn, Indian workers visited Seoul to express their solidarity with the struggles of workers against casualisation in Korea. Both workforces have attempted to synchronise their collective bargaining strategies and the Maritime Union of Australia has joined these struggles.

Companies try to set one workforce against another within the same corporation. SIGTUR is in solidarity with these local struggles stimulating these global responses.


In Conclusion: Fighting for an alternative to neoliberalism

SIGTUR recently launched a Futures Commission, which has established a process of ongoing debate between labor committed intellectuals and SIGTUR leaders which attempts to specify an alternative model to neoliberalism grounded in short term, realizable goals as a basis for the long journey to a deeper transformation (see also SIGTUR’s Futures Commission and the search for alternatives in and beyond capitalism!). This recognizes that the struggle against the market model also needs to be driven by a vision of a new kind of economy, society and politics.

Rob Lambert
SIGTUR Coordinator
July 2013

Sanders Bill Would Break Up Big Banks

WASHINGTON - March 27 - U.S. Sen. Bernie Sanders (I-Vt.) said today he will introduce legislation to break up banks that have grown so big that the Justice Department has not pursued prosecutions for fear an indictment would harm the financial system.

The 10 largest banks in the United States are bigger now than before a taxpayer bailout following the 2008 financial crisis. At the time Congress, over Sanders’ objection, approved a $700 billion bank rescue because of concerns by some that the financial institutions were too big to fail. Another $16 trillion from the Federal Reserve propped up financial institutions.

Attorney General Eric H. Holder Jr. now says the Justice Department may not pursue criminal cases against big banks because filing charges could “have a negative impact on the national economy, perhaps even the world economy.”

“In other words,” Sanders said, “we have a situation now where Wall Street banks are not only too big to fail, they are too big to jail. That is unacceptable and that has got to change because America is based on a system of law and justice.”

U.S. banks have become so big that the six largest financial institutions in this country (J.P. Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley) today have assets of nearly $9.6 trillion, a figure equal to about two-thirds of the nation’s gross domestic product. These six financial institutions issue more than two-thirds of all credit cards, over half of all mortgages, control 95 percent of all derivatives held in financial institutions and hold more than 40 percent of all bank deposits in the United States.

Sanders’ legislation would give Treasury Secretary Jacob Lew 90 days to compile a list of commercial banks, investment banks, hedge funds and insurance companies that he deems too big to fail. The affected financial institutions would include “any entity that has grown so large that its failure would have a catastrophic effect on the stability of either the financial system or the United States economy without substantial government assistance.”

Within one year after the legislation became law, the Treasury Department would be required to break up those banks, insurance companies and other financial institutions identified by the secretary.

“If an institution is too big to fail, it is too big to exist,” Sanders said. “No single financial institution should be so large that its failure would cause catastrophic risk to millions of American jobs or to our nation’s economic wellbeing. No single financial institution should have holdings so extensive that its failure could send the world economy into crisis,” Sanders said. “We need to break up these institutions because they have done of the tremendous damage they have done to our economy.”

To watch Sanders’ Senate floor speech, click here.

“Golden Age for Corporate Profits” As Workers Get Whacked

As across-the-board federal budget cuts go into effect and the "real pain" predicted by economists and policy experts begins to creep into the lives of everyday people—namely US workers—investors on Wall Street are saying: "bring it on."

Quoted in a New York Times article on Monday that describes the current economy as a "golden age for corporate profit," Savita Subramanian, who heads the equity and quantitative strategy for Bank of America Merrill Lynch, said that despite the terrible times for working people and warnings that nearly three-quarters of a million jobs could be lost this year in the US, "the market wants more austerity."

Reading the article prompted journalist and book author Naomi Klein to tweet:

Responding directly to Subramanian's remark that a market push for "austerity" was a good thing for the overall economy, Mark Weisbrot, co-director of the Center for Economic and Policy Research, said such a comment made "no sense at all."

And Weisbrot agrees with Klein's observation that what's being observed should be broadly seen as a robbery by profit-bloated corporations of what should be economic gains more equitably shared with working people. 

"You can’t stop a robbery until you know it’s happening."
-Richard Eskow

Though the "sequester" cuts are predicted to cut the growth rate this year by as much as .5 or .7 percent, what economic gains are made, Weisbrot says, "will likely continue to go to the rich, as they have for the past three decades."

As the Times points out, most of the profit gains made by multinational corporations since the 2008 crash have come because of increased productivity and government-backed lending that only larger firms can leverage. Neither of these gains, however—or the profits derived from them—are being shared with workers or lower-income, struggling Americans.

According to the Times:

As a percentage of national income, corporate profits stood at 14.2 percent in the third quarter of 2012, the largest share at any time since 1950, while the portion of income that went to employees was 61.7 percent, near its lowest point since 1966.

And as Travis Waldron at ThinkProgress points out:

From 2009 to 2011, 88 percent of national income growth went to corporate profits while just one percent went to workers’ wages, and hourly earnings for workers actually fell over that time. And while they aren’t investing in job growth, corporations are also paying taxes at a rate that hit a 40-year low in 2011.

But what's the answer to fixing this continued trend where the gains steadily flow to the top?

According to Richard Eskow at the Campaign for America's Future, it begins with acknowledging the clear disparities and ends with actually introducing policies beneficial to working people. As he wrote recently in a piece titled the "Great Wealth Robbery":

The real “job creators” aren’t the ultra-wealthy. If they could create jobs with all their added wealth, they would have done it already. The real job creators are working people with jobs.

They don’t invest their money in hedge funds or stash it in offshore accounts. They spend it: on food, transportation, their kids’ education, maybe a night at the movies … And then other people get jobs making those things possible.

We have a working model to follow: The USA in the 35 years after World War II. As Paul Krugman says, “To the extent that people say the economics is confusing or uncertain, that’s overwhelmingly because people want it to be.” We know how to do this.

Raising the minimum wage is a start. A maximum wage would help, too, by reducing CEOs’ incentives to emphasize quarterly gains over long-term growth and leaving more to be shared with employees.

We also need a national strategy for regaining the more reasonable distribution of income this country had in the 1950s. We need to ensure that the door of opportunity, which is closing every day for millions of young people, is opened again. And we need to ask the wealthiest to really pay their fair share – at something closer to the top tax rates of the 1950’s or 1960’s. [...]

Most of all, we need to educate those around us so they understand what’s happening. That includes the well-intentioned well-to-do, who might do more to end the problem if they knew it existed. After all, you can’t stop a robbery until you know it’s happening.

_________________________________

This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License

US Sponsored Coup d’Etat: The Destabilization of Haiti

aristide

Author’s Note

This article was written nine years ago, in the last days of February 2004 in response to the barrage of disinformation in the mainstream media. It was completed on February 29th, the day of President Jean Bertrand Aristide’s kidnapping and deportation by US Forces.

The armed insurrection which contributed to unseating President Aristide on February 29th 2004 was the result of a carefully staged military-intelligence operation, involving the US, France and Canada. The 2004 coup had set the stage for the installation of US puppet government in Port au Prince, which takes orders directly from Washington.

Michel Chossudovsky, Global Research, February 26, 2013


(Minor editorial corrections were made to the original draft since its publication on February 29th 2004, the title of article predates the actual Coup D’Etat which was in the making at the time of writing)

original article published at http://globalresearch.ca/articles/CHO402D.html

by Michel Chossudovsky

The Rebel paramilitary army crossed the border from the Dominican Republic in early February. It constitutes a well armed, trained and equipped paramilitary unit integrated by former members of Le Front pour l’avancement et le progrès d’Haiti (FRAPH), the  “plain clothes” death squadrons, involved in mass killings of civilians and political assassinations during the CIA sponsored 1991 military coup, which led to the overthrow of the democratically elected government of President Jean Bertrand Aristide

The self-proclaimed Front pour la Libération et la reconstruction nationale (FLRN) (National Liberation and Reconstruction Front) is led by Guy Philippe, a former member of the Haitian Armed Forces and Police Chief. Philippe had been trained during the 1991 coup years by US Special Forces in Ecuador, together with a dozen other Haitian Army officers. (See Juan Gonzalez, New York Daily News, 24 February 2004).

The two other rebel commanders and associates of Guy Philippe, who led the attacks on Gonaives and Cap Haitien are Emmanuel Constant, nicknamed “Toto” and Jodel Chamblain, both of whom are former Tonton Macoute and leaders of FRAPH.

In 1994, Emmanuel Constant led the FRAPH assassination squadron into the village of Raboteau, in what was later identified as “The Raboteau massacre”:

“One of the last of the infamous massacres happened in April 1994 in Raboteau, a seaside slum about 100 miles north of the capital. Raboteau has about 6,000 residents, most fishermen and salt rakers, but it has a reputation as an opposition stronghold where political dissidents often went to hide… On April 18 [1994], 100 soldiers and about 30 paramilitaries arrived in Raboteau for what investigators would later call a “dress rehearsal.” They rousted people from their homes, demanding to know where Amiot “Cubain” Metayer, a well-known Aristide supporter, was hiding. They beat people, inducing a pregnant woman to miscarry, and forced others to drink from open sewers. Soldiers tortured a 65-year-old blind man until he vomited blood. He died the next day.

The soldiers returned before dawn on April 22. They ransacked homes and shot people in the streets, and when the residents fled for the water, other soldiers fired at them from boats they had commandeered. Bodies washed ashore for days; some were never found. The number of victims ranges from two dozen to 30. Hundreds more fled the town, fearing further reprisals.” (St Petersburg Times, Florida, 1 September 2002)

During the military government (1991-1994), FRAPH was (unofficially) under the jurisdiction of the Armed Forces, taking orders from Commander in Chief General Raoul Cedras. According to a 1996 UN Human Rights Commission report, FRAPH had been supported by the CIA.

Under the military dictatorship, the narcotics trade, was protected by the military Junta, which in turn was supported by the CIA. The 1991 coup leaders including the FRAPH paramilitary commanders were on the CIA payroll. (See Paul DeRienzo,   http://globalresearch.ca/articles/RIE402A.html , See also see Jim Lobe, IPS, 11 Oct 1996). Emmanuel Constant alias “Toto” confirmed, in this regard, in a CBS “60 Minutes” in 1995, that the CIA paid him about $700 a month and that he created FRAPH, while on the CIA payroll. (See Miami Herald, 1 August 2001). According to Constant, the FRAPH had been formed “with encouragement and financial backing from the U.S. Defense Intelligence Agency and the CIA.” (Miami New Times, 26 February 2004)

The Civilian “Opposition” 

The so-called “Democratic Convergence” (DC) is a group of some 200 political organizations, led by former Port-au-Prince mayor Evans Paul.  The “Democratic Convergence” (DC) together with “The Group of 184 Civil Society Organizations” (G-184) has formed a so-called “Democratic Platform of Civil Society Organizations and Opposition Political Parties”.

The Group of 184 (G-184), is headed by Andre (Andy) Apaid, a US citizen of Haitian parents, born in the US. (Haiti Progres, http://www.haiti-progres.com/eng11-12.html ) Andy Apaid owns Alpha Industries, one of Haiti’s largest cheap labor export assembly lines established during the Duvalier era. His sweatshop factories produce textile products and assemble electronic products for a number of US firms including Sperry/Unisys, IBM, Remington and Honeywell. Apaid is the largest industrial employer in Haiti with a workforce of some 4000 workers. Wages paid in Andy Apaid’s factories are as low as 68 cents a day. (Miami Times, 26 Feb 2004). The current minimum wage is of the order of $1.50 a day:

“The U.S.-based National Labor Committee, which first revealed the Kathie Lee Gifford sweat shop scandal, reported several years ago that Apaid’s factories in Haiti’s free trade zone often pay below the minimum wage and that his employees are forced to work 78-hour weeks.” (Daily News, New York, 24 Feb 2004)

Apaid was a firm supporter of the 1991 military coup. Both the Convergence démocratique and the G-184 have links to the FLRN (former  FRAPH death squadrons) headed by Guy Philippe. The FLRN is also known to receive funding from the Haitian business community.

In other words, there is no watertight division between the civilian opposition, which claims to be non-violent and the FLRN paramilitary. The FLRN is collaborating with the so-called “Democratic Platform.”

The Role of the National Endowment for Democracy (NED)

In Haiti, this “civil society opposition” is bankrolled by the National Endowment for Democracy which works hand in glove with the CIA. The Democratic Platform is supported by the International Republican Institute (IRI) , which is an arm of the National Endowment for Democracy (NED). Senator John McCain is Chairman of IRI’s Board of Directors. (See Laura Flynn, Pierre Labossière and Robert Roth, Hidden from the Headlines: The U.S. War Against Haiti, California-based Haiti Action Committee (HAC), http://www.haitiprogres.com/eng11-12.html ).

G-184 leader Andy Apaid was in liaison with Secretary of State Colin Powell in the days prior to the kidnapping and deportation of President Aristide by US forces on February 29. His umbrella organization of elite business organizations and religious NGOs, which is also supported by the International Republican Institute (IRI), receives sizeable amounts of money from the European Union.(http://haitisupport.gn.apc.org/184%20EC.htm ).

It is worth recalling that the NED, (which overseas the IRI) although not formally part of the CIA, performs an important intelligence function within the arena of civilian political parties and NGOs. It was created in 1983, when the CIA was being accused of covertly bribing politicians and setting up phony civil society front organizations. According to Allen Weinstein, who was responsible for setting up the NED during the Reagan Administration: “A lot of what we do today was done covertly 25 years ago by the CIA.” (‘Washington Post’, Sept. 21, 1991). 

The NED channels congressional funds to the four institutes: The International Republican Institute (IRI), the National Democratic Institute for International Affairs (NDI), the Center for International Private Enterprise (CIPE), and the American Center for International Labor Solidarity (ACILS). These organizations are said to be “uniquely qualified to provide technical assistance to aspiring democrats worldwide.” See IRI, http://www.iri.org/history.asp )

In other words, there is a division of tasks between the CIA and the NED. While the CIA provides covert support to armed paramilitary rebel groups and death squadrons, the NED and its four constituent organizations finance “civilian”  political parties and non governmental organizations with a view to instating American “democracy” around the World.

The NED constitutes, so to speak, the CIA’s “civilian arm”. CIA-NED interventions in different part of the World are characterized by a consistent pattern, which is applied in numerous countries.

The NED provided funds to  the “civil society” organizations in Venezuela, which initiated an attempted coup against President Hugo Chavez. In Venezuela it was the “Democratic Coordination”, which was the recipient of NED support; in Haiti it is the “Democratic Convergence” and G-184.

Similarly, in former Yugoslavia, the CIA channeled support to the Kosovo Liberation Army (KLA) (since 1995), a paramilitary group involved in terrorist attacks on the Yugoslav police and military. Meanwhile, the NED through the  “Center for International Private Enterprise” (CIPE) was backing the DOS opposition coalition in Serbia and Montenegro. More specifically, NED was financing the G-17, an opposition group of  economists responsible for formulating (in liaison with the IMF) the DOS coalition’s  “free market” reform platform in the 2000 presidential election, which led to the downfall of Slobodan Milosevic.  

The IMF’s Bitter “Economic Medicine”

The IMF and the World Bank are key players in the process of economic and political destabilization. While carried out under the auspices of an intergovernmental body, the IMF reforms tend to support US strategic and foreign policy objectives.

Based on the so-called “Washington consensus”, IMF austerity and restructuring measures through their devastating impacts, often contribute to triggering social and ethnic strife. IMF reforms have often precipitated the downfall of elected governments. In extreme cases of economic and social dislocation, the IMF’s bitter economic medicine has contributed to the destabilization of entire countries, as occurred in Somalia, Rwanda and Yugoslavia. (See Michel Chossudovsky, The globalization of Poverty and the New World Order, Second Edition, 2003, http://globalresearch.ca/globaloutlook/GofP.html )

The IMF program is a consistent instrument of economic dislocation. The IMF’s reforms contribute to reshaping and downsizing State institutions through drastic austerity measures. The latter are implemented alongside other forms of intervention and political interference, including CIA covert activities in support of rebel paramilitary groups and opposition political parties.

Moreover, so-called “Emergency Recovery” and “Post-conflict” reforms are often introduced under IMF guidance, in the wake of a civil war, a regime change or “a national emergency”.

In Haiti, the IMF sponsored  “free market” reforms have been carried out consistently since the Duvalier era. They have been applied in several stages since the first election of president Aristide in 1990. 

The 1991 military coup, which took place 8 months following Jean Bertrand Aristide’s accession to the presidency, was in part intended to reverse the Aristide government’s progressive reforms and reinstate the neoliberal policy agenda of the Duvalier era.

A former World Bank official Mr. Marc Bazin was appointed Prime minister by the Military Junta in June 1992. In fact, it was the US State Department which sought his appointment.

Bazin had a track record of working for the “Washington consensus.”  In 1983, he had been appointed Finance Minister under the Duvalier regime, In fact he had been recommended to the Finance portfolio by the IMF: “President-for-Life Jean-Claude Duvalier had agreed to the appointment of an IMF nominee, former World Bank official Marc Bazin, as Minister of Finance”. (Mining Annual Review, June, 1983). Bazin, who was considered Washington’s “favorite”, later ran against Aristide in the 1990 presidential elections.

Bazin, was called in by the Military Junta in 1992 to form a so-called  “consensus government”. It is worth noting that it was precisely during Bazin’s term in office as Prime Minister that the political massacres and extra judicial killings by the CIA supported FRAPH death squadrons were unleashed, leading to the killing of more than 4000 civilians. Some 300,000 people became internal refugees,  “thousands more fled across the border to the Dominican Republic, and more than 60,000 took to the high seas” (Statement of Dina Paul Parks, Executive Director, National Coalition for Haitian Rights, Committee on Senate Judiciary, US Senate, Washington DC, 1 October 2002). Meanwhile, the CIA had launched a smear campaign representing Aristide as “mentally unstable” (Boston Globe, 21 Sept 1994).

The 1994 US Military Intervention

Following three years of military rule, the US intervened in 1994, sending in 20,000 occupation troops and “peace-keepers” to Haiti. The US military intervention was not intended to restore democracy. Quite the contrary: it was carried out to prevent a popular insurrection against the military Junta and its neoliberal cohorts.

In other words, the US military occupation was implemented to ensure political continuity.

While the members of the military Junta were sent into exile, the return to constitutional government required compliance to IMF diktats, thereby foreclosing the possibility of a progressive “alternative” to the neoliberal agenda. Moreover, US troops remained in the country until 1999. The Haitian armed forces were disbanded and the US State Department hired a mercenary company DynCorp to provide “technical advice” in restructuring the Haitian National Police (HNP).

“DynCorp has always functioned as a cut-out for Pentagon and CIA covert operations.” (See Jeffrey St. Clair and Alexander Cockburn,  Counterpunch, February 27, 2002, http://www.corpwatch.org/issues/PID.jsp?articleid=1988 ) Under DynCorp advice in Haiti, former Tonton Macoute and Haitian military officers involved in the 1991 Coup d’Etat were brought into the HNP. (See Ken Silverstein, Privatizing War, The Nation, July 28, 1997, http://www.mtholyoke.edu/acad/intrel/silver.htm )

In October 1994, Aristide returned from exile and reintegrated the presidency until the end of his mandate in 1996. “Free market” reformers  were brought into his Cabinet. A new wave of deadly macro-economic policies was adopted under a so-called Emergency Economic Recovery Plan (EERP) “that sought to achieve rapid macroeconomic stabilization, restore public administration, and attend to the most pressing needs.” (See IMF Approves Three-Year ESAF Loan for Haiti, Washington, 1996, http://www.imf.org/external/np/sec/pr/1996/pr9653.htm ).

The restoration of Constitutional government had been negotiated behind closed doors with Haiti’s external creditors. Prior to Aristide’s reinstatement as the country’s president, the new government was obliged to clear the country’s debt arrears with its external creditors. In fact the new loans provided by the  World Bank, the  Inter-American Development Bank (IDB), and the IMF were used to meet Haiti’s obligations with international creditors. Fresh money was used to pay back old debt leading to a spiraling external debt.

Broadly coinciding with the military government, Gross Domestic Product (GDP) declined by 30 percent (1992-1994). With a per capita income of $250 per annum, Haiti is the poorest country in the Western hemisphere and among the poorest in the world. (see World Bank, Haiti: The Challenges of Poverty Reduction, Washington, August 1998, http://lnweb18.worldbank.org/External/lac/lac.nsf/0/8479e9126e3537f0852567ea000fa239/$FILE/Haiti1.doc ).

The World Bank estimates unemployment to be of the order of 60 percent. (A 2000 US Congressional Report estimates it to be as high as 80 percent. See US House of Representatives, Criminal Justice, Drug Policy and Human Resources Subcommittee, FDHC Transcripts, 12 April 2000).

