"A unionized public employee, a tea party activist and a CEO are sitting at a table with a plate of a dozen cookies in the middle of it. The CEO takes 11 of the cookies, turns to the tea partier and says, "Watch out for that union guy... he wants a piece of your cookie!"-- Wake the Flock Up
It would really be funny were it not so true.
"The Perfidy of Government: Evidence v. Denial
Paul Craig Roberts
March 2, 2011
This essay is about three recent books that explain how we lost our economy, the Constitution and our civil liberties, and how peace lost out to war.
Matt Taibbi is the best — certainly the most entertaining — financial/political reporter in the country. There is no better book than Griftopia (2010) to which to turn to understand how stupidity, greed, and criminality, spread evenly among policymakers and Wall Street, created the financial crisis that has left Americans overburdened with both private and public debt. Taibbi walks the reader through the fraudulent financial instruments that littered the American, British, and European financial communities with toxic waste. He has figured it all out, and what in other hands might be an arcane account for MBAs is, in Taibbi’s hands, a highly readable and entertaining story.
For the first 65 pages, Taibbi entertains the reader with the inability of the public and politicians to focus on any reality. The financial story begins on page 65 with Fed chairman Alan Greenspan undermining the Glass-Steagall Act leading to its repeal by three political stooges, Gramm-Leach-Bliley. This set the stage for the banksters to leverage debt upon debt until the house of cards collapsed. When Brooksley Born, head of the Commodity Futures Trading Commission, attempted to do her regulatory job and regulate derivatives, the Federal Reserve, Treasury, and Securities and Exchange Commission got her bounced out of office. To make certain that no other regulator could protect the financial system and its participants from what was coming, Congress deregulated the derivatives markets by passing the Commodity Futures Modernization Act.
As an Ayn Randian mentality of a self-regulating private sector crowded out prudence, the media cheered. Taibbi captures the era in a sentence: “In was in the immediate wake of all these historically disastrous moves — printing 1.7 trillion new dollars in the middle of a massive stock bubble, dismantling the Glass-Steagall Act, deregulating the derivatives market, blowing off his regulatory authority in the middle of an era of rampant fraud — that Greenspan was upheld by the mainstream financial and political press as a hero of almost Caesarian nature. In February 1999, Time magazine put him on the cover.”
Mortgage securitization allows lenders such as banks to issue mortgages that can be sold to third parties. Instead of making money from the interest from mortgages in its portfolio, the bank issues mortgages for a fee and sells the mortgages. The mortgages are then combined with mortgages sold by other lenders and resold to investors. This development resulted in lenders being less interested in the credit-worthiness of borrowers.
In order to assure investors about credit-worthiness and to appeal to risk-tolerant hedge funds, the next development was to take a pool of mortgages of varying credit-worthiness and to organize them into three tranches. The mortgages were separated into AAA, B grade, and high-risk stuff. The triple A tranche could be sold to pension funds and institutional investors. Hedge funds would take the high-risk tranche for the high-interest rate that they offered, intending to get rid of the mortgages before they had time to go bad. The middle tranche was the one hard to sell. The interest rate on the B-grade tranche was not high enough to appeal to hedge funds, and pension funds were restricted to investment grade.
So what did the banks do? Well, they lumped together all the B-grade tranches and started the process all over. The best of the lot were turned into — you guessed it — AAA, then came the B grade, and then the worst of the lot became the third tranche. And then the process was repeated.
This was bad enough, but even worse was happening. Many of the triple A and B grade mortgages had that rating only because of fraudulent credit scores and rating agencies assigning investment grade ratings to lower grade mortgages. Everyone was focused on short-term profits, from the lenders who churned out mortgages for fees to hedge funds that had no intention of holding the high-risk tranches beyond the short-run. You can see how toxic waste was spread throughout the financial system.
Then it became possible to “insure” the AAA mortgages (many of which were not AAA). Once this happened, financial institutions that were required to maintain reserves against deposits or to capitalize obligations, such as insurance policies, could now substitute higher-paying mortgage derivatives for U.S. Treasury notes and still meet their reserve requirements for a ready cash reserve. Treasury notes are so liquid that they are considered the equivalent of cash, and insured AAA-securitized mortgages acquired similar status.
AIG became the big provider of “insurance” in an operation run by Joe Cassano. Cassano’s “insurance” product is called a credit default swap. It is not insurance, because AIG did not set aside capital to pay any claims. And claims there would be. Not only were the AAA mortgages that were being insured littered with toxic waste, investment banks and hedge funds could purchase swaps against mortgages that they did not even own. As Taibbi puts it, people were gambling in a casino in which gamblers did not have to cover their bets or own the financial instruments that they were insuring.
