Naomi Klein: How Corporate Branding Took Over the White House

By Naomi Klein, Fourth Estate
Posted on January 18, 2010, Printed on January 18, 2010
http://www.alternet.org/story/145218/

In May 2009, Absolut Vodka launched a limited edition line called "Absolut No Label". The company's global public relations manager, Kristina Hagbard, explained that "For the first time we dare to face the world completely naked. We launch a bottle with no label and no logo, to manifest the idea that no matter what's on the outside, it's the inside that really matters."
A few months later, Starbucks opened its first unbranded coffee shop in Seattle, called 15th Avenue E Coffee and Tea. This "stealth Starbucks" (as the anomalous outlet immediately became known) was decorated with "one-of-a-kind" fixtures and customers were invited to bring in their own music for the stereo system as well as their own pet social causes - all to help develop what the company called "a community personality." Customers had to look hard to find the small print on the menus: "inspired by Starbucks". Tim Pfeiffer, a Starbucks senior vice-president, explained that unlike the ordinary Starbucks outlet that used to occupy the same piece of retail space, "This one is definitely a little neighborhood coffee shop." After spending two decades blasting its logo on to 16,000 stores worldwide, Starbucks was now trying to escape its own brand.
Clearly the techniques of branding have both thrived and adapted since I published No Logo. But in the past 10 years I have written very little about developments like these. I realized why while reading William Gibson's 2003 novel Pattern Recognition. The book's protagonist, Cayce Pollard, is allergic to brands, particularly Tommy Hilfiger and the Michelin man. So strong is this "morbid and sometimes violent reactivity to the semiotics of the marketplace" that she has the buttons on her Levi's jeans ground smooth so that there are no corporate markings. When I read those words, I immediately realized that I had a similar affliction. As a child and teenager I was almost obsessively drawn to brands. But writing No Logo required four years of total immersion in ad culture - four years of watching and rewatching Super Bowl ads, scouring Advertising Age for the latest innovations in corporate synergy, reading soul-destroying business books on how to get in touch with your personal brand values, making excursions to Niketowns, to monster malls, to branded towns.
Some of it was fun. But by the end, it was as if I had passed some kind of threshold and, like Cayce, I developed something close to a brand allergy. Brands lost most of their charm for me, which was handy because once No Logo was a bestseller, even drinking a Diet Coke in public could land me in the gossip column of my hometown newspaper.
The aversion extended even to the brand that I had accidentally created: No Logo. From studying Nike and Starbucks, I was well acquainted with the basic tenet of brand management: find your message, trademark and protect it and repeat yourself ad nauseam through as many synergised platforms as possible. I set out to break these rules whenever the opportunity arose. The offers for No Logo spin-off projects (feature film, TV series, clothing line . . .) were rejected. So were the ones from the megabrands and cutting-edge advertising agencies that wanted me to give them seminars on why they were so hated (there was a career to be made, I was learning, in being a kind of anti-corporate dominatrix, making overpaid executives feel good by telling them what bad, bad brands they were). And against all sensible advice, I stuck by the decision not to trademark the title (that means no royalties from a line of Italian No Logo food products, though they did send me some lovely olive oil).
Most important to my marketing detox program, I changed the subject. Less than a year after No Logo came out I put a personal ban on all talk of corporate branding. In interviews and public appearances I would steer discussion away from the latest innovation in viral marketing and Prada's new superstore and towards the growing resistance movement against corporate rule, the one that had captured world attention with the militant protests against the World Trade Organization in Seattle. "But aren't you your own brand?" clever interviewers would ask me endlessly. "Probably," I would respond. "But I try to be a really crap one."
Changing the subject from branding to politics was no great sacrifice because politics was what brought me to marketing in the first place. The first articles I published as a journalist were about the limited job options available to me and my peers - the rise of short-term contracts and McJobs, as well as the ubiquitous use of sweatshop labor to produce the branded gear sold to us. As a token "youth columnist", I also covered how an increasingly voracious marketing culture was encroaching on previously protected non-corporate spaces - schools, museums, parks - while ideas that my friends and I had considered radical were absorbed almost instantly into the latest marketing campaigns for Nike, Benetton and Apple.
I decided to write No Logo when I realized these seemingly disparate trends were connected by a single idea - that corporations should produce brands, not products. This was the era when corporate epiphanies were striking CEOs like lightning bolts from the heavens: Nike isn't a running shoe company, it is about the idea of transcendence through sports, Starbucks isn't a coffee shop chain, it's about the idea of community. Down on earth these epiphanies meant that many companies that had manufactured their products in their own factories, and had maintained large, stable workforces, embraced the now ubiquitous Nike model: close your factories, produce your products through an intricate web of contractors and subcontractors and pour your resources into the design and marketing required to project your big idea. Or they went for the Microsoft model: maintain a tight control centre of shareholder/employees who perform the company's "core competency" and outsource everything else to temps, from running the mailroom to writing code. Some called these restructured companies "hollow corporations" because their goal seemed to be to transcend the corporeal world of things so they could be an utterly unencumbered brand. As corporate guru Tom Peters put it: "You're a damn fool if you own it!"
For me, the appeal of X-raying brands such as Nike or Starbucks was that pretty soon you were talking about everything except marketing - from how products are made in the deregulated global supply chain to industrial agriculture and commodity prices. Next thing you knew you were also talking about the nexus of politics and money that locked in these wild-west rules through free-trade deals and at the WTO, and made following them the precondition of receiving much-needed loans from the International Monetary Fund. In short, you were talking about how the world works.
By the time No Logo came out, the movement was already at the gates of the powerful institutions that were spreading corporatism around the world. Tens and then hundreds of thousands of demonstrators were making their case outside trade summits and G8 meetings from Seattle to New Delhi, in several cases stopping new agreements in their tracks. What the corporate media insisted on calling the "anti-globalization movement" was nothing of the sort. At the reformist end it was anti-corporate; at the radical end it was anti-capitalist. But what made it unique was its insistent internationalism. All of these developments meant that when I was on a book tour, there were many more interesting things to talk about than logos - such as where this movement came from, what it wanted and whether there were viable alternatives to the ruthless strain of corporatism that went under the innocuous pseudonym of "globalization".
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In recent years, however, I have found myself doing something I swore I had finished with: rereading the branding gurus quoted in the book. This time, however, it wasn't to try to understand what was happening at the mall but rather at the White House - first under the presidency of George W Bush and now under Barack Obama, the first US president who is also a superbrand.
There are many acts of destruction for which the Bush years are rightly reviled - the illegal invasions, the defiant defenses of torture, the tanking of the global economy. But the administration's most lasting legacy may well be the way it systematically did to the US government what branding-mad CEOs did to their companies a decade earlier: it hollowed it out, handing over to the private sector many of the most essential functions of government, from protecting borders to responding to disasters to collecting intelligence. This hollowing out was not a side project of the Bush years, it was a central mission, reaching into every field of governance. And though the Bush clan was often ridiculed for its incompetence, the process of auctioning off the state, leaving behind only a shell - or a brand - was approached with tremendous focus and precision.
One company that took over many services was Lockheed Martin, the world's largest defense contractor. "Lockheed Martin doesn't run the United Slates," observed a 2004 New York Times exposé. "But it does help run a breathtakingly big part of it . . . It sorts your mail and totals your taxes. It cuts Social Security cheques and counts the United States census. It runs space flights and monitors air traffic. To make all that happen, Lockheed writes more computer code than Microsoft."
No one approached the task of auctioning off the state with more zeal than Bush's much-maligned defense secretary, Donald Rumsfeld. Having spent 20-odd years in the private sector, Rumsfeld was steeped in the corporate culture of branding and outsourcing. His department's brand identity was clear: global dominance. The core competency was combat. For everything else, he said (sounding very much like Bill Gates), "We should seek suppliers who can provide these non-core activities efficiently and effectively."
The laboratory for this radical vision was Iraq under US occupation. From the start Rumsfeld planned the troop deployment like a Wal-Mart vice-president looking to shave a few more hours from the payroll. The generals wanted 500,000 troops, he would give them 200,000, with contractors and reservists filling the gaps as needed - a just-in-time invasion. In practice, this strategy meant that as Iraq spiraled out of US control, an ever-more elaborate privatized war industry took shape to prop up the bare-bones army. Blackwater, whose original contract was to provide bodyguards for US envoy Paul Bremer, soon took on other functions, including engaging in combat in a battle with the Mahdi army in 2004. The sprawling Green Zone, meanwhile, was run as a corporate city-state, with everything from food to entertainment to pest control handled by Halliburton. Just as companies such as Nike and Microsoft had pioneered the hollow corporation, this was, in many ways, a hollow war. And when one of the contractors screwed up - Blackwater operatives opening fire in Baghdad's Nisour Square in 2007, for instance, leaving 17 people dead, or Halliburton allegedly supplying contaminated water to soldiers - the Bush administration was free to deny responsibility. Blackwater, which had prided itself on being the Disney of mercenary companies, complete with a line of branded clothing and Blackwater teddy bears, responded to the scandals by - what else? - rebranding. Its new name is Xe Services.
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The Bush administration's determination to mimic the hollow corporations it admired extended to its handling of the anger its actions inspired around the world. Rather than actually changing or even adjusting its policies, it launched a series of ill-fated campaigns to "rebrand America" for an increasingly hostile world. Watching these cringeful attempts, I was convinced that Price Floyd, former director of media relations at the State Department, had it right. After resigning in frustration, he said that the United States was facing mounting anger not because of the failure of its messaging but because of the failure of its policies. "I'd be in meetings with other public-affairs officials at State and the White House," Floyd told Slate magazine. "They'd say: 'We need to get our people out there on more media.' I'd say: 'It's not so much the packaging, it's the substance that's giving us trouble.'" A powerful, imperialist country is not like a hamburger or a running shoe. America didn't have a branding problem; it had a product problem.
I used to think that, but I may have been wrong. When Obama was sworn in as president, the American brand could scarcely have been more battered - Bush was to his country what New Coke was to Coca-Cola, what cyanide in the bottles had been to Tylenol. Yet Obama, in what was perhaps the most successful rebranding campaign of all time, managed to turn things around. Kevin Roberts, global CEO of Saatchi & Saatchi, set out to depict visually what the new president represented. In a full-page graphic commissioned by the stylish Paper Magazine, he showed the Statue of Liberty with her legs spread, giving birth to Barack Obama. America, reborn.
So, it seemed that the United States government could solve its reputation problems with branding - it's just that it needed a branding campaign and product spokesperson sufficiently hip, young and exciting to compete in today's tough market. The nation found that in Obama, a man who clearly has a natural feel for branding and who has surrounded himself with a team of top-flight marketers. His social networking guru, for instance, is Chris Hughes, one of the young founders of Facebook. His social secretary is Desirée Rogers, a glamorous Harvard MBA and former marketing executive. And David Axelrod, Obama's top adviser, was formerly a partner in ASK Public Strategies, a PR firm which, according to Business Week, "has quarterbacked campaigns" for everyone from Cable vision to AT&T. Together, the team has marshalled every tool in the modem marketing arsenal to create and sustain the Obama brand: the perfectly calibrated logo (sunrise over stars and stripes); expert viral marketing (Obama ringtones); product placement (Obama ads in sports video games); a 30-minute infomercial (which could have been cheesy but was universally heralded as "authentic"); and the choice of strategic brand alliances (Oprah for maximum reach, the Kennedy family for gravitas, and no end of hip-hop stars for street cred).
The first time I saw the "Yes We Can" video, the one produced by Black Eyed Peas front man will.i.am, featuring celebrities speaking and singing over a Martin Luther Kingesque Obama speech, I thought: finally, a politician with ads as cool as Nike. The ad industry agreed. A few weeks before he won the presidential elections, Obama beat Nike, Apple, Coors and Zappos to win the Association of National Advertisers' top annual award - Marketer of the Year. It was certainly a shift. In the 1990s, brands upstaged politics completely. Now corporate brands were rushing to piggyback on Obama's caché (Pepsi's "Choose Change" campaign, Ikea's "Embrace Change '09" and Southwest Airlines' offer of "Yes You Can" tickets).
Indeed everything Obama and his family touches turns to branding gold. J Crew saw its stock price increase 200% in the first six months of Obama's presidency, thanks in part to Michelle's well known fondness for the brand. Obama's much-discussed attachment to his BlackBerry has been similarly good news for Research In Motion. The surest way to sell magazines and newspapers in these difficult times is to have an Obama on the cover, and you only need to call three ounces of vodka and some fruit juice an Obamapolitan or a Barackatini and you can get $15 for it, easy. In February 2009, Portfolio magazine put the size of "the Obama economy" - the tourism he generates and the swag he inspires - at $2.5bn. Not at all bad in an economic crisis. Rogers got into trouble with some of her colleagues when she spoke too frankly with The Wall Street Journal. "We have the best brand on earth: the Obama brand," she said. "Our possibilities are endless."
The exploration of those possibilities did not end, or even slow, with the election victory. Bush had used his ranch in Crawford, Texas, as a backdrop to perform his best impersonation of the Marlboro man, forever clearing brush, having cookouts and wearing cowboy boots. Obama has gone much further, turning the White House into a kind of never-ending reality show starring the lovable Obama clan. This too can be traced to the mid-90s branding craze, when marketers grew tired of the limitations of traditional advertising and began creating three-dimensional "experiences" - branded temples where shoppers could crawl inside the personality of their favorite brands. The problem is not that Obama is using the same tricks and tools as the superbrands; anyone wanting to move the culture these days pretty much has to do that. The problem is that, as with so many other lifestyle brands before him, his actions do not come close to living up to the hopes he has raised.
Though it's too soon to issue a verdict on the Obama presidency, we do know this: he favors the grand symbolic gesture over deep structural change every time. So he will make a dramatic announcement about closing the notorious Guantánamo Bay prison - while going ahead with an expansion of the lower profile but frighteningly lawless Bagram prison in Afghanistan, and opposing accountability for Bush officials who authorized torture. He will boldly appoint the first Latina to the Supreme Court, while intensifying Bush-era enforcement measures in a new immigration crackdown. He will make investments in green energy, while championing the fantasy of "clean coal" and refusing to tax emissions, the only sure way to substantially reduce the burning of fossil fuels. Most importantly, he will claim to be ending the war in Iraq, and will retire the ugly "war on terror" phrase - even as the conflicts guided by that fatal logic escalate in Afghanistan and Pakistan.
This preference for symbols over substance, and this unwillingness to stick to a morally clear if unpopular course, is where Obama decisively parts ways with the transformative political movements from which he has borrowed so much (the pop-art posters from Che, his cadence from King, his "Yes We Can!" slogan from the migrant farmworkers - si se puede). These movements made unequivocal demands of existing power structures: for land distribution, higher wages, ambitious social programs. Because of those high-cost demands, these movements had not only committed followers but serious enemies. Obama, in sharp contrast not just to social movements but to transformative presidents such as FDR, follows the logic of marketing: create an appealing canvas on which all are invited to project their deepest desires but stay vague enough not to lose anyone but the committed wing nuts (which, granted, constitute a not inconsequential demographic in the United States). Advertising Age had it right when it gushed that the Obama brand is "big enough to be anything to anyone yet had an intimate enough feel to inspire advocacy". And then their highest compliment: "Mr Obama somehow managed to be both Coke and Honest Tea, both the megabrand with the global awareness and distribution network and the dark-horse, upstart niche player."
Another way of putting it is that Obama played the anti-war, anti-Wall Street party crasher to his grassroots base, which imagined itself leading an insurgency against the two-party monopoly through dogged organization and donations gathered from lemonade stands and loose change found in the crevices of the couch. Meanwhile, he took more money from Wall Street than any other presidential candidate, swallowed the Democratic party establishment in one gulp after defeating Hillary Clinton, then pursued "bipartisanship" with crazed Republicans once in the White House.
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Does Obama's failure to live up to his lofty brand cost him? It didn't at first. An international study by Pew's Global Attitudes Project, conducted five months after he took office, asked people whether they were confident Obama would "do the right thing in world affairs". Even though there was already plenty of evidence that Obama was continuing many of Bush's core international policies (albeit with a far less arrogant style), the vast majority said they approved of Obama - in Jordan and Egypt, a fourfold increase from the Bush era. In Europe the change in attitude could give you whiplash: Obama had the confidence of 91% of French respondents and 86% of Britons - compared with 13% and 16% respectively under Bush. The poll was proof that "Obama's presidency essentially erased the battering the US's image took during eight years of the Bush administration," according to USA Today. Axelrod put it like this: "What has happened is that anti- Americanism isn't cool anymore."
That was certainly true, and had very real consequences. Obama's election and the world's corresponding love affair with his rebranded America came at a crucial time. In the two months before the election, the financial crisis rocking world markets was being rightly blamed not just on the contagion of Wall Street's bad bets but on the entire economic model of deregulation and privatization that had been preached from US-dominated institutions such as the IMF and the WTO. If the United States were led by someone who didn't happen to be a global superstar, US prestige would have continued to plummet and the rage at the economic model at the heart of the global meltdown would likely have turned into sustained demands for new rules to rein in (and seriously tax) speculative finance.
Those rules were supposed to have been on the agenda when G20 leaders met at the height of the economic crisis in London in April 2009. Instead, the press focused on excited sightings of the fashionable Obama couple, while world leaders agreed to revive the ailing IMF - a chief culprit in this mess - with up to a trillion dollars in new financing. In short, Obama didn't just rebrand America, he resuscitated the neoliberal economic project when it was at death's door. No one but Obama, wrongly perceived as a new FDR, could have pulled it off.
Yet rereading No Logo after 10 years provides many reminders that success in branding can be fleeting, and that nothing is more fleeting than the quality of being cool. Many of the superbrands and branded celebrities that looked untouchable not so long ago have either faded or are in deep crisis today. The Obama brand could well suffer a similar fate. Of course many people supported Obama for straightforward strategic reasons: they rightly wanted the Republicans out and he was the best candidate. But what will happen when the throngs of Obama faithful realise that they gave their hearts not to a movement that shared their deepest values but to a devoutly corporatist political party, one that puts the profits of drug companies before the need for affordable health care, and Wall Street's addiction to financial bubbles before the needs of millions of people whose homes and jobs could have been saved with a better bailout?
The risk - and it is real - is that the response will be waves of bitter cynicism, particularly among the young people for whom the Obama campaign was their first taste of politics. Most won't switch parties, they'll just do what young people used to do during elections: stay home, tune out. Another, more hopeful possibility is that Obamamania will end up being what the US president's advisers like to call "a teachable moment". Obama is a gifted politician with a deep intelligence and a greater inclination towards social justice than any leader of his party in recent memory. If he cannot change the system in order to keep his election promises, it's because the system itself is utterly broken.
It was a conversation about changing the system that many of us were having in the brief period between the anti-WTO protests in Seattle in November 1999 and the beginning of the so-called war on terror. For the movement the media insisted on calling "anti-globalization," it mattered little which political party happened to be in power in our respective countries. We were focused squarely on the rules of the game, and how they had been distorted to serve the narrow interests of corporations at every level of governance - from international free-trade agreements to local water privatization deals.
Looking back, what I liked most was the unapologetic wonkery of it all. In the two years after No Logo came out, I went to dozens of teach-ins and conferences, some of them attended by thousands of people, that were exclusively devoted to popular education about the inner workings of global finance and trade. It was as if people understood, all at once, that gathering this knowledge was crucial to the survival not just of democracy but of the planet. Yes, this was complicated, but we embraced that complexity because we were finally looking at systems, not just symbols.
In some parts of the world, particularly Latin America, that wave of resistance spread and strengthened. In some countries, social movements grew strong enough to join with political parties, winning national elections and beginning to forge a new regional fair-trade regime. But elsewhere, September 11 pretty much blasted the movement out of existence. What we knew about the sophistication of global corporatism - that all the world's injustice could not be blamed on one rightwing political party, or on one nation, no matter how powerful - seemed to disappear.
If there was ever a time to remember the lessons we learned at the turn of the millennium, it is now. One benefit of the international failure to regulate the financial sector, even after its catastrophic collapse, is that the economic model that dominates around the world has revealed itself not as "free market" but "crony capitalist" - politicians handing over public wealth to private players in exchange for political support. What used to be politely hidden is all out in the open now. Correspondingly, public rage at corporate greed is at its highest point not just in my lifetime but in my parents' lifetime as well. Many of the points supposedly marginal activists were making in the streets 10 years ago are now the accepted wisdom of cable news talk shows and mainstream op-ed pages.
And yet missing from this populist moment is what was beginning to emerge a decade ago: a movement that did not just respond to individual outrages but had a set of proactive demands for a more just and sustainable economic model. In the United States and many parts of Europe, it is far-right parties and even neofascism that are giving the loudest voice to anti- corporatist rage.
Personally, none of this makes me feel betrayed by Barack Obama. Rather I have a familiar ambivalence, the way I used to feel when brands like Nike and Apple started using revolutionary imagery in their transcendental branding campaigns. All of their high-priced market research had found a longing in people for something more than shopping - for social change, for public space, for greater equality and diversity. Of course the brands tried to exploit that longing to sell lattes and laptops. Yet it seemed to me that we on the left owed the marketers a debt of gratitude for all this: our ideas weren't as passé as we had been told. And since the brands couldn't fulfill the deep desires they were awakening, social movements had a new impetus to try.
Perhaps Obama should be viewed in much the same way. Once again, the market research has been done for us. What the election and the global embrace of Obama's brand proved decisively is that there is a tremendous appetite for progressive change - that many, many people do not want markets opened at gunpoint, are repelled by torture, believe passionately in civil liberties, want corporations out of politics, see global warming as the fight of our time, and very much want to be part of a political project larger than themselves.
Those kinds of transformative goals are only ever achieved when independent social movements build the numbers and the organizational power to make muscular demands of their elites. Obama won office by capitalizing on our profound nostalgia for those kinds of social movements. But it was only an echo, a memory. The task ahead is to build movements that are - to borrow an old Coke slogan - the real thing. As Studs Terkel, the great oral historian, used to say: "Hope has never trickled down. It has always sprung up."

Extracted from a 10th anniversary edition of No Logo to be published by Fourth Estate on 21 January.

Naomi Klein is an award-winning journalist and syndicated columnist and the author of the international and New York Times bestseller The Shock Doctrine: The Rise of Disaster Capitalism (September 2007); an earlier international best-seller, No Logo: Taking Aim at the Brand Bullies; and the collection Fences and Windows: Dispatches from the Front Lines of the Globalization Debate (2002). Read more atNaomiklein.com.

Published on Saturday, January 16, 2010 by CommonDreams.org
Privatization Profiteering
by CommonDreams.org
by Ralph Nader
Whenever Frank Anderson speaks the way he did at a recent public forum in Washington, D.C. about "essential state functions performed by businesses," people better listen. Mr. Anderson is the president of the Middle East Policy Council, but previously he was the chief of the Near East and South Asia Division of the CIA. A discussion-relayed over C-Span-featuring Mr. Anderson, was among established scholars and policy wonks focused on national security in that tumultuous area of the world. Mr. Anderson was asked about Blackwater, the controversial corporation whose profits come from Pentagon and State Department contracts to provide security to U.S. government personnel in west and central Asia and to perform such secret operations that it could have an identity crisis with the CIA.
Blackwater has gotten in trouble for shooting up Iraqi civilians in unprovoked situations. The corporation's operatives are involved in sensitive missions, such as the recent double-agent suicide explosion in Afghanistan. Again and again, the line between corporate and governmental functions is not only blurred, it has ceased to exist.
Rep. Jan Schakowsky (D-IL.) called Blackwater a "repeat offender endangering our mission repeatedly, endangering the lives of our military and costing the lives of innocent civilians." She asked why Blackwater is employed anywhere by the U.S. government.
Outsourcing national security activities, right down to interviewing job applicants for intelligence agencies, is troubling many retired and active members of the national defense and security agencies. Yet corporate contracting, launched big time by Ronald Reagan, seems unstoppable. There are more contractors in Iraq and Afghanistan than there are U.S. soldiers. Over two hundred thousand of them and counting.
The rationale for these contracts is (1) greater efficiency, (2) greater talent and (3) more flexible personnel in and out whenever they are needed.
First, throw out the tax dollar savings argument. Mr. Anderson estimates that the costs are two to three times more when corporations do the work. Other estimates are higher, even when non-deliveries, contaminated food and drinking water, embezzlements and fraud that keep Pentagon auditors awake at night, are not included.
Government acquisition specialists accuse politicians of creating layers and layers of contractors with their massive, convoluted contracts dissipating accountabilities. It is a Kafkaesque nightmare of corporate statism. Of course, all this has led to a government brain and skill drain over to the corporate sector which pays so much more than government. A vicious cycle of incapacity and hollowing out sets in and allows the governmental departments to rationalize more outsourcing.
"No way that we should have allowed businessmen to perform essential state functions," said Mr. Anderson, especially, he added, in the areas of "intelligence and the application of violence."
At the same forum, Bruce Riefel, senior fellow in foreign policy at the Brookings Institution and former CIA officer and specialist in Middle East Affairs, agreed with Mr. Anderson, bemoaning more and more layers of reviews and contracts.
Messrs Anderson and Riedel are not loners. Their views often reflect a larger circle of governmental professionals who have seen the wholesale stampede of contracting out government from DOD, CIA, AID, and NASA. The Congress is sort of looking into this mindlessness that is swelling deficits and escaping standards of public service and ethics. The prospects for change? Mr. Anderson said "fixing this would require revolutionary changes." That objective can only come from the proverbial people-aroused and determined. If that does not happen, what Franklin Delano Roosevelt called fascism in 1938-that is corporate control of government-will tighten its very costly grip.
The corporate government mentality is not restricted to Washington, D.C. State governments are also outsourcing with similar though lesser waste, fraud and escape from accountabilities.
Just last week, Virginia's incoming governor, Robert F. McDonnell, announced that he will let his Cabinet secretaries have dual allegiances by serving on commercial corporate boards of directors. Virginia is one of the states that permits this in-built conflict of interest between duty to the citizens and loyalty to specific corporate profit.
So his new Secretary of Commerce and Trade, Robert Sledd, will continue to sit on three corporate boards. In his day job, Sledd is responsible for 13 agencies that regulate business policy, according to the Washington Post. On the side, he sits on the board of a tobacco company and a medical supplies business.
Down in Arizona, a new slide toward the pits is about to occur. Beset with a large state deficit, the state officials and their Governor refuse to end corporate welfare and corporate tax abatements and subsidies. Instead, get this, they have put "for sale" signs on Arizona's state buildings hoping to realize $735 million and then start paying the buyers rent!! (Breaking News--they've got a sale!)
Also up for sale, among other structures, go the legislative buildings, the Department of Public Safety, the prisons and the state Coliseum. Organizational psychiatrists and efficiency economists, please help us understand.
Wouldn't it have been better for the state legislators to just sell the back of their jackets to corporate advertisers? Then at least, there would be truth in advertising!
For a regular stream of news about privatization visit: privatizationwatch.org
Ralph Nader is a consumer advocate, lawyer, and author. His most recent book - and first novel -  is, Only The Super Wealthy Can Save Us . His most recent work of non-fiction is The Seventeen Traditions .

Published on Friday, January 15, 2010 by The New York Times
Bankers Without a Clue
by Paul Krugman
The official Financial Crisis Inquiry Commission - the group that aims to hold a modern version of the Pecora hearings of the 1930s, whose investigations set the stage for New Deal bank regulation - began taking testimony on Wednesday. In its first panel, the commission grilled four major financial-industry honchos. What did we learn?
Well, if you were hoping for a Perry Mason moment - a scene in which the witness blurts out: "Yes! I admit it! I did it! And I'm glad!" - the hearing was disappointing. What you got, instead, was witnesses blurting out: "Yes! I admit it! I'm clueless!"
O.K., not in so many words. But the bankers' testimony showed a stunning failure, even now, to grasp the nature and extent of the current crisis. And that's important: It tells us that as Congress and the administration try to reform the financial system, they should ignore advice coming from the supposed wise men of Wall Street, who have no wisdom to offer.
Consider what has happened so far: The U.S. economy is still grappling with the consequences of the worst financial crisis since the Great Depression; trillions of dollars of potential income have been lost; the lives of millions have been damaged, in some cases irreparably, by mass unemployment; millions more have seen their savings wiped out; hundreds of thousands, perhaps millions, will lose essential health care because of the combination of job losses and draconian cutbacks by cash-strapped state governments.
And this disaster was entirely self-inflicted. This isn't like the stagflation of the 1970s, which had a lot to do with soaring oil prices, which were, in turn, the result of political instability in the Middle East. This time we're in trouble entirely thanks to the dysfunctional nature of our own financial system. Everyone understands this - everyone, it seems, except the financiers themselves.
There were two moments in Wednesday's hearing that stood out. One was when Jamie Dimon of JPMorgan Chase declared that a financial crisis is something that "happens every five to seven years. We shouldn't be surprised." In short, stuff happens, and that's just part of life.
But the truth is that the United States managed to avoid major financial crises for half a century after the Pecora hearings were held and Congress enacted major banking reforms. It was only after we forgot those lessons, and dismantled effective regulation, that our financial system went back to being dangerously unstable.
As an aside, it was also startling to hear Mr. Dimon admit that his bank never even considered the possibility of a large decline in home prices, despite widespread warnings that we were in the midst of a monstrous housing bubble.
Still, Mr. Dimon's cluelessness paled beside that of Goldman Sachs's Lloyd Blankfein, who compared the financial crisis to a hurricane nobody could have predicted. Phil Angelides, the commission's chairman, was not amused: The financial crisis, he declared, wasn't an act of God; it resulted from "acts of men and women."
Was Mr. Blankfein just inarticulate? No. He used the same metaphor in his prepared testimony in which he urged Congress not to push too hard for financial reform: "We should resist a response ... that is solely designed around protecting us from the 100-year storm." So this giant financial crisis was just a rare accident, a freak of nature, and we shouldn't overreact.
But there was nothing accidental about the crisis. From the late 1970s on, the American financial system, freed by deregulation and a political climate in which greed was presumed to be good, spun ever further out of control. There were ever-greater rewards - bonuses beyond the dreams of avarice - for bankers who could generate big short-term profits. And the way to raise those profits was to pile up ever more debt, both by pushing loans on the public and by taking on ever-higher leverage within the financial industry.
Sooner or later, this runaway system was bound to crash. And if we don't make fundamental changes, it will happen all over again.
Do the bankers really not understand what happened, or are they just talking their self-interest? No matter. As I said, the important thing looking forward is to stop listening to financiers about financial reform.
Wall Street executives will tell you that the financial-reform bill the House passed last month would cripple the economy with overregulation (it's actually quite mild). They'll insist that the tax on bank debt just proposed by the Obama administration is a crude concession to foolish populism. They'll warn that action to tax or otherwise rein in financial-industry compensation is destructive and unjustified.
But what do they know? The answer, as far as I can tell, is: not much.

Why Can't We Get Anyone to Ask a Wall St. CEO the Hard Questions?

