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Video: Black Edge: New Yorker’s Sheelah Kolhatkar on Wall Street’s Biggest Insider Trading Story...

http://democracynow.org - According to a Bloomberg investigation, the general counsel for Steven Cohen's infamous investment firm oversaw some of the Trump ... Via Youtube
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Video: SEC Accusations Against US Billionaire Highlight Centrality of Insider Trading to Hedge Fund...

Former financial regulator Bill Black discusses the case of Leon Cooperman, who once accused Obama of unfair treatment of the rich Visit ... Via Youtube
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Video: Richie Allen On Hillary Clinton’s Insider Trading & The Events Of The Last...

Please Support The Show – http://richieallen.co.uk/ https://www.facebook.com/therichieallenshow http://www.youtube.com/RichieAllenShowMedia Tune in at ... Via Youtube
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Video: Chris Martenson On Hilary Clinton Insider Trading & How Brexit Fearmongers Manipulate Markets!

Please Support The Show – http://richieallen.co.uk/ https://www.facebook.com/therichieallenshow http://www.youtube.com/RichieAllenShowMedia Tune in at ... Via Youtube
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Video: ‘This is global insider trading ring, CIA is playing the game’ – Max...

Financial whistleblower Bradley Birkenfeld, who helped expose American tax evaders hiding assets in Swiss banks, has little doubt the Panama leaks scandal ... Via Youtube

Video: Shaun Attwood, Millionaire Stock Broker: “CIA Made Millions On Insider Trading before...

Please Support The Show — http://richieallen.co.uk/ http://ShaunAttwood.com/ https://www.facebook.com/therichieallenshow ... Via Youtube

Insider trading ring netted $100 mil by hacking press releases – feds

Federal prosecutors have charged nine people in an insider trading ring that lifted information from corporate press releases before they were made public. The...

Insider Trading and Financial Terrorism on Comex

Paul Craig Roberts and Dave Kranzler July 16, 2014. The first two days this week gold was subjected to a series of computer HFT-driven “flash crashes” that were aimed at cooling off the big move higher gold has made since…

The post Insider Trading and Financial Terrorism on Comex appeared first on PaulCraigRoberts.org.

‘The truth is worse than we imagine’: One-fourth of public company deals involve insider...

An award-winning new study claims that more than a quarter of all public company deals involve transactions that could be consider examples of insider...

The SAC Insider Trading Case. Hedge Funds and America’s “Financial Aristocracy”

SAC Capital Advisors, one of the most profitable hedge funds in history, pleaded guilty to security and wire fraud charges Friday as part of...

The SAC insider trading case and the US financial aristocracy

9 November 2013 SAC Capital Advisors, one of the most profitable hedge funds in history, pleaded guilty to security and wire fraud charges Friday...

No Criminal Charges for Hedge Fund SAC Capital — Fined $1.2 Billion for “Pervasive...

US prosecutors announced Monday that hedge fund group SAC Capital would plead guilty to five counts of insider trading violations in the largest such...

SAC Capital fined less than one year’s earnings for “pervasive and unprecedented” insider trading

By Andre Damon6 November 2013 US prosecutors announced Monday that hedge fund group SAC Capital would plead guilty to five counts of insider trading...

SAC to pay $1.2bn for insider trading

SAC Capital Advisors is the first large Wall Street firm in a generation to acknowledge its criminal conduct. US federal prosecutors announced Monday that SAC...

Hedge fund SAC indicted for insider trading

  By ...

The Insiders’ Case for a Stock Market Mini-Crash

This piece was reprinted by RINF Independent News with permission or license. The trade only works if everyone is lulled into staying on the long...

Interview 895 — The Geneva Business Insider with David L. Smith

This month on The Geneva Business Insider, James Corbett and David L. Smith cover the recent EU parliamentary elections and the rise of the Euroskeptics as a political force. We also discuss the Scottish independence movement, the rising mainstream awareness of gold price manipulation, and an ominous meeting of globalists in London on "fairer capitalism."

FBI Probing High-speed Trading on Wall Street

The FBI has disclosed a year-long investigation into the questionable practices of high-frequency trading less than 24 hours after the rest of the world...

It’s Official: China Becomes Largest Trading Nation — Now What?

We all knew this was coming, now what happens? The globalists put their plan into motion decades ago. The proper meaning of the headline is not...

Facebook stock price follows my prediction: insiders rule

Facebook stock price follows my prediction: insiders rule by Jon Rappoport December 16, 2013 www.nomorefakenews.com On August 20, 2012, three months after Facebook went public and launched its IPO, I posted a piece headlined: “Facebook, the CIA, DARPA, and the Tanking IPO.” In it I presented a little background and made a prediction: “But now […]

Fed insider exposes “easing” swindle

A former Federal Reserve official who helped the Central Bank manage its bond buying program, dubbed QE, has admitted that the program is a...

Fed Insider Exposes Giant Central Bank “Easing” Swindle

“This was a program (QE) that was devised to help mortgage lending in America…Instead, what we saw was massive Wall Street earnings.” Andrew Huszar,...

The Insider’s Economic Dictionary: F Is for FIRE Sector

By Michael Hudson This piece first appeared at the website of University of Missouri, Kansas City economics professor Michael Hudson. Read the rest of the...

Hedge Fund Hog Makes Mommy’s Monkey Jump

by Greg Palast update of story from Truthout On Thursday, a federal jury found Mathew Martoma guilty of insider trading. Martoma, who's only worth a hundred million or so, is small potatoes. He's taking a fall for his boss–and his boss' mommy–and her monkey. Martoma's boss is Steven A. Cohen, worth about $9 billion, who [...]

Steven Cohen Can’t Make His Mommy’s Monkey Jump

By Greg Palast for Truthout [New York] Billionaire Steven A. Cohen's marriage was in hot water because his wife wouldn't tolerate the "other woman."  The other woman was Steven's mother. This week, Cohen's hedge fund, SAC Capital Advisors will plead guilty to criminal charges of insider trading and pay $1.2 billion in fines and forfeitures. [...]

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

Frontrunning: March 12

  • Cardinals head to conclave to elect pope for troubled Church (Reuters)
  • Hyperinflation 'Unthinkable' Even With Bold Easing: Abe (Nikkei)
  • Ryan Plan Revives '12 Election Issues (WSJ)
  • Republicans to unveil $4.6tn of cuts (FT) - Obama set to dismiss Ryan plan to balance budget within decade
  • Italy 1-yr debt costs highest since Dec after downgrade (Reuters)
  • CIA Ramps Up Role in Iraq (WSJ)
  • Hollande Hostility Fuels Charm Offensive to Show He’s No Sarkozy (BBG)
  • SEC testing customized punishments (Reuters)
  • Judge Cans Soda Ban  (WSJ)
  • Hungary Lawmakers Rebuff EU, U.S. (WSJ)
  • Even Berlusconi Can’t Slow Bulls Boosting Euro View (BBG) - luckily the consensus is never wrong
  • Funding for Lending ‘put on steroids’ (FT)
  • Investigators Narrow Focus in Dreamliner Probe (WSJ)
  • With new group, Obama team seeks answer to Karl Rove (Reuters)
  • Boston Booms as Workers Say No to Suburbs (BBG)

Overnight Media Digest

WSJ

* Illinois settled Securities and Exchange Commission civil-fraud charges that the state misled municipal-bond investors by failing to adequately disclose the risks of its underfunded pension system.

* Lawmakers grilling Mary Jo White, President Barack Obama's nominee for chairman of the Securities and Exchange Commission, on Tuesday will have to weigh two seemingly contradictory versions of the attorney.

* U.S. aviation safety investigators examining Boeing Co's 787 Dreamliner increasingly are focusing on manufacturing or design problems with the batteries as possible causes of overheating rather than on other parts of the jet's electrical system, the head of the National Transportation Safety Board said on Monday.

* Starr International Co, run by the former chief executive of American International Group Inc, won the right to pursue as a class action its case against the U.S. government, alleging that elements of AIG's financial-crisis bailout package were unconstitutional.

* A crisis of confidence in the nuclear-power industry has trickled down to Namibia, where uranium accounts for 12 percent of exports. But uranium prices are down 70 percent over the past six years.

* General Motors Co is in the process of changing advertising agencies of its Cadillac brand. Advertising and marketing work to support Cadillac, valued at about $250 million, will be moved to longtime Michigan advertising agency Campbell Ewald, according to three people briefed on the matter.

* The monopoly powers of Mexico's telephone giant, América Móvil SAB de CV and leading broadcaster Grupo Televisa SAB, are coming under fire with a broad set of new laws that aim to open up the telecommunications and television businesses to competition.

* Many small U.S. banks are feeling a financial pinch from the government's efforts to punish executives and directors of banks that collapsed during the height of the financial crisis.

* KKR & Co LP is considering teaming with other private equity firms to pursue biotech firm Life Technologies Corp, according to people familiar with the matter, in the latest sign that buyout shops are still willing to form "clubs" if they covet a large target.

* VeriFone Systems Inc Chief Executive Douglas Bergeron is stepping down after a dozen years at the helm of the card-payment systems maker. The company said it will hire an executive-search firm to find a successor, with Chairman Richard McGinn serving as CEO on an interim basis.

FT

Dell Inc has agreed to give Carl Icahn a closer look at its books less than a week after the activist investor joined a growing chorus of opposition to founder Michael Dell's plan to take the world's No. 3 personal computer maker private.

Private equity firms are looking to buy the UK property business of Germany's second-biggest lender, Commerzbank AG, in a potential 5 billion pound ($7.45 billion) deal.

UK lender LLoyds Banking Group plans to sell 20 percent of its stake in wealth manager St James's Place

Alibaba Group has chosen Jonathan Lu, its Chief Data Officer who has more than a decade of experience in executive roles, to lead China's largest e-commerce company as it prepares to launch an initial public offering.

Italy's central bank has told some of the country's biggest banks to increase their bad loan provisions by an estimated 21 billion euros ($27.33 billion) amid deepening of a nearly two-year old recession.

Billionaire hedge fund manager John Paulson is exploring moving to Puerto Rico from New York to lower his tax bill.

Richard Joseph, a former futures trader, was convicted of six counts of insider trading, leaking information from the print room at JPMorgan Cazenove. Joseph placed spread bets with CMC Markets ahead of a series of deals in 2007 and 2008.

Mexico is looking to overhaul its telecom industry by introducing sweeping proposals that will increase competition and limit the control of telecoms tycoon Carlos Slim and broadcasting giant Televisa.

NYT

* For the second time in history, federal regulators have accused an American state of securities fraud, finding that Illinois misled investors about the condition of its public pension system from 2005 to 2009.

* A state court judge invalidated New York City's new restrictions on sweetened beverages on Monday, a day before they were set to take effect, saying the rules were "arbitrary and capricious."

* Britain, unlike other economic powers, is responding to the financial crisis by creating two new agencies, one to oversee institutions and another to watch for market abuses.

* In advance of a summit meeting of European Union leaders on Thursday in Brussels, the president of the European Commission, José Manuel Barroso, called on the bloc's 17 members to stay the course on austerity.

* Intrade, the online betting site, announced late on Sunday that it had halted trading and frozen customer accounts after the discovery of potential financial irregularities.

* Oppenheimer & Co will pay nearly $3 million to settle accusations by federal and state regulators that it misled investors about the performance of one of its private equity funds, in a case that signals stepped-up scrutiny of the buyout industry and how it values its holdings.

* Dell Inc has agreed to open its books to the activist investor Carl Icahn, signaling a possible truce on one front in the battle over the computer maker's proposed $24.4 billion buyout.

* In prepared testimony for her nomination hearing, Mary Jo White placed a premium on unearthing financial fraud, as she works to deflect concerns from lawmakers who question her ability to regulate banks she recently defended.

* British authorities have opened an investigation into Hewlett-Packard Co's claims that it was duped when it bought the business software maker Autonomy, according to regulatory documents filed on Monday.

Canada

THE GLOBE AND MAIL

* Ottawa and the Northwest Territories have reached a deal to hand the territory province-like power over its land, a move aimed at empowering local leaders to unlock more of their resource riches.

* Less than a third of the almost 300,000 members and supporters who signed up to choose the Liberal party's next leader have so far registered to vote, prompting front-runner Justin Trudeau's camp to complain about a host of technical glitches and request a one-week extension on registration.

* The federal government is facing questions over the legitimacy of its centerpiece for aboriginal education reform. Manitoba chiefs rejected the Harper government's vision for aboriginal education on Monday, claiming Ottawa is trying to "bypass" first nations chiefs and shirk its treaty responsibilities.

Reports in the business section:

* Chrysler Canada is jumping back into leasing for the first time since 2008, raising the competitive stakes another notch in an auto market already awash with financing and leasing incentives.

* AT&T Inc will begin selling BlackBerry's new BlackBerry Z10 smartphone next week, marking the smartphone's debut in a crucial U.S. market that has largely shunned the company's devices in recent years.

* Molson Coors Brewing Co's Canadian arm sold far less Miller Genuine Draft beer in the country over the past three years than the targets called for under its agreement with Miller Brewing Co. That under-performance - spelled out in court filings - is at the crux of a dispute that has erupted between the two companies, as Miller tries to cancel its Canadian licensing agreement with Molson.

NATIONAL POST

* The federal government, which has come under fire over tougher employment insurance (EI) rules, is sweetening benefits for parents. It says it will allow individuals receiving parental benefits through EI to qualify for sickness benefits as well, starting March 24.

* The latest annual report on federal ad spending shows Ottawa shelled out C$78.5 million ($76.5 million) in 2011-12 telling Canadians about everything from the switch to digital TV and the War of 1812, to elder abuse and anti-drug messaging. The Harper government spent C$21 million on major advertising campaigns under its Economic Action Plan brand.

* Despite activist claims that the city's homeless are dying due to a lack of shelter space, there is no shelter bed shortage in Toronto, according to an internal report prepared for city council.

FINANCIAL POST

* After years of growth, economists say the real estate boom is over and predict Canadian housing prices to flatline over the next decade. A TD Economics study, Long-Run Rate of Return for Canadian Home Prices, predicts a "string of lackluster performances" over the next few years.

* Alamos Gold Inc is going on the offensive in the takeover battle for Aurizon Mines Ltd, asking a securities regulator to reject both a break fee and poison pill that it believes are highly irregular.

* Travel tour operator Transat AT Inc said it has managed to wrest concessions from its flight attendants as the company continues its campaign to be more cost competitive. The bulk of the expected C$9 million in annual savings will come from Transat lowering the amount of flight attendants on its Airbus A330s to 10 from 11, and the move will also support a potential shift to a fleet of Boeing Co's 737s.

China

SECURITIES TIMES

-- Huatai Securities said on Tuesday its board of directors had sanctioned the issuance of no more than 10 billion yuan of corporate bonds on the Shanghai Stock Exchange to supplement operating funds.

-- The Shanghai securities regulator said five foreign banks, including Standard Chartered, have applied for licences to distribute mutual fund products in China.

CHINA SECURITIES JOURNAL

-- The Shanghai stock exchange is looking to invest more in regional stock exchanges to support smaller firms in China, its director general said on Monday.

CHINA DAILY

-- China's first special envoy for Asian affairs will have a focus on Myanmar, the Foreign Ministry said on Monday. There has been tension between China and its southern neighbour over conflict in Myanmar, close to the Chinese border.

-- Roughly one in ten of the 5,000 proposals submitted to China's top political advisory body since March 3 are related to environmental issues, said Lu Fuhe, a top national political advisor.

SHANGHAI DAILY

-- French firm Carrefour, the world's number two retailer, has implemented a system to allow shoppers to trace the origin of fruit and vegetables in their Chinese stores in Shanghai, a reflection of the recent pressure in China over food safety.

CHINA BUSINESS NEWS

-- The number of dead pigs found in the Huangpu River, one of Shanghai's key water sources, is now estimated to have increased to 2,800.

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

Axiall (AXLL) upgraded to Buy from Neutral at Citigroup
Dick's Sporting (DKS) upgraded to Outperform from Market Perform at BMO Capital
Dick's Sporting (DKS) upgraded to Conviction Buy from Buy at Goldman
Intercontinental Hotels (IHG) upgraded to Neutral from Sell at UBS
Mosaic (MOS) upgraded to Outperform from Market Perform at BMO Capital
Sherwin-Williams (SHW) upgraded to Neutral from Underperform at Credit Suisse
Vantiv (VNTV) upgraded to Outperform from Market Perform at Raymond James
Vitamin Shoppe (VSI) upgraded to Buy from Neutral at Goldman

Downgrades

CVS Caremark (CVS) downgraded to Neutral from Buy at Goldman
EverBank Financial (EVER) downgraded to Neutral from Buy at Sterne Agee
RadioShack (RSH) downgraded to Sell from Neutral at Goldman
Red Hat (RHT) downgraded to Neutral from Buy at Citigroup

Initiations

Fifth & Pacific (FNP) initiated with a Buy at Brean Capital
Rush Enterprises (RUSHA) initiated with a Market Perform at BMO Capital
TJX (TJX) initiated with an Overweight at Barclays
Wabash (WNC) initiated with an Outperform at BMO Capital
WABCO (WBC) initiated with an Outperform at BMO Capital
Xoom (XOOM) initiated with an Outperform at RW Baird
Xoom (XOOM) initiated with an Overweight at Barclays

HOT STOCKS

SEC charged Illinois for misleading pension disclosures
Treasury Department sold $489.9M of GM (GM) common stock in February
HP (HPQ) disclosed U.K Serious Fraud Office opened investigation related to Autonomy
KKR (KKR) has considered teaming to bid for Life Technologies (LIFE), and Thermo Fisher (TMO) and Danaher (DHR) also weigh bids for Life, valued at $12.5B with debt, DJ reports
Diamond Foods (DMND) sees second half sales down more than first half
Rio Tinto (RIO) slowed Guinea iron ore investment, to cut staff, Reuters reports
Said Guinea iron ore project not frozen, to work with government on funding, Bloomberg reports
Hill International (HIL) sees FY13 consulting fee revenue $500M-$520M
Cadence Design (CDNS) acquired Tensilica for $380M in cash
Pall Corp (PLL) signed 30 year agreement to supply Embraer (ERJ) with KC-390 manifolds
MRC Global (MRC), NAWAH entered into alliance to open distribution facility in Iraq
Lakeland Industries (LAKE) reported $11.5M goodwill impairment charge in Brazil

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Costco (COST), BioScrip (BIOS), Stewart Enterprises (STEI), XenoPort (XNPT), Heckmann (HEK)

Companies that missed consensus earnings expectations include:
Stage Stores (SSI), FuelCell (FCEL), Chiquita Brands (CQB), Hill International (HIL), Casey's General Stores (CASY), Urban Outfitters (URBN)

Companies that matched consensus earnings expectations include:
Douglas Dynamics (PLOW), Flow International (FLOW), Manitex (MNTX)

NEWSPAPERS/WEBSITES

  • Multinationals (GE, HPQ, CAT, HON) have been increasing their footprint in Asia for years as they have moved from selling into the region to also investing here. But the transformation is gaining critical mass as Western companies' market-share leads in Asia over cash-flush local competitors narrow, forcing Western firms to invest more, tailor their products and transfer top executives to Asia, the Wall Street Journal reports
  • Rising fuel prices have GM (GM) and Chrysler Group (FIATY) taking another look at selling smaller pickup trucks—vehicles that the Detroit Three automakers (F) abandoned in the U.S. amid weak demand. Both see the vehicles helping them to hit higher fuel-economy targets and to regain market share from Toyota (TM), the current top-selling small hauler., the Wall Street Journal reports
  • Two groups of AIG (AIG) shareholders won class-action status from a federal judge on in a $25B lawsuit by former CEO Maurice "Hank" Greenberg over alleged losses caused by the U.S. government's bailout of the insurer, Reuters reports
  • As the jobs market showing signs of healing, economists think they know what's next for monetary policy: the Fed will at some point reduce its monthly bond purchases, and soon after, end them altogether. But perhaps they shouldn't be so sure, Reuters reports
  • Shares of companies that own and operate their truck fleets (WERN, KNX, SWFT, HTLD) are outperforming those that act as brokers for trucking services, driven by stronger U.S. freight activity, Bloomberg reports
  • The Treasury Department, exiting its ownership stake in GM (GM), accelerated its sell- down of the automaker in February, saying it received $489.9M in proceeds from the sale of common shares, Bloomberg reports

SYNDICATE

Emeritus (ESC) announces 7.97M share secondary offering by holders
Government Properties (GOV) 9.95M share Spot Secondary priced at $25.20
HeartWare (HTWR) announces public offering of 1.5M shares of common stock
Lexington Realty (LXP) files to sell 15M shares of common stock
Salesforce.com (CRM) announces proposed $1B offering of convertible senior notes
Sapiens (SPNS) files to sell $40M of common stock, 6M shares for holders
Sun Communities (SUI) announces 4.5M share common stock offering
U.S. Silica (SLCA) announces 8.5M share secondary offering by stockholder
Yandex (YNDX) announces 24.25M Class A ordinary shares offering by holders

Your rating: None Average: 5 (1 vote)

POGO Sticks It to the SEC

In our last episode of that ongoing Washington soap opera, “As the Door Revolves,” we introduced you to former federal prosecutor Mary Jo White, pursuer of drug lords and terrorists, who left government to become a hot shot Wall Street lawyer defending such corporate giants as JPMorgan Chase, UBS, General Electric and Microsoft. Oh yes — and former Goldman Sachs board member Rajat Gupta, currently appealing his insider trading conviction.

The New York Times reports that White and her husband, who’s also a corporate litigator, have a net worth of at least $16 million and investments that might be valued as high as $35 million. Now, courtesy of President Obama, Mary Jo White’s been named to head the SEC, the Securities and Exchange Commission — the very agency that regulates her clients and everyone else doing business in the stock market.

But as they say on late night TV, wait — there’s more! Join us for our latest episode of “As the Door Revolves” in which the door spins even faster between the SEC and big business. According to a major new report from the nonpartisan watchdog POGO – the Project on Government Oversight — hundreds of the agency’s former employees have done or are doing business with the SEC on behalf of the corporations the agency is supposed to regulate.

Imagine — hundreds with an intimate knowledge of how the place works advocating for their clients with friends at the SEC — colleagues who themselves may be looking for a big payoff when they, too, leave government. From 2001 through 2010, 419 SEC alumni filed nearly 2,000 disclosure forms saying they would be representing companies or individuals coming before the commission. And that’s only the “tip of the iceberg,” POGO says, “Because former SEC employees are required to file them only during the first two years after they leave the agency.” In other words, after that first couple of years there are no official records kept so we can’t know how vast the problem is or even how far back it goes.

However, POGO writes, “Former employees of the Securities and Exchange Commission routinely help corporations try to influence S.E.C. rule-making, counter the agency’s investigations of suspected wrongdoing, soften the blow of S.E.C. enforcement actions, block shareholder proposals and win exemptions from federal law.”

No wonder the SEC has granted special waivers to business on some 350 occasions that, according to the report, “softened the blow of enforcement actions.” What’s more, a year ago, The New York Times reported that “Close to half of the waivers went to repeat offenders — Wall Street firms that had settled previous fraud charges by agreeing never again to violate the very laws that the SEC was now saying that they had broken.” The plot thickens, or in this case, sickens.

POGO also notes that in three instances — from 2008-2012 — when there were cases against UBS, the Swiss investment bank retained ex-SEC attorneys to argue on its behalf and was, in the words of the Times, “granted relief.” And when Obama’s first SEC chair, Mary Schapiro, pushed for reform of the $2.6 trillion money markets business, it was lobbied against by at least half a dozen former SEC staffers, and opposed by the two Republicans on the commission and one Democrat, Luis Aguilar, who used to be an executive vice president with the money management firm Invesco. The POGO report says that shortly after “Invesco sent a team to meet with Aguilar at the SEC and tell him why tightening rules for money market funds was a bad idea,” he came out against Schapiro’s plan, Coincidence? Aguilar told POGO there’s no connection. Sure.

When George W. Bush was president and named Chris Cox to run the SEC, we screamed like bloody murder, because Cox had been a partner at a huge global law firm whose client list included Deutsche Bank and Goldman Sachs. Now Obama’s pushing his choices through that same revolving door. It’s called “regulatory capture” — the takeover of government agencies by the very corporations they’re supposed to keep an eye on, to protect everyone’s investments and pensions against abuses of private power.

What’s next? Stay tuned. In the next few weeks, Mary Jo White will sit for her confirmation hearing and doubtless will be asked all about this by a committee stacked with politicians whose big donors include… the financial industry. You can read the complete POGO report here. Forward it to your own Member of Congress, then open your window and scream.

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

Your rating: None

Do As We Say, Congress Says, Then Does What It Wants

congress

By Theodoric Meyer, ProPublica

When CBS News reported in 2011 that members of Congress weren't prohibited from insider trading, Congress moved swiftly.President Obama signed a law banning it within six months of the broadcast.

But Congress is still exempt from portions of a number of federal laws, including provisions that protect workers in the private sector but don't apply to the legislative branch's approximately 30,000 employees.

Here's our rundown of measures Congress exempts itself from:

  • Whistleblower Protections: Congress passed the Whistleblower Protection Act in 1989, which protects workers in the executive branch from retaliation for reporting waste, mismanagement or lawbreaking. The Sarbanes-Oxley Act gives similar protections to private-sectors workers. But legislative-branch workers — a category that includes congressional staffers as well as employees of the Library of Congress, the Architect of the Capitol and other offices —don't get the same protections.
  • Subpoenas for Health and Safety Probes:  The Occupational Health and Safety Act empowers the U.S. Department of Labor to investigate health and safety violations in private-sector workplaces. If an employer doesn't cooperate, the agency can subpoena the records it needs. The Office of Compliance, the independent agency that investigates such violations in the legislative branch, doesn't have the power to issue those subpoenas.
  • Keeping Workplace Records: A number of workplace-rights laws — the Age Discrimination in Employment Act, the Americans with Disabilities Act and others — require employers to retain personnel records for a certain period of time. But as a recent report on the congressional workplace notes, "Congress has exempted itself from all of these requirements." Congress is also exempt from keeping records of injuries and illness the way private-sector employers are.
  • Prosecution for Retaliating Against Employees: If a private-sector employer retaliates against a worker for reporting health or safety hazards, the Department of Labor can investigate and, if necessary, sue the employer. Congress' Office of Compliance doesn't have that power — legislative-branch employees must file suit personally and pay their own legal fees.
  • Posting Notices of Workers' Rights: Workplace-rights laws require employers to post notices of those rights, which often appear in office lunchrooms. Congress is exempt from this requirement, though this has little real-world impact. The Office of Compliance sends legislative employees the same information each year, formatted "in a manner suitable for posting."
  • Anti-Discrimination and Anti-Retaliation Training: The No Fear Act requires agencies in the executive branch to provide such training to employees, but the legislative branch is exempt.
  • The Freedom of Information Act: The public can request information from federal agencies, but Congress, the federal courts and some parts of the Executive Office of the President are exempt.

In addition to sparing itself from complying with measures it has made mandatory for others, Congress is violating of some of the laws that do apply to it, according to a recent report from the Office of Compliance. (The pint-sized agency, created by Congress in 1995, is responsible for enforcing a number of workplace-rights laws in the legislative branch.) The sidewalks surrounding the three House office buildings, the report noted, don't comply with the Americans with Disabilities Act. Neither do the restrooms in the House and Senate office buildings and the Library of Congress' James Madison Building.

The Office of Compliance cites certain congressional exemptions as particularly problematic. The agency's inability to subpoena information regarding some legislative workers' complaints about health and safety often means the office must negotiate with congressional offices to gather the facts it needs.  

"It can tie our hands sometimes," said Barbara J. Sapin, the office's executive director.

The Office of Compliance has urged Congress to apply the laws listed above to itself — except the Freedom of Information Act — with little result. Eleanor Holmes Norton, the non-voting delegate who represents the District of Columbia, introduced a bill in 2011 to do this, but it died in committee.

The number of complaints of discrimination and harassment filed by legislative-branch workers with the Office of Compliance has nearly doubled in the last two years, from 102 in the 2009 fiscal year to 196 in the 2011 fiscal year. Workers' complaints about retaliation or intimidation have risen even more sharply, from 36 in fiscal year 2009 to 108 in fiscal year 2011.

Even so, Debra Katz, a Washington lawyer who specializes in workplace-rights law, said some Capitol Hill employees might be holding back from filing complaints. House and Senate staffers, she said, are often reluctant to speak up about harassment or discrimination for fear of jeopardizing their careers.

"People are very loath to burn bridges by filing a complaint or going to the Office of Compliance," she said. "They don't want to go forward with bringing a claim, even when it's covered under the law."

Do as We Say, Congress Says, Then Does What It Wants

Don’t let the forces of regression dominate the media in 2013 - click here to support brave, independent reporting today by making a contribution to Truthout.

When CBS News reported in 2011 that members of Congress weren’t prohibited from insider trading, Congress moved swiftly.President Obama signed a law banning it within six months of the broadcast.

But Congress is still exempt from portions of a number of federal laws, including provisions that protect workers in the private sector but don’t apply to the legislative branch’s approximately 30,000 employees.

Here’s our rundown of measures Congress exempts itself from:

  • Whistleblower Protections: Congress passed the Whistleblower Protection Act in 1989, which protects workers in the executive branch from retaliation for reporting waste, mismanagement or lawbreaking. The Sarbanes-Oxley Act gives similar protections to private-sectors workers. But legislative-branch workers — a category that includes congressional staffers as well as employees of the Library of Congress, the Architect of the Capitol and other offices —don’t get the same protections.
  • Subpoenas for Health and Safety Probes:  The Occupational Health and Safety Act empowers the U.S. Department of Labor to investigate health and safety violations in private-sector workplaces. If an employer doesn’t cooperate, the agency can subpoena the records it needs. The Office of Compliance, the independent agency that investigates such violations in the legislative branch, doesn’t have the power to issue those subpoenas.
  • Keeping Workplace Records: A number of workplace-rights laws — the Age Discrimination in Employment Act, the Americans with Disabilities Act and others — require employers to retain personnel records for a certain period of time. But as arecent report on the congressional workplace notes, “Congress has exempted itself from all of these requirements.” Congress is also exempt from keeping records of injuries and illness the way private-sector employers are.
  • Prosecution for Retaliating Against Employees: If a private-sector employer retaliates against a worker for reporting health or safety hazards, the Department of Labor can investigate and, if necessary, sue the employer. Congress’ Office of Compliance doesn’t have that power — legislative-branch employees must file suit personally and pay their own legal fees.
  • Posting Notices of Workers’ Rights: Workplace-rights laws require employers to post notices of those rights, which often appear in office lunchrooms. Congress is exempt from this requirement, though this has little real-world impact. The Office of Compliance sends legislative employees the same information each year, formatted “in a manner suitable for posting.”
  • Anti-Discrimination and Anti-Retaliation Training: The No Fear Act requires agencies in the executive branch to provide such training to employees, but the legislative branch is exempt.
  • The Freedom of Information Act: The public can request information from federal agencies, but Congress, the federal courts and some parts of the Executive Office of the President are exempt.

In addition to sparing itself from complying with measures it has made mandatory for others, Congress is violating of some of the laws that do apply to it, according to a recent report from the Office of Compliance. (The pint-sized agency, created by Congress in 1995, is responsible for enforcing a number of workplace-rights laws in the legislative branch.) The sidewalks surrounding the three House office buildings, the report noted, don’t complywith the Americans with Disabilities Act. Neither do the restrooms in the House and Senate office buildings and the Library of Congress’ James Madison Building.

The Office of Compliance cites certain congressional exemptions as particularly problematic. The agency’s inability to subpoena information regarding some legislative workers’ complaints about health and safety often means the office must negotiate with congressional offices to gather the facts it needs.  

“It can tie our hands sometimes,” said Barbara J. Sapin, the office’s executive director.

The Office of Compliance has urged Congress to apply the laws listed above to itself — except the Freedom of Information Act — with little result. Eleanor Holmes Norton, the non-voting delegate who represents the District of Columbia, introduced a bill in 2011 to do this, but it died in committee.

The number of complaints of discrimination and harassment filed by legislative-branch workers with the Office of Compliance has nearly doubled in the last two years, from 102 in the 2009 fiscal year to 196 in the 2011 fiscal year. Workers’ complaints about retaliation or intimidation have risen even more sharply, from 36 in fiscal year 2009 to 108 in fiscal year 2011.

Even so, Debra Katz, a Washington lawyer who specializes in workplace-rights law, said some Capitol Hill employees might be holding back from filing complaints. House and Senate staffers, she said, are often reluctant to speak up about harassment or discrimination for fear of jeopardizing their careers.

“People are very loath to burn bridges by filing a complaint or going to the Office of Compliance,” she said. “They don’t want to go forward with bringing a claim, even when it’s covered under the law.”

The Politics of Debt in America: From Debtor’s Prison to Debtor Nation

Those who view debt with a smiley face as the royal road to wealth accumulation and tend to be forgiven if their default is large enough almost invariably come from the top rungs of the economic hierarchy.  Then there are the rest of us, who get scolded for our impecunious ways, foreclosed upon and dispossessed, leaving behind scars that never fade away and wounds that disable our futures.

Think of this upstairs-downstairs class calculus as the politics of debt.  British economist John Maynard Keynes put it like this: “If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.”

After months of an impending “debtpocalypse,” the dreaded “debt ceiling,” and the “fiscal cliff,” Americans remain preoccupied with debt, public and private.  Austerity is what we’re promised for our sins. Millions are drowning, or have already drowned, in a sea of debt — mortgages gone badstudent loans that may never be paid off, spiraling credit card bills, car loans, payday loans, and a menagerie of new-fangled financial mechanisms cooked up by the country’s “financial engineers” to milk what’s left of the American standard of living.  

The world economy almost came apart in 2007-2008, and still may do so under the whale-sized carcass of debt left behind by financial plunderers who found in debt the leverage to get ever richer.  Most of them still live in their mansions and McMansions, while other debtors live outdoors, or in cars or shelters, or doubled-up with relatives and friends — or even in debtor’s prison. Believe it or not, a version of debtor’s prison, that relic of early American commercial barbarism, is back.

In 2013, you can’t actually be jailed for not paying your bills, but ingenious corporations, collection agencies, cops, courts, and lawyers have devised ways to insure that debt “delinquents” will end up in jail anyway.  With one-third of the states now allowing the jailing of debtors (without necessarily calling it that), it looks ever more like a trend in the making.