While Cassano was collecting fees for bets that he could not cover, Win Neuger on the other side of AIG was lending the insurance giant’s long-term portfolio of sound investments to short-sellers for a fee.
Short-selling works like this: A short-seller thinks a company’s stock price is going to fall in value. He borrows the stock from AIG by putting up collateral equal to its market price the day the stock is borrowed plus a small fee, sells the stock, pockets the money and waits for the stock to fall. If his hunch or inside information is correct, and the stock falls in value, he buys the stock and returns it to AIG, pocketing the difference in the two prices.
Normally, people who lend stock to short-sellers are content with the fee and with the interest on the collateral (cash) invested in safe instruments like Treasury bills. The lender of the stock cannot take any risk with the cash collateral, because the cash must be returned to the short-seller when he returns the borrowed stock.
Once, however, toxic waste got AAA ratings plus insurance from Cassano, higher-paying insured investment grade toxic waste could displace of US Treasuries as a place for Neuger to hold the short-sellers’ collateral. You can see the untenable position into which Cassano and Neuger put AIG.
Enter Goldman Sachs as a buyer of swaps from Cassano and a borrower of stocks from Neuger. Once the real estate bubble that the crazed Federal Reserve had caused popped, all the fraud that had been disguised by rising real estate prices appeared in its naked glory. AIG couldn’t cover Cassano’s swaps, and it could not return the collateral to short-sellers that Neuger had invested, unknowingly, in toxic waste.
This was the origin of the TARP bailout, which was perceived by Goldman Sachs (whose former executives, as Taibbi relates, controlled the U.S. Treasury, financial regulatory agencies, and the Federal Reserve) as an opportunity not merely to have U.S. taxpayers make good on its exploitation of AIG, but also to fund with free capital supplied by hapless taxpayers more money-making opportunities for “banks too big to fail.”
As Taibbi shows, Goldman Sachs had yet more ruin to bring to Americans. Goldman Sachs managed to get the position limits that regulation imposed on speculators in order to prevent speculation from taking over commodity markets (for example, grains, metals, and oil) secretly repealed. This allowed Goldman Sachs to create a new product, index speculation, which brought hundreds of billions into commodities markets and drove up the price of gasoline in 2008 to $4.50 per gallon despite the fact that there was no change in supply or consumer demand. It was entirely a profit rip-off from speculation in oil futures contracts.
From here on Taibbi’s book really rolls. If the U.S. had a media worthy of the name, instead of mere shills for private oligarchs and propagandists for government, Matt Taibbi would be the editor of an independent Wall Street Journal with a regiment of investigative reporters. Then Americans would have a prospect of reclaiming their country and their economy....
"Divide And Conquer: The Union Protests In Wisconsin And Ohio Are Increasing The Hate Between The Left And The Right
The American Dream
"What is the perfect way to get the eyes of the American people off of the real economic problems that this country is facing? Get them fighting with each other of course. And what is one issue that is sure to get the left and the right screaming at each other like cats and dogs? Unions. The battle over collective bargaining rights in Wisconsin has been making headlines around the world for weeks and there are no signs that it is going to end any time soon. In fact, Mordecai Lee, a political scientist at the University of Wisconsin-Milwaukee, says that it is "a battle to the death".
The Democrats that have gone AWOL appear to be absolutely determined to stay away. The protesters seem equally determined to keep on fighting. Wisconsin Governor Scott Walker does not look like he plans to back down either.
Meanwhile, both sides are calling each other the most horrible names. "Hitler", "Stalin", "Nazi" and "fascist" are just a few of the terms that are being thrown around by both sides. What has been going on in Wisconsin has captured the imagination of the entire nation and it is creating even more hate between the left and the right in this country. Unfortunately, as the economic pie in this nation continues to shrink, economic battles such as the one in Wisconsin are going to become quite common.
In fact, the war over public unions seems to be spreading. The Ohio Senate has just passed a law that bans public employees from ever going on strike and that forbids them from negotiating on issues such as health care, sick time and pension benefits with the state government.
Needless to say, public employees and union workers in Ohio are not amused.
Several other states are now looking at legislation that would restrict the collective bargaining rights of public employees. Battle lines are being drawn all over the nation.
If you only read conservative websites about all of this, you would be tempted to believe that all union activists are Satanic communists that hate everything that is true and good about America.
If you only read liberal websites about these protests, you would be tempted to believe that all conservatives are heartless Nazi-loving bastards that want to give all the money in America to the rich.
But this is what the establishment loves to do - they love to "divide and conquer" and have us fighting with each other like cats and dogs.
In a recent column, Pat Buchanan described some of the vitriol that has been directed towards Wisconsin Governor Scott Walker recently....