By Nomi Prins, AlterNet
Posted on January 14, 2010, Printed on January 14, 2010
http://www.alternet.org/story/145153/

Articles and blogs are flooding the net, summarizing and dissecting the opening Financial Crisis Inquiry Commission's chat with the four CEOs presiding over the strongest (read: luckiest recipients of Federal generosity during their most troubled times) banks in the country, Lloyd Blankfein from Goldman Sachs, Jamie Dimon from JPM Chase, John Mack from Morgan Stanley, and Brian Moynihan from Bank of America (Citigroup didn't make the cut).
But, Wednesday morning was an exercise in how prepped bankers can deflect less-prepped commissioners' questions with seriously delivered circular reasoning. And, it was exasperating. (Les Leopold, Author of The Looting of America, provides an excellent detailed play-by-play of the morning's events).
I have been writing about reinstating Glass-Steagall since I left banking in 2002, including how findings from the Pecora commission that investigated the most risky bank practices during the early 1930s, contributed to the creation of a more restrained banking landscape – where commercial banks take less risk and receive government support, and investment banks take more, and get zilch.
So far, it's clear; we're not going down that road with this commission.
The CEO's punted every single question on anything that mattered in terms of the link between their practices and the crisis (the entire point of the commission). They deflected questions on leverage, trading revenue breakdowns, and on the amount of standard OTC derivatives (over-the-counter, think generic pharmaceuticals) vs. non-standard ones (that the bankers referred to as ‘bespoke', basically tailored think expensive exotic pharmaceuticals.) The equivalent of the dog ate my homework excuse was given no reprimand, just a polite, okay, well get back to us when you have that information.
You could cast blame, share blame, whatever. But, the reason that some banks went bankrupt and some almost did, once you wipe away all the complex lingo, was that they didn't have enough money (capital) to back their bets (complex securities stuffed with various mixes of mortgage loans, packages of loans, and credit derivatives). This should be the crux of this commission's investigation. How did that happen, who did it, how can we make sure it won't happen again? Show us your numbers first, then we'll talk.
When you are out at sea, drowning and someone throws you a life raft that gets you back to shore safely, you live – and perhaps for that moment, you don't even need the life raft anymore. But, if you don't even get the life raft – you die. That is the simple difference between those CEOs and their firms, vs. much of the rest of the population.
At one point, Goldman had the help of $53.4 billion of federal money, not counting anything received through the Fed's discount window or other loan facilities for which the Fed will not disclose details, Judicial decisions to do so notwithstanding. JPM Chase got $99.8 billion including the government subsidizing their acquisition of Bear Stearns and WAMU (mergers not brought up by the commission). Bank of America received $228.4 billion including their merger with Merrill Lynch (not brought up), and Morgan Stanley was handed $36.2 billion.
This simple fact should have been drilled down through every question of this commission's enquiry. You got the goods, now admit it. How did you use the money you got? Don't dodge the questions. Tell us. Specifically.
In his opening statement, Commission Chairman Phil Angelides, reassured us he would “examine the causes of the financial and economic crisis that has gripped this country and to report our findings to the Congress, the president, and the American people.” He said that the “law which created the commission calls on us to determine the causes of this crisis… and we must move as quickly as we can in fulfilling our duties.”
This commission, appointed last summer, runs on a budget of $8 million, and is still in the process of staffing up. The FCIC website was set up last minute, probing questions however, didn't make the ‘6 month preparation time' quick list.
As a result, all we got was a friendly show of collaboration - what do you think should be done about compensation? What do you think was the role of risk? Do you think derivatives played a role? Indeed, Goldman CEO, Lloyd Blankfein, said that derivatives did better during the crisis than ‘we had a right to expect.' No one even interrupted him with a – WHAT? REALLY? WHAT?
Rather, questions had less teeth than any police or federal agent inquisition over simple daily crimes – they existed, but in a tepid format. It was sadly clear that the Financial Crisis Inquiry Committee has no clear idea what constitutes bank risk from their questions, or banking for that matter, and the CEOs are dancing rings around them. Notice how none of them advocated reducing their reliance on government subsidies, or splitting themselves up into risky vs. non-risky entities. Indeed, when Blankfein was asked a related question, he said that if there was a repeat crisis, he assumed the government would step in given the ‘fragility' of the system. That says it all. We might as well just watch The Bachelor rather than waste time with this - it is equally vacuous, but has a slightly higher chance of a conclusive outcome.
Moreover, when a child gets the runaround, his or her follow-up is - why?
It should've gone like this:
We don't have those leverage figures handy.
Why?
We don't know how many of our derivatives positions are standard vs. customized.
Why?
We don't have the details of our trading revenues.
Why?
We would still underwrite distressed exposure because that's what our investors want (the same thing that the banks did to pump up the mortgage securities crisis.)
Why?
The second panel – consisting of Michael Mayo, Managing Director and Financial Services Analyst, Calyon Securities, J. Kyle Bass, Managing Partner, Hayman Advisors, and Peter J. Solomon, Founder and Chairman, Peter J. Solomon Company, gave some really good information. In fact, the whole exercise e would have been far more useful, and efficient, if that panel got to question the CEOs, while the commission took notes.
It was almost embarrassing to watch this discourse, questions without content to back them, so lacking in probing value. A prosecutor trying to street case has more information going into questioning, even if some of it is fabricated, or based on self-interested ‘witness'. Plus, prosecutors are certainly more intimidating. And, if someone gets caught with a vial of crack, or sitting next to someone with a vial of crack, they can't just say -- sorry, I made a mistake, it won't happen again, learned my lesson, and get off.
Yet this is exactly what Jamie Dimon said in front of the commission, “While we were able to withstand the crisis and I believe emerge as a stronger institution, we, like many others, made mistakes. As always, we try to learn from them.”
In the real world, that vial leads to a sentence and a record that constrains the defendant from ever getting a decent job again. On Wall Street John Thain whose firm, Merrill Lynch, was brokered by the government into a merger with Bank of America (and had the nerve to recommend himself for a $10 million bonus) and is being considered to take over the top slot at CIT Group.
A crack user with a record doesn't get trillions of dollars of government subsidies to get back on his or her feet, or a single dollar for that matter. These CEO's firms get billions and the chance to say I'm sorry. I really do believe in tighter regulation, my lobbyists misunderstood me, and on top, retain the profits from those subsidies, minus some slight interest payments. Why isn't the committee questioning that discrepancy perspective? Not a single number relating to the benefits those firms received came up.
I've written about how people should communicate their thoughts with their congressperson, and yes, it's important to let them know when they are not taking their public responsibility seriously. I have written about joining groups like Americans for Financial Reform. But, like many of you, I constantly question how much use this is. Especially while watching these four guys dodge, yammer in complex jargon, and leave Room 1100 of the Longworth House Office Building, in Washington, D.C, with nary a bead of sweat on their brows. To quote Howard Beale in the classic 1976 movie, Network, I'm mad as hell.
I'm mad as hell that the first day of questioning the bank CEOs had no pulse. These people drove their firms (or took over said firms) over an abyss, saved only by tremendous federal financial intervention. They should be smacked down and disciplined. How about starting questioning with – give me one good reason why you should continue business as usual on our dime? Or why I should believe anything you say?
(And for the record, if it were my commission, I would have asked for all the trading, derivatives and leverage information before anyone arrived.)
If you feel the same, tell people! Not just Congress, but your neighbors, your friends, the people who already share your sentiments, and the ones who don't. Get angrier together. And, instead of commenting to this piece, send your comments to the commission in its purest, angriest form. They want us to provide questions – how about we start each question, with anger at http://fcic.gov/contact/.
Nomi Prins is a senior fellow at the public policy center Demos and author of It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street.

Published on Wednesday, January 13, 2010 by Mother Jones
Moral Bankruptcy: Why Are We Letting Wall Street Off So Easy?
by Joseph E. Stiglitz
It is said  that a near-death experience forces one to reevaluate priorities and values. The global economy has just escaped a near-death experience. The crisis exposed the flaws in the prevailing economic model, but it also exposed flaws in our society. Much has been written about the foolishness of the risks that the financial sector undertook, the devastation that its institutions have brought to the economy, and the fiscal deficits that have resulted. Too little has been written about the underlying moral deficit that has been exposed-a deficit that is larger, and harder to correct.
One of the lessons of this crisis is that there is a need for collective action, that there is a role for government. But there are others. We allowed markets to blindly shape our economy, but in doing so, they also shaped our society. We should take this opportunity to ask: Are we sure that the way that they have been molding us is what we want?
We have created a society in which materialism overwhelms moral commitment, in which the rapid growth that we have achieved is not sustainable environmentally or socially, in which we do not act together to address our common needs. Market fundamentalism has eroded any sense of community and has led to rampant exploitation of unwary and unprotected individuals. There has been an erosion of trust-and not just in our financial institutions. It is not too late to close these fissures.
How the market has altered the way we think is best illustrated by attitudes toward pay. There used to be a social contract about the reasonable division of the gains that arise from acting together within the economy. Within corporations, the pay of the leader might be 10 or 20 times that of the average worker. But something happened 30 years ago, as the era of Thatcher/Reagan was ushered in. There ceased to be any sense of fairness; it was simply how much the executive could appropriate for himself. It became perfectly respectable to call it incentive pay, even when there was little relationship between pay and performance. In the finance sector, when performance is high, pay is high; but when performance is low, pay is still high. The bankers knew-or should have known-that while high leverage might generate high returns in good years, it also exposed the banks to large downside risks. But they also knew that under their contracts, this would not affect their bonuses .

What happens when reward is decoupled from risk? One cannot always distinguish between incompetence and deception, but it seems unlikely that a business claiming to have a net worth of more than $100 billion could suddenly find itself in negative territory. More likely than not, it was engaged in deceptive accounting practices. Similarly, it is hard to believe that the mortgage originators and the investment bankers didn't know that the products they were creating, purchasing, and repackaging were toxic.
Bernie Madoff crossed the line between exaggeration and fraudulent behavior. But what about Angelo Mozilo , the former head of Countrywide Financial , the nation's largest originator of subprime mortgages? He has been charged by the SEC with securities fraud and insider trading: He privately described the mortgages he was originating as toxic, even saying that Countrywide was "flying blind," all while touting the strengths of his mortgage company, its prime quality mortgages using high underwriting standards. He eventually sold his Countrywide stock for nearly $140 million in profits. If he had kept the dirty secrets to himself, he might have been spared the charges; self-deception is no crime, nor is persuading others to share in that self-deception. The lesson for future financiers is simple: Don't share your innermost doubts.
The investment bankers would like us to believe that they were deceived by the people who sold them the mortgages. But if there was deception, they were part of it: They encouraged the mortgage originators to go into the risky subprime market, because it generated the high returns they sought. It is possible that a few bankers didn't know what they were doing, but they are guilty then of a different crime, that of misrepresentation, claiming that they knew about risk when clearly they did not.
Exaggerating the virtues of one's wares or claiming greater competency than the evidence warrants is something that one might have expected from many businesses. Far harder to forgive is the moral depravity-the financial sector's exploitation of poor and middle-class Americans. Our financial system discovered that there was money at the bottom of the pyramid and did everything possible to move it toward the top. We are still debating why the regulators didn't stop this. But shouldn't the question also have been: Didn't those engaging in these practices have any moral compunction?
Sometimes, the financial companies (and other corporations) say that it is not up to them to make the decisions about what is right and wrong. It is up to government. So long as the government hasn't banned the activity, a bank has every obligation to its shareholders to provide financial support for any activity from which it can obtain a good return. The predecessors to JPMorgan Chase helped finance slave purchases. Citibank had no qualms about staying in apartheid South Africa.
But consider, too, that the business community spends large amounts of money trying to create legislation that allows it to engage in nefarious practices. The financial sector worked hard to stop predatory lending laws, to gut state consumer protection laws, and to ensure that the federal government's ever laxer standards overrode state regulators. Their ideal scenario, it seems, is to have the kind of regulation that doesn't prevent them from doing anything, but allows them to say, in case of any problems, that they assumed everything was okay-because it was done within the law.
Securitization epitomized the process of how markets can weaken personal relationships and community. With securitization, trust has no role; the lender and the borrower have no personal relationship. Everything is anonymous, and with those whose lives are being destroyed represented as merely data, the only issues in restructuring are what is legal-what is the mortgage servicer allowed to do (see "Mortgage Shark Attack" )-and what will maximize the expected return to the owners of the securities. Enmeshed in legal tangles, both lenders and borrowers suffer. Only the lawyers win.
This crisis has exposed fissures between Wall Street and Main Street , between America's rich and the rest of our society. Over the last two decades, incomes of most Americans have stagnated. We papered over the consequences by telling those at the bottom-and those in the middle-to continue to consume as if there had been an increase; they were encouraged to live beyond their means, by borrowing; and the bubble made it possible.
The country as a whole has been living beyond its means. There will have to be some adjustment. And someone will have to pick up the tab for the bank bailouts. With real median household income already down some 4 percent between 2000 and 2008, the brunt of the adjustment must come from those at the top who have garnered for themselves so much over the past three decades, and from the financial sector, which has imposed such high costs on the rest of society.
But the politics of this will not be easy. The financial sector is reluctant to own up to its failings. Part of moral behavior and individual responsibility is to accept blame when it is due. Yet bankers have repeatedly worked hard to shift blame to others, including to those they victimized. In today's financial markets, almost everyone claims innocence. They were all just doing their jobs. There was individualism, but no individual responsibility.
Some have argued that we had a problem in our financial plumbing. Our pipes got clogged, and we needed federal intervention to get the markets moving again. So we called in the same plumbers who installed the plumbing-having created the mess, presumably only they knew how to straighten it out. Never mind if they overcharged us for the installation, then overcharged us for the repair. We should quietly pay the bills, and pray that they did a better job this time than last.
But it is more than a matter of unclogging a drain. The failures in our financial system are emblematic of broader failures in our economic system and our society. That there will be changes as a result of the crisis is certain. The question is, will they be in the right direction? Over the past decade, we have altered not only our institutions-encouraging ever more bigness in finance-but the very rules of capitalism. We have announced that for favored institutions there is to be little or no market discipline. We have created an ersatz capitalism, socializing losses as we privatize gains, a system with unclear rules, but with a predictable outcome: future crises, undue risk-taking at the public expense, and greater inefficiency.
It has become a cliché to observe that the Chinese characters for crisis reflect "danger" and "opportunity." We have seen the danger. Will we seize the opportunity?g

Published on Wednesday, January 13, 2010 by Creators.com
Selling a City's Soul - for Chicken Scratch
by Jim Hightower
Fire hydrants deserve more respect. They are utilitarian and ubiquitous icons of America's urban landscape, yet they're rarely noticed by anyone but dogs - who give them no respect whatsoever. Now, though, a brand-name corporation has noticed that these pieces of our public infrastructure are everywhere, and, like a dog, it wants to lift its leg on them!
KFC, the fast-food chicken chain owned by a global conglomerate named Yum Brands, is in search of fire hydrants it can use to "mark its territory." In particular, the corporation wants to spray hydrants in various cities with its logo.
Welcome to the latest reach by commercial hucksters to cover every square inch of America the Beautiful with ads.
Indianapolis is the first city to allow KFC to whiz on its hydrants. The company has plastered the city's stumpy water taps with the KFC logo, plus a smiling photo of corporate founder Colonel Sanders and a slogan promoting the chain's new "fiery" grilled chicken wings.
Get it? "Fiery" and fire hydrant. It's symbolism, see? Advert-types are nothing if not clever.
Of course, there's another symbolic connection that the clever ad concocters hope the public doesn't make. As noted in a blog called FirefighterNation.com: "The biggest killer of firefighters today is heart disease and heart attacks. Great idea to advertise fast food on fire equipment."
Well, picky-picky, say KFC honchos, who are certain that this promotion will be a big plus for them. Indeed, they insist that the company's graffiti is not just another act of crass commercialism, or an unseemly usurpation of public property, but - get this - a philanthropic contribution to the community! Corporate executives assured the Indianapolis mayor and other officials that the company is so concerned about fire safety in the city during these days of budget stress that they decided to step up as fine corporate citizens and do their part.
Pay more taxes, perhaps? Good grief, no - get out of here!
Rather, they magnanimously offered to "contribute" some money to help pay for new fire hydrants.
In exchange, the grateful city officials would need to do nothing - just allow the corporation to use the hydrants as its own little billboards around town. "Helping communities," explains a KFC vice president, is our goal. In turn, he adds, the gesture will "help us in terms of creating goodwill with consumers."
Really? Do these executives actually believe that spraying people's fire hydrants with self-serving ads will make local folks feel good about a chicken chain?
That delusion aside, let's probe the terms of the deal. Exactly how magnanimous was KFC in its philanthropic gesture to help provide fire safety for Indy citizens? Get ready to be astounded: $5,000.
That's it! KFC reaps a PR bonanza (not only getting promotional use of the hydrants, but also a photo op featuring the mayor and fire chief meeting with an actor dressed up as Colonel Sanders). All this for what amounts to chicken feed. This is a city with a $1.2 billion annual operating budget - what's a measly $5K going to do? Well, retorted a spokeswoman for the mayor, "it's offsetting some of our budget costs."
Question: How many fire hydrants will $5,000 buy? Answer: Two.
In fact, rather than blowing KFC's paltry bit of philanthropy on a couple of hydrants, officials bought 33 fire extinguishers for recreation centers in city parks. And, yes, KFC got its logo and "fiery" wings promo on each of those extinguishers.
Lest you snicker at how easy it was for KFC to roll Indianapolis officials, be warned that the chicken purveyor is now waving $5,000 at your mayor, too. In a nationwide email to mayors, KFC is seeking three more cities that will do the same deal with their fire hydrants.
I realize that cities everywhere are financially squeezed, and it must be tempting for mayors to grab at any sort of quick fix. But, come on - if you're going to sell your city's soul to corporate hucksters, sell it for more than a nickel.

GeithnerGate: Obama's Treasury Sec. Should Get the Boot and Let's Take Our Money Back Too

By Les Leopold and Dylan Ratigan, AlterNet
Posted on January 12, 2010, Printed on January 13, 2010
http://www.alternet.org/story/145110/

Editor's Note: Published below Les Leopold's article is Dylan Ratigan's 5-point takedown of Geithner and why it's time for him to go.
"An arm of the Federal Reserve, then led by now-Treasury Secretary Timothy Geithner, told bailed-out insurance giant AIG to withhold key details from the public about overpayments that put billions of extra tax dollars in the coffers of major Wall Street firms, most notably Goldman Sachs."Huffington Post
Cover-up revelations keep coming about Timothy Geithner's secret assistance to AIG. The latest show that he urged AIG not to disclose how it would be shoveling money to Goldman Sachs and other large financial institutions by paying off its credit default swaps at par value instead of much less.
More than $60 billion changed hands that shouldn't have if Geithner had played hard ball. Therefore, the charge is that Geithner should be bounced because he was protecting the banks' interests ahead of the public interest. He may also have protecting himself during his confirmation hearings.
Ok, string him up. But what about recapturing the loot?
Before we pull the rope, let's take a closer look at this outrageous scam. During the bubble years, AIG conducted an extremely lucrative business guaranteeing all kinds of derivatives based on risky debt. They couldn't call it insurance because insurance products are regulated --- meaning you need to have reserves to back them up, which they didn't. So these toxic assets insurance polices instead got the fancy name "credit default swaps," which were not and still are not regulated. (Take a bow Phil Gramm, Robert Rubin, Bill Clinton and Alan Greenspan.)
This was the mother of all profit making businesses for AIG because in many of these deals AIG didn't have to put up any collateral as long as AIG was AAA-rated. The counter-parties (i.e. Goldman Sachs, JP Morgan Chase...) figured AIG was good for it. So AIG raked in fees for insuring toxic assets and didn't have to put up anything in return. Free money!
AIG figured the best hedge and the most money could be made by insuring more and more of this risky stuff. This was thought to disperse the risk broadly since all of the junk debt couldn't possibly fail at the same time, could it? They "insured" over $450 billion worth. (For the sordid details and comic relief, please see The Looting of America )
Then, the unthinkable happened. The assets tanked and AIG had to pay up on its policies, but couldn't. It was about to fold. Had AIG gone under it may have pulled with it hundreds of other financial institutions around the world that were relying on its insurance. The government stepped in to bail them all out. (AIG now spreads the fiction that this was just one rogue operation over in England in an otherwise safe and sound empire. But the big boys at the top of AIG all knew the credit default swap operation was a delectable source of enormous profits and shared in the booty... and they're not giving back any of the ill-gotten gains.)
We can argue some other time about whether or not some kind of bailout was necessary or what we should have gotten in return. The point here is that big fat financial houses like Goldman Sachs would have received pennies on the dollar for their AIG-backed credit default swaps had AIG gone into bankruptcy court. Instead, Goldman and others received par value and that money is now funding their mammoth profits and bonuses. (Spewing more corporate fiction, Goldman Sachs and JP Morgan Chase say they had been carefully hedged and would not have suffered from an AIG bankruptcy. Baloney. If AIG had gone under without a Federal rescue, those big banks would have gone down too or teetered on the edge.)
Here is precisely where free-market capitalism metastasizes into the billionaire bailout society. Goldman Sachs believed they had adequately covered $12.9 billion of its toxic assets by purchasing insurance from AIG. In fact, they believed those toxic assets plus the insurance made them as good as gold and part of their capital base.
In effect Goldman had placed two kinds of bets. First they bet on the toxic assets which were extremely lucrative, but risky. Then they bet that AIG could successfully insure them against losses on that first bet. They lost both bets. Too bad. That's capitalism....or used to be.
For losing their bet with AIG, Goldman Sachs should have only received about 20 cents on a dollar in a bankruptcy court. Instead, we bailed out AIG to prevent bankruptcy and Geithner et al pressured AIG to give Goldman Sachs 100 cents on the dollar. As a result, Goldman Sachs suffered no negative consequences at all from betting and losing. That's not capitalism. That's our new billionaire bailout society, where we, the taxpayers, pay off the bad bets. And the super-wealthy get more wealthy even when they lose their bets.
Think about it. Goldman Sachs alone got $12.9 billion - found money. Ka-Ching--right into its bonus pool. (OK, let's be fair. In bankruptcy they may have received $2.58 billion so the net windfall was $10.32 billion, which is about what it would cost to hire 172,000 teachers for one year.)
By all means, let's fire Geithner, and Summers too while we're at it. But if we really want to see some semblance of justice, we should slap a 90 percent windfall profits tax on all Wall Street firms. No matter how you cut it, they're all on welfare and their profits stem directly from our largesse. (Even those banks that have paid back TARP are, right this very minute, at the federal trough sucking up trillions of dollars of federal liquidity programs and asset guarantees.)
If the surging Tea Party really believed in its anti-bailout rhetoric, they'd be screaming for a windfall profits tax. But instead they so hate government and taxes that they'd rather let the biggest bankers in the world take our money and laugh all the way to the bank....in the Cayman Islands.
***
The Case Against Geithner -- by MSNBC Host Dylan Ratigan

As we sit here today, Wall Street continues to exploit a policy of government-sponsored giveaways and secrecy to pay themselves billions. 

Record-setting bonuses due to banks like Goldman Sachs as early next week.

Yet instead of acting as our cop, Secretary Tim Geithner has become central to what may be a cover-up of the greatest theft in U.S. history.
Here is the evidence.

COUNT 1: The AIG Emails:
Recently-released emails show Geithner's New York Federal Reserve Bank directing AIG to keep details of the 100-cents-on-the-dollar bailout secret in 2008 -- A reversal of the traditional role of government, which is to force companies to become more transparent, not less.

A Treasury Spokeswoman says: "Secretary Geithner played no role in these decisions and indeed, by November 24, he was recused from working on issues involving specific companies, including AIG."

Friday, the White House also defended the Treasury Secretary:
Gibbs: These decisions did not rise to his level at the fed.

CNN's Ed Henry: How do you know that he wasn't involved? He was the leader of the New York Fed.
Gibbs: Right, but he wasn't on the emails that have been talked about and wasn't party to the decision that was being made.
He wasn't party to a decision to hide $62 billion dollar payouts to firms that became insolvent during his 5-year watch at the New York Fed?
Congressman Darrell Issa speculates that maybe Geithner wasn't on the emails in question because his people felt so strongly they already knew their boss's intentions, they didn't feel the need to bother him with the details.

COUNT 2: He wasn't even a regulator!
In Geithner's own words during confirmation hearings in March:
"First of all, I've never been a regulator...I'm not a regulator."
According to the New York fed bank's website, that was your job!! And I quote from the Fed's website: "As part of our core mission, we supervise and regulate financial institutions in the Second District."
That district of course is the epicenter for bailed out banks and billion dollar bonuses.

Count 3: "The Christmas Eve Taxpayer Massacre."
As you were wrapping those last presents, Geithner's Treasury Department lifted the 400-billion dollar cap on taxpayer responsibility for potential losses for Fannie Mae and Freddie Mac. 

The new cap? Unlimited taxpayer funds! Interesting timing... Christmas eve, Tim?
Still no word on recovering the hundreds of millions paid to the CEOs who created this mess.

COUNT 4: He's too cozy with certain banks. 

Remember those call logs when he first started... 80 contacts with Goldman Sachs, JP Morgan, and CitiGroup CEOs in just 7 months!
But Bank of America's CEO only got three calls. Apparently Bank of America is not one of Geithner's favorites, especially when you consider that there are still many unanswered questions about Tim Geithner's role in threatening to fire Bank of America management if they didn't go through with a deal to buy Merrill lynch.

COUNT 5: TARP Special Investigator Neil Barofsky's report says Geithner's New York Fed overpaid the big banks through AIG by billions of dollars.
Geithner says it had to be done. Maybe so, maybe not, but this takes us to our final point.
Since then, the Treasury Secretary has yet to really prove whose side he's on -- the Wall Street big wigs or the American taxpayer? Here's the litmus test: Mr. Geithner, show us the past ten years of AIG emails or step down so that we can get somebody who will. A crime has been committed against the American taxpayer and right now you are standing at the door of the crime scene refusing to let anyone in.
Show us you're not involved Mr. Geithner, prove the white house correct in defending you. All we are asking for is the transparency promised by the President you serve.
Les Leopold is the executive director of the Labor Institute and Public Health Institute in New York, and author of The Looting of America: How Wall Street's Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity—and What We Can Do About It (Chelsea Green, 2009).

Les Leopold

Author, "The Looting of America"
Posted: January 11, 2010 07:45 AM

GeithnerGate: Follow the Money...and Take it Back

"An arm of the Federal Reserve, then led by now-Treasury Secretary Timothy Geithner, told bailed-out insurance giant AIG to withhold key details from the public about overpayments that put billions of extra tax dollars in the coffers of major Wall Street firms, most notably Goldman Sachs." Huffington Post
Cover-up revelations keep coming about Timothy Geithner's secret assistance to AIG. The latest show that he urged AIG not to disclose how it would be shoveling money to Goldman Sachs and other large financial institutions by paying off its credit default swaps at par value instead of much less.
More than $60 billion changed hands that shouldn't have if Geithner had played hard ball. Therefore, the charge is that Geithner should be bounced because he was protecting the banks' interests ahead of the public interest. He may also have protecting himself during his confirmation hearings.
Ok, string him up. But what about recapturing the loot?
Before we pull the rope, let's take a closer look at this outrageous scam. During the bubble years, AIG conducted an extremely lucrative business guaranteeing all kinds of derivatives based on risky debt. They couldn't call it insurance because insurance products are regulated --- meaning you need to have reserves to back them up, which they didn't. So these toxic assets insurance polices instead got the fancy name "credit default swaps," which were not and still are not regulated. (Take a bow Phil Gramm, Robert Rubin, Bill Clinton and Alan Greenspan.)
This was the mother of all profit making businesses for AIG because in many of these deals AIG didn't have to put up any collateral as long as AIG was AAA-rated. The counter-parties (i.e. Goldman Sachs, JP Morgan Chase...) figured AIG was good for it. So AIG raked in fees for insuring toxic assets and didn't have to put up anything in return. Free money!
AIG figured the best hedge and the most money could be made by insuring more and more of this risky stuff. This was thought to disperse the risk broadly since all of the junk debt couldn't possibly fail at the same time, could it? They "insured" over $450 billion worth. (For the sordid details and comic relief, please see The Looting of America )
Then, the unthinkable happened. The assets tanked and AIG had to pay up on its policies, but couldn't. It was about to fold. Had AIG gone under it may have pulled with it hundreds of other financial institutions around the world that were relying on its insurance. The government stepped in to bail them all out. (AIG now spreads the fiction that this was just one rogue operation over in England in an otherwise safe and sound empire. But the big boys at the top of AIG all knew the credit default swap operation was a delectable source of enormous profits and shared in the booty... and they're not giving back any of the ill-gotten gains.)
We can argue some other time about whether or not some kind of bailout was necessary or what we should have gotten in return. The point here is that big fat financial houses like Goldman Sachs would have received pennies on the dollar for their AIG-backed credit default swaps had AIG gone into bankruptcy court. Instead, Goldman and others received par value and that money is now funding their mammoth profits and bonuses. (Spewing more corporate fiction, Goldman Sachs and JP Morgan Chase say they had been carefully hedged and would not have suffered from an AIG bankruptcy. Baloney. If AIG had gone under without a Federal rescue, those big banks would have gone down too or teetered on the edge.)
Here is precisely where free-market capitalism metastasizes into the billionaire bailout society. Goldman Sachs believed they had adequately covered $12.9 billion of its toxic assets by purchasing insurance from AIG. In fact, they believed those toxic assets plus the insurance made them as good as gold and part of their capital base.
In effect Goldman had placed two kinds of bets. First they bet on the toxic assets which were extremely lucrative, but risky. Then they bet that AIG could successfully insure them against losses on that first bet. They lost both bets. Too bad. That's capitalism....or used to be.
For losing their bet with AIG, Goldman Sachs should have only received about 20 cents on a dollar in a bankruptcy court. Instead, we bailed out AIG to prevent bankruptcy and Geithner et al pressured AIG to give Goldman Sachs 100 cents on the dollar. As a result, Goldman Sachs suffered no negative consequences at all from betting and losing. That's not capitalism. That's our new billionaire bailout society, where we, the taxpayers, pay off the bad bets. And the super-wealthy get more wealthy even when they lose their bets.
Think about it. Goldman Sachs alone got $12.9 billion - found money. Ka-Ching--right into its bonus pool. (OK, let's be fair. In bankruptcy they may have received $2.58 billion so the net windfall was $10.32 billion, which is about what it would cost to hire 172,000 teachers for one year.)
By all means, let's fire Geithner, and Summers too while we're at it. But if we really want to see some semblance of justice, we should slap a 90 percent windfall profits tax on all Wall Street firms. No matter how you cut it, they're all on welfare and their profits stem directly from our largesse. (Even those banks that have paid back TARP are, right this very minute, at the federal trough sucking up trillions of dollars of federal liquidity programs and asset guarantees.)
If the surging Tea Party really believed in its anti-bailout rhetoric, they'd be screaming for a windfall profits tax. But instead they so hate government and taxes that they'd rather let the biggest bankers in the world take our money and laugh all the way to the bank....in the Cayman Islands.
Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009. 