Will Americans tolerate this, or might there emerge a politics of resistance to debt, as has happened more than once in a past that shouldn’t be forgotten?

The World of Debtor’s Prisons

Imprisonment for debt was a commonplace in colonial America and the early republic, and wasn’t abolished in most states until the 1830s or 1840s, in some cases not until after the Civil War.  Today, we think of it as a peculiar and heartless way of punishing the poor — and it was.  But it was more than that.

Some of the richest, most esteemed members of society also ended up there, men like Robert Morris, who helped finance the American Revolution and ran the Treasury under the Articles of Confederation; John Pintard, a stock-broker, state legislator, and founder of the New York Historical Society; William Duer, graduate of Eton, powerful merchant and speculator, assistant secretary in the Treasury Department of the new federal government, and master of a Hudson River manse; a Pennsylvania Supreme Court judge; army generals; and other notables.

Whether rich or poor, you were there for a long stretch, even for life, unless you could figure out some way of discharging your debts.  That, however, is where the similarity between wealthy and impoverished debtors ended.

Whether in the famous Marshalsea in London where Charles Dickens had Little Dorritt’s father incarcerated (and where Dickens’s father had actually languished when the author was 12), or in the New Gaol in New York City, where men like Duer and Morris did their time, debtors prisons were segregated by class.  If your debts were large enough and your social connections weighty enough (the two tended to go together) you lived comfortably.  You were supplied with good food and well-appointed living quarters, as well as books and other pleasures, including on occasion manicurists and prostitutes.

Robert Morris entertained George Washington for dinner in his “cell.” Once released, he resumed his career as the new nation’s richest man.  Before John Pintard moved to New Gaol, he redecorated his cell, had it repainted and upholstered, and shipped in two mahogany writing desks.

Meanwhile, the mass of petty debtors housed in the same institution survived, if at all, amid squalor, filth, and disease.  They were often shackled, and lacked heat, clean water, adequate food, or often food of any kind.  (You usually had to have the money to buy your own food, clothing, and fuel.)  Debtors in these prisons frequently found themselves quite literally dying of debt.  And you could end up in such circumstances for trivial sums.  Of the 1,162 jailed debtors in New York City in 1787, 716 owed less than twenty shillings or one pound.  A third of Philadelphia’s inmates in 1817 were there for owing less than $5, and debtors in the city’s prisons outnumbered violent criminals by 5:1.  In Boston, 15% of them were women.  Shaming was more the point of punishment than anything else.

Scenes of public pathos were commonplace.  Inmates at the New Gaol, if housed on its upper floors, would lower shoes out the window on strings to collect alms for their release.  Other prisons installed “beggar gates” through which those jailed in cellar dungeons could stretch out their palms for the odd coins from passersby.

Poor and rich alike wanted out.  Pamphleteering against the institution of debtor’s prison began in the 1750s.  An Anglican minister in South Carolina denounced the jails, noting that “a person would be in a better situation in the French King’s Gallies, or the Prisons of Turkey or Barbary than in this dismal place.”  Discontent grew.  A mass escape from New Gaol of 40 prisoners armed with pistols and clubs was prompted by extreme hunger.

In the 1820s and 1830s, as artisans, journeymen, sailors, longshoremen, and other workers organized the early trade union movement as well as workingmen’s political parties, one principal demand was for the abolition of imprisonment for debt.  Inheritors of a radical political culture, their complaints echoed that Biblical tradition of Jubilee mentioned in Leviticus, which called for a cancellation of debts, the restoration of lost houses and land, and the freeing of slaves and bond servants every 50 years.

Falling into debt was a particularly ruinous affliction for those who aspired to modest independence as shopkeepers, handicraftsmen, or farmers.  As markets for their goods expanded but became ever less predictable, they found themselves taking out credit to survive and sometimes going into arrears, often followed by a stint in debtor’s prison that ended their dreams forever.

However much the poor organized and protested, it was the rich who got debt relief first.  Today, we assume that debts can be discharged through bankruptcy (although even now that option is either severely restricted or denied to certain classes of less favored debt delinquents like college students).  Although the newly adopted U.S. Constitution opened the door to a national bankruptcy law, Congress didn’t walk through it until 1800, even though many, including the well-off, had been lobbying for it.

Enough of the old moral faith that frowned on debt as sinful lingered.  The United States has always been an uncharitable place when it comes to debt, a curious attitude for a society largely settled by absconding debtors and indentured servants (a form of time-bound debt peonage).  Indeed, the state of Georgia was founded as a debtor’s haven at a time when England’s jails were overflowing with debtors.

When Congress finally passed the Bankruptcy Act, those in the privileged quarters at New Gaol threw a party.  Down below, however, life continued in its squalid way, since the new law only applied to people who had sizable debts.  If you owed too little, you stayed in jail.

Debt and the Birth of a Nation

Nowadays, the conservative media inundate us with warnings about debt from the Founding Fathers, and it’s true that some of them like Jefferson — himself an inveterate, often near-bankrupt debtor — did moralize on the subject.  However, Alexander Hamilton, an idol of the conservative movement, was the architect of the country’s first national debt, insisting that “if it is not excessive, [it] will be to us a national blessing.”

As the first Secretary of the Treasury, Hamilton’s goal was to transform the former 13 colonies, which today we would call an underdeveloped land, into a country that someday would rival Great Britain.  This, he knew, required liquid capital (resources not tied up in land or other less mobile forms of wealth), which could then be invested in sometimes highly speculative and risky enterprises.  Floating a national debt, he felt sure, would attract capital from well-positioned merchants at home and abroad, especially in England.

However, for most ordinary people living under the new government, debt aroused anger.  To begin with, there were all those veterans of the Revolutionary War and all the farmers who had supplied the revolutionary army with food and been paid in notoriously worthless “continentals” — the currency issued by the Continental Congress — or equally valueless state currencies.

As rumors of the formation of a new national government spread, speculators roamed the countryside buying up this paper money at a penny on the dollar, on the assumption that the debts they represented would be redeemed at face value.  In fact, that is just what Hamilton’s national debt would do, making these “sunshine patriots” quite rich, while leaving the yeomanry impoverished.

Outrage echoed across the country even before Hamilton’s plan got adopted.  Jefferson denounced the currency speculators as loathsome creatures and had this to say about debt in general: “The modern theory of the perpetuation of debt has drenched the earth with blood and crushed its inhabitants under burdens ever accumulating.”  He and others denounced the speculators as squadrons of counter-revolutionary “moneycrats” who would use their power and wealth to undo the democratic accomplishments of the revolution.

In contrast, Hamilton saw them as a disinterested monied elite upon whom the country’s economic well-being depended, while dismissing the criticisms of the Jeffersonians as the ravings of Jacobin levelers.  Soon enough, political warfare over the debt turned founding fathers into fratricidal brothers.

Hamilton’s plan worked — sometimes too well.  Wealthy speculators in land like Robert Morris, or in the building of docks, wharves, and other projects tied to trade, or in the national debt itself — something William Duer and grandees like him specialized in — seized the moment.  Often enough, however, they over-reached and found themselves, like the yeomen farmers and soldiers, in default to their creditors.

Duer’s attempts to corner the market in the bonds issued by the new federal government and in the stock of the country’s first National Bank represented one of the earliest instances of insider trading.  They also proved a lurid example of how speculation could go disastrously wrong.  When the scheme collapsed, it caused the country’s first Wall Street panic and a local depression that spread through New England, ruining “shopkeepers, widows, orphans, butchers… gardeners, market women, and even the noted Bawd Mrs. McCarty.”

A mob chased Duer through the streets of New York and might have hanged or disemboweled him had he not been rescued by the city sheriff, who sent him to the safety of debtor’s prison.  John Pintard, part of the same scheme, fled to Newark, New Jersey, before being caught and jailed as well.

Sending the Duers and Pintards of the new republic off to debtors’ prison was not, however, quite what Hamilton had in mind.  And leaving them rotting there was hardly going to foster the “enterprising spirit” that would, in the treasury secretary’s estimation, turn the country into the Great Britain of the next century.  Bankruptcy, on the other hand, ensured that the overextended could start again and keep the machinery of commercial transactions lubricated.  Hence, the Bankruptcy Act of 1800.

If, however, you were not a major player, debt functioned differently. Shouldered by the hoi polloi, it functioned as a mechanism for funneling wealth into the mercantile-financial hothouses where American capitalism was being incubated.

No wonder debt excited such violent political emotions.  Even before the Constitution was adopted, farmers in western Massachusetts, indebted to Boston bankers and merchants and in danger of losing their ancestral homes in the economic hard times of the 1780s, rose in armed rebellion.  In those years, the number of lawsuits for unpaid debt doubled and tripled, farms were seized, and their owners sent off to jail.  Incensed, farmers led by a former revolutionary soldier, Daniel Shays, closed local courts by force and liberated debtors from prisons.  Similar but smaller uprisings erupted in Maine, Connecticut, New York, and Pennsylvania, while in New Hampshire and Vermont irate farmers surrounded government offices.

Shays’ Rebellion of 1786 alarmed the country’s elites.  They depicted the unruly yeomen as “brutes” and their houses as “sties.”  They were frightened as well by state governments like Rhode Island’s that were more open to popular influence, declared debt moratoria, and issued paper currencies to help farmers and others pay off their debts.  These developments signaled the need for a stronger central government fully capable of suppressing future debtor insurgencies.

Federal authority established at the Constitutional Convention allowed for that, but the unrest continued.  Shays’ Rebellion was but part one of a trilogy of uprisings that continued into the 1790s.  The Whiskey Rebellion of 1794 was the most serious.  An excise tax (“whiskey tax”) meant to generate revenue to back up the national debt threatened the livelihoods of farmers in western Pennsylvania who used whiskey as a “currency” in a barter economy.  President Washington sent in troops, many of them Revolutionary War veterans, with Hamilton at their head to put down the rebels.

Debt Servitude and Primitive Accumulation

Debt would continue to play a vital role in national and local political affairs throughout the nineteenth century, functioning as a form of capital accumulation in the financial sector, and often sinking pre-capitalist forms of life in the process.

Before and during the time that capitalists were fully assuming the prerogatives of running the production process in field and factory, finance was building up its own resources from the outside.  Meanwhile, the mechanisms of public and private debt made the lives of farmers, craftsmen, shopkeepers, and others increasingly insupportable.

This parasitic economic metabolism helped account for the riotous nature of Gilded Age politics. Much of the high drama of late nineteenth-century political life circled around “greenbacks,” “free silver,” and “the gold standard.”  These issues may strike us as arcane today, but they were incendiary then, threatening what some called a “second Civil War.”  In one way or another, they were centrally about debt, especially a system of indebtedness that was driving the independent farmer to extinction.

All the highways of global capitalism found their way into the trackless vastness of rural America.  Farmers there were not in dire straits because of their backwoods isolation.  On the contrary, it was because they turned out to be living at Ground Zero, where the explosive energies of financial and commercial modernity detonated.  A toxic combination of railroads, grain-elevator operators, farm-machinery manufacturers, commodity-exchange speculators, local merchants, and above all the banking establishment had the farmer at their mercy.  His helplessness was only aggravated when the nineteenth-century version of globalization left his crops in desperate competition with those from the steppes of Canada and Russia, as well as the outbacks of Australia and South America.

To survive this mercantile onslaught, farmers hooked themselves up to long lines of credit that stretched back to the financial centers of the East.  These lifelines allowed them to buy the seed, fertilizer, and machines needed to farm, pay the storage and freight charges that went with selling their crops, and keep house and home together while the plants ripened and the hogs fattened.  When market day finally arrived, the farmer found out just what all his backbreaking work was really worth.  If the news was bad, then those credit lines were shut off and he found himself dispossessed.

The family farm and the network of small town life that went with it were being washed into the rivers of capital heading for metropolitan America.  On the “sod house” frontier, poverty was a “badge of honor which decorated all.”  In hisDevil’s Dictionary, the acid-tongued humorist Ambrose Bierce defined the dilemma this way: “Debt. n. An ingenious substitute for the chain and whip of the slave-driver.”

Across the Great Plains and the cotton South, discontented farmers spread the blame for their predicament far and wide.  Anger, however, tended to pool around the strangulating system of currency and credit run out of the banking centers of the northeast. Beginning in the 1870s with the emergence of the Greenback Party and Greenback-Labor Party and culminating in the 1890s with the People’s or Populist Party, independent farmers, tenant farmers, sharecroppers, small businessmen, and skilled workers directed ever more intense hostility at “the money power.”

That “power” might appear locally in the homeliest of disguises.  At coal mines and other industrial sites, among “coolies” working to build the railroads or imported immigrant gang laborers and convicts leased to private concerns, workers were typically compelled to buy what they needed in company scrip at company stores at prices that left them perpetually in debt.  Proletarians were so precariously positioned that going into debt — whether to pawnshops or employers, landlords or loan sharks — was unavoidable.  Often they were paid in kind: wood chips, thread, hemp, scraps of canvas, cordage: nothing, that is, that was of any use in paying off accumulated debts.  In effect, they were, as they called themselves, “debt slaves.”

In the South, hard-pressed growers found themselves embroiled in a crop-lien system, dependent on the local “furnishing agent” to supply everything needed, from seed to clothing to machinery, to get through the growing season.  In such situations, no money changed hands, just a note scribbled in the merchant’s ledger, with payment due at “settling up” time.  This granted the lender a lien, or title, to the crop, a lien that never went away.

In this fashion, the South became “a great pawn shop,” with farmers perpetually in debt at interest rates exceeding 100% per year.  In Alabama, Georgia, and Mississippi, 90% of farmers lived on credit.  The first lien you signed was essentially a life sentence.  Either that or you became a tenant farmer, or you simply left your land, something so commonplace that everyone knew what the letters “G.T.T.” on an abandoned farmhouse meant: “Gone to Texas.”  (One hundred thousand people a year were doing that in the 1870s.)

The merchant’s exaction was so steep that African-Americans and immigrants in particular were regularly reduced to peonage — forced, that is, to work to pay off their debt, an illegal but not uncommon practice.  And that neighborhood furnishing agent was often tied to the banks up north for his own lines of credit.  In this way, the sucking sound of money leaving for the great metropolises reverberated from region to region.

Facing dispossession, farmers formed alliances to set up cooperatives to extend credit to one another and market crops themselves.  As one Populist editorialist remarked, this was the way “mortgage-burdened farmers can assert their freedom from the tyranny of organized capital.”  But when they found that these groupings couldn’t survive the competitive pressure of the banking establishment, politics beckoned.

From one presidential election to the next and in state contests throughout the South and West, irate grain and cotton growers demanded that the government expand the paper currency supply, those “greenbacks,” also known as “the people’s money,” or that it monetize silver, again to enlarge the money supply, or that it set up public institutions to finance farmers during the growing season.  With a passion hard for us to imagine, they railed against the “gold standard” which, in Democratic Party presidential candidate William Jennings Bryan’s famous cry, should no longer be allowed to “crucify mankind on a cross of gold.”

Should that cross of gold stay fixed in place, one Alabama physician prophesied, it would “reduce the American yeomanry to menials and paupers, to be driven by monopolies like cattle and swine.”  As Election Day approached, populist editors and speakers warned of an approaching war with “the money power,” and they meant it.  “The fight will come and let it come!”

The idea was to force the government to deliberately inflate the currency and so raise farm prices.  And the reason for doing that?  To get out from under the sea of debt in which they were submerged.  It was a cry from the heart and it echoed and re-echoed across the heartland, coming nearer to upsetting the established order than any American political upheaval before or since.

The passion of those populist farmers and laborers was matched by that of their enemies, men at the top of the economy and government for whom debt had long been a road to riches rather than destitution.  They dismissed their foes as “cranks” and “calamity howlers.”  And in the election of 1896, they won.  Bryan went down to defeat, gold continued its pitiless process of crucifixion, and a whole human ecology was set on a path to extinction.

The Return of Debt Servitude

When populism died, debt — as a spark for national political confrontation — died, too.  The great reform eras that followed — Progessivism, the New Deal, and the Great Society — were preoccupied with inequality, economic collapse, exploitation in the workplace, and the outsized nature of corporate power in a consolidated industrial capitalist system.

Rumblings about debt servitude could certainly still be heard.  Foreclosed farmers during the Great Depression mobilized, held “penny auctions” to restore farms to families, hanged judges in effigy, and forced Prudential Insurance Company, the largest land creditor in Iowa, to suspend foreclosures on 37,000 farms (which persuaded Metropolitan Life Insurance Company to do likewise).  A Kansas City realtor was shot in the act of foreclosing on a family farm, a country sheriff kidnapped while trying to evict a farm widow and dumped 10 miles out of town, and so on.

Urban renters and homeowners facing eviction formed neighborhood groups to stop the local sheriff or police from throwing families out of their houses or apartments. Furniture tossed into the street in eviction proceedings would be restored by neighbors, who would also turn the gas and electricity back on.  New Deal farm and housing finance legislation bailed out banks and homeowners alike.  Right-wing populists like the Catholic priest Father Charles Coughlin carried on the war against the gold standard in tirades tinged with anti-Semitism.  Signs like one in Nebraska — “The Jew System of Banking” (illustrated with a giant rattlesnake) — showed up too often.

But the age of primitive accumulation in which debt and the financial sector had played such a strategic role was drawing to a close.

Today, we have entered a new phase.  What might be called capitalist underdevelopment and once again debt has emerged as both the central mode of capital accumulation and a principal mechanism of servitude.  Warren Buffett (of all people) has predicted that, in the coming decades, the United States is more likely to turn into a “sharecropper society” than an “ownership society.”

In our time, the financial sector has enriched itself by devouring the productive wherewithal of industrial America through debt, starving the public sector of resources, and saddling ordinary working people with every conceivable form of consumer debt.

Household debt, which in 1952 was at 36% of total personal income, had by 2006 hit 127%.  Even financing poverty became a lucrative enterprise.  Taking advantage of the low credit ratings of poor people and their need for cash to pay monthly bills or simply feed themselves, some check-cashing outlets, payday lenders, tax preparers, and others levy interest of 200% to 300% and more.  As recently as the 1970s, a good part of this would have been considered illegal under usury laws that no longer exist.  And these poverty creditors are often tied to the largest financiers, including Citibank, Bank of America, and American Express.

Credit has come to function as a “plastic safety net” in a world of job insecurity, declining state support, and slow-motion economic growth, especially among the elderly, young adults, and low-income families.  More than half the pre-tax income of these three groups goes to servicing debt.  Nowadays, however, the “company store” is headquartered on Wall Street.

Debt is driving this system of auto-cannibalism which, by every measure of social wellbeing, is relentlessly turning a developed country into an underdeveloped one.

Dr. Jekyll and Mr. Hyde are back.  Is a political resistance to debt servitude once again imaginable?

Steve Fraser is a historian, writer, and editor-at-large for New Labor Forum, co-founder of the American Empire Project, and TomDispatch regular. He is, most recently, the author of Wall Street: America’s Dream Palace. He teaches at Columbia University. This essay will appear in the next issue of Jacobinmagazine.

The Politics of Debt in America: From Debtor’s Prison to Debtor Nation

[This essay will appear in the next issue of Jacobin.  It is posted at TomDispatch.com with the kind permission of that magazine, and re-posted at Common Dreams with subsequent permission.]

Shakespeare’s Polonius offered this classic advice to his son: “neither a borrower nor a lender be.”  Many of our nation’s Founding Fathers emphatically saw it otherwise.  They often lived by the maxim: always a borrower, never a lender be.  As tobacco and rice planters, slave traders, and merchants, as well as land and currency speculators, they depended upon long lines of credit to finance their livelihoods and splendid ways of life.  So, too, in those days, did shopkeepers, tradesmen, artisans, and farmers, as well as casual laborers and sailors.  Without debt, the seedlings of a commercial economy could never have grown to maturity.

Ben Franklin, however, was wary on the subject. “Rather go to bed supperless than rise in debt” was his warning, and even now his cautionary words carry great moral weight.  We worry about debt, yet we can’t live without it.

Debt remains, as it long has been, the Dr. Jekyll and Mr. Hyde of capitalism.  For a small minority, it’s a blessing; for others a curse.  For some the moral burden of carrying debt is a heavy one, and no one lets them forget it.  For privileged others, debt bears no moral baggage at all, presents itself as an opportunity to prosper, and if things go wrong can be dumped without a qualm.

Those who view debt with a smiley face as the royal road to wealth accumulation and tend to be forgiven if their default is large enough almost invariably come from the top rungs of the economic hierarchy.  Then there are the rest of us, who get scolded for our impecunious ways, foreclosed upon and dispossessed, leaving behind scars that never fade away and wounds that disable our futures. 

Think of this upstairs-downstairs class calculus as the politics of debt.  British economist John Maynard Keynes put it like this: “If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.”

After months of an impending “debtpocalypse,” the dreaded “debt ceiling,” and the “fiscal cliff,” Americans remain preoccupied with debt, public and private.  Austerity is what we’re promised for our sins. Millions are drowning, or have already drowned, in a sea of debt -- mortgages gone bad, student loans that may never be paid off, spiraling credit card bills, car loans, payday loans, and a menagerie of new-fangled financial mechanisms cooked up by the country’s “financial engineers” to milk what’s left of the American standard of living. 

The world economy almost came apart in 2007-2008, and still may do so under the whale-sized carcass of debt left behind by financial plunderers who found in debt the leverage to get ever richer.  Most of them still live in their mansions and McMansions, while other debtors live outdoors, or in cars or shelters, or doubled-up with relatives and friends -- or even in debtor’s prison. Believe it or not, a version of debtor’s prison, that relic of early American commercial barbarism, is back. 

In 2013, you can’t actually be jailed for not paying your bills, but ingenious corporations, collection agencies, cops, courts, and lawyers have devised ways to insure that debt “delinquents” will end up in jail anyway.  With one-third of the states now allowing the jailing of debtors (without necessarily calling it that), it looks ever more like a trend in the making.

Will Americans tolerate this, or might there emerge a politics of resistance to debt, as has happened more than once in a past that shouldn’t be forgotten?  

The World of Debtor’s Prisons

Imprisonment for debt was a commonplace in colonial America and the early republic, and wasn’t abolished in most states until the 1830s or 1840s, in some cases not until after the Civil War.  Today, we think of it as a peculiar and heartless way of punishing the poor -- and it was.  But it was more than that.

Some of the richest, most esteemed members of society also ended up there, men like Robert Morris, who helped finance the American Revolution and ran the Treasury under the Articles of Confederation; John Pintard, a stock-broker, state legislator, and founder of the New York Historical Society; William Duer, graduate of Eton, powerful merchant and speculator, assistant secretary in the Treasury Department of the new federal government, and master of a Hudson River manse; a Pennsylvania Supreme Court judge; army generals; and other notables.

Whether rich or poor, you were there for a long stretch, even for life, unless you could figure out some way of discharging your debts.  That, however, is where the similarity between wealthy and impoverished debtors ended.

Whether in the famous Marshalsea in London where Charles Dickens had Little Dorritt’s father incarcerated (and where Dickens’s father had actually languished when the author was 12), or in the New Gaol in New York City, where men like Duer and Morris did their time, debtors prisons were segregated by class.  If your debts were large enough and your social connections weighty enough (the two tended to go together) you lived comfortably.  You were supplied with good food and well-appointed living quarters, as well as books and other pleasures, including on occasion manicurists and prostitutes. 

Robert Morris entertained George Washington for dinner in his “cell.” Once released, he resumed his career as the new nation’s richest man.  Before John Pintard moved to New Gaol, he redecorated his cell, had it repainted and upholstered, and shipped in two mahogany writing desks.

Meanwhile, the mass of petty debtors housed in the same institution survived, if at all, amid squalor, filth, and disease.  They were often shackled, and lacked heat, clean water, adequate food, or often food of any kind.  (You usually had to have the money to buy your own food, clothing, and fuel.)  Debtors in these prisons frequently found themselves quite literally dying of debt.  And you could end up in such circumstances for trivial sums.  Of the 1,162 jailed debtors in New York City in 1787, 716 owed less than twenty shillings or one pound.  A third of Philadelphia’s inmates in 1817 were there for owing less than $5, and debtors in the city’s prisons outnumbered violent criminals by 5:1.  In Boston, 15% of them were women.  Shaming was more the point of punishment than anything else.

Scenes of public pathos were commonplace.  Inmates at the New Gaol, if housed on its upper floors, would lower shoes out the window on strings to collect alms for their release.  Other prisons installed “beggar gates” through which those jailed in cellar dungeons could stretch out their palms for the odd coins from passersby.

Poor and rich alike wanted out.  Pamphleteering against the institution of debtor’s prison began in the 1750s.  An Anglican minister in South Carolina denounced the jails, noting that “a person would be in a better situation in the French King’s Gallies, or the Prisons of Turkey or Barbary than in this dismal place.”  Discontent grew.  A mass escape from New Gaol of 40 prisoners armed with pistols and clubs was prompted by extreme hunger. 

In the 1820s and 1830s, as artisans, journeymen, sailors, longshoremen, and other workers organized the early trade union movement as well as workingmen’s political parties, one principal demand was for the abolition of imprisonment for debt.  Inheritors of a radical political culture, their complaints echoed that Biblical tradition of Jubilee mentioned in Leviticus, which called for a cancellation of debts, the restoration of lost houses and land, and the freeing of slaves and bond servants every 50 years.

Falling into debt was a particularly ruinous affliction for those who aspired to modest independence as shopkeepers, handicraftsmen, or farmers.  As markets for their goods expanded but became ever less predictable, they found themselves taking out credit to survive and sometimes going into arrears, often followed by a stint in debtor’s prison that ended their dreams forever. 

However much the poor organized and protested, it was the rich who got debt relief first.  Today, we assume that debts can be discharged through bankruptcy (although even now that option is either severely restricted or denied to certain classes of less favored debt delinquents like college students).  Although the newly adopted U.S. Constitution opened the door to a national bankruptcy law, Congress didn’t walk through it until 1800, even though many, including the well-off, had been lobbying for it.

Enough of the old moral faith that frowned on debt as sinful lingered.  The United States has always been an uncharitable place when it comes to debt, a curious attitude for a society largely settled by absconding debtors and indentured servants (a form of time-bound debt peonage).  Indeed, the state of Georgia was founded as a debtor’s haven at a time when England’s jails were overflowing with debtors.

When Congress finally passed the Bankruptcy Act, those in the privileged quarters at New Gaol threw a party.  Down below, however, life continued in its squalid way, since the new law only applied to people who had sizable debts.  If you owed too little, you stayed in jail. 

Debt and the Birth of a Nation

Nowadays, the conservative media inundate us with warnings about debt from the Founding Fathers, and it’s true that some of them like Jefferson -- himself an inveterate, often near-bankrupt debtor -- did moralize on the subject.  However, Alexander Hamilton, an idol of the conservative movement, was the architect of the country’s first national debt, insisting that “if it is not excessive, [it] will be to us a national blessing.”

As the first Secretary of the Treasury, Hamilton’s goal was to transform the former 13 colonies, which today we would call an underdeveloped land, into a country that someday would rival Great Britain.  This, he knew, required liquid capital (resources not tied up in land or other less mobile forms of wealth), which could then be invested in sometimes highly speculative and risky enterprises.  Floating a national debt, he felt sure, would attract capital from well-positioned merchants at home and abroad, especially in England.

However, for most ordinary people living under the new government, debt aroused anger.  To begin with, there were all those veterans of the Revolutionary War and all the farmers who had supplied the revolutionary army with food and been paid in notoriously worthless “continentals” -- the currency issued by the Continental Congress -- or equally valueless state currencies.

As rumors of the formation of a new national government spread, speculators roamed the countryside buying up this paper money at a penny on the dollar, on the assumption that the debts they represented would be redeemed at face value.  In fact, that is just what Hamilton’s national debt would do, making these “sunshine patriots” quite rich, while leaving the yeomanry impoverished.

Outrage echoed across the country even before Hamilton’s plan got adopted.  Jefferson denounced the currency speculators as loathsome creatures and had this to say about debt in general: “The modern theory of the perpetuation of debt has drenched the earth with blood and crushed its inhabitants under burdens ever accumulating.”  He and others denounced the speculators as squadrons of counter-revolutionary “moneycrats” who would use their power and wealth to undo the democratic accomplishments of the revolution.

In contrast, Hamilton saw them as a disinterested monied elite upon whom the country’s economic well-being depended, while dismissing the criticisms of the Jeffersonians as the ravings of Jacobin levelers.  Soon enough, political warfare over the debt turned founding fathers into fratricidal brothers.  

Hamilton’s plan worked -- sometimes too well.  Wealthy speculators in land like Robert Morris, or in the building of docks, wharves, and other projects tied to trade, or in the national debt itself -- something William Duer and grandees like him specialized in -- seized the moment.  Often enough, however, they over-reached and found themselves, like the yeomen farmers and soldiers, in default to their creditors. 

Duer’s attempts to corner the market in the bonds issued by the new federal government and in the stock of the country’s first National Bank represented one of the earliest instances of insider trading.  They also proved a lurid example of how speculation could go disastrously wrong.  When the scheme collapsed, it caused the country’s first Wall Street panic and a local depression that spread through New England, ruining “shopkeepers, widows, orphans, butchers... gardeners, market women, and even the noted Bawd Mrs. McCarty.”   

A mob chased Duer through the streets of New York and might have hanged or disemboweled him had he not been rescued by the city sheriff, who sent him to the safety of debtor’s prison.  John Pintard, part of the same scheme, fled to Newark, New Jersey, before being caught and jailed as well.

Sending the Duers and Pintards of the new republic off to debtors’ prison was not, however, quite what Hamilton had in mind.  And leaving them rotting there was hardly going to foster the “enterprising spirit” that would, in the treasury secretary’s estimation, turn the country into the Great Britain of the next century.  Bankruptcy, on the other hand, ensured that the overextended could start again and keep the machinery of commercial transactions lubricated.  Hence, the Bankruptcy Act of 1800.

If, however, you were not a major player, debt functioned differently. Shouldered by the hoi polloi, it functioned as a mechanism for funneling wealth into the mercantile-financial hothouses where American capitalism was being incubated.

No wonder debt excited such violent political emotions.  Even before the Constitution was adopted, farmers in western Massachusetts, indebted to Boston bankers and merchants and in danger of losing their ancestral homes in the economic hard times of the 1780s, rose in armed rebellion.  In those years, the number of lawsuits for unpaid debt doubled and tripled, farms were seized, and their owners sent off to jail.  Incensed, farmers led by a former revolutionary soldier, Daniel Shays, closed local courts by force and liberated debtors from prisons.  Similar but smaller uprisings erupted in Maine, Connecticut, New York, and Pennsylvania, while in New Hampshire and Vermont irate farmers surrounded government offices. 

Shays' Rebellion of 1786 alarmed the country’s elites.  They depicted the unruly yeomen as “brutes” and their houses as “sties.”  They were frightened as well by state governments like Rhode Island’s that were more open to popular influence, declared debt moratoria, and issued paper currencies to help farmers and others pay off their debts.  These developments signaled the need for a stronger central government fully capable of suppressing future debtor insurgencies.

Federal authority established at the Constitutional Convention allowed for that, but the unrest continued.  Shays' Rebellion was but part one of a trilogy of uprisings that continued into the 1790s.  The Whiskey Rebellion of 1794 was the most serious.  An excise tax (“whiskey tax”) meant to generate revenue to back up the national debt threatened the livelihoods of farmers in western Pennsylvania who used whiskey as a “currency” in a barter economy.  President Washington sent in troops, many of them Revolutionary War veterans, with Hamilton at their head to put down the rebels. 

Debt Servitude and Primitive Accumulation

Debt would continue to play a vital role in national and local political affairs throughout the nineteenth century, functioning as a form of capital accumulation in the financial sector, and often sinking pre-capitalist forms of life in the process. 

Before and during the time that capitalists were fully assuming the prerogatives of running the production process in field and factory, finance was building up its own resources from the outside.  Meanwhile, the mechanisms of public and private debt made the lives of farmers, craftsmen, shopkeepers, and others increasingly insupportable.

This parasitic economic metabolism helped account for the riotous nature of Gilded Age politics. Much of the high drama of late nineteenth-century political life circled around “greenbacks,” “free silver,” and "the gold standard."  These issues may strike us as arcane today, but they were incendiary then, threatening what some called a “second Civil War.”  In one way or another, they were centrally about debt, especially a system of indebtedness that was driving the independent farmer to extinction.

All the highways of global capitalism found their way into the trackless vastness of rural America.  Farmers there were not in dire straits because of their backwoods isolation.  On the contrary, it was because they turned out to be living at Ground Zero, where the explosive energies of financial and commercial modernity detonated.  A toxic combination of railroads, grain-elevator operators, farm-machinery manufacturers, commodity-exchange speculators, local merchants, and above all the banking establishment had the farmer at their mercy.  His helplessness was only aggravated when the nineteenth-century version of globalization left his crops in desperate competition with those from the steppes of Canada and Russia, as well as the outbacks of Australia and South America.

To survive this mercantile onslaught, farmers hooked themselves up to long lines of credit that stretched back to the financial centers of the East.  These lifelines allowed them to buy the seed, fertilizer, and machines needed to farm, pay the storage and freight charges that went with selling their crops, and keep house and home together while the plants ripened and the hogs fattened.  When market day finally arrived, the farmer found out just what all his backbreaking work was really worth.  If the news was bad, then those credit lines were shut off and he found himself dispossessed.

The family farm and the network of small town life that went with it were being washed into the rivers of capital heading for metropolitan America.  On the “sod house” frontier, poverty was a “badge of honor which decorated all.”  In his Devil’s Dictionary, the acid-tongued humorist Ambrose Bierce defined the dilemma this way: “Debt. n. An ingenious substitute for the chain and whip of the slave-driver.”

Across the Great Plains and the cotton South, discontented farmers spread the blame for their predicament far and wide.  Anger, however, tended to pool around the strangulating system of currency and credit run out of the banking centers of the northeast. Beginning in the 1870s with the emergence of the Greenback Party and Greenback-Labor Party and culminating in the 1890s with the People’s or Populist Party, independent farmers, tenant farmers, sharecroppers, small businessmen, and skilled workers directed ever more intense hostility at “the money power.”

That “power” might appear locally in the homeliest of disguises.  At coal mines and other industrial sites, among “coolies” working to build the railroads or imported immigrant gang laborers and convicts leased to private concerns, workers were typically compelled to buy what they needed in company scrip at company stores at prices that left them perpetually in debt.  Proletarians were so precariously positioned that going into debt -- whether to pawnshops or employers, landlords or loan sharks -- was unavoidable.  Often they were paid in kind: wood chips, thread, hemp, scraps of canvas, cordage: nothing, that is, that was of any use in paying off accumulated debts.  In effect, they were, as they called themselves, “debt slaves.” 

