WTO Calls On US to Cut Farm Subsidies

Wednesday, September 29, 2010 by Agence France Presse

GENEVA - The World Trade Organization called on the United States on Wednesday to cut its farm subsidies, saying that they were so "considerable" that they could affect market prices.

In a report analysing Washington's policies since 2007, the trade body said that while promoting its exports, the United States should also reduce "distorting measures ... including ... support for agriculture."

The WTO noted that support granted to the sector under the multi-billion-dollar 2008 Farm Act are mostly "linked to prices and or production."

Thanks to this support, "producers of cereals, oilseeds, and cotton are effectively insulated from market prices while sugar and dairy have market price support programmes," said the WTO.

"The large size of the agriculture sector means that the absolute amount of support is considerable, varies from one year to another depending on prices, and can affect world prices," it added.

Brazil also hit out against the US' farm policies during the WTO's examination of Washington's trade policies every two years.

"Agriculture accounts for only 0.8 percent of US GDP and it employs just 1.4 percent of its labour force," noted Roberto Azevedo, Brazil's envoy to the WTO.

"Nevertheless, this sector displays a considerable arsenal of trade-restrictive and distorting measures."

Azevedo pointed out that most of the subsidies are concentrated on crops such as cotton soybeans and rice.

"When prices drop, those subsidies will be in place again precisely at the moment when they will provoke the largest distortions and most damage to producers elsewhere," he charged.

Washington's subsidies to its agriculture sector is a key sticking point holding up long-stalled Doha negotiations for a new global free trade deal.

Its support for cotton producers has been judged illegal by the WTO, in a complaint brought by Brazil.

Brazil however agreed to not apply reprisals after both countries decided to wait for the new Farm bill in 2012 to see what modifications would be made.

How Goldman gambled on starvation

(I didn't know you could be this much of a scumbag and not wind up blowing your brains out or having someone else do it for you. Hey! Didn't "Honest" Little Timmy Geithner--our current Treasury Secretary--come up through the Goldman Sachs system? That answer is yes. So, he probably was aware of this whole despicable "opportunity. Just sayin'...The next article goes into much more depth after this one--jef)

***

by Johann Hari | Friday, 2 July 2010 | UK Independent

Speculators set up a casino where the chips were the stomachs of millions. What does it say about our system that we can so casually inflict so much pain?

By now, you probably think your opinion of Goldman Sachs and its swarm of Wall Street allies has rock-bottomed at raw loathing. You're wrong. There's more. It turns out that the most destructive of all their recent acts has barely been discussed at all. Here's the rest. This is the story of how some of the richest people in the world – Goldman, Deutsche Bank, the traders at Merrill Lynch, and more – have caused the starvation of some of the poorest people in the world.

It starts with an apparent mystery. At the end of 2006, food prices across the world started to rise, suddenly and stratospherically. Within a year, the price of wheat had shot up by 80 per cent, maize by 90 per cent, rice by 320 per cent. In a global jolt of hunger, 200 million people – mostly children – couldn't afford to get food any more, and sank into malnutrition or starvation. There were riots in more than 30 countries, and at least one government was violently overthrown. Then, in spring 2008, prices just as mysteriously fell back to their previous level. Jean Ziegler, the UN Special Rapporteur on the Right to Food, calls it "a silent mass murder", entirely due to "man-made actions."

Earlier this year I was in Ethiopia, one of the worst-hit countries, and people there remember the food crisis as if they had been struck by a tsunami. "My children stopped growing," a woman my age called Abiba Getaneh, told me. "I felt like battery acid had been poured into my stomach as I starved. I took my two daughters out of school and got into debt. If it had gone on much longer, I think my baby would have died."

Most of the explanations we were given at the time have turned out to be false. It didn't happen because supply fell: the International Grain Council says global production of wheat actually increased during that period, for example. It isn't because demand grew either: as Professor Jayati Ghosh of the Centre for Economic Studies in New Delhi has shown, demand actually fell by 3 per cent. Other factors – like the rise of biofuels, and the spike in the oil price – made a contribution, but they aren't enough on their own to explain such a violent shift.