Wall Street Will Be Back For More

http://www.truthdig.com/report/item/wall_street_will_be_back_for_more_20100110/

Posted on Jan 10, 2010

By Chris Hedges
Corporations, which control the levers of power in government and finance, promote and empower the psychologically maimed. Those who lack the capacity for empathy and who embrace the goals of the corporation—personal power and wealth—as the highest good succeed. Those who possess moral autonomy and individuality do not. And these corporate heads, isolated from the mass of Americans by insular corporate structures and vast personal fortunes, are no more attuned to the misery, rage and pain they cause than were the courtiers and perfumed fops who populated Versailles on the eve of the French Revolution. They play their games of high finance as if the rest of us do not exist. And it is a game that will kill us.
These companies exist in a pathological world where identity and personal worth are determined solely by the perverted code of the corporation. The corporation decides who has value and who does not, who advances and who is left behind. It rewards the most compliant, craven and manipulative, and discards the losers who can’t play the game, those who do not accumulate wealth or status fast enough, or who fail to fully subsume their individuality into the corporate collective. It dominates the internal and external lives of its employees, leaving them without time for family or solitude—without time for self-reflection—and drives them into a state of perpetual nervous exhaustion. It breaks them down, especially in their early years in the firm, a period in which they are humiliated and pressured to work such long hours that many will sleep under their desks. This hazing process, one that is common at corporate newspapers where I worked, including The New York Times, eliminates from the system most of those with backbone, fortitude and dignity. 
No one thinks in groups. And this is the point. The employees who advance are vacant and supine. They are skilled drones, often possessed of a peculiar kind of analytical intelligence and drive, but morally, emotionally and creatively crippled. Their intellect is narrow and inhibited. They rely on the corporation, as they once relied on their high-priced elite universities and their SAT scores, for validation. They demand that they not be treated as individuals but as members of the great collective of Goldman Sachs or AIG or Citibank. They talk together. They exchange information. They make deals. They compromise. They debate. But they do not think. They do not create. All capacity for intuition, for unstructured thought, for questions of meaning deemed impractical or frivolous by the firm, the qualities that always precede discovery and creation, are banished, as William H. Whyte observed in his book “The Organization Man.” The iron goals of greater and greater profit, order and corporate conformity dominate their squalid belief systems. And by the time these corporate automatons are managing partners or government bureaucrats they cannot distinguish between right and wrong. They are deaf, dumb and blind to the common good.
These deeply stunted and maladjusted individuals, from Treasury Secretary Timothy Geithner to Robert Rubin to Lawrence Summers to the heads of Goldman Sachs, Morgan Stanley, J.P. Morgan Chase and Bank of America, hold the fate of the nation in their hands. They have access to trillions of taxpayer dollars and are looting the U.S. Treasury to sustain reckless speculation. The financial and corporate system alone validates them. It defines them. It must be served. This is why e-mails from the New York Fedto AIG, telling the bailed-out insurer not to make public the overpaying of Wall Street firms with taxpayer money, were sent when Geithner was in charge of the government agency. These criminals sold the public investments they knew to be trash. They used campaign contributions and lobbyists to turn elected officials into stooges and gut oversight and regulation. They took over retirement savings and pensions and wiped them out. And then they seized some $13 trillion in taxpayer money so they could lend it to us with interest. It is circular theft. This is why we will endure another catastrophic financial collapse. This is why firms like Goldman Sachs are more dangerous to the nation than al-Qaida.
“The psychology is about winning, and winning is marked by the level of compensation and bonuses and the power you have within the firm,”Nomi Prins, the author of “It Takes a Pillage” and a former managing director at Goldman Sachs, told me by phone from California. “Every investment bank is like a mini-country. The political maneuvering and the differences between individuals who run certain areas and move up the ladder of the company are not necessarily decided by a vote. They move up depending on how close they are to the person [above them]. If that person moves up they move up with them. A certain set of loyalties get created. It is an intense competition all the time. You have trading and doing deals with clients, but the result is to push people up the ladder and to make money.”
How you make money and how you climb the ladder of the corporate structure are irrelevant. Success becomes its own morality. Those who do well in this environment possess the traits often exhibited by psychopaths—superficial charm, grandiosity and self-importance, a need for constant stimulation, a penchant for lying, deception and manipulation, and the incapacity for remorse or guilt. They, like competitors on a reality television program, lie, cheat and betray to climb over those around them and advance. These demented individuals are admired and envied within the firm. They achieve heroic status. The lower-ranking employees are supposed to emulate them. And this makes Goldman Sachs and other speculative financial firms upscale lunatic asylums where the inmates wear Brooks Brothers suits and drink expensive chardonnay. Our problem is that the lunatics have been let out of the asylum. They have been empowered to cannibalize the government on behalf of the corporations that spawned them like mutant carp.
These corporations don’t make anything. They don’t produce anything. They gamble and bet and speculate. And when they lose vast sums they raid the U.S. Treasury so they can go back and do it again. Never mind that $50 trillion in global wealth was erased between September 2007 and March 2009, including $7 trillion in the U.S. stock market and $6 trillion in the housing market. Never mind that the total amount of retirement and household wealth trashed was $7.5 trillion or that we saw $2 trillion in 401(k)s and individual retirement accounts evaporate. Never mind the $1.9 trillion in traditional defined-benefit plans and the $2.6 trillion in nonpension assets that went up in smoke. Never mind the job losses, the foreclosures and the 35 percent jump in personal and small-business bankruptcies. There are bundles of new money, taken again from us, to make deals and hand out outrageous bonuses. And when these trillions run out they will come back for more until our currency becomes junk. Not that any of these people have thought this through. They are too busy focused on the pathetic, little monuments they are building to themselves and the intricacies of court intrigue.
“There are always internal conversations about taking credit for certain trades and deals,” Prins said of her time at Goldman Sachs. “It is childish, except there is so much money at stake and so much power within the firm at stake. Power in the firm allows you to make money, but it also provides a certain status that everyone looks up to and covets. There can be a period of a month or two at the end of the year where closed-door conversations occur between managers and people who work for them about compensation. In these conversations they go something like: ‘My group did that trade.’ ‘I did that trade.’ ‘No, that was my money.’ ‘No, that was my profit and loss.’ ‘That’s my client.’ ‘I know the other group said that it was their client but actually I had the relationship first.’ A lot of these petty conversations go back and forth. All of it to attain money and acquire power and influence within the firm.”
Those who advance in these institutions master the art of looking like they are doing more than they are actually doing. It does not matter who does the most. It matters who can take credit for doing the most. And that often means poaching someone else’s work. Friendship becomes a meaningless word. So does compassion. So does honesty. So does truth. By any standard comprehensible within the tradition of Western civilization these people are illiterate. They cannot recognize the vital relationship between power and morality. They have forgotten, or never knew, that moral traditions are the product of civilization. Existence, for them, boils down to one overriding imperative—me, me, me.
“The people who get the higher bonuses are not getting them because they are quietly doing whatever work they are supposed to do,” said Prins, who also ran the international analytics group at Bear Stearns in London. “They are getting that money because they are constantly able to promote themselves.”
“The environment is very insular,” Prins said. “It is all about what is happening in the firm. Who said what. Who is doing what. What did they say about you. How does it affect you. How does it affect your group. How does it affect the people above you and below you. It destroys individuality. You learn there is a certain way you are supposed to act to be successful. If you are not doing that, if you are fighting too hard to do something you believe is right, but your managers don’t want to do, you defer. Or you fight and it gets marked as a stripe against you. You don’t discuss interests that are counter to the firm’s interests or the firm’s positions.”
“You are not thinking whether it is ethical to dump a bunch of loans into the street or repackage them and re-rate them better,” she said. “You are only thinking about getting the deal done. You don’t think about how issuing certain securities or structuring certain deals will impact people [around you].”
“When you are living, competing and winning in an environment where it is all about the money and the power, it creates a dividing line between you and the rest of the world,” Prins said. “You do not bother to look over the dividing line. Your world is on your side of it and the rest of the world is on their side of it. You are not looking at people being kicked out of their homes and being foreclosed. You do not see the crying, the anger and the children in the street because [those in government] decided to give money to bail out Wall Street firms as opposed to renegotiate mortgage principals so people can continue to live their lives. You can be callous about it because it does not impact you. It is not something you notice. You might read about it. But you don’t feel it, watch it or go through it. You are detached.”
Banks are continuing to have hemorrhaging in consumer portfolios including mortgage loans, auto loans, credit card loans and other loans. Bankruptcies are endemic. Toxic assets if properly assessed would mean that many of our largest banks are insolvent. But the profits from the trading revenues and bonuses have climbed back to near-record highs. The sick mentality of the game, the one that created the first worldwide meltdown, dominates the nervous systems of our elite the way cravings overtake heroin addicts. They can’t think of anything else. They do not know how. No one goes to Wall Street to further the common good. People go to make money. And money, like power, is a potent narcotic.
“You don’t think you are doing anything wrong,” Prins said. “You are working. You are making money. You are trying to have your bosses like you and pay you. You run things by legal [the company’s legal department]. You run things by compliance. You don’t believe you are committing a crime. You are just doing what you are doing.”
“We will have another crisis,” she lamented. “I don’t know when, but it is brewing. If you don’t fundamentally change the foundation of the banking system you are piling on capital and time into something that is faulty. This does not result in decades of stability. They are banking on trading. Nothing has changed. The rest of the consumer economy is continuing to deteriorate. These losses go into banks. You gain on trading and lose on more solid practices. The foundation has not changed. The regulations are bullshit. The old assets are still crap. The new assets created off the old assets are still crap. The banks are still levering them and still doing the same practices they did before. We will have another liquidity crunch. Banks will again stop trusting their assets and each other. …  The buying of complex assets will stop, although this time more quickly. People will remember what happened before. You will have a repeat of credit constricting between financial institutions. It is already constricted on the consumer side. The banking system will use up this federal capital and then go back for more.” 
Chris Hedges, a former Middle East bureau chief of The New York Times, shared the 2002 Pulitzer Prize for Explanatory Journalism. He has written nine books, including “Empire of Illusion: The End of Literacy and the Triumph of Spectacle” (2009). His column appears on Truthdig every Monday.

Cerberus Capital: Literally Blood-Sucking the Poor to Make Their Billions

By Mark Ames, AlterNet
Posted on January 9, 2010, Printed on January 10, 2010
http://www.alternet.org/story/145044/

Wall Street vampires. Lately, a lot of Americans, including myself, have used the bloodsucking monsters as a metaphor to describe the Wall Street billionaires who rule us, and who are ruining us. Like so many awful stories of the past few years, it turns out that these Wall Street vampire-billionaires really exist, literally. Like all vampires, they live in remote castles, and they feed themselves by luring poor, desperate humans into their dens, hooking them into blood-pumping machines and sucking out their plasma for mind-boggling profits.

Cerberus Capital, one of Wall Street’s most notoriously ruthless leveraged-buyout firms (or “private equity firms” in PC-speak), recently made a $1.8 billion killing on its human plasma investment, a company called Talecris. Talecris was purchased for a mere $82.5 million just four years earlier, meaning Cerberus made 23 times its investment on human plasma. This was accomplished by the most savage, heartless means possible: by paying peanuts to impoverished human plasma donors, who increasingly come from Mexican border towns to blood-pumping stations set up on the American side, jacking up the price of plasma by restricting supply (a lawsuit filed by the Federal Trade Commission accused Cerberus Plasma Holdings of “operat[ing] as an oligopoly”), and then selling the refined products to the most desperately ill—patients suffering from hemophilia, severe burns, multiple sclerosis and autoimmune deficiencies. The products cost so much—one, IVIG (intravenous immunoglobulin) cost twice the price of gold as of last summer—that American health insurance companies have been dropping or denying their policyholders in increasing numbers, endangering untold numbers of people.

Tomas Asher, chairman of a company that trades in plasma, described the businessthis way: "It's like selling hog bellies or wheat or beef. It gets sold all over."

Profiting from ruined American lives is nothing new to Cerberus. (The company takes its name from the legendary three-headed attack dog of Greek legend who guards the gates of Hell, making sure no condemned soul ever escapes. How appropriate.) Cerberus is the same shady fund that bought Chrysler and GMAC in 2007 and drove them into the ground, blamed everything on unions (even after firing 30,000 Chrysler employees), and dumped the companies onto American taxpayers—but only after lining up tens of billions in taxpayer-funded bailout funds. Cerberus is led by some of the most aggressive "free market" Republicans of our time. The chairman of Cerberus is former Treasury Secretary John Snow, who oversaw the destruction of America’s economy while serving under Bush from 2003 to 2006, bragging during his tenure, "We are the envy of the world."

Snow bragged again in 2007 after Cerberus acquired Chrysler, "Over 25 years ago, when Chrysler faced bankruptcy, it turned to the United States government for assistance. Today, Chrysler again faces new financial challenges. But it is private investment stepping in to inject much-needed support." A year later, Snow was running around Washington begging and screaming for government handouts.

Joining Snow as international chairman for Cerberus is former Republican Vice President Dan Quayle, the pampered imbecile who couldn’t spell “potato” correctly. Two more perfect vampires couldn’t have been invented than Quayle and Snow for the America of the Bush Era—peanut-brained, sleazy jerks.

The top vampire in Cerberus is the fund’s founder, billionaire Stephen Feinberg, a major Republican Party campaign donor with a hardcore fetish for Harleys and big guns. Supposedly Feinberg was very uncomfortable with taking all those socialism-esque billions from American taxpayers. The New York Times described him as "a longtime free-market enthusiast and a Republican who never envisioned himself needing the government for help.”
What Feinberg did envision was callously taking control of Chrysler, stripping it down and making a killing off of it, as he coldly noted in an early 2008 memo to his investors: “We do not need to be heroes to earn a good return on the investment in Chrysler," he wrote. "We do not need to transition the car industry or even to return Chrysler to a much stronger relative position in the U.S. car market in order to be successful."

After Feinberg siphoned away billions of taxpayer dollars to pay off his bad investments, he told reporters, "From the day we bought it, we worked hard to improve it." Patriotism, not profit, he bleated: “I love this country. I feel it’s been great to me. I had a great chance."

To understand how Cerberus has profited from human blood and misery, here's some background: the United States is one of just a handful of nations around the world where companies can legally pay humans for their blood and then sell it for a profit. Human plasma is a particularly valuable component of human blood—it’s harder to extract, and can be used to manufacture all sorts of expensive therapeutic products. The market for human plasma products has swelled from just $2 billion in 1988 to over $12 billion per year, and according to a recent Morgan Stanley report, it’s a fast-growing business.

Despite all the billions that Wall Street’s vampires earn from plasma, the hapless humans whose veins they milk make barely a pittance—$30 dollars or so for spending an hour hooked up to a pumping machine that sucks the blood, sifts out the valuable plasma through a cold-filtering process and reverse-pumps the debased, icy blood back into the plasma donor's veins.

It’s such a miserable way to make cash that Cerberus and its fellow oligopolists have resorted to setting up plasma-sucking franchises along the U.S.-Mexico border, which have mushroomed like Starbucks Coffee did in the '90s. In the latter part of 2009 alone, Cerberus-owned Talecris opened four new plasma-milking factories, plastering the Mexican side of the border with advertisements promising easy cash, and parking special plasma-farm buses on the American side of the border to haul their human cargo to those milking dens not within walking distance of the Rio Grande.

Last summer, a newspaper reporter followed an unemployed 46-year-old Mexican manager from his border town to the pumping station in Brownsville, Texas, which has the highest poverty rate of any city in America: 

"After entering the United States, Castillo didn’t have to walk far to sell his plasma. A few hundred feet up International Boulevard from the border, the IBR Plasma building sits on Washington Street, across from a Duty Free shop. The plasma centre still looks very much like the bulk second-hand clothing store it used to be, though long white vertical blinds now hide what goes on behind its windows. Inside, the waiting room is divided into two sections marked by sheets of paper taped to the wall: one for 'new donors' and another for 'return donors.' This was Castillo’s first visit, which meant he could make $30—about 400 Mexican pesos. Signs in Spanish and English offered an additional $10 to those who recruited other donors.

"Castillo lay in the big soft chair, he said, while they inserted the needle and his blood started pumping out. It was cycled into a machine that spun the red cells from the liquid, as if squeezing whey from curds. The whey, the watery plasma, was stored in a big plastic bag, while the red blood cells were periodically reinjected into his arm. While he laid there, he later told me, he wondered about what his plasma was really worth—and where it would end up. Castillo is an educated man with a degree in business administration; before coming to Brownsville he had done some research and found, among other things, that in Mexico donating plasma for money is illegal—as is the case in much of the rest of the world."

You might think that America would be ashamed of being the world’s top vampire nation. But actually, to the faux-market freaks like Cerberus Capital’s honchos, it just means locking in profits and locking out competition. Thomas Hecht, who heads a plasma products distribution company in Montreal, quipped: "The U.S. is the OPEC of the plasma business. You know what that stands for: the Organization of Plasma Exporting Countries."

But Cerberus is more than just about sucking people’s blood and government handouts. Stephen Feinberg also loves killing deer. In fact he loves shooting deer so much that, like the old Gillette commercial, he bought America’s guns 'n’ ammo industry. Two years ago, Cerberus bought Remington, America’s oldest firearms manufacturer, and since then they’ve snapped up companies making everything from bullets to silencers, which they’re combining into a new firearms monolith calledFreedom Group. The free-marketeers at Cerberus are all about freedom. 

Luckily for Cerberus, weapons are “flying off the store shelves,” thanks to all the paranoia about Obama "socialism," fed by all the bailout money that rightwing billionaires like Cerberus have looted. Sales have also been boosted by the wars in Iraq and Afghanistan—in other words, more government handouts for the billionaires, now that they own the guns ‘n’ ammo business. It’s all going so well that Cerberus is planning a huge IPO this year for Freedom Group, which should net another massive payout.

So Cerberus profits on both ends: from the bailouts, and from the backlash against bailouts; from the wars against Muslim terrorists, and from the paranoia back home about an alleged socialist-Muslim-terrorist president.

Either way, the vampires have us where they want us.
Read more of Mark Ames at eXiledonline.com. He is the author of Going Postal: Rage, Murder, and Rebellion: From Reagan's Workplaces to Clinton's Columbine and Beyond.

Published on Friday, January 8, 2010 by The Indypendent (New York)
Hope Has Left the Building
by Arun Gupta
If one case encapsulates the disaster that is the Obama administration, it may be the dustup over the A.I.G. bonuses last March. Recall that extreme gambling by A.I.G. Financial Products nearly crashed the world in 2008, necessitating a taxpayer bailout of $182.3 billion (and counting). Following this, A.I.G., now 80 percent government owned, rained more than $400 million in bonuses on Financial Products employees for their performance in 2008. The Obama administration, which knew of the bonuses for months, played defense for A.I.G. by unspooling a bloated Larry Summers to argue, "The government cannot just abrogate contracts."
The problem was the feds had just demanded that auto workers abrogate their hard-won contracts before Detroit got a bailout. United Auto Workers leaders complied, sacrificing "job security provisions and financing for retiree health care," plus agreeing to cuts in base pay, overtime pay, break time, raises, skilled worker positions and chopping wages for many new hires in half to $14 an hour.
Far from failures or mistakes, these episodes illustrate how Team Obama, which surfed a tsunami of corporate money and savvy branding to victory, is doing exactly what it was elected to do: redistribute money upwards. It's hard to think of a decision by this White House that would have not elicited cackling glee from the Bush administration. The number of horrendous policies] enacted by the Obama administration in barely a year boggles the imagination. What follows is by no means an exhaustive list, just a few dozen of the worst.
EMPIRE'S BACKYARD
Even Time magazine has concluded that "Obama's Latin American Policy Looks Like Bush's." While many hoped Obama would lift the 48-year-old embargo against Cuba, Obama loosened a few restrictions only for Cuban Americans. Last April, Obama declared the United States a "full partner" in Mexico's calamitous drug war. Months later, the White House slapped Bolivia with economic penalties, allegedly for not being an enthusiastic drug warrior, but more likely for pursuing an independent agenda. And there is the Honduran coup, which Obama endorsed by recognizing the rigged election in November. Most ominously, his administration inked a deal in October for seven military bases in Colombia, convenient for launching new wars against socialist governments in the region.
GREEN JOB LOSSES
Before Van Jones was thrown under the bus, Obama promised to create five million green jobs in plug-in hybrids, weatherization, renewable energy, biofuels and clean coal. Biofuels and clean coal? Okay, maybe it's a good thing this promise was snuffed. But as Naomi Klein points out, between the stimulus, the auto bailout and the Wall Street rescue, Obama had the leverage and political capital to fund mass transit and a smart electrical grid, restructure government-owned automakers to focus on green technology and force bailed out banks to fund industrial restructuring and green infrastructure. Instead, we get a White House vegetable garden the size of a New York apartment.
TOO BIG TO FAIL, TOO BIG TO JAIL
While the original Troubled Assets Relief Program was "only" $700 billion, the program's watchdog estimates taxpayer money at risk is a phenomenal $23.7 trillion. The Obama administration has been more interested in defending obscene executive pay, blessing more of Wall Street's highrisk trading, stonewalling on how the TARP funds were used and abused, and resisting real regulation, rather than prosecuting Goldman Sachs and other banks that peddled risky mortgage- backed securities while secretly betting they would plummet in value - a textbook case of securities fraud. But what do you expect from a candidate who raked in the most dough from Wall Street, real estate, commercial banks and hedge funds?
A DREAM FORECLOSED
In comparison to the bank bailout, relief for homeowners is limited to a miserly $75 billion under Obama's Making Home Affordable program. As of December, only 31,000 homeowners have received permanent mortgage modifications. The real winners are loan servicers. Of the top 25 participants, 21 were "heavily involved in the subprime lending industry." The parent companies of the lenders, which have vacuumed up more than $21 billion from the program, include Bank of America, Wells Fargo, JPMorgan Chase and Citigroup. Homeowners in the program who don't get permanent help are left with wrecked credit scores while they continue to pay for homes they can't afford, which may be lengthening the crisis. Meanwhile, the number of homeowners with mortgage debt greater than the value of their homes was 23 percent as of September and could peak at 48 percent in 2011. Even modest measures, such as allowing bankruptcy judges to lower mortgages, were abandoned by the Obama administration.
HEALTH CARE DEFORM
There is a method to Obama's madness. First, his economic philosophy is to subsidize private entities to provide public goods. Second, his main tactic is to appeal to bipartisanship. (Never mind that there was plenty of bipartisanship during the Bush era when Democrats surrendered to virtually every heinous decision.) In the case of healthcare, a much simpler and more effective single-payer system was rejected because Republican support was supposedly needed. The bipartisan tactic allowed the Obama administration to replace single payer with a fake public option that was then dropped. As for the healthcare bill, it will skim $500 billion from publicly funded Medicare and Medicaid and use it to subsidize individuals who will be forced to buy for-profit insurance or pay a fine. The bill does nothing to control costs, ensure quality coverage or prevent workers from losing job-related insurance. It allows for wildly different rates based on age and region, and will deliver millions of new "customers" to insurance and drug companies and for-profit hospitals.
WAR IS THE HEALTH OF THE STATE
While President-elect, Obama was largely silent about the Israeli slaughter of 1,400 civilians in Gaza. Three days after being inaugurated, Obama ordered Predator drone strikes inside Pakistan, expanding the illegal U.S. war. Over the last year, Obama has committed another 64,000 soldiers to Afghanistan, effectively launching a new year. There are still 115,000 U.S. troops in Iraq. The use of private military contractors is surging, with 121,000 (and growing) in Afghanistan alone. Obama has continued to threaten Iran over its uranium-enrichment program. And many believe the White House is "initiating a low-level war in Yemen." Author and Ret. U.S. Army Col. Andrew Bacevich writes that Obama has effectively signed on to "perpetual war."
LABOR PAINS
Despite reportedly pouring $450 million into Obama's campaign and providing thousands of volunteers, organized labor has been unable to advance its main cause: a bill called the Employee Free Choice Act that would make it easier for employees in a workplace to unionize. The Obama administration says it is committed to passing the bill, but it has not put any muscle behind it. That may be because wealthy Obama backers, including three Chicago billionaires who own hotels, vehemently oppose the bill.
© 2010 The Indypendent
A founding editor of The Indypendent , Arun Gupta writes about energy, the economy, the media, U.S. foreign policy, the politics of food and other subjects for The Indypendent, Z Magazine, Left Turn and Alternet. Gupta is a regular commentator on Democracy Now! and GritTV with Laura Flanders. He’s writing a book on the decline of American Empire to be published by Haymarket Books. From 1989 to 1992 he was an international news editor at the Guardian Newsweekly.

Geithner and the AIG Emails: Scandal Is Only Tip of the Iceberg

By Eliot Spitzer and William K. Black and Frank Partnoy, NewDeal 2.0
Posted on January 7, 2010, Printed on January 8, 2010
http://www.alternet.org/story/145020/

In a December New York Times op-ed, we called for the full public release of AIG email messages, internal accounting documents and financial models generated in the last decade. This Thursday, a Bloomberg story revealed that under Timothy Geithner's leadership, the Federal Reserve Bank of New York told AIG to withhold details from the public about its payments to banks during the crisis. This information was discovered when emails between the company and the Fed were requested by representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.
The emails requested by Issa span five months beginning in November 2008. If five months of emails reveal information key to our understanding of the aftermath of the crisis, imagine what 10 years of emails could contribute to our understanding of its causes. We believe the AIG emails and other internal company documents are the 'black box' of the financial crisis. If we understand the failure of AIG, we will more fully understand the crisis -- what caused it and more importantly how to prevent it from happening again.
The emails today detail the efforts of the Fed to suppress the disclosure of payments made to banks such as Goldman, Sachs Group for reimbursement of their credit-default swap exposure. When the Treasury Department stepped in, AIG had at least $440 billion in credit-default swaps outstanding. The Fed, led by Tim Geithner, paid Goldman, Sachs Group and other banks 100 cents on the dollar for these instruments rather than negotiating a lower rate closer to the actual value, (estimated by some to have been as little as 20 cents). In testimony to the Congressional Oversight Panel, Tim Geithner insisted it was necessary to make these payments in full, arguing that even a small downward negotiation would prove catastrophic to the financial sector. Elizabeth Warren, head of the oversight panel has repeatedly challenged repeatedly this assertion.
Regardless the size of the payments, the Fed's request to suppress both their amount and the parties to whole these payments were made would not have come to light without the release of these emails. Without the rest of the emails, we will be unlikely to fully understand what led to the collapse of AIG and the financial markets. If we can't understand it, we will be unable to prevent it from happening again.
As such, today we are renewing our request for the full public disclosure of all AIG documents. We believe the government should put these documents on-line, thereby establishing an open-source investigation that would allow journalists and citizens the opportunity to piece together the story of what happened at AIG and in so doing more fully understand what happened in the broader financial collapse. AIG -- and more specifically its credit-default swaps exposure -- was an important contributing factor to the crash of the financial markets. What sets this company apart from others that played a role in the crisis is that we, the taxpayers, own it. As we noted in our original piece, US taxpayers bought 80% of AIG when they bailed the company out with $180 billion last year. As owners of the company, taxpayers are also owners of AIG. As owners of the company we can demand the release of these documents.
The taxpayer's stake in AIG is held by the A.I.G. Credit Facility Trust, whose three trustees are Jill M. Considine, a former chairman of the Depository Trust Company and a former director of the Federal Reserve Bank of New York; Chester B. Feldberg, a former New York Fed official who was chairman of Barclays Americas from 2000 to 2008; and Douglas L. Foshee, chief executive of the El Paso Corporation and chairman of the Houston branch of the Federal Reserve Bank of Dallas. We call on these three officials (interestingly all former Fed officials) to immediately release the documents we request.
The value of these documents, if it were ever in doubt, was certainly proved by Thursdays's revelations.
Release the emails.

Published on Friday, January 8, 2010 by The New York Times
Bubbles and the Banks
by Paul Krugman
Health care reform is almost (knock on wood) a done deal. Next up: fixing the financial system. I'll be writing a lot about financial reform in the weeks ahead. Let me begin by asking a basic question: What should reformers try to accomplish?
A lot of the public debate has been about protecting borrowers. Indeed, a new Consumer Financial Protection Agency to help stop deceptive lending practices is a very good idea. And better consumer protection might have limited the overall size of the housing bubble.
But consumer protection, while it might have blocked many subprime loans, wouldn't have prevented the sharply rising rate of delinquency on conventional, plain-vanilla mortgages. And it certainly wouldn't have prevented the monstrous boom and bust in commercial real estate.
Reform, in other words, probably can't prevent either bad loans or bubbles. But it can do a great deal to ensure that bubbles don't collapse the financial system when they burst.
Bear in mind that the implosion of the 1990s stock bubble, while nasty - households took a $5 trillion hit - didn't provoke a financial crisis. So what was different about the housing bubble that followed?
The short answer is that while the stock bubble created a lot of risk, that risk was fairly widely diffused across the economy. By contrast, the risks created by the housing bubble were strongly concentrated in the financial sector. As a result, the collapse of the housing bubble threatened to bring down the nation's banks. And banks play a special role in the economy. If they can't function, the wheels of commerce as a whole grind to a halt.
Why did the bankers take on so much risk? Because it was in their self-interest to do so. By increasing leverage - that is, by making risky investments with borrowed money - banks could increase their short-term profits. And these short-term profits, in turn, were reflected in immense personal bonuses. If the concentration of risk in the banking sector increased the danger of a systemwide financial crisis, well, that wasn't the bankers' problem.
Of course, that conflict of interest is the reason we have bank regulation. But in the years before the crisis, the rules were relaxed - and, even more important, regulators failed to expand the rules to cover the growing "shadow" banking system, consisting of institutions like Lehman Brothers that performed banklike functions even though they didn't offer conventional bank deposits.
The result was a financial industry that was hugely profitable as long as housing prices were going up - finance accounted for more than a third of total U.S. profits as the bubble was inflating - but was brought to the edge of collapse once the bubble burst. It took government aid on an immense scale, and the promise of even more aid if needed, to pull the industry back from the brink.
And here's the thing: Since that aid came with few strings - in particular, no major banks were nationalized even though some clearly wouldn't have survived without government help - there's every incentive for bankers to engage in a repeat performance. After all, it's now clear that they're living in a heads-they-win, tails-taxpayers-lose world.
The test for reform, then, is whether it reduces bankers' incentives and ability to concentrate risk going forward.
Transparency is part of the answer. Before the crisis, hardly anyone realized just how much risk the banks were taking on. More disclosure, especially with regard to complex financial derivatives, would clearly help.
Beyond that, an important aspect of reform should be new rules limiting bank leverage. I'll be delving into proposed legislation in future columns, but here's what I can say about the financial reform bill the House passed - with zero Republican votes - last month: Its limits on leverage look O.K. Not great, but O.K. It would, however, be all too easy for those rules to get weakened to the point where they wouldn't do the job. A few tweaks in the fine print and banks would be free to play the same game all over again.
And reform really should take on the financial industry's compensation practices. If Congress can't legislate away the financial rewards for excessive risk-taking, it can at least try to tax them.
Let me conclude with a political note. The main reason for reform is to serve the nation. If we don't get major financial reform now, we're laying the foundations for the next crisis. But there are also political reasons to act.
For there's a populist rage building in this country, and President Obama's kid-gloves treatment of the bankers has put Democrats on the wrong side of this rage. If Congressional Democrats don't take a tough line with the banks in the months ahead, they will pay a big price in November.

Published on Thursday, January 7, 2010 by TomDispatch.com
The Melting of America: The Story of a Can’t-Do Nation
by Orville Schell
Lately, I've been studying the climate-change induced melting of glaciers in the Greater Himalaya. Understanding the cascading effects of the slow-motion downsizing of one of the planet's most magnificent landforms has, to put it politely, left me dispirited. Spending time considering the deleterious downstream effects on the two billion people (from the North China Plain to Afghanistan) who depend on the river systems -- the Yellow, Yangtze, Mekong, Salween, Irrawaddy, Brahmaputra, Ganges, Indus, Amu Darya and Tarim -- that arise in these mountains isn't much of an antidote to malaise either.
If you focus on those Himalayan highlands, a deep sense of loss creeps over you -- the kind that comes from contemplating the possible end of something once imagined as immovable, immutable, eternal, something that has unexpectedly become vulnerable and perishable as it has slipped into irreversible decline.  Those magnificent glaciers, known as the Third Pole because they contain the most ice in the world short of the two polar regions, are now wasting away on an overheated planet and no one knows what to do about it.
To stand next to one of those leviathans of ice, those Moby Dicks of the mountains, is to feel in the most poignant form the magnificence of the creator's work. It's also to regain an ancient sense, largely lost to us, of our relative smallness on this planet and to be forcibly reminded that we have passed a tipping point.  The days when the natural world was demonstrably ascendant over even the quite modest collective strength of humankind are over.  The power -- largely to set an agenda of destruction -- has irrevocably shifted from nature to us.
Another tipping point has also been on my mind lately and it's left me no less melancholy.  In this case, the Moby Dick in question is my own country, the United States of America.  We Americans, too, seem to have passed a tipping point.  Like the glaciers of the high Himalaya, long familiar aspects of our nation are beginning to feel as if they were, in a sense, melting away.
The eight years of George W. Bush's wrecking ball undeniably helped set our descent in motion.  Then came the dawning realization that President Barack Obama, who strode into office billed as a catalyst of sure-fire change, would no more stop the melting down of the planet's former "sole superpower" than the Copenhagen summit would stop the melting of those glaciers.  After all, a predatory and dysfunctional Washington reminds us constantly that we may be approaching the end of the era of American possibility.  For Obama's beguiling aura of promise to be stripped away so unceremoniously has left me feeling as if we, as a country, might have missed the last flight out.
And speaking of last flights out, I've been on a lot of those lately.  It's difficult enough to contemplate the decline of one's country from within, but from abroad?  That -- take my word for it -- is an even more painful prospect.  Because out there you can't escape an awareness that what's working and being built elsewhere is failing and being torn apart here. To travel is to be forced to make endless comparisons which, when it comes to our country, is like being disturbed by unnerving dreams.
In the past few months, as I've roamed the world from San Francisco to Copenhagen to Beijing to Dubai, I've taken to keeping a double-entry list of what works and what doesn't, country by country.  Unfortunately, it's largely a list of what works "there" and doesn't work here.  It's in places like China, South Korea, Sweden, Holland, Switzerland, and (until recently) the United Arab Emirates -- some not even open societies -- that you find people hard at work on the challenges of education, transport, energy, and the environment.  It's there that one feels the sense of possibility, of hopefulness, of can-do optimism so long associated with the U.S.  
China, a country I've visited more than 100 times since 1975, elicits an especially complicated set of feelings in me.  After all, it's got a Leninist government which was not supposed to succeed; and yet, despite all predictions, it managed to conjure up an economic miracle that, whatever you may think about political transparency, the rule of law, human rights, or democracy, delivers big time.  When you're there, you can feel an unmistakable sense of energy and optimism in the air (along with the often stinging pollution), which, believe me, is bittersweet for an American pondering the missing-in-action regenerative powers of his own country.
As I've been traveling from China's gleamingly efficient airports to our chaotic and all-too-often broken-down versions of the same, or Europe's high-speed trains to our clunky railroads, I keep that expanding list of mine on hand, my own little version of what works and what doesn't.  Over time, its entries have fallen into one of three categories that I imagine something like this: 
1. Robust, full of energy, growing, replete with promise and strength, the envy of the world.
2. Alive and kicking, but in a delicate balance between growth and decline.
3. Irredeemably broken, with little chance of restored health anytime soon.
And here then, as I imagine it, is the shape of America today in terms of what works and what doesn't, what's growing and what's failing:
1.  Bio-technology, developing dynamically and delivering much of the world's most innovative technological research, thinking, and ideas; Silicon Valley, which still has enormous inventiveness, energy, and capital at its disposal; civil society which, despite the collapse of the economy, still seems to be expanding, still luring the best and brightest young people, and still superbly performing the ever more crucial function of being a goad to government and other established institutions; American philanthropy, which is the most evolved, well-funded, and innovative in the world; the U.S. military, the best led, trained, equipped, and maintained on the planet, despite the way it has been repeatedly thrust into hopeless wars by stupid politicians; the fabric of much of small-town American life with its still extant sense of cohesiveness and community spirit; the arts, both high-culture and pop, boasting a still vibrant film industry that remains the globe's "sole superpower" of visual entertainment, and the requisite networks of symphony orchestras, ballets, theaters, pop music groups, and world-class museums.
2.  Higher and secondary-school education, in which America still boasts some of the globe's preeminent institutions, though the best are increasingly private as jewel-in-the-crown public systems like California's are driven into the ground thanks to devastating, repeated budget cuts; a national energy system which still delivers, but is terminally strung out on oil and coal, and depends on a grid badly in need of some new "smartness"; environmental protection, which compares favorably with that in other countries, though always under-funded and so, like our extraordinary national park system, ever teetering above the abyss; the court system, overburdened and under-funded, but struggling to deliver justice.
3. The federal government, essentially busted; Congress, increasingly paralyzed and largely incapable of delivering solutions to the country's most pressing problems; state government, largely broke; the Interstate highway system and our infrastructure of bridges and tunnels, melting away like a block of ice in the sun because maintenance and upgrading is so poor; dikes, water systems, and many other aspects of the national infrastructure which keeps the country going, similarly old and deteriorating; airlines, some of the sorriest in the world with the oldest, dirtiest, and least up-to-date planes and the requisite run-down airports to go with them; ports that are falling behind world standards; a railroad passenger system which, unlike countries from Spain to China, has not one mile of truly high-speed rail; the country's financial system whose over-paid executives not only ran us off an economic cliff in 2008, but also managed to compromise the whole system itself in the eyes of the world; a broadcast media which -- public broadcasting and aspects of a vital and growing Internet excepted -- is a grossly overly-commercialized, broken-down mess that has gravely let down the country in terms of keeping us informed; newspapers, in a state of free-fall; book publishing, heading in the same direction; elementary education (that is, our future), especially public K-12 schools in big cities, desperately under-funded and near broke in many communities; a food industry which subsidizes sugar and starch, stuffs people with fast-food, and leaves 60% of the population overweight; basic manufacturing, like the automobile industry, evidently headed for oblivion, or China, whichever comes first; the American city, hollowing out and breaking down; the prison system, one of America's few growth industries but a pit of hopelessness.
As you may have noted, category one is close to a full list, category two, close enough, while category three is just a gesture in the direction of larger-scale decline.  Unfortunately, it seems ever expandable.  You'll undoubtedly be tempted to add to it yourself.  (I have the same impulse every time I'm elsewhere and see some shiny new industrial or designer toy we don't make or even have.)  When I told a friend about this tallying obsession of mine, he suggested that it might turn out to be a great website. (See the vigorous world of the Internet in category one above.)  And so it might -- a kind of electronic stock market Big Board where the world could weigh in and help track all those things people find encouraging or discouraging about the U.S. and other countries.
The initial impulse for my list, however, was self-protective.  I was searching for "things that work" here, the better to banish that dispiriting sense of an American decline into the sort of can't-do-itive-ness that Congress has come to exemplify.  Consider my exercise some kind of incantatory ritual -- a talisman -- meant to hold off the bad spirits just as, when I arrive in Beijing in winter and find the mercury near zero (an increasing rarity these last years) or stumble into a snowstorm in New York City, I'm relieved.  For me, such manifestations of real winter are signs that nature may not yet have totally surrendered to us, that global warming is still being challenged, and that things may not be as far gone as I sometimes fear. 
And yet that list of can-do's remains so unbearably short and the cant-do's grows by the trip.  I'd love to be convinced otherwise, but like the ice fields of the Greater Himalaya melting before our eyes, American prowess and promise, once seemingly as much a permanent part of the global landscape as glaciers, mountains, and oceans, seems to be melting away by the day.