In the South, hard-pressed growers found themselves embroiled in a crop-lien system, dependent on the local “furnishing agent” to supply everything needed, from seed to clothing to machinery, to get through the growing season.  In such situations, no money changed hands, just a note scribbled in the merchant’s ledger, with payment due at “settling up” time.  This granted the lender a lien, or title, to the crop, a lien that never went away.

In this fashion, the South became “a great pawn shop,” with farmers perpetually in debt at interest rates exceeding 100% per year.  In Alabama, Georgia, and Mississippi, 90% of farmers lived on credit.  The first lien you signed was essentially a life sentence.  Either that or you became a tenant farmer, or you simply left your land, something so commonplace that everyone knew what the letters “G.T.T.” on an abandoned farmhouse meant: “Gone to Texas.”  (One hundred thousand people a year were doing that in the 1870s.) 

The merchant’s exaction was so steep that African-Americans and immigrants in particular were regularly reduced to peonage -- forced, that is, to work to pay off their debt, an illegal but not uncommon practice.  And that neighborhood furnishing agent was often tied to the banks up north for his own lines of credit.  In this way, the sucking sound of money leaving for the great metropolises reverberated from region to region.

Facing dispossession, farmers formed alliances to set up cooperatives to extend credit to one another and market crops themselves.  As one Populist editorialist remarked, this was the way “mortgage-burdened farmers can assert their freedom from the tyranny of organized capital.”  But when they found that these groupings couldn’t survive the competitive pressure of the banking establishment, politics beckoned.

From one presidential election to the next and in state contests throughout the South and West, irate grain and cotton growers demanded that the government expand the paper currency supply, those “greenbacks,” also known as “the people’s money,” or that it monetize silver, again to enlarge the money supply, or that it set up public institutions to finance farmers during the growing season.  With a passion hard for us to imagine, they railed against the “gold standard” which, in Democratic Party presidential candidate William Jennings Bryan’s famous cry, should no longer be allowed to “crucify mankind on a cross of gold.”

Should that cross of gold stay fixed in place, one Alabama physician prophesied, it would “reduce the American yeomanry to menials and paupers, to be driven by monopolies like cattle and swine.”  As Election Day approached, populist editors and speakers warned of an approaching war with “the money power,” and they meant it.  “The fight will come and let it come!”

The idea was to force the government to deliberately inflate the currency and so raise farm prices.  And the reason for doing that?  To get out from under the sea of debt in which they were submerged.  It was a cry from the heart and it echoed and re-echoed across the heartland, coming nearer to upsetting the established order than any American political upheaval before or since. 

The passion of those populist farmers and laborers was matched by that of their enemies, men at the top of the economy and government for whom debt had long been a road to riches rather than destitution.  They dismissed their foes as “cranks” and “calamity howlers.”  And in the election of 1896, they won.  Bryan went down to defeat, gold continued its pitiless process of crucifixion, and a whole human ecology was set on a path to extinction.

The Return of Debt Servitude

When populism died, debt -- as a spark for national political confrontation -- died, too.  The great reform eras that followed -- Progessivism, the New Deal, and the Great Society -- were preoccupied with inequality, economic collapse, exploitation in the workplace, and the outsized nature of corporate power in a consolidated industrial capitalist system.

Rumblings about debt servitude could certainly still be heard.  Foreclosed farmers during the Great Depression mobilized, held “penny auctions” to restore farms to families, hanged judges in effigy, and forced Prudential Insurance Company, the largest land creditor in Iowa, to suspend foreclosures on 37,000 farms (which persuaded Metropolitan Life Insurance Company to do likewise).  A Kansas City realtor was shot in the act of foreclosing on a family farm, a country sheriff kidnapped while trying to evict a farm widow and dumped 10 miles out of town, and so on.

Urban renters and homeowners facing eviction formed neighborhood groups to stop the local sheriff or police from throwing families out of their houses or apartments. Furniture tossed into the street in eviction proceedings would be restored by neighbors, who would also turn the gas and electricity back on.  New Deal farm and housing finance legislation bailed out banks and homeowners alike.  Right-wing populists like the Catholic priest Father Charles Coughlin carried on the war against the gold standard in tirades tinged with anti-Semitism.  Signs like one in Nebraska -- “The Jew System of Banking” (illustrated with a giant rattlesnake) -- showed up too often.

But the age of primitive accumulation in which debt and the financial sector had played such a strategic role was drawing to a close. 

Today, we have entered a new phase.  What might be called capitalist underdevelopment and once again debt has emerged as both the central mode of capital accumulation and a principal mechanism of servitude.  Warren Buffett (of all people) has predicted that, in the coming decades, the United States is more likely to turn into a “sharecropper society” than an “ownership society.”

In our time, the financial sector has enriched itself by devouring the productive wherewithal of industrial America through debt, starving the public sector of resources, and saddling ordinary working people with every conceivable form of consumer debt.

Household debt, which in 1952 was at 36% of total personal income, had by 2006 hit 127%.  Even financing poverty became a lucrative enterprise.  Taking advantage of the low credit ratings of poor people and their need for cash to pay monthly bills or simply feed themselves, some check-cashing outlets, payday lenders, tax preparers, and others levy interest of 200% to 300% and more.  As recently as the 1970s, a good part of this would have been considered illegal under usury laws that no longer exist.  And these poverty creditors are often tied to the largest financiers, including Citibank, Bank of America, and American Express.

Credit has come to function as a “plastic safety net” in a world of job insecurity, declining state support, and slow-motion economic growth, especially among the elderly, young adults, and low-income families.  More than half the pre-tax income of these three groups goes to servicing debt.  Nowadays, however, the “company store” is headquartered on Wall Street.

Debt is driving this system of auto-cannibalism which, by every measure of social wellbeing, is relentlessly turning a developed country into an underdeveloped one.  

Dr. Jekyll and Mr. Hyde are back.  Is a political resistance to debt servitude once again imaginable?

© 2013 Steve Fraser

Steve Fraser

Steve Fraser is Editor-at-Large of New Labor Forum and co-founder of the American Empire Project (Metropolitan Books). He is, most recently, the author of Wall Street: America’s Dream Palace. He teaches history at Columbia University.

The Politics of Debt in America From Debtor’s Prison to Debtor Nation

Shakespeare’s Polonius offered this classic advice to his son: “neither a borrower nor a lender be.”  Many of our nation’s Founding Fathers emphatically saw it otherwise.  They often lived by the maxim: always a borrower, never a lender be.  As tobacco and rice planters, slave traders, and merchants, as well as land and currency speculators, they depended upon long lines of credit to finance their livelihoods and splendid ways of life.  So, too, in those days, did shopkeepers, tradesmen, artisans, and farmers, as well as casual laborers and sailors.  Without debt, the seedlings of a commercial economy could never have grown to maturity.

Ben Franklin, however, was wary on the subject. “Rather go to bed supperless than rise in debt” was his warning, and even now his cautionary words carry great moral weight.  We worry about debt, yet we can’t live without it.

Debt remains, as it long has been, the Dr. Jekyll and Mr. Hyde of capitalism.  For a small minority, it’s a blessing; for others a curse.  For some the moral burden of carrying debt is a heavy one, and no one lets them forget it.  For privileged others, debt bears no moral baggage at all, presents itself as an opportunity to prosper, and if things go wrong can be dumped without a qualm.

Those who view debt with a smiley face as the royal road to wealth accumulation and tend to be forgiven if their default is large enough almost invariably come from the top rungs of the economic hierarchy.  Then there are the rest of us, who get scolded for our impecunious ways, foreclosed upon and dispossessed, leaving behind scars that never fade away and wounds that disable our futures. 

Think of this upstairs-downstairs class calculus as the politics of debt.  British economist John Maynard Keynes put it like this: “If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.”

After months of an impending “debtpocalypse,” the dreaded “debt ceiling,” and the “fiscal cliff,” Americans remain preoccupied with debt, public and private.  Austerity is what we’re promised for our sins. Millions are drowning, or have already drowned, in a sea of debt -- mortgages gone bad, student loans that may never be paid off, spiraling credit card bills, car loans, payday loans, and a menagerie of new-fangled financial mechanisms cooked up by the country’s “financial engineers” to milk what’s left of the American standard of living.   

The world economy almost came apart in 2007-2008, and still may do so under the whale-sized carcass of debt left behind by financial plunderers who found in debt the leverage to get ever richer.  Most of them still live in their mansions and McMansions, while other debtors live outdoors, or in cars or shelters, or doubled-up with relatives and friends -- or even in debtor’s prison. Believe it or not, a version of debtor’s prison, that relic of early American commercial barbarism, is back. 

In 2013, you can’t actually be jailed for not paying your bills, but ingenious corporations, collection agencies, cops, courts, and lawyers have devised ways to insure that debt “delinquents” will end up in jail anyway.  With one-third of the states now allowing the jailing of debtors (without necessarily calling it that), it looks ever more like a trend in the making.

Will Americans tolerate this, or might there emerge a politics of resistance to debt, as has happened more than once in a past that shouldn’t be forgotten?  

The World of Debtor’s Prisons

Imprisonment for debt was a commonplace in colonial America and the early republic, and wasn’t abolished in most states until the 1830s or 1840s, in some cases not until after the Civil War.  Today, we think of it as a peculiar and heartless way of punishing the poor -- and it was.  But it was more than that.

Some of the richest, most esteemed members of society also ended up there, men like Robert Morris, who helped finance the American Revolution and ran the Treasury under the Articles of Confederation; John Pintard, a stock-broker, state legislator, and founder of the New York Historical Society; William Duer, graduate of Eton, powerful merchant and speculator, assistant secretary in the Treasury Department of the new federal government, and master of a Hudson River manse; a Pennsylvania Supreme Court judge; army generals; and other notables.

Whether rich or poor, you were there for a long stretch, even for life, unless you could figure out some way of discharging your debts.  That, however, is where the similarity between wealthy and impoverished debtors ended.

Whether in the famous Marshalsea in London where Charles Dickens had Little Dorritt’s father incarcerated (and where Dickens’s father had actually languished when the author was 12), or in the New Gaol in New York City, where men like Duer and Morris did their time, debtors prisons were segregated by class.  If your debts were large enough and your social connections weighty enough (the two tended to go together) you lived comfortably.  You were supplied with good food and well-appointed living quarters, as well as books and other pleasures, including on occasion manicurists and prostitutes. 

Robert Morris entertained George Washington for dinner in his “cell.” Once released, he resumed his career as the new nation’s richest man.  Before John Pintard moved to New Gaol, he redecorated his cell, had it repainted and upholstered, and shipped in two mahogany writing desks.

Meanwhile, the mass of petty debtors housed in the same institution survived, if at all, amid squalor, filth, and disease.  They were often shackled, and lacked heat, clean water, adequate food, or often food of any kind.  (You usually had to have the money to buy your own food, clothing, and fuel.)  Debtors in these prisons frequently found themselves quite literally dying of debt.  And you could end up in such circumstances for trivial sums.  Of the 1,162 jailed debtors in New York City in 1787, 716 owed less than twenty shillings or one pound.  A third of Philadelphia’s inmates in 1817 were there for owing less than $5, and debtors in the city’s prisons outnumbered violent criminals by 5:1.  In Boston, 15% of them were women.  Shaming was more the point of punishment than anything else.

Scenes of public pathos were commonplace.  Inmates at the New Gaol, if housed on its upper floors, would lower shoes out the window on strings to collect alms for their release.  Other prisons installed “beggar gates” through which those jailed in cellar dungeons could stretch out their palms for the odd coins from passersby.


Poor and rich alike wanted out.  Pamphleteering against the institution of debtor’s prison began in the 1750s.  An Anglican minister in South Carolina denounced the jails, noting that “a person would be in a better situation in the French King’s Gallies, or the Prisons of Turkey or Barbary than in this dismal place.”  Discontent grew.  A mass escape from New Gaol of 40 prisoners armed with pistols and clubs was prompted by extreme hunger. 

In the 1820s and 1830s, as artisans, journeymen, sailors, longshoremen, and other workers organized the early trade union movement as well as workingmen’s political parties, one principal demand was for the abolition of imprisonment for debt.  Inheritors of a radical political culture, their complaints echoed that Biblical tradition of Jubilee mentioned in Leviticus, which called for a cancellation of debts, the restoration of lost houses and land, and the freeing of slaves and bond servants every 50 years.

Falling into debt was a particularly ruinous affliction for those who aspired to modest independence as shopkeepers, handicraftsmen, or farmers.  As markets for their goods expanded but became ever less predictable, they found themselves taking out credit to survive and sometimes going into arrears, often followed by a stint in debtor’s prison that ended their dreams forever. 

However much the poor organized and protested, it was the rich who got debt relief first.  Today, we assume that debts can be discharged through bankruptcy (although even now that option is either severely restricted or denied to certain classes of less favored debt delinquents like college students).  Although the newly adopted U.S. Constitution opened the door to a national bankruptcy law, Congress didn’t walk through it until 1800, even though many, including the well-off, had been lobbying for it.

Enough of the old moral faith that frowned on debt as sinful lingered.  The United States has always been an uncharitable place when it comes to debt, a curious attitude for a society largely settled by absconding debtors and indentured servants (a form of time-bound debt peonage).  Indeed, the state of Georgia was founded as a debtor’s haven at a time when England’s jails were overflowing with debtors.

When Congress finally passed the Bankruptcy Act, those in the privileged quarters at New Gaol threw a party.  Down below, however, life continued in its squalid way, since the new law only applied to people who had sizable debts.  If you owed too little, you stayed in jail. 

Debt and the Birth of a Nation

Nowadays, the conservative media inundate us with warnings about debt from the Founding Fathers, and it’s true that some of them like Jefferson -- himself an inveterate, often near-bankrupt debtor -- did moralize on the subject.  However, Alexander Hamilton, an idol of the conservative movement, was the architect of the country’s first national debt, insisting that “if it is not excessive, [it] will be to us a national blessing.”

As the first Secretary of the Treasury, Hamilton’s goal was to transform the former 13 colonies, which today we would call an underdeveloped land, into a country that someday would rival Great Britain.  This, he knew, required liquid capital (resources not tied up in land or other less mobile forms of wealth), which could then be invested in sometimes highly speculative and risky enterprises.  Floating a national debt, he felt sure, would attract capital from well-positioned merchants at home and abroad, especially in England.

However, for most ordinary people living under the new government, debt aroused anger.  To begin with, there were all those veterans of the Revolutionary War and all the farmers who had supplied the revolutionary army with food and been paid in notoriously worthless “continentals” -- the currency issued by the Continental Congress -- or equally valueless state currencies.

As rumors of the formation of a new national government spread, speculators roamed the countryside buying up this paper money at a penny on the dollar, on the assumption that the debts they represented would be redeemed at face value.  In fact, that is just what Hamilton’s national debt would do, making these “sunshine patriots” quite rich, while leaving the yeomanry impoverished.

Outrage echoed across the country even before Hamilton’s plan got adopted.  Jefferson denounced the currency speculators as loathsome creatures and had this to say about debt in general: “The modern theory of the perpetuation of debt has drenched the earth with blood and crushed its inhabitants under burdens ever accumulating.”  He and others denounced the speculators as squadrons of counter-revolutionary “moneycrats” who would use their power and wealth to undo the democratic accomplishments of the revolution.

In contrast, Hamilton saw them as a disinterested monied elite upon whom the country’s economic well-being depended, while dismissing the criticisms of the Jeffersonians as the ravings of Jacobin levelers.  Soon enough, political warfare over the debt turned founding fathers into fratricidal brothers.  

Hamilton’s plan worked -- sometimes too well.  Wealthy speculators in land like Robert Morris, or in the building of docks, wharves, and other projects tied to trade, or in the national debt itself -- something William Duer and grandees like him specialized in -- seized the moment.  Often enough, however, they over-reached and found themselves, like the yeomen farmers and soldiers, in default to their creditors. 

Duer’s attempts to corner the market in the bonds issued by the new federal government and in the stock of the country’s first National Bank represented one of the earliest instances of insider trading.  They also proved a lurid example of how speculation could go disastrously wrong.  When the scheme collapsed, it caused the country’s first Wall Street panic and a local depression that spread through New England, ruining “shopkeepers, widows, orphans, butchers... gardeners, market women, and even the noted Bawd Mrs. McCarty.”   

A mob chased Duer through the streets of New York and might have hanged or disemboweled him had he not been rescued by the city sheriff, who sent him to the safety of debtor’s prison.  John Pintard, part of the same scheme, fled to Newark, New Jersey, before being caught and jailed as well.

Sending the Duers and Pintards of the new republic off to debtors’ prison was not, however, quite what Hamilton had in mind.  And leaving them rotting there was hardly going to foster the “enterprising spirit” that would, in the treasury secretary’s estimation, turn the country into the Great Britain of the next century.  Bankruptcy, on the other hand, ensured that the overextended could start again and keep the machinery of commercial transactions lubricated.  Hence, the Bankruptcy Act of 1800.

If, however, you were not a major player, debt functioned differently. Shouldered by the hoi polloi, it functioned as a mechanism for funneling wealth into the mercantile-financial hothouses where American capitalism was being incubated.

No wonder debt excited such violent political emotions.  Even before the Constitution was adopted, farmers in western Massachusetts, indebted to Boston bankers and merchants and in danger of losing their ancestral homes in the economic hard times of the 1780s, rose in armed rebellion.  In those years, the number of lawsuits for unpaid debt doubled and tripled, farms were seized, and their owners sent off to jail.  Incensed, farmers led by a former revolutionary soldier, Daniel Shays, closed local courts by force and liberated debtors from prisons.  Similar but smaller uprisings erupted in Maine, Connecticut, New York, and Pennsylvania, while in New Hampshire and Vermont irate farmers surrounded government offices. 

Shays' Rebellion of 1786 alarmed the country’s elites.  They depicted the unruly yeomen as “brutes” and their houses as “sties.”  They were frightened as well by state governments like Rhode Island’s that were more open to popular influence, declared debt moratoria, and issued paper currencies to help farmers and others pay off their debts.  These developments signaled the need for a stronger central government fully capable of suppressing future debtor insurgencies.

Federal authority established at the Constitutional Convention allowed for that, but the unrest continued.  Shays' Rebellion was but part one of a trilogy of uprisings that continued into the 1790s.  The Whiskey Rebellion of 1794 was the most serious.  An excise tax (“whiskey tax”) meant to generate revenue to back up the national debt threatened the livelihoods of farmers in western Pennsylvania who used whiskey as a “currency” in a barter economy.  President Washington sent in troops, many of them Revolutionary War veterans, with Hamilton at their head to put down the rebels. 

Debt Servitude and Primitive Accumulation

Debt would continue to play a vital role in national and local political affairs throughout the nineteenth century, functioning as a form of capital accumulation in the financial sector, and often sinking pre-capitalist forms of life in the process. 

Before and during the time that capitalists were fully assuming the prerogatives of running the production process in field and factory, finance was building up its own resources from the outside.  Meanwhile, the mechanisms of public and private debt made the lives of farmers, craftsmen, shopkeepers, and others increasingly insupportable.

This parasitic economic metabolism helped account for the riotous nature of Gilded Age politics. Much of the high drama of late nineteenth-century political life circled around “greenbacks,” “free silver,” and "the gold standard."  These issues may strike us as arcane today, but they were incendiary then, threatening what some called a “second Civil War.”  In one way or another, they were centrally about debt, especially a system of indebtedness that was driving the independent farmer to extinction.

All the highways of global capitalism found their way into the trackless vastness of rural America.  Farmers there were not in dire straits because of their backwoods isolation.  On the contrary, it was because they turned out to be living at Ground Zero, where the explosive energies of financial and commercial modernity detonated.  A toxic combination of railroads, grain-elevator operators, farm-machinery manufacturers, commodity-exchange speculators, local merchants, and above all the banking establishment had the farmer at their mercy.  His helplessness was only aggravated when the nineteenth-century version of globalization left his crops in desperate competition with those from the steppes of Canada and Russia, as well as the outbacks of Australia and South America.

To survive this mercantile onslaught, farmers hooked themselves up to long lines of credit that stretched back to the financial centers of the East.  These lifelines allowed them to buy the seed, fertilizer, and machines needed to farm, pay the storage and freight charges that went with selling their crops, and keep house and home together while the plants ripened and the hogs fattened.  When market day finally arrived, the farmer found out just what all his backbreaking work was really worth.  If the news was bad, then those credit lines were shut off and he found himself dispossessed.

The family farm and the network of small town life that went with it were being washed into the rivers of capital heading for metropolitan America.  On the “sod house” frontier, poverty was a “badge of honor which decorated all.”  In hisDevil’s Dictionary, the acid-tongued humorist Ambrose Bierce defined the dilemma this way: “Debt. n. An ingenious substitute for the chain and whip of the slave-driver.”

Across the Great Plains and the cotton South, discontented farmers spread the blame for their predicament far and wide.  Anger, however, tended to pool around the strangulating system of currency and credit run out of the banking centers of the northeast. Beginning in the 1870s with the emergence of the Greenback Party and Greenback-Labor Party and culminating in the 1890s with the People’s or Populist Party, independent farmers, tenant farmers, sharecroppers, small businessmen, and skilled workers directed ever more intense hostility at “the money power.”

That “power” might appear locally in the homeliest of disguises.  At coal mines and other industrial sites, among “coolies” working to build the railroads or imported immigrant gang laborers and convicts leased to private concerns, workers were typically compelled to buy what they needed in company scrip at company stores at prices that left them perpetually in debt.  Proletarians were so precariously positioned that going into debt -- whether to pawnshops or employers, landlords or loan sharks -- was unavoidable.  Often they were paid in kind: wood chips, thread, hemp, scraps of canvas, cordage: nothing, that is, that was of any use in paying off accumulated debts.  In effect, they were, as they called themselves, “debt slaves.” 

In the South, hard-pressed growers found themselves embroiled in a crop-lien system, dependent on the local “furnishing agent” to supply everything needed, from seed to clothing to machinery, to get through the growing season.  In such situations, no money changed hands, just a note scribbled in the merchant’s ledger, with payment due at “settling up” time.  This granted the lender a lien, or title, to the crop, a lien that never went away.

In this fashion, the South became “a great pawn shop,” with farmers perpetually in debt at interest rates exceeding 100% per year.  In Alabama, Georgia, and Mississippi, 90% of farmers lived on credit.  The first lien you signed was essentially a life sentence.  Either that or you became a tenant farmer, or you simply left your land, something so commonplace that everyone knew what the letters “G.T.T.” on an abandoned farmhouse meant: “Gone to Texas.”  (One hundred thousand people a year were doing that in the 1870s.) 

The merchant’s exaction was so steep that African-Americans and immigrants in particular were regularly reduced to peonage -- forced, that is, to work to pay off their debt, an illegal but not uncommon practice.  And that neighborhood furnishing agent was often tied to the banks up north for his own lines of credit.  In this way, the sucking sound of money leaving for the great metropolises reverberated from region to region.

Facing dispossession, farmers formed alliances to set up cooperatives to extend credit to one another and market crops themselves.  As one Populist editorialist remarked, this was the way “mortgage-burdened farmers can assert their freedom from the tyranny of organized capital.”  But when they found that these groupings couldn’t survive the competitive pressure of the banking establishment, politics beckoned.

From one presidential election to the next and in state contests throughout the South and West, irate grain and cotton growers demanded that the government expand the paper currency supply, those “greenbacks,” also known as “the people’s money,” or that it monetize silver, again to enlarge the money supply, or that it set up public institutions to finance farmers during the growing season.  With a passion hard for us to imagine, they railed against the “gold standard” which, in Democratic Party presidential candidate William Jennings Bryan’s famous cry, should no longer be allowed to “crucify mankind on a cross of gold.”

Should that cross of gold stay fixed in place, one Alabama physician prophesied, it would “reduce the American yeomanry to menials and paupers, to be driven by monopolies like cattle and swine.”  As Election Day approached, populist editors and speakers warned of an approaching war with “the money power,” and they meant it.  “The fight will come and let it come!”

The idea was to force the government to deliberately inflate the currency and so raise farm prices.  And the reason for doing that?  To get out from under the sea of debt in which they were submerged.  It was a cry from the heart and it echoed and re-echoed across the heartland, coming nearer to upsetting the established order than any American political upheaval before or since. 

The passion of those populist farmers and laborers was matched by that of their enemies, men at the top of the economy and government for whom debt had long been a road to riches rather than destitution.  They dismissed their foes as “cranks” and “calamity howlers.”  And in the election of 1896, they won.  Bryan went down to defeat, gold continued its pitiless process of crucifixion, and a whole human ecology was set on a path to extinction.

The Return of Debt Servitude

When populism died, debt -- as a spark for national political confrontation -- died, too.  The great reform eras that followed -- Progessivism, the New Deal, and the Great Society -- were preoccupied with inequality, economic collapse, exploitation in the workplace, and the outsized nature of corporate power in a consolidated industrial capitalist system.

Rumblings about debt servitude could certainly still be heard.  Foreclosed farmers during the Great Depression mobilized, held “penny auctions” to restore farms to families, hanged judges in effigy, and forced Prudential Insurance Company, the largest land creditor in Iowa, to suspend foreclosures on 37,000 farms (which persuaded Metropolitan Life Insurance Company to do likewise).  A Kansas City realtor was shot in the act of foreclosing on a family farm, a country sheriff kidnapped while trying to evict a farm widow and dumped 10 miles out of town, and so on.

Urban renters and homeowners facing eviction formed neighborhood groups to stop the local sheriff or police from throwing families out of their houses or apartments. Furniture tossed into the street in eviction proceedings would be restored by neighbors, who would also turn the gas and electricity back on.  New Deal farm and housing finance legislation bailed out banks and homeowners alike.  Right-wing populists like the Catholic priest Father Charles Coughlin carried on the war against the gold standard in tirades tinged with anti-Semitism.  Signs like one in Nebraska -- “The Jew System of Banking” (illustrated with a giant rattlesnake) -- showed up too often.

But the age of primitive accumulation in which debt and the financial sector had played such a strategic role was drawing to a close. 

Today, we have entered a new phase.  What might be called capitalist underdevelopment and once again debt has emerged as both the central mode of capital accumulation and a principal mechanism of servitude.  Warren Buffett (of all people) has predicted that, in the coming decades, the United States is more likely to turn into a “sharecropper society” than an “ownership society.”

In our time, the financial sector has enriched itself by devouring the productive wherewithal of industrial America through debt, starving the public sector of resources, and saddling ordinary working people with every conceivable form of consumer debt.

Household debt, which in 1952 was at 36% of total personal income, had by 2006 hit 127%.  Even financing poverty became a lucrative enterprise.  Taking advantage of the low credit ratings of poor people and their need for cash to pay monthly bills or simply feed themselves, some check-cashing outlets, payday lenders, tax preparers, and others levy interest of 200% to 300% and more.  As recently as the 1970s, a good part of this would have been considered illegal under usury laws that no longer exist.  And these poverty creditors are often tied to the largest financiers, including Citibank, Bank of America, and American Express.

Credit has come to function as a “plastic safety net” in a world of job insecurity, declining state support, and slow-motion economic growth, especially among the elderly, young adults, and low-income families.  More than half the pre-tax income of these three groups goes to servicing debt.  Nowadays, however, the “company store” is headquartered on Wall Street.

Debt is driving this system of auto-cannibalism which, by every measure of social wellbeing, is relentlessly turning a developed country into an underdeveloped one.  

Dr. Jekyll and Mr. Hyde are back.  Is a political resistance to debt servitude once again imaginable?

Choice of Mary Jo White to Head SEC Puts Fox In Charge of Hen...

I was shocked when I heard that Mary Jo White, a former U.S. Attorney and a partner for the white-shoe Wall Street defense firm Debevoise and Plimpton, had been named the new head of the SEC.Mary Jo White. "If Barack Obama wanted to send a signal that he's getting tougher on Wall Street, he sure picked a funny way to do it," writes Taibbi. (Photo: Alex Wong/Getty Images)

I thought to myself: Couldn't they have found someone who wasn't a key figure in one of the most notorious scandals to hit the SEC in the past two decades? And couldn't they have found someone who isn't a perfect symbol of the revolving-door culture under which regulators go soft on suspected Wall Street criminals, knowing they have million-dollar jobs waiting for them at hotshot defense firms as long as they play nice with the banks while still in office?

I'll leave it to others to chronicle the other highlights and lowlights of Mary Jo White's career, and focus only on the one incident I know very well: her role in the squelching of then-SEC investigator Gary Aguirre's investigation into an insider trading incident involving future Morgan Stanley CEO John Mack. While representing Morgan Stanley at Debevoise and Plimpton, White played a key role in this inexcusable episode.

As I explained a few years ago in my story, "Why Isn't Wall Street in Jail?": The attorney Aguirre joined the SEC in 2004, and two days into his job was asked to look into reports of suspicious trading activity involving a hedge fund called Pequot Capital, and specifically its megastar trader, Art Samberg. Samberg had made suspiciously prescient trades ahead of the acquisition of a firm called Heller Financial by General Electric, pocketing about $18 million in a period of weeks by buying up Heller shares before the merger, among other things.

"It was as if Art Samberg woke up one morning and a voice from the heavens told him to start buying Heller," Aguirre recalled. "And he wasn't just buying shares – there were some days when he was trying to buy three times as many shares as were being traded that day."

Aguirre did some digging and found that Samberg had been in contact with his old friend John Mack before making those trades. Mack had just stepped down as president of Morgan Stanley and had just flown to Switzerland, where he'd interviewed for a top job at Credit Suisse First Boston, the company that happened to be the investment banker for . . . Heller Financial.

Now, Mack had been on Samberg's case to cut him in on a deal involving a spinoff of Lucent. "Mack is busting my chops" to let him in on the Lucent deal, Samberg told a co-worker.

So when Mack returned from Switzerland, he called Samberg. Samberg, having done no other research on Heller Financial, suddenly decided to buy every Heller share in sight. Then he cut Mack into the Lucent deal, a favor that was worth $10 million to Mack.

Aguirre thought there was clear reason to investigate the matter further and pressed the SEC for permission to interview Mack. Not arrest the man, mind you, or hand him over to the CIA for rendition to Egypt, but merely to interview the guy. He was denied, his boss telling him that Mack had "powerful political connections" (Mack was a fundraising Ranger for President Bush).

But that wasn't all. Morgan Stanley, which by then was thinking of bringing Mack back as CEO, started trying to backdoor Aguirre and scuttle his investigation by going over his head. Who was doing that exactly? Mary Jo White. This is from the piece I mentioned, :

It didn't take long for Morgan Stanley to work its way up the SEC chain of command. Within three days, another of the firm's lawyers, Mary Jo White, was on the phone with the SEC's director of enforcement. In a shocking move that was later singled out by Senate investigators, the director actually appeared to reassure White, dismissing the case against Mack as "smoke" rather than "fire." White, incidentally, was herself the former U.S. attorney of the Southern District of New York — one of the top cops on Wall Street . . .

Aguirre didn't stand a chance. A month after he complained to his supervisors that he was being blocked from interviewing Mack, he was summarily fired, without notice. The case against Mack was immediately dropped: all depositions canceled, no further subpoenas issued. "It all happened so fast, I needed a seat belt," recalls Aguirre, who had just received a stellar performance review from his bosses. The SEC eventually paid Aguirre a settlement of $755,000 for wrongful dismissal.

It got worse. Not only did the SEC ultimately delay the interview of Mack until after the statute of limitations had expired, and not only did the agency demand an investigation into possible alternative sources for Samberg's tip (what Aguirre jokes was like "O.J.'s search for the real killers"), but the SEC official who had quashed the Mack investigation, Paul Berger, took a lucrative job working for Morgan Stanley's law firm, Debevoise and Plimpton, just nine months after Aguirre was fired.

It later came out that Berger had expressed interest in working for the firm during the exact time that Aguirre was being dismissed and the Mack investigation was being quashed. A Senate investigation later uncovered an email to Berger from another SEC official, Lawrence West, who was also interviewing with Debevoise and Plimpton at the time. This is from the Senate report on the Aguirre affair:

The e-mail was dated September 8, 2005 and addressed to Paul Berger with the subject line, "Debevoise.'' The body of the message read, "Mary Jo [White] just called. I mentioned your interest.''

So Berger was passing notes in class to Mary Jo White about wanting to work for Morgan Stanley's law firm while he was in the middle of quashing an investigation into a major insider trading case involving the C.E.O. of the bank. After the case dies, Berger later gets the multimillion-dollar posting and the circle is closed.

This whole episode highlights everything that's wrong with modern Wall Street. First of all, everybody's buddies with each other – cops and robbers, no adversarial system at all. As Bill Murray would say, it's dogs and cats, living together.

Here, a line investigator gets a good lead, it's quickly taken out of his hands and the whole thing is negotiated at 50,000 feet by friends and former co-workers of the top regulators now working at hotshot firms.

If Barack Obama wanted to send a signal that he's getting tougher on Wall Street, he sure picked a funny way to do it, nominating the woman who helped John Mack get off on the slam-dunkiest insider trading case ever to cross an SEC investigator's desk.

When I contacted Gary today, his take on it was simple. "Obama is not going to clean up financial corruption," he said, "by pinning a sheriff's badge on Wall Street's protector-in-chief."

© 2013 Rolling Stone

Matt Taibbi

As Rolling Stone’s chief political reporter, Matt Taibbi's predecessors include the likes of journalistic giants Hunter S. Thompson and P.J. O'Rourke. Taibbi's 2004 campaign journal Spanking the Donkey cemented his status as an incisive, irreverent, zero-bullshit reporter. His books include Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History, The Great Derangement: A Terrifying True Story of War, Politics, and Religion, Smells Like Dead Elephants: Dispatches from a Rotting Empire.

Choice of Mary Jo White to Head SEC Puts Fox In Charge of Hen...

I was shocked when I heard that Mary Jo White, a former U.S. Attorney and a partner for the white-shoe Wall Street defense firm Debevoise and Plimpton, had been named the new head of the SEC.Mary Jo White. "If Barack Obama wanted to send a signal that he's getting tougher on Wall Street, he sure picked a funny way to do it," writes Taibbi. (Photo: Alex Wong/Getty Images)

I thought to myself: Couldn't they have found someone who wasn't a key figure in one of the most notorious scandals to hit the SEC in the past two decades? And couldn't they have found someone who isn't a perfect symbol of the revolving-door culture under which regulators go soft on suspected Wall Street criminals, knowing they have million-dollar jobs waiting for them at hotshot defense firms as long as they play nice with the banks while still in office?