In the wake of three years of military rule and economic decline, there was no “Economic Emergency Recovery” as envisaged under the IMF loan agreement. In fact quite the opposite: The IMF imposed  “stabilization” under the “Recovery” program required further budget cuts in  almost non-existent social sector programs.  A civil service reform program was launched, which consisted in reducing the size of the civil service and the firing of “surplus” State employees. The IMF-World Bank package was in part instrumental in the paralysis of public services, leading to the eventual demise of the entire State system. In a country where health and educational services were virtually nonexistent, the IMF had demanded the lay off of “surplus” teachers and health workers with a view to meeting its target for the budget deficit.   

Washington’s foreign policy initiatives were coordinated with the application of the IMF’s deadly economic medicine. The country had been literally pushed to the brink of economic and social disaster.

The Fate of Haitian Agriculture

More than 75 percent of the Haitian population is engaged in agriculture, producing both food crops for the domestic market as well a number of cash crops for export. Already during the Duvalier era, the peasant economy had been undermined. With the adoption of the IMF-World Bank sponsored trade reforms, the agricultural system, which previously produced food for the local market, had been destabilized. With the lifting of trade barriers, the local market was opened up to the dumping of US agricultural surpluses including rice, sugar and corn, leading to the destruction of the entire peasant economy. Gonaives, which used to be Haiti’s rice basket region, with extensive paddy fields had been precipitated into bankruptcy:

. “By the end of the 1990s Haiti’s local rice production had been reduced by half and rice imports from the US accounted for over half of local rice sales. The local farming population was devastated, and the price of rice rose drastically “ ( See Rob Lyon, Haiti-There is no solution under Capitalism! Socialist Appeal, 24 Feb. 2004, http://cleveland.indymedia.org/news/2004/02/9095.php ).

In matter of a few years, Haiti, a small impoverished country in the Caribbean, had become the World’s fourth largest importer of American rice after Japan, Mexico and Canada.

The Second Wave of IMF Reforms

The presidential elections were scheduled for November 23, 2000. The Clinton Administration had put an embargo on development aid to Haiti in 2000. Barely two weeks prior to the elections, the outgoing administration signed a Letter of Intent with the IMF. Perfect timing: the agreement with the IMF virtually foreclosed from the outset any departure from the neoliberal agenda.

The Minister of Finance had sent the amended budget to the Parliament on December 14th. Donor support was conditional upon its rubber stamp approval by the Legislature. While Aristide had promised to increase the minimum wage, embark on school construction and  literacy programs, the hands of the new government were tied. All major decisions regarding the State budget, the management of the public sector, public investment, privatization, trade and monetary policy had already been taken. They were part of the agreement reached with the IMF on November 6, 2000.

In 2003, the IMF imposed the application of a so-called “flexible price system in fuel”, which immediately triggered an inflationary spiral. The currency was devalued. Petroleum prices increased by about 130 percent in January-February 2003, which served to increase popular resentment against the Aristide government, which had supported the implementation of the IMF economic reforms.

The hike in fuel prices contributed to a 40 percent increase in consumer prices (CPI) in 2002-2003 (See Haiti—Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding, Port-au-Prince, Haiti June 10, 2003, http://www.imf.org/external/np/loi/2003/hti/01/index.htm ). In turn, the IMF had demanded, despite the dramatic increase in the cost of living, a freeze on wages as a means to “controlling inflationary pressures.” The IMF had in fact pressured the government to lower public sector salaries (including those paid to teachers and health workers).  The IMF had also demanded the phasing out of the statutory minimum wage of approximately 25 cents an hour. “Labour market flexibility”, meaning wages paid below the statutory minimum wage would, according to the IMF, contribute to attracting foreign investors. The daily minimum wage was $3.00 in 1994, declining to about $1.50- 1.75 (depending on the gourde-dollar exchange rate) in 2004. 

In an utterly twisted logic, Haiti’s abysmally low wages, which have been part of the IMF-World Bank “cheap labor” policy framework since the 1980s, are viewed as a means to improving the standard of living. In other words, sweatshop conditions in the assembly industries (in a totally unregulated labor market) and forced labor conditions in Haiti’s agricultural plantations are considered by the IMF as a key to achieving economic prosperity, because they “attract foreign investment.” 

The country was in the straightjacket of a spiraling external debt. In a bitter irony, the IMF-World Bank sponsored austerity measures in the social sectors were imposed in a country which has 1,2 medical doctors for 10,000 inhabitants and where the large majority of the population is illiterate. State social services, which were virtually nonexistent during the Duvalier period, have collapsed.

The result of IMF ministrations was a further collapse in purchasing power, which had also affected middle income groups. Meanwhile, interest rates had skyrocketed. In the Northern and Eastern parts of the country, the hikes in fuel prices had led to a virtual paralysis of transportation and public services including water and electricity.

While a humanitarian catastrophe is looming, the collapse of the economy spearheaded by the IMF, had served to boost the popularity of the Democratic Platform, which had accused  Aristide of “economic mismanagement.” Needless to say, the leaders of the Democratic Platform including Andy Apaid –who actually owns the sweatshops– are the main protagonists of the low wage economy.

Applying the Kosovo Model

In February 2003, Washington announced the appointment of James Foley as Ambassador to Haiti . Foley had been a State Department spokesman under the Clinton administration during the war on Kosovo. He previously held a position at NATO headquarters in Brussels. Foley had been sent to Port au Prince in advance of the CIA sponsored operation. He was transferred to Port au Prince in September 2003, from a prestige diplomatic position in Geneva, where he was Deputy Head of Mission to the UN European office.

It is worth recalling Ambassador Foley’s involvement in support of the Kosovo Liberation Army (KLA) in 1999.

Amply documented, the Kosovo Liberation Army (KLA) was financed by drug money and supported by the CIA. ( See Michel Chossudovsky, Kosovo Freedom Fighters Financed by Organized Crime, Covert Action Quarterly, 1999, http://www.heise.de/tp/english/inhalt/co/2743/1.html )  

The KLA had been involved in similar targeted political assassinations and killings of civilians, in the months leading up to the 1999 NATO invasion as well as in its aftermath.  Following the NATO led invasion and occupation of Kosovo, the KLA was transformed into the Kosovo Protection Force (KPF) under UN auspices. Rather than being disarmed to prevent the massacres of civilians, a terrorist organization with links to organized crime and the Balkans drug trade, was granted a legitimate political status.

At the time of the Kosovo war, the current ambassador to Haiti James Foley was in charge of State Department briefings, working closely with his NATO counterpart in Brussels, Jamie Shea. Barely two months before the onslaught of the NATO led war on 24 March 1999, James Foley had called for the “transformation” of the KLA into a respectable political organization:

We want to develop a good relationship with them [the KLA] as they transform themselves into a politically-oriented organization,’ ..`[W]e believe that we have a lot of advice and a lot of help that we can provide to them if they become precisely the kind of political actor we would like to see them become… “If we can help them and they want us to help them in that effort of transformation, I think it’s nothing that anybody can argue with..’ (quoted in the New York Times, 2 February 1999)

In the wake of the invasion “a self-proclaimed Kosovar administration was set up composed of the KLA and the Democratic Union Movement (LBD), a coalition of five opposition parties opposed to Rugova’s Democratic League (LDK). In addition to the position of prime minister, the KLA controlled the ministries of finance, public order and defense.” (Michel Chossudovsky, NATO’s War of Aggression against Yugoslavia, 1999, http://www.globalresearch.ca/articles/CHO309C.html )

The US State Department’s position as conveyed in Foley’s statement was that the KLA would “not be allowed to continue as a military force but would have the chance to move forward in their quest for self government under a ‘different context’” meaning the inauguration of a de facto “narco-democracy” under NATO protection. (Ibid).

With regard to the drug trade, Kosovo and Albania occupy a similar position to that of Haiti: they constitute “a hub” in the transit (transshipment) of narcotics from the Golden Crescent, through Iran and Turkey into Western Europe. While supported by the CIA, Germany’s Bundes Nachrichten Dienst (BND) and NATO, the KLA has links to the Albanian Mafia and criminal syndicates involved in the narcotics trade.( See Michel Chossudovsky, Kosovo Freedom Fighters Financed by Organized Crime, Covert Action Quarterly, 1999, http://www.heise.de/tp/english/inhalt/co/2743/1.html )  

Is this the model for Haiti, as formulated in 1999 by the current US Ambassador to Haiti James Foley?

For the CIA and the State Department the FLRN and Guy Philippe are to Haiti what the KLA and Hashim Thaci are to Kosovo.

In other words, Washington’s design is “regime change”: topple the Lavalas administration and install a compliant US puppet regime, integrated by the Democratic Platform and the self-proclaimed Front pour la libération et la reconstruction nationale (FLRN), whose leaders are former FRAPH and Tonton Macoute terrorists. The latter are slated to integrate a “national unity government” alongside the leaders of the Democratic Convergence and The Group of 184 Civil Society Organizations led by Andy Apaid. More specifically, the FLRN led by Guy Philippe is slated to rebuild the Haitian Armed forces, which were disbanded in 1995.

What is at stake is an eventual power sharing arrangement between the various Opposition groups and the CIA supported Rebels, which have links to the cocaine transit trade from Colombia via Haiti to Florida. The protection of this trade has a bearing on the formation of a new “narco-government”, which will serve US interests.

A bogus (symbolic) disarmament of the Rebels may be contemplated under international supervision, as occurred with the KLA in Kosovo in 2000. The “former terrorists” could then be integrated into the civilian police as well as into the task of “rebuilding” the Haitian Armed forces under US supervision.

What this scenario suggests, is that the Duvalier-era terrorist structures have been restored. A program of civilian killings and political assassinations directed against Lavalas supporter is in fact already underway.

In other words, if Washington were really motivated by humanitarian considerations, why then is it supporting and financing the FRAPH death squadrons? Its objective is not to prevent the massacre of civilians. Modeled on previous CIA led operations (e.g. Guatemala, Indonesia, El Salvador), the FLRN death squadrons have been set loose and are involved in targeted political assassinations of Aristide supporters.

The Narcotics Transshipment Trade

While the real economy had been driven into bankruptcy under the brunt of the IMF reforms, the narcotics transshipment trade continues to flourish.  According to the US Drug Enforcement Administration (DEA), Haiti remains “the major drug trans-shipment country for the entire Caribbean region, funneling huge shipments of cocaine from Colombia to the United States.” (See US House of Representatives, Criminal Justice, Drug Policy and Human Resources Subcommittee, FDHC Transcripts, 12 April 2000). 

It is estimated that  Haiti is now responsible for 14 percent of all the cocaine entering the United States, representing billions of dollars of revenue for organized crime and US financial institutions, which launder vast amounts of dirty money. The global trade in narcotics is estimated to be of the order of 500 billion dollars.

Much of this transshipment trade goes directly to Miami, which also constitutes a haven for the recycling of dirty money into bona fide investments, e.g. in real estate and other related activities.

The evidence confirms that the CIA was protecting this trade during the Duvalier era as well as during the military dictatorship (1991-1994). In 1987, Senator John Kerry as Chairman of the Subcommittee on Narcotics, Terrorism and International Operations of the Senate Foreign Affairs Committee was entrusted with a major investigation, which  focused  on the links between the CIA and the drug trade, including the laundering of drug money to finance armed insurgencies. “The  Kerry Report” published in 1989, while centering its attention on the financing of the Nicaraguan Contra, also included a section on Haiti: 

“Kerry had developed detailed information on drug trafficking by Haiti’s military rulers that led to the indictment in Miami in 1988, of Lt. Col. Jean Paul. The indictment was a major embarrassment to the Haitian military, especially since Paul defiantly refused to surrender to U.S. authorities.. In November 1989, Col. Paul was found dead after he consumed a traditional Haitian good will gift—a bowel of pumpkin soup…

The U.S. senate also heard testimony in 1988 that then interior minister, Gen. Williams Regala, and his DEA liaison officer, protected and supervised cocaine shipments. The testimony also charged the then Haitian military commander Gen. Henry Namphy with accepting bribes from Colombian traffickers in return for landing rights in the mid 1980’s.

It was in 1989 that yet another military coup brought Lt. Gen. Prosper Avril to power… According to a witness before Senator John Kerry’s subcommittee, Avril is in fact a major player in Haiti’s role as a transit point in the cocaine trade.” ( Paul DeRienzo, Haiti’s Nightmare: The Cocaine Coup & The CIA Connection, Spring 1994, http://globalresearch.ca/articles/RIE402A.html )

Jack Blum, who was Kerry’s Special Counsel, points to the complicity of US officials in a 1996 statement to the US Senate Select Committee on Intelligence on Drug Trafficking and the Contra War:

“...In Haiti …  intelligence “sources” of ours in the Haitian military had turned their facilities over to the drug cartels. Instead of putting pressure on the rotten leadership of the military, we defended them. We held our noses and looked the other way as they and their criminal friends in the United States distributed cocaine in Miami, Philadelphia and New, York. (http://www.totse.com/en/politics/central_intelligence_agency/ciacont2.html )

Haiti not only remains at the hub of the transshipment cocaine trade, the latter has grown markedly since the 1980s. The current crisis bears a relationship to Haiti’s role in the drug trade. Washington wants a compliant Haitian government which will protect the drug transshipment routes, out of Colombia through Haiti and into Florida.

The inflow of narco-dollars –which remains the major source of the country’s foreign exchange earnings– are used to service Haiti’s spiraling external debt, thereby also serving the interests of the external creditors.

In this regard, the liberalization of the foreign-exchange market imposed by the IMF has provided (despite the authorities pro forma commitment to combating the drug trade) a convenient avenue for the laundering of narco-dollars in the domestic banking system. The inflow of narco-dollars alongside bona fide “remittances” from Haitians living abroad, are deposited in the commercial banking system and exchanged into local currency. The foreign exchange proceeds of these inflows can then be recycled towards the Treasury where they are used to meet debt servicing obligations.

Haiti, however, reaps a very small percentage of the total foreign exchange proceeds of this lucrative contraband. Most of the revenue resulting from the cocaine transshipment trade accrues to criminal intermediaries in the wholesale and retail narcotics trade, to the intelligence agencies which protect the drug trade as well as to the financial and banking institutions where the proceeds of this criminal activity are laundered. 

The narco-dollars are also channeled into “private banking” accounts in numerous offshore banking havens. (These havens are controlled by the large Western banks and financial institutions). Drug money is also invested in a number of financial instruments including hedge funds and stock market transactions. The major Wall Street and European banks and stock brokerage firms launder billions of dollars resulting from the trade in narcotics.

Moreover, the expansion of the dollar denominated money supply by the Federal Reserve System , including the printing of billions of dollars of US dollar notes for the purposes of narco-transactions constitutes profit for the Federal Reserve and its constituent private banking institutions of which the most important is the New York Federal Reserve Bank. See (Jeffrey Steinberg, Dope, Inc. Is $600 Billion and Growing, Executive Intelligence Review, 14 Dec 2001, http://www.larouchepub.com/other/2001/2848dope_money.html

In other words, the Wall Street financial establishment, which plays a behind the scenes role in the formulation of US foreign policy, has a vested interest in retaining the Haiti transshipment trade, while installing a reliable “narco-democracy” in Port-au-Prince, which will effectively protect the transshipment routes.

It should be noted that since the advent of the Euro as a global currency, a significant share of the narcotics trade is now conducted in Euro rather than US dollars. In other words, the Euro and the dollar are competing narco-currencies.

The Latin American cocaine trade –including the transshipment trade through Haiti– is largely conducted in US dollars.  This shift out of dollar denominated narco-transactions, which undermines the hegemony of the US dollar as a global currency, largely pertains to the Middle East, Central Asian and the Southern European drug routes.

Media Manipulation

In the weeks leading up to the Coup d’Etat, the media has largely focused its attention on the pro-Aristide “armed gangs” and “thugs”,  without providing an understanding of the role of the FLRN Rebels.

Deafening silence: not a word was mentioned in official statements and UN resolutions regarding the nature of the FLRN.  This should come as no surprise: the US Ambassador to the UN  (the man who sits on the UN Security Council) John Negroponte.  played a key role in the CIA supported Honduran death squadrons in the 1980s when he was US ambassador to Honduras. (See San Francisco Examiner, 20 Oct 2001  http://www.flora.org/mai/forum/31397 )

The FLRN rebels are extremely well equipped and trained forces. The Haitian people know who they are. They are Tonton Macoute of the Duvalier era and former FRAPH assassins.

The Western media is mute on the issue, blaming the violence on President Aristide. When it acknowledges that the Liberation Army is composed of death squadrons, it fails to examine the broader implications of its statements and that these death squadrons are a creation of the CIA and the Defense Intelligence Agency.

The New York Times has acknowledged that the “non violent” civil society opposition is in fact collaborating with the death squadrons, “accused of killing thousands”, but all this is described as “accidental”. No historical understanding is provided. Who are these death squadron leaders?  All we are told is that they have established an “alliance” with the “non-violent” good guys who belong to the “political opposition”. And it is all for a good and worthy cause, which is to remove the elected president and “restore democracy”: 

“As Haiti’s crisis lurches toward civil war, a tangled web of alliances, some of them accidental, has emerged. It has linked the interests of a political opposition movement that has embraced nonviolence to a group of insurgents that includes a former leader of death squads accused of killing thousands, a former police chief accused of plotting a coup and a ruthless gang once aligned with Mr. Aristide that has now turned against him. Given their varied origins, those arrayed against Mr. Aristide are hardly unified, though they all share an ardent wish to see him removed from power.” (New York Times,  26 Feb 2004)

There is nothing spontaneous or “accidental” in the rebel attacks or in the “alliance” between the leader of the death squadrons Guy Philippe and Andy Apaid, owner of the largest industrial sweatshop in Haiti and leader of the G-184. 

The armed rebellion was part of a carefully planned military-intelligence operation. The Armed Forces of the Dominican Republic had detected guerilla training camps inside the Dominican Republic on the Northeast Haitian-Dominican border. ( El ejército dominicano informó a Aristide sobre los entrenamientos rebeldes en la frontera, El Caribe, 27 Feb. 2004, http://www.elcaribe.com.do/articulo_multimedios.aspx?id=2645&guid=AB38144D39B24C6FBA4213AC40DD3A01&Seccion=64 )

Both the armed rebels and their civilian “non-violent” counterparts were involved in the plot to unseat the president. G-184 leader Andre Apaid was in touch with Colin Powell in the weeks leading up to the overthrow of Aristide;  Guy Philippe and “Toto” Emmanuel Constant have links to the CIA; there are indications that Rebel Commander Guy Philippe and the political leader of the Revolutionary Artibonite Resistance Front Winter Etienne were in liaison with US officials. (See BBC, 27 Feb 2004, http://news.bbc.co.uk/2/hi/americas/3496690.stm ).

While the US had repeatedly stated that it will uphold Constitutional government, the replacement of Aristide by a more compliant individual had always been part of the Bush Administration’s agenda.

On Feb 20, US Ambassador James Foley called in a team of four military experts from the U.S. Southern Command, based in Miami. Officially their mandate was “to assess threats to the embassy and its personnel.” (Seattle Times, 20 Feb 2004). US Special Forces are already in the country. Washington had announced that three US naval vessels “have been put on standby to go to Haiti as a precautionary measure”. The Saipan is equipped with Vertical takeoff Harrier fighters and attack helicopters. The other two vessels are the Oak Hill and Trenton.  Some 2,200 U.S. Marines from the 24th Marine Expeditionary Unit, at Camp Lejeune, N.C. could be deployed to Haiti at short notice, according to Washington.

With the departure of President Aristide, Washington, however, has no intention of disarming its proxy rebel paramilitary army, which is now slated to play a role in the “transition”. In other words, the Bush administration will not act to prevent the occurrence of killings and political assassinations of Lavalas and Aristide supporters in the wake of the president’s kidnapping and deportation.

Needless to say, the Western media has not in the least analyzed the historical background of the Haitian crisis. The role played by the CIA has not been mentioned. The so-called “international community”, which claims to be committed to governance and democracy, has turned a blind eye to the killings of civilians by a US sponsored paramilitary army. The “rebel leaders”, who were commanders in the FRAPH death squadrons in the 1990s, are now being upheld by the US media as bona fide opposition spokesmen. Meanwhile, the legitimacy of the former elected president is questioned because he is said to be responsible for “a worsening economic and social situation.” 

The worsening economic and social situation is largely attributable to the devastating economic reforms imposed by the IMF since the  1980s. The restoration of Constitutional government in 1994 was conditional upon the acceptance of the IMF’s deadly economic therapy, which in turn foreclosed the possibility of a meaningful democracy. High ranking government officials respectively within the Andre Preval and Jean Bertrand Aristide governments were indeed compliant with IMF diktats. Despite this compliance, Aristide had been “blacklisted” and demonized by Washington.  

The Militarization of the Caribbean Basin

Washington seeks to reinstate Haiti as a full-fledged US colony, with all the appearances of a functioning democracy. The objective is to impose a puppet regime in Port-au-Prince and establish a permanent US military presence in Haiti. 

The US Administration ultimately seeks to militarize the Caribbean basin.