Geithner’s New York Fed Told AIG to Limit Swaps Disclosure
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By Hugh Son

Jan. 7 (Bloomberg) -- The Federal Reserve Bank of New York, then led by Timothy Geithner, toldAmerican International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.
AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.
The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.
“It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information,” said Issa, a California Republican. Taxpayers “deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information.” President Barack Obama selected Geithner as Treasury secretary, a post he took last year.
Bank Payments
Issa requested the e-mails from AIG Chief Executive Officer Robert Benmosche in October after Bloomberg News reported that the New York Fed ordered the crippled insurer not to negotiate for discounts in settling the swaps. The decision to pay the banks in full may have cost AIG, and thus taxpayers, at least $13 billion, based on the discount the insurer was seeking.
The e-mail exchanges between AIG and the New York Fed over the insurer’s disclosure of the transactions show that the regulator pressed the company to keep details out of the public eye. Issa’s comments add to criticism from Republican lawmakers, including Senator Chuck Grassley of Iowa and Representative Roy Blunt of Missouri, who wrote letters in the past two months demanding information from Geithner, 48, about the costs of the AIG bailout.
Securities Lawyers
AIG’s Dec. 24, 2008, filing was challenged privately by the U.S. Securities and Exchange Commission, which polices the adequacy of disclosures by publicly traded firms. The agency said in a letter to then-CEO Edward Liddy six days later that AIG should provide a Schedule A, which lists collateral postings for the swaps and names the bank counterparties that purchased them from the company. The Schedule A was disclosed about five months later in a filing.
“Our position has always been that if AIG’s securities lawyers determine that AIG is legally obligated to make a particular filing or disclosure, then that is what AIG must do,” said Jack Gutt, a spokesman for the New York Fed, in an e- mailed statement. Gutt said it was appropriate for the New York Fed, as party to deals outlined in the filings, “to provide comments on a number of issues, including disclosures, with the understanding that the final decision rested with AIG’s securities counsel.”
Mark Herr, a spokesman for New York-based AIG, declined to comment. Andrew Williamsof the Treasury referred questions to the New York Fed.
Kathleen Shannon, an AIG deputy general counsel, wrote to the insurer’s executives in a March 12, 2009, e-mail about the conflicting demands from the New York Fed and SEC.
‘Reasonable Basis’
“In order to make only the disclosure that the Fed wants us to make,” Shannon wrote, “we need to have a reasonable basis for believing and arguing to the SEC that the information we are seeking to protect is not already publicly available.”
AIG disclosed the names of the counterparties, which included Deutsche Bank AG and Merrill Lynch & Co., on March 15. The disclosure said AIG made more than $27 billion in payments without identifying the securities tied to the swaps or listing the value of individual purchases by each bank, details the Fed wanted to keep out, according to the March 12 e-mail from AIG’s Shannon.
Earlier that month, Fed Vice Chairman Donald Kohn testified to Congress that disclosure of the counterparties would harm AIG’s ability to do business. The insurer agreed to turn over a stake of almost 80 percent in connection to its bailout.
‘No Mention of the Synthetics’
The e-mails span five months starting in November 2008 and include requests from the New York Fed to withhold documents and delay disclosures. The correspondence includes e-mails between AIG’s Shannon and attorneys at the New York Fed and its law firm, Davis Polk & Wardwell LLP. Tom Orewyler, a spokesman for Davis Polk in New York, declined to comment as did Shannon.
According to Shannon’s e-mails obtained by Issa, the New York Fed suggested that AIG refrain in a filing from mentioning so-called synthetic collateralized debt obligations, which bundled derivative contracts rather than actual loans.
The filing “reflects your client’s desire that there be no mention of the synthetics in connection with this transaction,” Shannon wrote to Davis Polk on Dec. 2, 2008. “They will not be mentioned at all.”
AIG had about $9.8 billion of swaps protecting the synthetic holdings as of September 2008, the company said on Dec. 10, 2008. Goldman Sachs said in a press release last month that it was among banks that had losses on synthetic CDOs.
As part of a bailout that swelled to $182.3 billion, AIG and the Fed created Maiden Lane III, a taxpayer-funded facility designed to remove mortgage-linked swaps from the insurer’s books. Shannon told the New York Fed on Nov. 24, 2008, that AIG executives wanted to publicly disclose details about Maiden Lane the next day.
‘Guided by Your Counsel’
“Do you think it might be feasible to hold off on the Maiden Lane III 8K and press release until next week?” Brett Phillips, a New York Fed lawyer wrote in an e-mail that day. “The thinking is that the Maiden Lane III closing will be a less transparent event, and it might be better to narrow the gap between AIG’s announcement and the New York Fed’s publication of term sheet summaries.”
“Given the significance of the transaction, AIG would be best served by filing tomorrow,” Shannon wrote. “We will of course be guided by your counsel.” The document outlining the Maiden Lane agreement was posted on Dec. 2, 2008.
In at least one instance, AIG pushed for documents to be disclosed and then released the information.
‘Better Disclosure’
“We believe that the agreements listed in the index (i.e., the Master Investment and Credit Agreement and the Shortfall Agreement) do not need to be filed,” Peter Bazos, a Davis Polk lawyer wrote on Nov. 25, 2008. “Please let us know your thoughts in this regard.”
AIG’s Shannon replied that “the better practice and better disclosure in this complex area is to file the agreements currently rather than to delay.” The agreements were included in the Dec. 2 filing.
More details of the negotiations over swaps payments emerged in November 2009 when Neil Barofsky, the special inspector in charge of policing the Troubled Asset Relief Program, assessed the Fed’s role in the bailout.
“Federal Reserve officials provided AIG’s counterparties with tens of billions of dollars they likely would have not otherwise received,” Barofsky wrote in a Nov. 17 report. “The default position, whenever government funds are deployed in a crisis to support markets or institutions, should be that the public is entitled to know what is being done with government funds.”
AIG’s first rescue was an $85 billion credit line from the New York Fed in September 2008. The bailout was expanded three times and is valued at $182.3 billion. That includes a $60 billion Fed credit line, an investment of as much as $69.8 billion from the Treasury and up to $52.5 billion for Maiden Lane facilities to buy mortgage-linked assets owned or backed by the company.

How Main Street Got Shafted While Wall Street Bounced Back
By Robert Reich, Robert Reich's Blog
Posted on January 5, 2010, Printed on January 5, 2010
http://www.alternet.org/story/144922/
In September 2008, as the worst of the financial crisis engulfed Wall Street, George W. Bush issued a warning: "This sucker could go down." Around the same time, as Congress hashed out a bailout bill, New Hampshire Sen. Judd Gregg, the leading Republican negotiator of the bill, warned that "if we do not do this, the trauma, the chaos and the disruption to everyday Americans' lives will be overwhelming, and that's a price we can't afford to risk paying."
In less than a year, Wall Street was back. The five largest remaining banks are today larger, their executives and traders richer, their strategies of placing large bets with other people's money no less bold than before the meltdown. The possibility of new regulations emanating from Congress has barely inhibited the Street's exuberance.

But if Wall Street is back on top, the everyday lives of large numbers of Americans continue to be subject to overwhelming trauma, chaos and disruption.

It is commonplace among policymakers to fervently and sincerely believe that Wall Street's financial health is not only a precondition for a prosperous real economy but that when the former thrives, the latter will necessarily follow. Few fictions of modern economic life are more assiduously defended than the central importance of the Street to the well-being of the rest of us, as has been proved in 2009.

Inhabitants of the real economy are dependent on the financial economy to borrow money. But their overwhelming reliance on Wall Street is a relatively recent phenomenon. Back when middle-class Americans earned enough to be able to save more of their incomes, they borrowed from one another, largely through local and regional banks. Small businesses also did.

It's easy to understand economic policymakers being seduced by the great flows of wealth created among Wall Streeters, from whom they invariably seek advice. One of the basic assumptions of capitalism is that anyone paid huge sums of money must be very smart.

But if 2009 has proved anything, it's that the bailout of Wall Street didn't trickle down to Main Street. Mortgage delinquencies continue to rise. Small businesses can't get credit. And people everywhere, it seems, are worried about losing their jobs. Wall Street is the only place where money is flowing and pay is escalating. Top executives and traders on the Street will soon be splitting about $25 billion in bonuses (despite Goldman Sachs' decision, made with an eye toward public relations, to defer bonuses for its 30 top players).

The real locus of the problem was never the financial economy to begin with, and the bailout of Wall Street was a sideshow. The real problem was on Main Street, in the real economy. Before the crash, much of America had fallen deeply into unsustainable debt because it had no other way to maintain its standard of living. That's because for so many years almost all the gains of economic growth had been going to a relatively small number of people at the top.

President Obama and his economic team have been telling Americans we'll have to save more in future years, spend less and borrow less from the rest of the world, especially from China. This is necessary and inevitable, they say, in order to "rebalance" global financial flows. China has saved too much and consumed too little, while we have done the reverse.

In truth, most Americans did not spend too much in recent years, relative to the increasing size of the overall American economy. They spent too much only in relation to their declining portion of its gains. Had their portion kept up -- had the people at the top of corporate America, Wall Street banks and hedge funds not taken a disproportionate share -- most Americans would not have felt the necessity to borrow so much.

The year 2009 will be remembered as the year when Main Street got hit hard. Don't expect 2010 to be much better -- that is, if you live in the real economy. The administration is telling Americans that jobs will return next year, and we'll be in a recovery. I hope they're right. But I doubt it. Too many Americans have lost their jobs, incomes, homes and savings. That means most of us won't have the purchasing power to buy nearly all the goods and services the economy is capable of producing. And without enough demand, the economy can't get out of the doldrums.
As long as income and wealth keep concentrating at the top, and the great divide between America's have-mores and have-lesses continues to widen, the Great Recession won't end -- at least not in the real economy.
Robert B. Reich has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He also served on President Obama's transition advisory board. His latest book is Supercapitalism.

Robert Reich

Former Secretary of Labor, Professor at Berkeley
Posted: January 5, 2010 10:39 AM

What's Ahead for the Economy and Politics in 2010

Just about everything you'll hear coming out of Washington starting now is really about November's mid-term election. The gravitational pull of the midterms was already apparent last year, as Republicans marched in perfect lockstep to vote against whatever the President and Democrats proposed (Republicans always have authoritarian discipline on their side, which is why they're Republicans), but you haven't seen anything yet.
The Democrats have enough votes to enact health care -- the hurdle Bill Clinton failed to jump, contributing to the Republican takeover in 1994 -- but when it's enacted, expect the spin machines on both sides to be at full throttle. And because health care legislation won't be implemented for another three or four years (depending whether the House or Senate versions prevail), Americans won't be able to test the veracity of these wildly divergent claims. So don't count on health reform to help Dems next November -- nor harm them, either.
Foreign policy is just as unlikely to tip the scales. Sad to say, absent a draft most American families will read about American deaths in Afghanistan much the way they've absorb the U.S. body count in Iraq -- as news items rather than personal tragedies. Nor will Iran's nuclear capabilities, North Korea's missile launches, Pakistan's tumult, or Yemen's terrorists have much electoral effect -- unless terrorists commit an atrocity in America or on American travelers. Needless to say, China's decision about whether and how much to revalue its currency, although important, will affect the votes of about three Americans (and I think I know all of them).
Issue Number One -- the overriding concern that will determine more than anything how many seats the Democrats lose next fall -- is jobs. If unemployment is 10 percent or more next November, the Dems are in danger of losing the House and will almost certainly be short of the 60 votes they need in the Senate.
But why would employment be 10 percent or above next November? Surely, you say, there are enough signs of recovery that we can count on a lower rate. Don't be so sure. Here are likely scenarios, with my probabilities:
Double-dip recession (10 percent likelihood). The commercial real estate market craters, carrying with it hundreds of regional banks and exposing how much junk is still on the books of major Wall Street banks. This triggers a long-awaited "correction" in the Dow and pushes the nation into another recession. Job losses rise. By November, the unemployment rate is back over 10 percent.
Stalled recovery (20 percent). Fearing inflation and overly confident of the strength of the recovery, the Fed stops buying up debt instruments and starts raising rates. These acts choke off the recovery. Unemployment remains at 10 percent.
Jobless recovery (40 percent). The stimulus remains in full force, the Fed keeps interest rates low, firms replace inventories and expand production. But with the average workweek hovering around 33 hours, employers don't add new jobs; they just have current workers put in more hours. Result: No drop in unemployment.
Solid recovery (20 percent). Demand surges, employers decide to expand capacity. But they don't add American jobs. Now that foreign workers have access to much of the same equipment and can be linked up to the U.S. so cheaply through the Internet, employers outsource abroad. Result: No drop in unemployment.
Strong recovery (10 percent). The recovery is strong enough for employers to start hiring American workers. Many jobless Americans who have been too discouraged to look for work to begin looking again. But because the BLS household survey (on which the official level of unemployment is based) depends on how many Americans are looking for work, the paradoxical result is for unemployment to remain in double digits.
In other words, I think the chances of unemployment being 10 percent next November are overwhelmingly high. But although voters are acutely sensitive to the rate of unemployment, they're also influenced by the direction employment is heading. If it looks like jobs are coming back, they may forgive a high absolute level of unemployment -- even one as high as 10 percent. But if it looks like jobs aren't coming back, that we may be stuck with a high level of joblessness for years, voters will take out even more of their anxieties on Democrats next November.
The irony, of course, is that Republicans want to cut spending and reduce the deficit. If they had their way, we'd have double-digit unemployment as far as the eye can see.

Mega Giant Corporations Are Very Bad for America

By Barry C. Lynn, AlterNet
Posted on January 2, 2010, Printed on January 3, 2010
http://www.alternet.org/story/144716/

The following is an excerpt from the first chapter of Cornered: The New Monopoly Capitalism and the Economics of Destruction, published by Wiley Press.
Even with a GPS and a good map, I have a hard time finding Diane Cochrane’s home, which is tucked in the crease of a hill a few miles east of Prescott, Arizona. The one-story green frame building sits at the bottom of a steep driveway that drops from a rocky road that cuts off a maze of streets that, as I drive along in my rented Pontiac, seem more like a mad Motocross track than the arteries of a neighborhood.

Yet it is easy to understand why Diane settled here with her husband after they fled the monotony of a Ford assembly line in Ohio. The landscape is a testament to the creativity of both humanity and God. Every one of the hundred or so houses in the community is unique. There are ramblers, chalets, A-frames, ranches, and log cabins. The terrain, meanwhile, seems to change in character almost inch by inch as the roadway drops and twists vertiginously into deep and scrubby ravines, only to crest a moment later to stunning views of a far shimmering horizon.

A few miles down Highway 69, the Wal-Mart Supercenter at the edge of Prescott is a different world. The parking lot alone is the grandest swath of flat space I’ve seen in the last hour of driving. Then there’s the store itself. To fit the big box into the undulating land, the builders had to cut deep into the side of a hill, carving away as much as six or seven stories worth of dirt and rock.

Once I am inside Wal-Mart’s door, it takes me nearly two minutes, striding swiftly, to walk from one end of the store to the other. Along the way I pass twenty-seven checkout lines and what seems like a whole town -- a savings bank, a McDonald’s, a portrait gallery -- tucked under this one roof. I almost wish I’d brought along some music to entertain myself, because there isn’t much new to look at on my stroll. Other than having a rack of cowboy hats, this Supercenter is filled with the exact same collection of products as every other Wal-Mart Supercenter in the United States, be it in Ohio, California, or Virginia. It also has the same empty feeling. When I arrive, it’s early evening and the parking lot is full. Yet the store seems almost vacant, and the few shoppers I do see wander listlessly and almost silently through the aisles.

Diane, who is sixty and has cut her gray hair short, wears a salmon-colored cotton shirt on this ninety-seven-degree April day. She tells me that until recently, she shopped in this Wal-Mart almost every day, often on her way home from her job managing a party store. She doesn’t anymore, though, and that’s not because filling a basket at the Supercenter can be more exhausting than a trip to the gym. Diane has tried to avoid all Wal-Marts everywhere ever since her two kittens, Bones and Moses, died of kidney failure on the same day in 2007. Diane believes that the food she purchased here -- Wal-Mart private label Special Kitty Gourmet Blend foil pouches filled with whitefish and tuna in sauce -- is what killed them.

My intent is not to blame any one person at Wal-Mart for the deaths of Diane’s kittens, nor to blame the rather abstract entity that is Wal-Mart taken as a whole. It is to reinforce the idea that monopoly exists just about everywhere in America today. It is also to add two new facts. First, today’s monopolies increasingly appear in the shape of giant trading firms like Wal-Mart, which are designed to govern entire production systems, even entire swaths, of our economy. Second, monopoly does not eliminate competition, nor does it automatically result in a rational and efficient governance of the production and service systems under its sway.

On the contrary, monopolization merely shifts competition from a horizontal plane to a vertical plane. That is, rather than having a winner-take-all battle among automobile makers or between Wal-Mart and Target, for example, we have competition between the monopoly and all the people under its power. In the case of Wal-Mart, this includes its workers and its suppliers as well as its customers. The real competition, in other words, is between the billionaires who make and wield monopolies like Wal-Mart and people like you, me, and Diane.

I could have started this with dozens of stories about the deaths of dogs and cats just before and after the great pet food recall of 2007. I chose Diane’s story not because we have absolute proof that Wal-Mart cat food killed Bones and Moses -- the kittens were cremated days before the first recall was announced. Rather, it was because the circumstantial evidence is so strong. Bones and Moses were healthy kittens. There were two of them, and they died at the same time. During their whole lives Diane fed them only Special Kitty pouches. Diane’s veterinarian told Diane that the kittens’ blood-urea- nitrogen measurement was the highest she had ever seen. Diane also owned other animals at the time, including a seven-year-old cat named Little Bit and a seven-year-old collie named Sailor, both of whom ate food that was not included in the recall; both of them, she tells me, remain quite healthy.

I chose to focus on the pet food fiasco in general because it was one of those stories that comes along every so often that rips away the veil to reveal how the mechanisms of our economy really work. That’s what happened in March 2007, when an Ontario-based company named Menu Foods announced a recall of cans and pouches of wet pet food that had been packed at plants in Kansas and New Jersey. At first, the story seemed simple enough: another case in which poor food-handling techniques resulted in contamination that resulted in sickness and, in a few cases, death, just as we have seen in such other products as spinach and peanut butter.

That’s why the initial reports on the recall focused on empty store shelves and terrified pet owners. Within a week, however, the Menu Foods story began to morph into something entirely different: a horror tale about the dangers of food, drugs, toys, and tires made in China. The turning point came on March 23, when three things happened.

First, the Food and Drug Administration (FDA) announced that it suspected that some toxin had been mixed into the wheat gluten that was used to thicken the canned meats. Second, an independent lab reported that it had found rat poison in the recalled cans. Third, Menu Foods pointed a finger at a shipment of wheat gluten that had been purchased from a supplier in China. Although rat poison was later replaced as the main culprit by a chemical named melamine, the story line had now taken shape: cheap and adulterated Chinese products were poisoning Americans, their children, and their pets.

Throughout the coming months, journalists and officials would drag vast piles of horrifying facts into the light. Some Chinese toothpaste makers had used diethylene glycol, a component of brake fluid and antifreeze, as a sweetener. Some Chinese toy makers had coated their products with lead-based paints. Some Chinese farmers had fed unapproved drugs to catfish that were bound for U.S. dinner plates. Some Chinese slaughterhouses had mixed “oversulfated chondroitin sulfate” into the pig intestines that were used as the raw material for the blood thinner heparin.

The details were so nauseating and so terrifying that two of the most important revelations of the Menu Foods meltdown were all but lost. The first was that the corporations we rely on to stock our shelves with food had allowed the production of wheat gluten -- which is used to thicken wet foods, bind dry foods, and condition dough -- to be captured by a single foreign nation, China. Similarly, these corporations had allowed the production of numerous other vital inputs -- like most of the ingredients in our drugs -- to be captured by that one nation.

The second overlooked revelation was that almost the entire U.S. pet food industry had come to depend, to various degrees, on a single supplier of canned and pouched pet food. In this case, five of the top six independent brands -- including those marketed by Colgate-Palmolive, Mars, and Procter & Gamble -- had hired Menu Foods to stuff meat into at least some of the cans and pouches that as of early 2007 bore their labels. So had seventeen of the top twenty food retailers in the United States that sell “private label” wet pet foods under their store brands, including Safeway, Kroger’ s, and Wal- Mart. In total, the Menu Foods recall covered products that had been retailed under a phenomenal 150 different names.

Perhaps even more disturbing, especially for those pet owners who had been spending their dollars on a premium product, was that the recall revealed that high-end, expensive brands like Iams and Hill’s Pet Nutrition Science Diet rolled off the exact same Menu Foods packing lines as the cans that were wrapped in labels bearing such names as Supervalu and Price Chopper.

Without access to internal documents from all of these companies, it is almost impossible to know exactly what percentage of wet pet food in the United States came from Menu Foods factories in the months before the recall. The last thing an established brand wants to advertise is how much of its product it buys from outside suppliers. My own figures indicate that Menu Foods accounted for somewhat less than a quarter of the total pet food sold in the United States, by weight.

Even so, Menu Foods' octopuslike reach throughout the pet food industry resulted in disruptions that were far greater than would have been the case a decade earlier. Back then, the big pet food brands largely operated their own factories and packed their own cans, and they also actively managed their supply bases to avoid concentration. This means that they would have been able to isolate any supply problem far more swiftly and with far less disruption at the point of sale.

In 2007, the sheer number of brands affected by the Menu Foods recall meant that, as the Wall Street Journal noted, it was now much “harder for consumers to find a safe substitute.” 10 In some instances, confused store managers pulled all pet food off their store shelves. In other cases, confused consumers did not trust what was still for sale.

For those Americans who believe in what we were taught in civics class and Econ 101, the most disturbing revelation was not even the fragility of our food systems, but that some of our most cherished beliefs about how the U.S. economy works appear no longer to be true. We are told that companies are engaged in a mad scramble to discover exactly what we the U.S. consumers want and to devise perfectly tailored systems to supply those want as efficiently as possible. We are told that our economy is characterized by constantly chaotic yet always constructive competition and that any American with a better product and bit of gumption can bring that product to market and beat the big guys.

Yet the reality, as Menu Foods now taught us, could not be more different -- at least not in the pet food aisle in Wal-Mart or Kroger’s. Instead of having infinite choice, as we thought, we are really presented with a wall of standard-issue cans and pouches that are distinguished only by the words and colors on their labels. The secret ingredient of U.S. capitalism, at least in this corner of the industrial kitchen, could have been cooked up in the Soviet Union.

More disturbing yet is that such concentration is not the exception in the United States but increasingly the rule. A quick tour of almost any grocery store reveals degrees of concentration that make Menu Foods look like a novice. Let’s take a quick walk around the average U.S. grocery or big-box store.

Over in the health-care aisle we find that Colgate-Palmolive and Procter & Gamble split more than 80 percent of the U.S. market for toothpaste, including such seemingly independent brands as Tom’s of Maine.

In the cold case we find that almost every beer is manufactured or distributed by either Anheuser-Busch InBev or MillerCoors, including imports like Corona, Beck’s, and Tsingtao; regional beers like Rolling Rock; once independent microbrews like Redhook and Old Dominion; and even “organic” beers like Stone Mill Pale Ale.

Perhaps Americans are comfortable with the fact that Campbell’s controls more than 70 percent of the shelf space devoted to canned soups. After all, the firm grew to prominence after its launch in 1869, thanks to its pioneering successes in integrating advanced chemistry, mass manufacturing, and modern advertising.

But what are we to make of the modern snack aisle, where Frito-Lay in recent years has captured half the business of selling salty corn chips and potato chips?

And what about the business of selling tap water in plastic bottles? Here, if anywhere, is an activity that any enterprising young American should be able to master. All you would seem to need to enter the local market for water is a spigot, some bottles, and a cool label. Yet nine of the top ten brands of bottled tap water in the United States are sold by PepsiCo (Aquafina), Coca-Cola (Dasani and Evian), or Nestlé (Poland Spring, Arrowhead, Deer Park, Ozarka, Zephyrhills, and Ice Mountain).

Furthermore, what can we learn from the size of the corporation in whose store we now stand? Until we elected Ronald Reagan president, both Democrats and Republicans made sure that no chain store ever came to dominate more than a small fraction of sales in the United States as a whole, or even in any one region of the country. Between 1917 and 1979, for instance, administrations from both parties repeatedly charged the Great Atlantic and Pacific Tea Company, the chain store behemoth of the mid-twentieth century that is better known as A & P, with violations of antitrust law, even threatening to break the firm into pieces.

Then in 1981 we stopped enforcing that law. Thus, today Wal-Mart is at least five times bigger, relative to the overall size of the U.S. economy, than A & P was at the very height of its power. 13 Indeed, Wal- Mart exercises a de facto complete monopoly in many smaller cities, and it sells as much as half of all the groceries in many big metropolitan markets. Wal-Mart delivers at least 30 percent and sometimes more than 50 percent of the entire U.S. consumption of products ranging from soaps and detergents to compact discs and pet food.

For that matter, what can we learn about our twenty-first- century consumer arcadia by looking at how the Supercenter in which we shop was constructed? The price of the steel in the frame reflects the nearly complete roll-up of the world’s main sources of iron ore by three firms (two of which recently tried to merge). The price of the store shelves reflects the nearly complete roll-up by these same three firms of the capacity to process bauxite into aluminum. The price of the concrete in the foundation reflects the recent roll-up of the world cement industry by a few immense firms like Mexico’s Cemex. The price of the crushed rock in the parking lot reflects the roll-up of control by a few corporations over many of the biggest quarries in the United States.

Big corporations have played a big role in this country for a long time. Companies of men began to build big interstate railroads even before the Civil War, and they began to assemble giant industrial combines soon after. Big companies began to centralize control over the butchery of cattle and hogs, the milling of grains, and the canning of fruit and vegetables and soups in the late nineteenth century.

By the early twentieth century, men had enclosed in the walls of a few corporations the capacity to make automobiles, chemicals, and farm machinery. For much of the last century, however, the American people took steps to disrupt the efforts to completely dominate these businesses, and, as we saw with A & P, we took special pains to restrict the reach of pure trading companies.

That’s why we have never before seen such power to govern our industries concentrated in so few hands. That’s why we have never before seen such physical concentration of production -- be it of vitamin C, wheat gluten, heparin, or aspirin in China, of semiconductors in Taiwan, or of package- sorting capacity in Memphis. That’s why we have never before seen such a lack of compartmentalization of our systems and therefore such a socialization of the risk in these systems. That’s why we have never before seen such top-down competition and thus the destruction of so many of the real assets, skills, and products enclosed within the fences of these corporations. That’s why we have never before faced such a lack of real options.

I know that this last point --  that the U.S. consumer faces fewer and fewer options -- is, on the face of it, hard to believe. The world we shop in every day appears to be full of choices. Yet in real life, our political economy is filled with hidden monopolies almost everywhere, and these monopolies increasingly control, restrict, and determine what we buy, with little or no regard for any real market forces.

Just ask Diane Cochrane. As much as she wanted to cut Wal-Mart out of her life, she quickly found that she could not. Although Diane was eventually able to find a new -- much more expensive -- source of pet food for her surviving cat and dog, there are certain items she just can’t find in Prescott outside Wal-Mart, which now runs two Supercenters in this community of forty-one thousand people.

“It’s getting to where for a lot of things you have to go to Wal-Mart,” Diane says. This is true even when she knows that the quality is bad. There is, she tells me, “no other choice.”
Barry C. Lynn, a senior fellow at the New America Foundation, is a business and political journalist. He is the author, most recently, of Cornered: The New Monopoly Capitalism and the Economics of Destruction, from Wiley Press.

Monopoly Capitalism Is the Root of All of America's Problems

By Daniela Perdomo, AlterNet
Posted on December 31, 2009, Printed on December 31, 2009
http://www.alternet.org/story/144787/

Something is rotten in the state of American capitalism, and if you agree with Barry C. Lynn, almost all stinky paths lead to the monopolization of our economy. The rise of behemoths like Wal-Mart and Viacom are not only lowering the quality and safety of the products you use, but also undermining our so-called democracy. 
I had a chance to speak to Lynn about just how bad things are -- and what we might be able to do about it. Lynn's new book, Cornered: The New Monopoly Capitalism and the Economics of Destruction, from Wiley Press, will be out in January.
Q: In the book you say we have no choice but to reverse the process of monopolization in our economy. How can we practically achieve that, at this stage of the game?

Barry C. Lynn: We can achieve it and there’s proof we can because we’ve done it in the past. In the late 19th century there was a really incredible process of monopolization. In the Guilded Age, you ended up with really tight concentration of control over finance in Wall Street. Think of Standard Oil, of U.S. Steel. There was some effort to break up those companies in the early 20th century but the real change took place after what people call the Second New Deal. The Roosevelt administration ended up breaking up a number of companies. What they did most successfully is stop the growth of massive companies and created space for new companies to grow. 

In the middle of 20th century century, again there was a case in which we actually undid many of the powers and protected the entrepreneur. It was policy that at least three or four companies had to be competing with each other in each industry -- and preferably eight or ten. There’s the Alcoa case, for example. They had a 100 percent steel monopoly through the end of World War II. After the war, the government created opportunities for new companies and forced Alcoa to share its technology with new companies.

We have a lot of experience with this, we’ve done it on a whole-scale in the past, and doing so would be creating a lot of interest in these companies. There are lot of managers in Wal-Mart, for example, who won’t rise up in the ranks in such a large system, but if there’s 30 smaller Wal-Marts, lots of individuals can reach their full potential. Companies aren’t monolothic in nature. They’re made of people, and lots of these people have an interest in breaking them up.