I'll leave it to others to chronicle the other highlights and lowlights of Mary Jo White's career, and focus only on the one incident I know very well: her role in the squelching of then-SEC investigator Gary Aguirre's investigation into an insider trading incident involving future Morgan Stanley CEO John Mack. While representing Morgan Stanley at Debevoise and Plimpton, White played a key role in this inexcusable episode.

As I explained a few years ago in my story, "Why Isn't Wall Street in Jail?": The attorney Aguirre joined the SEC in 2004, and two days into his job was asked to look into reports of suspicious trading activity involving a hedge fund called Pequot Capital, and specifically its megastar trader, Art Samberg. Samberg had made suspiciously prescient trades ahead of the acquisition of a firm called Heller Financial by General Electric, pocketing about $18 million in a period of weeks by buying up Heller shares before the merger, among other things.

"It was as if Art Samberg woke up one morning and a voice from the heavens told him to start buying Heller," Aguirre recalled. "And he wasn't just buying shares – there were some days when he was trying to buy three times as many shares as were being traded that day."

Aguirre did some digging and found that Samberg had been in contact with his old friend John Mack before making those trades. Mack had just stepped down as president of Morgan Stanley and had just flown to Switzerland, where he'd interviewed for a top job at Credit Suisse First Boston, the company that happened to be the investment banker for . . . Heller Financial.

Now, Mack had been on Samberg's case to cut him in on a deal involving a spinoff of Lucent. "Mack is busting my chops" to let him in on the Lucent deal, Samberg told a co-worker.

So when Mack returned from Switzerland, he called Samberg. Samberg, having done no other research on Heller Financial, suddenly decided to buy every Heller share in sight. Then he cut Mack into the Lucent deal, a favor that was worth $10 million to Mack.

Aguirre thought there was clear reason to investigate the matter further and pressed the SEC for permission to interview Mack. Not arrest the man, mind you, or hand him over to the CIA for rendition to Egypt, but merely to interview the guy. He was denied, his boss telling him that Mack had "powerful political connections" (Mack was a fundraising Ranger for President Bush).

But that wasn't all. Morgan Stanley, which by then was thinking of bringing Mack back as CEO, started trying to backdoor Aguirre and scuttle his investigation by going over his head. Who was doing that exactly? Mary Jo White. This is from the piece I mentioned, :

It didn't take long for Morgan Stanley to work its way up the SEC chain of command. Within three days, another of the firm's lawyers, Mary Jo White, was on the phone with the SEC's director of enforcement. In a shocking move that was later singled out by Senate investigators, the director actually appeared to reassure White, dismissing the case against Mack as "smoke" rather than "fire." White, incidentally, was herself the former U.S. attorney of the Southern District of New York — one of the top cops on Wall Street . . .

Aguirre didn't stand a chance. A month after he complained to his supervisors that he was being blocked from interviewing Mack, he was summarily fired, without notice. The case against Mack was immediately dropped: all depositions canceled, no further subpoenas issued. "It all happened so fast, I needed a seat belt," recalls Aguirre, who had just received a stellar performance review from his bosses. The SEC eventually paid Aguirre a settlement of $755,000 for wrongful dismissal.

It got worse. Not only did the SEC ultimately delay the interview of Mack until after the statute of limitations had expired, and not only did the agency demand an investigation into possible alternative sources for Samberg's tip (what Aguirre jokes was like "O.J.'s search for the real killers"), but the SEC official who had quashed the Mack investigation, Paul Berger, took a lucrative job working for Morgan Stanley's law firm, Debevoise and Plimpton, just nine months after Aguirre was fired.

It later came out that Berger had expressed interest in working for the firm during the exact time that Aguirre was being dismissed and the Mack investigation was being quashed. A Senate investigation later uncovered an email to Berger from another SEC official, Lawrence West, who was also interviewing with Debevoise and Plimpton at the time. This is from the Senate report on the Aguirre affair:

The e-mail was dated September 8, 2005 and addressed to Paul Berger with the subject line, "Debevoise.'' The body of the message read, "Mary Jo [White] just called. I mentioned your interest.''

So Berger was passing notes in class to Mary Jo White about wanting to work for Morgan Stanley's law firm while he was in the middle of quashing an investigation into a major insider trading case involving the C.E.O. of the bank. After the case dies, Berger later gets the multimillion-dollar posting and the circle is closed.

This whole episode highlights everything that's wrong with modern Wall Street. First of all, everybody's buddies with each other – cops and robbers, no adversarial system at all. As Bill Murray would say, it's dogs and cats, living together.

Here, a line investigator gets a good lead, it's quickly taken out of his hands and the whole thing is negotiated at 50,000 feet by friends and former co-workers of the top regulators now working at hotshot firms.

If Barack Obama wanted to send a signal that he's getting tougher on Wall Street, he sure picked a funny way to do it, nominating the woman who helped John Mack get off on the slam-dunkiest insider trading case ever to cross an SEC investigator's desk.

When I contacted Gary today, his take on it was simple. "Obama is not going to clean up financial corruption," he said, "by pinning a sheriff's badge on Wall Street's protector-in-chief."

© 2013 Rolling Stone

Matt Taibbi

As Rolling Stone’s chief political reporter, Matt Taibbi's predecessors include the likes of journalistic giants Hunter S. Thompson and P.J. O'Rourke. Taibbi's 2004 campaign journal Spanking the Donkey cemented his status as an incisive, irreverent, zero-bullshit reporter. His books include Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History, The Great Derangement: A Terrifying True Story of War, Politics, and Religion, Smells Like Dead Elephants: Dispatches from a Rotting Empire.

Banking Crisis on Wall Street: Wrist Slap for “Too Big to Fail or Jail”...

bankster

With money laundering “lapses” and CEO mea culpas all the rage on Wall Street and the City of London, you would think that Hope and Change™ grifter Barack Obama’s Justice and Treasury Departments would want to send a strong message to banksters who break the law.

You’d be wrong of course.

‘There’s Nothing to See Here…’

While the financial press is all aflutter over news that JPMorgan Chase (JPMC) CEO Jamie Dimon had his annual pay package cut by 50 percent, from $23 million (£14.5m) to $11.5 million (£7.25m) over $6.2 billion (£3.91bn) in losses in the risky derivatives market, you’d almost believe that Dimon was lining up for food stamps or hunting down mittens to stave off New York’s bone-chilling winter.

Despite allusions to what are euphemistically called “bad bets” by JPMC trader Bruno Iksil, the so-called “London Whale” on the hook for proverbial “shitty deals” that cost shareholders billions, Bloomberg News reported that JPMC’s “fourth-quarter profit rose 53 percent, beating analysts’ estimates as mortgage revenue more than doubled on record-low interest rates and government incentives.”

Incentives? Now there’s a polite word for a megabank with more than $2.3 trillion (£1.45tn) in assets handed some $600 billion (£378.24bn) in TARP funds, which included Federal Reserve engineered deals for their buy-out of Bear Stearns and Washington Mutual that wiped out shareholder equity as the capitalist system threatened to implode in 2008.

Adding to the sleaze factor, it emerged in 2011 that JPMC had wrongfully overcharged thousands of military families on their mortgages, including active duty personnel serving in Afghanistan. As a result of a class-action lawsuit, the bank was forced to admit they had illegally overcharged 6,000 active duty military personnel, had seized the homes of 18 military families and then paid out $27 million (£17.05m) in compensation. At a shareholder’s meeting later that year Dimon “apologized” for the “error” and lending chief David Lowman fell on his sword as he was shown the door.

Talk about stand-up guys!

And never mind, as Rolling Stone’s Matt Taibbi pointed out, “at the same moment that leading banks were taking trillions in secret loans from the Fed, top officials at those firms were buying up stock in their companies, privy to insider info that was not available to the public at large.”

While drug-tainted Citigroup’s former CEO Vikram Pandit “bought nearly $7 million in Citi stock in November 2008, just as his firm was secretly taking out $99.5 billion in Fed loans,” that other paragon of banking virtue, Jamie Dimon, who “respects” the JPMC board’s decision to slice his pay in half “bought more than $11 million in Chase stock in early 2009, at a time when his firm was receiving as much as $60 billion in secret Fed loans.”

Such “stock purchases by America’s top bankers,” Taibbi wrote, “raise serious questions of insider trading.” Yet not a single bankster has been seriously investigated let alone held to account, by the Justice Department.

How sweet a year was it for JPMorgan Chase? Pretty sweet by all accounts.

Overall, Bloomberg reported, “revenue increased 10 percent to $23.7 billion [£14.96bn] from $21.5 billion [£13.57bn] in the fourth quarter of 2011. Annual revenue was $97 billion [£61.23bn], down from $97.2 billion [£61.35bn] the prior year.” This included investment banking fees which jumped 54 percent to $1.7 billion (£1.07bn) and revenue in the commercial banking sector which rose to $1.75 billion (£1.1bn). And with the formation of a new housing bubble due to taxpayer-subsidized record low interest rates, JPMC’s profits in the mortgage writing mill rose to $418 million (£263.5m) in 2012, compared to losses which topped $263 million (£165.8m) a year earlier.

But far from being a sign that the economic black hole opened by 2008′s financial collapse has contracted, there’s bad news on the horizon for distressed homeowners and taxpayers who will be forced to pay the piper for the next round of predatory loans.

As analyst Mike Whitney recently pointed out in CounterPunch a new rule defining a “qualified mortgage” by the US Consumer Financial Protection Bureau “creates vast new opportunities for the nation’s biggest banks to engage in predatory lending practices with impunity.”

According to Whitney, while the financial press have described the rule “as an attempt to protect borrowers from the risky types of loans that caused the financial crisis, the opposite is true. The real purpose of the rule is to provide legal protection for the banks from homeowner lawsuits, and to lay the groundwork for more reckless lending that could inflate another housing bubble.”

“In other words,” Whitney noted, “the rule was designed to serve the interests of the banks and the banks alone. This is why bankers everywhere are celebrating the final draft.”

Never mind that leading financial institutions were forced to cough up $25 billion (£15.76bn) in a settlement with the Office of the Comptroller of the Currency (OCC) and the Federal Reserve over shady foreclosure practices and wrongful homeowner evictions that ruined millions of lives.

JPMC’s $2 billion (£1.26bn) portion of the settlement, which included “a one-time pretax charge [write down] of $700 million [£441.77m] in the fourth quarter to cover the costs associated with [the] settlement” according to Bloomberg, was a pittance compared to the trillions of dollars in assets controlled by the bank.

‘A Trillion Here, a Trillion There…’

But as bad as these gift horses are, they pale in comparison with federal government inaction when it comes to policing financial predators who inflate their balance sheets with laundered drug money and loot derived from terrorist financing and organized crime.

As Yury Fedotov, the Executive Director of the United Nations Office on Drugs and Crime (UNODC), pointed out in that agency’s 2011 report, Estimating Illicit Financial Flows Resulting from Drug Trafficking and Other Transnational Organized Crime: “Prior to this report, perhaps the most widely quoted figure for the extent of money laundering was the IMF’s ‘consensus range’ of between 2-5 per cent of global GDP, made public in 1998. A study-of-studies, or meta-analysis, conducted for this report, suggests that all criminal proceeds are likely to have amounted to some 3.6 per cent of GDP (2.3-5.5 per cent) or around US$2.1 trillion in 2009.”

The UNODC research team averred: “If only flows related to drug trafficking and other transnational organized crime activities were considered, related proceeds would have been equivalent to around US$650 billion per year in the first decade of the new millennium, equivalent to 1.5% of global GDP or US$870 billion in 2009 assuming that the proportions remained unchanged. The funds available for laundering through the financial system would have been equivalent to some 1% of global GDP or US$580 billion in 2009.”

However you slice these grim estimates, it should be obvious that banks have every incentive to remain key players in the transnational narcotics complex and will continue to do so thanks to the federal government.

Last week, the Office of the Comptroller of the Currency (OCC) released their cease-and-desist order against JPMC.

Unlike other drug money laundering banks such as Wells Fargo-owned Wachovia Bank, which agreed to a mere $160 million (£100.86m) settlement in 2010 in a deferred prosecution agreement (DPA) after admitting to laundering upwards of $368 billion (£231.99bn) for Colombian and Mexican drug cartels or the recent $1.9 billion (£1.2bn) DPA with Britain’s HSBC global financial empire, the OCC’s consent order didn’t even impose a fine on JPMC for money laundering “lapses.”

Now that’s juice!

Though short on details the order however, is a damning indictment of JPMC “indiscretions” when it comes to drug and other criminal money laundering. Keep in mind this is an institution that was slapped with an $88.3 million (£55.66m) fine less than 18 months ago for shipping a ton of gold bullion to Iran in breach of harsh Treasury Department sanctions. (I neither endorse nor support draconian sanctions imposed by the imperialists on the Islamic Republic, my purpose here is to point out the double standards which would land the average citizen in the slammer under “material support” statutes for trading with Iran). The January 2013 Consent Order stated although the Comptroller found serious “flaws” in their accounting practices, “the Bank neither admits nor denies” the following:

(1) The OCC’s examination findings establish that the Bank has deficiencies in its BSA/AML [Bank Secrecy Act/anti-money laundering] compliance program. These deficiencies have resulted in the failure to correct a previously reported problem and a BSA/AML compliance program violation under 12 U.S.C. § 1818(s) and its implementing regulation, 12 C.F.R. § 21.21 (BSA Compliance Program). In addition, the Bank has violated 12 C.F.R. § 21.11 (Suspicious Activity Report Filings).

(2) The Bank has failed to adopt and implement a compliance program that adequately covers the required BSA/AML program elements due to an inadequate system of internal controls, and ineffective independent testing. The Bank did not develop adequate due diligence on customers, particularly in the Commercial and Business Banking Unit, a repeat problem, and failed to file all necessary Suspicious Activity Reports (“SARs”) related to suspicious customer activity.

(3) The Bank failed to correct previously identified systemic weaknesses in the adequacy of customer due diligence and the effectiveness of monitoring in light of the customers’ cash activity and business type, constituting a deficiency in its BSA/AML compliance program and resulting in a violation of 12 U.S.C. § 1818(s)(3)(B).

Wait a minute, if these were “previously identified systemic weaknesses” and if JPMC “failed to adopt and implement a compliance program” that would shield the American financial system from a tsunami of drug-tainted cash annually washing through the economy, especially “in light of the customers’ cash activity and business type,” why then has OCC issued another toothless Consent Order rather than forcing the bank to comply with the law? Accordingly, federal regulators charge:

(4) Some of the critical deficiencies in the elements of the Bank’s BSA/AML compliance program, resulting in a violation of 12 U.S.C. § 1818(s)(3)(A) and 12 C.F.R. § 21.21, include the following:

(a) The Bank has an inadequate system of internal controls and independent testing.
(b) The Bank has less than satisfactory risk assessment processes that do not provide an adequate foundation for management’s efforts to identify, manage, and control risk.
(c) The Bank has systemic deficiencies in its transaction monitoring systems, due diligence processes, risk management, and quality assurance programs.
(d) The Bank does not have enterprise-wide policies and procedures to ensure that foreign branch suspicious activity involving customers of other bank branches is effectively communicated to other affected branch locations and applicable AML operations staff. The Bank also does not have enterprise-wide policies and procedures to ensure that on a risk basis, customer transactions at foreign branch locations can be assessed, aggregated, and monitored.
(e) The Bank has significant shortcomings in SAR decision-making protocols and an ineffective method for ensuring that referrals and alerts are properly documented, tracked, and resolved.

(5) The Bank failed to identify significant volumes of suspicious activity and file the required SARs concerning suspicious customer activities, in violation of 12 C.F.R. § 21.11. In some of these cases, the Bank self-identified the issues and is engaged in remediation.

(6) The Bank’s internal controls, including filtering processes and independent testing, with respect to Office of Foreign Asset Control (“OFAC”) compliance are inadequate.

How large were the “significant volumes” of “suspicious activity” alluded to opaquely? Where did they originate? Who were the “suspicious customers” and why did JPMC not have “enterprise-wide policies and procedures” after being previously ordered to do so to ensure that said “suspicious customers” at foreign bank branches didn’t include drug lords or terrorist financiers? All of these are unanswered questions for which the Obama administration should be held to account.

In fact, according to OCC’s own regulations, 12 C.F.R. § 21.21 clearly states that the federal government “requires every national bank to have a written, board approved program that is reasonably designed to assure and monitor compliance with the BSA.”

At a minimum, an anti-money laundering program “must” (this is not optional): “1. provide for a system of internal controls to assure ongoing compliance; 2. provide for independent testing for compliance; 3. designate an individual responsible for coordinating and monitoring day-to-day compliance; and 4. provide training for appropriate personnel. In addition, the implementing regulation for section 326 of the PATRIOT Act requires that every bank adopt a customer identification program identification program as part of its BSA compliance program.”

Keep in mind that Wachovia and HSBC under terms of their DPA’s were forced to admit that illegal transactions “ignored the money laundering risks associated with doing business with certain Mexican customers and failed to implement a BSA/AML program that was adequate to monitor suspicious transactions from Mexico.”

Furthermore, those risks were compounded, wilfully in this writer’s opinion, in order to inflate bank balance sheets with drug money, through their failure to correct “systemic deficiencies in its transaction monitoring systems, due diligence processes, risk management, and quality assurance programs.”

On every level, JPMorgan Chase failed to comply with existing rules and regulations that have earned penny-ante offenders terms in federal prison.

In fact, just last week Los Angeles-based “G&A Check Cashing, its manager, Karen Gasparian, and its compliance officer, Humberto Sanchez” were sentenced by US Judge John Walker to stiff prison terms, The Wall Street Journal reported. For violating the Bank Secrecy Act, Gasparian was “ordered to prison for five years and Sanchez for eight months.”

Are you kidding me! The Journal averred, “While it is common for banks to face scrutiny from the U.S. for complying with the Bank Secrecy Act, it is rare for authorities to pursue check-cashing businesses for anti-money laundering compliance issues, as they are often used by the poor, who may not have the funds to maintain a bank account.”

In full clown-car mode, Assistant Attorney General Lanny Breuer, Obama’s chieftain over at the Justice Department’s Criminal Division, who last month refused to file criminal charges against drug-money laundering banksters at HSBC said in a statement: “Karen Gasparian, Humberto Sanchez and their company G&A Check Cashing purposefully thwarted the Bank Secrecy Act, making it easier for others to use G&A to commit illegal activity. They knew they were required to report transactions over $10,000, but deliberately failed to do so.”

Although the OCC Consent Order does not spell out who benefited from JPMC’s “systemic weaknesses” when it came to lax drug money laundering controls, the suspicion persists that somewhere fugitive billionaire drug lord Chapo Guzmán is smiling as he enlarges his stable of thoroughbreds.

(Image courtesy of Daniel Hopsicker’s MadCow Morning News)

Tom Burghardt is a researcher and activist based in the San Francisco Bay Area. In addition to publishing in Covert Action Quarterly and Global Research, he is a Contributing Editor with Cyrano’s Journal Today. His articles can be read on Dissident Voice, Pacific Free Press, Uncommon Thought Journal, and the whistleblowing website WikiLeaks. He is the editor of Police State America: U.S. Military “Civil Disturbance” Planning, distributed by AK Press and has contributed to the new book from Global Research, The Global Economic Crisis: The Great Depression of the XXI Century.

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The Warren Commission’s investigation of the Kennedy assassination, shoddy at best and a blatant, cynical cover-up at worst, neglected to dig deeply into many malignant and menacing areas. Especially, and probably intentionally, overlooked were Lee Harvey Oswald’s ties to the CIA. More than any other deficiency, this “oversight” led the Commission to the wrong conclusion about what really happened in Dallas. De facto head of the Commission Allen Dulles, CIA chief fired by Kennedy after the Bay of Pigs, carefully steered his colleagues away from the evidence which would have indicted the Agency. So it is left to us to do the dirty work. And a good place to start is Oswald’s membership in the Louisiana Civil Air Patrol (LCAP), a pack of social misfits, loners, thugs, thieves, and merciless CIA killers.

Rummaging through Lee Harvey Oswald’s past can be a murky and sometimes frightening enterprise, but it is quite necessary if one wants to understand the residue of the tangled plot that took JFK’s life. Even casual perusal leaves no doubt that Oswald and his associates had deep-rooted intelligence ties. Some of Lee’s best friends were CIA operatives, from David Ferrie to the Dallas White Russian community, which included people like Oswald’s best friend in Dallas George DeMohrenschildt and his erstwhile Irving, Texas, landlady Ruth Paine. Obvious patterns of sheepdipping and shepherding emerge as one follows Oswald’s journey from Louisiana to Texas, and to Russia and back. He was a low-level agent on deep-background assignments for the Company. Just the kind of dupe who can be set up as the fall when the Agency needs a patsy. But how did Oswald get to that point? Who picked him out of the hordes of nickel-and-dime operatives the CIA was running in the 1950s and’60s? And why?

It began when Lee was just a teenager and he joined LCAP. On the surface this was a harmless group of post-pubescent wannabe fliers who signed up for air rescue techniques, campouts, and long speeches about duty and country. But in reality LCAP was much more. It was established by David Harold Byrd, a wealthy Dallas businessman and defense industry insider who fancied himself an Air Force Colonel. Indeed he was bestowed this title by none other than his great pal, General Curtis (Bombs Away) LeMay, virulent Kennedy hater and Air Force Chief of Staff under same. Byrd and LeMay made LCAP look like a unit of weekend flyboys to outsiders, just an excuse to make Byrd a colonel and to have an auxiliary pilot training presence in the South. This was merely the cover story, however. US military intelligence and the CIA wanted to train and recruit pilots to make surreptitious flights, into the Caribbean and elsewhere, involving weapons trading, support for paramilitary operations, and drug running (later Air America). Louisiana was a logical location for this (easy access to Cuba, Latin America and South America). Later, of course, Byrd, one of LBJ's most ardent political and financial benefactors, owned the Texas School Book Depository. I have always been confounded by researchers who overlook this one incredible fact (which, in and of itself, screams conspiracy): Byrd, a Texas oil millionaire with nefarious connections to potential suspects, provided the first and last places of employment for Oswald. This is either the most incredible coincidence in history, or Byrd's businesses were being used as fronts for intelligence operations. Think of it, JFK's supposed assassin fires from a building owned by the same man to whose air patrol unit he was attached a decade earlier. And Byrd neither admits to nor is questioned about this suspicious happenstance. Of course, he had plausible deniability because he merely provided the facilities for intelligence assets to perform their operations while keeping a safe distance from the action.

Anyway, back to LCAP. The ideal candidates for CIA recruitment were young, impressionable, adventuresome cadets seeking daring and stealth and lacking morals or a social conscience; or, in the alternative, they were outcasts and misfits, willing to commit abnormal or questionable acts without resistance. Consequently, an unusually high number of Louisiana Civil Air Patrol cadets became psychopathic killers, CIA pilots, or gullible, low-level fall guys. Among them were John Liggett, Charles Rogers, Lee Harvey Oswald, Barry Seal, and James Bath, all of whom were either tangentially or directly connected to the JFK hit.

In order to facilitate its recruitment of LCAP cadets, the CIA needed mesmeric leaders who had sway over young men. It found one such leader in David Ferrie, a defrocked priest, a skilled pilot, a hypnotist, and a pedophile. Oswald was probably directed to Ferrie and LCAP by Dutz Murret, Oswald’s bookmaking uncle who worked for New Orleans crime boss Carlos Marcello. Rogers likewise had a bookmaker in the family, his father Fred, who also paid tribute to Marcello. Ferrie worked for Marcello as a pilot. When Marcello was deported by Bobby Kennedy’s Justice Department in 1961, Ferrie flew a private plane to Guatemala, picked up the gangland boss and flew him back home. Ferrie fancied himself an expert pilot, and loved flying secret missions for the Mafia and the CIA. In LCAP he insisted on being called “Captain Ferrie,” and despite his weird appearance (he wore an orange wig and painted-on eyebrows), his trainees were apparently defenseless against his hypnotic powers. One of “Captain” Ferrie’s most unusual recruits was a future mortician/body reconstructionist/assassin named John Liggett. More on him later.

Ferrie taught his prized pupils the tricks of spycraft. And while most LCAP alums tried to maintain their covers after joining the CIA, Barry Seal was flamboyantly and unabashedly open about his occupation. His remarkable life is well-chronicled in Daniel Hopsicker’s stunning book, Barry and the Boys. Seal was entrusted by the CIA to fly drugs out of Southeast Asia, Central America, and South America; guns in and out of troubled nations across the globe; and operatives to secret CIA missions whenever it needed a democratic or socialist leader overthrown. Hopsicker writes, ‘[Seal] was a high-rolling mercenary, a rogue pilot, an infamous gun-runner, the chief Mena narcotics trafficker, a fast-talking, self-assured, 300-pound pilot and Special Forces veteran, a notorious drug smuggler, a mystery man, and the most valuable informant in DEA history.”

Seal’s abilities as a CIA pilot were so valued that he was protected by powerful interests. He had George H.W. Bush’s private phone number; it was found on Seal’s body after he was mysteriously gunned down in the mid-1980s. Hopsicker writes of a witness overhearing one of Seal’s conversations with Vice President Bush. Seal reportedly threatened to expose the Iran-Contra scheme if the IRS did not stop hounding him. One week after the phone conversation, Seal was dead. The witness goes on to say that the murderers were acting under orders from Oliver North. Seal, according to Hopsicker, was also involved in another monstrous operation—he was one of the getaway pilots flying out of Dallas after JFK was killed.

Facts uncovered by this author indicate that JFK’s body was surreptitiously flown out of Dallas via Red Bird Airport and not Love Field. Here’s where another LCAP grad enters the drama. John Liggett, a Dallas funeral home employee, was present at Parkland Hospital just minutes after the mortally wounded Kennedy arrived there. On November 22, 1963, Liggett was officiating the funeral of his wife’s aunt at Restland Funeral Home, when he was suddenly called away from the graveside. He returned after a few minutes to tell his wife that Kennedy had been shot and he had to go to Parkland Hospital. When his wife asked him if Restland was going to get the job, John replied that he did not know but that she should not try to contact him. This was quite unusual. Normally when Liggett was on a job or on call, his wife and kids visited him at the funeral home. Never before had he instructed them to stay away. His funeral home did not get the JFK job; no matter, Liggett had other intentions. Circumstantial evidence indicates that Liggett, with the assistance of treasonous Secret Service agents, switched JFK’s body for a fake wrapped in sheets in Emergency Room 1. The substitute body was placed in the expensive coffin which publicly left Parkland Hospital on November 22, 1963. The genuine corpse was placed in a cheap shipping coffin and spirited away by John Liggett in a Restland Funeral Home hearst. It was then rushed to Red Bird where Seal or possibly some other CIA pilot flew the body to Washington, DC, for body alteration prior to the autopsy. And, according to Liggett’s peers, there was no one better in the business at altering dead bodies than John Liggett. He even referred to himself as a “reconstruction artist.”

As incredible as this scenario sounds, several people close to Liggett have come forward to verify this story. It dovetails with the official record in many regards. The Dallas doctors saw wounds on the dead President which were radically different from the ones the Bethesda autopsy doctors saw. The only reasonable explanation for this is that someone, somewhere between Dallas and Washington, got access to Kennedy’s corpse and altered it. This ploy, this diabolical deception was the plotters’ ace in the hole. It is how they intended to forever cover up the truth of the manner of JFK’s death. For in any murder investigation where the victim dies by gunshot wounds, examination of the corpse reveals the direction and number of shots. The Dallas doctors saw evidence of frontal entry and rear exit, indicating Kennedy was shot from the grassy knoll area of Dealey Plaza, a place where Oswald definitely was not positioned. The Bethesda doctors saw evidence of rear entry and frontal exit, indicating Kennedy was shot from the TSBD, a place where Oswald definitely was positioned. At Bethesda Hospital several witnesses saw Kennedy’s body arrive in the cheap shipping casket and the not the expensive public coffin that flew back to Washington aboard Air Force One. One LCAP grad (Liggett) framed another LCAP grad (Oswald).

Liggett did not return home from Washington until the next day. When he arrived he seemed worn and disheveled, quite unlike his customarily cool comportment and dapper dress. He quickly ordered Lois and the kids to pack up; they were going to hit the road. The family traveled south, and along the way Liggett stopped for furtive meetings with unknown parties out of the earshot of his wife and kids. They finally settled on a motel for the evening, and on the morning of November 24, after witnessing Ruby shoot Oswald to death on TV, Liggett breathed a deep sigh of relief and told his family it was okay to return home now. At no time did he let on what he knew about the historic events which had taken place that weekend or that he even knew Oswald, Ferrie, or any other LCAP members.

After the assassination Liggett came into a good deal of money which he used to purchase a home for his family in an upscale Dallas neighborhood. There he was visited on several occasions by Ferrie, whose appearance was so bizarre and amusing that they could not forget him. It is likely that Ferrie was conveying “liquidation” assignments to Liggett, as he was connected to many of the mysterious deaths of assassination witnesses after the fact.

Certainly Liggett did not learn his morturarial talents in the LCAP; instead he joined the Air Force where he served as an attaché, a common euphemism for military intelligence work. At some point after his discharge he was encouraged by his benefactors (possibly Curtis LeMay, possibly D.H. Byrd himself) to enroll in a school for undertakers. Upon graduation, he went to work embalming and burying innocent people by day and underworld/intelligence victims by night. If the CIA or the local Mafia wanted a body disposed of, Liggett was called upon. He interred the poor saps in the “Field of Honor,” a Dallas joke for burial plots of the nefarious. If the unlucky stiff needed a transformation to disguise the manner of death, Liggett was equal to the task.

But Liggett was more than just a mortician; he was a killer, and, like Charles Rogers, he had a preference for bludgeoning his victims with a hammer. The Dallas police caught up to Liggett in 1974, when he was arrested for the attempted murder of Dorothy Peck, wife of Jay Bert Peck. Jay Bert Peck was Lyndon Johnson’s cousin, and he bore a stunning resemblance to LBJ. Liggett never divulged his reasons for viciously beating Peck and burning her home. But according to some researchers, Dorothy was about to talk about how her own husband had been murdered by Liggett. Jay Bert Peck had reportedly stood in for his cousin at the Fort Worth Hotel where the presidential party had stayed the night before the JFK assassination. This allowed LBJ to slip out the back door and attend a “Kill Kennedy” planning session at the home of local oil millionaire Clint Murchison. LBJ’s long-time mistress Madeleine Brown reported seeing many powerful JFK enemies at Murchison’s that night, including H.L. Hunt, J. Edgar Hoover, John McCloy (later a member of the Warren Commission), and George Brown (of Brown & Root, nee Halliburton). If this account is true it would explain the importance of silencing the Pecks. Lyndon Johnson, named by many as the prime mover behind the assassination, certainly had no qualms about killing those close to him if it suited his political purposes. He was once accused by his long-time associate and criminal co-conspirator, Billy Sol Estes, of ordering the executions of many LBJ political enemies. Estes’ lawyer wrote a letter to the U.S. Justice Department in 1984 which named these victims, one of whom was President Kennedy. But I digress.

The Dallas Police eventually caught up to Liggett when they arrested him in 1974. After his arrest, Liggett’s first wife Lois was warned by Liggett’s brother Malcolm to stay away from John and to avoid all contact with him. Malcolm was later appointed to a high-level presidential economic advisory commission by Gerald Ford. (As a side note, Ford was one of four future presidents closely tied to the events in Dallas. He served on the Warren Commission. Three future presidents—Johnson, Nixon and George H.W. Bush--were in Dallas the day of Kennedy’s murder. This was no coincidence. All played a role in the events of November 22, 1963. But that’s another story.)

Liggett’s death is just as fraught with subterfuge and deviousness as his life. In February 1975 the Dallas Times-Herald reported that “John Melvin Liggett died on a Parkland Hospital table about 30 minutes after he was shot by Dallas Police while trying to escape custody.” But Liggett left behind two widows who adamantly contradicted the official version of Liggett’s death. One saw a stranger with facial hair in Liggett’s coffin (Liggett was unable to grow facial hair); the other insisted she saw Liggett in a Las Vegas casino years later. It would be a relatively simple matter for the Agency which killed a sitting U.S. President to fake the death of a mortician, so the reports of Liggett’s death may well be exaggerated.

Another LCAP alumnus who became notorious was Texas native Charles Rogers, CIA pilot and murdering psychopath. Rogers was as brilliant as he was disturbed. A graduate of the University of Houston, Rogers worked as a seismologist for Shell Oil in the 1950s before joining the CIA. It is a seismologist’s job to determine if the underlying rock or substrata of any particular area is fertile ground to drill for oil or natural gas. This was and is vital information to oil companies; thus, seismologists and geologists are in great demand. But that kind of life was apparently not adventurous enough for Charles. So in 1956, he applied with the CIA and was interviewed in the offices of Shell Oil’s law firm, Fulbright-Jaworski (yes, the Leon Jaworski of Watergate fame).

Like other LCAP alums, Rogers graduated to the big-time when he was identified as having direct ties to the JFK murder. Many are convinced he is one of the three tramps who were photographed being escorted by Dallas cops away from the crime scene in Dealey Plaza on November 22, 1963. The tramp photos have become part of assassination lore and have been the subject of much speculation and guesswork. What we know is the tramps bear a remarkable resemblance to killers Charles Rogers, Charles Harrelson, and the CIA’s E. Howard Hunt. Others claim they are real hobos whom the cops rousted from boxcars behind the grassy knoll. The matter ostensibly could be cleared up with some scientific analysis—comparison of height and weight, facial features, hairlines, arm length, and the like. Lois Gibson, a Houston Police Department forensics expert, performed such an analysis in 1991. Her meticulous study convinced her that Charles Rogers is the short tramp in the infamous photos. This begs the question, what was he doing there? Not likely he just happened to be boxcar-hopping just yards from the site of the murder of the century, at the exact time and day of its occurrence. There is no doubt that Rogers was a psychopath. He murdered his parents in June 1965, chopped them into pieces and stored them in a freezer before disappearing into the murky sub-world of CIA skullduggery.