To understand the biggest cause, you have to plough through some concepts that will make your head ache – but not half as much as they made the poor world's stomachs ache.

For over a century, farmers in wealthy countries have been able to engage in a process where they protect themselves against risk. Farmer Giles can agree in January to sell his crop to a trader in August at a fixed price. If he has a great summer, he'll lose some cash, but if there's a lousy summer or the global price collapses, he'll do well from the deal. When this process was tightly regulated and only companies with a direct interest in the field could get involved, it worked.

Then, through the 1990s, Goldman Sachs and others lobbied hard and the regulations were abolished. Suddenly, these contracts were turned into "derivatives" that could be bought and sold among traders who had nothing to do with agriculture. A market in "food speculation" was born.

So Farmer Giles still agrees to sell his crop in advance to a trader for £10,000. But now, that contract can be sold on to speculators, who treat the contract itself as an object of potential wealth. Goldman Sachs can buy it and sell it on for £20,000 to Deutsche Bank, who sell it on for £30,000 to Merrill Lynch – and on and on until it seems to bear almost no relationship to Farmer Giles's crop at all.

If this seems mystifying, it is. John Lanchester, in his superb guide to the world of finance, Whoops! Why Everybody Owes Everyone and No One Can Pay, explains: "Finance, like other forms of human behaviour, underwent a change in the 20th century, a shift equivalent to the emergence of modernism in the arts – a break with common sense, a turn towards self-referentiality and abstraction and notions that couldn't be explained in workaday English." Poetry found its break with realism when T S Eliot wrote "The Wasteland". Finance found its Wasteland moment in the 1970s, when it began to be dominated by complex financial instruments that even the people selling them didn't fully understand.

So what has this got to do with the bread on Abiba's plate? Until deregulation, the price for food was set by the forces of supply and demand for food itself. (This was already deeply imperfect: it left a billion people hungry.) But after deregulation, it was no longer just a market in food. It became, at the same time, a market in food contracts based on theoretical future crops – and the speculators drove the price through the roof.

Here's how it happened. In 2006, financial speculators like Goldmans pulled out of the collapsing US real estate market. They reckoned food prices would stay steady or rise while the rest of the economy tanked, so they switched their funds there. Suddenly, the world's frightened investors stampeded on to this ground.

So while the supply and demand of food stayed pretty much the same, the supply and demand for derivatives based on food massively rose – which meant the all-rolled-into-one price shot up, and the starvation began. The bubble only burst in March 2008 when the situation got so bad in the US that the speculators had to slash their spending to cover their losses back home.

When I asked Merrill Lynch's spokesman to comment on the charge of causing mass hunger, he said: "Huh. I didn't know about that." He later emailed to say: "I am going to decline comment." Deutsche Bank also refused to comment. Goldman Sachs were more detailed, saying they sold their index in early 2007 and pointing out that "serious analyses ... have concluded index funds did not cause a bubble in commodity futures prices", offering as evidence a statement by the OECD.

How do we know this is wrong? As Professor Ghosh points out, some vital crops are not traded on the futures markets, including millet, cassava, and potatoes. Their price rose a little during this period – but only a fraction as much as the ones affected by speculation. Her research shows that speculation was "the main cause" of the rise.

So it has come to this. The world's wealthiest speculators set up a casino where the chips were the stomachs of hundreds of millions of innocent people. They gambled on increasing starvation, and won. Their Wasteland moment created a real wasteland. What does it say about our political and economic system that we can so casually inflict so much pain?

If we don't re-regulate, it is only a matter of time before this all happens again. How many people would it kill next time? The moves to restore the pre-1990s rules on commodities trading have been stunningly sluggish. In the US, the House has passed some regulation, but there are fears that the Senate – drenched in speculator-donations – may dilute it into meaninglessness. The EU is lagging far behind even this, while in Britain, where most of this "trade" takes place, advocacy groups are worried that David Cameron's government will block reform entirely to please his own friends and donors in the City.

