The pains of wealth

Richard Branson is a billionaire UK entrepreneur and businessman, who is known for his numerous business ventures and his high energy style.

Last week he was in Vancouver, British Columbia touting Virgin Airlines service from the city, along with BC Premier Christy Clark.   Based on news reports, Branson apparently invited the "delightful" Premier (his words) to come Kite-surfing on his back with him.  However, it appears that he had initially failed to mention the dress code and placed the picture below as an example of the requirements on his blog!

What every businessman yearns to be!

Clark's liberal government has nearly zero chance of being re-elected next year and she personally has extraordinary low polling numbers amongst the electorate.  In response to Branson's bravado she gave the following response:

I think when you meet with the CEO of a billion dollar company who wants to do business with your province, you can get a little bit more respectful treatment than that.

Frankly she missed the boat (or kite-surf) on this one.  She should of ran with it and told the public that as a divorced woman she'd enjoy frolicking in the waves like that, but her duty is to country first and helping local businesses be more cocky like Branson in the global marketplace, unlike the wealth destroying socialists of the NDP or the anti-tax crackpots of the BC Conservative party.


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If there was a better advertisement for capitalism and the benefits of the free market system over the sclerotic and dismal prospects of socialism, I'd like to see it.   Mothers, make sure your sons grow up to be businessmen!

Portraits of a declining empire: Wall St. edition

Those who make peaceful revolution impossible will make violent revolution inevitable.

- John F. Kennedy

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Photographs of protesters during the recent occupy Wall Street movement September/October 2011 and in the last photo, a simple suggestion to the folks who created the financial crisis of 2008.  (source: C.S. Monitor)

As in the case of previous protests against the corporate state, the police were brought in to reign in any wider public criticism of the elite.  Police more interested in protecting the criminals who instigated the Great Recession than in supporting the constitutionally sanctioned free-speech of protesters, brought out their truncheons, pepper spray, and paddy wagons, to disrupt protests consisting of no more than a few hundred people.  I briefly discussed the nature of this struggle for democracy and incipient fascism in an earlier post.

The movement, if it can even be called that, is now expanding across America and the world.  News reports indicate that, "More than 100 cities have clocked in under the “Occupy” moniker."  MIT professor and lawyer Nicholas Ashford states the following:

It’s not just a matter of people being “mad as hell and not taking it anymore,” he says. “It’s more crucially the dawning realization that the US economy was always built on quicksand, and that our current dismal state is not the anomaly, but the reality.”

With the global depression unfolding across the northern hemisphere (i.e. Europe, Japan, and North America) the elite -who have suppressed earlier protestation from across the political spectrum- are realizing that they no longer have the ability to hide their incompetence and perfidy.  While the election of Barack Obama was meant to assuage popular discontent in 2008, his mediocre performance and constant willingness to capitulate to the interests of big business (i.e. financial industry versus main street bail-out, health care insurance, protection of the banks and oil companies, and expansion of the Afghan conflict) have alienated much of his liberal base and emboldened the unhinged statists on the right.

Violent and unsettling times await us all as the plutocrats pull up the drawbridge and attempt to prevent the restless masses from engaging in retribution to their greed and criminality.

Europe's inverted socialism

And most Northern Europeans also seem to believe that the bailouts have gone to lazy Southern Europeans. In fact, their purpose has been to shore up the fragile Northern European financial systems. German banks are among the weakest in Europe; some of them (especially the state-owned landesbanks) are effectively bankrupt. If they were forced to mark down their Southern European debt, they might well collapse in a heap, and the European financial system could grind to a halt. Just as in the United States, the real impact of the European bailout has been to shore up the continent’s banks – not to help the continent’s debtors. The recent downgrading of two of France’s most important banks, due to their holdings of Greek debt, reminds us of how exposed Northern Europe’s financial systems remain. And rumors of a recent IMF report that European banks are over $270 billion short of the capital they need to confront their current problems served to drive the point home.

- Jeffry Frieden, "Europe's Lehman moment"

Europe's financial problems have escalated to the point where a world-wide contagion has become again possible.  Economists and international leaders are sounding alarms that have rarely been spoken in unison, since the inception of the 2008 financial crisis.  Christine Lagarde, the managing director of the International Monetary Fund, said "We have entered into a dangerous phase of the crisis." Her words come at a point where the Greek debt crisis appears to be reaching its climax.  Moody's Investors Service downgraded two of France's top banks, Societe Generale and Credit Agricole, stating that it had concerns about the two banks funding and liquidity profiles, due to their exposure to Greek debt.  A recent analysis indicates that 43 large European banks hold debt in the PIIGS equivalent to 65% of the book value of those institutions. Gretchen Morgenson of the NY Times explains the current situation:

Some of these [European] banks are growing desperate for dollars. Fearing the worst, investors are pulling back, refusing to roll over the banks’ commercial paper, those short-term i.o.u.’s that are the lifeblood of commerce. Others are refusing to renew certificates of deposit. European banks need this money, in dollars, to extend loans to American companies and to pay their own debts.  

As a result several central banks have mounted a coordinated effort to inject US dollars into the financial system to stimulate market confidence.  The Guardian newspaper elaborates:

The Bank of England joined the US Federal Reserve, the European Central Bank, the Swiss National Bank and the Bank of Japan on Thursday to announce that they would flood money markets with dollars over the coming months.

Gus Faucher, director of macroeconomics at Moody's Analytics, states "The big question is: is this enough in the short term to get us to a longer term solution? There is a potential for a really huge financial crisis in Europe. Things are bad now, but they could get a lot worse."

Many observers are looking at the current European situation and seeing similarities between Lehman Brothers demise and the 2008 crisis.

Adding to the peril is that these banks are funded primarily by short-term investors, like buyers of commercial paper, rather than by depositors, as is more often the case with American banks. This was the same problem faced by Bear Stearns and Lehman Brothers, which collapsed after short-term lenders fled in panic.