The island of Hispaniola is a gateway to the Caribbean basin, strategically located between Cuba to the North West and Venezuela to the South.  The militarization of the island, with the establishment of US military bases, is not only intended to put political pressure on Cuba and Venezuela, it is also geared towards the protection of the multibillion dollar narcotics transshipment trade through Haiti, from production sites in Colombia, Peru and Bolivia.

The militarisation of the Caribbean basin is, in some regards, similar to that imposed by Washington on the Andean Region of South America under “Plan Colombia’, renamed “The Andean Initiative”. The latter constitutes the basis for the militarisation of oil and gas wells, as well as pipeline routes and transportation corridors. It also protects the narcotics trade.

Michelle Rhee Allies With Corporate Pals To March On LA Schools

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As you read this, Michelle Rhee is marshaling the troops to march on for Los Angeles Unified School District students. Because we all know Rhee puts "Students First," right? Here are her public reasons for the march:

  • To drive voter registration and turnout for school board and mayoral elections
  • To raise awareness of the unequal access to high quality education and the candidates' platforms
  • To ask our candidates to listen to our community and commit to strengthening our public education system

There's a subtext in those bullets, trying to influence Los Angeles as it has in Chicago or New York or Atlanta or any metropolitan city: Charter schools will solve the problem.

To that end, there's a fierce battle between anti-charter incumbent board member Steve Zimmer and pro-charter challenger Kate Anderson raging right now, so let's also assume the purpose of this march is to spread some love for Anderson and hopefully mount a battle for the entire Los Angeles Unified School District to be charterized (read privatized) sooner rather than later.

If you ever had any doubts that StudentsFirst was anything other than a corporate front, guess again. In 2011, StudentsFirst received $1 million from the Walton Family Foundation, $7 million from the Laura and John Arnold Foundation, and $250,000 from the Doris and Donald Fisher Education Fund. The Walton family are the Wal-Mart founders and owners. Laura and John Arnold are a young couple from Texas with a lot of money and a vision to "go big." John Arnold made most of his money as an Enron trader, so I'm sure former Enron employees are simply thrilled to know that someone who walked away with the big bucks is now looking to score on charter schools. In addition to his charitable giving, Arnold manages a hedge fund now. The Fishers are the founders of The Gap, and spend millions each year toward inserting charter schools in various districts.

More corporate philanthropy funds flowed to StudentsFirst via Education Reform Now, which was used as an incubator for StudentsFirst until their non-profit approval was received. Recently, StudentsFirst replaced their founding board with a new board. Those new members include Bill Cosby, Jennifer Johnson (COO of Franklin Resources, Inc), Joel Klein, former chancellor of New York Public Schools and now Executive VP for Rupert Murdoch's News Corporation (Educational Products Division), and Jalen Rose, former NBA star, ESPN commentator and founder of the Jalen Rose Leadership Academy, a charter high school in Detroit.

Now why on earth are corporations so interested in charter schools? I've said here many times that they see education as an emerging market. Clearly Rupert Murdoch does, and so do many venture capitalists, which is why educational philanthropy grants read like venture capital proposals. Hedge fund managers love charter schools too, as Kristin Rawls at AlterNet explains:

Thanks to a little discussed law passed in 2000, at the end of Bill Clinton’s presidency, banks and equity funds that invest in charter schools and other projects in underserved areas can take advantage of a very generous tax credit – as much as 39% -- to help offset their expenditure in such projects. In essence, that credit amounts to doubling the amount of money they have invested within just seven years. Moreover, they are allowed to combine that tax credit with job creation credits and other types of credit, as well collect interest payments on the money they are lending out – all of which can add up to far more than double in returns. This is, no doubt, why many big banks and equity funds are so invested in the expansion of charter schools. There is big money being made here -- because investment is nearly a sure thing.

And it’s not just U.S. investors who see the upside of investing in charters. Rich donors throughout the world are now sending money to fund our charter schools. Why? Because if they invest at least $500,000 to charters under a federal program called EB-5, they’re allowed to purchase immigration visas for themselves and family members -- yet another mechanism in place to ensure that the money keeps rolling in.

When media makes a big deal out of Michelle Rhee tromping around LA trumpeting about how much she cares for public schools, remember that she is merely facilitating even more big tax breaks for her corporate keepers.

I've been studying patterns of giving to education reform on the right and on the left. They're not much different, largely because their ultimate goals converge. Lefties will make some soft murmurs about keeping schools public while conservatives will say straight out that their goal is breaking unions and privatizing education. If lefties were serious about keeping schools public, they would have gotten behind the idea of magnet schools within existing school district structures and managed by the districts. Instead they've all embraced the sainted public-private partnership as some excuse for handing our kids' education to corporate interests.

The only ones no one is really thinking about seriously are the kids. Common Dreams reports:

Corporate school reformers promote privately operated but publicly funded "charter schools" as one of the key components of their profit-friendly approach to solving what they call the failure of traditional public schooling, but a new investigative report from Reuters shows that many such institutions disregard their own promises of inclusion and equal opportunity by creating barriers to needier students while targeting for enrollment those most likely to pad test scores or otherwise enhance their own promises of "success".

The full report from Reuters is here. It isn't pretty. It certainly lays bare the lies Michelle Rhee uses to get a foothold on the national stage and sell her education reform snake oil.

Hedge funds benefit. Bankers benefit. Philanthropists benefit. Children? Not so much.

The Great Wealth Robbery

Two important events took place this week. One was President Obama’s call for a higher minimum wage, which got a lot of attention. The other was a new report which showed just how much of our nation’s wealth continues to be hijacked by the wealthiest among us.

That didn’t get much attention.

There’s a Great Robbery underway, although most of its perpetrators don’t see themselves as robbers. Instead they’re sustained by delusions that protect them from facing the consequences of their own actions.

Heads I Win …

An updated report from economist Emmanuel Saez details the loss of income suffered by 99 percent of Americans, and the parallel gains made by the wealthiest among us. Its most startling finding may be this: The top 1 percent has captured 121 percent of the increases in income since the worst of the financial crisis, while the rest of the country has continued to fall behind.

If you thought the rich recovered from the crisis just fine but everybody else got the short end of the stick, relax: You’re not crazy. And since the financial crisis was caused by members of the 1 percent – not all of them, of course, just the ones we spent so much to rescue – it’s understandable if the injustice still rankles you.

You rescued them. Now they’re drinking your milkshake.

Tails You Lose

But this wealth shift is not a new phenomenon. As Saez notes in his paper, “After decades of stability … the top decile share has increased dramatically over the last twenty-five years.” In fact, the top 10 percent’s share of our national income is higher than it’s been since 1917 - and maybe longer. (The figures don’t go back any farther than that.)

Although it began during the Reagan years, to a certain extent this wealth shift has been a bipartisan phenomenon. During the Clinton boom years (more of a bubble, actually; Dean Baker has the details) the top 1 percent saw their real income grow by 98.7 percent, while the other 99 saw a smaller increase of 20.3 percent. They lost more during the recession that followed – a little over 30 percent, as opposed to 6.5 percent for everyone else – but more than made up the difference again during the Bush years.

The same thing happened during the Great Recession: The top 1 percent lost more during the initial shock, but they’re rapidly making up the difference now. Government policy’s been designed to help them. (Meanwhile, underwater homeowners still don’t have the help they need.)

The disparities are even greater when you include capital gains. (Saez uses pre-tax income for his figures. Given the generous tax breaks for capital gains and the many loopholes used by the wealthy,the after-tax differences could be even greater.) There’s even economic injustice at the top. Gains for the one percent have far outstripped those of the top five and top ten percent.

As the old song says: Them that has, gets.

If you can remember the sixties you weren’t there … or can’t afford to remember

The minimum wage has been falling since 1968. As John Schmitt notes in his paper, “The Minimum Wage Is Too Damn Low,” “By all of the most commonly used benchmarks – inflation, average wages, and productivity – the minimum wage is now far below its historical level.”

It’s currently $7.25. What would it have been if it had been tied to a commonly-used benchmark? Schmitt ran the numbers:

Consumer Price Index (CPI-I): $10.52

Current CPI methodology (CPI-U-RS): $9.22

As a percentage of average production worker’s earnings: $10.01

And if it had been tied to productivity gains the minimum wage would be $21.72 today. But that cream was skimmed off at the top.

Magical Thinking

There’s a myth in this country that enormous wealth doesn’t come from anywhere or anyone, that it’s self-creating and self-sustaining, thriving on pure oxygen like an epiphyte or a garden fairy. In reality, highly concentrated wealth is caused by actions – human actions with human consequences.

Saez: “A number of factors may help explain this increase in inequality, not only underlying technological changes but also the retreat of institutions developed during the New Deal and World War II – such as progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality.”

Wealth inequity is created whenever an employer lowers his employees’ wages, replaces a full-time worker with several part-timers, busts a union, cuts corners on workplace safety, or pays a lobbyist to change the rules.

It’s created whenever a job is shipped overseas, and when investments are shifted from job-producing industries to the non-productive financial sector. It’s created when GE outsources its manufacturing operation and gets into the banking (read, “gambling with taxpayers’ money”) business. Or when AIG stops insuring risk and starts betting on it.

And the process isn’t slowing down. In fact, it seems to be accelerating.

As Saez says, “We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional and tax reforms should be developed to counter it.”

Up

President Obama’s proposal is modest, and there’s no reason not to enact it immediately. For those who believe that businesses “can’t afford” to pay higher wages, some key facts:

Most low-wage workers work for large corporations, not Mom-and-Pop businesses.

A Data Brief from the National Employment Law Project finds that 66 percent of low-wage employees work for companies with more than 100 employees. A handful of very large corporations collectively employ nearly 8 million low-wage employees.

There’s no evidence minimum wage increases mean fewer jobs.

Opponents say a higher minimum wage means fewer jobs. But the official U.S. unemployment rate in 1968, when the real minimum wage was highest, was 3.6 percent. Today it’s 7.8 percent – and the unofficial numbers are even worse. At the state level,  the Fiscal Policy Institute recently concluded that “states with minimum wages above the federal level have had faster small business and retail job growth.”

Ninety-two percent of the 50 largest low‐wage employers in the country were profitable last year.

As the NELP notes, big corporations more than recovered from the recession: 75 percent are collecting more revenue, 63 percent are earning higher profits, and 73 percent have higher cash holdings than they did before the crisis.

Bringing It All Back Home

The real “job creators” aren’t the ultra-wealthy. If they could create jobs with all their added wealth, they would have done it already. The real job creators are working people with jobs.

They don’t invest their money in hedge funds or stash it in offshore accounts. They spend it: on food, transportation, their kids’ education, maybe a night at the movies … And then other people get jobs making those things possible.

We have a working model to follow: The USA in the 35 years after World War II. As Paul Krugman says, “To the extent that people say the economics is confusing or uncertain, that’s overwhelmingly because people want it to be.” We know how to do this.

Raising the minimum wage is a start. A maximum wage would help, too, by reducing CEOs’ incentives to emphasize quarterly gains over long-term growth and leaving more to be shared with employees.

We also need a national strategy for regaining the more reasonable distribution of income this country had in the 1950s. We need to ensure that the door of opportunity, which is closing every day for millions of young people, is opened again. And we need to ask the wealthiest to really pay their fair share – at something closer to the top tax rates of the 1950’s or 1960’s. (Elvis Presley’s manager “Colonel” Tom Parker once said “I consider it my patriotic duty to keep Elvis in the ninety percent tax bracket.”)

Most of all, we need to educate those around us so they understand what’s happening. That includes the well-intentioned well-to-do, who might do more to end the problem if they knew it existed.  After all, you can’t stop a robbery until you know it’s happening.

© 2013 Campaign for America's Future

Richard Eskow

Richard (RJ) Eskow is a well-known blogger and writer, a former Wall Street executive, an experienced consultant, and a former musician. He has experience in health insurance and economics, occupational health, benefits, risk management, finance, and information technology. Richard has consulting experience in the US and over 20 countries.

The Great Wealth Robbery

Two important events took place this week. One was President Obama’s call for a higher minimum wage, which got a lot of attention. The other was a new report which showed just how much of our nation’s wealth continues to be hijacked by the wealthiest among us.

That didn’t get much attention.

There’s a Great Robbery underway, although most of its perpetrators don’t see themselves as robbers. Instead they’re sustained by delusions that protect them from facing the consequences of their own actions.

Heads I Win …

An updated report from economist Emmanuel Saez details the loss of income suffered by 99 percent of Americans, and the parallel gains made by the wealthiest among us. Its most startling finding may be this: The top 1 percent has captured 121 percent of the increases in income since the worst of the financial crisis, while the rest of the country has continued to fall behind.

If you thought the rich recovered from the crisis just fine but everybody else got the short end of the stick, relax: You’re not crazy. And since the financial crisis was caused by members of the 1 percent – not all of them, of course, just the ones we spent so much to rescue – it’s understandable if the injustice still rankles you.

You rescued them. Now they’re drinking your milkshake.

Tails You Lose

But this wealth shift is not a new phenomenon. As Saez notes in his paper, “After decades of stability … the top decile share has increased dramatically over the last twenty-five years.” In fact, the top 10 percent’s share of our national income is higher than it’s been since 1917 - and maybe longer. (The figures don’t go back any farther than that.)

Although it began during the Reagan years, to a certain extent this wealth shift has been a bipartisan phenomenon. During the Clinton boom years (more of a bubble, actually; Dean Baker has the details) the top 1 percent saw their real income grow by 98.7 percent, while the other 99 saw a smaller increase of 20.3 percent. They lost more during the recession that followed – a little over 30 percent, as opposed to 6.5 percent for everyone else – but more than made up the difference again during the Bush years.

The same thing happened during the Great Recession: The top 1 percent lost more during the initial shock, but they’re rapidly making up the difference now. Government policy’s been designed to help them. (Meanwhile, underwater homeowners still don’t have the help they need.)

The disparities are even greater when you include capital gains. (Saez uses pre-tax income for his figures. Given the generous tax breaks for capital gains and the many loopholes used by the wealthy,the after-tax differences could be even greater.) There’s even economic injustice at the top. Gains for the one percent have far outstripped those of the top five and top ten percent.

As the old song says: Them that has, gets.

If you can remember the sixties you weren’t there … or can’t afford to remember

The minimum wage has been falling since 1968. As John Schmitt notes in his paper, “The Minimum Wage Is Too Damn Low,” “By all of the most commonly used benchmarks – inflation, average wages, and productivity – the minimum wage is now far below its historical level.”

It’s currently $7.25. What would it have been if it had been tied to a commonly-used benchmark? Schmitt ran the numbers:

Consumer Price Index (CPI-I): $10.52

Current CPI methodology (CPI-U-RS): $9.22

As a percentage of average production worker’s earnings: $10.01

And if it had been tied to productivity gains the minimum wage would be $21.72 today. But that cream was skimmed off at the top.

Magical Thinking

There’s a myth in this country that enormous wealth doesn’t come from anywhere or anyone, that it’s self-creating and self-sustaining, thriving on pure oxygen like an epiphyte or a garden fairy. In reality, highly concentrated wealth is caused by actions – human actions with human consequences.

Saez: “A number of factors may help explain this increase in inequality, not only underlying technological changes but also the retreat of institutions developed during the New Deal and World War II – such as progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality.”

Wealth inequity is created whenever an employer lowers his employees’ wages, replaces a full-time worker with several part-timers, busts a union, cuts corners on workplace safety, or pays a lobbyist to change the rules.

It’s created whenever a job is shipped overseas, and when investments are shifted from job-producing industries to the non-productive financial sector. It’s created when GE outsources its manufacturing operation and gets into the banking (read, “gambling with taxpayers’ money”) business. Or when AIG stops insuring risk and starts betting on it.

And the process isn’t slowing down. In fact, it seems to be accelerating.

As Saez says, “We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional and tax reforms should be developed to counter it.”

Up

President Obama’s proposal is modest, and there’s no reason not to enact it immediately. For those who believe that businesses “can’t afford” to pay higher wages, some key facts:

Most low-wage workers work for large corporations, not Mom-and-Pop businesses.

A Data Brief from the National Employment Law Project finds that 66 percent of low-wage employees work for companies with more than 100 employees. A handful of very large corporations collectively employ nearly 8 million low-wage employees.

There’s no evidence minimum wage increases mean fewer jobs.

Opponents say a higher minimum wage means fewer jobs. But the official U.S. unemployment rate in 1968, when the real minimum wage was highest, was 3.6 percent. Today it’s 7.8 percent – and the unofficial numbers are even worse. At the state level,  the Fiscal Policy Institute recently concluded that “states with minimum wages above the federal level have had faster small business and retail job growth.”

Ninety-two percent of the 50 largest low‐wage employers in the country were profitable last year.

As the NELP notes, big corporations more than recovered from the recession: 75 percent are collecting more revenue, 63 percent are earning higher profits, and 73 percent have higher cash holdings than they did before the crisis.

Bringing It All Back Home

The real “job creators” aren’t the ultra-wealthy. If they could create jobs with all their added wealth, they would have done it already. The real job creators are working people with jobs.

They don’t invest their money in hedge funds or stash it in offshore accounts. They spend it: on food, transportation, their kids’ education, maybe a night at the movies … And then other people get jobs making those things possible.

We have a working model to follow: The USA in the 35 years after World War II. As Paul Krugman says, “To the extent that people say the economics is confusing or uncertain, that’s overwhelmingly because people want it to be.” We know how to do this.

Raising the minimum wage is a start. A maximum wage would help, too, by reducing CEOs’ incentives to emphasize quarterly gains over long-term growth and leaving more to be shared with employees.

We also need a national strategy for regaining the more reasonable distribution of income this country had in the 1950s. We need to ensure that the door of opportunity, which is closing every day for millions of young people, is opened again. And we need to ask the wealthiest to really pay their fair share – at something closer to the top tax rates of the 1950’s or 1960’s. (Elvis Presley’s manager “Colonel” Tom Parker once said “I consider it my patriotic duty to keep Elvis in the ninety percent tax bracket.”)

Most of all, we need to educate those around us so they understand what’s happening. That includes the well-intentioned well-to-do, who might do more to end the problem if they knew it existed.  After all, you can’t stop a robbery until you know it’s happening.

© 2013 Campaign for America's Future

Richard Eskow

Richard (RJ) Eskow is a well-known blogger and writer, a former Wall Street executive, an experienced consultant, and a former musician. He has experience in health insurance and economics, occupational health, benefits, risk management, finance, and information technology. Richard has consulting experience in the US and over 20 countries.

Guest Post: Note To Fed: Giving The Banks Free Money Won’t Make Us Hire...

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Lowering interest rate and making credit abundant doesn't make employers hire more workers.

The Federal Reserve's policy of targeting unemployment is based on a curious faith that low interest rates and lots of liquidity sloshing around the bank system with magically lead employers to hire more workers. I say this is a curious faith because it makes no sense. In effect, the Fed policy is based on the implicit assumption that the only thing holding entrepreneurs and employers back from hiring is the cost and availability of credit.

But as anyone in the actual position of hiring more staff knows, it is not a lack of cheap credit that makes adding workers unattractive, it is the lack of opportunities to increase profit margins by adding more workers.

If the economic boom of the mid-1980s proves anything, it is that the cost of credit can be very high but that in itself does not restrain real growth. What restrains growth is not interest rates, it is opportunities to profitably expand operations.

What the Fed cannot dare admit is that in a crony-capitalist, globalized, State/cartel-dominated economy, there are few profitable opportunities, regardless of the cost of credit. Yes, there is a natural-gas boom in the Dakotas, but outside of energy plays the harsh reality is that the only way for most businesses to increase profits is reduce labor, not hire more workers.

The second survival tactic is to lower labor costs by recycling full-time, full benefits jobs into part-time or lower-paid jobs. Rather than pay insanely high healthcare premiums on full-time jobs, businesses lay off full-benefit workers and replace them with a mix of part-time workers who receive no benefits or contract workers who handle their own healthcare costs.

There is another way to recycle jobs to reduce costs: fire a $90,000/year employee and hire someone for $60,000 to do the same job. Mish has shown that virtually all the gain in employment since the start of the "recovery" is in the 55+ age group: Startling Look at Job Demographics by Age (Mish)

Older workers often complain that they have been replaced with "cheaper" younger workers who will work for less, but the real trend to is to hire higher-productivity workers for less pay. In most cases, as revealed by the above chart, the older workers are higher productivity for a number of self-evident reasons: they won't take maternity leave, they know their work well and have proven a work ethic that younger workers may not have had the opportunity to prove.

It is difficult to transition to a new career or get a job as an inexperienced worker for the reason that employers want someone who can be productive on Day One. Sadly, it is too costly and risky to take chances with on-the-job training or mentoring; it is lower-risk to find someone who can do the work immediately.

Older workers' healthcare insurance costs are skyhigh, but the solution is to hire older workers as consultants and push the costs of healthcare onto them. In many cases, older workers are covered by a spouse's insurance, so they can afford to take a job that offers no benefits.