Q: What about shareholders’ and board members’ interests? They surely wield more power and sway over these kinds of decisions than associates at a huge company like Wal-Mart.

BL: Right. Well, Alan Greenspan was one of the engineers of the roll-up of modern monopolization over the past 30 years. As a student, he studied the Standard Oil case, in which there was this argument that pretty much went: “Let’s not break up Standard Oil because it’s so much more efficient than the little pieces if they were separated.” The Supreme Court at the time said that didn’t matter, because we must have competition and broke Standard Oil up anyway. 

Greenspan went on to use the flawed argument that big things are more efficient to aid in overturning antitrust law in 1981. After the near-collapse of the financial system in 2008, he woke up to see all these too-big-to-fail banks. Greenspan has since been one of the people to say we have to break up the banks. We shouldn’t be afraid of this because, as we found with Standard Oil, after we broke it up, all the constituent pieces were actually worth much more for the investors than what Standard Oil had been valued at when it was a single entity.

Q: So what happens if we don’t reverse the monopolization of our economy?

BL: There’s two main types of problems. One is that antimonopoly law is a political law -- not economic, as you might suspect. You prevent monopolies because you don’t want a concentration of economic power that gives beneficiaries political power. So monopolies are a huge political problem.

Look at things now. We essentially have a merger of Goldman Sachs and the Treasury Department. So we don’t actually know who’s running the Treasury. We have a political crisis, in which we’ve had a coup by the bankers. And the bankers don’t only control banks but also all the large corporations. The way governance has been changed, we give financiers direct control over our largest corporations.

In Europe, when people invest $1 billion in Airbus, they get new machinery, new plants, new skills, and create jobs. When we invest in Boeing, a huge portion of that money goes straight out the backdoor and into the financiers who run the company. 

The second [problem] is that our systems become more and more fragile. What we saw on Sept. 15, 2008, after the failure of Lehman Brothers, was how the entire financial system was tied together in such a way that unless a major infusion of money came at once, basically everything was going to go down. If you’re not able to move money around, you can’t move product around -- potentially a lights-out event. It’s pretty amazing that we would run our financial system so poorly, really.

This systemic risk is a result of monopolists preaching efficiency because they want to take cash out of the system. For example, let’s say they have two machines, and sell one. They get money for the machine they sell, and then the one left over will be more expensive to use so they can charge more for its use. They pocket the money from the machine they sell and get more money off the one machine they have left. The problem, though, is they only have one machine left. If something goes wrong, we can have huge systemic failures, especially if, say, the product this machine makes is something like semiconductors or chemicals that go into many products. If all production of these keystone items is in one place, it looks efficient -- financiers and economists will tell you this, and do -- but they have created the potential for catastrophic failure if something happens that takes that one machine or one plant or one foundry out of operation. 

If we don’t do anything we have a truly massive political challenge. We can pretend we’re living a democracy, in a republic, but if you look at Obama’s background he was adopted by and promoted by the ruling machine, which was set up at [the Brookings Institution’s] Hamilton Project. Those were the people who vetted this man and who’ve surrounded this man. Though I have huge admiration for him and retain faith in his potential to stand up these people, he is still essentially inside this circle.

The other problem is the longer we wait the greater the chance that we’ll have another event like what happened last year. And the next event could be much worse. We could see truly catastrophic crashes affect our system. We have no choice but to fix the concentration of power. It’s politically unacceptable and it’s unacceptable from an engineering perspective.

Q: The Obama administration has been cautious to aggressively confront too-big-to-fail banks. Do you observe the administration taking actions to address monopolies in other areas of our economy?

BL: Well, recently the FCC brought charges against Intel. That was a pretty easy move because against Intel you’ve already had the Japanese and South Korean government take action, as well as the the EC in Brussels, and even New York State. Even the Bush administration almost did. But now they actually pulled the trigger. And that’s a good thing.

I’m hearing very good things in agriculture. Part of the problem with the Obama administration, which is the same problem with the Clinton adminisration, is that even though you’d think they’d be more aggressive on antitrust issues, they buy into the basic framework of interpreting antitrust law as was put into place by Reagan. Before 1981, law ensured competition for the sake competition -- to protect the market system and to prevent the consolidation of control. Since 1981, they switch it to this consumer welfare test, which was defined basically as price. If the merger will bring a lower price, it’s approved. The Clinton people and now the Obama people -- who are largely the Clinton people -- accept the same framework. The idea to go after something like Wal-Mart in the near term is unlikely. We’re not likely to see a lot of action there because the framework they believe in doesn’t allow them to.

But as I was saying, the Department of Agriculture has not really been indoctrinated by the consumer welfare framework. The concentration of power over such activities as farming pigs or chickens, or growing corn, is so extreme it amounts to debt peonage. So extreme it’s hard to ignore. Some interesting work appears to be on the move there.

Generally though, this administration appears to be willing to accept any merger that will deliver a lower price to the consumer.

Q: You alluded to this, but what is the price of the mad rush for “lowest prices guaranteed?” In other words, what is the price of cheap?

BL: One price of cheap is that you end up with less safe products. If you get to cheap through real competition and an open market system, in which you have a bunch of different independent companies competing to find a better way to do something, and you have regulation that doesn’t allow you to cut quality in order to cut prices, then you’ll end up with both increasing quality and safety and lower cost over time. That was the old system.

What we have now is lower prices delivered by brute power forced downwards onto producers. A company like Wal-Mart exercises authoritiarian power. “Last year,” they tell producers, “we paid you $100 for that grill, this year we’re only going to pay $90 and it’s up to you to figure out what you cut.” So over time that grill is going to be less and less sturdy. The food will become more and more adulterated. T-shirts will become thinner and thinner and made by children somewhere. 

The price that we pay for lower cost is less safe, cheaper quality products that end up wearing out sooner -- at best. At worst, even death. You saw the concentration in the spinach or peanut industries where people died.

The thing with [such power] being concentrated is you can give the monopoly a fine but you can’t shut them down because then you don’t have spinach anymore. The only way you can really have safety and higher quality is true competition. 

Q: Could you address how monopolization plays into health care politics and the chances for reform?

BL: Congress seems to have unfortunately gone through this whole process without really focusing on the fact that they’re engineering competition. They have just bought this Wal-Mart idea that you concentrate power so you can manipulate the doctors, the nurses, and the aides top-down. They’re so fixated on lowering the price and extending protections as swiftly as possible that they have essentially rejected the public option. They’ve gone for something even worse which is private directorship of the system.

What we’re moving to is a government option of sorts -- but it’s a private government option. People have a really hard time understanding that a corporation is an institution we have licensed to govern a particularly economic activity. You create these institutions so you can govern a particular industry. In this sense, Wal-Mart is a goverment that is approaching the magnitude of the Soviet state in that it wields top-down authority. It tells every employee at each company under its sway what to do. That includes every company that delivers food, consumer products, media products. Wal-Mart is the Soviet system growing up right in the middle of the American system. It is top-down, authoritarian, non-democratic. It leads to the stripping out of all the systems, and it’s rationalization without thought, purpose, or understanding.

Q: Wal-Mart is aware of its historically bad name in the liberal sphere. It seems like they're trying to change that, aren't they?

BL: Oh, Wal-Mart has done an incredible job of buying off really well-intentioned people by advertising their power. For example, they’ve bought off enviros [by saying],  “We’re going to green the world together.” What do they actually do? Let me give an example. 

Wal-Mart decreed compact fluorescent bulbs in every home in the U.S. They decreed to all lightbulb makers, “This is how many you’re going to make, at which price, and by this date.” Their decree was simply too much for these manufacturers so they shipped lots and lots of junk. The practical effect is Americans who’ve never seen these kinds of bulbs is they used them for the first time, but they were junk and died out after a few months. So now people don’t want to use them anymore. This created the exact opposite effect of what [Wal-Mart] was selling to the enviros.

Now it’s true that if you get Wal-Mart to get Procter & Gamble to use smaller cardboard boxes [for their products], that’s good for our environment but we have a better way to do this. We can use our local and federal governments. When you create a law it’s law, with Wal-Mart it’s just Wal-Mart’s whim. They can change their mind any time and they don’t even need to tell anyone if they start sourcing unsustainable fish or lightbulbs from China -- it just happens. Their only purpose is to make cash and they’re very honest about that. Managers of corporations are legally obliged to lie if it helps their shareholders. So they’ll tell enviromentalists anything they want to hear.

Q: You argue that free-market fundamentalists paved the way for the monopolization of the U.S. economy, and as a result, the current economic recession. Does the recession mark the end of such fundamentalism or are they reframing?

BL: This recession hasn’t ended this fundamentalism. What’s behind it is private governance of the political economy and eventually the politically system. That’s what free-market fundamentalism aims at. As a belief system, it was put out to trick people to allow this [bankers’] coup to take place, this privatization of governance and control. Among the elites especially, there are all of these beliefs in these different mechanistic forces people see out there. Some think of the free-market as a mechanical apparatus that yields certain outcomes and we can’t do much about what the market decides. Others see globalization as a natural force that leads us to an interconnected world where we will be increasingly tied to China or India. 

None of these forces actually exist. What you actually see are people using human-created institutions to manipulate others. We need wake up to the fact that Tom Friedman’s view of globalization is a lie, that Milton Friedman’s vision of the free-market as a mechanical apparatus is a lie, that Robert Reich saying that technology will lead us to a land of milk and honey is a lie. They really patronize the little folks, it’s just disgusting.

The first step to emancipating ourselves is to emancipate ourselves from those metaphysical lies -- these ideas that outside forces are controlling us. Haven’t seen much of a move in that direction in our country, unfortunately.

The indoctrination is that we live in a market economy that determines globalization and everything else. I don’t know why this generation of Americans was more gullible. I can’t understand that. But it’s just a fact and we need to wake up.
Q: Or else...
BL: Or else!

THE BEST POLICY

Inventing a New Economy

What patent applications can tell us about America's economic prospects.

By Eliot Spitzer
Posted Monday, Dec. 28, 2009, at 4:09 PM ET

As the economic cataclysm of the past two years has unfolded, there has been no shortage of data to help us understand what has already happened and what might happen next. GDP growth, unemployment rates, trade and federal deficit levels, inflation rates, foreclosure rates, capital and leverage ratios—all have been paramount in our conversation.
As we continue to parse the economy and try to understand what the future holds, I want to focus occasionally on some numbers that do not typically generate headlines the way that, say, the monthly unemployment numbers do. Yet over the long run, these statistics may be a more important part of the larger economic story line. I call them "other numbers that matter."
The first of these data sets relates to patent applications. America's overall economy, we are often told, is increasingly reliant on America's "innovation economy." Our national economic rebirth will be spurred by our historic ability to create new methods of production and new technologies, which will keep us one step ahead of the competition even as we lose the comparative advantage we used to have based on other factors, such as size of market or access to capital.
One way to assess our advantage in innovation is to examine our innovation-patent filings—the core intellectual foundation of production and intellectual activity. A great source for this data is the World Intellectual Property Indicators 2009.
As with all economic (or other) data, it can be interpreted in many different ways, and the everpresent danger of confusing correlation and causation remains. Nonetheless, the top-line raw data is fascinating:
A quick glance suggests several conclusions: First, the view that a worldwide technological and innovative explosion began in the mid-1960s and continues until now is correct. The sheer number of patent applications—which had remained relatively static from the 1880s until the 1950s—suddenly grew dramatically, coinciding with the onset of the computer and telecom revolutions. Second, not surprisingly, the patent offices receiving the vast majority of this explosion have been those in nations with the greatest economic growth during that period—initially the United States and Japan and more recently China, Korea, and Russia.
But patent filings tell an incomplete story. There is also the issue of patent filers: Someone who generates an idea in Peru might seek patent protection by filing for a patent with the U.S. Patent Office. So if we break out the data by the source of the filing—i.e. how many are what are called "resident" filings and how many are "nonresident"—the resulting chart is fascinating:
Over this 45-year period, the domestic share of U.S. patent filings has dropped from 82 percent to 50 percent, with the share of foreign-originated patents rising commensurately.
Another critical area of correlation—and perhaps causation—is the relationship between research and development spending in various nations and patent filings generated in those nations.
It should surprise no one that increased spending on R & D generates the patent flow that we have been discussing.
A few caveats are necessary—not about the data but about drawing quick policy conclusions from it. A patent application filed and granted in the United States by a U.S. company might not generate many jobs or much economic activity in the United States if the production and marketing of any resulting product or service took place overseas. So a critical question that remains is whether innovation in the United States will continue to have as significant and broad-based an economic impact as it has in the past. On balance, is it preferable to have Apple doing its R & D here, even if it manufactures the iPod in China? Of course it is, because the R & D here creates great value and wealth. But the loss of manufacturing jobs to the rest of the world has enormous economic consequences for the middle class.
Historically, our economic growth has depended in large part on our ability to generate new ideas and innovations. In addition, while there can be substantial discussion about which policies will best keep our innovation engine churning, increased investments in education—especially in technical fields—and basic R & D seem critical to any agenda. If we want robust economic growth to return, then we had better figure out how to reverse some of the trends suggested by this quick examination of patent data.
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Eliot Spitzer is the former governor of the state of New York.

Robert Reich

Former Secretary of Labor, Professor at Berkeley
Posted: December 28, 2009 11:01 AM

2009: The Year Wall Street Bounced Back and Main Street Got Shafted

In September 2008, as the worst of the financial crisis engulfed Wall Street, George W. Bush issued a warning: "This sucker could go down." Around the same time, as Congress hashed out a bailout bill, New Hampshire Sen. Judd Gregg, the leading Republican negotiator of the bill, warned that "if we do not do this, the trauma, the chaos and the disruption to everyday Americans' lives will be overwhelming, and that's a price we can't afford to risk paying."
In less than a year, Wall Street was back. The five largest remaining banks are today larger, their executives and traders richer, their strategies of placing large bets with other people's money no less bold than before the meltdown. The possibility of new regulations emanating from Congress has barely inhibited the Street's exuberance.
But if Wall Street is back on top, the everyday lives of large numbers of Americans continue to be subject to overwhelming trauma, chaos and disruption.
It is commonplace among policymakers to fervently and sincerely believe that Wall Street's financial health is not only a precondition for a prosperous real economy but that when the former thrives, the latter will necessarily follow. Few fictions of modern economic life are more assiduously defended than the central importance of the Street to the well-being of the rest of us, as has been proved in 2009.
Inhabitants of the real economy are dependent on the financial economy to borrow money. But their overwhelming reliance on Wall Street is a relatively recent phenomenon. Back when middle-class Americans earned enough to be able to save more of their incomes, they borrowed from one another, largely through local and regional banks. Small businesses also did.
It's easy to understand economic policymakers being seduced by the great flows of wealth created among Wall Streeters, from whom they invariably seek advice. One of the basic assumptions of capitalism is that anyone paid huge sums of money must be very smart.
But if 2009 has proved anything, it's that the bailout of Wall Street didn't trickle down to Main Street. Mortgage delinquencies continue to rise. Small businesses can't get credit. And people everywhere, it seems, are worried about losing their jobs. Wall Street is the only place where money is flowing and pay is escalating. Top executives and traders on the Street will soon be splitting about $25 billion in bonuses (despite Goldman Sachs' decision, made with an eye toward public relations, to defer bonuses for its 30 top players).
The real locus of the problem was never the financial economy to begin with, and the bailout of Wall Street was a sideshow. The real problem was on Main Street, in the real economy. Before the crash, much of America had fallen deeply into unsustainable debt because it had no other way to maintain its standard of living. That's because for so many years almost all the gains of economic growth had been going to a relatively small number of people at the top.
President Obama and his economic team have been telling Americans we'll have to save more in future years, spend less and borrow less from the rest of the world, especially from China. This is necessary and inevitable, they say, in order to "rebalance" global financial flows. China has saved too much and consumed too little, while we have done the reverse.
In truth, most Americans did not spend too much in recent years, relative to the increasing size of the overall American economy. They spent too much only in relation to their declining portion of its gains. Had their portion kept up -- had the people at the top of corporate America, Wall Street banks and hedge funds not taken a disproportionate share -- most Americans would not have felt the necessity to borrow so much.
The year 2009 will be remembered as the year when Main Street got hit hard. Don't expect 2010 to be much better -- that is, if you live in the real economy. The administration is telling Americans that jobs will return next year, and we'll be in a recovery. I hope they're right. But I doubt it. Too many Americans have lost their jobs, incomes, homes and savings. That means most of us won't have the purchasing power to buy nearly all the goods and services the economy is capable of producing. And without enough demand, the economy can't get out of the doldrums.
As long as income and wealth keep concentrating at the top, and the great divide between America's have-mores and have-lesses continues to widen, the Great Recession won't end -- at least not in the real economy.

Robert L. Borosage

Co-Director of the Campaign for America’s Future
Posted: December 23, 2009 10:25 AM

Main Street and Wall Street: A Tale of Two Cities

You know the Dickens: It's a "tale of two cities," "the best of times and the worst of times." On Wall Street, the big banks, basted with public succor, are ladling out record bonuses. Their leaders are arrogant enough to stiff the president's invitation to the woodshed. Even at AIG, still a ward of the government, the hubris is such that the executives that led the company into bankruptcy now are threatening to sue anyone who dares tamper with the million dollar bonuses that they once promised to return.
On Main Street, millions remain unemployed, foreclosures are rising, pain is spreading. Many of the best jobs that have gone are not coming back. The downturn has been particularly brutal on the young. As a New York Times editorial reports, the jobless rate for teenagers is the highest recorded since records began being kept after World War II. For low-income black students, only 4 in 100 found jobs this fall.
This is a social and human calamity. Without jobs, young people don't develop skills or discipline that makes them employable in the future. Robbing a generation of hope provides the kindling for explosion or implosion. Neither is acceptable.
Two cities. The mansion on the hill; the sorrows in the valley. This is the central economic and political challenge facing the country, the administration, and the Democratic Congress (Republicans, frankly, don't seem to give a damn. Early on, they cast their bet on failure and their strategy on obstruction. This seems to be working for them, so they are letting that bet ride. Not one Republican would even cast a vote for the mildest of financial reforms)
The economic challenge goes beyond recovery. In fact, Wall Street's rescue, while necessary, now stands in the way of a prosperous economy. Banks are emerging from free fall more concentrated than ever, with an explicit promise that they are too big to fail. This is a guarantee of future financial catastrophe. They must be broken up or regulated like utilities. Banker's bonuses are simply a leading indicator. Their return to record levels means exactly that we are headed into another mess.
The pain on Main Street is also not sustainable. The basic promises we make to one another -- a good education for our children, an opportunity for those who work hard, security in the golden years -- depend on an economy with a broad and vibrant middle class, where prosperity it widely shared. As the middle class struggles with declining wages and increasing insecurity, those promises can't be kept.
Politically, this reality will frame the choice in 2010 and beyond. Voters will want to know: Which side are you on -- Wall Street or Main Street? The myth that Wall Street's riches benefit Main Street -- that bankers are doing, in the words of Goldman Sachs CEO Lloyd C. Blankfein, "God's work" -- has been shattered.
The political practitioners in both parties, who tend to be allergic to populist class politics, get this. Newt Gingrich early on conflated the recovery plan with the bank bailout, and charged Democrats with running up record debts to bail out the limousine liberals on Wall Street while ignoring Main Street. The Democratic Congressional Campaign Committee is now rolling out robocalls blasting Republican legislators for pocketing financial industry money while voting "to let Wall Street continue the same risky practices that crippled retirement accounts and cost taxpayers $700 billion..."
On these questions, the White House has been, at best, behind the curve. The president's economic team is understandably proud of having staved off financial collapse and global depression. They were slow to understand the scope of Americans' justified fury at a recovery that worked for the big banks and not the small businesses, for the mansions but not the homeowners.
Worse, this team of Bob Rubin protégés echoes the caution of the financial establishment. Although the president says we can't go back to an economy where Wall Street pockets 40% of corporate profits, his Treasury Secretary can't imagine reorganizing the big banks. Although the president will make jobs his top priority in 2010, his economists have yet to forward a plan large enough to meet the size of the problem. A direct public service jobs program - the only conceivable way to address the rising unemployment among the young in our cities - seems like an administrative nightmare. A $400-500 billion dollar jobs program - the size likely needed to create jobs and forestall what many, including Nobel prize-winning economist Joe Stiglitz, fear will be a return to recession - runs counter to their desire to take credit for an economy in recovery, and to placate the hysteria about rising deficits.
And as the health care debate shows, any jobs program must get 60 votes in the Senate. We know what the Senate wants: less. Less than any program that comes from the White House or the Congress. Less than what the country needs. The president would be wise to fight for a bold program, challenging the inevitable naysayers like Joe Lieberman, Ben Nelson and Evan Bayh. Take on the deficit hawks, demand action on jobs. But having suffered through health care, does he have the stomach for another inter and intra-party brawl?
All this will rollout in the New Year. The president will make jobs and financial reform the centerpiece of his State of the Union. After the final spasms around health care reform, the Congress will focus on a jobs bill and on financial reform (beginning with the vote on whether Ben Bernanke - architect of both the financial collapse and Wall Street's recovery - should be kept on as head of the Fed).
If Republicans continue to vote lockstep against everything, even a token jobs bill and cautious financial reforms like those passed by the House this month may well help Democrats frame the debate for the 2010 elections.
But neither will deal with the scope of the economic challenge we face. And inadequate reforms will truly risk, in the words of White House Chief of Staff Rahm Emanuel, letting this crisis go to waste.
So get some rest. Enjoy the holidays. Hug your families. The debate about America's future has only started to heat up.

Les Leopold

Author, "The Looting of America"
Posted: December 21, 2009 04:06 PM

Wall Street's 10 Biggest Lies of 2009

Say goodbye to 2009, the worst economic year since the Great Depression.
Say hello to the billionaire bailout society in which the super-rich gamble, lose and get bailed out by the rest of us.
To save the system from total collapse we poured trillions of dollars into the financial sector. The result? Banks still are refusing to lend. Thirty million Americans are looking for full-time jobs and 49 million are skipping meals including one out of four children. But Wall Street again is reaping record profits and bonuses.
Not only are we richly rewarding those who wrecked our economy, but also, we have to put up with hundreds of fabrications about how the big banks got us here. Here is my biggest, fattest lies list for 2009:
1. "Government programs for low-income home buyers caused the financial crash." Wall Street defenders were quick to blame the Community Reinvestment Act, which urges banks to loan money in minority communities. In fact, almost none of the CRA loans are sub-prime and the vast majority are doing well, thank you. Blaming government programs deflects us from the real cause: Wall Street's incredibly reckless creation, marketing, selling and trading of "innovative" new securities that supposedly removed the risk from pools of risky debt. It didn't work. Wall Street, not the poor, crashed our economy.
2. "Income inequality is good for everyone." Lord Brian Griffiths, Vice-Chairman of Goldman Sachs at least had the nerve to say what so many of the super-rich really believe:
"We have to accept that inequality is a way of achieving greater opportunity and prosperity for all."
Unfortunately, the facts suggest otherwise. There is a high correlation between the mal-distribution of income and economic crashes. The last time our wealth and income distribution was as skewed as it is today was 1929, and that's not an accident. When too much money is in the hands of the few it runs out of real world investment and gravitates towards speculative investments. This inevitably creates asset bubbles and crashes. Record pay and bonuses on Wall Street and high unemployment are connected. (See The Looting of America Chapter 11).
3. "The rising number of billionaires is a sign of economic health." It's accepted media wisdom that the more billionaires the better. China with 130 billionaires now trails only the US, which has 359, according to Forbes magazine. But in our billionaire bailout society, the rising number of billionaires signals a collapsing middle class. Ponder this statistic: In 1970 the ratio of the compensation of the top 100 CEOs compared to the average production worker was 45 to 1. By 2006 it was an astounding 1,723 to one. Does that look healthy to you? 

4. "Paying back TARP means banks are no longer on government welfare." Bank after bank is rushing to repay TARP funds during the worst economic year since 1937. They want to get out from under the Pay Czar (not that he's been sufficiently tough on the banks under his purview.) Banks that were insolvent only a few months ago now say they have the financial strength to refund tens of billions of dollars to the government. Where did all that money come from? Much of it comes from other government welfare programs for Wall Street (over $12 trillion worth) that aren't publicized. (See Nomi Prins's excellent accounting.) It may be the case that our banks are paying us back with our own money. Now that's financial innovation.
5. "Wall Street's freedom to innovate must be protected." Congressional leaders are tripping all over themselves to say new regulations will not discourage Wall Street innovations, something they claim is vital to our economy. Oh really? Do those "innovations" add anything useful to our country other than new casino games for the super-rich? Former Federal Reserve Chairman, Paul Volker, recently blew the whistle on this fabrication:
"I hear about these wonderful innovations in the financial markets and they sure as hell need a lot of innovation. I can tell you of two - Credit Default Swaps and CDOs - which took us right to the brink of disaster: were they wonderful innovations that we want to create more of?

.... I wish that somebody would give me some shred of neutral evidence about the relationship between financial innovation recently and the growth of the economy, just one shred of information....
The most important financial innovation that I have seen in the past 20 years is the automatic teller machine... How many other innovations can you tell me of that have been as important to the individual?" ("What Has Financial Innovation Done for You?")
6. "To retain critically needed talent, Wall Street must be free to pay top salaries and bonuses." Where would they flee if they just got paid like normal people rather than like gods? The British are putting in place a 50 percent tax on bonuses. Also, compensation is much, much lower in the European Union. But the real lie is that we need such "talent" in the first place. That kind of "talent" just crashed our economy. That kind of "talent" is widely overpaid - no way should bond traders receive 10 to 100 times what is earned by the best neurosurgeons in the world. Something is really wrong and it starts with the lie of banking "talent."
7. "Overpaid American workers are the real cause of unemployment." The New York Times writers who concocted this argument didn't think they were lying. But this is one of the most preposterous ideas put forth during 2009. ("American Wages out of Balance" New York Times November 11, 2009) Edward Hadas, Martin Huchinson and Antony Currie informed us that:
"American manufacturing workers should take average real wage cuts of as much as 20 percent to get into global balance."
They don't mention that the average non-supervisory worker has already taken an 18 percent cut in real wages between 1973 and 2007. What's worse, they claim that if workers don't take these additional cuts, these "overpaid" working stiffs will be the cause of another Great Depression. They write:
"But if American wages get stuck above global market-clearing levels, as in the 1930s, the result could well be something approaching Depression-era levels of unemployment."
Not a word is mentioned about how Wall Street's gambling caused all of this unemployment and how the continued failure of Wall Street banks to lend is stalling job growth, right now.
8. "I'm doing God's Work." Lloyd Blankfein, Chairman of Goldman Sachs said what too many Wall Street leaders truly believe: that they are so privileged and entitled that it seems as if the heavens bless their work. Why else are they earning hundreds of millions of dollars? Mr. Blankfein believes he is creating a virtuous circle by raising capital for corporations who create jobs and help our society prosper. But Goldman Sachs, JP Morgan Chase, Morgan Stanley and the rest of the apostles helped to bring the entire world economy to its knees. Does that mean God likes unemployment and widespread hunger?
9. "We're out of money." Who's we? Yes, the middle class is tapped out but the super-rich haven't even begun to pay their fair share for the mess they created. Yet the top 400 richest Americans alone are sitting on $1.27 trillion or so in wealth. Here's a dangerous thought. What if we had a very steeply progressive wealth/income tax that reduced the net worth of the super-rich to "only" about $100 million each? You wouldn't be suffering if you had $100 million kicking around. Now do the math: The 400 richest x $100 million each would equal $40 billion. That would leave about $1.23 trillion to help pay back the country for the Wall Street meltdown that we, our children and their children will be subsidizing.
10. "We are becoming a socialist economy." Somewhere between 68 and 78 percent of the US GDP is private sector activity, the highest among developed nations. And much of the government expenditures go to private contractors as well. But there's a kernel of truth in the socialist scare: What do you call a society that encourages the private accumulation of wealth without limit, and then when the super-wealthy get into serious trouble, we bail them out with taxpayer funds - largely from a declining middle-class? That's not free-enterprise. That's not socialism either. It's something new and it deserves to be called the billionaire bailout society.
Here's hoping that in 2010 we can begin to undo it.