Only one force can stop another speculation-starvation-bubble. The decent people in developed countries need to shout louder than the lobbyists from Goldman Sachs. The World Development Movement is launching a week of pressure this summer as crucial decisions on this are taken: text WDM to 82055 to find out what you can do.

The last time I spoke to her, Abiba said: "We can't go through that another time. Please – make sure they never, never do that to us again."

The Insidious Transformation of Markets into Casinos

How Brokers Became Bookies
By ELLEN BROWN

“You all are the house, you're the bookie. [Your clients] are booking their bets with you. I don't know why we need to dress it up. It's a bet.”

- Senator Claire McCaskill, Senate Subcommittee investigating Goldman Sachs (Washington Post, April 27, 2010)

Ever since December 2008, the Federal Reserve has held short-term interest rates near zero. This was not only to try to stimulate the housing and credit markets but also to allow the federal government to increase its debt levels without increasing the interest tab picked up by the taxpayers. The total public U.S. debt increased by nearly 50% from 2006 to the end of 2009 (from about $8.5 trillion to $12.3 trillion), but the interest bill on the debt actually dropped (from $406 billion to $383 billion), because of this reduction in interest rates.

One of the dire unintended consequences of that maneuver, however, was that municipal governments across the country have been saddled with very costly bad derivatives bets. They were persuaded by their Wall Street advisers to buy credit default swaps to protect their loans against interest rates shooting up. Instead, rates proceeded to drop through the floor, a wholly unforeseeable and unnatural market condition caused by rate manipulations by the Fed. Instead of the banks bearing the losses in return for premiums paid by municipal governments, the governments have had to pay massive sums to the banks – to the point of bankrupting at least one city (Montgomery, Alabama).

Another unintended consequence of the plunge in interest rates has been that “savers” have been forced to become “speculators” or gamblers. When interest rates on safe corporate bonds were around 8%, a couple could aim for saving half a million dollars in their working careers and count on reaping $40,000 yearly in investment income, a sum that, along with social security, could make for a comfortable retirement. But very low interest rates on bonds have forced these once-prudent savers into the riskier and less predictable stock market, and the collapse of the stock market has forced them into even more speculative ventures in the form of derivatives, a glorified form of gambling. Pension funds, which have binding pension contracts entered into when interest was at much higher levels, need an 8% investment return to meet their commitments. In today’s market, they cannot make that sort of return without taking on higher risk, which means taking major losses when the risks materialize.

Derivatives are basically just bets. Like at a racetrack, you don’t need to own the thing you’re betting on in order to play. Derivative casinos have opened up on virtually anything that can go up or down or have a variable future outcome. You can bet on the price of tea in China, the success or failure of a movie, whether a country will default on its debt, or whether a particular piece of legislation will pass. The global market in derivative trades is now well over a quadrillion dollars – that’s a thousand trillion – and it is eating up resources that were at one time invested in productive enterprises. Why risk lending money to a corporation or buying its stock, when you can reap a better return betting on whether the stock will rise or fall?

The shift from investing to gambling means that not only are investors making very little of their money available to companies to produce goods and services, but the parties on one side of every speculative trade now have an interest in seeing the object of the bet fail, whether a company, a movie, a politician, or a country. Worse, high-speed program traders can actually manipulate the market so that the thing bet on is more likely to fail. Not only has the market become a casino, but the casino is rigged.

High frequency traders – a field led by Goldman Sachs -- use computer algorithms to automatically bet huge sums of money on minor shifts in price. These bets send signals to the market that can themselves cause the price of assets to shoot up or tumble down. By placing high-volume trades, the largest speculative traders can thus intentionally “fix” prices in any direction they want.