The other trend the Fed cannot dare recognize is that cheap credit enables employers to reduce labor by investing in automation and software. If opportunities are scarce (and they are), or if the business is hanging on by a thread, then hiring more employees is the last thing an employer would do to boost productivity: the solution is reduce headcount and invest in tools that make the remaining employees more productive.

We can see this reality in the following charts: full-time employment has returned to levels reached 13 years ago, but median wages are lower, reflecting the "recycling" described above.

Meanwhile, labor's share of the non-farm private economy has fallen off a cliff, along with money velocity, which measures the relative activity of cash and credit:

So exactly what mechanism is the Fed trying to boost with super-low interest rates and massive liquidity (free money) in the banking sector? Answer: push businesses into high-risk ventures.

Federal Reserve Bank of Chicago President Charles Evans: “The investment climate seems to be one where people are increasingly understanding that very low interest rates on super safe assets are going to be around for a while. And if they’re worried by that they need to take on more risk - and taking on that more risk will help get the economy growing.”

In other words, the Fed's policy is to push for more mal-investment. There is no other way to describe the flow of money into risky, marginal ventures.

Note to Fed: there is too much of everything. Too many restaurants, too many apps, too many empty dwellings (19 million at last count), too many malls, too many nail salons. There is too much junk for sale everywhere, from retail outlets to online to jumble/garage sales. The developed world is awash in overcapacity in every sector other than a relative handful of special equipment/services (deep-ocean drilling rigs, etc.)

Pushing businesses to borrow money to gamble in risky ventures is precisely what happened in Japan in the late 1980s. With interest rates low and credit in abundance, bank reps went around to enterprises small and large begging them to borrow money for essentially any reason.

The net result: massive bubbles across asset classes and an overhang of debt that remains 20+ years later, as unpayable now as it was in 1992. That is the result of pushing enterprises into risk-on bets: bubbles and collapses.

What those with access to the Fed's free money--big banks and hedge funds--are doing with the zero-cost credit is invest in rentier skimming operations: buying 5,000 single family homes, buying $1 billion in apartments and homes to rent out, etc.

“It’s hard to find a private-equity firm on the planet that doesn’t have a strategy in this space,” Gary Beasley, chief executive officer at Waypoint Homes, said last week at the American Securitization Forum’s annual conference in Las Vegas. The Oakland, California-based company has bought homes in California, Arizona, Illinois and Georgia.

How many jobs are created by rentier skimming? Very few. Get the houses painted, hire a few handypeople to take care of maintenance and a few people to handle the property management.

The other way to make money with nearly-free credit is to chase risk-on assets, for example stocks. Why would any hedge fund or bank trading desk with easy access to the Fed's free money bother taking risks in the real economy which is burdened with massive over-capacity and sclerotic State-mandated cartels (healthcare, defense, etc.) when the easy money is in chasing assets higher?

How many jobs are created by chasing assets higher? Maybe the Fed thinks that high-end Manhattan restaurants will add staff to handle the influx of new money skimmed from the stock and bond markets, but if they think rentier/speculative skimming is going to add millions of jobs to the economy, they are delusional.

Perhaps if any of the Fed governors had ever operated a real business in the real economy, the board might have a somewhat better grasp on reality.

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Modern Market Alchemy Explained: Converting Junk Debt Into Supersafe Treasurys Out Of Thin Air

When it comes to the actual functioning of capital markets, there is always much confusion within the made for TV punditry for one simple reason: the number of people who truly understand collateral transformation courtesy of the shadow banking system, which until recently was a massive $23 trillion off the books repository of everything the banks did not want you to know about, can be counted on one hand. That certainly would explain the existence of such media trolls as "conscientious" NYT columnists, and various three letter "modern" theories explaining how money would work in a world if only all practical reality was removed.

And while we have previously explained extensively how it is that what actually happens behind the scenes is so very different from what most believe is market reality, especially with our three+ years series on shadow banking, confusion is still rampant. Which is why we hope an extract from Fed Governor Jeremy Stein's speech titled "Overheating in Credit Markets: Origins, Measurement, and Policy Responses", will finally make it sufficiently clear that when it comes to shadow banking collateral transformations, modern day alchemy does in fact work, and one can transmogrify junk bonds into Treasurys with the wave of a magic (yield) wand.

From Stein - extracted from full speech:

The maturity of securities in banks' available-for-sale portfolios is near the upper end of its historical range. This finding is noteworthy on two counts. First, the added interest rate exposure may itself be a meaningful source of risk for the banking sector and should be monitored carefully--especially since existing capital regulation does not explicitly address interest rate risk. And, second, in the spirit of tips of icebergs, the possibility that banks may be reaching for yield in this manner suggests that the same pressure to boost income could be affecting behavior in other, less readily observable parts of their businesses.

The final stop on the tour is something called collateral transformation. This activity has been around in some form for quite a while and does not currently appear to be of a scale that would raise serious concerns--though the available data on it are sketchy at this point. Nevertheless, it deserves to be highlighted because it is exactly the kind of activity where new regulation could create the potential for rapid growth and where we therefore need to be especially watchful.

Collateral transformation is best explained with an example. Imagine an insurance company that wants to engage in a derivatives transaction. To do so, it is required to post collateral with a clearinghouse, and, because the clearinghouse has high standards, the collateral must be "pristine"--that is, it has to be in the form of Treasury securities. However, the insurance company doesn't have any unencumbered Treasury securities available--all it has in unencumbered form are some junk bonds. Here is where the collateral swap comes in. The insurance company might approach a broker-dealer and engage in what is effectively a two-way repo transaction, whereby it gives the dealer its junk bonds as collateral, borrows the Treasury securities, and agrees to unwind the transaction at some point in the future. Now the insurance company can go ahead and pledge the borrowed Treasury securities as collateral for its derivatives trade. 

Of course, the dealer may not have the spare Treasury securities on hand, and so, to obtain them, it may have to engage in the mirror-image transaction with a third party that does--say, a pension fund. Thus, the dealer would, in a second leg, use the junk bonds as collateral to borrow Treasury securities from the pension fund. And why would the pension fund see this transaction as beneficial? Tying back to the theme of reaching for yield, perhaps it is looking to goose its reported returns with the securities-lending income without changing the holdings it reports on its balance sheet.

There are two points worth noting about these transactions. First, they reproduce some of the same unwind risks that would exist had the clearinghouse lowered its own collateral standards in the first place. To see this point, observe that if the junk bonds fall in value, the insurance company will face a margin call on its collateral swap with the dealer. It will therefore have to scale back this swap, which in turn will force it to partially unwind its derivatives trade--just as would happen if it had posted the junk bonds directly to the clearinghouse. Second, the transaction creates additional counterparty exposures--the exposures between the insurance company and the dealer, and between the dealer and the pension fund.

As I said, we don't have evidence to suggest that the volume of such transactions is currently large. But with a variety of new regulatory and institutional initiatives on the horizon that will likely increase the demand for pristine collateral--from the Basel III Liquidity Coverage Ratio, to centralized clearing, to heightened margin requirements for noncleared swaps--there appears to be the potential for rapid growth in this area. Some evidence suggestive of this growth potential is shown in exhibit 8, which is based on responses by a range of dealer firms to the Federal Reserve's Senior Credit Officer Opinion Survey on Dealer Financing Terms. As can be seen, while only a modest fraction of those surveyed reported that they were currently engaged in collateral transformation transactions, a much larger share reported that they had been involved in discussions of prospective transactions with their clients.

Mr. Stein may not have evidence... but we do. Below, direct from the NY Fed, is the total amount of collateral pledged any given month with the NY Fed, courtesy of Tri-Party repo custodian JP Morgan of course:

To summarize: the volume of "such transactions" is currently very large and rising rapidly.

Keep in mind the above is merely the base collateral: one can think of it as SM 0 (or Shadow Money 0). What must be done next is apply a specific "collateral chain" (as explained previously) to get the full level of explicit recycled collateral. The most recent estimate of the average shadow bank collateral chain from Manmohan Singh was 2.5x as of 2011. It is a certainty that this is now back to its 2007 levels of about 3x in net collateral rehypothecation. Which means that just the repo market alone allows market players to create some $6 trillion in credit money out of the Tri-Party repo alone. Add the nearly $2 trillion in hedge fund capital which is then transformed via broker-dealers in the same way, and one gets a whopping $12 trillion in buying power created by, using Stein's extreme example, using worthless collateral and converting it into pristine Treasurys, while promising pennies in front of a steamroller to all the counterparties in the collateral chain.

But wait, there's more.

Because as Matt King explained all too well back in September 2008, when the above alchemy happens, yields are created, trillions in counterparty risk is generated, collateral is transformed and can be used for fingible purchasing purposes and... nothing.

By nothing we mean there is no balance sheet entry!

Thanks to the magic of FAS 140 banks can literally transform worthless garbage into supersafe Treasurys, then use that newly transformed collateral via further repo as cash to fund simple stock purchases, and at the end of the day nobody knows where the exposure came from, who the counterparty is, and what the ultimate liability is!

And that is why in the current market, the Fed has no choice but to keep the music going, because while an unwind of traditional liabilities will result in a maximum collapse of some $13 trillion in conventional financial liabilities, it is the $15-20 trillion in shadow banking exposure which nobody knows about except for the banks themselves (we hope), and which allows banks and hedge funds to literally create purchasing power out of thin air, that once the house of out of control deleveraging cards starts falling, it is truly game over.

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Gold Sentiment Poor Due To Range-Bound Trade and Banks’ Bearish Predictions

Gold is little changed today in pound, euro and dollar terms after the Bank of England and the ECB kept interest rates at record low levels. Ultra loose monetary policies continue.


Gold in Japanese Yen, 4 Day – (Bloomberg)

The ECB kept interest rates at 0.75% and the BOE kept interest rates at 0.5% the lowest level since 1694. The BOE pledged to maintain their ‘stimulus’ or money printing or debt monetisation programmes.

This morning the Japanese yen fell to new record lows against gold on the TOCOM at over 157 million yen per ounce.

Ultra loose monetary policies are set to continue which is bullish for the precious metals.

Mario Draghi’s news conference begins at 1330 GMT and the ECB President could set the course for the single currency. If Draghi’s speech warns about the recent rise in the euro then the euro may fall against the dollar and gold.

Gold's range bound trading between $1,650/oz and $1,700/oz since December continues.


Gold in USD, 2 Year – (Bloomberg)

Physical gold volumes have been quite low in recent days with very few new buyers coming into the market. More clients have been selling than buying in recent days. But the more aware and risk averse money continues to add to their allocations. 

The mix is quite unusual as normally there is a clear bias towards clients selling or buying. On recent years, during gold’s bull market the bias has been towards buying.

Recent technical action has been poor and the short term trend is down and this allied to perceptions that the global economic situation has improved slightly is leading to the preponderance of sellers.

Sellers have also be emboldened by recent bold pronouncements of the end of gold’s bull market – by many of the same banks who never predicted the bull market or advised their clients to own gold in the first place.

Many of the banks, now predicting gold’s bull market will end in 2013, never predicted gold’s bull market in the first place. Most were bearish on gold in the early to mid years of the bull market and most only became bullish quite recently.

Very few have been consistent and very few have been bullish on gold in the long term.

It is also worth noting that most of them do not understand gold and continue to see it as a trade. 

Many of these banks' primary focus is short term profit, often trading profits, and therefore they do not understand the long term, passive diversification benefits of gold in a portfolio or as financial insurance. 

It is also not profitable for them to advise a buy and hold diversification strategy as more prudent advisers have been advising in recent years.  

While sentiment towards gold remains poor after recent weakness, the smart money is focused on the fundamentals and is positioning itself for higher gold prices in the medium term. Soros, Gross, Faber, Rogers, Paulson and other respected investors who predicted the crisis have large allocations which they continue to hold.


Silver in USD, 3 Year – (Bloomberg)

Investors need to be patient, fade out the day to day noise from banks and hedge funds and focus on gold’s value rather than its price movements – particularly in the short term. 

It remains important to focus on the long term diversification benefits of having an allocation to gold, silver, platinum and palladium.

NEWS   
Gold edges up before ECB meets, PGMs near 17-mth highs - Reuters

Gold Rises in Asia, Near-Term Outlook Weak; Precious Metals Lower – The Wall Street Journal

China's 2012 gold output up 12% - Paper - Reuters

Gold vending machine in Florida may be first of many – The Palm Beach Post

COMMENTARY
'Europe's A Fragile Bubble', Citi's Buiter Warns Of Unrealistic Complacency – Zero Hedge

Does China Still Love Gold? – Market Oracle

Video: Horror Bankers Attack – Max Keiser

Video: Goldsmiths put the nation's coins through their paces – The Telegraph

For breaking news and commentary on financial markets and gold, follow us on Twitter.

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Greek Tax Hikes Backfire As Tax Revenues Plunge 16%

There was some hope that Greece, which for the past few months was desperately trying to show it has a primary surplus when in fact it was merely shoving unpaid bills under the rug, was at least getting its runaway deficit situation under control. This, despite what many sensible people pointed out was the return of nearly daily strikes, which meant zero government revenue as zero taxes could be levied on zero wages. Turns out the sensible people were again right, and the Greek and European propaganda machine has failed once more as the Greek Finance Ministry just reported that despite big tax hikes demanded as part of austerity measures by international lenders, tax revenues fell precipitously in January, with the Greek Finance Ministry reporting a 16 percent decrease from a year earlier, and a loss of 775 million euros, or $1.05 billion in one month.

This means that the government took in only €4.05 billion ($5.47 billion) in tax revenues in January, far short of its target of €4.36 billion ($5.89 billion), a $420 million shortfall in one month, which also came during an annual holiday sales period for shops who are bleeding customers and shutting down by the thousands.

It is all downhill from here as the feedback loop of more spending cuts is activated to offset declining revenues, leading to even less revenue, and culminating with the complete collapse of Greek society.

From Greek Reporter:

If Greece fails to meet revenue targets it will trigger a correction clause at the end of each quarter of the year, setting off automatic spending cuts except for pensions and salaries. That could further harm already-depleted government services.

Finance Ministry officials attributed the decline in tax revenues to the drop in consumption, as revenues from Value Added Tax (VAT) shrank by 15 percent, while those from the special consumption taxes were also lower. Greeks hammered by big pay cuts, tax hikes and slashed pensions have cut back spending even on essential items, with supermarket sales falling 500 million euros, ($6763 million) in 2012.

The numbers could have been worse as the government gained revenues from doubled property taxes and big hikes in income taxes that have hit most Greeks except for tax cheats who continue to largely escape sacrifice or prosecution.

This may well be the last straw for a "fixed" Greek crisis - "the only options left for the government is to collect from tax evaders and improve tax collections, although tax hikes have led to many more Greeks trying to hide their income, statistics showed." Of course, nobody could have predicted that too.

The Troika and other EU countries offered to help Greece collect taxes but little interest has been shown by the government. The new General Secretary for State Revenues, Haris Theoharis, plans to meet directors of the 36 biggest tax offices in the country to study ways of collecting expired debts, according to proposals by the country’s creditors and the European Commission’s Task Force for Greece.

Does this mean that paying hedge funds at 50 cents on the dollar on their worthless Greek bonds was not the best idea?

But, but the spin was that if only all Greek debt was converted into zero coupon perpetuals all would be well?

Or maybe they were just referring to Deutsche Bank. As for the Greek population, where everyone is simply doing what they can to survive, which certainly does not mean paying taxes to the government, it is every man, woman and child for themselves.

Finally, one can only hope that the US will learn something from what this terminal collapse of a socialist utopia looks like. Sadly, it won't.

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What It’s Going to Take to Claw Back Middle Class Wealth from the 1%

When unions decline, inequality soars and we all lose.

Photo Credit: Shutterstock.com

February 6, 2013  |  

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If you truly care about economic justice, then you've got to worry about the precipitous decline of labor unions in the United States. Just take a look at these two charts. The first shows the rise and decline of union membership in the private sector from the depths of the Great Depression to today. You can clearly see that unions were a very big deal from the mid-1930s to the early 1980s. By 1953, more than one out of three American workers were members of private sector unions. That means there was a union member in nearly every family.

Through the late 1950s and 1960s, the percentage of union members declined, but the absolute number continued to increase, peaking at nearly 21 million members in 1979, (largely due to the influx of public sector workers during the 1960s and 70s). Then the decline accelerated as the share of union members fell by half between the mid-1970s and the early 1990s. (If we include public employee union members, the current rate is 11.3 percent.)

The second chart traces the share of our national income grabbed by the top one percent of U.S. households. It's basically the inverse of the unionization chart. When unions were at their strongest, inequality was the lowest. In 1928, the top one percent hauled off 23.94 percent of all U.S. income. As unions grew, the income share for the richest dropped to less than 10 percent. And as unions declined, the income share going to the wealthiest shot right back up to 1928 levels.

It's not a coincidence. When unions are strong, they bargain for higher wages and benefits. At the same time, non-union employers increase wages and benefits to attract qualified workers and prevent unions from coming in. Also, unions work for legislation that benefits middle- and low-income people (unemployment benefits, minimum wage, progressive taxation, Medicare, Medicaid, Social Security etc.). Overall, those efforts shift income from the top to the middle and bottom of the income ladder. (For more information on inequality, please see my new book, How to Make a Million Dollars an Hour: Why Hedge Funds Get Away with Siphoning Off America's Wealth ).

What Happened to Unions?

While working with the labor movement over the past 35 years, I've heard myriad explanations for the decline: unions are not democratic enough; they don't know how to organize the community; they're victims of globalization; they are too bureaucratic; they don't work hard enough in politics; they don't embrace young people and minorities...and so on. While many of these problems are real, I don't believe they explain what's really going on -- namely that unions and the rest of us are on the losing side of a gigantic class war.

The top one percent understands that unions are the only institution in America that stands in the way of the rich getting richer. As a result, the assault on unions has been deliberate and merciless. Step by step, labor laws have been weakened so that organizing new members has become nearly impossible. For example, employees get fired right and left for organizing activities in violation of labor law. But, employers are rarely charged by the National Labor Relations Board. And when they are, the only penalty is that the discharged workers get back their jobs and back-wages -- minus what they earned in the meantime.

Republican-dominated state governments are attacking public employee unions and further weakening labor protections. Almost every day we see laws proposed that would weaken the ability of unions to engage in political action. The goal is clear -- zero percent unionization.

A Few Good (and Fair) Tax Hikes

While the New Year’s deficit deal divided congressional Republicans, there’s one point on which they’re all reading from the same hymnal: No more tax talk! The revenues under the deal are relatively modest—they leave rich people’s taxes Protestors in support of a Robin Hood tax. (Photo: Martin Argles /Observer)well short of Clinton era rates. But Republicans, while claiming to care deeply about the deficit, have locked arms to take further tax increases off the table. We can’t let them.

The truth is, we could do our economy a world of good with some smart and fair tax hikes. While the current deficit hysteria is unmoored from reality, the right tax hikes could improve economic incentives, reduce obscene inequality and fund much-needed programs. Rather than the usual dust-ups over competing flavors of austerity, our budget debate should have healthy tax hikes front and center.

To start with, Congress should listen to Sarah Anderson, who directs the Global Economy Project at the Institute for Policy Studies. As Anderson noted at The Huffington Post last week, while progressive taxation may appear an uphill battle, politics is fluid, and “Openings will come…. The even more important challenge is to push progressive reforms into the center of the debate so they get plucked when the stars are aligned.”

Anderson has a few good taxes in mind to start with. First: Close the carried-interest loophole, so that money made by managing private equity or hedge funds no longer gets preferential treatment over wages earned by teaching kids or mining coal (President Obama offered welcome support for this change in his Super Bowl Sunday interview). Second: Cap executive pay deductibility, so that calling obscene bonuses “performance-based” no longer lets them be easily exempted from taxation. Third: Tax financial transactions, so bad behavior can be discouraged, and the people who crashed the economy can be required to pay for the cost of recovery. And fourth: Shut down offshore tax haven loopholes, so our tax code stops seducing money away from America.

Each of these tax changes would be a victory for the 99 percent, and a step towards economy sanity. We have a long way to go. As Oxfam International wrote in a briefing published last month, the world’s 100 richest billionaires alone last year made four times as much money as it would have taken to end extreme poverty. While “great progress” has been made in the fight to improve the lives of the world’s poorest, Oxfam warns, “as we look to the next decade, and new development goals we need to define progress, we must demonstrate that we are also tackling inequality—and that means looking at not just the poorest but the richest…. In a world of finite resources, we cannot end poverty unless we reduce income inequality.”

The Republican Party will pull out all the stops to avert any progress on taxes. But as House Ways and Means Committee Chair Dave Camp reminded us last month, even GOP congressmen know that taxing the wealthiest is politically popular. GOP sources told The Huffington Post’s Ryan Grim and Zach Carter that Camp is considering legislation that could transform the tax treatment of derivatives, discouraging extreme risk-taking and recouping little-taxed profit. Ironically, Grim and Carter’s sources suggested that the bill was motivated by payback: Camp resented top CEOs for supporting the (quite conservative) Fix the Debt in calling for a Grand Bargain, rather than taking the Grover Norquist line and refusing to entertain any tax increases at all. But if true, the story is telling: It shows that Republicans know that their CEO friends are depending on them to shield them from reasonable taxation, and that the top 1 percent are vulnerable to public outrage if a true tax debate breaks out.