It was most likely George DeMohrenschildt who recommended Rogers be hired by the CIA. A long-time CIA asset, and Lee Harvey Oswald’s handler in Dallas, DeMohrenschildt was also an expert in knowing where to drill for oil. He had an advanced degree in petroleum engineering, and he was associated with many Texas oil millionaires, including H.L. Hunt. LCAP founder D. H. Byrd once employed DeMohrenschildt at Three States Oil and Gas Company; DeMohrenschildt also was connected to Byrd through Byrd’s wife, whom DeMohrenschildt appointed to the board of his charitable organization in 1962. This would have provided cover for Byrd and DeMohrenschildt to have interaction during the time that Oswald was being shepherded to his tragic fate. DeMohrenschildt also had deep ties to the Bush family. George H.W. actually roomed with DeMohrenschildt’s uncle at Andover in the early 1940s. Later, when Bush was head of the CIA, DeMohrenschildt wrote a desperate letter to his old friend begging for help. DeMohrenschildt feared for his life because he was writing a factual book about his relationship with his old pal Lee Harvey Oswald. A few months later DeMohrenschildt was found shot to death in his home. The address and phone number of George H.W. Bush was on his person. Like Barry Seal, when DeMohrenschildt posed a threat of exposure of Bush secrets he met an untimely end.

Another Bush family intimate, one James R. Bath, turned out to be another “illustrious” grad of Byrd’s Civil Air Patrol. He served in his CAP unit in the mid-1950s, about the time Oswald, Ferrie, Seal and the other CIA recruits were active members. But it’s what he accomplished after his LCAP training that makes him notorious. Bath began a lucrative CIA career sometime in the late 1960s or early 1970s, after leaving active duty with the Air Force. He joined the Texas Air National Guard in 1965 where he met his great pal, George W. Bush, just as the Vietnam War was escalating. The Air National Guard was a great hideout for those pilots who wanted to avoid combat. Bath was George W. Bush's good buddy in the Texas Air National Guard. Like W, Bath refused a medical exam and went AWOL when he pleased. Bath eventually became the Bin Ladens' money man in Texas; this included investments in W's failed oil business--Arbusto. According to author Pete Brewton, Bush claimed that he and Bath never went into business together; however, “…records filed in a Houston lawsuit involving Bath contradict the [Bush’s] son: they show Bath was an investor in a Bush oil and gas enterprise.”

Brewton also claims that Bath became intertwined with some of the wealthiest and most powerful international players in global politics and finance. Among other things Bath became a trustee at a Saudi bank which provided financing for Adnan Khashoggi around the time that Khashoggi was involved in the arms-for-hostages transactions with the Iranians. The Khashoggis and the bin Ladens were intimately acquainted. Bath also went into business with Lan Bentsen, son of Texas politician Lloyd Bentsen. (Bath served in the 147th Fighter Group “Champagne Unit” Air National Guard with Lan Bentsen, George W. Bush, John Connally III—son of Texas governor John Connally, wounded in JFK’s death limo, Al Hill—grandson of H.L. Hunt, and several members of the Dallas Cowboys football team.) Bath formed a Cayman Islands company which moved money around for Oliver North in the Iran/Contra operation. And he worked for the du Pont family’s Atlantic Aviation corporation. Quite a success story for a guy who started out as a lowly cadet in David Ferrie’s LCAP.

Of all the sordid characters mentioned above, Byrd and Bath prospered the most. Byrd, rich beyond reason already, garnered million-dollar defense contracts for his Ling-Temco-Vought weapons company during Vietnam. His good friend LBJ apparently rewarded him for services rendered. Bath bilked American taxpayers for $12 million in Defense Department overcharges for one of his companies in 1990. Neither Byrd nor Bath was ever brought to account for anything. No investigative body—not the Dallas Police, not the Warren Commission, not the House Select Committee on Assassinations—interviewed Byrd. He answered no questions about the nature of his business, his associations, nor his weird connection to Oswald. Not a hint of suspicion was raised about who hired Oswald, nor who had access to the Texas School Book Depository building before, during and after the assassination. In his autobiography Byrd did not even mention the fact that he owned the TSBD, a tidbit he wanted to keep hidden for good reason. He does refer to his citation from General LeMay for starting up the Civil Air Patrol, but he excludes the names of all criminals therein bred. To remove himself as far from suspicion as possible, at the time of Kennedy’s assassination Byrd was on safari in Africa, his first-ever safari on foreign soil. He did not return to Dallas until the smoke had cleared.

Undeniable killers Charles Rogers and John Liggett were never convicted of any crime. Oswald, Ferrie, and Seal, all set up for murder by the covert forces which set their fates in motion, were the unluckiest of the lot.

In retrospect the Louisiana Civil Air Patrol was some sort of nexus of evil CIA recruitment and secrecy. Its founder and members went on to attain almost unfathomable notoriety. The truth of who LCAP members really were, the associations they made, and what they went on to do with their lives is quite provocative, and very dangerous information to the plotters of JFK’s murder. Their actions and connections speak to some sort of subterranean, for-profit enterprise that was dedicated to subverting democracy and creating what Jack Ruby called a “whole new form of government in the United States.” No wonder when the House Select Committee on Assassinations went to investigate the Louisiana Civil Air Patrol it found that all LCAP records prior to 1960 were missing.

http://neverlandpublishing.com/tpm.html

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Washington’s Blog
October 18, 2013

Mass surveillance by the NSA and other government agencies is not really making us safer, but is being used for other reasons.

Image: Prince Bandar.

For example:

Saudi Prince Bandar – head of Saudi intelligence – helped to arm the Mujahadeen in Afghanistan, and isnow arming Al Qaeda in Syria. (Background).

Respected financial writer Ambrose Evans-Pritchard says that Prince Bandar admitted that Saudi Arabia carries out false flag terror.  Indeed,  U.S. government officials say that the Saudi government had a hand in 9/11.

Moreover, several financial and economic experts – such as Jim Rickards, Max Keiser, German central bank president Ernst Welteke, Swiss economists Remo Crameri, Marc Chesney, Loriano Mancini and Bill Bergman (senior financial markets policy analyst for the Federal Reserve Bank of Chicago for 13 years) – say that there were insider trades right before 9/11 by people who knew the attacks were coming … people  with “no conceivable ties to al-Qaeda” according to the 9/11 Commission.

You don’t have to believe that 9/11 was an inside job to believe that this theory is at least possible. After all, 9/11 was foreseeable to people in intelligence services worldwide … as was Al Qaeda flying planes into the World Trade Center and Pentagon.

For example, the NSA, CIA and other intelligence agencies were listening in on the hijackers’ calls, and an FBI informant rented a room to two of the hijackers in San Diego.

Now, Max Keiser alleges that this story is about to be blown wide open:

Within a few months, there’s a book coming out by a friend of mine who’s already had a very popular book which went to the top of the New York Times Bestseller list. It’s a new book, he’s shown me the gallies. Chapter 1 talks about his eyewitness accounts being in the room in the CIA discussing trading inside information days ahead of 9/11. He’s talking about [Saudi intelligence chief Prince] Bandar, he’s talking about Tony Blair, he’s talking about [then executive director of the CIA] Buzzy Krongard.

Is Keiser right? Will the book really be published, and will it really make this allegation? Is the former CIA officer and bestselling author credible?

We’ll have to wait to find out.

This article was posted: Friday, October 18, 2013 at 5:32 am

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Financial Intelligence: Did Saudi Intelligence Chief and Other High-Ranking Officials “Trade on Inside Information”...

Did Connected Insiders Cynically Trade On Impending Attacks? Mass surveillance by the NSA and other government agencies is not really making us safer, but is...

Financial Intelligence: Did Saudi Intelligence Chief and Other High-Ranking Officials “Trade on Inside Information”...

Did Connected Insiders Cynically Trade On Impending Attacks?

Mass surveillance by the NSA and other government agencies is not really making us safer, but is being used for other reasons.

For example:

Saudi Prince Bandar – head of Saudi intelligence – helped to arm the Mujahadeen in Afghanistan, and is now arming Al Qaeda in Syria. (Background).

Respected financial writer Ambrose Evans-Pritchard says that Prince Bandar admitted that Saudi Arabia carries out false flag terror.  Indeed,  U.S. government officials say that the Saudi government had a hand in 9/11.

Moreover, several financial and economic experts – such as Jim Rickards, Max Keiser, German central bank president Ernst Welteke, Swiss economists Remo Crameri, Marc Chesney, Loriano Mancini and Bill Bergman (senior financial markets policy analyst for the Federal Reserve Bank of Chicago for 13 years) – say that there were insider trades right before 9/11 by people who knew the attacks were coming … people  with “no conceivable ties to al-Qaeda” according to the 9/11 Commission.

You don’t have to believe that 9/11 was an inside job to believe that this theory is at least possible. After all, 9/11 was foreseeable to people in intelligence services worldwide … as was Al Qaeda flying planes into the World Trade Center and Pentagon.

For example, the NSA, CIA and other intelligence agencies were listening in on the hijackers’ calls, and an FBI informant rented a room to two of the hijackers in San Diego.

Now, Max Keiser alleges that this story is about to be blown wide open:

Within a few months, there’s a book coming out by a friend of mine who’s already had a very popular book which went to the top of the New York Times Bestseller list. It’s a new book, he’s shown me the gallies. Chapter 1: talks about his eyewitness accounts being in the room in the CIA discussing trading inside information days ahead of 9/11. He’s talking about [Saudi intelligence chief Prince] Bandar, he’s talking about Tony Blair, he’s talking about [then executive director of the CIA] Buzzy Krongard.

Is Keiser right? Will the book really be published, and will it really make this allegation? Is the former CIA officer and bestselling author credible?

We’ll have to wait to find out.

WHAT AMERICA HAS BECOME

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There are two budgets up for a vote in the US House of Representatives this week.

One, according to many, is filled with terrible policy prescriptions that pamper the country's wealthiest while kicking the chair out from under workers, the elderly and the sick in the name of ending "the deficit problem" that even its proponents agree is not "currently" a problem.

The other is a progressive budget that aims to get people back to work, make Wall Street pay its fair share, and puts in place a series of financial instruments—including a tax on carbon and one on speculative and destructive trading—that economist historians say is not only "progressive" in its ideals, but truly a huge dose of economic common sense.

In an interview on Sunday's Face the Nation, Rep. Paul Ryan (R-WI), the plan's chief author, again defended the GOP's latest budget by stating flatly, "this is what the people want."

The problem?

According to numerous polls, he's dead wrong about what "the people" want.

“Our budget is a vision document," said Ryan. But, according to economists and political experts Ryan's proposals are not only tired and recycled ideas from previous budgets, they were collectively voted down in last years presidential contest when Ryan, running as Mitt Romney's vice presidential running mate, trumpeted the same ideas nationwide.

In fact, when not tied to their partisan labels, most self-identified Republicans don't even like these ideas.

Meanwhile, progressives in Congress are struggling just to get the basic outlines of their budget proposal out to the public.

Released last week by the Congressional Progressive Caucus, the 'Back to Work' budget—widely praised when explained—is being pushed hard by its backers even as it continues to get short shrift in the wider media.

Advocating especially hard for the CPC's work is the left-of-center Campaign for America's Future, whose team of analysts and writers have divided their time equally between extolling the virtues of the 'Back to Work' budget and exposing the failures of the Ryan/GOP approach.

Over the weekend, the group launched a petition which reads:

House Budget Committee chairman Rep. Paul Ryan has released a budget proposal that is the most reckless austerity plan he’s ever proposed. Instead of a budget that will slow the economy and kill jobs, vote for the Progressive Caucus Back to Work Budget, which will grow the economy, create 7 million jobs and asks the wealthy and the multinationals to pay their fair share so we can make investments vital to our future.

The progressive budget, writes CAF's Richard Eskow, "is smart, effective, and practical, creating up to seven million jobs while reducing the Federal deficit by $4.4 trillion."

So what's the problem?

The plan—despite its sound economics and alignment with the desire of numerous public opinion polls that show support for the policies it recommends—the plan is marginalized by the corporate press and dismissed by leaders of the CPC’s own Democratic Party.

In Washington, one hears mountains of commentary about the Ryan budget -- both for and against -- but the only Democratic alternative that receives much attention is the Senate budget put fourth.

But, as the Washington Post's Ezra Klein argues:

The correct counterpart to the [Ryan budget] isn’t the cautious plan released by the Senate Democrats. It’s the “Back to Work” budget released by the Congressional Progressive Caucus.

The “Back to Work” budget is about exactly what the name implies: Putting Americans back to work. The first sentence lays it out clearly: “We’re in a jobs crisis that isn’t going away.” So that’s the budget’s top priority: fixing the jobs crisis.

It begins with a stimulus program that makes the American Recovery and Reinvestment Act look tepid: $2.1 trillion in stimulus and investment from 2013 to 2015, including a $425 billion infrastructure program, a $340 billion middle-class tax cut, a $450 billion public-works initiative and $179 billion in state and local aid. That’s . . . a lot of stimulus.

And, according to economists, 'a lot of stimulus' is a good thing. On top of that, people like the impact that stimulus spending has proven to have on job creation.

"Its provisions are enormously popular with voters across the political spectrum," argues Eskow. "Yet in Washington’s insular world of self-fulfilling prophecies we’re told that this budget is unimportant because 'it will never pass.'”

But, as Common Dreams reported last month, "When the Business Insider polled registered voters and asked for their preferences among three [recent] Congressional plans floated to avoid the looming "sequestration" cuts in Washington, they found that when stripped of their partisan labels, the policies most favorable to the majority were those offered by the progressive wing of the Democratic caucus."

Votes on the budgets in the House are expected as early as Tuesday, but it remains unclear whether or not the Democratic party will use the opposing visions contained in the CPC and Ryan budgets to make a larger argument about the direction the economy should take in the months and years ahead.

"Progressives need to listen to the American majority and build a movement to demand action on jobs," writes Roger Hickey, co-director of the Campaign for America's Future. "Of course we should do everything we can to mitigate the damage from Republican austerity measures. But our more important mission is to lay out an agenda to create jobs and growth. We should take that agenda to the American people – and we should also demand that the Democrats, who claim to be the party of the middle class and the poor, embrace that agenda (something very much like the CPC Back to Work Budget) and take it into the 2014 elections."

_________________________________________

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

Are Attorney General Holder’s Statements on Banks and Drones Connected? How Far Will the...

State-sponsored assassination: Attorney General Eric Holder Justifies Killing Americans On Foreign Soil

The Attorney General of the United States made the following 2 statements within 48 hours:

These statements may – at first glance – seem unconnected.  And the mainstream media is treating them as separate.

True, the government is hell-bent on keeping the giant banks afloat, even though virtually all independent economists, financial experts and bankers are calling for them to be broken up, and Americans overwhelmingly want the government to get tougher on prosecuting Wall Street fraud.

But there might be more to it then than that … and Holder’s statements may be intimately connected.

For example, the Department of Homeland Security, FBI, and other government agencies worked hand-in-hand with the big banks to violently crack down on the Occupy protests.

And what was Occupy protesting?  One of the core complaints of the Occupy protesters was that there are two systems of justice: the little guy gets thrown in jail for the smallest infraction, while banksters escape prosecution for their criminal fraud.  (Occupy also protested the fact that that the big banks got bailed out, while the rest of us got sold out.  And see this.)

In other words, it is exactly the Department of Justice’s policy of not prosecuting big bank crimes which was one of Occupy’s core complaints … and – in response – the federal government sent in the goons to crack heads and trash the free speech rights of the protesters.

This is not an isolated incident.

The big banks literally own the politicians.

For many years, the government has used anti-terror laws mainly to crush political dissent and to help the too big to fail businesses.

Asking questions about Wall Street shenanigans, speaking out against government policies, and protesting anything are all considered grounds for being labeled a “potential terrorist” by the government.  Whistleblowers are also being treated as terrorists.

Indeed, the government agency with the power to determine who gets assassinated is the same agency that is at the center of the “ubiquitous, unaccountable surveillance state aimed at American citizens.”

If this sounds like breathless fearmongering, please remember that the U.S. military now considers the American homeland to be a “battle zone” (and see this).

And the banking system is considered “critical infrastructure” by the Department of Homeland security.

Another Connection Between Big Banks and Drones

There is another connection between big banks and drones.

The big banks have a direct role in encouraging and financing war. And see this.

And Ron Paul noted in 2007:

Congress and the Federal Reserve Bank have a cozy, unspoken arrangement that makes war easier to finance. Congress has an insatiable appetite for new spending, but raising taxes is politically unpopular. The Federal Reserve, however, is happy to accommodate deficit spending by creating new money through the Treasury Department. In exchange, Congress leaves the Fed alone to operate free of pesky oversight and free of political scrutiny.

The big banks own the Federal Reserve.

Indeed, some say that all wars are really bankster wars.

Obama and the Illusory State of the Empire

obama

Barack Obama would never be so crass as to use a State of the Union (SOTU) address to announce an “axis of evil”.

No. Double O Bama, equipped with his exclusive license to kill (list), is way slicker. As much as he self-confidently pitched a blueprint for a “smart” – not bigger – US government, he kept his foreign policy cards very close to his chest.

Few eyebrows were raised on the promise that “by the end of next year our war in Afghanistan will be over”; it won’t be, of course, because Washington will fight to the finish to keep sizeable counterinsurgency boots on the ground – ostensibly to fight, in Obama’s words, those evil “remnants of al-Qaeda”.

Obama promised to “help” Libya, Yemen and Somalia, not to mention Mali. He promised to “engage” Russia. He promised to seduce Asia with the Trans-Pacific Partnership – essentially a collection of corporate-friendly free-trade agreements. On the Middle East, he promised to “stand” with those who want freedom; that presumably does not include people from Bahrain.

As this was Capitol Hill, he could not help but include the token “preventing Iran from acquiring nuclear weapons”; putting more “pressure” on Syria – whose “regime kills its own people”; and to remain “steadfast” with Israel.

North Korea was mentioned. Always knowing what to expect from the horse’s mouth, the foreign ministry in Pyongyang even issued a preemptive attack, stressing that this week’s nuclear test was just a “first response” to US threats; “second and third measures of greater intensity” would be unleashed if Washington continued to be hostile.

Obama didn’t even bother to answer criticism of his shadow wars, the Drone Empire and the legal justification for unleashing target practice on US citizens; he mentioned, in passing, that all these operations would be conducted in a “transparent” way. Is that all there is? Oh no, there’s way more.

Double O’s game

Since 9/11, Washington’s strategy during the George W Bush years – penned by the neo-cons – read like a modified return to land war. But then, after the Iraq quagmire, came a late strategic adjustment, which could be defined as the Petraeus vs Rumsfeld match. The Petraeus “victory” myth, based on his Mesopotamian surge, in fact provided Obama with an opening for leaving Iraq with the illusion of a relative success (a myth comprehensively bought and sold by US corporate media).

Then came the Lisbon summit in late 2010, which was set up to turn the North Atlantic Treaty Organization (NATO) into a clone of the UN Security Council in a purely Western format, capable of deploying autonomous military interventions – preemption included – all over the world. This was nothing less than classic Bush-Obama continuum.

NATO’s Lisbon summit seemed to have enthroned a Neoliberal Paradise vision of the complex relations between war and the economy; between the military and police operations; and between perennial military hardware upgrading and the political design of preemptive global intervention. Everything, once again, under Obama’s supervision.

The war in Afghanistan, for its part, was quite useful to promote NATO as much as NATO was useful to promote the war in Afghanistan – even if NATO did not succeed in becoming the Security Council of the global American Empire, always bent on dominating, or circumventing, the UN.

Whatever mission NATO is involved in, command and control is always Washington’s. Only the Pentagon is able to come up with the logistics for a transcontinental, global military operation. Libya 2011 is another prime example. At the start, the French and the Brits were coordinating with the Americans. But then Stuttgart-based AFRICOM took over the command and control of Libyan skies. Everything NATO did afterwards in Libya, the virtual commander in chief was Barack Obama.

So Obama owns Libya. As much as Obama owns the Benghazi blowback in Libya.

Libya seemed to announce the arrival of NATO as a coalition assembly line on a global scale, capable of organizing wars all across the world by creating the appearance of a political and military consensus, unified by an all-American doctrine of global order pompously titled “NATO’s strategic concept”.

Libya may have been “won” by the NATO-AFRICOM combo. But then came the Syria red line, duly imposed by Russia and China. And in Mali – which is blowback from Libya – NATO is not even part of the picture; the French may believe they will secure all the gold and uranium they need in the Sahel – but it’s AFRICOM who stands to benefit in the long term, boosting its military surge against Chinese interests in Africa.

What is certain is that throughout this convoluted process Obama has been totally embedded in the logic of what sterling French geopolitical analyst Alain Joxe described as “war neoliberalism”, inherited from the Bush years; one may see it as a champagne definition of the Pentagon’s long, or infinite, war.

Double O’s legacy

Obama’s legacy may be in the process of being forged. We might call it Shadow War Forever – coupled with the noxious permanence of Guantanamo. The Pentagon for its part will never abandon its “full spectrum” dream of military hegemony, ideally controlling the future of the world in all those shades of grey zones between Russia and China, the lands of Islam and India, and Africa and Asia.

Were lessons learned? Of course not. Double O Bama may have hardly read Nick Turse’s exceptional book Kill Anything that Moves: The Real American War in Vietnam, where he painstakingly documents how the Pentagon produced “a veritable system of suffering”. Similar analysis of the long war on Iraq might only be published by 2040.

Obama can afford to be self-confident because the Drone Empire is safe. [1] Most Americans seem to absent-mindedly endorse it – as long as “the terrorists” are alien, not US citizens. And in the minor netherworlds of the global war on terror (GWOT), myriad profiteers gleefully dwell.

A former Navy SEAL and a former Green Beret have published a book this week, Benghazi: the Definitive Report, where they actually admit Benghazi was blowback for the shadow war conducted by John Brennan, later rewarded by Obama as the new head of the CIA.

The book claims that Petraeus was done in by an internal CIA coup, with senior officers forcing the FBI to launch an investigation of his affair with foxy biographer Paula Broadwell. The motive: these CIA insiders were furious because Petraeus turned the agency into a paramilitary force. Yet that’s exactly what Brennan will keep on doing: Drone Empire, shadow wars, kill list, it’s all there. Petraeus-Brennan is also classic continuum.

Then there’s Esquire milking for all it’s worth the story of an anonymous former SEAL Team 6 member, the man who shot Geronimo, aka Osama bin Laden. [2] This is familiar territory, the hagiography of a Great American Killer, whose “three shots changed history”, now abandoned by a couldn’t-care-less government machinery but certainly not by those who can get profitable kicks from his saga way beyond the technically proficient torture-enabling flick – and Oscar contender – Zero Dark Thirty.

Meanwhile, this is what’s happening in the real world. China has surpassed the US and is now the biggest trading nation in the world – and counting. [3] This is just the first step towards the establishment of the yuan as a globally traded currency; then will come the yuan as the new global reserve currency, connected to the end of the primacy of the petrodollar… Well, we all know the drill.

So that would lead us to reflect on the real political role of the US in the Obama era. Defeated (by Iraqi nationalism) – and in retreat – in Iraq. Defeated (by Pashtun nationalism) – and in retreat – in Afghanistan. Forever cozy with the medieval House of Saud – “secret” drone bases included (something that was widely known as early as July 2011). [4] “Pivoting” to the Indian Ocean and the South China Sea, and pivoting to a whole bunch of African latitudes; all that to try to “contain” China.

Thus the question Obama would never dare to ask in a SOTU address (much less in a SOTE – State of the Empire – address). Does the US remain a global imperial power? Or are the Pentagon’s – and the shadow CIA’s – armies nothing more than mercenaries of a global neoliberal system the US still entertains the illusion of controlling?

Notes

1. Poll: 45% approve of Obama’s handling of the economy, CBS News, February 12, 2013.
2. The Man Who Killed Osama bin Laden… Is Screwed, Esquire, February 11, 2013.
3. China Eclipses U.S. as Biggest Trading Nation, Bloomberg News, February 10, 2013.
4. Secret drone bases mark latest shift in US attacks on al-Qaeda, The Times, July 26, 2011.

Pepe Escobar is the author of Globalistan: How the Globalized World is Dissolving into Liquid War (Nimble Books, 2007) and Red Zone Blues: a snapshot of Baghdad during the surge. His new book, just out, is Obama does Globalistan (Nimble Books, 2009).  He may be reached at [email protected]

Guest Post: Show This To Anyone That Believes That “Things Are Getting Better” In...

Submitted by Michael of The Economic Collapse blog,

How can anyone not see that the U.S. economy is collapsing all around us?  It just astounds me when people try to tell me that "everything is just fine" and that "things are getting better" in America.  Are there people out there that are really that blind?  If you want to see the economic collapse, just open up your eyes and look around you.  By almost every economic and financial measure, the U.S. economy has been steadily declining for many years.  But most Americans are so tied into "the matrix" that they can only understand the cheerful propaganda that is endlessly being spoon-fed to them by the mainstream media.

As I have said so many times, the economic collapse is not a single event.  The economic collapse has been happening, it is is happening right now, and it will continue to happen.  Yes, there will be times when our decline will be punctuated by moments of great crisis, but that will be the exception rather than the rule.  A lot of people that write about "the economic collapse" hype it up as if it will be some huge "event" that will happen very rapidly and then once it is all over we will rebuild.  Unfortunately, that is not how the real world works.

We are living in the greatest debt bubble in the history of the world, and once it completely bursts there will be no going back to how things were before.  Right now, we are living in a "credit card economy".  As long as we can keep borrowing more money, most people think that things are just fine.  But anyone that has lived on credit cards knows that eventually there comes a point when the game is over, and we are rapidly approaching that point as a nation.

Have you ever been there?  Have you ever desperately hoped that you could just get one more credit card or one more loan so that you could keep things going?

At first, living on credit can be a lot of fun.  You can live a much higher standard of living than you otherwise would be able to.

But inevitably a day of reckoning comes.

If the federal government and the American people were forced at this moment to live within their means, the U.S. economy would immediately plunge into a depression.

That is a 100% rock solid guarantee.

But our politicians and the mainstream media continue to perpetuate the fiction that we can live in this credit card economic fantasy land indefinitely.

And most Americans could not care less about the future.  As long as "things are good" today, they don't really think much about what the future will hold.

As a result of our very foolish short-term thinking, we have now run up a national debt of 16.4 trillion dollars.  It is the largest debt in the history of the world, and it has gotten more than 23 times larger since Jimmy Carter first entered the White House.

The chart that you see below is a recipe for national financial suicide...

U.S. National Debt

Of course things have accelerated over the past four years.  Since Barack Obama entered the White House, the U.S. government has run a budget deficit of well over a trillion dollars every single year, and we have stolen more than 100 million dollars from our children and our grandchildren every single hour of every single day.

It is the biggest theft of all time.  What we are doing to our children and our grandchildren is beyond criminal.

And now our debt is at a level that most economists would consider terminal.  When Barack Obama first entered the White House, the U.S. debt to GDP ratio was under 70 percent.  Today, it is up to 103 percent.

We are officially in "the danger zone".

If things really were "getting better" in America, we would not need to borrow so much money.

Our politicians are stealing from the future in order to make the present look better.  During Obama's first term, the federal government accumulated more debt than it did under the first 42 U.S presidents combined.

That is utter insanity!

If you started paying off just the new debt that the U.S. has accumulated during the Obama administration at the rate of one dollar per second, it would take more than 184,000 years to pay it off.

So what is the solution?

Get ready to laugh.

The most prominent economic journalist in the entire country, Paul Krugman of the New York Times, recently suggested the following in an article that he wrote entitled "Kick That Can"...

Realistically, we’re not going to resolve our long-run fiscal issues any time soon, which is O.K. — not ideal, but nothing terrible will happen if we don’t fix everything this year. Meanwhile, we face the imminent threat of severe economic damage from short-term spending cuts.

So we should avoid that damage by kicking the can down the road. It’s the responsible thing to do.

You mean that we might actually do damage to the debt-fueled economic fantasy world that we are living in if we stopped stealing so much money from future generations?

Oh the humanity!

It is horrifying to think that all that one of the "top economic minds" in America can come up with is to "kick the can" down the road some more.

Unfortunately, neither Paul Krugman nor most of the American people understand that our financial system is actually designed to create government debt.

The bankers that helped create the Federal Reserve intended to permanently enslave the U.S. government to a perpetually expanding spiral of debt, and their plans worked.

At this point, the U.S. national debt is more than 5000 times larger than it was when the Federal Reserve was first created.

So why don't the American people understand what the Federal Reserve system is doing to us?

It is because most of them are still plugged into the matrix.  A Zero Hedge article that I came across today put it beautifully...

US society in a nutshell: Chris Dorner has been around for a week and has 222 million results on Google; the Federal Reserve has been around for one hundred years and has 187 million results.

If nothing is done about our exploding debt, it is only a matter of time before we reach financial oblivion.

According to Boston University economist Laurence Kotlikoff, the U.S. government is facing a "present value difference between projected future spending and revenue" of 222 trillion dollars in the years ahead.

So how in the world are we going to come up with an extra 222 trillion dollars?

But it is not just the U.S. government that is drowning in debt.

Just check out this chart which shows the astounding growth of state and local government debt in recent years...

State And Local Government Debt

All over the United States there are state and local governments that are on the verge of bankruptcy.  Just check out what is going on in Detroit.  The only way that most of our state and local governments can keep going at this point is to also "kick the can" down the road some more.

And of course most of the rest of us are drowning in debt as well.

40 years ago, the total amount of debt in the U.S. economic system (government + business + consumer) was less than 2 trillion dollars.

Today, the total amount of debt in the U.S. economic system has grown to more than 55 trillion dollars.

Can anyone say bubble?

The good news is that U.S. GDP is now more than 12 times larger than it was 40 years ago.

The bad news is that the total amount of debt in our financial system is now more than 30 times larger than it was 40 years ago...

Total Credit Market Debt Owed

At the same time that we are going into so much debt, our ability to produce wealth continues to decline.

According to the World Bank, U.S. GDP accounted for 31.8 percent of all global economic activity in 2001.  That number dropped to 21.6 percent in 2011.  That is not just a decline - that is a nightmarish freefall.  Just check out the chart in this article.

We are becoming less competitive as a nation with each passing year.  In fact, the U.S. has fallen in the global economic competitiveness rankings compiled by the World Economic Forum for four years in a row.

Most Americans don't understand this, but the United States buys far more from the rest of the world than they buy from us each year.  In 2012, we had a trade deficit of more than 500 billion dollars with the rest of the world.

That means that more than 500 billion dollars that could have gone to U.S. workers and U.S. businesses went out of the country instead.

So how does our country survive if hundreds of billions of dollars more is flowing out of the country than is flowing into it?

Well, to make up the shortfall we go to the countries that we sent our money to and we beg them to lend it back to us.  If that doesn't work, we just print and borrow even more money.

Overall, the United States has run a trade deficit of more than 8 trillion dollars with the rest of the world since 1975.

That is 8 trillion dollars that could have saved U.S. businesses, paid the salaries of U.S. workers and that would have helped fund government.

But instead, our foolish policies have greatly enriched China and the oil barons of the Middle East.

Sadly, politicians from both political parties continue to boldly support the one world economic agenda of the global elite.

Just consider how destructive many of these "free trade" deals have been to our economy...

When NAFTA was pushed through Congress in 1993, the United States had a trade surplus with Mexico of 1.6 billion dollars.

By 2010, we had a trade deficit with Mexico of 61.6 billion dollars.

Back in 1985, our trade deficit with China was approximately 6 million dollars (million with a little "m") for the entire year.

In 2012, our trade deficit with China was 315 billion dollars.  That was the largest trade deficit that one nation has had with another nation in the history of the world.

In particular, our trade with China is extremely unbalanced.  Today, U.S. consumers spend approximately 4 dollars on goods and services from China for every one dollar that Chinese consumers spend on goods and services from the United States.

But isn't getting cheap stuff from China good?

No, because it costs us good paying jobs.

According to the Economic Policy Institute, the United States is losing half a million jobs to China every single year.

Overall, more than 56,000 manufacturing facilities in the United States have been shut down since 2001.  During 2010, manufacturing facilities in the United States were shutting down at a rate of 23 per day.  How can anyone say that "things are getting better" when our economic infrastructure is being absolutely gutted?

The truth is that there are never going to be enough jobs in America ever again, because millions of our jobs are being sent overseas and millions of our jobs are being lost to technology.

You won't hear this on the news, but the percentage of the civilian labor force in the United States that is employed has been steadily declining every single year since 2006.

Younger workers have been hit particularly hard.  In 2007, the unemployment rate for the 20 to 29 age bracket was about 6.5 percent.  Today, the unemployment rate for that same age group is about 13 percent.

If you are under the age of 30 and you aren't living with your parents, there is a really good chance that you are living in poverty.  If you can believe it, U.S. families that have a head of household that is under the age of 30 have a poverty rate of 37 percent.

Our economy has been steadily bleeding huge numbers of middle class jobs, and many of those jobs have been replaced by low paying jobs in recent years.

According to one study, 60 percent of the jobs lost during the last recession were mid-wage jobs, but 58 percent of the jobs created since then have been low wage jobs.

And at this point, an astounding 53 percent of all American workers make less than $30,000 a year.

Oh, but "things are getting better", right?

Maybe if you live on Wall Street or if you are an employee of the federal government.

But for most families this economic decline has been a total nightmare.  Median household income in America has fallen for four consecutive years.  Overall, it has declined by over $4000 during that time span.

Sometimes people forget how good things were about a decade ago.  About three times as many new homes were sold in the United States in 2005 as were sold in 2012.

But we like to live in denial.

In fact, a lot of families are trying to keep up their standards of living by going into tremendous amounts of debt.

Back in 1983, the bottom 95 percent of all income earners in the United States had 62 cents of debt for every dollar that they earned.  By 2007, that figure had soared to $1.48.

Fake it until you make it, right?

But how much debt can our system possibly handle?

Total home mortgage debt in the United States is now about 5 times larger than it was just 20 years ago.

Total credit card debt in the United States is now more than 8 times larger than it was just 30 years ago.

We are a nation that is completely addicted to debt, but as the financial crisis of 2008 demonstrated, all of that debt can have horrific consequences.

As the economy has slowed in recent years, the Federal Reserve has decided that "the solution" is to recklessly print money in an attempt to get the debt spiral cranked up again.

Have they gone overboard?  You be the judge...

Monetary Base 2013

And of course this won't have any affect on the value of the money that you have been saving up all these years right?

Wrong.

Every single dollar that you own is continually losing value...

Purchasing Power Of The Dollar

Overall, the value of the U.S. dollar has declined by more than 96 percent since the Federal Reserve was first created.

As the cost of living continues to go up and wages continue to go down, millions of American families have fallen out of the middle class and into poverty.