“Prediction” Markets

Casinos for betting on what something will do in the future have been elevated to the status of “prediction” markets, and they can cover a broad range of issues. MIT’s Technology Review launched a futures market for technological innovations, in order to bet on upcoming developments. The NewsFutures and TradeSports Exchanges enable people to wager on matters such as whether Tiger Woods will take another lover, or whether Bin Laden will be found in Afghanistan.

A 2008 conference of sports leaders in Auckland, New Zealand, featured Mark Davies, head of a sport betting exchange called Betfair. Davies observed that these betting exchanges, while clearly gambling forums, are little different from the trading done by financial firms such as JPMorgan. He said:

“I used to trade bonds at JPMorgan, and I can tell you that what our customers do is exactly the same as what I used to do in my previous life, with the single exception that where I had to pour over balance sheets and income statements, they pour over form and team-sheets.”

The online news outlet Slate monitors various prediction markets to provide readers with up-to-date information on the potential outcomes of political races. Two of the markets covered are the Iowa Electronic Markets and Intrade. Slate claims that these political casinos are consistently better at forecasting winners than pre-election polls. Participants bet real money 24 hours a day on the outcomes of a range of issues, including political races. Newsfutures and Casualobserver are similar, smaller exchanges.

Besides shifting the emphasis to gambling (“Why Vote When You Can Bet?” says Slate’s “Guide to All Political Markets”), prediction markets, like the stock market, can be rigged so that they actually affect outcomes. This became evident, for example, in 2008, when the John McCain campaign used the InTrade market to shift perception of his chances of winning. A supporter was able to single-handedly manipulate the price of McCain’s contract, causing it to move up in the market and prompting some mainstream media to report it as evidence that McCain was gaining in popularity.

Betting on Terrorism

The destructive potential of prediction markets became particularly apparentin one sponsored by the Pentagon, called the “policy analysis market” (PAM) or “terror futures market.” PAM was an attempt to use the predictive power of markets to forecast political events tied to the Middle East, including terrorist attacks. According to the New York Times, the PAM would have allowed trading of futures on political developments including terrorist attacks, coups d’état, and assassinations. The exchange was shut down a day after it launched, after commentators pointed out that the system made it far too easy to make money with terror attacks.

At a July 28, 2003 press conference Senators Byron L. Dorgan (DND) and Ron Wyden(DOR) spoke out against the exchange. Wyden stated, “The idea of a federal betting parlor on atrocities and terrorism is ridiculous and it's grotesque,” while Dorgan called it “useless, offensive and unbelievably stupid”.

“This appears to encourage terrorists to participate, either to profit from their terrorist activities or to bet against them in order to mislead U.S. intelligence authorities,” they said in a letter to Admiral John Poindexter, the director of the Terrorism Information Awareness Office, which developed the idea. A week after the exchange closed, Poindexter offered his resignation.

Carbon Credit Trading

A massive new derivatives market that could be highly destructive economically is the trading platform called Carbon Credit Trading, which is on its way to dwarfing world oil trade. The program would allow trading in “carbon allowances” (permitting companies to emit greenhouse gases) and in “carbon offsets” (allowing companies to emit beyond their allowance if they invest in emission-reducing projects elsewhere). It would also allow trading in carbon derivatives; for example, futures contracts to deliver a certain number of allowances at an agreed price and time.

Robert Shapiro, former undersecretary of commerce in the Clinton administration and a cofounder of the U.S. Climate Task Force, has warned, “We are on the verge of creating a new trillion-dollar market in financial assets that will be securitized, derivatized, and speculated by Wall Street like the mortgage-backed securities market.”

Eoin O’Carroll cautioned in the Christian Science Monitor:

“Many critics are pointing out that this new market for carbon derivatives could, without effective oversight, usher in another Wall Street free-for-all just like the one that precipitated the implosion of the global economy. . . . Just as the inability of homeowners to make good on their subprime mortgages ended up pulling the rug out from under the credit market, carbon offsets that are based on shaky greenhouse-gas mitigation projects could cause the carbon market to tank, with implications for the broader economy.”