Wall Street's 10 Greatest Lies of 2009

By Nomi Prins, AlterNet
Posted on December 28, 2009, Printed on December 28, 2009
http://www.alternet.org/story/144776/

On December 13, President Obama declared that he was not elected to help the “fat cats." But the cats got another version of that memo. A day later, 10 of them were supposed to partake in some White House face-time to talk about their responsibilities to the rest of the country, but only seven could make it. No-shows for the "very serious discussion" -- due to inclement New York weather or being too busy with internal bonus discussions to bother with the President -- were Goldman Sachs CEO Lloyd Blankfein, Morgan Stanley CEO John Mack and Citigroup Chairman Richard Parsons.
Yes, Obama inherited a big financial mess from the Bush administration – which inherited its set-up from the Clinton administration (financial recklessness, it turns out, is non-partisan) -- but he and his appointees have spent the year talking about fighting risk and excess on Wall Street, while both have grown.
Treasury Secretary Tim Geithner patted himself on the back for making the "difficult and necessary” decisions of fronting Wall Street boatloads of money to cover its losses and capital crunch last fall. Federal Reserve Chairman Ben Bernanke (a Bush-Obama favorite) was named Time Magazine’s Person of the Year for saving the free world as we know it. And Congress is talking "sweeping reform" about a bill that leaves the banking landscape intact, save for some minor alterations. For starters, it doesn’t resurrect the Glass-Steagall Act of 1933, which separated risk-taking (once non-government-backed) investment banks from consumer oriented (government-supported) commercial banks.
Meanwhile, Wall Street is restructuring (the financial equivalent of re-gifting) old toxic assets into new ones, finding fresh ways to profit from credit derivatives trading, and paying itself record bonuses -- on our dime. Despite recent TARP payback enthusiasm, the industry still floats on trillions of dollars of non-TARP subsidies and certain players wouldn’t even exist today without our help.
Wall Street’s return to robustness and Main Street’s continued deterioration are the main takeaways for 2009 that stemmed from the 2008 choices to flush the financial system with capital and leave the real economy to fend for itself. Lies that exacerbate this divide only perpetuate its growth. With that, here is my top 10 list of lies. Please consider adding your own, and let’s all hope for a more honest New Year.
1) The economy has improved.
Earlier this month, Bernanke declared, “Having faced the most serious financial crisis and the worst recession since the Great Depression, our economy has made important progress during the past year. Although the economic stress faced by many families and businesses remains intense, with job openings scarce and credit still hard to come by, the financial system and the economy have moved back from the brink of collapse."
Sure, the economy is better -- if you work at Goldman Sachs or had an affair with Tiger Woods. But while Bernanke, former Treasury Secretary Hank Paulson and Geithner turned the Federal Reserve into a national hedge fund (cheap money backing toxic assets in secrecy), and the Treasury Department into a bank insurance policy, the rest of the real economy took hit after hit -- starting with jobs.
The national unemployment rate remains at double digits. Despite Washington’s bizarre euphoria about unemployment rates last month being better (they edged down in November to 10 percent from 10.2 percent in October), the number of Americans filing for initial unemployment insurance rose during the second week of December. After all the temporary holiday hires, that number will probably increase again. Plus, unemployment rates in 372 metropolitan areas are higher than they were last year.
2) If you give banks capital, they will lend it out.
On Jan. 13, 2009 Bernanke concluded that "More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets.” He said that "Our economic system is critically dependent on the free flow of credit." He was referring to the big banks. Not the little people.
Ten months later, though, he admitted that, "Access to credit remains strained for borrowers who are particularly dependent on banks, such as households and small businesses” and that “bank lending has contracted sharply this year."
In other words, big banks don’t share their good fortunes. Shocking. And as a result, bankruptcies are rapidly rising for businesses and individuals – a direct result of lack of credit coupled with other economic hardships like job losses.
Total bankruptcy filings for the first nine months of 2009 were up 35 percent to 1,100,035 vs. the same period in 2008. The number of business bankruptcies during the first three quarters of 2009 eclipsed all of 2008. Individual consumer filings totaled 373,308 during the third quarter of 2009 and were up 33 percent vs. the same period of 2008. Tell those people about the free flow of credit, Ben.
3) Taxpayers are being repaid.
On December 17, the Treasury Department announced: ”As a result of our efforts under EESA (the Emergency Economic Stabilization Act that spawned TARP), confidence in our financial system has improved, credit is flowing, and the economy is growing. The government is exiting from its emergency financial policies and taxpayers are being repaid.” 
Even as banks rush to repay TARP in order to get the government off their backs before annual bonuses are set, the Treasury Department is helping them out. On December 11, the Internal Revenue Service gave government-subsidized banks a tax exemption that, for instance, allows Citigroup to keep the benefit of $38 billion. Three days later, Citigroup announced its $20 billion repayment of TARP. Get the math? Not exactly a taxpayer windfall.
Additionally, the FDIC gave banks including Citigroup, Bank of America, and JPMorgan Chase a holiday gift -- at least a six-month break from having to raise capital to support the billions of dollars of securities (read: toxic assets – remember those?) that firms are going to have to add to their books in 2010. That will open a whole new can of worms – a glimpse into either insolvency and a replay from the too-big-to-fail scenario, or book-cooking (the Financial Accounting Standards Board, as of last year, has allowed banks to price their own assets if there’s no true market for them – fun times), or both. Meanwhile, banks can use the capital for bonus payments instead.
4) Homeowners are being helped.
Last year’s big lie was that banks would turn around and help their borrowers if they got federal money. Yet, they were under no obligation to do so, and thus, they didn’t. 
Since the Obama administration released guidelines for the Home Affordable Modification Program (HAMP) on March 4, 2009, the HAMP permanent loan modification numbers have been anemic.
Separately, by almost every measure, mortgage and credit problems are worse this year than last. There were almost a million new foreclosure fillings in the third quarter of this year, 5 percent more than in the second quarter, and 23 percent more than during the third quarter of 2008.
Plus, foreclosures are not abating. Mortgage delinquencies (borrower 60 or more days overdue) increased for the 11th quarter in a row, reaching a national average record of 6.25 percent for the third quarter of 2009. Delinquencies precede foreclosures. Compared to last year, mortgage borrower delinquencies are up 58 percent. Meanwhile, banks are sitting on properties they acquired to avoid selling them into the market and having to book the resultant loss.
5) Big banks will help small businesses.
On October 24, because a whole year had passed without this happening, Obama declared, “It's time for our banks to stand by creditworthy small businesses and make the loans they need to open their doors, grow their operations and create new jobs."
Small businesses, which employ half of all private sector employees, had received less than $400 million in new loans under government programs, and were granted access to just one program that buys up to $15 billion in securities tied to small business loans. According to the Small Business Administration (SBA) the number of approved loans shrunk from 124,360 in 2007 to 69,764 in 2009 (it was 93,541 in 2008).
Two months later, since that didn’t work, Obama reiterated, “given the difficulty business people are having as lending has declined, and given the exceptional assistance banks received to get them through a difficult time, we expect them to explore every responsible way to help get our economy moving again." He asked the big bank chiefs to take "extraordinary" steps to revive lending for small businesses and homeowners.
Too bad banks don’t gear their business strategy to expectations and suggestions. Still, as a gesture of good faith, Bank of America promised to kick in an extra $5 billion more to small- and medium-sized businesses next year. JP Morgan Chase promised to increase lending by $4 billion. Goldman had already decided to go the pledge route a few weeks earlier, putting up half a billion dollars in small business “charity" to help its deservedly negative image.
To make up for what the banks aren’t doing, the Obama administration is setting aside $30 billion from the financial bailout fund to stimulate lending to small businesses.
6) The Fed values transparency.
On February 10, Bernanke told the Committee on Financial Services that he "firmly believes that central banks should be as transparent as possible. Likewise, the Federal Reserve is committed to keeping the Congress and the public informed about its lending programs and balance sheet."
Yet, on March 5, the Fed refused to comply with a Freedom of Information Act request and lawsuit filed by Bloomberg News to disclose the details of its 11 lending facilities. In front of the Senate Budget Committee, and in response to a question from Senator Bernie Sanders, I-VT, about naming the firms that got money from those facilities, Bernanke said "No" -- such disclosure would be "counterproductive" and risk “stigmatizing banks."
Undaunted by this irony, on May 5, before the Joint Economic Committee, Bernankereiterated, “The Federal Reserve remains committed to transparency and openness and, in particular, to keeping the Congress and the public informed about its lending programs and balance sheet.” He told PBS NewsHour on July 28 that “We are completely open to providing any information Congress wants.”
To date, the Fed has not disclosed the recipients of its cheap loans for toxic collateral.
7) History will not repeat itself.
In the beginning of the year, Obama said of Wall Street firms, “There will be time for them to make profits, and there will be time for them to get bonuses. Now is not that time.”
He also said that "part of what we’re going to need is for the folks on Wall Street who are asking for help to show some restraint and show some discipline and show some sense of responsibility.”
Yeah. Wall Street’s really into restraint....
Nine month later, as banks were racking up record profits and bonuses, Obama said the same thing, in different words, in his September 14 Federal Hall speech. “We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses… the old ways that led to this crisis cannot stand...History cannot be allowed to repeat itself.”
The only problem? History was repeating itself, as he spoke. Big banks took more risk in 2009, and posted more of their profits from trading operations than they had before they nearly collapsed in 2008. Trading profits at the top five banks rose from a $608 million loss in 2008 to $118.5 billion for annualized 2009, and $61.7 billion in 2007.
8) The pay czar will fight against – pay. 
Treasury Department pay czar Ken Feinberg was supposedly appointed to keep a lid on excessive compensation for companies sitting on federal bailouts. Two problems with that: first, the Treasury Department continues to ignore the fact that the TARP portion of the bailout was only a tiny portion of the full bailout, and second, Wall Street was pushing back and winning at every turn.
For instance, after announcing he’d cap compensation for the top 25 execs at AIG, on October 23, Feinberg gave three of them a pass. These men were apparently “particularly critical to the company's long-term financial success.” Turning to his other role as Wall Street’s mouthpiece, Feinberg made excuses for AIG. “AIG compensation practices are unique. We took into account independent, very credible opinions of others to come up with a package that we think will help AIG thrive." That’s nice.
But he’s not kidding about thriving – those three employees will receive bonuses of about $4 million, $5 million and $7 million. AIG’s new CEO, Robert Benmosche, who joined AIG in August and got his pay approval out of the way on October 2, is bagging $10.5 million in annual compensation, including $3 million in cash, $4 million in stock options and $3.5 million in annual performance bonuses.
Then, on November 12, Feinberg said he was "very concerned" about scaring away top talent at the seven firms that took the biggest bailouts. Way to keep a lid on it, Ken.
But to be fair, it’s not really Feinberg’s fault. New York Fed and Treasury Department officials have been urging him to dial back restrictions for AIG folks in 2010 as well. Why? Because restricting pay will make it harder for the government to get back its loans to AIG. Right. Somehow paying these people stupid sums of money is the only way to get our money back. Because their "talent" worked out so well going into last year.
Elsewhere on Wall Street, the top six banks are getting set to pay out $150 billion in bonuses ($10 billion more than in 2008). GS is leading the pack in terms of bonus increases; it will dole out a projected $22 billion in compensation in 2009, compared to $11.8 billion in 2008 and $20.2 billion in 2007. JPM put aside $29.1 billion for 2009, compared to $24.6 billion in 2008 and $29.9 billion in 2007. Wells Fargo is spending $26.3 billion this year, compared to $23.1 billion in 2008 and $25.6 billion in 2007.
9) The lobbyists made us do it.
Going back to the big bank love fest at the White House earlier this month, execs promised to do better on regulation matters, citing a "disconnect" between their steadfast support for regulation and the fact that their lobbyists were pushing for as little new regulation as possible. 
Really? Because this disconnect cost the financial sector $334 million so far this year for 2,560 lobbyists; a pittance compared to bonuses, but still, hard-taken cash. I’m sure another $334 million is coming to fight for stricter regulation in the New Year. Not.
10) Citigroup is the picture of health and too-big-to-fail is over.
Once the nation’s largest bank, later its largest bailout recipient, the firm exited its TARP obligation on December 14 with CEO Vikram Pandit stating, "Once Citi repays the $20 billion of TARP trust-preferred securities and upon termination of the loss-sharing agreement, it will no longer be deemed to be a beneficiary of ‘exceptional financial assistance’ under TARP beginning in 2010." (Read: I don’t want to hear about compensation caps anymore!)
He went on to say that, "By any measure of financial strength, Citi is among the strongest banks in the industry, and we are in a position to support the economic recovery."
Shareholders didn’t feel the same way. Citigroup shares already trading well below those of its main competitors have fallen 13.5 percent since that announcement. One of their key clients, the Abu Dhabi Investment Authority, accused the firm of misleading them over a $7.5 billion investment. Plus, in order to come up with the money to pay back the government, they had to raise it in the markets, thus diluting their stock – all to keep their petulant star employees happy at bonus time.
The Citigroup story should be examined for the other big banks. They may talk tough about paying back the government, but underneath they are hurting. And their pain will become our cost again – because nothing fundamental has changed this year, and that means – floating on our public money, these banks are actually still ticking time bombs.
Bonus Lie: Goldman Sachs is sorry.
On November 17, Lloyd C. Blankfein said he was sorry about his firm’s role in the financial crisis. "We participated in things that were clearly wrong and have reason to regret, we apologize." He didn’t say he was sorry the firm is still floated on $43 billion of total subsidies including FDIC guarantees for debt it raised, that were logically supposed to aid consumer oriented banks, and the $12.9 billion it got through the AIG bailout.
Yet the firm has the highest percentage of trading revenue of all the banks that got assistance; in other words, the revenue most linked to risk-taking, at 79 percent, or $38 billion out of $47 billion for annualized 2009. This is up from 41 percent, or $9 billion in 2008, and 68 percent in 2007 and 2006. And as noted before, Goldman leads the bonus sweepstakes for 2009. The firm is probably not very sorry about all of that.
Maybe I’m being too hard on everyone. Maybe all those toxic assets we all forgot about have value now. Maybe bank profits are based on something real. Maybe the increasing reserves against increasing credit losses aren’t happening. Maybe those foreclosures aren’t really happening. Maybe banks aren’t sitting on homes because they don’t want to dump them into the market and ruin the fantasy that prices have hit bottom. Maybe eight million jobs are waiting on the other side of 2010. Maybe I should just send a holiday card to Goldman saying thanks for everything. I’m sorry I ever quit. Maybe Lloyd Blankfein really is God.
Or maybe, the next mammoth pillage will be the one that makes a difference. But I truly don’t want us to have to find out. May 2010 be the start of a more insightful decade.
Nomi Prins is a senior fellow at the public policy center Demos and author of It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street.

New Year's Resolutions To Help Make Corporate Fat Cats and Our Politicians Human Again

By Jim Hightower, AlterNet
Posted on December 26, 2009, Printed on December 27, 2009
http://www.alternet.org/story/144766/

This special season got me to thinking about America's spirit of giving, and I don't mean this overdone business of Christmas gifts. I mean our true spirit of giving -- giving of ourselves.
Yes, we are a country of rugged individualists, yet there's also a deep, community-minded streak in each of us. We're a people who believe in the notion that we're all in this together, that we can make our individual lives better by contributing to the common good.
The establishment media pay little attention to grassroots generosity, focusing instead on the occasional showy donation by what it calls "philanthropists" -- big tycoons who give a tiny piece of their billions to some university or museum in exchange for getting a building named after them. But in my mind, the real philanthropists are the millions of you ordinary folks who have precious little money to give, but consistently give of yourselves.
My own daddy, rest his soul, was a fine example of this. With half a dozen other guys in Denison, Texas, he started the Little League baseball program, volunteering to build the park, sponsor and coach the teams, run the squawking P.A. system, etc., etc. Even after I moved on from Little League, he stayed working at it, because his involvement was not merely for his kids ... but for all.
He felt the same way about being taxed to build a public library in town. I don't recall him ever going in that building, much less checking out a book, but he wanted it to be there for the community and he was happy to pay his part. Not that he was a do-good liberal, for God's sake -- indeed, he called himself a conservative.
My daddy didn't even know he had a political philosophy, but he did, and it's the best I've ever heard. He would often say to me, "Everybody does better when everybody does better."
If only our leaders in Washington and on Wall Street would begin practicing this true American Philosophy. Maybe we could help get them in the proper frame of mind by urging a bit of introspection on their part. With New Year's Day right around the corner, I was working on my list of New Year's resolutions when it occurred to me that some of the people running our country could benefit from my suggestions for their lists. No need for them to thank me --I'm happy to help!
Let's start, then, with those proud-and-loud members of Congress who've adamantly opposed real health insurance reform for workaday Americans. Not only do I include the entire block of Republican lawmakers whose vocabulary is limited to the word "no," but also those pathetic Democrats who've compromised the reform idea into corporate mush. It would be neat (and only fair) for each of these stalwarts of the status quo to make this vow for 2010: "Since I helped kill reform, I will give up the excellent government-paid, socialized health coverage that I get so that I am in the same leaky boat as my constituents."
And here's one for the barons of Wall Street, who continue to float on billions of dollars in government bailout money, yet are grabbing bonus payments for themselves, while pouting that the public is not showing them the love they deserve: "I hereby pledge to go through the 12-step detox program of Greedheads Anonymous to cure my narcissism and become a human being again."
Let's not forget the Obamacans, either! They came into office on an antiwar, anti-fat cat, pro-middle-class program, yet they've expanded their war, catered to fat cats and offered the middle class nothing but "a jobless recovery." Here's the resolution we need from Obama: "In year two of my term, I promise to Democrat-up by getting some economic advisors who've actually met a real worker and downloading some recordings of Franklin and Eleanor Roosevelt to my iPod. I'll also require top officials in my administration to volunteer at least one loved one to go to war in Afghanistan." If only we can get those in charge to make these pledges, we'll all have a happier New Year!

Robert Scheer

Veteran Journalist and Editor of Truthdig.com
Posted: December 16, 2009 01:58 AM

Wall Street's Fat Cats Are Still In Charge

Most Americans now know that Wall Street bankers are so greedy as to never be trusted, and I suppose it is a sign of progress that our president now seems to grasp the obvious. How depressing, though, that a man who was elected as a consequence of one of the boldest grass-roots populist campaigns in this nation's history should now feel obligated to offer the disclaimer that "I did not run for office to be helping out a bunch of fat cat bankers on Wall Street."
But whatever his intentions, Barack Obama has in fact accomplished just that, to the immense anger of the public that elected him. Thus, it is understandable that, in his "60 Minutes" interview last Sunday, Obama lashed out at the ingrate bankers whose greed he had served but who have failed to seriously increase lending or forestall foreclosures and instead shamelessly pocketed the cash the government threw their way:
"They're still puzzled why is it that people are mad at the banks. Well, let's see," he said. "You guys are drawing down $10 [million], $20 million bonuses after America went through the worst economic year that it's gone through in--in decades, and you guys caused the problem. And we've got 10 percent unemployment."
But what did the president expect from those guys after he and his Republican predecessor were so quick to reward them so handsomely for their failures? In a reversal of the guiding principles of the meritocracy that informed Obama's own success story, the president promoted, rather than flunked, the people who got it all wrong.
One of those was Larry Summers, who as Bill Clinton's treasury secretary pushed through the radical deregulation that enabled disastrous Wall Street greed. But although Summers pocketed a cool $15 million from Wall Street in 2008 as he was advising Obama the candidate, he seems at last to have gained some awareness that the rules of the game he helped write now need to be changed. Speaking of the very bankers who once so handsomely paid him for his services, Summers, now Obama's top economic adviser, told CNN: "Here is what I think they don't get. ... It was their irresponsible risk-taking in many cases that brought the economy to collapse."
Summers is upset that the banking bandits he once so slavishly adored are now opposing even the tepid legislative reforms that the administration supports. The banking lobby is in full-frontal assault mode on efforts of Senate Democrats, led by Chris Dodd, to establish a single bank regulator who might actually bring the industry to heel.
The largest of the banks--the very ones that led the charge into the financial abyss--are fiercely lobbying against the very sensible and all-too-limited proposals that would increase their capital requirements and empower the government to prevent them from growing to unmanageable proportions once again. They are even more incensed about attempts to regulate the rewards that bankers reap from risking the capital of their depositors and the taxpayers who ultimately foot the bill.
However, Obama's stern rhetoric apparently did not move the top banking honchos who failed to show up for this week's White House meeting with the president. The heads of Goldman Sachs and Morgan Stanley waited until the morning of the Monday meeting to catch a plane and then claimed that fog prevented their journey.
Citigroup Chief Executive Vikram S. Pandit couldn't make the meeting with the president who had saved his corporation from bankruptcy because he was too busy lining up new private financing to allow Citigroup to escape the bonus confines and other limits stipulated by the government bailout program.
No bank bears greater responsibility for the economic debacle that has caused such worldwide suffering than Citigroup, whose immense growth was made possible by legislation that Summers and his then-mentor, Clinton Treasury Secretary Robert Rubin, successfully promoted in the late 1990s. Rubin was rewarded for his efforts with a top job at Citigroup, which was formed from one of the largest mergers in history and which paid him $120 million before its fortunes plummeted. The bank is by no means out of the swamp of its own creation, as it still holds a huge portfolio of toxic assets, is still sustained by substantial public assistance and was trading Tuesday at less than $4 a share--a tiny fraction of its value before Rubin led it astray.
It was Rubin, as an Obama adviser, who pushed for Pandit's selection as head of Citigroup. Perhaps Obama could enlist Rubin's aid in getting Pandit to accept the president's invitations to the White House. But of course there is no expectation of getting Rubin and Pandit to pay back the bankrupted homeowners they swindled.

Les Leopold

Author, "The Looting of America"
Posted: December 15, 2009 11:15 AM

The Middle Class Collapse

Bankers must think we're stupid. How could they expect anyone to buy their performance at the recent White House/Wall Street confab during which, with hands on hearts, they swore allegiance to the American people? They want us to think they're Boy Scouts instead of rapacious profiteers who crashed our economy?
Meanwhile, Wall Street is the direct beneficiary of bailouts which represent the largest transfer of wealth since slavery. Only this time the money is going from a struggling middle class to the super-rich. The fundamental problem is clear: Too much wealth in the hands of the few.
Bankers, however, are betting that we will reject any call for redistributing wealth. After all, most of us, like Joe the Plumber, view the accumulation of wealth as an inalienable right as long as it's earned fair and square.
But do the super-rich really earn their wealth?
Financial wealth is a slippery concept especially as it slithers through a mountain of bailouts now running somewhere near $13 trillion. (TARP is a small part of the panoply of taxpayer financial guarantees for Wall Street.) Given that virtually every large bank would have gone under without our bailouts, how do we calculate who "earned" what?
For the three years prior to the crash, the 19 largest banks and investment houses "earned" about $300 billion, half of which went to bonuses. We now know that these profits came primarily from creating and trading financial instruments that turned out to have little or no value.
Supposedly, Wall Street's financial engineers "earned" their massive bonuses because they invented new ways to eliminate risk from complex securities layered on pools of incredibly risky debt. Wrong. When the risk returned with a vengeance, the $300 billion in profits turned into $300 billion of losses. The entire financial system froze and began to collapse a la 1929, causing trillions of dollars to disappear from our economy.

At this point the billionaire bailout society revealed itself as did the modern meaning of "earned wealth." When the financial sector imploded, the government bailed it out with our money. Obviously the earlier profits were phony as were the bonuses of the previous three years. (Did the bankers give back the bogus bonus money based entirely on fictitious profits? Hell no!)
It gets worse. After we poured our trillions into the financial system, the banks became profitable again, even as the rest of the economy suffered record unemployment. The banks, in fact, still are refusing to lend, which further drives up unemployment. Instead they are returning to risky trading practices, knowing the government will back them. To get free of pay restrictions, even the most troubled banks are quickly repaying their TARP money through a series of Ponzi moves. (See "Wall Street's Latest Ponzi Scheme: Bailout Repayments?")
Ok, you tell me: Who earned what? What value was really produced on Wall Street as our bailouts prop up the entire financial sector? Are bankers are actually "earning" anything at all? More to the point, are you really worried about redistributing wealth that derives entirely from this casino/bailout scam?
Our distorted wealth and income distribution, the worst since 1929, poses a clear and present danger to economic revival and to rebuilding a solid middle class. Here's one statistic from The Looting of America that still stuns me: In 1970 the ratio of the compensation of the top 100 CEOs compared to the average production worker was 45 to 1. By 2006 it was an astounding 1,723 to one! We didn't get there by accident.
Did these CEOs earn it fair and square? According to economic theory, that jump should reflect an enormous increase in their human capital. Did someone alter their genes to make them that much smarter? Does this reflect a miraculous jump in entrepreneurial skills?
The reality is much simpler. The rules changed.
From 1930 through the 1970s we understood that the key to America's well-being was a relatively compressed wealth and income distribution. Millionaires did not disappear, but during the Eisenhower years the marginal tax rate on those earning more than $3 million (in today's dollars) was 91 percent. Yes, there were loopholes galore, but the 1950s and 1960s are considered the most egalitarian years on record and working people developed into the world's largest middle class. This defined the American dream and it came about by design, not by accident.
During the deregulatory 1980s, the top tax rates dropped from 70 percent to 28 percent, while much of the New Deal's financial controls also were dismantled. You want to mint billionaires? That's how to do it.
Once the billionaire class was off and running, we faced a mounting series of booms and busts - from the savings and loan fiasco to the housing bubble. There was so much money at the top that the wealthy literally ran out of investments opportunities in the real economy. Wall Street, now unchained, did its job: It created fantasy finance securities to meet the unfulfilled investment demand.
If we don't get a grip on the demand -- billionaires' excessive wealth -- the casino will blossom again as Wall Street comes up with ever more sophisticated fantasy finance instruments. With billions of dollars at stake, they will find a way around the new regulations. You can bet on that.
This leaves us with two very problematic propositions:
First, the income distribution is so out of whack that progressive income taxes alone won't correct it. We also need wealth taxes on those with more than $500 million in net worth. (It's hard to make a case that anyone needs more than half a billion dollars.) Taxing 5 to 10 percent of this group's wealth each year would generate about $200 billion a year to help finance jobs programs and our growing debt. Also, it would help dry up demand for speculative investments
Second, we need to end casino banking: Instead of relying on a failed banking system and a new set of Rube Goldberg-like regulations, we should transform the 19 largest Wall Street firms (which control more than 60 percent of the nation's banking) into tightly regulated pubic utilities.
This is a frightening vision for libertarians, free-market ideologues, anti-government activists, Wall Street bankers and Joe the Plumber. But, if we truly value free enterprise in the real economy, we must seriously consider wealth redistribution and bank nationalization.
The alternative is more of what we already have: a billionaire bailout society with a hollowed out middle class.

Published on Sunday, December 13, 2009 by The Guardian/UK
Drug Money Saved Banks in Global Crisis, Claims UN Advisor

Drugs and crime chief says $352bn in Criminal Proceeds was Effectively Laundered by Financial Institutions

by Rajeev Syal
Drugs money worth billions of dollars kept the financial system afloat at the height of the global crisis, the United Nations' drugs and crime tsar has told the Observer.
Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were "the only liquid investment capital" available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result.
This will raise questions about crime's influence on the economic system at times of crisis. It will also prompt further examination of the banking sector as world leaders, including Barack Obama and Gordon Brown, call for new International Monetary Fund regulations. Speaking from his office in Vienna, Costa said evidence that illegal money was being absorbed into the financial system was first drawn to his attention by intelligence agencies and prosecutors around 18 months ago. "In many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking system's main problem and hence liquid capital became an important factor," he said.
Some of the evidence put before his office indicated that gang money was used to save some banks from collapse when lending seized up, he said.
"Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities... There were signs that some banks were rescued that way." Costa declined to identify countries or banks that may have received any drugs money, saying that would be inappropriate because his office is supposed to address the problem, not apportion blame. But he said the money is now a part of the official system and had been effectively laundered.
"That was the moment [last year] when the system was basically paralysed because of the unwillingness of banks to lend money to one another. The progressive liquidisation to the system and the progressive improvement by some banks of their share values [has meant that] the problem [of illegal money] has become much less serious than it was," he said.
The IMF estimated that large US and European banks lost more than $1tn on toxic assets and from bad loans from January 2007 to September 2009 and more than 200 mortgage lenders went bankrupt. Many major institutions either failed, were acquired under duress, or were subject to government takeover.
Gangs are now believed to make most of their profits from the drugs trade and are estimated to be worth £352bn, the UN says. They have traditionally kept proceeds in cash or moved it offshore to hide it from the authorities. It is understood that evidence that drug money has flowed into banks came from officials in Britain, Switzerland, Italy and the US.
British bankers would want to see any evidence that Costa has to back his claims. A British Bankers' Association spokesman said: "We have not been party to any regulatory dialogue that would support a theory of this kind. There was clearly a lack of liquidity in the system and to a large degree this was filled by the intervention of central banks."

Published on Tuesday, December 1, 2009 by The Daily Beast
Worse Than Enron?
Wall Street’s big banks are playing dangerous new accounting games—and this time taxpayers are on the hook for hundreds of billions. Nomi Prins uncovers a scandal in the making.
by Nomi Prins
Enron was the financial scandal that kicked off the decade: a giant energy trading company that appeared to be doing brilliantly-until we finally noticed that it wasn't. It's largely been forgotten given the wreckage that followed, and that's too bad: we may be repeating those mistakes, on a far larger scale.
Specifically, as the largest Wall Street banks return to profitability-in some cases, breaking records-they say everything is rosy. They're lining up to pay back their TARP money and asking Washington to back off. But why are they doing so well? Remember that Enron got away with their illegalities so long because their financials were so complicated that not even the analysts paid to monitor the Houston-based trading giant could cogently explain how they were making so much money.
After two weeks sifting through over one thousand pages of SEC filings for the largest banks, I have the same concerns. While Washington ponders what to do, or not do, about reforming Wall Street, the nation's biggest banks, plumped up on government capital and risk-infused trading profits, have been moving stuff around their balance sheets like a multi-billion dollar musical chairs game.
I was trying to answer the simple question that you'd think regulators should want to know: how much of each bank's revenue is derived from trading (taking risk) vs. other businesses? And how can you compare it across the industry-so you can contain all that systemic risk? Only, there's no uniformity across books. And, given the complexity of these mega-merged firms, those questions aren't easy to answer.
Goldman Sachs and Morgan Stanley, for example, altered their year-end reporting dates, orphaning the month of December, thus making comparison to past quarterly statements more difficult. In the cases of Bank of America, Citigroup and Wells Fargo, the preferred tactic is re-classification and opaqueness. These moves make it virtually impossible to get an accurate, or consistent picture of banks ‘real money' (from commercial or customer services) vs. their ‘play money' (used for trading purposes, and most risky to the overall financial system, particularly since much of the required trading capital was federally subsidized).
Trading profitability, albeit inconsistent and volatile, is the quickest way back to the illusion of financial health, as these banks continue to take hits from their consumer-oriented businesses. But, appearance doesn't equal stability, or necessarily, reality. Here's how BofA, Citi and Wells Fargo play the game:
Bank of America: The firm reclassified its filing categories upon acquiring Merrill Lynch, but it doesn't break down the trading vs. investment banking revenues of Merrill. This either means the firm doesn't truly know what's going on inside its new problem child, or doesn't want to tell. (No wonder no one's jumping for the upcoming CEO vacancy.) That said, despite the obvious information clouding, new acquisitions generally don't have their activities broken out, which makes it a lot harder for regulators, shareholders, or we, taxpaying subsidizers, to know whether the merger was a success or not.
According to Scott Silvestri, Bank of America's spokesman, "On our second quarter's earnings release, there was a note explaining why we changed reporting structure. But, with every quarter that passes, it's harder to unscramble the egg. It's been a merged entity since January 1, 2009."
He added that "we have an earnings supplement. Every quarter, we put out a standalone Merrill 10-Q that shows its profitability." True, but what's the point of issuing a separate Merrill report, without delineating Merrill's contribution in its main books so that you can clearly see how specific parts of Merrill's business impact similar ones in the merged entity? Furthermore, we can't even figure this out ourselves-the Merrill results in the 10-Q don't map directly to those of BofA's books. This all just creates more complexities for a bank that still floats on $63.1 billion in various government subsidies.
When it wants to, it appears that BofA can merge and then break out Merrill's numbers. Under the "Global Wealth & Investment Management " classification, we discover that Merrill contributed three-quarters of the $12 billion BofA took in over the first nine months of 2009. According to Silvestri, "The numbers of the old Merrill are there because the brand name was kept, vestiges of the old Merrill Lynch exist."
Talk about semantics. Why not also break out the area where revenues tripled and trading account profits jumped significantly (from a $6 billion loss in 2008 to an almost $14 billion gain in 2009)? Something is clearly going on there: the best measure of trading risk, VaR ("value at risk" or a firm's daily trading variation) doubled between 2008 and 2009. If I was the CEO, I'd want to see this critical comparison on my merged company filing.
Elsewhere, the sum of Bank of America's quarterly figures doesn't quite add up to the nine months totals. (A few hundred million of discrepancies between friends.) Another item "all other" is off by nearly a quarter of a billion dollars. And so on. The firm also declared, that it "may periodically reclassify business segment results based on modifications to its management reporting methodologies and changes in organizational alignment." In other words, whenever it feels like it. Comforting, isn't it?
Citigroup: Another balance-sheet renovation, this time because of a sale (Smith Barney, which it offloaded to Morgan Stanley) rather than a purchase, and another trading miracle. Citigroup's main trading arm, housed in what it calls the Institutional Clients Group (ICG), made $31.5 billion in net revenue for 2009, compared with a $7.8 billion loss in 2008. Its average daily value at risk jumped too, though "only" by 15 percent or so.
That's a huge and extremely fast trading rebound for the main recipient of government subsidies (at $373.7 billion). But, there is no overall breakdown present in the summaries of Citigroup's latest filings. And the sum of the trading totals doesn't equal the parts, because the firm also noted that certain numbers deemed an "integral part of profitability" weren't included in those computations, without giving any apparent reason. (After adding the missing number, it still didn't add up.)
Again, it's "just" a couple billion of discrepancies, but with books this massive at banks this big and risky, accuracy matters. Plus, such nuances make it extremely difficult to understand its books for regulators or the public.
Citigroup's Danielle Romero-Apsilos said that they periodically change reporting. "ICG existed, but after Smith Barney, we decided to divide it-we call one part securities and banking, one part global transaction services, etc."
That describes the chain of events, but doesn't get closer to determining trading related revenue. Romero-Apsilos said, "We don't break up the financials specifically for those businesses. Over the years, we may have broken out different things."
Wells Fargo: Yet more innovative accounting maneuvers. For example, the innocuous sounding category, "wholesale banking" which provides traditional lending, finance and asset management services, was expanded (following the Wachovia acquisition that completed on December 31, 2008) to include more speculative activities like fixed-income and equity trading. But, those activities aren't broken down in the firm's SEC filing, making it difficult to determine which portion comes from trading vs. commercial or investment banking.
Wells Fargo spokesperson, Mary Eshet (who still has a Wachovia email address) confirmed there is no separate Wachovia 10-Q (like there is for Merrill Lynch), but that it wasn't the case that "Wells Fargo broke out trading related revenue previously either."
In fact, Wells just provides totals for their four main business segments, each of which increased sharply, Community banking rose from $33 billion in 2008 to an annualized $59 billion in 2009. Wholesale banking shot up from $8.2 billion in 2008 to $20 billion in annualized 2009. And, wealth, brokerage and retirement quadrupled from $2.7 billion in 2008 to $11.6 annualized for 2009. (The fourth segment is called ‘other.') Yet, all these rosy numbers come with no specific breakdowns for their various trading business areas.
Separately, Wells states in its filing that its management accounting process is "dynamic" and, not "necessarily comparable with similar information for other financial services companies." This statement should give lawmakers pause: if banks are so complex as to constantly fluctuate their own reporting, deciphering figures just before a crisis won't exactly be a walk in the park.
With taxpayers now on the hook, we need an objective, consistent evaluation of bank balance sheets complete with probing questions about trading and speculative revenues, allowing for comparisons across the banking industry. This lack of transparency leaves room to misrepresent risk and trading revenue.
The long-term solution is bringing back Glass-Steagall. Being big doesn't just risk bringing down a financial system-it means you can also more easily hide things. Remember the lesson from the Enron saga: when things look too good to be true, they usually are.

How Free-Market Delusions Destroyed the Economy

By Raj Patel, Picador Press
Posted on November 30, 2009, Printed on November 30, 2009
http://www.alternet.org/story/144151/

The following is an excerpt from Raj Patel's new book, The Value of Nothing(Picador, 2010).

If war is God’s way of teaching Americans geography, recession is His way of teaching everyone a little economics. The great unwinding of the financial sector showed that the smartest mathematical minds on the planet, backed by some of the deepest pockets, had not built a sleek engine of permanent prosperity but a clown car of trades, swaps and double dares that, inevitably, fell to bits. The recession has not come from a deficit of economic knowledge, but from too much of a particular kind, a surfeit of the spirit of capitalism. The dazzle of free markets has blinded us to other ways of seeing the world. As Oscar Wilde wrote over a century ago: "Nowadays people know the price of everything and the value of nothing." Prices have revealed themselves as fickle guides: The 2008 financial collapse came in the same year as crises in food and oil, and yet we seem unable to see or value our world except through the faulty prism of markets.

One thing is clear: The thinking that got us into this mess is unlikely to rescue us. It might come as some consolation to know that even some of the most respected minds have been forced to puzzle over their faulty assumptions. Perhaps the most pained admission of ignorance happened in a crowded room in front of the  House Committee on Oversight and Government Reform when, on October 23, 2008, Alan Greenspan described the failure of his worldview.