That’s the debate we need now. It’s time for a few good tax hikes.

© 2013 The Nation

Katrina vanden Heuvel

Katrina vanden Heuvel is editor of The Nation.

A Few Good (and Fair) Tax Hikes

While the New Year’s deficit deal divided congressional Republicans, there’s one point on which they’re all reading from the same hymnal: No more tax talk! The revenues under the deal are relatively modest—they leave rich people’s taxes Protestors in support of a Robin Hood tax. (Photo: Martin Argles /Observer)well short of Clinton era rates. But Republicans, while claiming to care deeply about the deficit, have locked arms to take further tax increases off the table. We can’t let them.

The truth is, we could do our economy a world of good with some smart and fair tax hikes. While the current deficit hysteria is unmoored from reality, the right tax hikes could improve economic incentives, reduce obscene inequality and fund much-needed programs. Rather than the usual dust-ups over competing flavors of austerity, our budget debate should have healthy tax hikes front and center.

To start with, Congress should listen to Sarah Anderson, who directs the Global Economy Project at the Institute for Policy Studies. As Anderson noted at The Huffington Post last week, while progressive taxation may appear an uphill battle, politics is fluid, and “Openings will come…. The even more important challenge is to push progressive reforms into the center of the debate so they get plucked when the stars are aligned.”

Anderson has a few good taxes in mind to start with. First: Close the carried-interest loophole, so that money made by managing private equity or hedge funds no longer gets preferential treatment over wages earned by teaching kids or mining coal (President Obama offered welcome support for this change in his Super Bowl Sunday interview). Second: Cap executive pay deductibility, so that calling obscene bonuses “performance-based” no longer lets them be easily exempted from taxation. Third: Tax financial transactions, so bad behavior can be discouraged, and the people who crashed the economy can be required to pay for the cost of recovery. And fourth: Shut down offshore tax haven loopholes, so our tax code stops seducing money away from America.

Each of these tax changes would be a victory for the 99 percent, and a step towards economy sanity. We have a long way to go. As Oxfam International wrote in a briefing published last month, the world’s 100 richest billionaires alone last year made four times as much money as it would have taken to end extreme poverty. While “great progress” has been made in the fight to improve the lives of the world’s poorest, Oxfam warns, “as we look to the next decade, and new development goals we need to define progress, we must demonstrate that we are also tackling inequality—and that means looking at not just the poorest but the richest…. In a world of finite resources, we cannot end poverty unless we reduce income inequality.”

The Republican Party will pull out all the stops to avert any progress on taxes. But as House Ways and Means Committee Chair Dave Camp reminded us last month, even GOP congressmen know that taxing the wealthiest is politically popular. GOP sources told The Huffington Post’s Ryan Grim and Zach Carter that Camp is considering legislation that could transform the tax treatment of derivatives, discouraging extreme risk-taking and recouping little-taxed profit. Ironically, Grim and Carter’s sources suggested that the bill was motivated by payback: Camp resented top CEOs for supporting the (quite conservative) Fix the Debt in calling for a Grand Bargain, rather than taking the Grover Norquist line and refusing to entertain any tax increases at all. But if true, the story is telling: It shows that Republicans know that their CEO friends are depending on them to shield them from reasonable taxation, and that the top 1 percent are vulnerable to public outrage if a true tax debate breaks out.

That’s the debate we need now. It’s time for a few good tax hikes.

© 2013 The Nation

Katrina vanden Heuvel

Katrina vanden Heuvel is editor of The Nation.

Frontrunning: February 4

  • Euro Tremors Risk Market Respite on Spain-Italy, Banks (Bloomberg)
  • Obama Says U.S. Needs Revenue Along With Spending Cuts (Bloomberg
  • China Regulators Moved to Restrain Lending (WSJ)
  • Low Rates Force Companies to Pour Cash Into Pensions (WSJ)
  • JAL wants to discuss 787 grounding compensation with Boeing (Reuters)
  • Abe Shortens List for BOJ Chief as Japan Faces Monetary Overhaul (Bloomberg)
  • Monte Paschi probe to widen as Italian election nears (Reuters)
  • Hedge funds up bets against Italy's Monte Paschi (Reuters)
  • Spain's opposition Socialists tell Rajoy to resign (Reuters)
  • Electric cars head toward another dead end (Reuters)
  • BlackRock Sued by Funds Over Securities Lending Fees (Bloomberg)
  • Amplats plunges to an annual loss (FT)
  • Youngest American Woman Billionaire Found With In-N-Out (Bloomberg)

Overnight Media Digest

WSJ

* The Baltimore Ravens survived a 35-minute blackout and a fierce comeback from San Francisco to win the Super Bowl.

* The U.S. is fighting Anheuser-Busch InBev's acquisition proposal for Grupo Modelo with a game plan developed in earlier antitrust cases, casting the Budweiser brewer as a dominant player that wants to eliminate a scrappy rival.

* U.K. Treasury chief George Osborne on Monday will announce new powers for regulators to split up banks that flout rules designed to ring-fence retail banking from riskier investment-banking activity.

* Two top Barclays Plc executives announced their resignations Sunday, as the giant British bank swept out some of the last vestiges of its scandal-plagued prior management team.

* U.S. regulators on Monday will mandate enhanced inspections and repairs where necessary to cables that control tail surfaces on about 30,000 Piper aircraft, some of the most popular general-aviation planes sold in the United States.

* The European Union has asked national bank regulators in the 27-nation bloc to explain policies that may be preventing free flows of funds across national borders, the first public step in a campaign by EU authorities to combat fragmentation of the region's financial markets.

* Boeing Co is expected to begin piecing together the next version of its Dreamliner jet in the coming weeks, even without a fix for what has bedeviled the plane's electrical system or a timetable for resuming flights.

FT

EUROPEAN BANK BONUSES FACE 20 PCT CUT - European investment banks are set to cut their bonus pools in the coming weeks by 20 percent in a move that will exacerbate the pay gap with their US rivals.

BLACKSTONE SECURES UNDERWRITING LICENCE - Blackstone, one of the world's largest alternative asset managers, has quietly secured a securities underwriting licence as its expanding capital markets operation strays into investment banking territory.

BARCLAYS FINANCE CHIEF TO STEP DOWN - Chris Lucas, Barclays' finance director since 2007, and Mark Harding, general counsel, are to step down, in the latest sign of the pressure piling on the British bank's top management following a string of scandals and a probe into the lender's capital raising efforts during the financial crisis. AB INBEV TO FIGHT DOJ MOVE OVER MODELO - Anheuser-Busch InBev has signalled it intends to fight a Department of Justice lawsuit seeking to block its $20 billion deal to take full control of Modelo, the Mexican brewer.

CITIGROUP STARTS SENIOR HIRING AMID CUTS - Citigroup has hired one of Europe's best-known dealmakers as the US group seeks to add a string of top investment bankers even as it is sharply reducing junior staff. Luigi de Vecchi, a former Credit Suisse and Goldman Sachs banker, has been appointed as chairman for corporate and investment banking in continental Europe, the US bank will announce on Monday. APPLE REVERSES STANCE ON VOTING REFORM - Apple has sought the help of one of the sharpest critics of its corporate governance policies to push through reforms on shareholder voting rights at its annual meeting this month. The technology giant has enlisted the aid of Calpers, the largest US pension fund, to lobby other big shareholders on the vote.

TRAFIGURA BETS $800M ON AUSTRALIA ENERGY - Trafigura, one of the world's largest commodities trading houses, has bet roughly $800 million on the transformation of the Australian energy market with the acquisition of two petrol station and oil import terminal companies. BUYOUT GROUPS EXPLORE PROSIEBEN EXIT - KKR and Primera, the private equity owners of ProsiebenSat.1, are exploring a sale of their controlling stake in Germany's largest private broadcaster to a trade buyer, as they look to cash out from a multi-billion euro leveraged buyout done before the financial crisis.

SIR STUART TO BECOME FAT FACE CHAIRMAN - Sir Stuart Rose, the high profile former Marks and Spencer boss who last month took on the chairmanship of online grocery company Ocado , is adding UK clothing retailer Fat Face to his jobs portfolio.

CENTRICA SET FOR 'NEW NUCLEAR' EXIT - Centrica, owner of British Gas, is believed to be ready to pull out of plans to build nuclear power stations in Britain, clearing the way for Chinese investors to step in.

NYT

* About 90 seconds into the second half of Sunday's Super Bowl, the lights on one half of the Superdome's roof suddenly went out, internet connections in the press box were cut, and the scoreboards went dark. The power failure was one of the oddest moments in Super Bowl history, and officials said they were still investigating its cause.

* U.S. President Obama said on Sunday that he could foresee a budget deal in Congress that did not include further increases in tax rates but instead focused on eliminating loopholes and deductions.

* Barclays Plc said its chief financial officer and its general counsel would resign, the latest departures after the British bank's involvement in a series of scandals, including an investigation into the manipulation of global interest rates.

* Bank of America Corp continued dubious mortgage modification practices even after its acquisition of Countrywide, court documents show.

* New details raise questions on whether the U.S. government will be able to build its insider trading case against Steven Cohen, the billionaire owner of hedge fund SAC Capital Advisors.

* The Medicines Co is licensing the rights to a powerful type of cholesterol-lowering drug from Alnylam Pharmaceuticals Inc, entering one of the hottest races in the industry.

Canada

THE GLOBE AND MAIL

* Prime Minister Stephen Harper has categorically rejected Quebec's demands for changes to tough new employment insurance rules that Premier Pauline Marois says will have "dramatic consequences" on seasonal workers in her province.

* As Canada prepares to take the helm of the eight-nation Arctic Council, a proposed treaty dealing with blowouts and oil spills is being criticized as so pro-development that it will delight drillers but leave the fragile Arctic environment exposed to catastrophic damage, according to Greenpeace Canada.

Reports in the business section:

* Canada's most ubiquitous coin will play a dwindling part in everyday business beginning Sunday, as Ottawa phases it out to cut costs. The passing of the penny will affect the full spectrum of the nation's economy, from big banks to the corner store - forcing businesses and consumers to change some of their habits.

NATIONAL POST

* A winter storm is dumping heavy snow on Eastern Canada, with more than 30 centimeters expected in parts of Nova Scotia by Monday afternoon. Environment Canada has issued snowfall warnings for the Halifax area and along the southwestern coast of the province.

* Police say a mob-linked multi-million dollar illegal gambling ring was dismantled Sunday night when heavily armed tactical teams raided a massive Super Bowl party in Markham, Ontario.

FINANCIAL POST

* The Supreme Court of Canada on Friday struck a blow to workers and retirees who want pension plans to rank first in line for payouts to creditors in corporate bankruptcies or restructurings.

In the landmark case, Sun Indalex Finance LLC vs United Steelworkers et al., the court found that pension funds do not rank ahead of "debtor-in-possession" (DIP) lenders in bankruptcy protection proceedings.

China

PEOPLE'S DAILY

-- A commentary urges government departments to stop using public money during the Chinese lunar new year, which falls on Feb. 10 this year, as part of a government campaign to fight official corruption.

SHANGHAI SECURITIES NEWS

-- The recent lingering pollution in Beijing and some other northern cities is expected to force Chinese refineries to upgrade the quality of fuel and gasoline.

-- The government campaign to fight official corruption has caused share prices of alcohol producers to drop in recent weeks. Alcohol is widely used in public entertainment in China, and investors believe the campaign will reduce consumption of alcohol and thus weaken earnings of producers.

CHINA SECURITIES JOURNAL

-- As China's stock market has staged a strong rally since early December, the ratio of stock holdings by domestic mutual funds has now reached a high level of 89.53 percent among all their securities holdings.

-- A commentary says China needs to expand overseas investment to make better use of its big foreign trade surplus.

CHINA DAILY (www.chinadaily.com.cn)

-- An increasing number of Chinese people are realising the value of Internet domain names. Those who manage to buy good names can make a lot of money. By the end of 2012, China had 13.4 million domain names registered in the country, a 73.1 percent increase from a year earlier.

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

BlackBerry (BBRY) upgraded to Outperform from Market Perform at Bernstein
Franklin Resources (BEN) upgraded to Outperform from Market Perform at Keefe Bruyette
Maxwell (MXWL) upgraded to Overweight from Neutral at Piper Jaffray
Mead Johnson (MJN) upgraded to Conviction Buy from Neutral at Goldman
St. Jude Medical (STJ)  upgraded to Outperform from Neutral at Credit Suisse
Timken (TKR) upgraded to Buy from Neutral at BofA/Merrill
Ultra Clean (UCTT) upgraded to Buy from Hold at Needham
Western Union (WU) upgraded to Buy from Hold at Deutsche Bank

Downgrades

AkzoNobel (AKZOY) downgraded to Reduce from Neutral at Nomura
Cash America (CSH) downgraded to Neutral from Buy at Janney Capital
Charles Schwab (SCHW) downgraded to Neutral from Buy at UBS
Chevron (CVX) downgraded to Neutral from Buy at UBS
Columbia Sportswear (COLM) downgraded to Sell from Neutral at Citigroup
Comfort Systems USA (FIX) downgraded to Hold from Buy at BB&T
Copart (CPRT) downgraded to Neutral from Outperform at RW Baird
Google (GOOG) downgraded to Market Perform from Outperform at BMO Capital
Hershey (HSY) downgraded to Neutral from Conviction Buy at Goldman
LeapFrog (LF) downgraded to Buy from Strong Buy at Ascendiant Capital
Merck (MRK) downgraded to Underweight from Equal Weight at Morgan Stanley
Michael Baker (BKR) downgraded to Hold from Buy at KeyBanc
PennyMac (PMT) downgraded to Market Perform from Outperform at Keefe Bruyette
Vodafone (VOD) downgraded to Neutral from Buy at Citigroup
WESCO (WCC) downgraded to Neutral from Buy at UBS
WSFS Financial (WSFS) downgraded to Neutral from Buy at Janney Capital
Wal-Mart (WMT) downgraded to Neutral from Overweight at JPMorgan

Initiations

CEMEX (CX) coverage reinstated with a Neutral at Citigroup
Dover (DOV) initiated with a Buy at Ascendiant Capital
Fusion-io (FIO) initiated with a Neutral at UBS

HOT STOCKS

Aegon (AEG) ended joint venture with Unnim Banc, sells stake for EUR 353M
US Airways' (LCC) Piedmont Airlines and ALPA reached tentative agreement
American Safety Insurance (ASI) rating revised to negative from stable at A.M. Best
Third Point sold a portion of holdings in Yahoo (YHOO)
Commerzbank (CRZBY) sees employee cuts of 4,000 to 6,000 through 2016
Blackstone (BX) acquired stake in two Maldives-based seaplane operators
Cowen Group (COWN) to acquire Dahlman Rose, terms not disclosed

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
HomeStreet (HMST), Humana (HUM), Sohu.com (SOHU), Changyou.com (CYOU), Brown & Brown (BRO)

Companies that missed consensus earnings expectations include:
Eloqua (ELOQ), Cape Bancorp (CBNJ), First Bancorp (FBNC)

NEWSPAPERS/WEBSITES

  • Ford (F) expects to spend $5B this year shoring up its pension funds. The automaker is one of a who's who of U.S. companies pouring cash into pension plans now being battered by record low interest rates, the Wall Street Journal reports
  • Google (GOOG), Microsoft (MSFT) and Amazon.com (AMZN) have battled each other for dominance in mobile gadgets and Web searches. The latest front in their war is invisible: computing horsepower, the Wall Street Journal reports
  • Japan Airlines Co. said it will talk to Boeing (BA) about compensation for the grounding of the 787 Dreamliner, adding that the idling of its jets would cost it about $8M from its earnings through to the end of March, Reuters reports
  • Recent moves by Japan's two largest automakers, Toyota (TM) and Nissan (NSANY), suggest that the electric car, after more than 100 years of development and several brief revivals, still is not ready for prime time, and may never be, Reuters reports
  • Investment returns earned by “mega” public pensions, with assets of more than $5B, topped those of the smaller plans by almost 1% last year. Big government-employee pensions reported median returns of 13.43% for the year. Funds with less than $1B in assets had median returns of 12.47%, according to Wilshire Associates, Bloomberg reports
  • Stocks in the world’s developed nations posted the best start to a year in two decades, a sign the global economy is poised to accelerate after contractions in Japan, the U.S. and Europe, if history is a guide. The MSCI World Index of stocks in 24 markets gained 5% in January, the most since 1994, Bloomberg reports

BARRON’S

Tata Motors (TTM) could offer a 25% upside within the next 18 months
SanDisk (SNDK) could rise 20% due to increased use of flash memory
GulfMark Offshore (GLF) stock could rise 30% or higher this year
BlackBerry's (RIMM, BBRY) 10 provides hope to Research in Motion
An increase in buyers and sellers will drive Amazon's (AMZN) stock

SYNDICATE

NXP Semiconductors (NXPI) files to sell 30M shares of common stock for holders
PURE Bioscience (PURE) files to sell $15M of common stock
Qualstar (QBAK) files to sell 530K shares of common stock for holders
U.S. Silica (SLCA) files to sell 41.17M shares of common stock for holders

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Youth in Revolt

Youth in Revolt

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Posted on Feb 2, 2013
Paradigm Publishers

This following is the introduction to Henry A. Giroux’s new book, “Youth in Revolt” (Paradigm Publishers, 2012). It is reprinted here with permission from the author.

Military-style command and control systems are now be­ing established to support “zero tolerance” policing and urban surveillance practices designed to exclude failed consumers or undesirable persons from the new enclaves of urban consumption and leisure.
—Stephen Graham

Young people are demonstrating all over the world against a variety of issues ranging from economic injustice and massive inequality to drastic cuts in education and public services.[1] In the fall of 2011, on the tenth anniversary of September 11, as the United States revisited the tragic loss and celebrated the courage displayed on that torturous day, another kind of commemoration took place. The Occupy movement shone out like flame in the darkness—a beacon of the irrepressible spirit of democracy and a humane desire for justice. Unfortunately, the peacefully organized protests across America have often been met with derogatory commentaries in the mainstream media and, increasingly, state-sanctioned violence. The war against society has become a war against youthful protesters and in­creasingly bears a striking resemblance to the violence waged against Occupy movement protesters and the violence associ­ated with the contemporary war zone.[2] Missing from both the dominant media and state and national politics is an attempt to critically engage the issues the protesters are raising, not to mention any attempt to dialogue with them over their strate­gies, tactics, and political concerns. That many young people have become “a new class of stateless individuals ... cast into a threatening and faceless mass whose identities collapse into the language of debt, survival, and disposability” appears to have escaped the attention of the mainstream media.[3] Matters of justice, human dignity, and social responsibility have given way to a double gesture that seeks to undercut democratic public spheres through the criminalization of dissent while also resorting to crude and violent forms of punishment as the only mediating tools to use with young people who are at­tempting to open a new conversation about politics, inequality, and social justice.