Picketers have carried placards with the face of Gov. Scott Walker in the cross hairs of a gun sight. He has been compared to Hitler, Mussolini, Mubarak. Democrats have fled the state to deny the elected Wisconsin Senate a quorum to vote.If you even bring up the name "Scott Walker" with some people they will look at you as if you just mentioned the devil.
Not that our public officials are doing much to help tone down the debate. U.S. Representative Michael Capuano (D-Mass.) certainly took the rhetoric up a notch when he recently told a group of union workers in Boston the following....
"Every once and awhile you need to get out on the streets and get a little bloody when necessary."Sadly, this is what politics is turning into in America. You identify the "enemy" and then you hate them with everything that you have inside of you.
Meanwhile, the real sources of our economic problems are never addressed.
Whether the unions win this current battle or the conservatives win this current battle it isn't really going to do much at all to solve the underlying problems that our economy is facing.
For example, most of the people up in Wisconsin probably cannot adequately describe what the Federal Reserve actually is or how it is systematically destroying our national wealth.
The Federal Reserve was designed to get the U.S. government enslaved to a perpetually expanding national debt. This national debt is a massive drain on the wealth of this country and it is literally strangling our economy to death.
In addition, the Federal Reserve is continually destroying the value of our national currency. The U.S. dollar has lost well over 95 percent of its value since the Federal Reserve was created in 1913 and the pace of dollar devaluation is rapidly accelerating.
But do high profile Democrats or high profile Republicans ever talk about doing something about the Federal Reserve?
Of course not.
Another reason why America's "economic pie" is shrinking is because of the deindustrialization of this nation that is being caused by globalism.
Back in 1980, manufacturing represented 21 percent of U.S. GDP. By 2008, that number had dropped to 13 percent.
Back in 1980, 31 percent of all of the manufacturing in the world was done in the United States. By 2008, that number had dropped to 24 percent.
Between December 2000 and December 2010, the U.S. ran a total trade deficit of 6.1 trillion dollars. In order to fund that shortfall we had to borrow massive amounts of money from the rest of the world.
The truth is that the U.S. is running a trade deficit in almost every major industry that you can think of.
For example, do you remember when the United States was the dominant manufacturer of automobiles and trucks on the globe? Well, in 2010 the U.S. ran a trade deficit in automobiles, trucks and parts of $110 billion.
Well, what about high technology? Aren't we supposed to be the innovators of the globe?
Well, in 2002, the United States had a trade deficit in "advanced technology products" of $16 billion with the rest of the world. In 2010, that number skyrocketed to $82 billion.
The truth is that both Democrats and Republicans have been shipping our factories and our jobs overseas for decades.
Neither major party has been standing up for the American worker.
Instead, both the Democrats and the Republicans have been doing the dirty work of the globalists.
But instead of demanding change, American workers keep voting for the exact same politicians over and over and over.
As the federal budget deficit continues to grow and as the U.S. trade deficit continues to grow, America's "economic pie" is going to continue to get smaller.
For even more reasons why America's "economic pie" is shrinking, please see this article.
Sadly, even though the overall economic pie is shrinking, Wall Street and the gigantic corporations that dominate our economy have managed to carve out even bigger pieces of the pie for themselves.
That leaves the rest of us with fewer scraps to fight over than ever.
According to CNN, in 2009 the wealthiest 10% of all Americans controlled half of all the wealth in America.
Not only that, the average CEO now makes approximately 185 times more money than the average American worker.
Remember, the wealthy are thriving even as the overall economic pie is getting smaller.
So what we have today is a very small group that is doing very well while most of America is suffering. As 2007 began, only about 26 million Americans were on food stamps, but today over 43 million Americans are on food stamps.
Frustration and anger are growing from coast to coast as millions upon millions of Americans find themselves unable to pay their mortgages and feed their families.
But instead of the American people coming together and standing up to Wall Street, the Federal Reserve, NAFTA, the WTO, the IMF and the World Bank, we are endlessly fighting with ourselves.
The establishment loves that most Americans are caught in the false left/right paradigm.
The establishment loves that hatred between liberal and conservatives is rising.
The establishment loves that we are fighting with each other over the scraps instead of asking why the pie is shrinking and why most of the pie is being taken by the elite.
The left and the right are fighting tooth and nail to win minor battles against each other even as our national economy slowly swirls down towards the bottom of the toilet bowl.
Hopefully the American people will wake up. Our economic system is being looted and gutted at an astounding pace and most of our politicians appear to be totally indifferent to what is going on.
But instead of getting educated about real issues, most Americans that are interested in politics seem obsessed with finding someone to hate. The mainstream media tells us that if we are Republicans that we are supposed to hate the Democrats and that if we are Democrats that we are supposed to hate the Republicans.
Meanwhile, the real criminals are having a field day and they are getting away with just about whatever they want to do.