Greenspan was one of the acknowledged legislators of the world’s economy over the past nineteen years in his role as chairman of the Federal Reserve. A card-carrying member of the free market brigade, he used to sit at the feet of Ayn Rand who, although largely unknown outside the United States, remains influential long after her death in 1982. Her 1957 book Atlas Shrugged, in which heroic business moguls fight the scourge of government officials and union organizers, has once again scaled the bestseller lists. Regarding altruism as “moral cannibalism," Rand was the cheerleader for an extreme free market libertarian school of thought, which she called “Objectivism."

Drawn into her circle by this heady philosophy, Greenspan earned himself the nickname “the Undertaker" for his jolly demeanor and dress sense. When Greenspan chose a career in government, it was rather like a hippie joining the marines, a lapse that his former friends could never forgive. Despite this, Greenspan remained largely faithful to Rand's philosophy, continuing to believe that egoism would lead to the best of all possible worlds, and that any form of restraint would result in disaster.

At the end of 2008, Greenspan was summoned to the U.S. Congress to testify about the financial crisis. His tenure at the Fed had been long and lauded, and Congress wanted to know what had gone wrong. As he began to read his testimony, Greenspan looked exhausted, his skin jowly and sagging, as if the vigor that once kept him taut had all been spent. But he came out swinging. In the first round, he took aim at the information he’d been working with. If only the input had been right, the economic models would have worked, and the predictions would have been better. In his words, a Nobel Prize was awarded for the discovery of the pricing model that underpins much of the advance in derivatives markets. This modern risk management paradigm held sway for decades. The  whole intellectual edifice, however, collapsed in the summer of last year because the data inputted into the risk management models generally covered only the past two decades, a period of euphoria.

Had instead the models been fitted more appropriately to historic periods of stress, capital requirements would have been much higher and the financial world would be in far better shape today, in my judgment.

This is a garbage-in-garbage-out argument: The model worked just fine, but the assumptions about risk and data, based only on the good times past, were faulty and so the output was correspondingly wrong. Greenspan’s nemesis on the panel, Henry Waxman, pushed him to a deeper conclusion, in this remarkable exchange:
Waxman: The question I have for you is, you had an ideology, you had a belief that free, competitive -- and this is your statement -- “I do have an ideology. My judgment is that free, competitive markets are by far the unrivalled way to organize economies. We have tried regulation, none meaningfully worked.” That was your quote. You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You  were advised to do so by many others. And now our whole economy is paying the price. Do you feel that your ideology pushed you to make decisions that you wish you had not made?

Greenspan: Well, remember, though, what an ideology is. It’s a conceptual framework with [sic] the way people deal with reality. Everyone has one. You have to. To exist, you need an ideology. The question is, whether it is accurate or not. What I am saying to you is, yes, I found the flaw, I don’t know how significant or permanent it is, but I have been very distressed by that fact.

Waxman: You found a flaw?

Greenspan: I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.

Waxman: In other words, you found that your view of the world, your ideology, was not right, it was not working.

Greenspan: Precisely. That is precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.
The flaw, to be clear, wasn’t a minor one of shoddy data. Nor was it the bigger Black Swan problem that writers like Nassim Taleb discuss, a problem of failing to account for highly unlikely events that, should they happen, involve catastrophic consequences. Greenspan’s flaw was more fundamental still. It warped his view about how the world was organized, about the sociology of the market. And Greenspan is not alone. Larry Summers, the president’s senior economic advisor, has had to come to terms with a similar error -- his view that the market was inherently self-stabilizing has been "dealt a fatal blow." Hank Paulson, Bush’s Treasury Secretary, has shrugged his shoulders with similar resignation. Even Jim Cramer from CNBC’s "Mad Money" admitted defeat: "The only guy who really called this right was Karl Marx." One after the other, the celebrants of the free market are finding themselves, to use the language of the market, corrected.

The extent of Greenspan's admission has passed most of us by. If you trawl the oped pages of the financial press, you'll find plenty of analysis that fits Greenspan's first gambit, with pundits offering stories about how risk was incorrectly priced (which it was), how the lack of regulation allowed the panic to feed back into the financial system (which it has), how the incentive structures rewarded traders who were able to push financial risk far into the future (which they did) and how free market ideologues removed the sorts of circuit-breaking policies that might today have helped (and they did that too). But these are all it-could-have-been-fixed-if-we'd-planned-better responses. I am not sure that we're able to comprehend what Greenspan's admission might really mean for us. It would be too big a shock to have the fundamentals of policy in both government and the economy proved wrong, and to have nothing with which to replace them.

It's as if one day, you were to wake up and find yourself transformed into a cockroach. This is the premise of Franz Kafka's novella Metamorphosis. In the first sentence, a young salesman named Gregor Samsa wakes up, after a night of bad dreams, to find that he has turned into an enormous bug. Gregor Samsa's response is revealing, telling us a little bit more about ourselves than we'd like. For what does Samsa do when he discovers he's a bug? He doesn't scuttle from his room screaming, or ponder how this happened, or what his transformation means, and what he might become tomorrow. His response is essentially this: "Poor me! How am I going to keep my job?" Which is almost exactly how we've reacted to this economic crisis. While no one has yet woken up in the body of a bug, we have all found ourselves in a world turned upside down, where everything we were told was to our advantage has turned out to be its opposite. Greenspan's "flaw" has profound repercussions -- to understand it fully would mean a complete reappraisal of the way we conduct our lives. We would need not only a new way of mooring our expectations of our society and our economy, one based on richer assumptions about human nature, but also a different ideology governing the exchange of goods and services.

Prices do some heavy ideological lifting in Greenspan's world. They provide a way to see and know the collective wants and resources of our small planet. This is Friedrich Hayek's economic philosophy, in which prices are the tendrils through which wants and needs are communicated. Science fiction fans will already be familiar with what this looks like. In "The Matrix," liberated humans (and the programs who hunt them) can see the world in its raw form, as a digital rain of symbols and signs. This is the science fiction that governs economic fact. Data pelting down monitors is what the masters of the universe on the global financial exchanges stare at, their eyes darting from screen to screen, trying to see through the world and profit from it. In "The Matrix," the signs were a simulation of the real world, hiding more than they revealed. The trouble is that this unreliable digital ticker tape has now become a central prop in the drama of modern commerce.

Consider the fate of Volkswagen, which at the end of October 2008 managed briefly to become the world's most valuable corporation without having to sell a single vehicle. With the economy still in free fall, traders on stock market floors were taking a dim view of Volkswagen. They looked at their screens and concluded that, just like every other auto manufacturer, Volkswagen was heading for tough times. Imagine you're a trader who feels in your bones that the stock price can only fall. One way to cash your hunch in is to sell Volkswagen stock today, and buy it back when the price falls. Since you don't walk around with Volkswagen stock falling out of your pockets, you'll turn to someone who does, like an institutional investor. You borrow their stock, for a price, and promise to return all of it very soon. The institutional investor is happy because they make money from lending out the stock, which they will get back in one piece. You're happy because you can sell this stock, wait for the price to fall, buy it back and, with the profit, not only pay back the institutional investor, but make the next installment on your yacht in Monaco. This practice is called "shorting."

The trouble was that Volkswagen's rival, Porsche, had started quietly buying Volkswagen stock, aiming to secure 75 percent of the company. When the scale of Porsche's buying spree came to light, it became rapidly clear that there was little of the company left to trade. With Porsche sucking up all the shares, the price for Volkswagen didn't drop. Traders were selling borrowed stock to Porsche, and when Porsche announced its intentions to hold the stock, traders panicked. This led to a "short squeeze," a flocking of investors looking to cover the ill-conceived bets that they'd paid for with stock that they didn't own. They'd wagered that Volkswagen's price, like that of any other car company in a recession, would fall. When it became clear that even if Volkswagen wasn't doing well in the car market, its share price was nonetheless defying gravity, the speculators rushed to buy before the price went any higher.

Their combined purchases drove the price of shares up further. So high did the price rise that Volkswagen entered the DAX 30 index of the largest corporations on the German bourse. This triggered another buying spree, driven not by stock market gamblers, but by their polar opposites -- conservative institutional investors. Pension funds, for instance, invest with an eye to long-term returns; they prefer a slow and certain accumulation of wealth rather than risky bets. One way that they keep their portfolio on an even keel is to buy shares in nothing but blue chip corporations, ones that are guaranteed to be least susceptible to the shocks that stocks are heir to, ones that are in the top, say, thirty corporations traded in the open market. When Volkswagen joined the ranks of the DAX 30, a flock of institutional investors automatically wanted in. So they bought Volkswagen shares at what ever price they could find them. The result? The price per share went from 200 to 1,000 in a week--an increase in company value of 300 billion (244 billion; $386 billion). It made Volkswagen, briefly, bigger than ExxonMobil (with a book value of a mere $343 billion). And for this, the company didn't raise a finger.

In the end, the rules on the DAX were changed, the price settled down and, in 2009, Volkswagen bought Porsche. It is easy enough to tell this story as one where institutional investors got caught with their pants down, where there was imperfect information about the size of the market, where the rules of different short-run and long-run games tangled. But look more closely. Underwriting this version of the story is a conceptual structure that lies beneath every story of excess and crash. The very notion of a bubble relies on the premise that when the bubble pops, things return to a normal state, a situation of price reflecting value more accurately. This is the story told after every boom and bust, from the South Sea Bubble of 1720 to the housing catastrophe of 2008. There's a widely shared opinion that normality will ultimately return to the world economy--but it's a consensus view that rests on a story where bubbles are exceptions to the standard (and successful) procedures of market valuation. If those procedures themselves were flawed, as Greenspan suggests, then our faith in a gentle return to earth is misplaced, for there is and never has been any solid ground beneath our feet.

There is a discrepancy between the price of something and its value, one that economists cannot fix, because it's a problem inherent to the very idea of profit-driven prices. This gap is something about which we've got an uneasy and uncomfortable intuition. The uncertainty about prices is what makes the MasterCard ads amusing. You know how it goes -- green fees: $240; lessons: $50; golf club: $110; having fun: priceless. The deeper joke, though, is this: The price of something doesn't measure its value at all. This prickly intuition has become entertainment. An alien from another planet would find it strange that one of the most popular TV shows in dozens of countries is one that trades on the confusion around what something's worth: "The Price Is Right." In the show, the audience is presented with various consumer durables, and asked to guess the retail price of each. Crucially, you don't win by correctly guessing how useful something is or how much it costs to make -- prices are poor guides to use and true costs of production. You win by developing an intuitive sense of what corporations believe you're willing to pay.

In the world of fund management, the systematic confusion surrounding what something is worth has made some people very rich. Traders' salaries are linked to the returns above expected rates for the risk they take on, the so-called alpha that they contribute to the returns. Think of a bet on a coin flip, with odds of two to one. I bet $1 that I will hit heads, and every time I do, I get $2. In the long run, I'd expect a dollar bet with those odds to return a dollar because I'll come up heads about half the time. But if I'm returning $1.50 on the bet, I'm making magic happen. This magic gets turned back into coins that I get to keep, through bonuses and increased salary. This is a tough trick to pull off because there are only a handful of ways to create added value in fund management -- I can pick undervalued stocks that outperform expectations, I can nurture innovations that change the rules of the game, or I can create new bespoke assets that institutional investors might like.
So we would expect alpha to be rare, and it is, but driven by the desire to cash in, there were many who created fake alpha through bets that appeared to produce consistently good returns despite having a small built-in chance of catastrophic loss. If the expected value of this loss were factored in, the alpha would disappear. But the risks were ignored and bonuses flowed. The frat boys who ran the economy, and profited from its poor regulation, made billions. They were paid today for outcomes that they predicted would happen in the future, using a "mark to model" accounting practice that essentially allowed them to book today what they projected they'd earn tomorrow. This practice was justified on the grounds that "markets know best."

That markets should know best is a relatively recent article of faith, and it took a great deal of ideological and political work to make it part of governments' conventional wisdom. The idea that markets are smart found its apotheosis in the Efficient Markets Hypothesis, an idea first formulated by Eugene Fama, a Ph.D. student in the University of Chicago Business School in the 1960s. In the ideological foundations it provided for financiers, it was a mighty force -- think of it as Atlas Shrugged, but with more equations.

The hypothesis states that the price of a financial asset reflects everything that a market knows about its current and future prospects. This is different from saying that the price actually does reflect its future performance -- rather, the price reflects the current state of beliefs about the odds of that performance being good or bad. The price involves a bet. As we now know, the market's eye for odds is dangerously myopic, but the hypothesis explains why economists find the following joke funny:

Q: How many Chicago School economists does it take to change a lightbulb?

A: None. If the lightbulb needed changing, the market would have already done it.

The problem with the Efficient Markets Hypothesis is that it doesn't work. If it were true, then there'd be no incentive to invest in research because the market would, by magic, have beaten you to it. Economists Sanford Grossman and Joseph Stiglitz demonstrated this in 1980, and hundreds of subsequent studies have pointed out quite how unrealistic the hypothesis is, some of the most influential of which were written by Eugene Fama himself. Markets can behave irrationally -- investors can herd behind a stock, pushing its value up in ways entirely unrelated to the stock being traded. Despite ample economic evidence to suggest it was false, the idea of efficient markets ran riot through governments. Alan Greenspan was not the only person to find the hypothesis a convenient untruth.

By pushing regulators to behave as if the hypothesis were true, traders could make their titanic bets. For a while, the money rolled in. In the mid-1990s, the Financial Times felt able to launch a monthly supplement, titled "How to Spend It," to help its more affluent readers unburden themselves. The magic of the past decade's boom also touched the middle class, who were sucked into the bubble through houses that were turned from places of shelter into financial assets, and into grist for the mill of the financial sector. But ordinary homeowners couldn't muster the clout that banks could: Governments enabled the finance sector's binge by promising to be there to pick up the pieces, and they were as good as their word. When the financiers' bets broke the system, the profit that they made from these bad bets remained untouchable: The profit was privatized, but the risk was socialized. Their riches have cost the whole world dear, and yet in 2009 the top hedge fund managers have had their third best year on record. George Soros is, in his own words, "having a very good crisis," and staff at Goldman Sachs can look forward to the largest bonus payouts in the firm's 140-year history.

What this suggests is that the rhetoric of "free markets" camouflages activities that aren't about markets at all. Goldman Sachs employees are doing well because their firm turned some distinctly nonmarket tricks. Rolling Stone journalist Matt Taibbi has recently revealed, with characteristic verve, how Goldman Sachs has bought the U.S. government. In the Obama administration's economic team, Wall Street has a generation of finance-friendly appointees, from Treasury Secretary Tim Geithner, who arranged a historic $29 billion loan to persuade JPMorgan Chase to acquire Bear Stearns during his tenure as chair of the Federal Reserve Bank of New York; to Larry Summers, who earned $5.2 million by working one day a week for a couple of years in a large Wall Street hedge fund. Their new positions in the White House make them the Tarzans of the economic jungle. Wall Street has reason to be pleased. Goldman had invested heavily in AIG, the insurance giant whose financial products division had brought the 90-year-old giant to bankruptcy. With the 2008 AIG rescue, the $13 billion that Goldman invested was repaid at full face value. Investors in Chrysler, by contrast, stand to get 29 cents for every dollar they invested.

Anyone concerned with democracy should be worried that the seam between Wall Street and the government is almost invisible. At the very least, it raises serious reasons to doubt that the institutions that facilitated the crisis can clean up their mess. Nassim Taleb points to the absurdity here: "People who were driving a school bus (blindfolded) and crashed it should never be given a new bus." The problem is that because both our economy and to a larger extent our politicians aren't really subject to democratic control, the bus drivers are always going to be graduates of the same driving school.

Despite the ongoing hijack of government by Wall Street, a word that hasn't been heard in over a generation is being uttered by politicians: "regulation." It's true that Goldman Sachs and others are profiting handsomely from the collapse, but there is nonetheless a growing sense among politicians that the market may have been allowed too free a rein. Naomi Klein's devastating critique The Shock Doctrine demonstrates how disasters were turned into platforms for rabidly free market policies, and it's an analysis that explains the post-World War II era and today's ongoing financial plunder, from California to Wall Street to the City of London, very well. But there is a recognition among the public and some politicians that today's economic crisis is a failure of free market thinking, and not a warrant for more. In response to popular outcry, politicians around the world seem ready to discuss how to regulate and restrain the market. The question is, can they, and, if they can, in whose interests will this regulation work?

From its inception, the free market has spawned discontent, but rare are the moments when that discontent coalesces across society, when a sufficiently large group of people can trace their unhappiness to free market politics, and demand change. The New Deal in the United States and the postwar European welfare states were partly a result of a consortium of social forces pushing for new limits to markets, and a renegotiation of the relationship between individuals and society. What's new about this crisis is that it's pervasively global, and comes at the last moment at which we might prevent a global climate catastrophe.
Excerpted with publisher's permission from "The Value of Nothing" (Picador, 2010) by Raj Patel. 

Shocking: High School Grads Twice As Likely To Be Jobless Than College Grads – and Right-Wingers are Profiting From Their Pain

By Adele M. Stan, AlterNet
Posted on November 28, 2009, Printed on November 29, 2009
http://www.alternet.org/story/144219/

You know how bad the economy is, right? Maybe your 401(k) has tanked. Perhaps you were out of work for a few months. You could have a mortgage under water. Or your health insurance has an impossibly high deductible. Yeah, we're all singing the blues.
I've gotten out my violin to play a mournful accompaniment to our collective angst.
Wait, what's that I hear in the distance? A dissonant, thundering chord someone just hammered on the piano -- a harsh interruption of my languid dirge. Now it repeats, getting louder and nearer.
It's the sound of rage, of people I don't know -- millions of them -- unable to make rent or feed their families.  Why don't I know them? They don't have college degrees, and nearly everybody I know does.
The truth is, brothers and sisters, however much we the degreed are suffering, we don't know the half of it. And unless we familiarize ourselves with the other half very, very soon, what was supposed to be a new progressive era could quickly give way to the rage of the Tea Party.
We all know that unemployment is high -- 10 percent nationwide, and higher than that in certain geographic pockets. (Michigan tops the states with more than 15 percent.) Economists tell us that when you factor in all the underemployed people, and those who have given up looking for work, the national employment picture is more like 17 percent who are either out of work or barely working. But chances are, if you're at all like me, those numbers tell you that something's terribly wrong, but your day-to-day life is more or less holding together.  Those who do not possess a college diploma are having a far more visceral experience of this recession.
Among college graduates, the unemployment rate for October was 4.7 percent,according to the Bureau of Labor Statistics (PDF). For people with some college or an Associate's degree, the rate is almost doubled, at 9 percent. Among high school graduates who never went to college, 11 percent are unemployed, while high-school drop-outs show a whopping 15.5 percent unemployed.
So, unless you know a lot of people who never graduated college, you really have no idea just how bad things are.
Maybe that's why the political establishment in Washington, D.C., was stunned last week when members of the Black Congressional Caucus came together in the House Financial Services Committee to halt a financial reform bill put together by committee Chairman Barney Frank, D-MA. While CBC members took issue with some specific provisions in the bill, the real intent of the caucus members' stalling was to protest the administration's lackluster response to the growing jobs crisis within their constituencies. (Among African Americans, the unemployment rate for October was 15.7 percent, according to BLS, compared to 9.5 percent for white people. According to a 2003 survey by the U.S. Census, 17 percent of blacks had college diplomas, compared to 27.2 percent of whites.)
A poll released last week by ABC News and the Washington Post found that 30 percent of Americans say that either they or someone in their household has lost a job in the past year, a finding the pollsters present as a new high. But, because it's an average, that figure tells only part of the story. Those losses are not evenly distributed across the economy; pollsters found that people living in households with income of less than $50,000 were twice as likely to have experienced a job loss by a member of their household than those with earnings above that threshold. 
Among the unemployed, 90 percent describe themselves as stressed, according the ABC News/Washington Post poll. Of those stressed-out people, 58 percent say they're depressed, and 62 percent say they're angry. That's a lot of angry, depressed, stressed-out people.
The right is clearly much more aware of the popular unease, and its leaders are organizing, organizing, organizing. That's what the Tea Party movement is all about: it taps into that vein of seething discontent and redirects it toward racial resentment and distrust of the government. Using corporate dollars, leaders of the right have built an impressive infrastructure comprising two major astro-turfing groups -- Americans for Prosperity and FreedomWorks -- whose efforts are trumpeted through the megaphone of FOX News. Then there's the community organizing done by FOX's Glenn Beck through his own FOX television show, his radio show and his 912 Project Web site -- in addition to the free publicity granted AFP and FreedomWorks on nearly all the FOX News programs.
The left has been building its infrastructure, too, but it's one that speaks to the college-educated, full of smartypants Web sites and a couple of elite think tanks, largely populated by people like me -- and maybe you. By that I mean people who don't live day to day, among the struggling parents of four or five kids, parents who used to earn a living in retail, or driving the trucks that stock the stores, or cranking out the cars we used to drive to the stores. Our distance from this reality leads us to the realm of wonkery and big ideas, perhaps willing to scuttle a health care bill if it has no public option, even if it would secure health care to millions for whom it is now out of reach. We debate climate change and net neutrality, both of which seem hopelessly abstract to people who are facing eviction from their homes.
Meanwhile the administration is buckling to Republican pressure to trim the deficit -- at the very moment when we need deficit spending for the creation of a massive jobs program. If progressives put the same level of energy and resources into demanding a jobs program as they have a public health plan, the prospects for a progressive era would be greatly improved.
But what about the unions, you ask? Progressive leaders organize the working stiffs through labor unions, right? Well, not exactly. While unions expend plenty of muscle on behalf of working people -- and do it smarter and better than they have in the past -- unionized workers today account for only 12 percent of the workforce. And unions should not be expected to carry the burden alone of energizing the entire population of displaced workers around a larger political agenda.
When we progressives organize, we're largely organizing the educated, whose hard times lack the urgency of those without college diplomas. We are simply not present in their world. Progressive writers rarely appear on the opinion pages of local newspapers (with the notable exception of David Sirota), and the progressive movement is rarely represented on the local television news. And that's our fault. The truth is, we'd rather just talk to each other than engage with the people whose plight we claim we wish to improve.
You can't say that of the Tea Party crowd. Right-wing leaders found a way to empower local activists to act on the leaders' behalf. They gave them a banner under which to brand themselves, a narrative linked to a romantic notion of patriotism, and plenty of room to build cell groups at the local level, where their local events help to get them on the local newscast. Tea Partiers write letters to the editor of their local papers. And the right long ago made significant inroads into the op-ed pages of midsized newspapers via the big syndication services. (While newspaper circulation continues to fall, 45 percent of those whose education stopped with high school still read a daily newspaper.)
When Barack Obama won the presidency, the euphoria felt by progressives was understandable. But now it's grown-up time -- time to remember that millions of Americans voted for Obama only reluctantly. They weren't voting for the nation's first black president or for a progressive agenda; they were voting against the legacy of George W. Bush, under whose leadership the Republicans completely screwed up the economy. Unless progressives push Obama to deliver on jobs, and unless progressives reach out to the jobless to engage them in this fight, the Obama presidency could soon be regarded as a failed progressive experiment, full of arguments about abstract topics like cap-and-trade and net neutrality, a game of badminton played by elites, while in the big, bad coliseum of life, regular people are getting mauled.
In the meantime, the president's approval numbers are falling precipitously among white people and independents. Since his inauguration, Obama's approval numbers, according to a Gallup poll released this week, have fallen 22 points among whites.
It's time for liberal leaders to embark on a path that connects progressive goals to the plight of everyday people; one that channels the fierce urgency felt at the ground level to an enormous push for a major jobs program (and the deficit spending it will require), and that has progressives talking to people in their own neighborhoods via local media. More than anything, we need to get over the notion that we know how bad it is. Time to pull the iPod buds out of our ears and meet the thundering dissonance.
Adele M. Stan is AlterNet's Washington bureau chief.

OP-ED COLUMNIST

The Phantom Menace

By PAUL KRUGMAN

A funny thing happened on the way to a new New Deal. A year ago, the only thing we had to fear was fear itself; today, the reigning doctrine in Washington appears to be “Be afraid. Be very afraid.”
What happened? To be sure, “centrists” in the Senate have hobbled efforts to rescue the economy. But the evidence suggests that in addition to facing political opposition, President Obama and his inner circle have been intimidated by scare stories from Wall Street.
Consider the contrast between what Mr. Obama’s advisers were saying on the eve of his inauguration, and what he himself is saying now.
In December 2008 Lawrence Summers, soon to become the administration’s highest-ranking economist, called for decisive action. “Many experts,” he warned, “believe that unemployment could reach 10 percent by the end of next year.” In the face of that prospect, he continued, “doing too little poses a greater threat than doing too much.”
Ten months later unemployment reached 10.2 percent, suggesting that despite his warning the administration hadn’t done enough to create jobs. You might have expected, then, a determination to do more.
But in a recent interview with Fox News, the president sounded diffident and nervous about his economic policy. He spoke vaguely about possible tax incentives for job creation. But “it is important though to recognize,” he went on, “that if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession.”
What? Huh?
Most economists I talk to believe that the big risk to recovery comes from the inadequacy of government efforts: the stimulus was too small, and it will fade out next year, while high unemployment is undermining both consumer and business confidence.
Now, it’s politically difficult for the Obama administration to enact a full-scale second stimulus. Still, he should be trying to push through as much aid to the economy as possible. And remember, Mr. Obama has the bully pulpit; it’s his job to persuade America to do what needs to be done.
Instead, however, Mr. Obama is lending his voice to those who say that we can’t create more jobs. And a report on Politico.com suggests that deficit reduction, not job creation, will be the centerpiece of his first State of the Union address. What happened?
It took me a while to puzzle this out. But the concerns Mr. Obama expressed become comprehensible if you suppose that he’s getting his views, directly or indirectly, from Wall Street.
Ever since the Great Recession began economic analysts at some (not all) major Wall Street firms have warned that efforts to fight the slump will produce even worse economic evils. In particular, they say, never mind the current ability of the U.S. government to borrow long term at remarkably low interest rates — any day now, budget deficits will lead to a collapse in investor confidence, and rates will soar.
And it’s this latter claim that Mr. Obama echoed in that Fox News interview. Is he right to be worried?
Well, spikes in long-term interest rates have happened in the past, most famously in 1994. But in 1994 the U.S. economy was adding 300,000 jobs a month, and the Fed was steadily raising short-term rates. It’s hard to see why anything similar should happen now, with the economy still bleeding jobs and the Fed showing no desire to raise rates anytime soon.
A better model, I’d argue, is Japan in the 1990s, which ran persistent large budget deficits, but also had a persistently depressed economy — and saw long-term interest rates fall almost steadily. There’s a good chance that officials are being terrorized by a phantom menace — a threat that exists only in their minds.
And shouldn’t we consider the source? As far as I can tell, the analysts now warning about soaring interest rates tend to be the same people who insisted, months after the Great Recession began, that the biggest threat facing the economy was inflation. And let’s not forget that Wall Street — which somehow failed to recognize the biggest housing bubble in history — has a less than stellar record at predicting market behavior.
Still, let’s grant that there is some risk that doing more about double-digit unemployment would undermine confidence in the bond markets. This risk must be set against the certainty of mass suffering if we don’t do more — and the possibility, as I said, of a collapse of confidence among ordinary workers and businesses.
And Mr. Summers was right the first time: in the face of the greatest economic catastrophe since the Great Depression, it’s much riskier to do too little than it is to do too much. It’s sad, and unfortunate, that the administration appears to have lost sight of that truth.

15 Signs American Society Is Coming Apart at the Seams

By David DeGraw, Amped Status
Posted on November 21, 2009, Printed on November 23, 2009
http://www.alternet.org/story/144109/

Editor's note: The following is an edited excerpt from the Amped Status report, "The Critical Unraveling of U.S. Society."
The economic elite have launched an attack on the U.S. public and society is unraveling at an increased rate. You may have missed it in the mainstream news media, but statistical societal indicators are reading red across the board. Let’s look at the top 15 statistics that prove we are under attack.
1) The inequality of wealth in the United States is soaring to an unprecedented level. The U.S. already had the highest inequality of wealth in the industrialized world prior to the financial crisis. Since the crisis, which has hit the middle class and poor much harder than the top 1 percent, the gap between the top 1 percent and the remaining 99 percent of the U.S. population has grown to a record high.
2) As the stock market went over the 10,000 mark and just surged to a 13-month high, the three big banks that took taxpayer money and benefited the most from the government bailout have just set a new global economic record by issuing $30 billion in annual bonuses this year, “up 60 percent from last year.” Bloomberg reported: “Goldman Sachs, the most profitable securities firm in Wall Street history, had a record profit in the first nine months of this year and set aside $16.7 billion for compensation expenses.” Goldman Sachs is on pace for the best year in the firm’s history, and it is also benefiting by only paying 1 percent in taxes.
3) The profits of the economic elite are “now underwritten by taxpayers with $23.7 trillion worth of national wealth."
As the looting is occurring at the top, the U.S. middle class is just beginning to collapse.
4) Workers between the ages of 55 to 60, who have worked for 20 to 29 years, have lost an average of 25 percent off their 401k. During the same time period, the wealth of the 400 richest Americans went up by $30 billion, bringing their total combined wealth to $1.57 trillion.
5) Home foreclosure filings "hit a record high in the third quarter (of 2009)… They werethe worst three months of all time… 937,840 homes received a foreclosure letter" in this three-month period; “3.4 million homes are expected to enter foreclosure by year’s end, with some experts estimating that next year will be even worse.”
President Obama has enacted a $75 billion taxpayer funded program that has been aspectacular failure in stemming the foreclosure crisis and has proven to be another massive waste of billions of taxpayer dollars.
6) 25 million people are unemployed or underemployed.
This means we have 25 million people who urgently need to increase their income, and they’re quickly running out of options. The unemployment rate is expected to rise further and remain high for several years. “The president’s chief economic adviser warned that the nation’s unemployment rate could stay ‘unacceptably high’ for years to come."
The New York Times reports: "Americans now confront a job market that is bleaker than ever in the current recession, and employment prospects are still getting worse. Job seekers now outnumber openings six to one, the worst ratio since the government began tracking….” As this ratio continues to grow, it will lead to a further reduction in wages -- average worker wages have seen a sharp decline over the past year.
Economist Nouriel Roubini, a man who accurately predicted our current crisis, just reported on unemployment stating: “Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening…. So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.”
7) As the few elite banks thrive, there have been 123 U.S. bank failures thus far this year. Recently, three banks that the government declared “healthy” and gave taxpayer money, have folded. The Wall Street Journal reports: “U.S. regulators have seized or threatened at least 27 banks that got capital infusions from the Troubled Asset Relief Program, including some lenders government officials knew were troubled when they awarded the money. The troubles put taxpayers at risk of losing as much as $5.1 billion invested in the banks since TARP was launched in October 2008.”
8) As bankruptcies surge across the board, 10 U.S. states are on the verge of bankruptcy, with several ready to declare a financial state of emergency. California, Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin are all “barreling toward economic disaster, raising the likelihood of higher taxes, more government layoffs and deep cuts in services."
9) This is occurring at a time when the “federal budget deficit for the fiscal year that just ended was $1.4 trillion, nearly a trillion dollars greater than the year before."  In total, "U.S. public debt topped $12 trillion for the first time in history… The public debt topped $10 trillion in September 2008. The debt is quickly approaching the statutory limit of $12.104 trillion, meaning Congress would have to raise the ceiling to prevent a shutdown of government operations."
Economist Dean Baker explains the risk of running such a large deficit: "The debt limit must be increased at regular intervals in order to allow the government to function normally because the government is currently operating at a deficit. If the debt limit is not passed, then at some point the government will not be able to pay workers and contractors. It won’t be able to send out Social Security checks or make payments for Medicaid and unemployment insurance to state governments. And, it will not be able to make interest payments on government bonds, effectively defaulting on the national debt."
Needless to say, all of this will make life drastically more difficult for American citizens. As the middle class continues on the path of economic decline, the number of citizens living in poverty has already hit an all-time high.
10) Although the government’s official figure tries to low-ball the number, 47.4 million U.S. citizens live in poverty, and the U.S. poverty rate is the highest in the industrialized world.
Predictably, homelessness is rising at an increased rate as well. "The U.S. government does not tally the numbers but interested organizations say that more than 3 million people were homeless at some point over the past year…. The fastest growing segment of the homeless population is families with children.”
Children have been hit especially hard by the economic crisis:
11) * 50 percent of U.S. children, one out of every two children, will need to use food stamps to eat.
One out of every two children in the United States of America will need to use a food stamp… to EAT!
If you didn’t think starvation was a serious threat in the U.S., just read this newWashington Post report: “The nation’s economic crisis has catapulted the number of Americans who lack enough food to the highest level since the government has been keeping track, according to a new federal report, which shows that nearly 50 million people — including almost one child in four — struggled last year to get enough to eat… Several independent advocates and policy experts on hunger said that they had been bracing for the latest report to show deepening shortages, but that they were nevertheless astonished by how much the problem has worsened. 'This is unthinkable. It’s like we are living in a Third World country,' said Vicki Escarra, president of Feeding America."
The United States Department of Agriculture released these findings in a study that was completed in December 2008, which means these numbers don’t take into account the millions more unemployed throughout 2009. The numbers of people living in poverty and struggling to eat has seen a significant increase since then.
This a national tragedy. But it gets much worse.
12) In 2008, according to the Census Bureau, the number of U.S. citizens without health care grew to a record 46.3 million. “The new figures, however, understate the severity of the economic downturn because a large portion of the nation’s job losses and unemployment rate increases occurred after the Census survey data was collected in March as part of the annual Current Population Survey."
13) Lack of health insurance has caused 45,000 preventable U.S. citizen deaths in the past year. The American Journal of Medicine recently released a study that stated, “Nearlytwo out of three bankruptcies stem from medical bills, and even people with health insurance face financial disaster if they experience a serious illness.”
A Johns Hopkins Children’s Center study reported that 17,000 children have died due to lack of health care. You can also add in a recent report that revealed that 2,266 U.S. veterans have died in 2008 due to lack of insurance.
The 50 million now uninsured and the 45,000 preventable deaths per year statistics are expected to drastically rise over the next few years. As the Senate continues to strip meaningful amendments from a health care bill that wouldn’t even take effect until 2013, it has become clear that, despite the media hype, the health care bill is going to fall far short of meaningful reform and continue to rig the game in favor of large insurance company profits at the expense of the U.S. population. With the highest cost healthcare in the world, current trends will continue and much needed change is not on the horizon.
Never before has the United States had so many citizens with so little means, little to no income and heavy debt. Debt and costs of living have now shackled U.S. citizens just as they have shackled people throughout the world. The economic hit men have now hit the United States as well and millions of American citizens are now effectively sentenced to a slow death.
Economic Imperial blowback has hit the mainland.
And the clock is ticking louder by the day…
And here’s two more facts for you:
14) The gun and ammunition manufacturing industry in the United States has over 200 companies producing billions of dollars in annual revenues. This huge manufacturing base cannot fulfill demand quickly enough. The demand for guns and ammunition has hit a record high and the gun industry cannot produce enough bullets to keep up with orders.
Americans are arming themselves to the teeth!
15) In the past year, 100 new armed militia groups have been formed, as militia members have doubled in numbers. Federal authorities are gravely concerned about the “uptick in militia activities." One federal authority recently said, “All it’s lacking is a spark. I think it’s only a matter of time before you see threats and violence."
So let’s break down these numbers.
You have a population of 50 million people who are in desperate need of money, they most likely have no health insurance and can’t afford to get health care or help of any kind. Part of this population probably also has loved ones who can’t get life sustaining medical treatments, or loved ones who have already died due to lack of costly medical treatment. The clock is ticking loud for these people and they are running out of options fast, and time delayed is time closer to death.
While the richest 1 percent have never had it so good, a significant percentage of the U.S. population now has firsthand experience in this. Millions upon millions of Americans are poor, broke, struggling, starving, desperate… and armed.
We are sitting on a powder keg!
We are now witnessing the critical unraveling of U.S. society.