Economist Barry Eichengreen says that, "The euro’s survival and, indeed, that of the European Union hang in the balance."  He says long term proposals on restructuring Europe's sovereign debts are not of immediate concern, rather the continent needs to act decisively in stabilizing its banks.  The European Financial Stabilty Facility (EFSF) and even the IMF should be used to re-capitalize Europe's weak banks.  The second move should be to give Greece sufficient room to maneuver by asking its creditors to relax its fiscal targets.  Third, governments need to end this futile dalliance with austerity and proceed with stimulus projects that would create real growth.  He states, "Without growth, tax revenues will remain stagnant, and the capacity to service debts will continue to erode. Social stability, similarly, depends on it."

Economist Paul Krugman at the beginning of this week had some serious words for European governments.  He states, "We’re not talking about a crisis that will unfold over a year or two; this thing could come apart in a matter of days. And if it does, the whole world will suffer"  Likewise, he is telling Europe to use the ECB to continue buying up Spanish and Italian debt to contain the risk of default. The moral argument for inaction or worst punishing Europe's peripheral nations and the Mediterranean nations of Spain and Italy, will drive the continent -if not the world- into another economic abyss.

The reality is Greece's debt problems have been growing and not diminishing over the past two years.  The country is not in any position today or in any foreseeable future to repay the totality of its debt.  Under the current regime imposed on the country, Simon Johnson a former IMF chief economist concludes that "The tax revenue needed to service [the Greek] debt would burden businesses and households for decades – enterprising and productive people will move their fortunes and their futures elsewhere in the euro area or to the United States." Throwing billions of dollars at the nation, only to prop up banks in the northern economies of Europe and hoping that the situation will be resolved at a later date, has now been shown to be an unfeasible and irresponsible position.  Europe needs to first stabilize its banking sector immediately and then proceed in an orderly default of Greece's debt. An unorderly default will plunge the entire Eurozone into chaos.  Spain and Italy will face unprecedented pressure, whereas the remaining nations of Portugal, Ireland, and Greece may well face economic collapse.

Sino-Forest just another example of Chinese fraud

According to news reports (NY Times and Toronto Star), the once highly traded Chinese forestry company Sino-Forest has come under the examination by the Ontario Securities Commission for "fraudulently inflating its revenue and exaggerating the extent of its timber holdings."

The story follows a general trend that has become all too normal. Corporations attempt to inflate their earnings and value through shady accounting and off-sheet intermediaries.  The purpose, just as in other notable cases, is to exploit ignorant investors into the next so-called big thing. 

In Canada, the obvious comparison is Bre-X, a Canadian mining company that claimed that it discovered copious reserves of gold within Indonesia, during the mid-90's.  Independent investigations into the company's claims found that their initial findings were falsified.  The collapse of Bre-X lead to billions of dollars in losses for institutional investors, including $45 million for the Ontario Municipal Employees Retirement board, $70 million of the Quebec Public Sector Pension fund, and $100 million for the Ontario Teachers Pension Plan.  No criminal charges have ever been laid in this debacle.

The American corollary is of course Enron, the company that defined the roaring 90's and the incipient corporate crime wave that has made a complete mockery of Anglo-American capitalism.   It was discovered that the company had created numerous offshore entities that were used "for planning and avoidance of taxes, raising the profitability of a business."  The totality of the expansive fraud committed by management and energy-traders resulted at the time the largest Chapter-11 bankruptcy in the history of the USA, the collapse of the accounting firm Arthur Anderson, and the introduction of the Sarbanes-Oxley Act of 2002.

In the case of Sino-Forest, in June 2011 it was described by Muddy Waters Research, an investment research firm, that the company was a “multibillion-dollar Ponzi scheme” that was “accompanied by substantial theft.”  In addition,

A reporter for The Globe and Mail of Toronto subsequently spent two weeks visiting various properties ostensibly owned or controlled by Sino-Forest and its subsidiaries. It proved to be a trek that frequently led him to nonexistent addresses and empty offices. Like Muddy Waters, the newspaper also found evidence that Sino-Forest had greatly inflated the size of its forestry assets.

The accountants of Sino-Forest, Ernst Young Canada, at this moment are conveniently being given distance from the fiasco, by being allowed to claim "geographical and cultural differences" in understanding the Chinese market.  Given that Sino-Forest's management and operations are all in China, it raises the question whether Canadian accountants and regulators have the competence and ability to protect investors from unscrupulous foreign operations.

According to Forbes magazine, the SEC and PCAOB have been reviewing companies that operate in China but are traded in American markets and have found similar situations.

In the past six months alone, more than 25 New York-listed Chinese companies have disclosed accounting discrepancies or seen their auditors resign. In the process, questions have been raised about the strength of governance and financial oversight at many small-cap Chinese companies. In the past year, Nasdaq and NYSE Euronext have halted trading in the shares of more than 20 small and micro-cap Chinese companies. Five Chinese companies have been de-listed.

As bad as corporate governance is in North America, the Chinese are considerably worst in providing independent and qualified directors.  In the case of Sino-Forest, none of the directors had any experience in the forestry industry or competentence in risk management.

As for Canada, it is obvious that the Ontario Securities Commission is clearly incapable to adequately investigating all the corporate crime that potentially exists under its mandate.  Richard Powers, a business law professor at the University of Toronto, has stated that situations like Sino-Forest will force regulators to evaluate the, "practice of letting companies acquire dormant shell companies to list on the stock exchange."  Until governments get serious about giving teeth and muscle to financial regulators, fraud -whether it emanated domestically or via foreign nationals- will only continue to persist to the detriment of the market as a whole.