If you can believe it, the number of Americans on food stamps has grown from about 17 million in the year 2000 to more than 47 million today.

But "things are getting better", right?

Incredibly, more than a million public school students in the United States are homeless.  This is the first time that has ever happened in our history.

But "things are getting better", right?

There are now 20.2 million Americans that spend more than half of their incomes on housing.  That represents a 46 percent increase from 2001.

But "things are getting better", right?

In 1999, 64.1 percent of all Americans were covered by employment-based health insurance.  Today, only 55.1 percent are covered by employment-based health insurance.

But "things are getting better", right?

Today, more Americans than ever have found themselves forced to turn to the federal government for help.

Overall, the federal government runs nearly 80 different "means-tested welfare programs", and at this point more than 100 million Americans are enrolled in at least one of them.

According to the U.S. Census Bureau, 49 percent of all Americans live in a home that receives direct monetary benefits from the federal government.  Back in 1983, less than a third of all Americans lived in a home that received direct monetary benefits from the federal government.

So is it a good sign or a bad sign that the percentage of Americans that are financially dependent on the federal government is at an all-time high?

And in future years the number of Americans that are receiving benefits from the federal government is projected to absolutely skyrocket.

Back in 1965, only one out of every 50 Americans was on Medicaid.  Today, one out of every 6 Americans is on Medicaid, and things are about to get a whole lot worse.  It is being projected that Obamacare will add 16 million more Americans to the Medicaid rolls.

If you take a look at Medicare, things are very more sobering.

As I wrote recently, it is being projected that the number of Americans on Medicare will grow from 50.7 million in 2012 to 73.2 million in 2025.

At this point, Medicare is facing unfunded liabilities of more than 38 trillion dollars over the next 75 years.  That comes to approximately $328,404 for every single household in the United States.

Are you ready to contribute your share?

Social Security is a complete and total nightmare as well.

Right now, there are approximately 56 million Americans collecting Social Security benefits.

By 2035, that number is projected to soar to an astounding 91 million.

Overall, the Social Security system is facing a 134 trillion dollar shortfall over the next 75 years.

Oh, but don't worry because "things are getting better", right?

I honestly do not know how anyone can look at the numbers above and come to the conclusion that the economy is in good shape.

We have accumulated the largest mountain of debt in the history of the world, our economic infrastructure is being gutted, we are bleeding good jobs, government dependence is at an all-time high and we are getting poorer as a nation with each passing day.

But other than that, everything is rainbows and lollipops, right?

If you want to see the economic collapse, just open up your eyes.

And if dramatic changes are not made quickly, things are going to get much, much worse from here.

Please share this article with as many people as possible.  Time is quickly running out and there are a whole lot of people out there that we need to wake up while we still can.

The Economic Collapse Is Happening

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What Do They Know That We Don’t?

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

Friday evening when no one was supposed to pay attention, Google announced that Executive Chairman Eric Schmidt would sell 3.2 million of his Google shares in 2013, 42% of the 7.6 million shares he owned at the end of last year—after having already sold 1.8 million shares in 2012. But why would he sell 5 million shares, about 53% of his holdings, with Google stock trading near its all-time high?

“Part of his long-term strategy for individual asset diversification and liquidity,” Google mollified us, according to the Wall Street Journal. Soothing words. Nothing but “a routine diversification of assets.”

Routine? He didn’t sell any in 2008 as the market was crashing. He didn’t sell at the bottom in early 2009. And he didn’t sell during the rest of 2009 as Google shares were soaring, nor in 2010, as they continued to soar. In 2011, he eased out of about 300,000 shares, a mere rounding error in his holdings. But in 2012, he opened the valves, and in 2013, he’d open the floodgates. So it’s not “routine.”

Liquidity, Google said. In 2012, he reaped about $1.2 billion from stock sales, and if he can sell this year’s portion at the current price, he’ll reap $2.5 billion. $3.7 billion in total. What exactly would he need that kind of liquidity for? He could buy a Boeing 787, if it ever becomes airworthy again, plus a few castles, dozens of handmade exotic cars.... And it would barely scratch the surface.

Diversification, Google said. Sure, don’t put all your eggs in one basket. Though he didn’t need to diversity from 2008 through 2011, he now needs to diversify urgently. The landscape has changed. And he is reacting to it.

He could diversify into treasuries, for example, which would guarantee him a loss after inflation, thanks to the Fed-imposed financial repression that governs our crazy lives. Or he could buy lots of gold or a myriad of other assets that he thinks make more sense than holding Google stock at the current price.

So, we’re left wondering if there’s something waiting to happen at Google that prescient execs with a phenomenal understanding of the company and the industry can see on the horizon. Google has plowed a lot of money into startups, green energy, and other mind-boggling projects. He might be worried that they won’t pan out, that they’ll have to be cleared off the balance sheet with a huge write-off. He might be worried about a million things.

Yet the fact that he sold practically nothing during the bull market of 2009-2011 suggests that he may see something beyond Google: the hoped for Great Rotation, for example—from those who know to those who don’t. From the Eric Schmidts to mom-and-pop retail investors. And once that’s accomplished....

Small investors lost a bundle in the last crash. At the end of their wits, they got out at the bottom, and stayed out during the subsequent run-up. But now, they’ve been driven to desperation by the Fed’s zero-interest-rate policy, as inflation has hammered their CDs that yield almost nothing. In order to stop losing money slowly but surely, they’re jumping into the stock market once again, buying the very shares Schmidt is selling—or so the smart money hopes—only to face once again the risk of losing a lot of money fast.

That was the Fed’s policy every time. They didn’t care in 2000 that the market demolished a bunch of young upstarts that had gotten unjustifiably and unnecessarily rich. Let them crash. They did it again during the financial crisis. Let them crash. Only when it started taking down their cronies, did they get nervous—and handed them trillions.

Mr. Schmidt isn’t alone. Corporate insiders were “aggressively selling their shares,” reported Mark Hulbert. And they were doing so “at an alarming pace.” The buy sell-to-buy ratio had risen to 9.2-to-1; insiders had sold over 9 times as many shares as they’d bought. They’d been aggressive sellers for weeks. That they dumped shares in December, when the sell-to-buy ratio was 8.38-to-1, could have been the result of the fiscal-cliff theatrics, but the latest sell-to-buy ratio was even worse.

Instantly, soothing voices were heard: “don’t be alarmed,” they said. But Mr. Schmidt and his colleagues at the top of corporate America, multi-billionaires many of them, are immensely well connected, not only to each other but also to the Fed, whose twelve regional Federal Reserve Banks they own and control.

For the mere public, there have been vague and mixed signals that the Fed might finally stop its drunken printing frenzy—that the only thing it is waiting for is the completion of the Great Rotation of equities from the smart money to mom-and-pop money. Once that’s completed, to heck with the markets. But for Mr. Schmidt and his buddies, the signals might not have been vague and mixed, but clear and actionable.

At the other end of the income spectrum: with the average cost of attending college at $120,000, a family of four should expect their children’s college to cost more than a home. Optimism about the value of education provided justification for students to borrow $42 billion from the US this year. Yet many of them will end up as student-loan debt slaves. Read.... College Graduates Are The New Debt Slaves.

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Corpocrisy: The Systematic Betrayal of American Workers

Free market idealists argue that capitalism works for anyone with a little initiative and a willingness to work hard. That might be true if job opportunities were available to everyone. But the facts reveal a lack of opportunity, largely because the v...

RBS Eyes £100m Bonus Clawback Over Libor Fine

Royal Bank of Scotland (RBS) is examining proposals to claw back up to £100m from pay deals previously awarded to executives in its investment bank as it prepares to settle allegations that it played a key role in the Libor rate-rigging conspiracy.

I understand that the bank's remuneration committee, which is chaired by Penny Hughes, a non-executive director, is assessing plans for a "flat tax" on the pay packets of hundreds of directors and managing directors in its markets business.

The idea would involve about 15% of prior-year pay awards to the relevant individuals being clawed back, netting a total of as much as £100m.

The proposal is one of several being scrutinised by the pay committee as it attempts to demonstrate that RBS staff are being held sufficiently accountable for the latest in a series of scandals involving the state-backed lender.

No decisions have been taken yet about the precise structure of the plan to reclaim bonuses previously awarded to staff, but if the RBS board gives the new proposal the green light, it would mean a far larger number of the bank's employees having their bonuses docked than was previously thought.

RBS is expected to pay between £250m and £300m to staff in its Markets and International Banking (M&IB) unit for their work in 2012, a figure that has also been reduced in anticipation of the imminent Libor settlement.

People close to the bank said that an announcement of its penalties for rigging Libor had been provisionally scheduled for February 7, although the date has already been moved several times because the negotiations between RBS and regulators in the UK and US are not yet finalised.

Regulatory sources said that the FSA was continuing to push for a tougher settlement with RBS, while the bank had "all but" reached an agreement with the Commodity Futures Trading Commission, one of the leading US authorities. Talks with the Department of Justice are continuing.

Insiders said the total amount that RBS would pay to regulators could be as low as £400m, 20% lower than the figure suggested by recent media speculation.

John Hourican, chief executive of the M&IB business, is to leave RBS as part of a restructuring of the unit. He is owed £4m in deferred share awards but faces pressure from the Treasury to give them up despite the fact that he was not aware of, or involved in, any Libor-related abuse.

RBS declined to comment on its remuneration plans.

Obama: Rhetoric or New Direction?

Paul Jay, Eenior Editor, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore.

There's been a lot of discussion and debate about President Obama's inauguration speech. Many people are saying it rings a new, more, you could say, militant liberal tone than in his first term. Others are saying perhaps this is just rhetoric.

Now joining us to discuss the inauguration speech and what we might expect from the second term of President Obama is Professor James K. Galbraith. He teaches at the LBJ School of Public Affairs at the University of Texas at Austin. He's the author of The Predator State and Inequality and Instability: A Study of the World Economy Just Before the Great Crisis. And he joins us from Austin.

Thanks for joining us again, James.

James K. Galbraith, LBJ School of Public Affairs, UT Austin: My pleasure, as always.

Jay: So what do you make of the inauguration speech? Rhetoric? Or a promise of something more?

Galbraith: This was a president who spoke with great clarity on the compelling ongoing civil and human rights issue of our time, which is the rights of the gay community. He said that with enormous clarity, essentially settled that issue, I think, and reflecting the change in mood of the American public on that one.

He spoke with great clarity about the priority that needed to be given to climate change. Now, we're a long way from having a realization of effective action in that area, but to have the president use this speech to put that front and center indicates a certain, let's say, determination to bring the country into line with the reality of that challenge.

If you take—come back into my particular little bailiwick, which is economic policy, and in particular these awful, dreary, tedious, repetitive debates that we've been having about the deficit and the debt, a subject whose importance is vastly blown up by a community of Washington insiders, press people, and lobbyists, frankly, it's very interesting to ask: how did the president treat that topic in his second inaugural? And the answer to that is he gave the word deficit a passing mention in a sentence which properly placed the emphasis on the control of costs in health care, a problem which is unquestionably something that has to be dealt with.

And then he went on to say very clearly that Social Security, Medicare, and Medicaid, which have been in the crosshairs of this deficit debate for a long time, are programs which in fact strengthen our economy rather than weaken it, that they—he very correctly and accurately said that what they do is to enable people who are not direct beneficiaries but expect to be recipients of the security that Social Security and Medicare and Medicaid provide at some point later in their lives, that this permits them to be more risk-taking, to be more economically independent than they otherwise would be in the public discourse.

Jay: If you—let's dig in both issues, the issue of health care and cutting costs and deficit issues, and then let's talk a bit about the climate-change thing. In that sentence that he—in one sentence where he said, we have to control health-care costs and we have to make hard choices in relation to the deficit cutting, does he not still buy into the underlying logic that there has to be some cuts in social programs to deal with the deficit? And he's made many promises over the last four years, to from right-wing pundits on, that he's going to go after the quote-unquote "entitlement programs". I mean, I understand he says yes, we need some of this, but is he not trying to have it both ways?

Galbraith: Well, you know, of course, it's—there may be a little bit of that. But I think that if he were planning to make the signature achievement of, say, the next year of his presidency a massive victory for the budget hawks, for the deficit cutters, for the people who have been going after Social Security, Medicare, and Medicaid, he would not have phrased this speech in that way. Yes, he gives them a little bit of a concession in that one sentence, but the sentence is very clear that the deficit is almost an afterthought to the deficit issue, the deficit projections are almost an afterthought to the larger problem of managing the cost of health care, for which there are many potential solutions that do not involve reducing the health-care coverage available, let's say, to the over-65 population or to the population that's eligible for Medicaid.

Jay: But what can he do now in terms of reducing health-care costs other than—I mean, the legislation's been passed, and a lot of people are debating how much it really controls health-care costs, and he made the deal with pharma not to go after the costs of prescription drugs and not allowing Canadian drugs in.

Galbraith: Well, there is the cost of prescription drugs. There's the cost of insurance. There's the cost of—.

Jay: But hasn't he promised pharma that he's not going to go after them?

Galbraith: Well, I didn't see that in this speech.

Jay: No. But in the deal for the health-care reform—.

Galbraith: I understand, but policy moves on. You do what you have to do at each given time—at each given moment of time. So I'm just focusing on the tone set by this inaugural. Yes, one of the important things about this inaugural address is that it was in contrast to a lot of the discussion that went on before and to many things that this president has said in the past. But let's not hold him to those things. Those things were things that I would have preferred he didn't say. If he's now preparing in this signature address a different tone for his second administration, I cannot see why in the world I should be objecting to that. It's exactly what I would have wanted him to do. So I say let's applaud and get behind him on that, so long as he's consistent with the tone that he's now declared.

Jay: And, now, on the issue of climate change, I guess what I'm saying is we've got to see some meat on the bones to know there's a difference, because on climate change, if the policies of climate change are like kind of cap-and-trade that is—you know, essentially creates a speculative market for carbon trading, if it's really more sort of financialization, in terms of dealing with climate change, you know, is that really progress?

Galbraith: Well, I agree with you that it's possible that the approach actually taken will not be an effective one. And that's something we have to be vigilant about and to guard against.

But let me come back to the basic point. Would you rather the president not have made a clear statement about climate change? The fact that he did and that he gave it this level of significance in that speech is by itself an important fact.

So, again, I'm saying, yes, of course one—to me this is not about, by the way, whether one is going to come to a favorable or unfavorable judgment on balance about the presidency of Barack Obama. That's a decision that historians are going to take well down the road. This is about the direction that policy discussion takes in this country in the immediate future and about the priority that should be given to certain issues.

And it's clear from the president's speech that this issue, which is a real question, a serious challenge, should take very much greater priority than it has and well above the priority that he assigned in this speech to the phony question of deficits and public debt. The word public debt, incidentally, wasn't even mentioned in the inaugural address, so far as I can recall—and I looked for it.

Jay: Okay. Just quickly, one or two concrete things you'd like to see in the next few months that suggest this is more than just rhetoric and that there is a new agenda or refreshed agenda, if you will.

Galbraith: Well, I was encouraged by the fact that he has ridden over the Republicans on the question of the debt ceiling. And, you know, there was a lot of discussion about ways he might finesse that question. I was part of that discussion.

But in the end what the president said was the way to deal with this is to not negotiate and to put the onus on the Republicans and see if they really have a firm determination to drive the country to the wall over this issue. And he correctly calculated that they didn't.

So now they have made a tactical retreat for another three months. That is a good step, in my view. And when we get to that three-month deadline, they need to be pushed to make another tactical retreat, until it becomes clear that that's all they're willing to do on that question from then on, at which point the debt ceiling ceases to be a point of leverage.

Next issue: the sequesters and the continuing resolution which are going to be coming up. Once again there will be demands that they negotiate away Social Security, Medicare, and Medicaid in order to defer the damage that the Republicans and others are in position to inflict on domestic discretionary spending.

Well, if you're not going to negotiate the, let's say, harmful and unnecessary changes in order to get an increase in the debt ceiling, why should you negotiate them in order to satisfy the equally arbitrary and capricious sequestration bills? I say the right thing to do with the sequestration is to repeal it, at least on the domestic discretionary side.

On the defense side, defense budgets are coming down anyway, and it would be a very useful thing to get a real reorganization of our defense capabilities so that they are actually structured to meet our national security needs.

But the most important thing on the domestic discretionary side is not to do unnecessary and damaging things. And that should be the position that the administration takes at this point.

Jay: Okay. Well, we'll come back to you when those things are announced, 'cause they're going to have to take a position on these issues relatively soon.

Galbraith: That's right. And there's no guarantee, of course, at any given time that this administration is going to do the right thing. But as I say, when they place themselves in a position where they can do the right thing, then I'm all in favor of encouraging them.

Jay: Okay. Thanks very much for joining us, James.

Galbraith: Okay. You're welcome. Always a pleasure.

Jay: And thank you for joining us on The Real News Network.

Obama: Rhetoric or New Direction?

Context: As yet there are no context links for this item.

Transcript

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore.

There's been a lot of discussion and debate about President Obama's inauguration speech. Many people are saying it rings a new, more, you could say, militant liberal tone than in his first term. Others are saying perhaps this is just rhetoric.Now joining us to discuss the inauguration speech and what we might expect from the second term of President Obama is Professor James K. Galbraith. He teaches at the LBJ School of Public Affairs at the University of Texas at Austin. He's the author of The Predator State and Inequality and Instability: A Study of the World Economy Just Before the Great Crisis. And he joins us from Austin. Thanks for joining us again, James.JAMES K. GALBRAITH, LBJ SCHOOL OF PUBLIC AFFAIRS, UT AUSTIN: My pleasure, as always.JAY: So what do you make of the inauguration speech? Rhetoric? Or a promise of something more?GALBRAITH: This was a president who spoke with great clarity on the compelling ongoing civil and human rights issue of our time, which is the rights of the gay community. He said that with enormous clarity, essentially settled that issue, I think, and reflecting the change in mood of the American public on that one. He spoke with great clarity about the priority that needed to be given to climate change. Now, we're a long way from having a realization of effective action in that area, but to have the president use this speech to put that front and center indicates a certain, let's say, determination to bring the country into line with the reality of that challenge.If you take—come back into my particular little bailiwick, which is economic policy, and in particular these awful, dreary, tedious, repetitive debates that we've been having about the deficit and the debt, a subject whose importance is vastly blown up by a community of Washington insiders, press people, and lobbyists, frankly, it's very interesting to ask: how did the president treat that topic in his second inaugural? And the answer to that is he gave the word deficit a passing mention in a sentence which properly placed the emphasis on the control of costs in health care, a problem which is unquestionably something that has to be dealt with.And then he went on to say very clearly that Social Security, Medicare, and Medicaid, which have been in the crosshairs of this deficit debate for a long time, are programs which in fact strengthen our economy rather than weaken it, that they—he very correctly and accurately said that what they do is to enable people who are not direct beneficiaries but expect to be recipients of the security that Social Security and Medicare and Medicaid provide at some point later in their lives, that this permits them to be more risk-taking, to be more economically independent than they otherwise would be in the public discourse.JAY: If you—let's dig in both issues, the issue of health care and cutting costs and deficit issues, and then let's talk a bit about the climate-change thing. In that sentence that he—in one sentence where he said, we have to control health-care costs and we have to make hard choices in relation to the deficit cutting, does he not still buy into the underlying logic that there has to be some cuts in social programs to deal with the deficit? And he's made many promises over the last four years, to from right-wing pundits on, that he's going to go after the quote-unquote "entitlement programs". I mean, I understand he says yes, we need some of this, but is he not trying to have it both ways?GALBRAITH: Well, you know, of course, it's—there may be a little bit of that. But I think that if he were planning to make the signature achievement of, say, the next year of his presidency a massive victory for the budget hawks, for the deficit cutters, for the people who have been going after Social Security, Medicare, and Medicaid, he would not have phrased this speech in that way. Yes, he gives them a little bit of a concession in that one sentence, but the sentence is very clear that the deficit is almost an afterthought to the deficit issue, the deficit projections are almost an afterthought to the larger problem of managing the cost of health care, for which there are many potential solutions that do not involve reducing the health-care coverage available, let's say, to the over-65 population or to the population that's eligible for Medicaid.JAY: But what can he do now in terms of reducing health-care costs other than—I mean, the legislation's been passed, and a lot of people are debating how much it really controls health-care costs, and he made the deal with pharma not to go after the costs of prescription drugs and not allowing Canadian drugs in.GALBRAITH: Well, there is the cost of prescription drugs. There's the cost of insurance. There's the cost of—.JAY: But hasn't he promised pharma that he's not going to go after them?GALBRAITH: Well, I didn't see that in this speech.JAY: No. But in the deal for the health-care reform—.GALBRAITH: I understand, but policy moves on. You do what you have to do at each given time—at each given moment of time. So I'm just focusing on the tone set by this inaugural. Yes, one of the important things about this inaugural address is that it was in contrast to a lot of the discussion that went on before and to many things that this president has said in the past. But let's not hold him to those things. Those things were things that I would have preferred he didn't say. If he's now preparing in this signature address a different tone for his second administration, I cannot see why in the world I should be objecting to that. It's exactly what I would have wanted him to do. So I say let's applaud and get behind him on that, so long as he's consistent with the tone that he's now declared.JAY: And, now, on the issue of climate change, I guess what I'm saying is we've got to see some meat on the bones to know there's a difference, because on climate change, if the policies of climate change are like kind of cap-and-trade that is—you know, essentially creates a speculative market for carbon trading, if it's really more sort of financialization, in terms of dealing with climate change, you know, is that really progress?GALBRAITH: Well, I agree with you that it's possible that the approach actually taken will not be an effective one. And that's something we have to be vigilant about and to guard against. But let me come back to the basic point. Would you rather the president not have made a clear statement about climate change? The fact that he did and that he gave it this level of significance in that speech is by itself an important fact. So, again, I'm saying, yes, of course one—to me this is not about, by the way, whether one is going to come to a favorable or unfavorable judgment on balance about the presidency of Barack Obama. That's a decision that historians are going to take well down the road. This is about the direction that policy discussion takes in this country in the immediate future and about the priority that should be given to certain issues. And it's clear from the president's speech that this issue, which is a real question, a serious challenge, should take very much greater priority than it has and well above the priority that he assigned in this speech to the phony question of deficits and public debt. The word public debt, incidentally, wasn't even mentioned in the inaugural address, so far as I can recall—and I looked for it.JAY: Okay. Just quickly, one or two concrete things you'd like to see in the next few months that suggest this is more than just rhetoric and that there is a new agenda or refreshed agenda, if you will.GALBRAITH: Well, I was encouraged by the fact that he has ridden over the Republicans on the question of the debt ceiling. And, you know, there was a lot of discussion about ways he might finesse that question. I was part of that discussion. But in the end what the president said was the way to deal with this is to not negotiate and to put the onus on the Republicans and see if they really have a firm determination to drive the country to the wall over this issue. And he correctly calculated that they didn't.So now they have made a tactical retreat for another three months. That is a good step, in my view. And when we get to that three-month deadline, they need to be pushed to make another tactical retreat, until it becomes clear that that's all they're willing to do on that question from then on, at which point the debt ceiling ceases to be a point of leverage. Next issue: the sequesters and the continuing resolution which are going to be coming up. Once again there will be demands that they negotiate away Social Security, Medicare, and Medicaid in order to defer the damage that the Republicans and others are in position to inflict on domestic discretionary spending.Well, if you're not going to negotiate the, let's say, harmful and unnecessary changes in order to get an increase in the debt ceiling, why should you negotiate them in order to satisfy the equally arbitrary and capricious sequestration bills? I say the right thing to do with the sequestration is to repeal it, at least on the domestic discretionary side. On the defense side, defense budgets are coming down anyway, and it would be a very useful thing to get a real reorganization of our defense capabilities so that they are actually structured to meet our national security needs.But the most important thing on the domestic discretionary side is not to do unnecessary and damaging things. And that should be the position that the administration takes at this point.JAY: Okay. Well, we'll come back to you when those things are announced, 'cause they're going to have to take a position on these issues relatively soon.GALBRAITH: That's right. And there's no guarantee, of course, at any given time that this administration is going to do the right thing. But as I say, when they place themselves in a position where they can do the right thing, then I'm all in favor of encouraging them.JAY: Okay. Thanks very much for joining us, James.GALBRAITH: Okay. You're welcome. Always a pleasure.JAY: And thank you for joining us on The Real News Network.

End

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This Time Is Different

Authored by Dr. Tim Morgan, Tullet Prebon,

The 2008 crash resulted from the bursting of the biggest bubble in financial history, a ‘credit super-cycle’ that spanned more than three decades. How did this happen?

As Carmen Reinhart and Kenneth Rogoff have demonstrated in their magisterial book This Time Is Different, asset bubbles are almost as old as money itself. The Reinhart and Rogoff book tracks financial excess over eight centuries, but it would be no surprise at all if the Hittites, the Medes, the Persians and the Romans, too, had bubbles of their own. All you need for a bubble is ready credit and collective gullibility.

Some might draw comfort from the observation that bubbles are a long established aberration, arguing that the boom-and-bust cycle of recent years is nothing abnormal. Any such comfort would be misplaced, for two main reasons: first, the excesses of recent years have reached a scale which exceeds anything that has been experienced before; and second, and more disturbing still, the developments which led to the financial crisis of 2008 amounted to a process of sequential bubbles, a process in which the bursting of each bubble was followed by the immediate creation of another.

Though the sequential nature of the pre-2008 process marks this as something that really is different, we can, nevertheless, learn important lessons from the bubbles of the past.

  • First, bubbles follow an approximately symmetrical track, in which the spike in asset values is followed by a collapse of roughly similar scale and duration. If this holds true now, we are in for a very long and nasty period of retreat.
  • Second, easy access to leverage is critical, as bubbles cannot happen if investors are limited to equity.
  • Third, most bubbles look idiotic when seen with hindsight.
  • Fourth – and although institutional arrangements are critical – the real driving dynamic of bubbles is a psychological process which combines greed, the willing suspension of disbelief and the development of a herd mentality.

“tulips from Amsterdam”

One of the most famous historical bubbles is the tulip mania which gripped the United Provinces (the Netherlands) during the winter of 1636-37. Tulip bulbs had been introduced to Europe from the Ottoman Empire by Obier de Busbeq in 1554, and found particular favour in the United Provinces after 1593, when Carolus Closius proved that these exotic plants could thrive in the harsher Dutch climate.

The tulip was a plant whose beauty and novelty had a particular appeal, but tulip mania would not have occurred without favourable social and economic conditions. The Dutch had been engaged in a long war for independence from Spain since 1568 and, though final victory was still some years away, the original Republic of the Seven Provinces of the Netherlands declared independence from Spain in 1581. This was the beginning of the great Dutch Golden Age. In this remarkable period, the Netherlands underwent some fundamental and pioneering changes which included the establishment of trading dominance, great progress in science and invention, and the creation of corporate finance, as well as the accumulation of vast wealth, the accession of the Netherlands to global power status, and great expansion of industry.

This was a period in which huge economic, business, scientific, trading and naval progress was partnered by remarkable achievements in art (Rembrandt and Vermeer), architecture and literature. The prosperity of this period created a wealthy bourgeoisie which displayed its affluence in grand houses with exquisite gardens. Enter the tulip.

For the newly-emergent Dutch bourgeoisie, the tulip was the “must have” consumer symbol of the 1630s, particularly since selective breeding had produced some remarkably exotic new plants. Tulips cannot be grown overnight, but take between seven and twelve years to reach maturity. Moreover, tulips bloom for barely a week during the spring, meaning that bulbs can be uprooted and sold during the autumn and winter months. A thriving market in bulbs developed in the Netherlands even though short-selling was outlawed in 1610. Speculators seem to have entered the tulip market in 1634, setting the scene for tulip mania.

The tulip bubble did not revolve around a physical trade in bulbs but, rather, involved a paper market in which people could participate with no margin at all. Indeed, the tulip bubble followed immediately upon the heels of the creation by the Dutch of the first futures market. Bulbs could change hands as often as ten times each day but, because of the abrupt collapse of the paper market, no physical deliveries were ever made.

Price escalation was remarkable, with single bulbs reaching values that exceeded the price of a large house. A Viceroy bulb was sold for 2,500 florins at a time when a skilled worker might earn 150 florins a year. Putting these absurd values into modern terms is almost impossible because of scant data, but the comparison with skilled earnings suggests values of around £500,0003, which also makes some sense in relation to property prices. In any event, a bubble which began in mid-November 1636 was over by the end of February 1637.

Though tulip mania was extremely brief, and available data is very limited, we can learn some pertinent lessons from this strange event.

For a start, this bubble looks idiotic from any rational perspective – how on earth could a humble bulb become as valuable as a mansion, or equivalent to 17 years of skilled wages? Second, trading in these ludicrously overvalued items took place in then novel forms (such as futures), and were conducted on unregulated fringe markets rather than in the recognised exchanges.

Third, participants in the mania lost the use of their critical faculties. Many people – not just speculators and the wealthy, but individuals as diverse as farmers, mechanics, shopkeepers, maidservants and chimney-sweeps – saw bulb investment as a one-way street to overnight prosperity. Huge paper fortunes were made by people whose euphoria turned to despair as they were wiped out financially.

The story that a sailor ate a hugely valuable bulb, which he mistook for an onion, is probably apocryphal (because it would have poisoned him), but there can be little doubt that this was a period of a bizarre mass psychology verging on collective insanity.

all at sea

The South Sea Bubble of 1720 commands a special place in the litany of lunacy that is the history of bubbles.

The South Sea Company was established in 1711 as a joint government and private entity created to manage the national debt. Britain’s involvement in the War of the Spanish Succession was imposing heavy costs on the exchequer, and the Bank of England’s attempt to finance this through two successive lotteries had not been a success. The government therefore asked an unlicensed bank, the Hollow Sword Blade Company, to organise what became the first successful national lottery to be floated in Britain. The twist to this lottery was that prizes were paid out as annuities, thus leaving the bulk of the capital in government hands.

After this, government set up the South Sea Company, which took over £9m of national debt and issued shares to the same amount, receiving an annual payment from government equivalent to 6% of the outstanding debt (£540,000) plus operating costs of £28,000. As an added incentive, government granted the company a monopoly of trade with South America, a monopoly which would be without value unless Britain could break the Spanish hegemony in the Americas, an event which, at that time, was wildly implausible.

The potentially-huge profits from this monopoly grabbed speculator attention even though the real likelihood of any returns ever actually accruing was extremely remote. Despite very limited concessions secured in 1713 at the end of the war, the trading monopoly remained all but worthless, and company shares remained below their issue price, a situation not helped by the resumption of war with Spain in 1718.

Even so, shares in the company, effectively backed by the national debt, began to rise in price, a process characterised by insider dealing and boosted by the spreading of rumours.

Between January and May 1720, the share price rose from £128 to £550 as rumours of lucrative returns from the monopoly spread amongst speculators. What, many argued, could be better than a government-backed company with enormous leverage to monopolistic profits in the fabled Americas? Legislation, passed under the auspices of Company insiders and banning the creation of unlicensed joint stock enterprises, spurred the share price to a peak of £890 in early June. This was bolstered by Company directors, who bought stock at inflated prices to protect the value of investments acquired at much lower levels. The share price peaked at £1,000 in August 1720, but the shares then lost 85% of their inflated market value in a matter of weeks.

Like the Dutch tulip mania, the South Sea Bubble was an example which fused greed and crowd psychology with novel market practices, albeit compounded by rampant corruption in high places. Even Sir Isaac Newton, presumably a man of common sense, lost £20,000 (equivalent to perhaps £2.5m today) in the pursuit of the chimera of vast, but nebulous, unearned riches.

Any rational observer, even if unaware of the insider dealing and other forms of corruption in which the shares were mired, should surely have realised that an eight-fold escalation in the stock price based entirely on implausible speculation was, quite literally, ‘too good to be true’.

In his Extraordinary Popular Delusions and the Madness of Crowds, Charles Mackay ranked the South Sea Company and other bubbles with alchemy, witch-hunts and fortune-telling as instances of collective insanity. Whilst other such foibles have tended to retreat in the face of science, financial credulity remains alive and well, which means that we need to know how and why these instances of collective insanity seem to be hard-wired into human financial behaviour.

made in Japan

In some respects, the Japanese asset bubble of the 1980s provided a ‘dry run’ for the compounded bubbles of the super-cycle. Japan’s post-war economic miracle was founded on comparatively straightforward policies. Saving was encouraged, and was channelled into domestic rather than foreign capital markets, which meant that investment capital was available very cheaply indeed. Exports were encouraged, imports were deterred by tariff barriers, and consumption at home was discouraged. The economic transformation of Japan in the four decades after 1945 was thus export-driven, and led by firms which had access to abundant, low-cost capital.

By the early 1980s, Japan’s economic success was beginning to lead to unrealistic expectations about future prosperity. Many commentators, abroad as well as at home, used the ‘fool’s guideline’ of extrapolation to contend that Japan would, in the foreseeable future, oust America as the world’s biggest economy. The international expansion of Japanese banks and securities houses was reflected in the proliferation of sushi bars in New York and London. Boosted by the diversion of still-cheap capital from industry into real estate, property values in Japan soared, peaking at $215,000 per square metre in the prized Ginza district of Tokyo.

Comforted by inflated property values, banks made loans which the borrowers were in no position to repay. The theoretical value of the grounds of the Imperial Palace came to exceed the paper value of the entire state of California. Meanwhile, a soaring yen was pricing Japanese exports out of world markets.

Though comparatively gradual – mirroring, in true bubble fashion, the relatively slow build-up of asset values – the bursting of the bubble was devastating. Properties lost more than 90% of their peak values, and the government’s policy of propping up insolvent banks and corporations created “zombie companies” of the type that exist today in many countries. Having peaked at almost 39,000 at the end of 1989, the Nikkei 225 index of leading industrial stocks deteriorated relentlessly, bottoming at 7,055 in March 2009.

The Japanese economy was plunged into the “lost decade” which, in reality, could now be called the ‘lost two decades’. In 2011, Japanese government debt stood at 208% of GDP, a number regarded as sustainable only because of the country’s historic high savings ratio (though this ratio is, in fact, subject to ongoing deterioration as the population ages).

2008 – the biggest bust

With hindsight, we now know that the Japanese asset bust was an early manifestation of the ‘credit supercycle’, which can be regarded as ‘the biggest bubble in history’. The general outlines of the super-cycle bubble are reasonably well understood, even if the underlying dynamic is not. To understand this enormous boom-bust event, we need to distinguish between the tangible components of the bubble and its underlying psychological and cultural dimensions.