November 23, 2009
PAYBACK TIME

Wave of Debt Payments Facing U.S. Government

By EDMUND L. ANDREWS
WASHINGTON — The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.
But that happy situation, aided by ultralow interest rates, may not last much longer.
Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.
Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.
With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.
In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.
The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means.
The surge in borrowing over the last year or two is widely judged to have been a necessary response to the financial crisis and the deeprecession, and there is still a raging debate over how aggressively to bring down deficits over the next few years. But there is little doubt that the United States’ long-term budget crisis is becoming too big to postpone.
Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode.
The competing demands could deepen political battles over the size and role of the government, the trade-offs between taxes and spending, the choices between helping older generations versus younger ones, and the bottom-line questions about who should ultimately shoulder the burden.
“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”
So far, the demand for Treasury securities from investors and other governments around the world has remained strong enough to hold down the interest rates that the United States must offer to sell them. Indeed, the government paid less interest on its debt this year than in 2008, even though it added almost $2 trillion in debt.
The government’s average interest rate on new borrowing last year fell below 1 percent. For short-term i.o.u.’s like one-month Treasury bills, its average rate was only sixteen-hundredths of a percent.
“All of the auction results have been solid,” said Matthew Rutherford, the Treasury’s deputy assistant secretary in charge of finance operations. “Investor demand has been very broad, and it’s been increasing in the last couple of years.”
The problem, many analysts say, is that record government deficits have arrived just as the long-feared explosion begins in spending on benefits under Medicare and Social Security. The nation’s oldest baby boomers are approaching 65, setting off what experts have warned for years will be a fiscal nightmare for the government.
“What a good country or a good squirrel should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group, the giant bond-management firm. “The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”
The current low rates on the country’s debt were caused by temporary factors that are already beginning to fade. One factor was the economic crisis itself, which caused panicked investors around the world to plow their money into the comparative safety of Treasury bills and notes. Even though the United States was the epicenter of the global crisis, investors viewed Treasury securities as the least dangerous place to park their money.
On top of that, the Fed used almost every tool in its arsenal to push interest rates down even further. It cut the overnight federal funds rate, the rate at which banks lend reserves to one another, to almost zero. And to reduce longer-term rates, it bought more than $1.5 trillion worth of Treasury bonds and government-guaranteed securities linked to mortgages.
Those conditions are already beginning to change. Global investors are shifting money into riskier investments like stocks and corporate bonds, and they have been pouring money into fast-growing countries like Brazil and China.
The Fed, meanwhile, is already halting its efforts at tamping down long-term interest rates. Fed officials ended their $300 billion program to buy up Treasury bonds last month, and they have announced plans to stop buying mortgage-backed securities by the end of next March.
Eventually, though probably not until at least mid-2010, the Fed will also start raising its benchmark interest rate back to more historically normal levels.
The United States will not be the only government competing to refinance huge debt. Japan, Germany, Britain and other industrialized countries have even higher government debt loads, measured as a share of their gross domestic product, and they too borrowed heavily to combat the financial crisis and economic downturn. As the global economy recovers and businesses raise capital to finance their growth, all that new government debt is likely to put more upward pressure on interest rates.
Even a small increase in interest rates has a big impact. An increase of one percentage point in the Treasury’s average cost of borrowing would cost American taxpayers an extra $80 billion this year — about equal to the combined budgets of the Department of Energy and theDepartment of Education.
But that could seem like a relatively modest pinch. Alan Levenson, chief economist at T. Rowe Price, estimated that the Treasury’s tab for debt service this year would have been $221 billion higher if it had faced the same interest rates as it did last year.
The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead.
To lock in low interest rates in the years ahead, Treasury officials are trying to replace one-month and three-month bills with 10-year and 30-year Treasury securities. That strategy will save taxpayers money in the long run. But it pushes up costs drastically in the short run, because interest rates are higher for long-term debt.
Adding to the pressure, the Fed is set to begin reversing some of the policies it has been using to prop up the economy. Wall Street firms advising the Treasury recently estimated that the Fed’s purchases of Treasury bonds and mortgage-backed securities pushed down long-term interest rates by about one-half of a percentage point. Removing that support could in itself add $40 billion to the government’s annual tab for debt service.
This month, the Treasury Department’s private-sector advisory committee on debt management warned of the risks ahead.
“Inflation, higher interest rate and rollover risk should be the primary concerns,” declared the Treasury Borrowing Advisory Committee, a group of market experts that provide guidance to the government, on Nov. 4.
“Clever debt management strategy,” the group said, “can’t completely substitute for prudent fiscal policy.”

Modern Life Is Probably Screwed by Peak Oil, But It's Not Too Late to Avoid Mass Starvation

By George Monbiot, Monbiot.com
Posted on November 19, 2009, Printed on November 19, 2009
http://www.alternet.org/story/144017/

I don't know when global oil supplies will start to decline. I do know that another resource has already peaked and gone into freefall: the credibility of the body that's meant to assess them. Last week two whistleblowers from the International Energy Agency alleged that it has deliberately upgraded its estimate of the world's oil supplies in order not to frighten the markets. Three days later, a paper published by researchers at Uppsala University in Sweden showed that the IEA's forecasts must be wrong, because it assumes a rate of extraction that appears to be impossible. The agency's assessment of the state of global oil supplies is beginning to look as reliable as Mr Greenspan's blandishments about the health of the financial markets.
If the whistleblowers are right, we should be stockpiling ammunition. If we are taken by surprise; if we have failed to replace oil before the supply peaks then crashes, the global economy is stuffed. But nothing the whistleblowers said has scared me as much as the conversation I had last week with a Pembrokeshire farmer.
Wyn Evans, who runs a mixed farm of 170 acres, has been trying to reduce his dependency on fossil fuels since 1977. He has installed an anaerobic digester, a wind turbine, solar panels and a ground-sourced heat pump. He has sought wherever possible to replace diesel with his own electricity. Instead of using his tractor to spread slurry, he pumps it from the digester onto nearby fields. He's replaced his tractor-driven irrigation system with an electric one, and set up a new system for drying hay indoors, which means he has to turn it in the field only once. Whatever else he does is likely to produce smaller savings. But these innovations have reduced his use of diesel by only around 25%.
According to farm scientists at Cornell University, cultivating one hectare of maize in the United States requires 40 litres of petrol and 75 litres of diesel. The amazing productivity of modern farm labour has been purchased at the cost of a dependency on oil. Unless farmers can change the way it's grown, a permanent oil shock would price food out of the mouths of many of the world's people. Any responsible government would be asking urgent questions about how long we have got.
Instead, most of them delegate this job to the International Energy Agency. I've been bellyaching about the British government's refusal to make contingency plans for the possibility that oil might peak by 2020 for the past two years, and I'm beginning to feel like a madman with a sandwich board. Perhaps I am, but how lucky do you feel? The new World Energy Outlook published by the IEA last week expects the global demand for oil to rise from 85m barrels a day in 2008 to 105m in 2030. Oil production will rise to 103m barrels, it says, and biofuels will make up the shortfall. If we want the oil, it will materialise.
The agency does caution that conventional oil is likely to "approach a plateau" towards the end of this period, but there's no hint of the graver warning that the IEA's chief economist issued when I interviewed him last year: "we still expect that it will come around 2020 to a plateau … I think time is not on our side here." Almost every year the agency has been forced to downgrade its forecast for the daily supply of oil in 2030: from 123m barrels in 2004, to 120m in 2005, 116m in 2007, 106m in 2008 and 103m this year. But according to one of the whistleblowers, "even today's number is much higher than can be justified and the IEA knows this."
The Uppsala report, published in the journal Energy Policy, anticipates that maximum global production of all kinds of oil in 2030 will be 76m barrels per day. Analysing the IEA's figures, it finds that to meet its forecasts for supply, the world's new and undiscovered oil fields would have to be developed at a rate "never before seen in history." As many of them are in politically or physically difficult places, and as capital is short, this looks impossible. Assessing existing fields, the likely rate of discovery and the use of new techniques for extraction, the researchers find that "the peak of world oil production is probably occurring now."
Are they right? Who knows? Last month the UK Energy Research Centre published a massive review of all the available evidence on global oil supplies. It found that the date of peak oil will be determined not by the total size of the global resource but by the rate at which it can be exploited. New discoveries would have to be implausibly large to make a significant difference: even if a field the size of all the oil reserves ever struck in the USA were miraculously discovered, it would delay the date of peaking by only four years. As global discoveries peaked in the 1960s, a find like this doesn't seem very likely.
Regional oil supplies have peaked when about one third of the total resource has been extracted: this is because the rate of production falls as the remaining oil becomes harder to shift. So the assumption in the IEA's new report, that oil production will hold steady when the global resource has fallen "to around one-half by 2030" looks unsafe. The UKERC review finds that just to keep oil supply at present levels, "more than two thirds of current crude oil production capacity may need to be replaced by 2030 … At best, this is likely to prove extremely challenging." There is, it says "a significant risk of a peak in conventional oil production before 2020." Unconventional oil won't save us: even a crash programme to develop the Canadian tar sands could deliver only 5m barrels a day by 2030.
As a report commissioned by the US Department of Energy shows, an emergency programme to replace current energy supplies or equipment to anticipate peak oil would need about 20 years to take effect. It seems unlikely that we have it. The world economy is probably knackered, whatever we might do now. But at least we could save farming. There are two possible options: either the mass replacement of farm machinery or the development of new farming systems, which don't need much labour or energy. There are no obvious barriers to the mass production of electric tractors and combine harvesters: the weight of the batteries and an electric vehicle's low-end torque are both advantages for tractors. A switch to forest gardening and other forms of permaculture is trickier, especially for producing grain; but such is the scale of the creeping emergency that we can't afford to rule anything out.
The challenge of feeding 7 or 8 billion people while oil supplies are falling is stupefying. It'll be even greater if governments keep pretending that it isn't going to happen.
George Monbiot is the author Heat: How to Stop the Planet from Burning. Read more of his writings at Monbiot.com. This article originally appeared in the Guardian.

Whistleblowers Say Oil Reserve Numbers Deliberately Inflated to Avoid Panic, Appease the US

By Matthew McDermott, TreeHugger
Posted on November 11, 2009, Printed on November 12, 2009
http://www.alternet.org/story/143888/

World oil reserves are far lower than officially reported, the situation far more serious than publicly admitted, and we're already past peak oil. That's the word from two anonymous IEA whistleblowers, The Guardian reports. To add insult to industry, the figures were deliberately massaged, at least in part, to appease the United States:
Apparently the IEA was concerned that reporting the true reserve numbers -- and keep in mind that determining oil reserves is as much art as science -- it would trigger a buying panic.
The US enters the picture encouraging the IEA to underplay the rate at which oil fields are being depleted -- something which the IEA has admitted in recent months is occurring more quickly than previously acknowledged -- while at the same time overplaying the possibility of new large discoveries.
Indeed, when one does the math on how much recent new oil finds, touted as 'huge', actually add to world reserves, the result is usually in days or weeks of additional world supply, not months, still less years.
Little Room to Expand Global Production
Drilling into the numbers, the first whistleblower -- who is still at the IEA and wished to remain anonymous out of fear of reprisal -- says that while the IEA has maintained that world oil production can be increased to 105 million barrels per day, from the current 83 million barrels, "Many inside the organization believe that maintaining oil supplies at even 90m to 95m barrels a day would be impossible."
The second whistleblower, who is no longer with the IEA, said that it was agency policy to not "anger the Americans" and added that we are already past peak oil and that "the situation is really bad."
Check out the original Guardian piece for their analysis and background, but here are some things that immediately pop to mind....
Slow Change of Position to Avoid Panic?
First of all, it seems that the IEA is coming around a bit on the idea of peak oil and has been increasingly willing to talk about the economic impact of this. If I was a more conspiracy-minded person, I might think that this change in messaging was some sort of deliberate pacing to defuse the perceived possibility of financial panic. But then again, that's pure speculation.
The Same Head In The Sand Thinking...
Second, to entirely avoid some significant economic disruption because of peak oil, we would have had to gone on an oil crash diet starting a decade ago. Right now it's not a question of whether there's going to be a crash, but whether we try to slow down and avoid the worst of it.
So, more than anything, this illustrates the same head in the sand thinking that dogs climate change negotiations. Out of fear of disrupting current activity, profit, lifestyles, what have you, you put off action for the future, even though it's inevitable that those have to change.
Rather than take difficult proactive steps while there is time to reduce damage, we obfuscate, delay, debate uncertainty rather than solutions. We'd rather deal with symptoms than causes, continue engaging in compartmentalized rather than holistic action. Addressing environment, healthcare, terrorism... the same myopic thinking.
Third, it all seems painfully, even boringly, expected.
Matthew McDermott writes about alternative energy for TreeHugger.

USDA: Number of Americans going hungry increases
By HENRY C. JACKSON, Associated Press Writer2 mins ago
WASHINGTON – More than one in seven American households struggled to put enough food on the table in 2008, the highest rate since the Agriculture Department began tracking food security levels in 1995.
That's about 49 million people, or 14.6 percent of U.S. households. The numbers are a significant increase from 2007, when 11.1 percent of U.S. households suffered from what USDA classifies as "food insecurity" — not having enough food for an active, healthy lifestyle.
Researchers blamed the increase in hunger on a lack of money and other resources.
President Barack Obama called the USDA's findings "unsettling." He noted that other indicators of hunger have gone up, such as the number of food stamp applications and the use of food banks. And he said his administration is committed to reversing the trend.
"The first task is to restore job growth, which will help relieve the economic pressures that make it difficult for parents to put a square meal on the table each day," Obama said in a statement.
Agriculture Secretary Tom Vilsack said the numbers could be higher in 2009 because of the global economic slowdown.
"This report suggests its time for America to get very serious about food security and hunger," Vilsack told reporters during a conference call.
The USDA said Monday that 5.7 percent of those who struggled for food experienced "very low food security," meaning household members reduced their food intake.
The numbers dovetail with dire economic conditions for many Americans. And they may not take the full measure of America's current struggles with hunger: Vilsack and the report's lead author, Mark Nord with USDA's economic research service, both emphasized that the numbers reflected the situation in 2008 and that the economy's continued troubles in 2009 would likely mean higher numbers next year.
The report also showed an increasing number of children in the United States are suffering. In 2008, 16.7 million children were classified as not having enough food, 4.3 million more than in 2007.
Hunger advocates said they were not surprised by the numbers, and said the problem among children, in particular, is lamentable.
"What should really shock us is that almost one in four children in our country lives on the brink of hunger," said David Beckmann, the President of Bread of the World, an advocacy organization.
Vilsack said that it would take a concerted effort to reduce the number of Americans who face a lack of food and said he hoped that the stark reality of Monday's report would inspire action. The numbers could have been much worse without adequately funded food aid programs, such as food stamps, he said.
"There's an opportunity here for the country to make a major commitment to focus on ways we can improve this process and make sure that food is safe and available for everyone," he said.

Published on Thursday, November 19, 2009 by The Capital Times (Wisconsin)
Split Up The Banks! Restore Glass-Steagall
by Dave Zweifel
Ten years ago, the Republican-controlled Congress - egged on by that champion deregulator, former Texas Sen. Phil Gramm - passed legislation that arguably did more to plunge the United States into our crippling great recession than anything else: It repealed the Great Depression era's Glass-Steagall Act.
Then on Nov. 12, 1999, an acquiescent Democratic president, Bill Clinton, signed the repeal into law.
Glass-Steagall stood as a firewall between commercial banks and Wall Street since 1933, when the country's leaders heeded the lessons of the 1929 stock market crash and set in place strict regulations in an attempt to prevent such an economic calamity from happening again.
But the country's financial institutions chafed for decades under Glass-Steagall's restrictions. If only commercial banks could merge with investment banks and insurance companies, they argued, it would be so much better for the nation's economy. Gramm, who infamously insisted that the U.S. had become a nation of whiners when the economy started to tank in the fall of 2008, fought for years to repeal Glass-Steagall and finally got his way. Get government out of the way of the free marketplace, he argued, ignoring the fact that historically conservative banks would be joining the high-risk investment community and all the pitfalls it represents.
The repeal sanctioned the formation of the conglomerate Citigroup, for example, permitting commercial bank Citicorp's merger with Travelers insurance corporation. Citigroup, which now included Citibank, Smith Barney, Primerica and Travelers, combined banking, securities and insurance services under one giant and, as we painfully learned, "too big to fail" financial institution.
That's how we got today's Bank of America, JPMorgan Chase and the many other giants that participated in dicing and slicing subprime mortgages, and traded in complicated hedge funds, derivatives and other financial manipulations, which commercial banks were forbidden to do for more than 65 years.
Now some of the biggies are coming to recognize the peril they and the country are in as a result. Last week, JPMorgan CEO James Dimon called the idea that any bank is too big to fail "ethically bankrupt" and added that regulators should have the power to let them fail.
Even Citigroup's co-founder, John Reed, said earlier this month that he's sorry for creating the monster and that it was a big mistake when the bank merged with Travelers, opening the door to massive risk.
Indeed, Reed said Glass-Steagall should be restored, joining former Federal Reserve Chairman Paul Volcker, who has been trying to convince the Obama administration of the need to return to the act's strict regulation. That would mean breaking up the "too big to fail" institutions and restoring banks to being banks and investment houses to their own businesses.
Breaking up the biggies would go a long way toward returning stability to the broken system, in which taxpayers are asked to save the conglomerates from their own bad behavior and then forced to sit by while the behemoths return to big profits and obscene bonuses.
U.S. Sen. Bernie Sanders, the Vermont independent, has introduced legislation that would require the Treasury Department to identify the so-called "too big to fail" conglomerates and force them to break up within a year.
Meanwhile, the Madison-based Center for Media and Democracy has started a new project called BanksterUSA to rally support for Sanders' legislation and advocate for prosecution of Wall Street executives who purposely manipulated markets for their private gain. Its motto is: "Too big to fail, but not too big for jail!" More information is on its website at www.BanksterUSA.org .
After what we've gone through and what millions of innocent out-of-work Americans are still going through, it truly is time to restore Glass-Steagall and rid ourselves of these "too big to fail" conglomerates.

America Is One Big Clunker and No Amount of Cash Will Buy Us a New One
By James Howard Kunstler, Kunstler.com
Posted on November 16, 2009, Printed on November 16, 2009
http://www.alternet.org/story/143969/
In The Long Emergency (2005, Atlantic Monthly Press), I said that we ought to expect the federal government to become increasingly impotent and ineffectual -- that this would be a hallmark of the times. In fact, I said that any enterprise organized at the colossal scale would function poorly in years ahead, whether it was a government, a state university, a national chain retail company, or a giant midwestern farm. It is characteristic of the compressive contraction our society faces that giant hypercomplex systems will wobble and fail. We should expect this.
It's tragic that the avatar of hopefulness himself, Barack Obama, stepped into his role at exactly the moment when this set of conditions was getting traction. It is sure to get worse, and there are going to be a lot of disappointed people out there who will be suffering terrible losses and real pain in daily life. Societies don't do well when the public falls into the broad despair that is the opposite of hope. That's when the long knives and the tribal animosities come out and things get smashed.
Within the context of conventional party politics -- the kind that has been baseline "normal" in the USA for a long time -- we see this playing out in two factions that are increasingly out-of-touch with reality. The Obama government has made itself hostage to a toxic form of pretense and lying. In order to sustain the wish for "hope" -- if not hope itself -- the President and his White House advisors along with his cabinet appointments, are pretending that the historical forces of compressive contraction are not underway. They're flat-out lying about the employment figures issued in the government's name. They're willfully ignoring the comprehensive bankruptcy gripping government at all levels. They refuse to bring the law to bear against "the malefactors of great wealth." They appear to not understand the epochal energy scarcity problem the whole world faces, or its implications for industrial economies. Most of all, they persist in promoting the lie that this economy can return to the prior state of reckless debt accumulation (a.k.a "consumerism") that has made us so ridiculous and unhealthy.
The trouble with self-delusion, either in a person or a society, is that reality doesn't care what anybody believes, or what story they put out. Reality doesn't "spin." Reality does not have a self-image problem. Reality does not yield its workings to self-esteem management. These days, Americans don't like reality very much because it won't let them push it around. Reality is an implacable force and the only question for human beings in the face of it is: what will you do? In other words, it's not really possible to manage reality, but you can certainly choose to manage your affairs within reality. We won't do that because it's too difficult. This harsh situation leaves the public increasingly with little more than bad feelings of discouragement and persecution. It's astonishing that all the smart people around the president don't get this.
Reality unfolds emergently, and this ought to interest us. For instance, I have maintained for many years that we are approaching the twilight of the automobile age -- and the implications of this for daily life in the USA are pretty large. For a long time, I had assumed that this change of circumstances would proceed from our problems with the oil supply. But reality is sly. It has thrown two new plot twists into the story lately. America's romance with cars may not founder just on the fuel supply question. It now appears that our problems with capital are so severe that far fewer people will be able to borrow money from banks to buy cars at the rate, and in the way, that the system has been organized to depend on. Our problems with capital are also depriving us of the ability to pay to fix the hypercomplex system of county roads, interstate highways, and even city streets that make motoring possible. What will we do?
For now, a cashless government gives out cash-for-clunkers, which is basically a self-esteem building program designed to make the government feel better about itself because it is ostensibly taking 11-miles-per-gallon cars off the road and replacing them with 27-miles-per-gallon cars, thus forestalling scary problems with climate change. It's dumb of course, but the failure of leadership is comprehensive. Even the elite environmentalists at the Aspen Institute are preoccupied with finding new "green" ways to keep all the cars running. They put zero effort into the idea of walkable communities, or restoring the railroad system, which will be the reality-based remedies for the car-dependency problem.
The Republican right wing is, if anything, even more childishly delusional. For Glenn Beck and Sarah Palin it comes down to "drill, baby, drill." They know nothing about the geology of oil -- they don't even believe that the earth is more than six-thousand years old, meaning they don't believe in geology, period -- but they are inflamed with the faith of eight-year-old children that we must have a lot more oil in the ground because this is America and God loves us more than people in other parts of the planet so it must be there. As their disappointment mounts, their childish ideas will turn cruel and sadistic. They'll seek to punish anybody who believes that the earth is more than six thousand years old. The catch is, if they get into power in the election cycles ahead, they'll be impotent and ineffectual even at persecuting their enemies.
In the meantime, American life will just wind down, no matter what we believe. It won't wind down to a complete stop. Its near-term destination is to lower levels of complexity and scale than what we've been used to for a long time. People will be able to drive fewer cars, fewer miles. The roads will get worse. They'll be worse in some places than others. There will be fewer jobs to go to and fewer things sold. People who live in communities scaled to the energy and capital realities of the years ahead are liable to be more comfortable. We're surely going to have trouble with money. Households will drown in debt and lose all their savings. Money could be scarce or worthless. Credit will be scarcer.
Both factions of American political life indulge in the fiction of control. History is reality's big brother. It is taking us someplace that we don't want to go, so it will probably have to drag us there kicking and screaming. For starters, both reality and history will probably take us out to some woodshed of the national soul and beat the crap out of us. That could be a salutary thing, since the crap consists of all the lies we tell ourselves. Once we're rid of all that, we may rediscover a few things left inside o

Obama's Strongest Supporters Suffering the Most in Recession, While Elites Thrive
By Bob Herbert, The New York Times
Posted on November 16, 2009, Printed on November 16, 2009
http://www.alternet.org/story/143968/
President Obama’s strongest supporters during the presidential campaign were the young, the black and the poor -- and they are among those who are being hammered unmercifully in this long and cruel economic downturn that the financial elites are telling us is over.
If the elites are correct, if the Great Recession really is over, then these core supporters of the president are being left far, far behind -- as are blue-collar workers of every ethnic and political persuasion. Nobody wants to talk seriously about class in America, but the elites are smiling and perusing their stock portfolios while the checklist of Americans locked in depressionlike circumstances just grows and grows: construction and manufacturing workers, young men without college degrees (especially young black and Hispanic men), teenagers, and those who were already poor when the recession began.
The economic environment for all of these groups is an absolute and utter disaster.
Now we’re learning that unmarried women are among those being crushed by the epidemic of joblessness. As the Center for American Progress has noted, “The high unemployment rate of unmarried women, and particularly the 1.3 million unemployed female heads of household who are primary breadwinners for their families, is devastating to their financial circumstances and standard of living.”
Mr. Obama announced this week that he would convene a jobs summit at the White House next month to explore ways of putting Americans back to work. It remains to be seen whether the summit will yield anything substantial. But it’s fair to wonder why the president and his party have not been focused like fanatics on job creation from the first day he took office.
It was the financial elites who took the economy down, and it was ordinary working people, the longtime natural constituents of the Democratic Party, who were buried in the rubble. Mr. Obama and the Democrats have been unconscionably slow in riding to the rescue of those millions of Americans struggling with the curse of joblessness.
We’ve been hearing that there are six unemployed workers for every job opening in the U.S., but even that terrible figure is deceptive. There are 25 unemployed construction workers for every job opening in their field, and more than a dozen for every opening in the durable goods industries, according to the Center for Labor Market Studies at Northeastern University in Boston.
This was not a normal recession, and we are not on the cusp of anything like a normal recovery. The unemployment rate for black Americans is 15.7 percent. The underemployment rate for blacks in September (the latest month for which figures are available) was a gut-wrenching 23.8 percent and for Hispanics an even worse 25.1 percent. The poverty rate for black children is almost 35 percent.
Wall Street can boast about recovery all it wants, much of America remains trapped in economic hell.
It will take a monumental leadership effort by the administration and Congress to spark the kind of changes necessary to transform this wretched employment landscape. Ross Eisenbrey of the Economic Policy Institute has written: “By itself, the private sector is unable to create jobs in the numbers the United States needs to obtain a robust, full economic recovery.”
If that’s true, and I have long believed it to be the case, then we need to rethink our entire approach to employment. Conventional efforts to kick-start economic growth are dwarfed by the vast scale of the problem. Bold new efforts -- creative efforts -- are needed.
A recent survey for the policy institute found that one in four families had been hit by a job loss during the past year and 44 percent had suffered either the loss of a job or a reduction in wages or hours worked. Economic insecurity has spread like a debilitating virus through scores of millions of American families.
What kind of recovery are we talking about if blue-collar workers, and men and women without college degrees, and large percentages of ethnic minorities and the young and the poor are not part of it? And how can any recovery be sustained if economic insecurity is a permanent feature of even middle-class life?
The financial elites have flourished in recent decades to a great extent because they have had government on their side, with the politicians working diligently to ensure that rules, regulations and tax policies established an environment in which the elites could thrive. For ordinary Americans, it has been a different story, with jobs shipped overseas by the millions and wages remaining stagnant, with labor unions under constant assault and labor standards weakened, with the safety net shredded and the message sent out to workers everywhere: You’re on your own.
We’ll get a chance to see at President Obama’s employment summit whether anything much has changed.

Hightower: Obscenely Rich Bankers Claim to Do God's Work -- They Can Go to Hell
By Jim Hightower, AlterNet
Posted on November 18, 2009, Printed on November 18, 2009
http://www.alternet.org/story/144026/
"Repent," the preacher cried out, startling those who heard him.
This was no street evangelist ranting at the passing crowd, but the archbishop of Canterbury, head of the Church of England. His sharp admonition was pointed directly at a particular set of sinners, who undoubtedly had never given any thought to the morality of their actions: the barons of global banking.
As in our country, people in Europe are enraged at those hustlers of high finance who wrecked the world's economies, then flexed their political muscle to get governments to replenish their bankrupt vaults. Infuriatingly, these bailed-out bankers have now returned to business as usual, including grabbing monstrous bonus payments for themselves.
In Europe, such greed is not only being assailed politically, but it is also being cast as a matter of fundamental moral failure. As another of Britain's leading clergymen put it, "There is a general feeling that the level of bonuses we've seen have been obscene."
While top executives of Barclays, Deutsche Bank, Goldman Sachs and other big investment houses were initially puzzled and hurt by the public's moral outrage, their audacious sense of personal worth and entitlement quickly kicked back in. So Europeans are now witnessing the spectacle of bankers draping themselves in radiant robes of ethical purity.
"Profit is not satanic," the CEO of Barclays recently proclaimed. "Size is not necessarily evil," asserted the head of Deutsche Bank.
But leave it to Lloyd Blankfein, CEO of Goldman Sachs (and the world's highest-paid banker -- $68 million in 2007 alone) to combine self-pity with self-adulation in a grandiose PR effort to reposition financial thieves as paragons of social altruism. "I know I could slit my writs and people would cheer," he acknowledged in an interview published Nov. 8 in London's Sunday Times. But, he said of himself and his big banking brethren," We're very important. We help companies to grow by helping them to raise capital. Companies that create more growth and more wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It's a virtuous cycle."
And, just in case you missed the message of Blankfein's morality tale, he concluded by portraying himself as a mere banker "doing God's work."
Wow. What a wrathful god he must worship!
One wonders -- has Lord Blankfein even read about, much less visited, any of the millions of Americans who are out of work or out of business because of the financial schemes and scams that he and his peers conjured up? Who does he think he's fooling? Far from investing capital (including the trillions of dollars they took from us taxpayers) in companies and jobs, these financial whizzes continue to throw it into the global craps game of debt swaps and other speculative nonsense. The game enriches them and their super-wealthy clients, but it creates nothing whatsoever of social value.
Nonetheless, this clueless clique is actually claiming that we commoners should be applauding the return of their multimillion-dollar bonus bonanzas. Why? Because, they aver, the rich payouts allow them to contribute to charity.
Such narcissism reminds me of a story about a selfish, no-good rich man who died and tried to get into heaven. But you can't just walk through the Pearly Gates. An angel reviews