Ritholtz on the rise of the Corporatocracy

Over the past 30-years both Republican and Democratic parties have drifted from their traditional positions towards extreme stances. Throughout this period pro-corporate policies that catered to the balance sheets of multinationals and those with enough cash to pay-to-play, have defined the legislative agendas of both federal and state politicians. Left-wing political activists, like Ralph Nader, have been calling Washington D.C. "corporate occupied territory" for the past two decades. Consider the following:

• The revolving door between corporate officers and government employees has become the norm.
• A study conducted in 2005 by Public Citizen found that from 1998, "43 percent of the 198 members of Congress who left government to join private life have registered to lobby."
• Politicians have become indentured servants to special interest groups and major lobbyists in the financial/insurance industries, the military-industrial complex, the energy/ chemicals sector, big-pharma, corporate agricultural, and the communications/ electronics industries.
• Legislation is often written directly by lobbyists and submitted to congressmen and state legislators for direct approval.  Google CEO, Eric Schmidt, told The Atlantic magazine, "The average American doesn't realize how much of the laws are written by lobbyists... It's shocking how the system actually works."
• "Corruption, in its institutional sense, denotes the degeneration of republican forms of government into despotism, and typically comes about when the private ends of a narrow faction of citizens succeed in capturing the engines of government." (Harper's, Speak, Money, Oct. 2010)
• The Brookings Institute calls "The 5-4 conservative majority decision in Citizens United vs. the Federal Election Commission that struck many decades of law and precedent [to] likely go down in history as one of the Supreme Court's most egregious exercises of judicial activism."  The Roberts court, "dismissed the legitimacy of laws... equated the free speech protections of individuals and corporations in spite of countless laws and precedents that insisted on meaningful differences."
• A USA TODAY/CNN/Gallup Poll taken Dec. 16-18, 2005 found that 49% of American adults say they believe "most members of Congress are corrupt."
• The Republicans K-street project, was a project by now convicted former congressman Tom Delay to coerce lobbying firms to "hire Republicans in top positions, and to reward loyal GOP lobbyists with access to influential officials."
• Super-lobbyist Jack Abramoff, was sentenced in 2006 for conspiracy, fraud, and tax evasion related to his lobbying efforts

Barry Ritholtz, CEO of FusionIQ (an investment firm) and primary blogger at The Big Picture tells his readers that:

In 2009 and 2010, I learned that Corporate America took over the political process via their exhaustive lobbying efforts. What was once a Democracy is now a Corporatocracy... Politicians do the bidding not for the people, but for the corporate establishment. Those people who want to blame the barking, snarling government for all the woes of the world do not want you to look further up the leash to see who is giving the commands. These corporate apologists pretend to be philosophers, but in reality they are mere Fellatrix, bought and paid for by their lords and masters.

We've reached a turning point.  When growth was evident, jobs were available, and cheap accessible credit abounded, everyone was happy and willing to keep dancing to the same tune. Now that the bill is past due and we're looking at decade of low growth or worst, investors and everyday persons on both the right and the left are seeing the system for what it is.  Ritholtz acknowledges that we were warned by the founding fathers, Eisenhower on the military-industrial complex, and countless other critics about the perils of what philosopher Sheldon Wolin has described as inverted totalitarianism.

The corporate state does not find its expression in a demagogue or charismatic leader. It is defined by the anonymity and facelessness of the corporation.

The viciousness and lawlessness of the corporatocracy knows no bounds. Like Orwell's 1984, those in control have no interest in the betterment of mankind or pursuing nationalistic agendas, they are solely interested in power for power's sake. And in the polluted materialistic cesspool that is modern existence, that power is obtained through the collection and amassment of wealth and money.

Quote of the Day: Chomsky on the Financial Fraudsters

The capitalist class in the ’50s was sort of part of a social contract. It was part of the tenor of the times… Changes have taken place since then… In the financial institutions, which by now dominate the economic system, the management level repeatedly acts in ways which will destroy their own institutions if it’ll increase their benefits, and benefits are not small. You know, you take a look at the revenue of, say, Goldman Sachs – a very high percentage of it just goes to payment of management and bonuses. There was a time traditionally – say, GM in the 1950s – it was trying to develop a consumer base that would be loyal and lasting and they were thinking in terms of an institution that would remain and grow and thrive in the society. By now, a lot of the investment firms – bankers, hedge funds – are perfectly happy to destroy what they’re in and come out with huge, tremendous benefits. That’s a new stage of capitalism.

- Noam Chomsky on today's Casino-capitalists. (link: h/t Felix Salmon)

Krugman on the Limits of American Exceptionalism

Paul Krugman compares America's current mortgage morass, associated with the unfolding home ownership and foreclosure fiasco, to that which was encountered during the Asian financial crisis.

After the Asian financial crisis of 1997-1998, it was often said that a key barrier to recovery was the uncertain state of property rights: so much debt had been run up during the boom, and there had been so many defaults in the bust, that it was no longer clear who owned anything. Plus, these countries lacked clear legal procedures, and in general suffered from insufficient rule of law. All this was said, of course, in a tone of superiority: we Americans had solved such problems.

He also states, America's mortgage crisis dwarfs anything that occurred in Thailand and Indonesia by orders of magnitude. 

The crony-capitalists and casino-players on Wall St. have made a mockery of America's international reputation as a safe and secure center of investment.  Gimmickry, sleight of hand agreements, unequivocal fraud, and legislative and regulatory arbitrage were all employed by the MBA ass-clowns in the banking and mortgage industry to secure profits for themselves without taking into account the long-term risk to either their businesses or the nation.  The end result will be a decade of lost growth for America and given that somewhere within that same period another potentially catastrophic economic collapse may occur, based on historic trends and the belief by many economists that an even larger shock lies in wait given the failure of most governments to adequately address the root causes of the great recession, capitalism as we know it today may collapse.

Another Poisoned Prescription: Novartis Fined $422 Million for Fraud

Another year and another multi-million dollar fine and settlement from another Big Pharma corporation.  Novartis, which is headquartered in Switzerland, has agreed to pay $422.5 million, in order to settle criminal and civil investigations arising from the marketing of the antiseizure medicine Trileptal and five other drugs. 

The NY Times summarizes the billion dollar payouts that Big Pharma has agreed to in regards to criminal investigations conducted over the past decade:

Novartis joins a growing list of pharmaceutical companies that have settled government investigations into health care fraud in the last few years, including Pfizer, which paid $2.3 billion; Eli Lilly, $1.4 billion; Allergan, $600 million; AstraZeneca, $520 million; Bristol-Myers Squibb, $515 million; and Forest Laboratories, $313 million. Pfizer, Lilly, Allergan and Forest pleaded guilty to crimes in the cases.

