Saturday, November 30, 2013

The Money Changers Serenade: A New Plot Hatches

Paul Craig Roberts

Former Treasury Secretary Timothy Geithner, a protege of Treasury Secretaries Rubin and Summers, has received his reward for continuing the Rubin-Summers-Paulson policy of supporting the “banks too big to fail” at the expense of the economy and American people. For his service to the handful of gigantic banks, whose existence attests to the fact that the Anti-Trust Act is a dead-letter law, Geithner has been appointed president and managing director of the private equity firm, Warburg Pincus and is on his way to his fortune.

A Warburg in-law financed Woodrow Wilson’s presidential campaign. Part of the reward was Wilson’s appointment of Paul Warburg to the first Federal Reserve Board. The symbiotic relationship between presidents and bankers has continued ever since. The same small clique continues to wield financial power.

Geithner’s career is illustrative. In the 1980s, Geithner worked for Kissinger Associates. In the mid to late 1990s, Geithner served as a deputy assistant Treasury secretary. Under Rubin and Summers he moved up to undersecretary of the Treasury.

From the Treasury he went to the Council on Foreign Relations and from there to the International Monetary Fund (IMF). From there he was appointed president of the Federal Reserve Bank of New York, where he worked to make banks more profitable by allowing higher ratios of debt to capital, thus contributing to the financial crisis.

Geithner arranged the sale of the failed Wall Street firm of Bear Stearns, helped with the taxpayer bailout of AIG, and rejected saving Lehman Brothers from bankruptcy in order to create the crisis atmosphere needed to more fully subordinate US economic policy to the needs of the few large banks.

Rubin, a 26-year veteran of Goldman Sachs, was rewarded by Citibank for his service to the banks while Treasury Secretary with a $50 million compensation package in 2008 and $126,000,000 between 1999 and 2009.

When a person becomes a Treasury official it is made clear that the choice is between serving the banks and becoming rich or trying to serve the public and becoming poor. Few make the latter choice.

As MIchael Hudson has informed us, the goal of the financial sector has always been to convert all income, from corporate profits to government tax revenues, to the service of debt. From the bankers standpoint, the more debt the richer the bankers. Rubin, Summers, Paulson, Geithner, and now banker Treasury Secretary Jack Lew faithfully serve this goal.

The Federal Reserve describes its policy of Quantitative Easing — the creation of new money with which the Fed purchases Treasury debt and mortgage backed securities — as a low interest rate policy in order to stimulate employment and economic growth. Economists and the financial media have parroted this cover story.

In contrast, I have exposed QE as a scheme for pumping profits into the banks and boosting their balance sheets. The real purpose of QE is to drive up the prices of the debt-related derivatives on the banks’ books, thus keeping the banks with solvent balance sheets.

Writing in the Wall Street Journal (“Confessions of a Quantitative Easer,” November 11, 2013), Andrew Huszar confirms my explanation to be the correct one. Huszar is the Federal Reserve official who implemented the policy of QE. He resigned when he realized that the real purposes of QE was to drive up the prices of the banks’ holdings of debt instruments, to provide the banks with trillions of dollars at zero cost with which to lend and speculate, and to provide the banks with “fat commissions from brokering most of the Fed’s QE transactions.” (See: www.paulcraigroberts.org )

This vast con game remains unrecognized by Congress and the public. At the IMF Research Conference on November 8, 2013, former Treasury Secretary Larry Summers presented a plan to expand the con game.

Summers says that it is not enough merely to give the banks interest free money. More should be done for the banks. Instead of being paid interest on their bank deposits, people should be penalized for keeping their money in banks instead of spending it.

To sell this new rip-off scheme, Summers has conjured up an explanation based on the crude and discredited Keynesianism of the 1940s that explained the Great Depression as a problem caused by too much savings. Instead of spending their money, people hoarded it, thus causing aggregate demand and employment to fall.

Summers says that today the problem of too much saving has reappeared. The centerpiece of his argument is “the natural interest rate,” defined as the interest rate at which full employment is established by the equality of saving with investment. If people save more than investors invest, the saved money will not find its way back into the economy, and output and employment will fall.

Summers notes that despite a zero real rate of interest, there is still substantial unemployment. In other words, not even a zero rate of interest can reduce saving to the level of investment, thus frustrating a full employment recovery. Summers concludes that the natural rate of interest has become negative and is stuck below zero.