In the United States, the state monopoly on the use of violence has intensified since the 1980s and in the process has been di­rected disproportionately against young people, poor minorities, immigrants, women, and the elderly. Guided by the notion that unregulated, market-driven values and relations should shape every domain of human life, a business model of governance has eviscerated any viable notion of social responsibility and conscience, thereby furthering the dismissal of social problems and expanding cutbacks in basic social services.[4] The examples are endless, but one in particular stands out. In March 2012, Texas governor Rick Perry joined eight other states in passing legislation to ban funding for clinics, including Planned Parent­hood facilities, affiliated with abortion services for women.[5] As a result, the federal government has stopped funding the Texas Women’s Health Program. Unfortunately, this attempt by Perry to punish all women because of his antiabortion stance means that more than 130,000 women in Texas will not have access to vital services ranging from mammograms to health care for their children. There is more at work here than a resurgent war on women and their children or “an insane bout of mass misogyny.”[6] There is also a deep-seated religious and political authoritarianism that has become one of the fundamental pil­lars of what I call a neoliberal culture of cruelty. As the welfare state is hollowed out. a culture of compassion is replaced by a culture of violence, cruelty, waste, and disposability.[7] Banks, hedge funds, and finance capital as the contemporary registers of class power have a new visibility, and their spokespersons are unabashedly blunt in supporting a corporate culture in which “ruthlessness is prized and money is the ultimate measure.”[8] Collective insurance policies and social protections have given way to the forces of economic deregulation, the transformation of the welfare state into punitive workfare programs, the privatiza­tion of public goods, and an appeal to individual culpability as a substitute for civic responsibility. At the same time, violence—or what Anne-Marie Cusac calls “American punishment”—travels from our prisons and schools to various aspects of our daily lives, “becoming omnipresent ... [from] the shows we watch on television, [to] the way many of us treat children [to] some influential religious practices.”[9]

David Harvey has argued that neoliberalism is “a political proj­ect to re-establish the conditions for capital accumulation and to restore the power of economic elites” through the implementation of “an institutional framework characterized by strong private property rights, free markets, and free trade.”[10] Neoliberalism is also a pedagogical project designed to create particular subjects, desires, and values defined largely by market considerations. National destiny becomes linked to a market-driven logic in which freedom is stripped down to freedom from government regulation, freedom to consume, and freedom to say anything one wants, regardless of how racist or toxic the consequences might be. This neoliberal notion of freedom is abstracted from any sense of civic responsibility or social cost. In fact, “neoliberalism is grounded in the idea of the ‘free, possessive individual,’” with the state cast “as tyrannical and oppressive.”[11] The welfare state, in particular, becomes the archenemy of freedom. As Stuart Hall points out, according to apostles of free-market fundamentalism, ‘The state must never govern society, dictate to free individuals how to dispose of their private property, regulate a free-market economy or interfere with the God-given right to make profits and amass personal wealth.”[12]

Paradoxically, neoliberalism severely proscribes any vestige of social and civic agency through the figure of the isolated automaton for whom choice is reduced to the practice of end­less shopping, fleeing from any sense of civic obligation, and safeguarding a radically individualized existence. Neoliberal governance translates into a state that attempts to substitute individual security for social welfare but in doing so offers only the protection of gated communities for the privileged and incarceration for those considered flawed consumers or threats to the mythic ideal of a white Christian nation. Neoliberalism refuses to recognize how private troubles are connected to broader systemic issues, legitimating instead an ode to self-reliance in which the experience of personal misfortune becomes merely the just desserts delivered by the righteous hand of the free market—not a pernicious outcome of the social order being hijacked by an antisocial ruling elite and forced to serve a narrow set of interests. Critical thought and human agency are rendered impotent as neoliberal rationality “substitutes emotional and personal vocabularies for political ones in formulating solutions to political problems.”[13] Within such a depoliticized discourse, youths are told that there is no dream of the collective, no viable social bonds, only the ac­tions of autonomous individuals who must rely on their own resources and who bear sole responsibility for the effects of larger systemic political and economic problems.

Under the regime of neoliberalism, no claims are recognized that call for compassion, justice, and social responsibility. No claims are recognized that demand youths have a future better than the present, and no claims are recognized in which young people assert the need to narrate themselves as part of a broader struggle for global justice and radical democracy. Parading as a species of democracy, neoliberal economics and ideology cancel out democracy “as the incommensurable sharing of existence that makes the political possible.”[14] Symptoms of ethical, politi­cal, and economic impoverishment are all around us. And, as if that were not enough, at the current moment in history we are witnessing the merging of violence and governance along with a systemic disinvestment in and breakdown of institutions and public spheres that have provided the minimal conditions for democracy and the principles of communal responsibil­ity. Young people are particularly vulnerable. As Jean-Marie Durand points out, “Youth is no longer considered the world’s future, but as a threat to its present. [For] youth, there is no longer any political discourse except for a disciplinary one.”[15]

As young people make diverse claims on the promise of a radical democracy in the streets, on campuses, and at other occupied sites, articulating what a fair and just world might be, they are treated as criminal populations—rogue groups incapable of toeing the line, “prone to irrational, intemperate and unpredictable” behavior.[16] Moreover, they are increasingly subjected to orchestrated modes of control and containment, if not police violence. Such youths are now viewed as the enemy by the political and corporate establishment because they make visible the repressed images of the common good and the impor­tance of democratic public spheres, public services, the social state, and a society shaped by democratic values rather than market values. Youthful protesters and others are reclaiming the repressed memories of the Good Society and a social state that once, as Zygmunt Bauman has pointed out, “endorsed collective insurance against individual misfortune and its consequences.”[17] Bauman explains that such a state “lifts members of society to the status of citizens—that is, makes them stake-holders in addition to being stock-holders, beneficiaries but also actors responsible for the benefits’ creation and availability, individuals with acute interest in the common good understood as the shared institutions that can be trusted to assure solidity and reliability of the state-issued ‘collective insurance policy.’”[18] In an attempt to excavate the repressed memories of the welfare state, David Theo Goldberg spells out in detail the specific mechanisms and policies it produced in the name of the general welfare between the 1930s and 1970s in the United States. He writes,

From the 1930s through the 1970s, the liberal democratic state had offered a more or less robust set of institutional appara­tuses concerned in principle at least to advance the welfare of its citizens. This was the period of advancing social security, welfare safety nets, various forms of national health system, the expansion of and investment in public education, including higher education, in some states to the exclusion of private and religiously sponsored educational institutions. It saw the emer­gence of state bureaucracies as major employers especially in later years of historically excluded groups. And all this, in turn, offered optimism among a growing proportion of the populace for access to middle-class amenities, including those previously racially excluded within the state and new immigrants from the global south.[19]

Young people today are protesting against a strengthening global capitalist project that erases the benefits of the welfare state and the possibility of a radical notion of democracy. They are protesting against a neoliberal project of accumulation, dispossession, deregulation, privatization, and commodification that leaves them out of any viable notion of the future. They are rejecting and resisting a form of casino capitalism that has ushered in a permanent revolution marked by a massive project of depoliticization, on the one hand, and an aggressive, if not savage, practice of distributing upward wealth, income, and op­portunity for the 1 percent on the other. Under neoliberalism, every moment, space, practice, and social relation offers the possibility of financial investment, or what Ernst Bloch once called the “swindle of fulfillment.”[20] Goods, services, and targeted human beings are ingested into its waste machine and dismissed and disposed of as excess. Flawed consumers are now assigned the status of damaged and defective human beings. Resistance to such oppressive policies and practices does not come easily, and many young people are paying a price for such resistance. According to OccupyArrests.com, “there have been at least 6705 arrests in over 112 different cities as of March 6, 2012.”[21]

Occupy movement protests and state-sponsored violence “have become a mirror”—and I would add a defining feature—“of the contemporary state.”[22] Abandoned by the existing political system, young people in Oakland, California, New York City, and numerous other cities have placed their bodies on the line, protesting peacefully while trying to produce a new language, politics, and “community that manifests the values of equality and mutual respect that they see missing in a world that is structured by neoliberal principles.”[23] Well aware that the spaces, sites, and spheres for the representation of their voices, desires, and concerns have collapsed, they have occupied a number of spaces ranging from public parks to college campuses in an effort to create a public forum where they can narrate themselves and their visions of the future while representing the misfortunes, suffering, and hopes of the unemployed, poor, incarcerated, and marginalized. This movement is not simply about reclaiming space but also about producing new ideas, generating a new conversation, and introducing a new political language.

Rejecting the notion that democracy and markets are the same, young people are calling for the termination of corporate control over the commanding institutions of politics, culture, and economics, an end to the suppression of dissent, and a shutting down of the permanent warfare state. Richard Lichtman is right to insist that the Occupy movement should be praised for its embrace of communal democracy as well as an emerging set of shared concerns, principles, and values articulated “by a demand for equality, or, at the very least, for a significant lessening of the horrid extent of inequality; for a working democracy; for the elimination of the moneyed foun­dation of politics; for the abolition of political domination by a dehumanized plutocracy; for the replacement of ubiquitous commodification by the reciprocal recognition of humanity in the actions of its agents.”[24] As Arundhati Roy points out, what connects the protests in the United States to resistance move­ments all over the globe is that young people “know that their being excluded from the obscene amassing of wealth of U.S. corporations is part of the same system of the exclusion and war that is being waged by these corporations in places like India, Africa, and the Middle East.”[25] Of course, Lichtman, Roy, and others believe that this is just the beginning of a movement and that much needs to be done, as Staughton Lynd argues, to build new strategies, a vast network of new institutions and public spheres, a community of trust, and political organiza­tion that invites poor people into its ranks.[26] Stanley Aronowitz goes further and insists that the Occupy movement needs to bring together the fight for economic equality and security with the task of reshaping American institutions along genuinely democratic lines.[27]

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“We Are Doneski Gorgeous!” – How Bond Trading On Wall Street Really Works

For many years one of the best jobs on Wall Street in terms of a mix of job safety and compensation, was to be a fixed income trader-cum-salesman working for a major bank with a deep balance sheet, which could hold illiquid securities on its prop account, to dispose of as the "flow" (or clients) required, and on unsupervised and unregulated terms that were simply a verbal arrangement between the bank trader and the end client, usually a counterparty trader working for a major institutional buyside shop, including mutual or hedge funds.

Since for the most part, the buyside traders operated with other people's money, they were largely indiscriminate on the fine pricing nuances of the acquisition (or disposition) of the securities at hand, and while to the "other people's money" under management whether a given bond was bought for 55 or 55.75, or a given MBS was sold for 72-6 or 72-16 meant little (after all the trade was driven by a big picture view that the security would go up or down much more and certainly enough to cover the bid/ask spread, resulting in much larger profits upon unwind), the transaction price had a huge impact for the bank traders-cum-salesmen arranging said deals. Because when one is selling a $40 million MBS block, a 1 point price swing equals a difference of $400,000. Make 15 such deals per year, and one's $1,000,000 bonus (assuming a ~15% cut on the profits) is in the bag.

It wasn't necessarily an easy job - it required an extensive rolodex, a keen ear for who held what securities in one's given space, constant schmoozing, and manning the phones constantly. More importantly, everyone knew how the game is played: everyone knew that the middlemen would usually skim a few basis points on the top or bottom of the bid-ask spread, in exchange for having the first call the next time a juicy security was being shopped around, or whenever one had to offload some debt in a hurry.

Keep in mind this type of trading of OTC (Over The Counter) instruments, which included and still includes most corporate bonds, Credit Default Swaps and all other derivatives, Mortgage Backed Securities, Bank Loans, Bankruptcy Claims, and other blocky piece of paper, was always vastly different from equity trading where every trade was electronically recorded, where the bid/ask spreads were negligible due to infinite competition for every trade, yet which ultimately led to the advent of such robotic predators as High Frequency Trading algorithms which do at the micro scale what the old equity specialist and current bond salesman/trader do at the macro level. In short: the highly lucrative and extremely profitable bid/ask skimming that every bond trader engaged in for years has been impossible in equities for the simple reason that the bid/ask spread on most equity-related securities is minute and the market is far deeper and (at least used to be) far more liquid.

It also explains why 4 years after the Great Financial Crisis, there is still no centralized, computerized trading portal for OTC trades, including corps, CDS, loans, etc. Doing so would mean that the banks would give up billions in additional commissions that they could charge if all such trades were facilitiated by the kind of sales coverage middlemen described above. Because while a salesman was incentivized to peel as much as they could of a given trade, they would at best pocket some 10-15% of the total spread. The rest went to the bank, and thus to management in the form a massive bonuses: comp at banks is not 40% of revenue for nothing, with some money left over for "retained earnings."

But back to the credit traders which for years had built up their reputations in given product verticals, and which had a coverage of fiercely guarded clients, which no other salesmen at a given firm were allowed to converse with. Now was it well-known that salesguy X would pick an additional 50 bps on top of the price being quoted? Sure. After all, someone had to pay for those weekly trips to the Hustler Club, and that's precisely what the Salesmen did. And who really cared about a little vig? Remember - it was all being down with "other people's money."

Well, the days of rampant skimming on top of the bid/ask spread, and with them record bonuses for bond traders and salesmen, may just ended with a whimper not a bang, and all bond traders hoping to make millions by misrepresenting what the true purchase or sale prices are to buysider clients, even if completely voluntary on both sides, may want to seek employment elsewhere.

They have Jesse Litvak to thank for it. 

Jesse is a former MBS trader from Jefferies, who got just a little too greedy, and proceeded to rip virtually all of his clients on seemingly every single trade he executed for the three years he was employed at Jefferies, lying to everyone in the process: both clients and in house colleagues, generating some $2.7 million in additional revenue for Jefferies for the duration of his tenure, and who knows how much in personal bonuses.

What excatly was the charge? The SEC summarizes it briefly as follows:

Jesse Litvak arranged trades for customers as part of his job as a managing director on the MBS desk at Jefferies.  Litvak would buy a MBS from one customer and sell it to another customer, but on many occasions he lied about the price at which his firm had bought the MBS so he could re-sell it to the other customer at a higher price and keep more money for the firm.  On other occasions, Litvak misled purchasers by creating a fictional seller to purport that he was arranging a MBS trade between customers when in reality he was just selling MBS out of his firm’s inventory at a higher price.  Because MBS are generally illiquid and difficult to price, it is particularly important for brokers to provide honest and accurate information.

The SEC alleges that Litvak generated more than $2.7 million in additional revenue for Jefferies through his deceit.  His misconduct helped him improve his own standing at the firm, as his bonuses were determined in part by the amount of revenue he generated for the firm.

A more detailed summary of what Litvak did over and over:

The MBS market operates through relationships between customers, who buy
and sell the bonds, and broker-dealers, like Jefferies, that arrange the trades. Customers seek to pay the lowest price for purchases and get the highest price on sales. It is not unusual for a customer’s view of the current market price for a security to come from the broker-dealer that is selling the security. Because of this, there is an emphasis on establishing relationships, building trust, and having a good reputation within the industry. In part because of the opacity of the market, and in part because the market relies on repeat transactions between the same parties, customers seek to avoid broker-dealers who are not honest with them. Upon learning that Litvak had lied to them about the price he paid for MBS, some customers indicated that their firms would have temporarily stopped doing business with Jefferies had they known the truth. At least one customer, upon learning that Litvak had lied, temporarily stopped doing business with Jefferies. Some customers indicated they would have sought lower prices on trades, or even tried to re-negotiate trades, had they known the truth.

As an intermediary, Litvak generally purchased MBS from one customer and then sold the same security to another customer. In those circumstances, Jefferies and Litvak typically re-sold the MBS on a riskless, principal basis; this meant that, while Jefferies would momentarily own the MBS in a principal account, it had minimal or no risk because it knew that it could re-sell the MBS to another customer. Litvak earned compensation for Jefferies by reselling the MBS at a higher price and collecting the spread (or difference) between the purchase price and the sale price. The customers were aware that Jefferies was compensated in this way, and the amount and source of the compensation were part of the negotiations around the purchase and sale of the MBS.

From 2009 to 2011, Litvak engaged in misconduct on over 25 trades. In each instance, Litvak made misrepresentations to, or otherwise misled, customers about the price at which Jefferies had purchased the MBS before re-selling it to the customer and Jefferies’ compensation for arranging the trade. In some cases, Litvak also pretended to be arranging the trade between customers when Jefferies was actually selling MBS out of its own inventory.

When Litvak offered customers MBS, he lied to them about how much Jefferies had paid (or was paying) for the securities. In order to negotiate a higher sale price to the customers, Litvak misled them into believing that Jefferies had paid a higher price for the MBS than it actually had.

By misrepresenting Jefferies’ purchase price, Litvak misled customers about the amount of compensation Jefferies would receive on the transaction. For example, if Litvak told the customer that Jefferies’ purchase price was 80 and the sale price was 80 and 4 ticks, the customer understood that Jefferies received 4 ticks in compensation. However, if Jefferies’ purchase price was actually 79 and the sale price was 80 and 4 ticks, then Jefferies received an extra point in compensation as a result of Litvak’s misrepresentation. On some occasions, Litvak and the customer explicitly agreed on the amount of Jefferies’ compensation based on the purchase price as represented by Litvak.

Sometimes, in addition to misrepresenting the price and Jefferies’ compensation, Litvak also misled his customers into believing that Jefferies was arranging a trade between two customers, when Jefferies actually was selling a MBS out of its own inventory. In these instances, Litvak pretended to be actively negotiating with an outside party to buy a MBS that he would then re-sell to his customer. Litvak communicated precise details to customers about the state of negotiations with the imaginary seller. But none of these negotiations were taking place; instead, Litvak fabricated the existence of the seller and every detail about active negotiations with it. In fact, as Litvak knew, Jefferies had purchased these MBS days (and even months) before and already held them in its inventory.

The above is the basis of SEC's just announced case. In reality, Litvak's biggest crime was getting too greedy. Because all of the above is well-known to everyone in the industry, and it certainly was known to Litvak's clients, most of whom were sell-side traders and salesmen before they moved to the buyside, and certainly knew how the game is played.

And what the result of today's civil charge against Litvak is that, for at least the foreseeable future, every single bank will come down like a brick house on any and all inhouse bond, loan, CDS and OTC salesmen and make sure that every single transaction is recorded, the entry and exit prices are fair and honest, and as represented, and in the process both banks and salespeople will make millions less in profits. This will continue at least for a year or so, or until the SEC finds some other major case to focus on, far away from the realities of modern day bond trading.

Another direct result is that courtesy of 31 page SEC complaint, the general public will now be aware just how much even very sophisticated traders were being abused as muppets by those who had the information about both sides of the trade. Because at the end of the day, as the old saying goes, the only true commodity on Wall Street is information.

Some excerpts:

While arranging a trade on May 28, 2009, Litvak lied to both the seller and buyer of $25 million of a MBS called IndyMac INDX Mortgage Loan Trust (“INDX”) 2007-AR7 2A1 (INDX 2007-AR7 2A1).

A representative of MFA Mortgage Investments, Inc. (“MFA”) told Litvak he was interested in bidding 42-00 for $25 million in the INDX MBS. After negotiating with the seller, Litvak told the MFA representative in an instant message, “I can sell to you at 42-8 . . . I Bot EM AT at 42-4.” MFA agreed to buy the MBS at 42-8.

Litvak lied to MFA about the acquisition price. He had bought the security at 41-4, not “42-4” as he had reported. The next day, Litvak admitted to a Jefferies colleague that he had lied to MFA, while also misrepresenting the purchase price to his colleague. Litvak wrote, “we bot at 41-12. Sold to him a[t] 42-8. He thinks we bot em @42-4 fyi.” Thus, he misrepresented the purchase price (41-4) both to MFA and to his own colleague.

While he was lying to the buyer, Litvak was also lying to the seller of the MBS, Third Point LLC (“Third Point”). Although he knew MFA was willing to pay 42-00 for the MBS, Litvak told a Third Point representative that the MFA representative—whom Litvak referred to as “one of my circle of trust guys”—had bid only 41-00. Litvak then reported that he had convinced MFA to raise its bid to 41-16.

Litvak acknowledged to a Jefferies colleague that he misled Third Point, writing, “So we bot [INDX] bonds from [the Third Point representative] at 41-4. . . . she thinks we sold at 41-16 . . . we really sold em at 42-8.”

Through his misconduct, Litvak generated more than $200,000 in extra profit for Jefferies on this trade.

A whole lot of lying to everyone involved to scalp a $200,000 profit.

Or this:

On December 23, 2009, Litvak approached a representative at Wellington Management LLP (“Wellington”) about purchasing a MBS called Wells Fargo Mortgage Backed Securities 2006-AR12 1a1 (WFMB 06-AR12 1a1). Litvak suggested to the representative that he was arranging a trade with an active outside party:

yo yo yo….if there is any color you can share on your wfmbs 06-ar10 4A1 from yest…maybe i can use that as leverage to go beat the guy up that owns the 06-ar12 1a1 bonds….as of late last nite it sounded like he was starting to warm up to the idea of coming off his level…..

The Wellington representative asked Litvak, “what’s the current size and offer” on the MBS, and Litvak responded, “its 3+mm current and he was offering them at 77….” About twenty minutes later, Litvak reported that the seller was not in yet: “he … usually rolls in around now…..so should know soon brotha…..” Half an hour later, Litvak told the Wellington representative that he had bought the MBS at 75-28 and provided details of the supposed negotiation:

winner winner chicken dinner…he is gonna sell em to me at 75-28 as I told him to not get cute and just sell the bonds so you can own them at 76….he said cool…..its 6.23mm orig….a’ight?

Wellington agreed to purchase $6.23 million of the MBS at 76. 42.

In actuality, Jefferies had purchased the MBS on December 14, 2009 at 70 (not “75-28”) and held it in its inventory at the time of the sale to Wellington. On December 23, 2009, Litvak concocted the supposed seller and  fabricated the details of a negotiation. As he had done before, Litvak lied about the purchase price, Jefferies’ compensation on the trade, and the fact that the MBS was being sold out of Jefferies’ inventory.

Through his misconduct, Litvak made over $150,000 in additional compensation for Jefferies on this trade.

Many more lies, just to add another $150,000 in the bag.

It goes on:

On January 7, 2010, Litvak communicated with a representative at York Capital Management Global Advisors, LLC (“York”) about selling $40 million of a MBS called DLSA Mortgage Loan Trust 2006-AR1 2A1A (DLSA 2006-AR1 2A1A), held by York, to another customer. Litvak told the representative that the other customer had bid 60-24. The York representative asked Litvak how much he wanted to be compensated for the trade:

Litvak: i am happy when I get any trades…..lol…in all seriousness….i think 8/32s is great….so maybe you sell em to me at 60-28 and i sell em to him at 61- 4….something like that..but im also happy to get you 61 and just tell him to pay me 61-8…..wanna get you the highest i can…

York representative: well i want best execution obv so try to get him to 61-8!