Conventional analysis argues that tangible problems began with the proliferation of subprime lending in the United States. Perhaps the single biggest contributory factor to the subprime fiasco was the breaking of the link between borrower and lender. Whereas, traditionally, banks assessed the viability of the borrower in terms of long-term repayment, the creation of bundled MBSs (mortgage-backed securities) severed this link.

Astute operators could now strip risk from return, pocketing high returns whilst unloading the associated high risk. The securitisation of mortgages was a major innovative failing in the system, as was the reliance mistakenly placed on credit-rating agencies which, of course, were paid by the issuers of the bundled securities. Another contributory innovation was the use of ARM (adjustable rate mortgage) products, designed to keep the borrower solvent just long enough for the originators of the mortgages to divest the packaged loans.

The authorities (and, in particular, the Federal Reserve) must bear a big share of culpability for failing to spot the mispricing of risk which resulted from the on-sale of mortgage debt. The way in which banks were keeping the true scale of potential liabilities off their balance sheets completely eluded regulators, and Alan Greenspan’s belief that banks would always act in the best interests of shareholders was breathtakingly naive. In America, as for that matter in Britain and elsewhere, central banks’ monetary policies were concentrated on retail inflation (which had for some years been depressed both by benign commodity markets and by the influx of ever-cheaper goods from Asia), and ignored asset price escalation.

Meanwhile, banks’ capital ratios had expanded, in part because of ever-looser definitions of capital and assets and in part because of sheer regulatory negligence. Just as Greenspan’s Fed believed that bankers were the best people to determine their shareholders’ interests, British chancellor Gordon Brown took pride in a “light touch” regulatory system which saw British banks’ total risk assets surge to more than £3,900bn on the back of just £120bn of pure loss-absorbing capital or TCE (tangible common equity).

It does not seem to have occurred to anyone – least of all to the American, British and other regulatory authorities – that a genuine capital reserve of less than 2% of assets could be overwhelmed by even a relatively modest correction in asset prices.

Both sides of the reserves ratio equation were distorted by regulatory negligence. On the assets side, banks were allowed to risk-weight their assets, which turned out to be a disastrous mistake. Triple-A rated government bonds were, not unnaturally, regarded as AFS (‘available for sale’) and accorded a zero-risk rating, but so, too, in practice, were the AAA portions that banks, with the assistance of the rating agencies, managed to slice out of MBSs (mortgage-backed securities) and CDOs (collateralised debt obligations).

Mortgages of all types were allowed to be risk-weighted downwards to 50% of their book value which, at best, reflected a nostalgic, pre-subprime understanding of mortgage risk on the part of the regulators. In the US, banks were allowed to net-off their derivatives exposures, such that J.P. Morgan Chase, for example, carried derivatives of $80bn on its balance sheet even though the gross value of securities and derivatives was close to $1.5 trillion. The widespread assumption that potential losses on debt instruments were covered by insurance overlooked the fact that all such insurances were placed with a small group of insurers (most notably AIG) which were not remotely capable of bearing system-wide risk.

Meanwhile, innovative definitions allowed banks’ reported capital to expand from genuine TCE to include book gains on equities, and provisions for deferred tax and impairment. Even some forms of loan capital were allowed to be included in banks’ reported equity.

Together, the risk-weighting of assets, and the use of ever-looser definitions of capital, combined to produce seemingly-reassuring reserves ratios which turned out to be wildly misleading. Lehman Brothers, for example, reported a capital adequacy ratio of 16.1% shortly before it collapsed, whilst the reported pre-crash ratios for Northern Rock and Kaupthing were 17.5% and 11.2% respectively.

Well before 2007, the escalation in the scale of indebtedness had rendered a crash inevitable. Moreover, the two triggers that would bring the edifice crashing down could hardly have been more obvious. First, the resetting of ARM mortgage interest rates made huge subprime default losses inevitable unless property prices rose indefinitely, which was a logical impossibility. Subprime defaults would in turn undermine the asset bases of banks holding the toxic assets that the sliced-and-diced mortgage-based instruments were bound to become as soon as property price escalation ceased.

The second obvious trigger was a seizure in liquidity. The escalation in the scale of debt had far exceeded domestic depositor funds, not least because savings ratios had plunged as borrowing and consumption had displaced saving and prudence in the Western public psyche. Unlike depositors – a stable source of funding, in the absence of bank runs – the wholesale funding markets which had provided the bulk of escalating leverage were perfectly capable of seizing up virtually overnight. For this reason, a liquidity seizure crystallised what was essentially a leverage problem.

At this point, three compounding problems kicked in.

  • The first was the termination of a long-standing ‘monetary ratchet’ process – low rates created bubbles, and the authorities countered each ensuing downturn by cutting rates still further, but, this time around, prior rate reductions left little scope for further relaxation.
  • Second, economies had become dependent upon debt-fuelled consumption, and any reversal in debt availability was bound to unwind the earlier (and largely illusory) ‘growth’ created by debt-fuelled consumer spending. As figs. 2.2 and 2.3 show, the relationship between borrowing and associated growth had been worsening for some years, such that the $4.1 trillion expansion in nominal US economic output between 2001 and 2007 had been far exceeded by an increase of $6.7 trillion in consumer debt, and the growth/borrowing equation had slumped.
  • Third, some countries – most notably the United Kingdom – had compounded consumer debt dependency by mistaking illusory (debt-fuelled) economic expansion for ‘real’ growth, and had expanded public spending accordingly, a process which created huge fiscal deficits as soon as leverage expansion ceased. Ultimately, the leverage-driven ‘great bubble’ in pan-Western property values had created the conditions for a deleveraging downturn, something for which governments’ previous experience of destocking recessions had provided no realistic appreciation.

familiar features

Though, as we shall see, the bursting of the super-cycle in 2008 had some novel aspects, the process nevertheless embraced many features of past bubbles.

A number of points are common to these past bubbles, factors which include easy credit, low borrowing costs, financial innovation (in the form of activities which take place outside established markets, and/or are unregulated, and/or are outright illegal), weak institutional structures, opportunism by some market participants, and the emergence of some form of mass psychology in which fear is wholly ousted by greed.

Often, the objects of speculation are items which can seem wholly irrational with the benefit of hindsight (how on earth could tulip bulbs, for instance, have become so absurdly over-valued?) A further important point about bubbles is that they can inflate apparent prosperity, but the post-burst effects include the destruction of value and the impairment of economic output for an extended period. In reality, though, the bursting of a bubble does not destroy capital, but simply exposes the extent to which value has already been destroyed by rash investment.

Of course, the characteristics of earlier excesses have not been absent in contemporary events. As with tulip bulbs, South Sea stock and Victorian railways, recent years have witnessed the operation of mass psychologies in which rational judgement has been suspended as greed has triumphed over fear. Innovative practices, often lying outside established markets, have abounded. Examples of such innovations have included subprime and adjustable-rate mortgages, and the proliferation of an ‘alphabet soup’ of the derivatives that Warren Buffett famously described as “financial weapons of mass destruction”. Credit became available in excessive amounts, and the price of credit was far too low (a factor which, we believe, may have been exacerbated by a widespread under-reporting of inflation).

why this time is different

Whilst it shared many of the characteristics of previous such events, the credit super-cycle bubble which burst in 2008 differed from them in at least two respects, and arguably differed in a third dimension as well.

The first big difference was that the scale and scope of the 2008 crash far exceeded anything that had gone before. Though it began in America (with parallel events taking place in a number of other Western countries), globalisation ensured that the crash was transmitted around the world. The total losses resulting from the crash are almost impossible to estimate, not least because of notional losses created by falling asset prices, but even a minimal estimate of $4 trillion equates to about 5.7% of global GDP, with every possibility that eventual losses will turn out to have been far greater than this.

The second big difference between the super-cycle and previous bubbles lay in timing. A gap of more than 80 years elapsed between the tulip mania of 1636-37 and the South Sea bubble of 1720, though the latter had an overseas corollary in the Mississippi bubble of the same year. The next major bubble, the British railway mania of the 1840s, followed an even longer time-gap, and a further interval of about seven decades separated the dethroning of the crooked “railway king” (George Hudson) in 1846 from the onset of the ‘roaring twenties’ bubble which culminated in the Wall Street Crash. Though smaller bubbles (such as Poseidon) occurred in between, the next really big bubble did not occur until the 1980s, when Japanese asset values lost contact with reality.

In recent years, however, intervals between bubbles have virtually disappeared, such that the decade prior to the 2008 crash was characterised by a series of events which overlapped in time. Property price bubbles were the greatest single cause of the financial crisis, but there were complementary bubbles in a variety of other asset categories.

The dot-com bubble (1995-2000) reflected a willing suspension of critical faculties where the potential for supposedly ‘high tech’ equities were concerned, and historians of the future are likely to marvel at the idiocy which attached huge values to companies which lacked earnings, cash flow or a proven track record, and were often measured by the bizarre metric of “cash-burn”. Other bubbles occurred in property markets in the United States, Britain, Ireland, Spain, China, Romania and other countries, as well as in commodities such as uranium and rhodium. Economy-wide bubbles developed in countries such as Iceland, Ireland and Dubai. Perhaps the most significant bubble of the lot – for reasons which will become apparent later – was that which carried the price of oil from an average of $25/b in 2002 to a peak of almost $150/b in 2008.

This rash of bubbles suggests that recent years have witnessed the emergence of a distinctive new trend, which is described here as a credit super-cycle, a mechanism which compounds individual bubbles into a broader pattern.

This report argues that a third big difference may be that the super-cycle bubble coincided with a weakening in the fundamental growth dynamic. What we need to establish is the ‘underlying narrative’ that has compressed the well-spaced bubble-forming processes of the past into the single, compounded-bubble dynamic of the credit super-cycle.

It is suggested here that this narrative must include:

  • A mass psychological change which has elevated the importance of immediate consumption whilst weakening perceptions both of risks and of longer-term consequences.
  • Institutional weaknesses which have undermined regulatory oversight whilst simultaneously facilitating the provision of excessive credit through the creation of high-risk instruments.
  • Mispricing of risk, compounded by false appreciation of economic prospects and by the distortion of essential data.
  • A political, business and consumer mind-set which elevates the importance of the immediate whilst under-emphasising the longer term.
  • A distortion of the capitalist model which has created a widening chasm between ‘capitalism in principle’ and ‘capitalism in practice’.

Before we can put the credit super-cycle into its proper context, however, we need to appreciate three critical issues, each of which is grossly misunderstood.

  1. The first of these is the vast folly of globalisation. This has impoverished and weakened the West whilst ensuring that few countries are immune from the consequences of the unwinding of a world economy which has become a hostage to future growth assumptions at precisely the same time that the scope for generating real growth is deteriorating.
  2. The second critical issue is the undermining of official economic and fiscal data, a process which has disguised many of the most alarming features of the super-cycle.
  3. Third, there has been a fundamental misunderstanding of the dynamic which really drives the economy. Often regarded as a monetary construct, the economy is, in the final analysis, an energy system, and the critical supply of surplus energy has been in seemingly-inexorable decline for at least three decades.

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Guest Post: The Tangled Relationship Between Wealth & Money

Submitted by John Michael Greer of Peak Prosperity,

One of the most dangerous mistakes possible to make in trying to understand the shape of the economic future is to think of the fundamental concepts of economics as simple and uncontroversial.  They aren’t. 

In economics, as in all other fields, the fundamentals are where disguised ideologies and unexamined presuppositions are most likely to hide out, precisely because nobody questions them.

In this and future essays here at Peak Prosperity, I will explore a number of things that seem, at first glance, very obvious and basic.  I hope you’ll bear with me, as there are lessons of crucial and deeply practical importance to anyone facing the challenging years ahead.

This is, above all, true of the first thing I want to talk about: the tangled relationship between wealth and money.

Our co-host here, Chris Martenson, likes to remind us all that money is not wealth, but a claim on wealth.  He’s quite right, and it’s important to understand why.

Money is a system of abstract tokens that complex societies use to manage the distribution of goods and services, and that’s all it is.  Money can consist of lumps of precious metal, pieces of paper decorated with the faces of dead politicians, digits in computer memory, or any number of other things, up to and including the sheer make-believe that underlies derivatives and the like. Important differences separate these various forms of money, depending on the ease or lack of same with which they can be manufactured, but everything that counts as money has one thing in common – it has only one of the two kinds of economic value.

The Two Kinds of Value

Economists call those use value and exchange value.

You already know about them, even if you don’t know the names.  Odds are, in fact, that you learned about them back in elementary school the first time that one of your classmates offered to trade you something for the cookies in your lunchbox.  You then had to choose between trading the cookies for whatever your classmate offered and eating them yourself.  The first of those choices treated the cookies primarily as a bearer of exchange value; the second treated them primarily as a bearer of use value.

All forms of real wealth – that is, all nonfinancial goods and services – have use value as well as exchange value.  They can be exchanged for other goods and services, financial or otherwise, but they also provide some direct benefit to the person who is able to obtain them.  All forms of money, by contrast, have exchange value but no use value. You can’t do a thing with them except trade them for something that has use value (or for some other kind of money that can be traded for things with use value).

Most people realize this.  Or, more precisely, most people think that they realize this.

It’s still embarrassingly common for people to forget that money isn’t true wealth, and to assume that as long as they have some sufficiently large quantity of some kind of money that’s likely to hold its exchange value over time, they’ll never want for wealth.  This assumption is understandably made, because in the relatively recent past, this has been true a good deal more often than not, which feeds the belief that it will always be true in the future. 

But that assumption is lethally flawed, and it’s important to understand why.

The Economic Relationship between Money and Wealth

For the last three hundred years, as industrial society emerged from older socioeconomic forms and became adept at finding ways to use the immense economic windfall provided by fossil fuel energy, there have been two principal brakes on economic growth.

The first has been the rate at which new technologies have been developed to produce goods and services using energy derived from fossil fuels. The Industrial Revolution didn’t get started in the first place until inventors and entrepreneurs found ways to put the first generation of steam engines to work making goods and providing services.  At every step along the road from that tentative beginning to today’s extravagantly fueled high-tech societies, the rate of economic growth has been largely a function of the rate at which new inventions have appeared and linked up with the business models that were needed to integrate them into the productive economy.  That’s the source of the innovation-centered strategy that leads most industrial societies to fund basic and applied research as lavishly as they can afford.

The second major brake on economic growth is the relationship between the economy of goods and services, on the one hand, and the economy of money on the other.  Just as wealth and money are not the same, as we’ve seen, the economic processes that center on them are not the same.  The printing and circulation of money is not the same thing as the production and distribution of nonfinancial goods and services, and ignoring the difference between them confuses much more than it reveals.  In my book The Wealth of Nature, I called the economy of goods and services the 'secondary economy,' and the economy of money the 'tertiary economy,' with nature itself – the ultimate source of all wealth – as the 'primary economy.'  For the purposes of this essay and those to come, though, we’ll use simpler labels and call them the 'wealth economy' and the 'money economy'.

During this three-hundred-year timespan, when the money economy stayed in sync with the wealth economy, economic growth normally followed.  When the two economies got out of sync, on the other hand, growth normally faltered or went into reverse. There were (and are) two ways that the money supply can slip out of its proper relationship with the wealth economy. 

The first occurs when growth in the money supply outstrips growth in the production of real wealth, so that the more money is available to compete for any given good or service, and prices normally go up.  That’s inflation.

The second occurs when growth in the money supply fails to keep up with growth in the production of real wealth, so that less money is available to purchase any given good or service, and prices normally go down.  That’s deflation. 

Fighting to Keep the Economies in Sync

In either case, the imbalance hinders the ability of the wealth economy to keep producing goods and services, mostly by throwing a monkey wrench into the machinery of investment — the process by which the money economy allots extra wealth to the producers of wealth to assist them in expanding their ability to create real, nonfinancial goods and services. Whether it’s inflation or deflation that chucks the wrench into the gears, the result is flagging or negative growth.

It’s the hope of keeping inflation and deflation in check that motivates the obsessive tinkering with economics on the part of so many of the world’s governments these days. However poorly that tinkering works out in practice (and it usually works out very poorly, indeed) the politicians can at least claim to citizens that they’re doing something to get economic growth back on track.

Most economists, and for that matter most people who consider economic issues, think and act as though these two factors — the rate of innovation and the money economy’s habit of getting out of sync with the underlying economy of real wealth — are still the only factors that can get in the way of growth. That’s why proposals for putting an end to the current economic mess focus so narrowly on more innovation, on the one hand, and finding some way to gimmick the money economy so that it no longer drags on the wealth economy, on the other. 

Now, of course, scarcely any two people agree on what measures will get the two economies in sync again. Similarly there’s no general agreement over where government support for innovation ought to go. But there’s near-universal agreement that getting these two factors to work right is the way out of the ongoing global economic crisis.

The Tangled Web We've Woven

The disagreements between partisans of various economic schemes, and between proponents of various new technologies, make it easy to miss the fact that something is happening that’s clean outside the box of contemporary economic thought.

The wealth economy and the money economy are certainly out of sync just now, but the problem isn’t in the money economy; it’s in the wealth economy.

The production of real goods and services has run up against limits that are not financial in nature, and today’s economic orthodoxies can’t even imagine that possibility, much less respond to it in any useful fashion.

In Part II: Slamming Face-First into the Limits to Growth we explain why, given our misguided efforts to solve the wrong problems, you can no longer assume that having enough money – of any kind – will guarantee that you will have enough wealth.  Distortions in the money supply driven by the shenanigans of central bankers are not the only force twisting the relationship between money and growth.  The key factor now is a contraction in the wealth economy driven by the economic effects of the exhaustion of easily accessible resources. 

There simply is too much money chasing a limited (and, in some cases, shrinking) supply of real wealth. 

Click here to read Part II of this report (free executive summary; enrollment required for full access).

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Eleven EU Nations Take on ‘Financial Elite’ with Robin Hood Tax

In a "major milestone in tax history," 11 European countries are taking on the financial industry by agreeing on Tuesday to implement a Robin Hood tax earning potentially billions of euros for a region besotted with economic distress, finally taxing those institutions that created the current fiscal mess.

Proponents of the tax who campaigned last February can now celebrate the 11 EU Nations who agreed to the levy on Tuesday Jan. 22. (Photo: Martin Argles/ the Observer) The micro 0.1-0.01% financial transaction tax (FTT) would apply to trading in stocks, bonds and derivatives and could be implemented as early as next year.

The goal of the tax, according to a statement issued by the European Council, is "for the financial industry to make a fair contribution to tax revenues, whilst also creating a disincentive for transactions that do not enhance the efficiency of financial markets."

Writing for the Guardian, Peter Hain notes:

The social justice arguments for an FTT are incontrovertible: the City's financial elite may have sparked the financial crisis, but it is the rest of society, especially the poor, who are paying the price with the harshest program of austerity since world war two. Yet amid the 2.5 million unemployed and the threat of a triple dip recession, the financial sector has over the past year enjoyed one of the strongest performances of any sector on the FTSE 100. But it is the economic common sense, the potential to raise billions in additional revenue, that has led the center-right in Angela Merkel's Germany, Mariano Rajoy's Spain and Mario Monti's Italy to back this tax. It will collectively raise the 11 countries involved £30bn [$47.5bn] a year – no small beer.

Meeting in Brussels at the Economic and Financial Affairs Council, the participating EU member states are Austria, Belgium, Estonia, France, Germany, Greece, Italy, Slovakia, Slovenia and Spain; together making up 90% of Eurozone GDP.

The one notable exception to the group is the United Kingdom. As the largest trading hub in Europe, British participation would bring an additional £8bn [$12.7bn] of annual revenue. "[The British] government opted out," said Hain, "choosing instead to dance to the City of London's tune," referring to the financial elite in the UK.

Calling the vote "an example the rest of Europe and the world should follow," EU policy adviser for Oxfam International Nicolas Mombrial called on those involved to ensure the tax lives up to its moniker and help fund climate and other development projects.

“It will only be a Robin Hood Tax if a big chunk of the estimated €37 billion annual revenue is used to help poor people at home and abroad who have been hit hardest by the economic crisis and climate change,” he said.

Oxfam is asking for a quarter of the sum be allocated to the Green Climate Fund (GCF), to help fund low-emission and climate-resilient development, particularly in poor, more vulnerable nations. However, there is no agreement yet on how revenues will be allocated.

Sarah Anderson from the Institute for Policy Studies said that international campaigners, like Oxfam, who have been pushing for this tax for several years, "will be redoubling their efforts to demand that revenues to go towards social and environmental purposes"

The European Commission still needs to draft the final legislation, and the 11 states in favor of the law will have to give their unanimous approval before it becomes law.

Frontrunning: January 17

  • Obama's Gun Curbs Face a Slog in Congress (BBG)
  • Euro Area Seen Stalling as Draghi’s Pessimism Shared (BBG)
  • China Begins to Lose Edge as World's Factory Floor (WSJ)
  • EU Car Sales Slump (WSJ)
  • Fed Concerned About Overheated Markets Amid Record Bond-Buying (BBG)
  • Australia Posts Worst Back-to-Back Job Growth Since ’97 (BBG)
  • Abe Currency Policy Stokes Gaffe Risk as Amari Roils Yen (BBG)
  • Japan Opposition Party Won’t Back BOJ Officials for Governor (BBG)
  • Fed Reports Point to Subdued Economic Growth (WSJ)
  • China Set to Exit Slowdown by Boosting Infrastructure (BBG)
  • Greece not out of woods, must stick to reforms: finance minister (Reuters)
  • Russian Rate Debate Flares Up as Cabinet Seeks Growth (BBG)

Overnight Media Digest

WSJ

* The Federal Aviation Administration on Wednesday ordered a halt to flights of Boeing Co's 787 Dreamliner, an unprecedented rebuke to the plane maker after two major battery malfunctions on its flagship jets.

* JPMorgan Chase & Co's directors cut Chief Executive James Dimon's pay by 50 percent for 2012, as the board took management to task for a trading debacle that cost the nation's largest bank more than $6 billion.

* Goldman Sachs Group Inc and Morgan Stanley agreed to pay a combined $560 million to settle allegations of foreclosure abuses, the latest setback in the banks' costly foray into subprime mortgages.

* Citigroup Inc has asked regulators for permission to repurchase just enough stock to counter dilution from routine share issuance, according to people familiar with the company's plans.

* Two bidders have emerged as leading contenders for ThyssenKrupp AG's steel operations in the Americas. ArcelorMittal SA submitted a $1.5 billion bid for a plant in Alabama, while Brazil's Companhia Siderúrgica Nacional submitted a $3.8 billion bid for that plant and a majority stake in a Brazilian mill, people familiar with the matter said.

* Hewlett-Packard Co has received expressions of interest from potential suitors for its Autonomy Corp business, the division that the technology giant has alleged engaged in accounting improprieties before HP acquired it in 2011, according to people familiar with the discussions.

* EBay Inc's revenue rose 18 percent in the latest quarter as business in the company's online marketplace and PayPal units continued to improve.

* Chipotle Mexican Grill Inc expects higher food costs to dampen fourth-quarter earnings, despite continued strength in its underlying sales trends.

* European retailer Metro AG said it is pulling out of the Chinese consumer-electronics business after two years of testing.

* China is losing its competitive edge as a low-cost manufacturing base, new data suggest, with makers of everything from handbags to shirts to basic electronic components relocating to cheaper locales like Southeast Asia.

FT

Dozens of expatriate workers have been kidnapped from an Algerian natural gas facility operated by BP and Statoil .

Business Secretary Vince Cable will say in a speech that the debate over Britain's EU membership and a possible referendum is terrible timing, creating uncertainty for investors.

Opposition leader Ed Miliband said in an interview that Cameron's inability to guarantee that Britain will be in the EU in five years' time would be destabilising for investment.

Goldman Sachs cut its bonuses in the fourth quarter, boosting it to its highest profit level in three years.

Germany's Bundesbank is planning to repatriate 54,000 gold bars worth 27 billion euros from Paris and New York between now and 2020.

New rules that force British banks to hold more capital against loans secured on commercial property are resulting in higher costs and scrapped projects for developers.

NYT

* Long seen as one of the most careful banks on Wall Street, JPMorgan Chase & Co on Wednesday drew back a curtain on a rare breakdown, showing traders acting on their own and concealing losses while managers seemingly turned a blind eye. In a 129-page internal report dissecting a bad bet on credit derivatives that cost the bank more than $6 billion, the bank confessed, in painstaking detail, to widespread "failures."

* The Federal Aviation Administration said on Wednesday it was grounding all Boeing Co 787s operated by United States carriers until it can determine what caused a new type of battery to catch fire on two planes in nine days.

* Hewlett-Packard Co has received a number of inquiries from would-be buyers for its Autonomy and Electronic Data Systems units in recent weeks, though the technology company isn't interested in selling at the moment, a person briefed on the matter said.

* Goldman Sachs Group Inc on Wednesday released financial results that demonstrated it was not only benefiting from cost-cutting, but it also finally had a significant rebound in its core businesses. It reported a fourth-quarter profit of $2.89 billion, or $5.60 a share.

* To combat a rise in cybercrime, the European Commission is considering a plan to require companies that store data on the Internet - like Microsoft Corp, Apple Inc, Google Inc and International Business Machines Corp - to report the loss or theft of personal information in the 27-nation bloc or risk sanctions and fines.

* A new type of flu vaccine won regulatory approval on Wednesday, and its manufacturer said that limited supplies are expected to be available this winter.

* After an estimated 500,000 patients in the United States have received a type of artificial hip that is failing early in many cases, the Food and Drug Administration is proposing rules that could stop manufacturers from selling such implants.

* Robert Wolf, a top Wall Street rainmaker who left UBS AG last summer, has hired Austan Goolsbee as a "strategic partner" for his new firm, 32 Advisors, the two men have told friends in recent weeks, according to people briefed on the matter.

* Nearly half of Germany's gold reserves are held in a vault at the Federal Reserve Bank of New York - billions of dollars worth of postwar geopolitical history squirreled away for safe keeping below the streets of Lower Manhattan. Now the German central bank wants to make a big withdrawal - 300 tons in all.

Canada

THE GLOBE AND MAIL

* Canada's energy and mining companies are facing new challenges from First Nations that are demanding the right to approve all resource projects on traditional territories and to participate in the revenues.

* French President François Hollande has personally asked Canadian Prime Minister Stephen Harper to extend Canada's contribution of a heavy-lift cargo plane for Mali, and to offer more transport help, testing Harper's efforts to set strict limits on Canada's military assistance.

Reports in the business section:

* Air Transat will cut $20 million in annual operating cost as part of its parent company's efforts to restore profitability in the face of toughening competition.

Executives told employees on Wednesday that the airline needs to realize the savings in order to operate a fleet of Boeing 737 aircraft and replace those flown under subcontract by Nova Scotia-based Canjet since 2009.

* H&R Real Estate Investment Trust on Wednesday offered to buy Primaris Retail Real Estate Investment Trust for nearly C$3 billion ($3.04 billion), or C$28 a share, just above a hostile C$26 per share bid put forward in December by a consortium led by KingSett Capital.

NATIONAL POST

* An Ontario bodyguard who worked for Saadi Gaddafi -- the son of slain Libyan leader Muammar Gaddafi -- provided "invaluable assistance" to the Libyan dictatorship as it attempted to brutally crush an anti-regime uprising in 2011, the Canada Border Services Agency said.

* A new study has indicated that overdose deaths have risen in close parallel with Canada's soaring consumption of prescription narcotics and the painkillers have become the country's most dangerous drugs after tobacco and alcohol, a leading addiction researcher of Simon Fraser University said.

FINANCIAL POST

* Calgary-based Sunshine Oil Sands Ltd has agreed to share oil sands exploration technology with a division of China's CNOOC Ltd.

The one-year "cooperation" agreement comes roughly one month after the federal government approved the sale of oil sands producer Nexen Inc to CNOOC for $15.1 billion.

* Lululemon Athletica Inc has its sights on growing its share in menswear, CEO Christine Day said at the ICR XChange investor conference in Miami on Wednesday, a rare bright spot in last year's apparel market.

A little over a year and a half ago, menswear represented 8 percent of sales at the Vancouver-based retailer. while on a year to date basis the category has hit 12 percent with the holiday season peaking at 15 percent, Day said.

China

CHINA SECURITIES JOURNAL

--The yuan's real effective exchange rate (REER), which measures the currency's value against a trade-weighted basket after adjustments based on inflation, hit a record high of 110.16 in December, Bank for International Settlements (BIS) data showed.

SHANGHAI SECURITIES NEWS

--In the first two weeks of January, new loans from China's "big four" banks hit 270 billion yuan ($43.43 billion), with industry insiders expecting that the total new loans are likely to hit one trillion yuan in January.

PEOPLE'S DAILY

--China's tax revenue rose 11.2 percent to 11.7 trillion yuan in 2012, data from the state administration of taxation showed.

Fly on the Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

Adtran (ADTN) upgraded to Neutral from Sell at Citigroup
Bio-Rad (BIO) upgraded to Outperform from Underperform at CLSA
GT Advanced (GTAT) upgraded to Hold from Underperform at Jefferies
Infinera (INFN) upgraded to Overweight from Neutral at JPMorgan
Juniper (JNPR) upgraded to Overweight from Neutral at JPMorgan
Medtronic (MDT) upgraded to Outperform from Neutral at Credit Suisse
Mercury General (MCY) upgraded to Outperform from Neutral at Macquarie
Mohawk (MHK) upgraded to Outperform from Underperform at Macquarie
PerkinElmer (PKI) upgraded to Buy from Outperform at CLSA
Rio Tinto (RIO) upgraded to Buy from Neutral at Citigroup

Downgrades

Adtran (ADTN) downgraded to Sell from Neutral at UBS
Agilent (A) downgraded to Outperform from Buy at CLSA
BNY Mellon (BK) downgraded to Sector Perform from Outperform at RBC Capital
Boeing (BA) downgraded to Underweight from Hold at BB&T
Celsion (CLSN) downgraded to Sell from Hold at Brean Capital
Cisco (CSCO) downgraded to Underweight from Neutral at JPMorgan
Columbia Sportswear (COLM) downgraded to Underperform from Buy at BofA/Merrill
Corning (GLW) downgraded to Sector Perform from Outperform at RBC Capital
Cree (CREE) downgraded to Underperform from Buy at Jefferies
Itron (ITRI) downgraded to Hold from Buy at Jefferies
Leap Wireless (LEAP) downgraded to Underperform from Hold at Jefferies
RBC Bearings (ROLL) downgraded to Market Perform from Outperform at William Blair
Regal-Beloit (RBC) downgraded to Perform from Outperform at Oppenheimer
Regeneron (REGN) downgraded to Hold from Buy at Brean Capital
SAP (SAP) downgraded to Neutral from Buy at Citigroup
VIVUS (VVUS) downgraded to Sell from Hold at Brean Capital
Waters (WAT) downgraded to Market Perform from Outperform at Wells Fargo
Williams-Sonoma (WSM) downgraded to Market Perform from Strong Buy at Raymond James
Williams-Sonoma (WSM) downgraded to Neutral from Buy at Goldman

Initiations

Alkermes (ALKS) initiated with a Neutral at Credit Suisse
Approach Resources (AREX) initiated with an In-Line at Imperial Capital
Asset Acceptance (AACC) initiated with a Neutral at Janney Capital
Concho Resources (CXO) initiated with an Outperform at Imperial Capital
Eli Lilly (LLY) initiated with a Sell at CLSA
Encore Capital (ECPG) initiated with a Buy at Janney Capital
Portfolio Recovery (PRAA) initiated with a Neutral at Janney Capital
Stillwater Mining (SWC) initiated with an Outperform at Wells Fargo
U.S. Silica (SLCA) initiated with a Sector Perform at RBC Capital
Vanda Pharmaceuticals (VNDA) initiated with an Outperform at JMP Securities

HOT STOCKS

FAA ordered Boeing (BA) to temporary cease operations of all U.S. 787 Dreamliners jets, Bloomberg reports
Rio Tinto (RIO) said CEO Albanese stepped down after charges
Expects non-cash impairment charge of $14B
Stryker (SYK) acquired Trauson Holdings for $764M in cash
Sun Life Financial (SLF), Khazanah Nasional Berhad to purchase CIMB Aviva for C$586M
Treasury Department hired Citigroup (C), JPMorgan (JPM) to sell General Motors (GM)  shares, Bloomberg reports
Nokia (NOK) to cut 300 jobs, transfer 820 others amid changes in IT
AT&T (T) to enable FaceTime over Cellular (AAPL) for all iOS devices at no extra charge
CBS (CBS) began converting its Outdoor Americas division into a REIT, and will pursue a divestiture of its Outdoor operations in Europe and Asia
A. M. Castle (CAS) announced restructuring plan, will reduce workforce by 10%
eBay (EBAY) said Europe still “sluggish,” said Latin America an “important growth opportunity”
Said PayPal-Discover partnership to go live at end of Q2
K-Swiss (KSWS) to be acquired by E.Land World for $4.75 per share in cash

EARNINGS

Companies that beat consensus earnings expectations last night and today include: Fifth Third Bancorp (FITB), Insteel (IIIN), BlackRock (BLK), Huntington Bancshares (HBAN), Virginia Commerce (VCBI), BB&T (BBT), H.B. Fuller (FUL), Bank of the Ozarks (OZRK), Clarcor (CLC), SLM Corp. (SLM), eBay (EBAY), Nautilus (NLS)

Companies that missed consensus earnings expectations include:
CVB Financial (CVBF), Plexus (PLXS), Kinder Morgan Energy (KMP), Kinder Morgan (KMI), Boston Private Financial (BPFH)

Companies that matched consensus earnings expectations include:
UnitedHealth (UNH), Pacific Continental (PCBK)

NEWSPAPERS/WEBSITES
Investors are grappling with what could be a watershed moment for Apple (AAPL). In many fund managers' eyes, the recent decline could mark Apple's transformation from a growth stock—one that is seen as risky but whose growth prospects could lead to big gains—to a more plodding value stock—one that trades at a low price relative to earnings and offers regular payments such as dividends, the Wall Street Journal reports
The power that U.S. baby boomers have exercised for some 50 years over the auto industry is starting to wane. Auto industry executives at the North American International Auto Show in Detroit this week made it clear with their designs for coming models that they are pivoting their attention—and their product strategies—toward the 20, 30 and 40-something consumers collectively known as Generations X and Y, the Wall Street Journal reports
PC makers, trying to beat back a tablet mania that's hurting their sales, are making what may be a last attempt to sway customers by mimicking the competition, Reuters reports
Airbus (EADSY) reported a 43% drop in orders and lost its title as the world's largest plane maker to Boeing (BA) in 2012, as it predicted improvements in orders and deliveries for 2013 as airlines look to reduce fuel costs. Adjusted for cancellations, Airbus had 833 net orders, while Boeing led on net orders with 921 aircraft, Reuters reports
Fed officials are increasingly concerned that record-low interest rates are overheating markets for assets from farmland to junk bonds, which could heighten risks when they reverse their bond purchases, Bloomberg reports
Treasuries fell, as 10-year notes halted a four-day advance, before Commerce Department data forecast to show U.S. housing starts rose last month, adding to signs the U.S. economy is improving, Bloomberg reports

SYNDICATE
Aveo Pharmaceuticals (AVEO) commences offering of common stock
CVR Refining (CVRR) 24M share IPO priced at $25.00
Imation (IMN) files to sell 3.32M shares of common stock for holders
Northern Tier (NTI) commences offering of 9M common units by holders

Your rating: None

Frontrunning: January 17

  • Obama's Gun Curbs Face a Slog in Congress (BBG)
  • Euro Area Seen Stalling as Draghi’s Pessimism Shared (BBG)
  • China Begins to Lose Edge as World's Factory Floor (WSJ)
  • EU Car Sales Slump (WSJ)
  • Fed Concerned About Overheated Markets Amid Record Bond-Buying (BBG)
  • Australia Posts Worst Back-to-Back Job Growth Since ’97 (BBG)
  • Abe Currency Policy Stokes Gaffe Risk as Amari Roils Yen (BBG)
  • Japan Opposition Party Won’t Back BOJ Officials for Governor (BBG)
  • Fed Reports Point to Subdued Economic Growth (WSJ)
  • China Set to Exit Slowdown by Boosting Infrastructure (BBG)
  • Greece not out of woods, must stick to reforms: finance minister (Reuters)
  • Russian Rate Debate Flares Up as Cabinet Seeks Growth (BBG)

Overnight Media Digest

WSJ

* The Federal Aviation Administration on Wednesday ordered a halt to flights of Boeing Co's 787 Dreamliner, an unprecedented rebuke to the plane maker after two major battery malfunctions on its flagship jets.