The proposed form of cap and trade has not yet been passed in the U.S., but a new market in which traders can speculate on the future of allowances and offsets has already been launched. The largest players in the carbon credit trading market include firms such as Morgan Stanley, Barclays Capital, Fortis, Deutsche Bank, Rabobank, BNP Paribas, Sumitomo, Kommunalkredit, Credit Suisse, Merrill Lynch and Cantor Fitzgerald. Last year, the financial services industry had 130 lobbyists working on climate issues, compared to almost none in 2003. The lobbyists represented companies such as Goldman Sachs and JPMorgan Chase.

Billionaire financier George Soros says cap-and-trade will be easy for speculators to rig. “The system can be gamed,” he said last July at a London School of Economics seminar. “That’s why financial types like me like it — because there are financial opportunities.”

Time to Board Up the Casinos and Rethink Our Social Safety Net?

Our forebears considered gambling to be immoral and made it a crime. As the Industrial Revolution and the ascendance of capital changed religious mores, gambling gradually gained acceptance, but even within that permissive paradigm, derivative trading was originally considered an illegal form of gambling. Perhaps it is time to reinstate the gambling laws, board up the derivatives casinos, and return the stock market to what it was designed to be: a means of funneling the capital of investors into productive businesses.

Short of banning derivatives altogether, the derivatives business could be slowed up considerably by imposing a Tobin tax, a small tax on every financial trade. “Financial products” are virtually the only products left on the planet that are not currently subject to a sales tax; and at over a quadrillion dollars in trades annually, the market is huge.

A larger issue is how to ensure adequate retirement income for the population without forcing people into gambling with their life savings to supplement their meager social security checks. It may be time to rethink not only our banking and financial structure but the entire social umbrella that our Founding Fathers called the Common Wealth. The genius of Social Security was its recognition of the basic economic truth that real “security” rests on the ability of a society to provide for and take care of those who, because of age, health or economic conditions, cannot take care of themselves.

Deficit hawks cry that we cannot afford more spending; but according to Richard Cook, a former U.S. Treasury Department official, the government could print and spend several trillion new dollars into the money supply without causing price inflation. Writing in Global Research in April 2007, he noted that the U.S. Gross Domestic Product in 2006 came to $12.98 trillion, while the total national income came to only $10.23 trillion; and at least 10 percent of that income was reinvested rather than spent on goods and services. Total available purchasing power was thus only about $9.21 trillion, or $3.77 trillion less than the collective price of goods and services sold. Where did consumers get the extra $3.77 trillion? They had to borrow it, and they borrowed it from banks that created it with accounting entries on their books. If the government had replaced this bank-created money with debt-free government-created money, the total money supply would have remained unchanged. That means a whopping $3.77 trillion in new government-issued money could have been fed into the economy in 2006 without inflating prices. Different proposals have been made concerning how this money should be distributed, but at least some of it could be used to provide adequate social security checks, relieving the pressure to gamble with our savings.

The Federal Reserve has funneled $4.6 trillion to Wall Street in bailout money, most of it generated via “quantitative easing” (in effect, printing money); yet hyperinflation has not resulted. To the contrary, what we have today is Depression-style deflation. The M3 money supply shrank in the last year by 5.5 percent, and the rate at which it is shrinking is accelerating. The explanation for this anomaly is that the Fed’s $4.6 trillion added by quantitative easing fell far short of the estimated $10 trillion needed to “reflate” the money supply after the “shadow lenders” disappeared. When these investors discovered that the “triple-A” mortgage-backed securities they had been purchasing from Wall Street were actually very risky investments, they exited the market, credit dried up, and the money supply (which today consists almost entirely of credit or debt) collapsed.

The only viable way to reflate a collapsed money supply is to put more money into it; and creating the national money supply is the sovereign right of governments, not of banks. If the government wants to remain sovereign, it needs to reassert that right.