Earlier this year I outlined in a previous blog entry the business practices and criminal endeavours pursued by Big Pharma and the medical community on an annual basis against consumers.  The above settlement list validates the fact that when the world's largest corporations are found engaging in criminal activities, little more than nuisance fines are levied against these multi-national predators.  The profits elicited from pushing either unproven or detrimental pharmaceuticals, via morally compromised physicians, far outweighs any financial fine that the US government is prepared to impose.

Andy Wyss, president of Novartis Pharmaceuticals, said that Novaritis would “continue its commitment to high standards of ethical business conduct and regulatory compliance in the sale and marketing of our products.”  For industry watchers, the current press release is a familiar issuance from the fraud-mongers in the pharmaceutical industry.

Erik Gordon, an assistant professor at the University of Michigan school of business who follows the drug industry, said it was “easy to stifle a chuckle” when the company announced a guilty plea and, in the same news release, promised to continue ethical conduct.

Prosecutors said top management at Novartis had approved illegal marketing from July 2000 to June 2004. No individual, however, was named or charged.

Given the unscrupulous and illegal behavior of these companies, it is only further telling that both Republicans and Democrats fall over themselves to placate and support these corporate criminals.  Instead of allowing Americans to purchase drugs from Canadian manufacturers, the spineless Obama administration blocked Americans from cross-border shopping and individual state governments from engaging in bulk purchases to reduce costs.  If the US Department of Justice was sincerely interested in preventing these recalcitrant criminals, whether in Big Pharma or Wall St., from repeating their actions, hundreds of corporate managers and board members would be forced to defend their actions in court.  Once the cost-benefit equation is shifted, only then will these miserable crony-capitalists be effectively dealt with.

The Dismal Science Redefined

Current economic theory is less a science than an ideology peculiar to a certain period of history, which may well be nearing an end...

[Economists are] the jilted lovers of the science world – the more rigidly they approach their subject, the more it mocks them with spurious and headstrong behaviour.

Since this blog started, I've been constantly commenting on the dearth of empirical evidence that lies behind many of the attributed economic theories of our time and the persistent irrationality, if not complete fraud, of proponents of modern economics.  Many noted persons who are economists, like Paul Krugman and J. Brad DeLong, have likewise stated how the field has become a self-serving entity, that is in many cases polluted beyond the point of usefulness.  The above quotes, culled from a Globe and Mail newspaper opinion piece by Brian Milner titled "Economists and their fairy tale world of prognostication," is another indictment of the dismal science's ability to actually be a science.  The central basis of any science is its ability to factually explain natural phenomenon, testability of theories, reproducibility of experiments, and its ability to predict future events.  Economics, or at least that set of dogma pedalled in the MSM, doesn't pass any of the above criteria. 

If economists want their profession be taken seriously, then they should start actually calling out those on their side who have perennially gotten it wrong and banish them.

The entire fable of sustainable capitalism is disintegrating all around us like the dreamscape in the movie Inception.  The communists of China, through their mercantile and corrupt practices, are acquiring natural resources across the globe and buying friends everywhere.  The new globalization that peaked in the last decade is slowly devolving.  The financial system that imploded in 2008, has only been patched together with band-aid remedies and awaits further paralysis in the near future.  China, Europe, and America are all betting against the odds, that growth will magically return and the masses will defer sharpening their pitchforks until another day.

Dean Baker: The Numbers Game

Dean Baker, economist and Co-Director of the Center for Economic and Policy Research, has an opinion piece in the Huffington Post that is a clarion call about the economic "numbers game" that has been run by the architects of the new Gilded Age.

He asks the basic question:

If this disaster was preventable and we know how to get out of it, why didn't our leaders try to stop it before it happened? Why don't they take the steps necessary now to get the economy moving again?

The answer is obvious:

The answer to both these questions is simple; the politicians work for someone else. On Election Day, the politicians might need our votes, but they won't get to be serious contenders unless they've gotten the campaign contributions of the big money crew. And the moneyed elite has been using its control of the political process to ensure that an ever larger share of the economy's output is redistributed upward in their direction.

He goes on to explain that over the past 30-years, corporations and the wealthy, have bought politicians at the local, state, and federal levels who have crafted legislation that promotes inequality, reduces safety networks for middle class and poor citizens, and marginalizes the earning capacity of the middle class via globalization.

He explains:

For example, they wrote trade rules that were designed to put downward pressure on the wages of the bulk of the U.S. workforce by placing manufacturing workers in direct competition with low-paid workers in China and other developing countries. This had nothing to do with a belief in "free trade." They did not try to subject lawyers, doctors or other highly paid workers to the same sort of international competition. They only wanted international competition to put downward pressure on the wages of workers in the middle and bottom, not those at the top.

This elite has instituted a system of corporate governance that allows top executives to pilfer companies at the expense of their shareholders and its workers. Top executives are overseen only by a board of directors who owe their hugely overpaid sinecures to the executives they supervise. And of course the Wall Street barons themselves are given a license to gamble with the implicit promise that government picks up their tab when they lose.

As this blog has written (here, here, here, and here), neither the Democrats nor the Republicans are interested in providing a sustainable framework, where the majority of Americans can get a quality education, pursue meaningful life long employment, and engage in building a dream of a more equitable and fair world.  Instead, both parties pursue a scorched-earth policy against the majority of the country's citizens, by providing greater benefits to the top 1% of the population, while pushing the remaining middle-class into perpetual debt and eventual pauperdom.

Unfortunately, the propagandists keep the masses well agitated and entertained through truly mind-warping concepts like:

• Did Bill and Hillary kill Vince Foster?
• The OJ case.
• 9-11 was a conspiracy committed by the Bush junta!
• Was Barack Obama born in the USA?
• The rise of Barack's Socialist/Fascist/African dystopia!
• Obama is a Muslim terrorist sympathizer!
• Anything said by Sarah Palin
• Anna Nicole's drugged corpse
• Kate and Jon's idiotic children and their ridiculous lives.
• Octo-Mom
• Michael Jackson's court cases, pedophile accusations, and finally his drugged corpse

Only when the masses realize how they have been completely sold out by the politicans and their own citizens, will anything meaningful begin to occur.