* JPMorgan Chase & Co's directors cut Chief Executive James Dimon's pay by 50 percent for 2012, as the board took management to task for a trading debacle that cost the nation's largest bank more than $6 billion.

* Goldman Sachs Group Inc and Morgan Stanley agreed to pay a combined $560 million to settle allegations of foreclosure abuses, the latest setback in the banks' costly foray into subprime mortgages.

* Citigroup Inc has asked regulators for permission to repurchase just enough stock to counter dilution from routine share issuance, according to people familiar with the company's plans.

* Two bidders have emerged as leading contenders for ThyssenKrupp AG's steel operations in the Americas. ArcelorMittal SA submitted a $1.5 billion bid for a plant in Alabama, while Brazil's Companhia Siderúrgica Nacional submitted a $3.8 billion bid for that plant and a majority stake in a Brazilian mill, people familiar with the matter said.

* Hewlett-Packard Co has received expressions of interest from potential suitors for its Autonomy Corp business, the division that the technology giant has alleged engaged in accounting improprieties before HP acquired it in 2011, according to people familiar with the discussions.

* EBay Inc's revenue rose 18 percent in the latest quarter as business in the company's online marketplace and PayPal units continued to improve.

* Chipotle Mexican Grill Inc expects higher food costs to dampen fourth-quarter earnings, despite continued strength in its underlying sales trends.

* European retailer Metro AG said it is pulling out of the Chinese consumer-electronics business after two years of testing.

* China is losing its competitive edge as a low-cost manufacturing base, new data suggest, with makers of everything from handbags to shirts to basic electronic components relocating to cheaper locales like Southeast Asia.

FT

Dozens of expatriate workers have been kidnapped from an Algerian natural gas facility operated by BP and Statoil .

Business Secretary Vince Cable will say in a speech that the debate over Britain's EU membership and a possible referendum is terrible timing, creating uncertainty for investors.

Opposition leader Ed Miliband said in an interview that Cameron's inability to guarantee that Britain will be in the EU in five years' time would be destabilising for investment.

Goldman Sachs cut its bonuses in the fourth quarter, boosting it to its highest profit level in three years.

Germany's Bundesbank is planning to repatriate 54,000 gold bars worth 27 billion euros from Paris and New York between now and 2020.

New rules that force British banks to hold more capital against loans secured on commercial property are resulting in higher costs and scrapped projects for developers.

NYT

* Long seen as one of the most careful banks on Wall Street, JPMorgan Chase & Co on Wednesday drew back a curtain on a rare breakdown, showing traders acting on their own and concealing losses while managers seemingly turned a blind eye. In a 129-page internal report dissecting a bad bet on credit derivatives that cost the bank more than $6 billion, the bank confessed, in painstaking detail, to widespread "failures."

* The Federal Aviation Administration said on Wednesday it was grounding all Boeing Co 787s operated by United States carriers until it can determine what caused a new type of battery to catch fire on two planes in nine days.

* Hewlett-Packard Co has received a number of inquiries from would-be buyers for its Autonomy and Electronic Data Systems units in recent weeks, though the technology company isn't interested in selling at the moment, a person briefed on the matter said.

* Goldman Sachs Group Inc on Wednesday released financial results that demonstrated it was not only benefiting from cost-cutting, but it also finally had a significant rebound in its core businesses. It reported a fourth-quarter profit of $2.89 billion, or $5.60 a share.

* To combat a rise in cybercrime, the European Commission is considering a plan to require companies that store data on the Internet - like Microsoft Corp, Apple Inc, Google Inc and International Business Machines Corp - to report the loss or theft of personal information in the 27-nation bloc or risk sanctions and fines.

* A new type of flu vaccine won regulatory approval on Wednesday, and its manufacturer said that limited supplies are expected to be available this winter.

* After an estimated 500,000 patients in the United States have received a type of artificial hip that is failing early in many cases, the Food and Drug Administration is proposing rules that could stop manufacturers from selling such implants.

* Robert Wolf, a top Wall Street rainmaker who left UBS AG last summer, has hired Austan Goolsbee as a "strategic partner" for his new firm, 32 Advisors, the two men have told friends in recent weeks, according to people briefed on the matter.

* Nearly half of Germany's gold reserves are held in a vault at the Federal Reserve Bank of New York - billions of dollars worth of postwar geopolitical history squirreled away for safe keeping below the streets of Lower Manhattan. Now the German central bank wants to make a big withdrawal - 300 tons in all.

Canada

THE GLOBE AND MAIL

* Canada's energy and mining companies are facing new challenges from First Nations that are demanding the right to approve all resource projects on traditional territories and to participate in the revenues.

* French President François Hollande has personally asked Canadian Prime Minister Stephen Harper to extend Canada's contribution of a heavy-lift cargo plane for Mali, and to offer more transport help, testing Harper's efforts to set strict limits on Canada's military assistance.

Reports in the business section:

* Air Transat will cut $20 million in annual operating cost as part of its parent company's efforts to restore profitability in the face of toughening competition.

Executives told employees on Wednesday that the airline needs to realize the savings in order to operate a fleet of Boeing 737 aircraft and replace those flown under subcontract by Nova Scotia-based Canjet since 2009.

* H&R Real Estate Investment Trust on Wednesday offered to buy Primaris Retail Real Estate Investment Trust for nearly C$3 billion ($3.04 billion), or C$28 a share, just above a hostile C$26 per share bid put forward in December by a consortium led by KingSett Capital.

NATIONAL POST

* An Ontario bodyguard who worked for Saadi Gaddafi -- the son of slain Libyan leader Muammar Gaddafi -- provided "invaluable assistance" to the Libyan dictatorship as it attempted to brutally crush an anti-regime uprising in 2011, the Canada Border Services Agency said.

* A new study has indicated that overdose deaths have risen in close parallel with Canada's soaring consumption of prescription narcotics and the painkillers have become the country's most dangerous drugs after tobacco and alcohol, a leading addiction researcher of Simon Fraser University said.

FINANCIAL POST

* Calgary-based Sunshine Oil Sands Ltd has agreed to share oil sands exploration technology with a division of China's CNOOC Ltd.

The one-year "cooperation" agreement comes roughly one month after the federal government approved the sale of oil sands producer Nexen Inc to CNOOC for $15.1 billion.

* Lululemon Athletica Inc has its sights on growing its share in menswear, CEO Christine Day said at the ICR XChange investor conference in Miami on Wednesday, a rare bright spot in last year's apparel market.

A little over a year and a half ago, menswear represented 8 percent of sales at the Vancouver-based retailer. while on a year to date basis the category has hit 12 percent with the holiday season peaking at 15 percent, Day said.

China

CHINA SECURITIES JOURNAL

--The yuan's real effective exchange rate (REER), which measures the currency's value against a trade-weighted basket after adjustments based on inflation, hit a record high of 110.16 in December, Bank for International Settlements (BIS) data showed.

SHANGHAI SECURITIES NEWS

--In the first two weeks of January, new loans from China's "big four" banks hit 270 billion yuan ($43.43 billion), with industry insiders expecting that the total new loans are likely to hit one trillion yuan in January.

PEOPLE'S DAILY

--China's tax revenue rose 11.2 percent to 11.7 trillion yuan in 2012, data from the state administration of taxation showed.

Fly on the Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

Adtran (ADTN) upgraded to Neutral from Sell at Citigroup
Bio-Rad (BIO) upgraded to Outperform from Underperform at CLSA
GT Advanced (GTAT) upgraded to Hold from Underperform at Jefferies
Infinera (INFN) upgraded to Overweight from Neutral at JPMorgan
Juniper (JNPR) upgraded to Overweight from Neutral at JPMorgan
Medtronic (MDT) upgraded to Outperform from Neutral at Credit Suisse
Mercury General (MCY) upgraded to Outperform from Neutral at Macquarie
Mohawk (MHK) upgraded to Outperform from Underperform at Macquarie
PerkinElmer (PKI) upgraded to Buy from Outperform at CLSA
Rio Tinto (RIO) upgraded to Buy from Neutral at Citigroup

Downgrades

Adtran (ADTN) downgraded to Sell from Neutral at UBS
Agilent (A) downgraded to Outperform from Buy at CLSA
BNY Mellon (BK) downgraded to Sector Perform from Outperform at RBC Capital
Boeing (BA) downgraded to Underweight from Hold at BB&T
Celsion (CLSN) downgraded to Sell from Hold at Brean Capital
Cisco (CSCO) downgraded to Underweight from Neutral at JPMorgan
Columbia Sportswear (COLM) downgraded to Underperform from Buy at BofA/Merrill
Corning (GLW) downgraded to Sector Perform from Outperform at RBC Capital
Cree (CREE) downgraded to Underperform from Buy at Jefferies
Itron (ITRI) downgraded to Hold from Buy at Jefferies
Leap Wireless (LEAP) downgraded to Underperform from Hold at Jefferies
RBC Bearings (ROLL) downgraded to Market Perform from Outperform at William Blair
Regal-Beloit (RBC) downgraded to Perform from Outperform at Oppenheimer
Regeneron (REGN) downgraded to Hold from Buy at Brean Capital
SAP (SAP) downgraded to Neutral from Buy at Citigroup
VIVUS (VVUS) downgraded to Sell from Hold at Brean Capital
Waters (WAT) downgraded to Market Perform from Outperform at Wells Fargo
Williams-Sonoma (WSM) downgraded to Market Perform from Strong Buy at Raymond James
Williams-Sonoma (WSM) downgraded to Neutral from Buy at Goldman

Initiations

Alkermes (ALKS) initiated with a Neutral at Credit Suisse
Approach Resources (AREX) initiated with an In-Line at Imperial Capital
Asset Acceptance (AACC) initiated with a Neutral at Janney Capital
Concho Resources (CXO) initiated with an Outperform at Imperial Capital
Eli Lilly (LLY) initiated with a Sell at CLSA
Encore Capital (ECPG) initiated with a Buy at Janney Capital
Portfolio Recovery (PRAA) initiated with a Neutral at Janney Capital
Stillwater Mining (SWC) initiated with an Outperform at Wells Fargo
U.S. Silica (SLCA) initiated with a Sector Perform at RBC Capital
Vanda Pharmaceuticals (VNDA) initiated with an Outperform at JMP Securities

HOT STOCKS

FAA ordered Boeing (BA) to temporary cease operations of all U.S. 787 Dreamliners jets, Bloomberg reports
Rio Tinto (RIO) said CEO Albanese stepped down after charges
Expects non-cash impairment charge of $14B
Stryker (SYK) acquired Trauson Holdings for $764M in cash
Sun Life Financial (SLF), Khazanah Nasional Berhad to purchase CIMB Aviva for C$586M
Treasury Department hired Citigroup (C), JPMorgan (JPM) to sell General Motors (GM)  shares, Bloomberg reports
Nokia (NOK) to cut 300 jobs, transfer 820 others amid changes in IT
AT&T (T) to enable FaceTime over Cellular (AAPL) for all iOS devices at no extra charge
CBS (CBS) began converting its Outdoor Americas division into a REIT, and will pursue a divestiture of its Outdoor operations in Europe and Asia
A. M. Castle (CAS) announced restructuring plan, will reduce workforce by 10%
eBay (EBAY) said Europe still “sluggish,” said Latin America an “important growth opportunity”
Said PayPal-Discover partnership to go live at end of Q2
K-Swiss (KSWS) to be acquired by E.Land World for $4.75 per share in cash

EARNINGS

Companies that beat consensus earnings expectations last night and today include: Fifth Third Bancorp (FITB), Insteel (IIIN), BlackRock (BLK), Huntington Bancshares (HBAN), Virginia Commerce (VCBI), BB&T (BBT), H.B. Fuller (FUL), Bank of the Ozarks (OZRK), Clarcor (CLC), SLM Corp. (SLM), eBay (EBAY), Nautilus (NLS)

Companies that missed consensus earnings expectations include:
CVB Financial (CVBF), Plexus (PLXS), Kinder Morgan Energy (KMP), Kinder Morgan (KMI), Boston Private Financial (BPFH)

Companies that matched consensus earnings expectations include:
UnitedHealth (UNH), Pacific Continental (PCBK)

NEWSPAPERS/WEBSITES
Investors are grappling with what could be a watershed moment for Apple (AAPL). In many fund managers' eyes, the recent decline could mark Apple's transformation from a growth stock—one that is seen as risky but whose growth prospects could lead to big gains—to a more plodding value stock—one that trades at a low price relative to earnings and offers regular payments such as dividends, the Wall Street Journal reports
The power that U.S. baby boomers have exercised for some 50 years over the auto industry is starting to wane. Auto industry executives at the North American International Auto Show in Detroit this week made it clear with their designs for coming models that they are pivoting their attention—and their product strategies—toward the 20, 30 and 40-something consumers collectively known as Generations X and Y, the Wall Street Journal reports
PC makers, trying to beat back a tablet mania that's hurting their sales, are making what may be a last attempt to sway customers by mimicking the competition, Reuters reports
Airbus (EADSY) reported a 43% drop in orders and lost its title as the world's largest plane maker to Boeing (BA) in 2012, as it predicted improvements in orders and deliveries for 2013 as airlines look to reduce fuel costs. Adjusted for cancellations, Airbus had 833 net orders, while Boeing led on net orders with 921 aircraft, Reuters reports
Fed officials are increasingly concerned that record-low interest rates are overheating markets for assets from farmland to junk bonds, which could heighten risks when they reverse their bond purchases, Bloomberg reports
Treasuries fell, as 10-year notes halted a four-day advance, before Commerce Department data forecast to show U.S. housing starts rose last month, adding to signs the U.S. economy is improving, Bloomberg reports

SYNDICATE
Aveo Pharmaceuticals (AVEO) commences offering of common stock
CVR Refining (CVRR) 24M share IPO priced at $25.00
Imation (IMN) files to sell 3.32M shares of common stock for holders
Northern Tier (NTI) commences offering of 9M common units by holders

Your rating: None

Congo’s M23 Conflict: Rebellion or Resource War?

M23 rebels in DR Congo have threatened to march to the capital and depose the government. UN reports confirm that rebels receive support from key US allies in the region, and Washington’s role in the conflict has become difficult to ignore. Instability, lawlessness and violence are nothing new to those who live in the troubled eastern regions of the Democratic Republic of the Congo. An 

 Congolese have perished since 1996 in a spate of ceaseless military conflicts that have long gripped this severely-overlooked and underreported region. In late November 2012, members of the M23 rebel group invaded and took control of Goma, a strategic provincial capital in North Kivu state with a population of 1 million people, with the declared purpose of marching to the nation’s capital, Kinshasa, to depose the ruling government. M23′s president, Jean Marie Runiga, later agreed to withdraw only if the ruling President Joseph Kabila listened to the group’s grievances and adhered to their demands. Rebel leaders have threatened to abandon peace talks unless Kinshasa signs an official ceasefire, a demand the government dismissed as unnecessary.

Kinshasa called on M23 to respect previous agreements to withdraw 20km outside of Goma in a move to prevent the region falling back into war after two decades of conflict, fought largely over the DRC’s vast wealth of copper, cobalt diamonds, gold and coltan. The United Nation’s peacekeeping mission in DR Congo has come under fire for allowing M23 to take Goma without firing a single shot, despite the presence of 19,000 UN troops in the country. The UN’s Congo mission is its largest and most expensive peacekeeping operation, costing over US$1 billion a year. UN forces recently announced they would introduce the use of surveillance drones over the DRC, in addition to imposing a travel ban and asset freeze on M23 leader Jean-Marie Runiga and Lt. Col. Eric Badege. A confidential 44-page report issued by a United Nations panel accused the governments of neighboring Rwanda and Uganda of supporting M23 with weapons, ammunition and Rwandan military personnel. Despite both nations denying these accusations, the governments of the United States, Britain, Germany and the Netherlands have publicly suspended military aid and developmental assistance to Rwanda. The governments of both Rwanda and Uganda, led by President Paul Kagame and President Yoweri Museveni respectively, have long been staunch American allies and the recipients of millions in military aid.

M23 President Jean-Marie Runiga (2nd R) arrives to address the media in Bunagana in eastern Democratic Republic of Congo.(Reuters / James Akena)

M23 President Jean-Marie Runiga (2nd R) arrives to address the media in Bunagana in eastern Democratic Republic of Congo.(Reuters / James Akena)

Historical precedent

The DRC has suffered immensely during its history of foreign plunder and colonial occupation; it maintains the second-lowest GDP per capita despite possessing an estimated $24 trillion in untapped raw minerals deposits. During the Congo Wars of the 1996 to 2003, the United States provided training and arms to Rwandan and Ugandan militias who later invaded the Congo’s eastern provinces where M23 are currently active. In addition to enriching various Western multinational corporations, the regimes of Kagame in Rwanda and Museveni in Uganda both profited immensely from the plunder of Congolese conflict minerals such as cassiterite, wolframite, coltan (from which niobium and tantalum are derived) and gold; the DRC holds more than 30 per cent of the world’s diamond reserves and 80 per cent of the world’s coltan.

In 1990, civil war raged between Hutu and Tutsi ethnic groups in neighboring Rwanda; Washington sought to overthrow the 20-year reign of then-President Juvénal Habyarimana (a Hutu) by installing a Tutsi client regime. At the time, prior to the outbreak of the Rwandan civil war, the Tutsi Rwandan Patriotic Army (RPA), led by the current president, was part of Uganda’s United People’s Defense Forces (UPDF). Kagame, who received training at the US Army Command and Staff College in Leavenworth, Kansas, invaded Rwanda in 1990 from Uganda under the pretext of liberating the Tutsi population from Hutu subjugation. Kagame’s forces defeated the Hutu government in Kigali and installed himself as head of a minority Tutsi regime in Rwanda, prompting the exodus of 2 million Hutu refugees (many of whom took part in the genocide) to UN-run camps in Congo’s North and South Kivu provinces.

Following Kagame’s consolidation of power in Rwanda, a large invasion force of Rwandan Tutsis arrived in North and South Kivu in 1996 under the pretext of pursuing Hutu militant groups, such as the Democratic Forces for the Liberation of Rwanda (FDLR). Under the banner of safeguarding Rwandan national security, troops from Rwanda, Uganda and Burundi invaded Congo and ripped through Hutu refugee camps, slaughtering thousands of Rwandan and Congolese Hutu civilians, including many women and children. US Special Forces trained Rwandan and Ugandan troops at Fort Bragg in the United States and supported Congolese rebels, who brought down Congolese dictator Mobutu Sese Seko – they claimed he was giving refuge to the leaders of the genocide.

After deposing Mobutu and seizing control in Kinshasa, a new regime led by Laurent Kabila, father of the current president, was installed. Kabila was quickly regarded as an equally despotic leader, eradicating all opposition to his rule; he turned away from his Rwandan backers and called on Congolese civilians to violently purge the nation of Rwandans, prompting Rwandan forces to regroup in Goma. Laurent Kabila was assassinated in 2001 at the hands of a member of his security staff, allowing his son, Joseph, to usurp the presidency. The younger Kabila derives his legitimacy from the support of foreign heads of state and the international business community, primarily for his ability to comply with foreign plunder.

During the Congo’s general elections in November 2011, the international community and the UN remained silent regarding the mass irregularities observed by the electoral committee. The United Nations Organization Stabilization Mission in the Democratic Republic of the Congo (MONUSCO) has faced frequent allegations of corruption, prompting opposition leader Étienne Tshisikedi, who is currently under house arrest, to call for the UN mission to end its deliberate efforts to maintain the system of international plundering and to appoint someone “less corrupt and more credible” to head UN operations. MONUSCO has been plagued with frequent cases of peacekeeping troops caught smuggling minerals such as cassiterite and dealing weapons to militia groups. Kabila is seen by many to be self-serving in his weak oversight of the central government in Kinshasa. M23 rebels have demanded the liberation of all political prisoners, including opposition leader Étienne Tshisikedi, and the dissolution of the current electoral commission that was in charge 2011’s elections, widely perceived to be fraudulent.

Displaced civilians from Walikale arrive at Magunga III camp outside of the eastern Congolese city of Goma.(Reuters / Alissa Everett)

Displaced civilians from Walikale arrive at Magunga III camp outside of the eastern Congolese city of Goma.(Reuters / Alissa Everett)

Role of US in Rwanda’s M23 backing

M23, or The March 23 Movement, takes its name from peace accords held on March 23, 2009, which allowed members of the National Congress for the Defense of the People (CNDP), an earlier incarnation of today’s M23, to integrate into the Armed Forces of the Democratic Republic of the Congo (FARDC) and be recognized as an official political party. The CNDP was an entirely Rwandan creation, and was led by figures such as Bosco Ntaganda. In accordance to the deal reached in 2009, the Congolese government agreed to integrate 6,000 CNDP combatants into the FARDC, giving Ntaganda, a Rwandan Tutsi and former member of the Rwandan Patriotic Army, a senior position in the integrated force. The current M23 offensive began in April 2012, when around 300 former CNDP personnel led by Ntaganda defected from FARDC, citing poor working conditions and the government’s unwillingness to meaningfully implement the 23 March 2009 peace deal.

According to UN reports, Ntaganda controls several mining operations in the region and has derived enormous profits from mineral exploitation in eastern Congo, in addition to gaining large revenues from taxation levied by Rwandan-backed “mining police.” Bosco Ntaganda appears to be assisting Rwanda’s Tutsi government in plundering eastern Congo’s natural resources, which has gone on since Kagame came to power in 1994; M23 is basically paid for with the money from tin, tungsten and tantalum smuggled from Congolese mines. UN reports detail Rwanda’s deep involvement by even naming Rwandan personnel involved; Ntaganda takes direct military orders from Rwandan Chief of Defense Staff General Charles Kayonga, who in turn acts on instructions from Minster of Defense General James Kabarebe. Both Britain and France reportedly found the UN report to be “credible and compelling.”

Susan Rice, US Ambassador to the United Nations, finds herself mired in scandal yet again; Rice has come under fire for suppressing information on Rwanda’s role in the ongoing resource looting and rebellion in eastern Congo. Rice delayed the publication of a UN Group of Experts report detailing Rwandan and Ugandan depredations in Congo, while simultaneously subverting efforts within the State Department to rein in Kagame and Museveni. Rice, in her role as assistant secretary of state for African affairs in 1997 under the Clinton administration, tacitly approved Rwanda and Uganda’s invasion of the Democratic Republic of Congo and was quoted in the New York Times as saying, “…they [Kagame & Museveni] know how to deal with that, the only thing we have to do is look the other way.” Another article published in the New York Times by Helen Cooper detailed Rice’s business connections to the Rwandan government:

“Ms. Rice has been at the forefront of trying to shield the Rwandan government, and Mr. Kagame in particular, from international censure, even as several United Nations reports have laid the blame for the violence in Congo at Mr. Kagame’s door… Aides to Ms. Rice acknowledge that she is close to Mr. Kagame and that Mr. Kagame’s government was her client when she worked at Intellibridge, a strategic analysis firm in Washington… After delaying for weeks the publication of a United Nations report denouncing Rwanda’s support for the M23 and opposing any direct references to Rwanda in United Nations statements and resolutions on the crisis, Ms. Rice intervened to water down a Security Council resolution that strongly condemned the M23 for widespread rape, summary executions and recruitment of child soldiers. The resolution expressed ‘deep concern’ about external actors supporting the M23. But Ms. Rice prevailed in preventing the resolution from explicitly naming Rwanda when it was passed on Nov. 20.”

M23 rebel fighters walk as they withdraw near the town of Sake, some 42 km (26 miles) west of Goma.(Reuters / Goran Tomasevic)

M23 rebel fighters walk as they withdraw near the town of Sake, some 42 km (26 miles) west of Goma.(Reuters / Goran Tomasevic)

Geopolitics of plunder

It must be recognized that Kagame controls a vastly wealthy and mineral-rich area of eastern Congo – an area that has long been integrated into Rwanda’s economy – with total complicity from the United States. As Washington prepares to escalate its military presence throughout the African continent with AFRICOM, the United States Africa Command, what long-term objectives does Uncle Sam have in the Congo, considered the world’s most resource-rich nation? Washington is crusading against China’s export restrictions on minerals that are crucial components in the production of consumer electronics such as flat-screen televisions, smart phones, laptop batteries, and a host of other products. The US sees these Chinese export policies as a means of Beijing attempting to monopolize the mineral and rare earth market.

In a 2010 white paper entitled “Critical Raw Materials for the EU,” the European Commission cites the immediate need for reserve supplies of tantalum, cobalt, niobium, and tungsten among others; the US Department of Energy 2010 white paper “Critical Mineral Strategy” also acknowledged the strategic importance of these key components. In 1980, Pentagon documents acknowledged shortages of cobalt, titanium, chromium, tantalum, beryllium, and nickel. The US Congressional Budget Office’s 1982 report “Cobalt: Policy Options for a Strategic Mineral” notes that cobalt alloys are critical to the aerospace and weapons industries and that 64 per cent of the world’s cobalt reserves lay in the Katanga Copper Belt, running from southeastern Congo into northern Zambia.

Additionally, the sole piece of legislation authored by President Obama during his time as a Senator was SB 2125, the“Democratic Republic of the Congo Relief, Security, and Democracy Promotion Act of 2006”. In the legislation, Obama acknowledges Congo as a long-term interest to the United States and further alludes to the threat of Hutu militias as an apparent pretext for continued interference in the region; Section 201(6) of the bill specifically calls for the protection of natural resources in the eastern DRC. The United States does not like the fact that President Kabila in Kinshasa has become very comfortable with Beijing, and worries that Congo will drift into Chinese economic orbit. Under the current regime in Congo, Chinese commercial activities have significantly increased not only in the mining sector, but also considerably in the telecommunications field.

In 2000, the Chinese ZTE Corporation finalized a $12.6 million deal with the Congolese government to establish the first Sino-Congolese telecommunications company; furthermore, the DRC exported $1.4 billion worth of cobalt between 2007 and 2008. The majority of Congolese raw materials like cobalt, copper ore and a variety of hardwoodsare exported to China for further processing and 90 per cent of the processing plants in resource rich southeastern Katanga province are owned by Chinese nationals. In 2008, a consortium of Chinese companies were granted the rights to mining operations in Katanga in exchange for US$6 billion in infrastructure investments, including the construction of two hospitals, four universities and a hydroelectric power project. In 2009, the International Monetary Fund (IMF) demanded renegotiation of the deal, arguing that the agreement between China and the DRC violated the foreign debt relief program for so-called HIPC (Highly Indebted Poor Countries) nations. The IMF successfully blocked the deal in May 2009, calling for a more feasibility study of the DRCs mineral concessions. An article published by Shamus Cooke of Workers Action explains:

“This act instantly transformed Kabila from an unreliable friend to an enemy. The US and China have been madly scrambling for Africa’s immense wealth of raw materials, and Kabila’s new alliance with China was too much for the US to bear. Kabila further inflamed his former allies by demanding that the international corporations exploiting the Congo’s precious metals have their super-profit contracts re-negotiated, so that the country might actually receive some benefit from its riches.”

During a diplomatic tour of Africa in 2011, US Secretary of State Hilary Clinton herself has irresponsibly insinuatedChina’s guilt in perpetuating a creeping “new colonialism.” China annually invests an estimated $5.5 billion in Africa, with only 29 per cent of direct investment in the mining sector in 2009 – while more than half was directed toward domestic manufacturing, finance, and construction industries. China has further committed $10 billion in concessional loans to Africa between 2009 and 2012. As Africa’s largest trading partner, China imports 1.5 million barrels of oil from Africa per day, accounting for approximately 30 per cent of its total imports. Over the past decade, 750,000 Chinese nationals have settled in Africa; China’s deepening economic engagement in Africa and its crucial role in developing the mineral sector, telecommunications industry and much needed infrastructural projects is creating “deep nervousness” in the West, according to David Shinn, the former US ambassador to Burkina Faso and Ethiopia.

Too big to fail, or too big to succeed?

In December 2012, Dr J Peter Pham published a bizarre Op-Ed in the New York Times titled, “To Save Congo, Let It Fall Apart.” Pham is the director of the Michael S. Ansari Africa Center and is a frequent guest lecturer on the US Army War College, the Joint Special Operations University, and other US Government affiliated educational institutions; he is a Washington insider, and understanding his rationale is important, as his opinion may very well shape US policy in Congo. Pham argues that Congo is an “artificial entity” that is “too big to succeed,” and therefore, the policy direction taken by the US should be one of promoting balkanization:

“Rather than nation-building, what is needed to end Congo’s violence is the opposite: breaking up a chronically failed state into smaller organic units whose members share broad agreement or at least have common interests in personal and community security… If Congo were permitted to break up into smaller entities, the international community could devote its increasingly scarce resources to humanitarian relief and development, rather than trying, as the United Nations Security Council has pledged, to preserve the ‘sovereignty, independence, unity, and territorial integrity’ of a fictional state that is of value only to the political elites who have clawed their way to the top in order to plunder Congo’s resources and fund the patronage networks that ensure that they will remain in power.”

What Pham is suggesting is policy to bring out the collapse of the Congolese nation by creating tiny ethno-nationalist entities too small to stand up to multinational corporations. The success of M23 must surely have shaken President Kabila, whose father came to power with the backing of the Ugandan and Rwandan regimes in 1996, employing the same strategies that M23 is using today. If Kabila wants to stay in power, he needs the capability of exercising authority over the entire country. Sanctions should be imposed on top-level Rwandan and Ugandan officials and all military aid should be withheld; additionally, Rwandan strongman Paul Kagame should be investigated and removed from his position. Kambale Musavuli, of the Washington DC-based NGO, Friends of Congo, has it right when he says:

“People need to be clear who we are fighting in the Congo… We are fighting Western powers, the United States and the United Kingdom, who are arming, training and equipping the Rwandan and Ugandan militaries.”

M23 military leader General Sultani Makenga attend press conference in Bunagana in eastern Democratic Republic of Congo.(Reuters / James Akena)

M23 military leader General Sultani Makenga attend press conference in Bunagana in eastern Democratic Republic of Congo.(Reuters / James Akena)

Nile Bowie is an independent political commentator and photographer based in Kuala Lumpur, Malaysia. He can be reached at [email protected] 

HMV Calls In Administrators After Sales Drop

HMV has thrown in the towel after years of struggling to fend off nimbler rivals by calling in administrators in a move which puts more than 4,000 jobs in jeopardy.

As Sky News revealed exclusively earlier on Monday evening, the board of HMV has served notice of its intention to appoint Deloitte to oversee last-ditch efforts to rescue the high street entertainment retailer.

Following a board meeting that lasted several hours, HMV directors, led by the chairman, Philip Rowley, and chief executive Trevor Moore, decided the business could no longer trade without insolvency protection.

HMV had been in talks with its lenders until last week about a new financing package, the terms of which could not be agreed, according to insiders.

The company said on Monday:

"On 13 December 2012, the Company announced that as a result of current market trading conditions, the Company faced material uncertainties and that it was probable that the Group would not comply with its banking covenants at the end of January 2013. The Company also stated that it was in discussions with its banks.

"Since that date, the Company has continued the discussions with its banks and other key stakeholders to remedy the imminent covenant breach.

"However, the Board regrets to announce that it has been unable to reach a position where it feels able to continue to trade outside of insolvency protection, and in the circumstances therefore intends to file notice to appoint administrators to the Company and certain of its subsidiaries with immediate effect.

"The Directors of the Company understand that it is the intention of the administrators, once appointed, to continue to trade whilst they seek a purchaser for the business."

Trading in HMV's shares, which are now expected to be worthless, will be suspended on Tuesday morning.

The appointment of Deloitte follows the accountancy firm's work on the collapse of Woolworths in 2008.

HMV has been caught between the encroachment onto its turf of supermarket chains such as Tesco and Asda, and the explosive growth of digital specialists like Amazon which are unencumbered by hefty real estate costs.

Chuka Umunna, the shadow business secretary, said the news of HMV's potential demise was "deeply worrying":

"HMV is a national institution that has been a feature of our high streets for over 90 years, so this news is deeply worrying.  For the sake of HMV’s employees, we hope a way can be found to keep the business going – the demise of this national institution would be a sad loss to British retail."

HMV traces its roots back to 1921, when Sir Edward Elgar, the renowned composer and conductor, opened its first store on London's Oxford Street.

Retail insiders said Deloitte is likely to be "inundated" with offers for parts of HMV's business, including its brand, but said it was unlikely that any buyer would emerge for the whole business.