What are Crashes and Bubbles?

by Investopedia

A bubble is a type of investing phenomenon that demonstrates the frailty of some facets of human emotion. A bubble occurs when investors put so much demand on a stock that they drive the price beyond any accurate or rational reflection of its actual worth, which should be determined by the performance of the underlying company. Like the soap bubbles a child likes to blow, investing bubbles often appear as though they will rise forever, but since they are not formed from anything substantial, they eventually pop. And when they do, the money that was invested into them dissipates into the wind.

A crash is a significant drop in the total value of a market, almost undoubtedly attributable to the popping of a bubble, creating a situation wherein the majority of investors are trying to flee the market at the same time and consequently incurring massive losses. Attempting to avoid more losses, investors during a crash are panic selling, hoping to unload their declining stocks onto other investors. This panic selling contributes to the declining market, which eventually crashes and affects everyone. Typically crashes in the stock market have been followed by a depression.

The relationship between bubbles and crashes is similar to the relationship between clouds and rain. Since you can have clouds without rain but you can't have rain without clouds, bubbles are like clouds and market crashes are like the rain. Historically, a market crash has always precipitated from a bubble (pun intended), and the thicker the clouds or the bigger the bubble, the harder it rains.

It is important to note the distinction between a crash and a correction, which can be a bit sticky at times. A correction is supposedly the market's way of slapping some sense into overly enthusiastic investors. As a general rule, a correction should not exceed a 20% loss of value in the market. Surprisingly, some crashes have been erroneously labeled as corrections, including the terrifying crash of 1987. But a "correction," however, should not be labeled as such until the steep drop has halted within a reasonable period.

Now that we're familiar with the definitions of crashes and bubbles, we can look at how they occurred throughout history:

1) Market Crashes: Introduction

2) Market Crashes: What are Crashes and Bubbles?

3) Market Crashes: The Tulip and Bulb Craze

4) Market Crashes: The South Sea Bubble

5) Market Crashes: The Florida Real Estate Craze

6) Market Crashes: The Great Depression (1929)

7) Market Crashes: The Crash of 1987

8) Market Crashes: The Asian Crisis

9) Market Crashes: The Dotcom Crash

10) Market Crashes: Housing Bubble and Credit Crisis (2007-2009)

11) Market Crashes: Conclusion

Baffling Market Plunge

Is There a Shady Game of Market Manipulation At Work?
By Danny Schechter, MediaChannel.org
May 10, 2010

The Wall Street Journal headline on the day after we almost lost the U.S. stock market reported that the wise men on the Street were “baffled” by the big drop Thursday. The Financial Times called the event “Shambolic” as if only a shaman can decode it.

A week after CNBC assured its high-net-worth viewers that Greece would no longer be a problem, there was an uprising there followed by a volcanic market cliff dive that the White House, NASDAQ and every regulator is now investigating.

There is still a lot of head-scratching, as if to say, how come our casino went batty? It all happened in a couple of minutes, about the time it took for that fail-safe, top-of-the-line, ultra-secure, and unsinkable oil platform to sink.

The whole world of finance couldn’t believe what was happening before its eyes and so quickly.

--2:38 PM: Dow down 360.
--2:48 PM: Dow down 600.
--2:51 PM: Dow down 900.

Help! We still don’t know how the plunge was arrested. I am sure the Treasury Department’s Plunge Protection Team and the Fed and every Central Bank in the world hit their red buttons to pump more money in before the balloon popped.

You are not going to believe it but no one really knows what happened yet. Should we blame a trader who made a typo or were there others playing a shadier and covert game of market manipulation which may soon officially be listed as a psychiatric condition?

Floyd Norris in the New York Times just about suggested the market was an insane asylum. Just read his lead paragraph and realize we are being dominated by financial maniacs with rationality is out the window.

“Combine: One part nervous traders; one part Greek crisis; and one part trader error. Stir in one part central bank complacency. Bring to boil. Panic.”

“That combination,” Norris "explained," “produced one of the wildest days ever in financial markets.”