Quote of the Day: Banking Should be Dull

If bankers want to lead the exciting hedge-fund life, earning hedge-fund-like profits and bonuses, let them go work for a hedge fund.

According to Steven Pearlstein, bankers should appreciate the role that they play in the scheme of capitalism, which entails being part of a boring institution that effectively manages risk.  If on the other hand, bankers want to engage in casino-capitalism then they should not expect "we the people" to subsidize their misadventures and underwrite their losses.  Someone should explain this to Tim Geithner and Mr. Obama, because at this point they are almost certain to be looking down the barrel of another recession by the end of this year.

Wachovia involved in Mexican drug trade laundering

Wachovia Bank, which was absorbed by Wells Fargo & Co. in the subsequent tumult of the 2008 financial crisis, has over the past several years been the subject of a number of criminal and security related investigations relating to fraud, corruption, and questionable business practices.  For example, in 2007 Wachovia was identified in a lawsuit that it had indirectly participated and directly permitted "fraudulent telemarketers to use the bank’s accounts to steal millions of dollars from unsuspecting victims."

Documents from that lawsuit now show that Wachovia had long known about allegations of fraud and that the bank, in fact, solicited business from companies it knew had been accused of telemarketing crimes.  Internal Wachovia e-mail, for example, show that high-ranking employees at the nation’s fourth-largest bank frequently warned colleagues about telemarketing frauds routed through its accounts.

According to the NY Times, Wachovia was making enormous profits from charges associated with the operation of these fraud-engaging accounts.  Linda Pera, a Wachovia executive, wrote in an internal memo that “We are making a ton of money from them."

It therefore comes as no surprise to learn that Wachovia, in its zeal for profits and its internal policies for dispensing with ethical and legal responsibilities, has been engaged in the laundering of Mexican drug money.  The NY Times reports that the bank "will forfeit $110 million, representing the proceeds of illegal narcotics sales that were laundered through the bank" and will pay an additional $50 million fine to the Treasury, as part of a deferred prosecution agreement.

The federal prosecutor in Miami began an investigation about three years ago, focusing on the supposed role of a Wachovia unit in processing illegal money transfers for Mexican exchange houses along the border between the United States and Mexico... Exchange houses in Mexico are part of the global remittance business that allows immigrants in the United States to send money back to relatives in Latin America. Federal officials say drug traffickers have used the money transfer business as a way to move cash around.

When it comes to corporations engaging is despicable and completely unethical behavior a simple slap on the wrist and a nominal fine is the standard.  Perhaps the US government should re-assess its stance, because from my perspective corporate crime, whether it was Enron, Iraqi war profiteers inside the Pentagon, or Wall Street investment houses, the number of crimes continue to escalate and get more grandiose with each passing year.

Global Arsonist named TIME's man of the year!

For the majority of the year the managers of America's economic news have been issuing headline-after-headline declaring that 'green shoots' were upon us, jobs growth was around the corner, consumer confidence was returning, the banks were once again sound, and corporate profits are once again booming. To date, none of these exaggerations have been remotely correct; including the statement by Ben Bernanke, "that the recession is very likely over."

In terms of understanding propaganda, 2009 has been another boom year. Much like the Bush years, where government lackeys bemoaned the fact that little good-news was being reported about the Iraq war, the Obama administration has likewise, with the collusion of mainstream media (MSM), produced voluminous statements to create the public perception that the global economy was on the mend. This week Ben Bernanke, chairman of the Federal Reserve, was named TIME magazine's man of the year. To the glee of media bobble-heads everywhere, Mr. Bernanke has single-handily prevented America from sliding into a depression. Endless articles have now been written about how in the darkest moments after the collapse of Lehman Brothers, Bernanke marshaled all the power of his office to save capitalism and right the debt-laden banks from implosion. It's a compelling narrative, but one that is completely false.

Bernanke, Greenspan, and the rest of the laissez-faire economists of the Federal Reserve not only ignored regulating the housing bubble and the "shadow economy" that included the toxic assets that brought down Bear Sterns and Lehman Brothers, but encouraged the expansion of these bubbles. Bernanke served as one of the Fed's governors from 2002 to 2005, and then did a brief stint as head of the Council of Economic Advisers before taking over as Fed chair in early 2006. There were few people in government who were better situated to correct the "irrational exuberance" in the markets than this man.

In the fourth quarter of 2007, Bernanke repeated to congress and the media that there was no need to cut interest rates and that there was no recession on the horizon. Weeks later, he cut interest rates. He remained steadfast afterwards that the economy in 2008 would be "strengthening as the effects of tighter credit and the housing credit began to wane." However, his actions and private statements belied the opposite was occurring. Two months after he gave his prepared statements to Congress, the greatest economic downturn since the Great Depression began December 2007.

When the September Crisis of 2008 unfolded, the FED loaned at least $2 Trillion dollars to both US and foreign banks. Economist Dean Baker, co-director of the Center for Economic and Policy Research, elaborates on Bernanke's perfidy at this critical juncture:

[Bernanke] has refused to provide the public, or even the relevant congressional committees, with information on the trillions of dollars in loans that were made through the Fed's special lending facilities. While anyone can go to the Treasury's website and see how much each bank received through Tarp and under what terms, Bernanke refuses to share any information on the loans that banks and other institutions received from the Fed.

Where we do have information, it is not encouraging. At the peak of the financial crisis in October, Goldman Sachs converted itself from an investment bank into a bank holding company, in part so that it could tap an FDIC loan guarantee programme. Remarkably, Bernanke allowed Goldman to continue to act as an investment bank, taking highly speculative positions even after it had borrowed $28bn with the FDIC's guarantee.

The rational in naming Ben Bernanke as the most important person of the year, is simply to provide him with official credibility in the face of the ruinous laissez-faire ideology that has held sway over Washington for the past thirty years. Wall Street has given the MSM its orders to present the fiction that Mr. Bernanke is the man who saved the world and who must naturally be given another term as FED chairman. The financial world that existed pre-Lehman Brothers no longer exists and the elites who destroyed the world economy, do not wish anyone to understand the scope of their mismanagement in hyping casino-capitalism, while destroying the American dream.