How to fix this? The way to fix it, Summers says, is to charge people for saving money. To avoid the charges, people would spend the money, thus reducing savings to the level of investment and restoring full employment.

Summers acknowledges that the problem with his solution is that people would take their money out of banks and hoard it in cash holdings. In other words, the cash form of money provides consumers with a freedom to save that holds down consumption and prevents full employment.

Summers has a fix for this: eliminate the freedom by imposing a cashless society where the only money is electronic. As electronic money cannot be hoarded except in bank deposits, penalties can be imposed that force unproductive savings into consumption.

Summers’ scheme, of course, is a harebrained one. With governments running huge deficits, who would purchase bonds at negative interest rates? How would pension and retirement funds operate? Would they also be subject to an annual percentage confiscation?

We know that the response of consumers to the long term decline in real median family income, to the loss of jobs from labor arbitrage across national borders (jobs offshoring), to rising homelessness, to cuts in the social safety net, to the transformation of their full time jobs to part time jobs (employers’ response to Obamacare), has been to reduce their savings rate. Indeed, few have any savings at all. The US personal saving rate is currently 2 percentage points, about 30%, below the long term average. Retired people, unable to earn any interest on their savings from the Fed’s zero interest rate policy, are being forced to draw down their savings in order to pay their bills.

Moreover, it is unclear whether the savings rate is an accurate measure or merely a residual of other calculations. With so many people having to draw down their savings, I wouldn’t be surprised if an accurate measure showed the personal savings rate to be negative.

But for Summers the plight of the consumer is not the problem. The problem is the profits of the banks. Summers has the solution, and the establishment, including Paul Krugman, is applauding it. Once the economy officially turns down again, watch out.

Sunday, November 24, 2013

Fracking-Friendly Bills Flourish as Industry Donations Skyrocket

Friday, November 22, 2013 by Common Dreams
'House Majority Leadership showed they’ll sacrifice anything for the oil and gas industry'
by Sarah Lazare, staff writer

A wave of legislation friendly to the fracking industry in the House of Representative appears to be following skyrocketing donations from the fossil fuel industry.

A Citizens for Responsibility and Ethics in Washington report this week reveals that from 2004 to 2012, oil and gas industry contributions to Congressional campaigns climbed 231 percent in fracking states and districts.

Several bills passed in Congress this week suggest these contributions are paying off.

In a landslide 252 to 165 vote, the GOP-controlled House rammed through the fracking industry friendly HR 1900 on Thursday that would fast-track pipeline construction if signed into law.

It follows two other bills passed in the House earlier this week that would make it easier to get fast permits for oil and gas drilling on federal lands and roll back federal fracking regulations.

While none of these bills is expected to advance in the Senate, critics charge they nonetheless reveal a Congress hijacked by the fracking industry.

"This week, House Majority Leadership showed that they’ll sacrifice just about anything for the oil and gas industry, whether it’s the hunters and fishermen who enjoy using our public lands, parents trying to protect their children from the health impacts of fracking, even the rights of property owners along proposed gas pipeline projects," said Earthjustice Senior Legislative Representative Jessica Ennis.

"The reason for this loyalty? Look no further than a damning report out yesterday showing a 231 percent increase in industry contributions to candidates in areas of fracking activity," she added.

Lawmakers Vote to Keep Drone War Deaths Secret

Friday, November 22, 2013 by Common Dreams
House Intelligence Committee rejects provision that would count those killed in US bombings
by Sarah Lazare

The House Intelligence Committee on Thursday rejected 15 to 5 what supporters call a "modest" proposal to require that the Obama administration publicly report those killed by U.S. drone strikes overseas.

"By blocking transparency the House [committee] denies accountability for the slaughter committed against innocent lives in drone strikes," said Suraia Sahar of Afghans United for Justice in an interview with Common Dreams. "This is a gross disregard for human life."

The provision, proposed by Rep. Adam Schiff (D-Calif.), had already passed the Senate Intelligence Committee earlier this month. It would have required that U.S. agencies involved in drone wars produce annual reports in which they account for all deaths in U.S. drone strikes overseas and identify the civilians and alleged combatants killed.

"The production of this report will require minimal resources, but will provide a modest but important measure of transparency and oversight," said Schiff in a statement released Thursday. While the bill failed along party lines, with Republicans voting "no," Schiff said he plans to continue efforts to advance the legislation in the House. Supporters say that in order for this bill to move forward, constituents must pressure Republicans both in the House and Senate to get on board.