Litvak: we are doneski gorgeous! im selling him bonds at 61-8……will buy em from you at 61 k?. . .

York representative: great! . . . .

As a result of this back-and-forth, York agreed to sell the MBS at 61.

Litvak misrepresented the resale price and the compensation he would receive for Jefferies. He did not sell the MBS at “61-8,” as stated, but at 62-12. Thus, instead of the “8/32s” he represented Jefferies would make, the firm actually was compensated 44 ticks for the trade.

Through his misconduct, Litvak made over $220,000 more for Jefferies on this trade.

More lies, another $220,000.

And on, and on, and on.

This continues to this day, and will continue tomorrow, albeit at a more modest pace for at least a few months, at every single Wall Street firm, and such skimming off the top is precisely what ends up going into both the bank's bottom line, and the trader's bonus.

Is it any wonder that virtually all Wall Street "professionals" are habituated sociopaths who lie for a living just to skim a few pennies (metaphorically speaking: make that millions of "other people's" dollars in the real world). And is it any wonder that all banks demand their inner workings never see the light of day so they can operate in absolute secrecy, and exchanges like the above, and 22 more, are never read by the public.

Take these examples and multiply them by a thousand: only then will you have a sense of what truly goes on behind the scene of every Wall Street firm in the US and around the world on any given day: a shadowy netherworld populated by uber-wealthy sociopaths, whose ethics are dominated not by what is right or wrong, but who can lie the most, rip their clients off without their clients pulling the plug, and, of course, who has the biggest year-end bonus and shiniest and newest toys at the end of the year. Everything else is of tertiary importance.

And since everyone on the inside knows that only the most conniving, most sociopathic survive and, most importantly, make the most money, nobody complains, or else is shown the door.

That is how Wall Street truly works, for better or worse (we have omitted the inevitable bailout that happens once bank after bank loads up on too much prop risk and has to be bailed out by the government, but that is, by now, well-known).

The full complaint against Litvak can be found here.

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Secrecy of Cayman’s off-shore tax haven to be blown

The legendary secret tax haven status of the Cayman Islands is coming to an end. The islands’ financial authorities are going to begin scrutinising the companies and hedge funds set up there.

Thousands of enterprises and financial institutions in the British overseas territory that kept a low profile will soon come into the spotlight. The Cayman Island Monetary Authority (CIMA) wants to set up a database of funds registered in the island which will include the names of the bosses, according to the Financial Times (FT).

Between $8.19tn and $12.6tn has leaked out of countries into such secret jurisdictions as the Cayman Islands and Switzerland, according to the Guardian.

Since the onset of the financial crisis, some of the key financial institutions have amended their operation rules to allow a clearer picture of their activities.

“In the 24 months subsequent to the onset of the financial crisis, the BVI Financial Services Commission, the Central Bank of Ireland, the Jersey Financial Services Commission, the Bahamas Financial Services Board and the Isle of Man Supervision Commission all updated their corporate governance codes, laws and/or regulations,” FT quotes a CIMA paper.

On Thursday, EU Tax Commissioner Algirdas Semeta offered an ultimatum to Switzerland, saying the country has six months to make its tax legislation more transparent in terms of disclosing data on companies and enterprises, and make it comply with EU laws.

The Caymans have long been a subject of anger and criticism by both politicians and investors. While the US and UK policymakers are struggling to keep pace with fast-moving new global regulations, investors have been complaining on the uncertainty around the entities they were considering as investment destinations.

“We have been screaming for more transparency for some time now,” Vincent Vandenbroucke, head of operational due diligence at Hermes BPK, told FT. “It’s no longer acceptable for [offshore] directors to act as rubber stamps.”

Hermes BPK makes hedge fund investments on behalf of some of the UK’s biggest pension funds.

Bank Of America Earnings Plagued By Legacy Countrywide Woes Offset By $900 Million In...

As disclosed 10 days ago in its agreement with Fannie, Bank of America already warned that it would see a $2.7 billion pre-tax hit to earnings resulting from just one GSE reps and warrants settlement. Sure enough, this was the biggest one time adjustment to the company's earnings which came out at $700 million on a pre-adjustment basis, or some $0.03. Excluding all the various incurred "charges", the bank reported $0.29 in earnings.  Of course, the assumption is that the bulk of the charges highlighted below are "one time" - yet, since most of them relate to the ongoing reps and warrants litigation, it is rather safe to put them in the recurring cost of business as the total amount of outstanding claims on R&W warrant cases has soared to a record $28.3 billion, compared to just $12.6 billion a year ago. Netting out the $13.5 billion in GSE claims which are now settled there are still some $125 billion in private and monoline claims which will continue to be a drain on BAC cash and EPS for years to come.

The full breakdown of Q4 "earnings", including the rather odd $2.4 billion tax benefit, and all the charges is shown below. Oddly enough, a year ago it paid some $441 million in taxes.

In brief: $10.56 billion in net interest income, better than the $10.24 billion estimate, driven by the arbitrate $900 million in loan loss reserve releases for the quarter (see below). The far less adjustable non-interest income was just $8.34 billion, far below the estimated $11.7 billion. Of course, BofA's argument is that this is due to one-time charges. Yet are these truly one time charges? A quick look at the outstanding Reps and Warrants claims shows there is much more legacy Countrywide pain to come for the bank:

In one years total claims have increased from $12.6 billion to $28.3 billion. Of this the GSE claims are now settled, which means only some $5-10 billion to settle the outstanding Private and Monoline R&W claims. In other words, it is safe to assume that the same kinds of "one-time" charges will be seen for years to come.

Net interest margin declined from a year ago, from 2.45% to 2.35%, although it rose by a tiny 3 bps from last quarter. This resulted in some $10.6 billion in Net Interest Income in the quarter, or well over half of the total revenue of $18.9 billion reported in Q4.

The $10.6 billion in Net Interest Income, which was "better than estimates" of $10.24 billion, was offset by some $2.2 billion provision for credit losses. Of course, this being Bank of America, there was a lot of Loan Loss Reserve Releases. Sure enough, as the chart below shows of the $700 million in unadjusted Net Income, some $900 million, or more than all of it, came from everyone's accounting gimmick. Absent the release, the firm would have reported a negative pre-adjustment Net Income number.

The $900 million reserve reduction was accompanied by some $3.1 billion in charge offs, of which $2.9 billion in consumer and $251 million in commercial. Of the consumer charge offs, $714MM was in resi mortgage, $767 million in home equity and $978 million in credit cards. The total was $2.2 billion provision for credit losses.

The loan book did not improve much if at all, with some $15.3 billion in residential NPAs. This was driven by a reduction in the 180 day past dues from $10.1 billion to $9.2 billion, offset by an increase in the < 180 days from $5.7 billion to $6.1 billion. Home Equity NPAs was unchanged at $4.3 billion.

Then we look at sales and trading revenue, that other bastion of profitability of the New Normal bank hedge funds, where we find that it declined by $0.7 billion from Q3 to $2.5 billion ($1.8 billion in FICC and $0.7 billion in Equity Income), although rising from a year ago. A far cry from the blow out trading numbers reported by Goldman. What is odd, is that while the Goldman VaR plunged, BAC's soared:

Finally, there were quite a few pink slips at the bank in the quarter, with some 228.5K FTEs at the end of Q4, down from 230.9K last quarter, and 242.3K a year ago.

In short: yet another quarter marked by "one-time" charges which will likely never go away, and ongoing deterioration in business fundamentals offset by loan loss reserve releases.

Full presentation below

BAC Q3 by zerohedge

Your rating: None

Bank Of America Earnings Plagued By Legacy Countrywide Woes Offset By $900 Million In...

As disclosed 10 days ago in its agreement with Fannie, Bank of America already warned that it would see a $2.7 billion pre-tax hit to earnings resulting from just one GSE reps and warrants settlement. Sure enough, this was the biggest one time adjustment to the company's earnings which came out at $700 million on a pre-adjustment basis, or some $0.03. Excluding all the various incurred "charges", the bank reported $0.29 in earnings.  Of course, the assumption is that the bulk of the charges highlighted below are "one time" - yet, since most of them relate to the ongoing reps and warrants litigation, it is rather safe to put them in the recurring cost of business as the total amount of outstanding claims on R&W warrant cases has soared to a record $28.3 billion, compared to just $12.6 billion a year ago. Netting out the $13.5 billion in GSE claims which are now settled there are still some $125 billion in private and monoline claims which will continue to be a drain on BAC cash and EPS for years to come.

The full breakdown of Q4 "earnings", including the rather odd $2.4 billion tax benefit, and all the charges is shown below. Oddly enough, a year ago it paid some $441 million in taxes.

In brief: $10.56 billion in net interest income, better than the $10.24 billion estimate, driven by the arbitrate $900 million in loan loss reserve releases for the quarter (see below). The far less adjustable non-interest income was just $8.34 billion, far below the estimated $11.7 billion. Of course, BofA's argument is that this is due to one-time charges. Yet are these truly one time charges? A quick look at the outstanding Reps and Warrants claims shows there is much more legacy Countrywide pain to come for the bank:

In one years total claims have increased from $12.6 billion to $28.3 billion. Of this the GSE claims are now settled, which means only some $5-10 billion to settle the outstanding Private and Monoline R&W claims. In other words, it is safe to assume that the same kinds of "one-time" charges will be seen for years to come.

Net interest margin declined from a year ago, from 2.45% to 2.35%, although it rose by a tiny 3 bps from last quarter. This resulted in some $10.6 billion in Net Interest Income in the quarter, or well over half of the total revenue of $18.9 billion reported in Q4.

The $10.6 billion in Net Interest Income, which was "better than estimates" of $10.24 billion, was offset by some $2.2 billion provision for credit losses. Of course, this being Bank of America, there was a lot of Loan Loss Reserve Releases. Sure enough, as the chart below shows of the $700 million in unadjusted Net Income, some $900 million, or more than all of it, came from everyone's accounting gimmick. Absent the release, the firm would have reported a negative pre-adjustment Net Income number.

The $900 million reserve reduction was accompanied by some $3.1 billion in charge offs, of which $2.9 billion in consumer and $251 million in commercial. Of the consumer charge offs, $714MM was in resi mortgage, $767 million in home equity and $978 million in credit cards. The total was $2.2 billion provision for credit losses.

The loan book did not improve much if at all, with some $15.3 billion in residential NPAs. This was driven by a reduction in the 180 day past dues from $10.1 billion to $9.2 billion, offset by an increase in the < 180 days from $5.7 billion to $6.1 billion. Home Equity NPAs was unchanged at $4.3 billion.

Then we look at sales and trading revenue, that other bastion of profitability of the New Normal bank hedge funds, where we find that it declined by $0.7 billion from Q3 to $2.5 billion ($1.8 billion in FICC and $0.7 billion in Equity Income), although rising from a year ago. A far cry from the blow out trading numbers reported by Goldman. What is odd, is that while the Goldman VaR plunged, BAC's soared:

Finally, there were quite a few pink slips at the bank in the quarter, with some 228.5K FTEs at the end of Q4, down from 230.9K last quarter, and 242.3K a year ago.

In short: yet another quarter marked by "one-time" charges which will likely never go away, and ongoing deterioration in business fundamentals offset by loan loss reserve releases.

Full presentation below

BAC Q3 by zerohedge

Your rating: None

Matt Taibbi & Former Bank Regulator William Black on Bailout Secrets and How New...

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.

Why the Housing Recovery is Nearly Homeowner-Less

An Inequitable Housing Recovery

Darwin Bond-Graham

 The financial crisis of 2008 was terrible for homeowners saddled with heavy mortgage payments, especially the millions of low-income, first-time buyers who were tempted to buy in with deceptive loans during the height of the housing bubble. About 4 million foreclosures have been completed since the financial crisis of 2008, according to CoreLogic, a data provider to the real estate industry. Since 2006, when subprime loans first began to default in large numbers, there have been 9.4 million foreclosures initiated, according to the Federal Reserve Bank of New York (US Fed). To a select group of hedge fund and investment bankers the financial crisis that pivoted on these foreclosures was the opportunity of a lifetime. They made billions from the crash by wagering against the stability of the US housing market.

Now some of the same elite investors are tacking backward and betting on a recovery of the housing market. It's a strange recovery though, propelled not so much by families seeking their own piece of the American dream, but instead by the US Fed's monetary policies. Low-interest rates fostered by the Fed are causing big-money investors to purchase foreclosed single-family homes in blocks of hundreds, even thousands. Expected gains in home prices are also leading hedge funds and investment bank traders to gamble on housing derivatives.

Like the so-called jobless recovery, characterized by rising business earnings in the midst of high unemployment, the nascent housing recovery is not propelled by a rise in homeownership rates, employment and incomes. Instead, foreclosure rates remain high, as does do unemployment figures, and there's a big backlog of bank-owned properties that have yet to hit the market. Meanwhile, many former homeowners have been relegated to the status of renters. If home prices are truly embarked on a sustained rise, the big gains in any new equity created will likely accrue to a smaller number of owners, many of them corporate investor-landlords, and to a few elite financial speculators positioned to make complex derivatives bets on housing bonds. That's how it's playing out so far.

2007's "Big Short"

To understand the current dynamics in the housing market, it helps to go back in time just before the crash. The collapse of the US housing market was the catalyst of the global financial crisis of 2008, and the root source of the last five years of economic stagnation. It was skyrocketing real estate prices that facilitated the inflation of the largest debt bubble in history, allowing Americans to take out unsustainable consumer loans so long as the equity in their homes grew. The bubble burst because real wages continued to decline, total consumer debts continued to grow, and many of Wall Street's derivative innovations turned out to be cynical products designed merely to package up unsustainable obligations and offload them onto some other sucker's books. The rest is history. Millions were foreclosed on, and the economy hemorrhaged jobs.

[Insert graph of delinquent debt balances by loan type]

A few prescient investors saw it coming and wagered that the US housing market would collapse. They made billions on that bet, literally sucking money from the accounts their counterparties - banks and insurance companies who believed that a decline in home prices across all US regions was impossible.

The mechanics of the bet were conceptually simple, if technically complex: Bearish speculators identified mortgage bonds they thought were toxic, comprised of thousands of individual home loans that were sure to default if interest rates rose or if the unprecedented rise in home prices even just slowed a little. These few contrarian investors then purchased credit default swap (CDS) contracts, synthetic derivative products created to insure an investor against the possibility of defaulting mortgage bonds.

CDSs had two sides, the buyer and seller, and involved a zero sum wager. If homeowners continued to make payments on subprime mortgages, then the buyer of CDS insurance merely paid out a small premium each year. However, if the market stumbled and mortgages within the bonds that comprised larger mortgage-backed securities began to default in large numbers, then the seller of the CDS would owe huge sums of money to the buyer.

Author Michael Lewis called this the "Big Short" in his book of the same title because it involved a monumental short-selling strategy. Derivatives made short-selling a strategic possibility with the new multi-trillion-dollar global market of US mortgage credit. Investors had no need to actually own subprime mortgaged bonds, or to borrow these assets, as is traditionally required in the short-selling strategies of the pre-derivatives revolution. Instead, an investor could “synthetically gain exposure" to subprime risk, as they say in Wall Street parlance, simply by entering into a free-standing swap contract with a willing counterparty.

Another popular means of shorting housing was to make directional bets on the price of subprime mortgage-backed securities through the ABX.HE Index. "ABX" stands for asset-backed security, and "HE" stands for home equity, denoting to an investor that the index tracks the value of credit default swaps tied to subprime mortgage bond securities. The biggest investment banks involved in creating subprime mortgage-backed securities like collateralized mortgage obligations (CMOs) and collateralized debt obligations (CDOs) created the ABX.HE Index in 2006, just in time for short-sellers to game it to their advantage.

A managing director at Goldman Sachs, one of the firms instrumental in launching the ABX.HE Index, explained that it was designed to provide investors with "a simple and efficient way to gain or hedge exposure to home equity asset-backed

Like other derivatives, however, the ABX.HE would actually become a tool for highly leveraged speculation by hedge funds, many of which had no real holdings of the housing assets from which the indices' value and cash flows derived. One could simply enter into a trade requiring the exchange of cash flows that changed depending on the value of referenced securities, in this case, the value of credit default swaps tied to subprime debt that was only financially viable if home prices continued to rise and create homeowner equity.

After news began to spread within Wall Street's upper echelons that subprime mortgage bonds were beginning to turn sour, more and more traders sought ways to bet against the entire market. Goldman Sachs quickly used the ABX.HE to establish short positions for the bank's proprietary funds, and for several favored clients.

According to Richard Stanton and Nancy Wallace, scholars at the UC Berkeley Haas Business School who have studied pricing and trade patterns of credit derivatives, "trading in the ABX.HE index CDS delivered two of the largest pay-outs in the history of financial markets: The Paulson & Co. series of funds secured $12 billion in profits from a single trade in 2007; and Goldman Sachs generated nearly $6 billion of profits (erasing $1.5 to $2.0 billion of losses on their $10 billion subprime holdings) in 2007."

[Insert graph of the ABX.HE Index collapse] 

NOTE: "Markit" appears to be misspelled in graph. Should be "Market"; also should be comma after "January 9, 2006"/ pmf

Goldman Sachs' and  Paulson & Co.'s earnings became the source of an investigation by the SEC. The bank created subprime mortgage-backed securities and sold them to several German banks, but then, along with the Paulson & Co. hedge fund, bet against these very same securities. The SEC fined Goldman Sachs $550 million (a mere fraction of the profits). Paulson & Co. paid no such fine and admitted no wrongdoing.

Other beneficiaries of the foreclosure crisis included Kyle Bass, the Dallas hedge fund manager who also shorted subprime mortgage-backed assets using credit default swaps. Bass's Hayman Capital reportedly reaped half a billion dollars.

Greg Lippman, a trader with Deutsche Bank in 2006, pestered dozens of hedge funds and other wealthy investors in a sales blitz to convince clients on his similarly designed bet to short US home prices. According to Michael Lewis, who interviewed dozens of people who put on the "Big Short" trade, Lippmann had distilled his strategy into a data-rich presentation titled "Shorting Home Equity Mezzanine Tranches."

All of the derivative tools used by speculators to short the market before the financial crisis still exist. Few regulatory changes were made to reign in this kind of high-stakes gambling using the synthetic exposure of derivatives, indices and short-selling techniques.

Fed Creates Opportunities to "Go Long"

Like the jobless recovery in corporate profits that began in 2010, the housing market's current recovery is characterized by rebounds in securities prices that do not necessarily reflect any widely shared economic improvements for most Americans. Instead, the recovery seems to be propelled by federal monetary policy.

The US Federal Reserve's purchase of billions of mortgage-backed securities is most responsible for the nascent housing recovery, say many analysts. The Fed has committed to buying upwards of $40 billion a month into 2015 (totaling anywhere from $480 to $960 billion) in mortgage-backed securities. The effect of the Fed's purchases is to drive up the price of mortgage bonds, which inversely reduces the yields on the bonds, and eases credit, theoretically making home loans cheaper and inducing more prospective home buyers to dive into the market. That's the logic the Fed's board is ostensibly using at least.

Home prices have decidedly responded. The Case-Shiller Index, which tracks changes in home values in major cities, showed definite increases in year-over-year values from 2011 to 2012. CoreLogic's Home Price Index showed a similar rise, with home values up more than 6 percent in October 2012, compared with the prior year.

Skepticism abounds, however. "The reality is that quantitative easing has made it cheaper for the government to borrow, has artificially propped up the housing market (making it take longer to recover), and has dramatically manipulated the distribution of capital in financial markets," said Anthony Randazzo, director of economic research at the Reason Foundation. "And the economy has not been in recovery." Randazzo said the Fed's mortgage-backed securities purchases are mostly benefitting the top 10 percent of Americans who own the bonds and stocks that are rising in price as a result of the Fed's purchases.

Even economists within the Federal Reserve are noting that while the government's mortgage securities purchases are lifting home prices, they are not necessarily helping the average American buy a house. Michael Bauer of the Federal Reserve Bank of San Francisco noted in a May 2012 report, "the link between rates on mortgage-backed securities and actual mortgage rates has weakened in the wake of the financial crisis." In other words, the Fed's ability to stimulate lending and get houses into the hands of individual home buyers isn't working as planned, but still home prices are rising.

Foreclosure to Rental Mills

There are buyers ready and able to take advantage of the Fed's macro-economic influence on home prices: large investors seeking to buy up what they've identified as a "new-asset class," single-family residential homes in select suburban housing markets.

Some of these companies have already amassed portfolios of thousands of foreclosed and short-sale homes at historically low prices and are busy converting them into rentals. The eventual increase in the value of these homes is an added enticement. Projected yields are high enough to justify purchases of single-family homes as an asset that will inflate greatly in value. If prices continue to increase, private equity buyers could hold the properties for a few years and then make an "exit," as they say in the industry, and book a big profit.