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Additional blog postings and links of interest:

Eliot Spitzer has "Nine Questions for Ben Bernanke," which to date, none have been adequately addressed by either Mr. Bernanke, the FED, or the feckless MSM.

Critics who said Bernanke should not be re-appointed: Nassim Taleb, Anna Jacobson-Schwartz, Senator Bernie Sanders (I-VT), and Ron Paul (R-TX) to name a few.

People who have advocated Bernanke's reappointment in the media with reservations are Nouriel Roubini and Paul Krugman.

How to Kill an Economy: Eliminate the Middle-Class

Elizabeth Warren, the US Chairman of the Congressional Oversight Panel overseeing the TARP, has an excellent article titled "America without the Middle Class" in the Huffington Post.

The article summarizes what many have been saying for the past thirty years; the American middle class is in serious decline. The macroeconomics should be clear to everyone. Income for middle class workers has been stagnant since the late 1970's. Permanent company jobs with lifetime employability and benefits are now non-existent, as short-term contract work and a mobile class of professional workers has become the norm. The American manufacturing base, once the envy of the world, has been hollowed out through corporate globalization reaching for the lowest common denominator. Union jobs, once the backbone of the middle class, are derided and repeatedly dismissed as inefficient and anti-capitalistic, while Wall Street's financial services as a percentage of GDP have doubled during the same period.

Warren illustrates the declining purchasing power of the middle class here:

In the boom of the 1960s, for example, median family income jumped by 33% (adjusted for inflation). But the boom of the 2000s resulted in an almost-imperceptible 1.6% increase for the typical family. While Wall Street executives and others who owned lots of stock celebrated how good the recovery was for them, middle class families were left empty-handed.

In order to maintain their standing of living, the American family was initially forced into having two wage earners in the family. With greater credit and a variety of other quick-debt schemes in the 1980's, these same middle-class denizens were enticed into believing that they, like every Republican Administration since Nixon, could just charge their concerns away. Remember Cheney saying, "Reagan proved deficits don't matter!"

The underlying strength of the American economy this past century has been the growth of the middle class and their attendant purchasing practices. New homes were built around highways leading to factories; cars in every driveway that would ferry the masses; increased attendance at colleges and universities that spawned further innovation and technological growth; and increased consumerism created mega-malls filled with shiny-happy shoppers. However, as the demographics shifted from rural agriculture and domestic manufacturing to a service-based economy, the captains of high-capital rejected Henry Ford's axiom that workers needed a decent wage in order to buy their employers produce.

Professor Warren concludes:

America today has plenty of rich and super-rich. But it has far more families who did all the right things, but who still have no real security. Going to college and finding a good job no longer guarantee economic safety. Paying for a child's education and setting aside enough for a decent retirement have become distant dreams. Tens of millions of once-secure middle class families now live paycheck to paycheck, watching as their debts pile up and worrying about whether a pink slip or a bad diagnosis will send them hurtling over an economic cliff.

Indeed. Gov. Eliot Spitzer, who was on Democracy Now yesterday, also stated the obvious,

The reality is median family income has been stagnant for forty years, and the policies of what I call financialization, which is major banks trading assets back and forth, the Wall Street banks, such as Goldman, which is rightly a lightning rod right now for much of what’s going on, buying and selling, playing with tax dollars in proprietary trading—they make huge money, nothing is added to the economy, jobs are sent overseas. All of this going on simultaneously. That is what our economy has become.

The issue is simple. Government of all stripes and labels, be it Republicans or Democrats, have decided it was more important to bail out and feed the banks money borrowed by the middle-class, rather than institute policies that would nurture and enhance the middle class. As Spitzer says, "So what are the priorities, in terms of infrastructure investment, job creation, building the foundation of an economy that will permit us to be competitive so that real Americans can get jobs, not just investment bankers and lawyers?" A specific example of this short-term profit driven corporatism, is in the $12.9 Bn that was alone given to Goldman Sachs through the AIG government backed bailout. Compare that sum with the meager $4 Bn given to invest in K-12 education across the nation or the $8 Bn for high-speed trains. As usual, socialism for the rich, fuck-you-very much capitalism for the rest.

Bankers Prepare for Open Revolution

Bloomberg has an article today on what may be the most interesting story of the year. The invertebrate vampire-squids of Goldman Sachs have been quietly seeking gun permits to protect themselves from the restless mobs and death-mail sending public. How is it that the proletarians could want to liquidate the robber-Barron's of the 21st Century? Surely, the masses know that Lloyd Blankfein, Goldman Sachs' CEO, and the squids are as Blanky said, "Doing God's work!"

The article reveals that Blanky and Company were fortifying their residences a year prior to the meltdown, by placing enhanced security fences and armed guards around their lavish estates, in excess to the norm. More importantly though, it blows the whistle on what the bailout was really about: saving the greedheads of casino-capitalism. As you see, this bullshit about efficient markets, innovative investing, and all that other gibberish spouted by the dunces on CNBC and virtually every financial bobble-head network, is just meant as high-fructose Kool-Aid for the cult-members as the real thieves take your money. Consider the following excerpt from the same Bloomberg article:

Henry Paulson, U.S. Treasury secretary during the bailout and a former Goldman Sachs CEO, let it slip during testimony to Congress last summer when he explained why it was so critical to bail out Goldman Sachs, and -- oh yes -- the other banks. People “were unhappy with the big discrepancies in wealth, but they at least believed in the system and in some form of market-driven capitalism. But if we had a complete meltdown, it could lead to people questioning the basis of the system.”

There you have it. The bailout was meant to keep the curtain drawn on the way the rich make money, not from the free market, but from the lack of one. Goldman Sachs blew its cover when the firm’s revenue from trading reached a record $27 billion in the first nine months of this year, and a public that was writhing in financial agony caught on that the profits earned on taxpayer capital were going to pay employee bonuses.