The bill failed despite a lobbying blitz earlier this week by attendees of a global summit demanding an end to Obama's ongoing drone wars. Groups including delegates from regions terrorized by U.S. drones, such as Yemen and Pakistan, appealed directly to Congress to end the deadly strikes. The groups charged that, at the very least, an increase in transparency and oversight is needed.

"People complain justifiably that the Obama administration is not being transparent," said Robert Naiman, policy director for Just Foreign Policy, in an interview with Common Dreams. "But Congress also is not being transparent. Every day this drone policy continues, Congress is voting through its inaction to do nothing."

While Obama administration officials have been famously secretive about the lives lost in U.S. drone attacks, they have repeated the unverified claim that civilian deaths have been minimal. Yet this is contested by experts and witnesses, including Bureau of Investigative Journalism researchers who have documented high numbers of civilian deaths in Pakistan and Yemen.

In a drone war that operates behind a veil of secrecy, critics charge that any step towards transparency, no matter how small, is a positive one.

"Even this defeat is a victory," said Naiman. "It is the first time in ten years of drone strike policy that there was any congressional vote on anything. Now we can see who is trying to do something and who is blocking. There has been a dramatic increase in transparency just as a result of this vote."

The MPAA Is Going After Schoolchildren

Pirating Creativity
by TRAVIS EBY

For years now the Motion Picture Association of America (MPAA) has been trying its best, unsuccessfully, to enforce its “intellectual property” claims upon those who would dare share and distribute media. They are of course not the only ones trying to get IP enforced; we have seen the same trends in music and gaming. Since it has long become clear that they cannot stop the sharing of media on the internet, the MPAA is going for the gold: Get pirates when they are young. In other words, the MPAA has gone to work getting its mission inserted into the public school curriculum.

A nonprofit group called the Center for Copyright Information, supported by the MPAA and other groups, is in the early drafting phases of a school curriculum to teach children the supposed value of copyright. Of course, this whole plan is not without critics. Some argue that Hollywood studios and music labels are simply trying to promote their own biased agendas, while others say that such a curriculum would use up valuable classroom time needed to simply cover the basics.

There are two fundamental things for us to look at here, and they are both highly problematic. These are public education and intellectual property.

Public education is an environment wherein children are taught that there is such a thing as objective authority figures. This may not be overt, especially given how many well meaning and sincere public educators are out there, but the fact remains that public schools are among the first places where children start to be molded into compliant, servile people. There is not a whole lot of room for individuality, and even less room for questioning the teacher’s lesson plans. It is the perfect place to instill far-reaching values, such as statism, when children are at their most intellectually vulnerable.

Intellectual property is a ruse the political class uses to control free market — a clever tool to inhibit competition. There is no logical way to own something like an idea, and there is no logical argument against people sharing information, including media of all kinds. By enforcing claims on “intellectual property,” the political class inhibits competition, innovation and creativity.

But they would have us believe otherwise. They argue that IP protects creativity, that it protects competition, and that it protects the market. But if this is truly the case, then why would so many be fighting to undermine it? They also argue that sharing their supposed intellectual property is hurting the industry and costing people jobs. This of course flies in the face of the billions of dollars the movie industry, the music industry, and the game industry rake in every year. But they would still seek to get these regressive values into the minds of schoolchildren.

The fact of the matter is that sharing information, including media, is a massive check against the mandated market control of these big media groups. In many ways it has actually served to help them due to more people having access. It has also pushed them to innovate and make their products worth more to the general consumer. In other words, real market forces have created arguably better products. For years IP has stifled innovation, and it has been through revolutionary market forces that we have seen some exciting changes in the media industry. One such example is the Steam video game client that, while still a player in IP, has been making more and more quality games available for dirt cheap. In many cases, some will stop pirating because the games they might be interested in are available for so little money.

In short, not only is IP a regressive, anti-freedom framework, but the notion that they are so desperate that they would seek to get into the minds of children means that they are scared. Not to mention that their efforts will most likely meet with derision from the older siblings of these kids and create even more media sharing than before, thereby furthering their own demise.

Simply put: They are losing. Let’s keep it that way.

An Orgy of Thieves

The American Criminal Elite
by JEFFREY ST. CLAIR and ALEXANDER COCKBURN


All through the 1980s and 1990s, professorial mountebanks like James Q. Wilson and Charles Murray grew plump from best sellers about the criminal, probably innate, propensities of the “underclass,” about the pathology of poverty, the teen predators, the collapse of morals, the irresponsibility of teen moms.