On display were the usual twin towers of market self-abuse: Greed and Fear.

Angela Merkel, Germany’s chancellor, likened the wider crisis to “a battle of the politicians against the markets” and attacked the role played by credit-rating agencies.

She declared: “The speculators are our adversaries” suggesting there is a financial war underway that no one in the media seemed to get. Financial analyst Max Keyser sees an outbreak of “financial terrorism.”

The Web site, Gaming the Market, all but argues that this market drop was a calculated maneuver which may be why it’s being investigated. I am not financially savvy enough to understand all of the evidence but for those of you are, here’s part of what they say, including the idea of a “holy crap” moment, writing:

“These moves typically occur after 2:30pm Eastern while the market is near a new low or breaking point, with a relatively high VIX [which gauges “volatility”]. Another characteristic is a large NYSE Adv/Decl negative ratio. One that is negative 10:1 going into lunchtime typically assures a weak close. Ratios of 3:1 negative aren’t what you want. They are easier to manipulate by weak bulls.

“You want a big scary ratio. It is these negative internals that can clue you into the probability of a PPT push. A big push on a big negative internal is the tell. To instantaneously swing the market around on these days takes a massive amount of concerted capital.

“If you watched the market every day last year you know what this looks like. Using 5min candles on your favorite index you will see an immediate and massive full body candle, sometimes eclipsing the entire day’s range in minutes. There is no mistaking this move. It’s a wide-eyed holy crap moment! After this massive push the market will typically close near the high of the day.”

Again, I am not sure how accurate this is, but I do know that the truth in the world of finance is elusive, and, yes “baffling.”

“In many ways, money making is more an art as a science,” I wrote two years ago in my book, PLUNDER: Investigating Our Economic Calamity, reporting on the meltdown in 2007. It was published a week before Lehman collapsed.

Despite all the rules that govern the markets or regulations designed to assure transparency and accountability, crooks, swindlers, and even gangsters are commonplace.

Corrupt practices are pervasive; regulation is behind the curve; lightening fast computers now do the heavy lifting. When professionals in the field were asked how they define criminal conduct, the majority surveyed said crimes only occur when you are caught.

Clearly some of our “market makers” know what they are doing. There is also extensive posturing in the industry to mask the often-fuzzy line between risk and uncertainty.

In many instances, major decisions are made on the basis of fragmentary knowledge, even ignorance, despite professions of careful reviews and “due diligence.” Even “sophisticated investors, can be bamboozled, as we saw in the unmaking of Goldman Sachs and Bernie Madoff.

The Financial Times cites a supposedly knowledgeable market economist at Lehman who said: “We are in a minefield. No one knows where the mines are planted and we are just trying to stumble through it.”

Another market participant put it this way: “It is not the corpses at the surface that are scary, it is the unknown corpses below the surface that may pop up unexpectedly.”

This sounds like a horror movie.

I was talking about this after the last collapse:

“Many of the ‘experts’ whom I read or see on TV seem clueless, full of hot air. Many of their predictions turn out wrong even when they seem so self-assured and well-informed in making them. Jim Hightower warns against believing them, writing: ‘Don’t be deterred by the finance industry’s jargon (which is intended to numb your brain and keep regular folks from even trying to figure out what’s going on).’”

How does one make sense of what is going on? You have to burrow in the business pages and read articles from the bottom up because the most revealing facts are often buried.

You have to break dependence on mainstream media and check out specialized Web sites, blogs, and alternative sources.

After the New York stock market took a 340-point drop in 2007, only to quickly recover, I went to the business pages of the New York Times. I figured that they would explain it.

But they didn’t know the reason for it either, reporting “emotion and psychology, not financial fundamentals were mostly at work.” They quoted the chief U.S. equity strategist for Citibank: “I don’t think anybody can make sense of it.”

Part of the problem here is that the traders and brokers have come up with all sorts of highly esoteric and complex financial instruments – ways of securitizing debt and raising capital – that outsiders, even experienced financial journalists, have a hard time understanding, much less explaining.