I have long said, if the people want to live free of the incompetent rule of plutocrats and their moneyed trolls, then they need to have the guillotine brought out in public and let the heads roll. Its all happened before and will happen again. We only have to remember the New Testament to know the solution:

Jesus entered the temple area and drove out all who were buying and selling there. He overturned the tables of the money changers and the benches of those selling doves. (Matthew 21:12)

The Demon of 85 Broad St.: Goldman Sachs

Brian Griffiths, A Goldman Sachs International adviser, recently told a forum on investment ethics in the UK that, “We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all.” You have to give it to these folks at Goldman Sachs; they are indisputably some of the most immoral creatures slithering up and down the financial food-chain.

McClatchy Newspapers has published a four-part series on Goldman Sachs investment strategies in the American housing market. The articles outline how the company grew unbelievably rich by,

making massive bets against the housing market while simultaneously selling off billions in soon-to-be worthless securities. In 2006 and 2007, the bank reportedly peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in US housing prices would send the value of those securities plummeting.

As impressive as Goldman Sachs earnings are, their true achievement isn’t making it big through casino-capitalism. No, its greatest accomplishment is creating a world-wide network of faithful former employees that are embedded throughout the regulatory and legislative branches of government, allowing them to place themselves at the center of a global financial system that has effectively co-opted democracy. The entire securitization game has been shown to be a complex scheme that utilizes outright fraud, deception, and market manipulation to achieve exorbitant profits for the demon bankers insulated at 85 Broad St. New York.

The articles elaborate how throughout the years leading up to the crash, “Goldman Sachs used its name to buy, bundle and sell some of the worst investments in the history of trading. It jumped into the subprime game with dubious mortgage lenders. And it played it ruthlessly, selling off toxic assets that carried bogus quality ratings and the assurance of its venerable name.”

McClatchy's investigation found that Goldman Sachs:

• Bought and converted into high-yield bonds tens of thousands of mortgages from subprime lenders that became the subjects of FBI investigations into whether they'd misled borrowers or exaggerated applicants' incomes to justify making hefty loans.
  
• Used offshore tax havens to shuffle its mortgage-backed securities to institutions worldwide, including European and Asian banks, often in secret deals run through the Cayman Islands, a British territory in the Caribbean that companies use to bypass U.S. disclosure requirements.
  
• Has dispatched lawyers across the country to repossess homes from bankrupt or financially struggling individuals, many of whom lacked sufficient credit or income but got subprime mortgages anyway because Wall Street made it easy for them to qualify.
  
• Was buoyed last fall by key federal bailout decisions, at least two of which involved then-Treasury Secretary Henry Paulson, a former Goldman chief executive whose staff at Treasury included several other Goldman alumni.

The conclusion one must realize is that Goldman Sachs is not serving its intended commercial and societal purpose of allocating capital to create an efficient market-place nor is it enhancing the public sphere by enriching productive companies. Their racket is and has been to generate maximum earnings solely for themselves at the detriment to society, by exploiting "so-called sophisticated investors", who in actual fact are just dumb insitutional players who knew less than them, and simply steal their money; even if they have to change the laws to do so.

As Dylan Ratigan says,

Now this method of "business" is only possible if the government continues to allow these crooked insurance contracts to be written in secret, allows them to hold little or no money in reserve for payment and allows them to sell enough coverage on enough vital national assets that if there is a default -- the taxpayer has no choice but to pay.

No meaningful legislative change will occur, because the US government and the demon bankers of Broad Street, are one and the same. Just see a few of the recent parties in government (Republican and Democrat) with ties to Goldman Sachs.

Adam Storch: Appointed the SEC’s first Chief Operating Officer on Oct. 15, 2009. This branch of government regulates the securitization industry, including mortgage backed CDO’s and related derivative products. The 29 year old Storch comes directly from Goldman Sach’s business intelligence unit.

Henry Paulson: Served as Treasury Secretary under President George W. Bush. Was CEO of Goldman from 1999 to 2006.

Robert Rubin: Served as Treasury Secretary under President Clinton. Previously, he was co-chairman of Goldman from 1990 to 1992.

Robert K. Steel: Served as Under Secretary of the Treasury for Domestic Finance, the principal adviser to the secretary on matters of domestic finance and led the department’s activities with respect to the domestic financial system, fiscal policy and operations, governmental assets and liabilities, and related economic and financial matters. Retired from Goldman as a vice chairman of the firm in 2004, where he worked as head of equities for Europe and head of the Equities Division in New York.

Mark Patterson: Chief of Staff to Secretary Tim Geithner. Was director of government affairs at Goldman.

Dan Jester: Key adviser to Geithner, who played a key role in shaping the takeover of Fannie Mae and Freddie Mac. Was strategic officer at Goldman.

The list goes on. For a comprehensive listing of the numerous figures in positions of government authority that were associated with G-S visit the following link.

Quote of the Day: Finding new ways of screwing up!

Floyd Norris of the NY Times has an interesting blog entry about the company behind Iridium Satellite phones and the risk that befalls investors who confuse a company's underlying physical assets with the actual economic value of those assets. What I found interesting and perhaps most salient is the author's continued exasperation with the myopic level of thinking that financial investors continues to exhibit (which ties into my earlier quote of the day entry):

the comment heard from time to time: “This cycle will go better because investors have learned from their past mistakes.” In my three decades in the industry I have found almost no evidence of learning in the financial markets. People simply find new ways to make the same mistakes all over again.

52 Weeks After the Meltdown

By law of periodical repetition, everything which has happened once must happen again and again -- and not capriciously, but at regular periods, and each thing in its own period, not another's and each obeying its own law.

- Mark Twain

We have become our own Greek tragedy, blinded by hubris and unwilling to understand that we are but permutations in time; whether it is in our genes or our empires. As a civilization we should realize, if history is to teach us anything, that this is the moment of our great undoing, for it has happened before, and we know it will happen again. Below is a summation of recent articles issued this past month discussing the fall of Lehman Brothers and the pertinacious crisis of capitalism.

The Economist
"Unnatural Selection: Wall Street and the City of London survived thanks to state support. Now they need to be weaned off it"
"The Promised Bland: One year after Lehman Brothers collapsed"
"What If?" an examination of what could have occurred if Lehman's didn't go bankrupt.

The NY Times
Has an entire section dedicated to the financial crisis. Some of the better reads are:
Alex Berenson "A year later, little change in Wall St."
Robert Frank "Flaw in free markets: Humans"
Paul Krugman "How Did Economists Get It So Wrong?"