There was indeed a vast criminal class coming to full vicious potential in the 1990s: a group utterly vacant of the most elementary instincts of social propriety, devoid of moral fiber, selfish to an almost unfathomable degree. The class comes in the form of our corporate elite.

Given a green light in the late 1970s by the deregulatory binge urged by corporate-funded think tanks and launched legislatively by Jimmy Carter and Ted Kennedy, by the 1990s, America’s corporate leadership had evolved a simple strategy for criminal self-enrichment.

First, lie about your performance, in a manner calculated to deceive investors. This was engineered by the production of a “pro forma” balance sheet freighted with accounting chicanery of every stripe and hue, willingly supplied by Arthur Andersen and others. Losses were labeled “capital expenditures”; losing assets were “sold” to co-conspirators in the large banks for the relevant accounting period.

Later, using Generally Accepted Accounting Principles, slightly more realistic balance sheets would be presented to the SEC and the IRS.

Flaunting the “pro forma” numbers, corporations would issue more stock, borrow more money from some co-conspiratorial bank, buy back the stock for the chief executives, who would further inflate its value by dint of bogus accountancy, sell the stock to the chumps and bail out with their millions before the roof fell in, leaving pension funds like CalPERS holding the bag. The fortunes amassed by George W. Bush and Dick Cheney are vivid illustrations of the technique.

The scale of looting? Prodigious. This orgy of thievery, without parallel in the history of capitalism, was condoned and abetted year after year by the archbishop of the economy, Alan Greenspan, a man with a finely honed sense of distinction between the scale of reproof merited by the very rich and those less powerful. When Ron Carey led the Teamsters to victory way back in 1997, Greenspan rushed to denounce the “inflationary” potential of modestly improved wage packets. Even though declared innocent by a jury of his peers, Carey was forbidden ever to run in a union election again. And so it goes now with the drumbeats about raising the minimum wage.

Where were the sermons from Greenspan or his successor Ben Bernanke about the inflationary potential of stock-option fortunes lofted on the hot air of crooked accountancy and kindred conspiracies?

Let someone die in a gang-banger crossfire in South Central, and William Bennett will rush to indict an entire generation, an entire race. Where are the sermons from Bennett, Murray and the Sunday Show moralists about the CEOs scuttling off with their swag, leaving their employees to founder amid wrecked pensions and destroyed prospects? A street kid in Oakland is in the computer by the time he’s 10. No “criminal propensity” profiles for grads of the Wharton or Harvard business schools.

You have to go back to Marx and Balzac to get a truly vivid sense of the rich as a criminal elites. But these giants did bequeath a tradition of joyful dissection of the morals and ethics of the rich, carried on by Veblen, John Moody, C. Wright Mills, William Domhoff, and others. But by the mid-1960s, disruptive political science was not a paying proposition if you were aiming for tenure. A student studying Mills would be working nights at the soda fountain while the kid flourishing Robert Dahl and writing rubbish about pluralism would get a grad fellowship.

Back in the 1950s, people were reading stuff about the moral vacuum in affluent suburbia by writers like Vance Packard and David Riesman. Presumably, inner loneliness soon became inner joy. There was nothing wrong about putting one’s boot on a colleague’s neck and cashing in. Where are the books now about these proving grounds for the great corporate criminal cohort of the 2000s, who came of age in the Reagan years?

In fact, it’s nearly impossible to locate books that examine the class of corporate executives through the lens of cool, scientific contempt. Much of the current writing on CEO culture is published in magazines like Fortune, Businessweek or Forbes. And though there are a few authors — like Robert Monks (Power and Accountability) — who focus their attention on executive culture, nowhere will you find empirical studies on the sociobiological roots of the criminal tendencies of the executive class.

Why? The rich bought out the opposition. Back in the mists of antiquity, you had communists and socialists and populists who’d read Marx, and who had a pretty fair notion of what the rich were up to. Even Democrats had a grasp of the true situation. Then came the witchhunts and the buyouts, hand in hand. Result, a Goldman Sachs trader could come to maturity without ever once hearing an admonitory word about it being wrong to lie, cheat and steal, sell out your co-workers, defraud your customers.

The finest schools in America educated a criminal elite that stole the store in less than a decade. Was it all the fault of Ayn Rand, of the Chicago School, of Hollywood, of God’s demise?