Some companies like WayPoint of Oakland, California, already own portfolios of thousands of homes purchased at dramatically low prices, most of them obtained after heavily indebted owners were forced to abandon them. WayPoint's holdings are concentrated in the San Francisco Bay Area, Los Angeles, Phoenix, Chicago and Atlanta, according to the company's web site. Menlo Park private equity firm GI Partners has committed over $1 billion to fund Waypoint's expansion.

Others have copied WayPoint's foreclosure-to-rental model and are buying up tens of thousands of distressed properties across the US to convert vast stocks of residential homes into rental housing. The Blackstone Group private equity fund has already spent $1 billion to buy up over 6,500 single family homes in multiple markets, assembling these into what the firm is calling its "single-family rental home platform." In a public relations video Blackstone created for its real estate management company, Invitation Homes, the firm's head of global real estate, Jon Gray, says, "I think at its heart we're making a bet on America with this investment strategy. We're betting that housing prices are going to begin to recover."

McKinley Capital, another Oakland private equity real estate investor, is buying foreclosed single family homes at prices discounted up to 80 percent of their 2006 high in California's hard-hit Central Valley. "McKinley plans to resell the houses in about five years for double what it paid and is targeting 20 percent annualized returns for its investors, which include wealthy individuals," according to a report in the Wall Street Journal on the foreclosure-to-rental business.

Another foreclosure-to-rental mill, Silver Bay Realty Trust, described its business strategy in a December 2012 prospectus issued to investors: "As the housing market recovers and the cost of residential real estate increases, so should the underlying value of our assets. We believe that rental rates will also increase in such a recovery due to the strong correlation between home prices and rents. This trend also leads us to believe that the single-family residential asset class will serve as a natural hedge to inflation. As a result, we believe we are well positioned for the current economic environment and for a housing market recovery."

Silver Bay owns more than 2,450 houses and plans to invest a quarter-billion dollars to obtain another 3,100 homes in Arizona, California, Florida, Georgia, Nevada, North Carolina and Texas, according to the company's SEC filings.

Mike Orr, director of the Center for Real Estate Theory and Practice at Arizona State University's Carey School of Business, reported investors are buying up as much as a third of the homes selling in the greater Phoenix market today. "I know of a normal home that recently received 95 written offers, 51 from investors and 44 from owner occupiers," said Orr. "You can take away the 51 investors and you still have 44 owner occupiers trying to buy one home. However, investors are buying with cash, so they usually win these competitive situations, leaving owner occupier buyers frustrated." Orr believes that the presence of investors is causing prices to rise in Phoenix because of their buying power.

Atlanta Realtor Bruce Ailion also believes investors are not just responding to the Fed's stimulus, but that the presence of large investors is further increasing home prices. "In my market, private equity and hedge funds are driving up prices," Ailion recently told reporters with CBS News.

The end result is that many housing markets have already consolidated around fewer landlord-owners and an increased number of renters whose economic situations still prevent them from buying a home.

Derivatives Bets on the Recovery

Some of these same speculators who shorted subprime housing debt in 2006 and 2007 have already tacked a complete opposite bet, expecting home prices to rise due to the Fed's mortgage bond purchases. Investors like former Goldman Sachs trader Josh Birnbaum, who now runs the Tilden Park hedge fund, are telling clients to put their money behind subprime mortgage bonds, many of which are rising in value. According to a recent Bloomberg News report, Birnbaum's firm is posting a 30 percent gain in 2012, mostly from bets favoring price increases in subprime mortgage bonds that lost upwards of 80 percent of their value during the financial crisis.

Birnbaum was one of the architects of Goldman Sachs' big short bet against subprime housing in 2006 through the ABX.HE Index. According to William Cohan, author of Money and Power: How Goldman Sachs Came to Rule the World, Birnbaum quit the investment bank after a $10 million bonus check left him feeling shorted himself for putting on the firm's big short bet. Birnbaum's hedge fund is reportedly using the same index this time around to gain the opposite kind of exposure to housing debt.

Joining Birnbaum's hedge fund in this strategy is John Paulson's firm, Paulson & Co., which posted the biggest gains of all thanks to the housing meltdown five years ago. Paulson's fund reportedly began buying housing mortgage securities back in 2008 and 2009, just after they'd collapsed in price.

In a letter to his investors earlier this year, Kyle Bass of Hayman Capital wrote that, with respect to subprime housing debt, "the stars are aligned for a continued recovery of this asset class today."  Bass told reporters recently that more than half of Hayman Capital's funds are currently invested in subprime mortgage bets.

Greg Lippmann, the architect of Deutsche Bank's $1.5 billion big short bet, is now running a hedge fund that is going long on US subprime debt. Libremax Capital, which is said to manage about half a billion dollars, mostly sourced from wealthy investors, is said to be investing in subprime mortgage bonds of early 2005 "vintages," which have already purged many of the delinquent debts from their rolls. "We believe securitized [home mortgage] products are fundamentally cheap to broader markets," Lippman told reporters last year when asked about his fund's strategy. (http://www.efinancialnews.com/story/2011-02-18/greg-lippmann-goes-long-on-sub-prime-bonds)

The biggest hedge fund winner in 2012 is the New York-based Metacapital. Its “Mortgage Opportunities Fund” has squeezed a 520 percent profit on the year by betting on housing price increases owing to the Fed’s purchase of Fannie Mae and Freddie Mac mortgage bonds.

A Home Owner-less Housing Recovery?

According to data from the Federal Reserve Bank of St. Louis, homeownership rates have plummeted by 3 percent nationally since 2004, falling to a low not seen since the mid-1990s. The backlog of delinquent mortgage loans and in-process foreclosures means that millions more will lose their homes and become renters, couch-surfers or homeless in the next few years.

[Insert USFRB St. Louis FRED data on homeownership rate decline here]

While the foreclosure rate may be dropping nationally, it remains extremely high compared to historical averages. Approximately 186,000 homes, or one in every 706 units of housing, were foreclosed on in October, 2012. There have been about 5 million bank repossessions of housing between 2006 and 2012, according to RealtyTrac.

According to economists with the Federal Reserve Bank of San Francisco, only 10 percent of homeowners who lose their houses because of default on mortgage payments will regain access to mortgage markets in the next 10 years. This means that there are now millions of Americans who will be closed out of the housing market during not only this peculiar recovery phase, characterized by a rise in prices and private equity buyers acquiring much of the inventory, but also likely locked out of the housing market down the road, long after homes have regained much of their value.

Guest Post: The Social Security System Is Already Broke

Submitted by Jim Quinn from The Burning Platform

Free Shit "Disabled" Army Massing Its Forces

Whenever I hear a liberal MSM talking head say that Social Security is not a problem, I want to throw something at the TV. Obama and Romney both declared the Social Security system sound. They lied to the American people that it will only require minor tweaks to keep it solvent for a hundred years. Liberals hate math. The Social Security System has an unfunded liability of $18 trillion. This means our politicians have promised $18 trillion more than they can possibly pay out. I guess $18 trillion is trivial to a liberal minded person like Krugman or Obama. Lucky for them that 99% of all Americans don’t understand what unfunded liability even means. The chart below gives the gory details. The Social Security system had a negative cashflow of $47.8 billion last year, after running a $48 billion deficit the year before. You may notice that 77% of this deficit was created by the SSDI program, where the depressed masses gather after their 99 weeks of unemployment run out. Do you have a headache? Are you depressed because liquor stores don’t accept food stamps? Did you pull a muscle getting on your government provided rascal? Trouble hearing your Obama phone? Then you are eligible for SSDI.

The funniest line item on the chart is the Assets at End of Year line, which shows the Social Security system having $2.7 trillion. Even using this funny number, the SSDI will be broke in three years. Al Gore told us this money was in a lockbox. They take it out of your paycheck and put it into a fund, waiting for you to retire and collect what you’re owed. Right? Wrong! If you tried to observe the vault with the $2.7 trillion on deposit, you’d be looking for a long long time. You see, the noble politicians in Washington DC took the $2.7 trillion and spent it on undeclared wars overseas, ethanol subsidies, investments in Solyndra, turtle crossings, tax breaks for hedge funds, TARP, bailing out AIG, subsidizing GM, $800 billion stimulus packages, cash for clunkers, homebuyer tax credits, predator drones, DHS, Sandy relief and thousands of other buckets of shit. There are nothing but IOU’s in the vault. The $2.7 trillion is long gone. The U.S. government had to borrow $47.8 billion to fund SS last year. They will have to borrow over $50 billion this year. There will be 10,000 per day turning 65 for the next decade. The borrowing will rise exponentially. If the $2.7 trillion actually existed, why would we need to borrow?

The trust funds are required by law to hand over all surplus revenues to the Treasury and the Treasury then provides “special issue” non-marketable bonds—essentially electronic IOUs—to the trust funds in return for the cash. These “IOUs” become part of the national debt. When the Treasury pays “interest” that increases the value of the Social Security Trust Funds it does so by increasing the number of IOUs it owes the trust funds. When the Social Security program runs a net cash flow deficit, as it has in the last three fiscal years, the Treasury needs to borrow cash from the “public” to keep the program funded.

Does this look like a trend that is going to reverse itself or level out with 10,000 Boomers turning 65 years old every freaking day?

These costs will be exceeding $1 trillion per year in the near future. Meanwhile, the number of workers per retiree will continue to fall as it has for decades. In 1945 there were 42 workers per retiree. In 1965 there were 5 workers per retiree. Today there are less than 2.5 workers per retiree. There are only 1.6 full time private workers for every one retiree. With Obamacare working its magic of destroying jobs across the land, there is much less revenue going into the Social Security System. The system is unsustainable and ignoring the problem will not make it go away.

A recent article on Bloomberg below barely scratches the surface of the massive fraud going on in the SSDI program. Those who think we owe them a living are faking disabilities by the millions. The number of annual applications were flat at 2.1 million per year between 2004 and 2007. They now exceed 3 million per year, as the Obama administration has actively attempted to get more people on the dole. In a matter of a couple years, there were suddenly 40% more people getting disabled. Amazing!!!

Shockingly, as 1.4 million people have been kicked off the 99 week unemployment rolls, the number of people applying for SSDI skyrocketed. Just because the scumbags on Wall Street and in the rest of corporate America commit fraud on a massive scale does not mean we should look the other way when lowlifes in our community do the same thing on a smaller scale. The working middle class pays the bill for the cost of both frauds. More than 90% of all the people who go onto SSDI never go back to work. This program was supposed to be short term until people could recover and go back to work. There are now 8.83 million people so disabled, they supposedly can’t work. There are only 12 million officially unemployed people in the country. The government is so incompetent, they barely check the applications for SSDI. Anyone with an ounce of brain power (this disqualifies anyone on MSNBC) knows that at least 50% of the people on SSDI are capable of some form of employment.

The Social Security system is already broke. The money is gone. Pretending all is well is for fools and there are millions of them in this country. If someone within the leadership of this country was honest with the American people we could fix the Social Security system. A combination of age adjustments, means testing, and reconfiguration of income levels subject to the tax could make it viable. Too bad Washington is inhabited by snakes, scumbags, liars and knaves. Corrupt lowlife politicians, lying liberal media whores, and a delusional populace will ignore the Social Security problem until it becomes a crisis of epic proportions. Then they will propose wrong solutions and implement them badly. Some things are easily predictable.

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RINFORMATION

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4 Things You Need to Know About the Plot to Sell Off Your Pensions...

Less than a year ago, the Wall Street Journal alerted its national readership to what was happening in the tiny state of Rhode Island....

Repo, Baby, Repo

“Repo has a flaw: It is vulnerable to panic, that is, ‘depositors' may ‘withdraw' their money at any time, forcing the system into massive...

Forecast: War, Economic Depression and Social Unrest

Kyle Bass, Larry Edelson, Charles Nenner, James Dines, Nouriel Roubini, Jim Rogers, Marc Faber, Jim Rickards and Martin Armstrong Warn or War We're already at...

The Government Is Open Again … Now What?

A visitor stands by the Lincoln Memorial early Thursday morning in Washington, Oct. 17, 2013. (Photo: Chris Bickford / The New York Times)Just after...

The Ghost of Authoritarianism in the Age of the Shutdown

The Ghost of Authoritarianism in the Age of the Shutdown by Henry A. Giroux In the aftermath of the reign of Nazi terror in the 1940s, the...

Derivatives and the Government Shutdown: Wall Street Bets One Thousand Trillion Dollars of Everybody...

The clock is ticking, we are told, on the “good faith and credit” of the United States government, which might technically be unable to...

Exposed: California’s Secret Plan to Gut Public Pensions

Jaisal Noor, TRNN Producer: Welcome to The Real News Network. I'm Jaisal Noor in Baltimore. A newly leaked draft California ballot initiative authored by conservative...

Martial Law and the Economy: Is Homeland Security Preparing for the Next Wall Street...

Reports are that the Department of Homeland Security (DHS) is engaged in a massive, covert military buildup. An article in the Associated Press in...

Report Exposes the Right-Wing Tag Team Plotting Against Pensions

(Image: Savings sink via Shutterstock)News stories around the country have trumpeted a public pension “crisis” in various states, featuring elected officials who insist that...

Dollar slips VS Yen as shutdown looms

The dollar dropped to a one-month low against the yen as political budget wrangling threatened a U.S. government shutdown starting tomorrow. The U.S. currency extended...

New Millennium Resource Wars

New Millennium Resource Wars by Stephen Lendman They're ongoing. They represent a modern-day great game. The previous one pit Britain against Tsarist Russia. One powerful empire...

Wall St. and the ‘Triple-Fucking’ of US Workers, Taxpayers

(Photo: Illustration by Victor Juhasz)In his latest feature-length piece for Rolling Stone magazine, the eloquently foul-mouthed financial reporter Matt Taibbi takes a close look...

Wall St. Assholes and the ‘Triple-Fucking’ of the American Worker

(Photo: Illustration by Victor Juhasz)In his latest feature-length piece for Rolling Stone magazine, the eloquently foul-mouthed financial reporter Matt Taibbi takes a close look...

Fed “taper” decision points to deepening financial crisis

23 September 2013 ...

Dear Landlord: Please Heed These Words That I Speak

I play too hard when i ought to go to sleepThey pick on me because i really got the beatSome people give me the...

UK’s Labour vows to scrap bedroom tax

British Labour leader Ed Miliband has pledged to abolish the controversial "bedroom tax" if his party wins the country™s next general election in 2015. In...

Six Things Occupy Wall Street Made Possible (That You Probably Already Take for Granted)

Protestors make their way through Lower Manhattan during demonstrations marking the one-year anniversary of the Occupy Wall Street movement, in New York. Monday, Sept....

Six Things Occupy Wall Street Made Possible (That You Probably Already Take for Granted)

Protestors make their way through Lower Manhattan during demonstrations marking the one-year anniversary of the Occupy Wall Street movement, in New York. Monday, Sept....

The Debt Ceiling Debate: It’s Not a Fiscal Cliff … It’s the Breakdown of...

The blood pressure of the patient in the emergency room drops precipitously. The ER docs have already given 15 pints of blood over the course...

6 reasons for another US financial crisis

Five years after the fall of Lehman Brothers and the worst financial crisis since 1929, one thing seems certain: another meltdown of the financial...

Collapsing Asian Currencies? Why is the Indian Rupee Depreciating?

The Indian rupee touched a lifetime low of 68.85 against the US dollar on August 28, 2013. The rupee plunged by 3.7 percent on...

Larry Summers, the Next Fed Chairman?

When mainstream press outlets, like the New York Times, Wall St. Journal, CNN money and others, issue front page articles on a topic related...

The Real Story of Detroit’s Economy — Good Things Are Really Happening in Motown

As a life-long Detroiter who has lived both in the city and the suburbs, I’ve been fascinated by the media frenzy over Detroit’s bankruptcy....

Turmoil in Emerging Economies: A Symptom of a Global Crisis

This summer’s crisis of the so-called “emerging market” economies reached a new stage last week, as India, Brazil, Turkey and Indonesia all announced emergency...

Turning the Clinton Foundation Into Hillary’s Presidential Launching Pad

When consulting firm Simpson Thacher & Bartlett, better known simply as Simpson Thacher, completed its corporate review of the Clinton Foundation earlier this month, their conclusions...

A Civics Lesson From America’s Education Debate

http://www.truthdig.com/report/item/a_civics_lesson_from_americas_education_debate_20130815/ Posted on Aug 15, 2013 ...

How The Corrupt Establishment Is Selling Moral Bankruptcy To America

Morality is a highly misunderstood component of human nature. Some people believe they can create moral guidelines from thin air based on their personal biases and prejudices.

Ethiopian Development Destroying Lives

In many parts of the world development has become an invisible cloak under which all manner of “state sponsored” atrocities and human rights violations...

Build Detroit area workers committees to oppose bankruptcy

  5 August 2013 ...

Housing Shifts Into Reverse

Here are a few headlines you might want to mull-over before you plunk 20 percent down on that $500,000 Tudor in Rancho Mirage: “Mortgage Applications Drop for Seventh Straight...

The Fall of a Predator

On July 25th SAC Capital, a hedge fund founded and run by Steven A. Cohen, was indicted for insider trading. Up until now, Cohen...

The Detroit bankruptcy and the drive toward dictatorship

  2 August 2013 ...

Obama rejects federal aid for Detroit

  By ...

Obama’s bogus crusade for the “middle class”

  29 July 2013 ...

The Coming Shortage Of Physical Gold That Will Change Everything

Is the paper gold scam about to be brutally crushed by a crippling shortage of physical gold? If so, what will that do to...

Obama’s Master Class in Demagogy 101

http://www.truthdig.com/report/item/obamas_master_class_in_demagogy_101_20130727/ Posted on Jul 27, 2013 By...

SEC seeking warrant exemption for private email access

The US Securities and Exchange Commission (SEC) has become the latest federal government agency to push for greater access to private email data. An...

Obama’s Master Class in Economic Demagogy 101

Yesterday President Obama chose Knox College in Galesburg, Illinois (originally founded by anti-slavery activists in the 1830s) to float the economic program he has...

Who Controls The Global Economy? Do Not Underestimate The Power Of The Big Banks

Are the big banks really as powerful as some people say that they are? Do they really control the global economy? If y0u asked...

FED’s Propaganda On Deflation, Inflation & Bubbles

Every day, I read dozens of articles on finance and economics and I am amazed that the mainstream media continue to publish articles written...

Why Larry Summers Shouldn’t Be Permitted to Run a Dog Pound, Much Less the...

I’ve been gobsmacked to see that...

Collateral Damage: QE3 and the Shadow Banking System

Rather than expanding the money supply, quantitative easing (QE) has actually caused it to shrink by sucking up the collateral needed by the shadow...

Newark mayor favored in New Jersey Senate race

  By ...

Making Corporate Fantasies Come True

London. Edward Snowden has exposed more than a massive spying operation. The whistleblower has — perhaps unintentionally — drawn attention to just how obsequious Europe’s...

Shocking Things Wall Street Financiers Say Off the Record About Their Bloated, Corrupt Industry

"A particularly troubling and consistent finding throughout the survey is that Wall Street’s future leaders—the young professionals who will one day assume control of...

Democrats, Republicans conspire to hike student loan rates

  13 July 2013 ...

'Daylight Robbery': UK Announces Privatization of State-Run Mail Service

(Getty Images)The official plan for the privatization of the UK's centuries old mail service, Royal Mail, was announced by business secretary Vince Cable on...

From the Bubble Economy to Debt Deflation and Privatization

The Federal Reserve’s QE3 has flooded the stock and bond markets with low-interest liquidity that makes it profitable for speculators to borrow cheap and...

Back to a Feudal Europe

Are the economic policies needed to maintain the euro still compatible with democracy? Greece’s state broadcaster was established after the fall of the military...

The Fed’s Assault On Gold: “Short Selling” and the Rigging of the Gold Market

I was the first to point out that the Federal Reserve was rigging all markets, not merely bond prices and interest rates, and that...

The Fed’s Assault On Gold: “Short Selling” and the Rigging of the Gold Market

I was the first to point out that the Federal Reserve was rigging all markets, not merely bond prices and interest rates, and that...

Keiser: The Collapse of the Current Bankster Regime is Upon Us

Max KeiserInfowars.comJune 17, 2013 We’re in a post-capitalist, post-socialism world. I have just come back from...

Russian Tycoon Predicts Immortality Within 25 Years

Human minds to be transferred into computers by 2035 Paul Joseph WatsonInfowars.comJune 17, 2013

Obama Cans Regulator Who Crossed Wall Street

The Obama Administration is quietly firing Commodity Futures Trading Commission head Gary Gensler, who ran afoul of big banks by pushing for greater government...

Obama Cans Regulator Who Crossed Wall Street

The Obama Administration is quietly firing Commodity Futures Trading Commission head Gary Gensler, who ran afoul of big banks by pushing for greater government...

British Police Use Anti-Terror Tactics to Arrest Protestors

The overkill of police presence threatens the legitimate right