The Financial Times
FT also has an extensive coverage section that details the crisis at different levels.
Niall Ferguson does his best imitation of an contrarian in,"Why a Lehman's Deal would not have saved us"
Martin Wolf "Do not learn wrong lessons from Lehman’s fall"

The Globe and Mail
A timeline of the events is described in "Lehman Brothers: one year later"
Sinclair Stewart "The day everything - and nothing - changed." The story remains the same, as it is a story of men empty of decency, moral strength, and even humanity.

Business Week
BW also has a reasonable section discussing the financial crisis one year later. Unfortunately those who need to learn most, will not be interested.

Der Spiegel (International edition) has a solid set of articles on the failures and return of American inspired Casino-Capitalism. Those who know about defeat that arises from hubris should be listened to.

Ralph Nader, who predicted this entire fiasco more than a decade ago has a commentary on the return of casino capitalism in, "Rolling the Dice Again" Ignore at your own peril.

Robert Reich, former Sectatary of Labor in the first Clinton Admin. and constant critic of unregulated laissez-faire capitalism counters in his blog, "The Continuing Disaster of Wall Street, One Year Later."

Corporate Socialism: Agribusiness Subsidies

Despite the loud and perennial denunciations of creeping socialism by right-wing protesters, for decades American agribusinesses have been receiving prodigious and what some would call obscene levels of subsidisation through legislative machinations. This is a bi-partisan effort, pursued by both Democrats and Republicans and executed across all regions of the nation, and meant to insure excess revenue for already large and very profitable corporations. In fact, agribusiness, after the military-industrial complex and most recently the bailed out banking industry, is the nation's largest recipient of corporate welfare. The implications are not trivial for they entail not just the gross misuse of public money, but result in excessive taxes levied on individual citizens, unfair competition for small farmers, and the nation's food supply and production being placed under the control of multi-national companies seeking less regulation, cheap labor, and ever larger annual profits.

These bills are sold to the public under labels like the "Farm Security Act" and the "Agriculture Conservation and Rural Enhancement Act" and are subject to heavy lobbing efforts. Despite the claim that these bills are meant to improve the status of rural family farmers, the reality is much different. According to the conservative Heritage Foundation,

two-thirds of all farm subsidies go to the top 10 percent of subsidy recipients while the bottom 80 percent of recipients receive less than one-sixth of farm subsidies. A full 60 percent of America's farmers do not qualify for any assistance. In 2000 alone, more than 57,500 farms received subsidies totaling over $100,000, and subsidies of at least 154 farms topped $1 million. Among these beneficiaries are fifteen Fortune 500 companies, including Westvaco, Chevron, and John Hancock Mutual Life Insurance, which receive as much as 58 times as much as the median annual subsidy of $935.

In what is described as a "plantation effect," family farms across the country are being bought out by corporations, which are converted into tenant farms. According to available statistics, 75% of the nation's rice farms are tenant farms and the ownership of other monoculture based farms is trending in the same direction.

The US is not alone in its trade protectionist and 'free trade' charade. The video above by Nobel Prize winning economist Joesph Stiglitz, provides a sliver of the hypocrisy conducted by all the major economic powers relating to farm subsidies. The EU as an example, provides "13 billion euros, about a quarter of the £47.5 billion spent under the EU's Common Agriculture Policy (CAP)... to big business and industry, not farmers." The Economist magazine evaluates the overall situation in the industrial world as of 2008:

The OECD estimates that its member countries spent $265 billion on farm subsidies in 2008. This was slightly more than a fifth of their farmers’ total earnings. Last year’s increase in food prices ensured that such payments were at their lowest level since records began in the mid-1980s. But handouts still made up more than three-fifths of farmers’ gross incomes in Norway and South Korea between 2006 and 2008. In contrast, they were less than 1% of farm incomes in New Zealand and under 10% in both Australia and America. But the size of America’s farm sector meant that it spent $23.3 billion on subsidies last year. The European Union was by far the biggest subsidiser, forking out $150.4 billion.

Agricultural practices conducted by corporate plantations and food conglomerates as portrayed in the recent documentary Food Inc., "are endangering health, allowing appalling cruelty to livestock and putting the food supply in a dangerously vulnerable position." For example, the number one subsidised crop in America is corn. In particular,

Corn syrup... is an ingredient in high-calorie, low-nutrition junk foods that have created the obesity epidemic. Corn is stuffed into animals that were not evolved to eat it, promoting the evolution of E. coli bacteria and requiring antibiotics that are passed on to unwitting consumers. Given that one fast-food hamburger may involve meat from literally thousands of cattle, the effects are inescapable.

Under the guise of providing supplemental income to family farmers, the US government has allowed corporatized feudalism to become the 'norm' in the agricultural industry and permitted the domestic population to become subservient to the rapacity of these multi-nationals, without a single bullet or invasion occurring. As always, beneficial socialism for the wealthy and fuck-you-very-much capitalism and for the rest of us.

Banks and bonuses: Going overboard | The Economist

Banks and bonuses: Going overboard The Economist

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Goldman Sachs' (see my associated commentary on the company in the post below) "shareholders received $4.4 billion of profits during the first half of this year while staff were allocated $11.4 billion in pay and bonuses, equivalent to about half of the firm’s net revenues."

The article asks, who is really in charge of these so-called investment banks? Is it the shareholders or the employees? Goldman counters that they have to pay top dollar for their talent. As discussed in the previous two posts, where there is a compensation misalignment, profit will be made through deception, fraud, and criminal enterprise. The dominant philosophy of unbridled greed that has become the mantra of Wall Street bankers over the past two decades has not stopped and it continues to be as pervasive as ever.

The article questions:

Banks pay low dividends, and when they get into trouble the capital that shareholders have retained in the firm typically gets wiped out. Employees have taken money out of their firms each year. It may be time for the owners of banks to mutiny over the bounty.

In other words, the public always gets soaked and institutional investors get shafted, but the big-boys at Goldman Sachs smirk as they dream of yet another weekend at the Hamptons paid through casino-capitalism.