Ditto for regulators (and the laws they theoretically enforce), who are hard pressed to keep up with the pace of change. Market traditionalists are also lost.” It seems deliberate.

The scammers are winning.

Two years later after we have read so much about what went wrong, after months of wrangling over financial reforms that Wall Street is beating back like the demand to audit the Fed or break up the big banks, we are back in a big inexplicable mess with a swamp of contradictory information.

Wall Street has gone short on the American people. Their pump-and-dump games have to be controlled or it’s not just whether there will be a massive depression, but when?

Re-Regulating the Market

Does Obama's Plan Go Far Enough?
By BINOY KAMPMARK

President Barack Obama has become the chief sales officer for market regulation, a theme he has been labouring over for some time. Cooper Union, its location pitched within a few miles of Wall Street, doesn’t seem to be tiring of luminaries with their addresses of various gravity and significance.

The proposed regulations, at least on paper, look far reaching. A body would be created to detect financial threats. The Financial Product Safety Commission has the potential to be an effective institution. Consumer rights would be enhanced, and banks would be wise to adhere to their safety. The more bad loans, the greater the instability of the system as a whole. The Agriculture Committee legislation bars banks from trading in derivative instruments and forging deals with other clients, thereby subverting speculation. The Banking Committee, however, disallows speculative trades with their own accounts, though its bill proves more lenient on banks in terms of setting up derivative arrangements for clients.

But a thought, to carry weight, must surely be believed and acted upon by the person advocating it. Joseph E. Stiglitz was correct to point out that the regulatory system (if one can call it that) failed ‘partly because we had regulators who didn’t believe in regulation’ (Politico, Apr 12). For that reason, a wary eye should be kept on the Federal Reserve, that less than impressive body that did so little to halt the slide to economic ruin.

There was nothing new in this particular stage show by the President. The message was familiar – Wall Street and Main Street again make their appearances, jostling for poll position in the American imagination. Business America, seen as innovative yet reckless and unruly; and struggling, ‘common’ America, battered by financial ruin. The consensus-driven politician calls the tune for unity, an arrangement of mutual wealth production: the boardroom managers on one side; the rest of America on the other, both shaking hands in improving the lot of USA Inc. America must produce more and consume less. Make money, and yes, oodles of it – but do it with a sense of corporate responsibility.

Obama’s desire to constrain the habits of a profligate and ruthless Gekko may be one thing; how he seeks to implement it may be quite another. America is a business nation narcotised by the illusion of ‘free markets’. (When in history have markets been truly ‘free’ is hard to say.) There remain strong swathes of the population (and Congress) suspicious about a burgeoning government.

For that reason, selling such ideas as the proposed Volcker Rule will be like selling the viability of amputation to a suffering patient. Limiting bank size and the proprietary risks they can dabble has been and will continue be a formidable sell. Social-Darwinian impulses continue to be rife, and these are hardly going to go away. The Republicans are peddling a curious idea that their opposite numbers endorse, without qualification, the idea of a colossal fund designed to bail out ailing banks. The Democrats will just have to show how the Republican drive for reform in this regard is virtually non-existent. Wall Street is short of friends, and is hoping to find them in the GOP. What is needed is a good shot of populism.

The risk for Obama now is not a fear that nothing will be done, but too little. How derivatives are dealt with, or how consumer protection is hammered out in the final product, will continue to bother the policy makers. Teeth will have to be inserted into public authority. Banker and financiers must be made to feel that prudence will be looked upon favourably; and profligacy condemned and punished. Excessive growth in bank liabilities might not always be easy to gauge, as Paul Volcker has admitted, but like ‘pornography, you know it when you see it’ (WSJ, Feb 4).

The armies of lobbyists representing the interests of Wall Street will be hoping that Congress spends time halting the momentum for change. If the economy improves, the desire for reform will subside. There are few chances of that happening thus far and the administration will have to continue making hay while the sun of reform shines.