Saturday, September 10, 2011

Fed prepared to act to boost growth: Bernanke

Federal Reserve Chairman Ben Bernanke
© AFP Mandel Ngan
AFP

WASHINGTON (AFP) - The Federal Reserve is ready to take new action to speed up the economy, Fed chief Ben Bernanke said Thursday, but warned that government budget-cutting could hold back growth.

"The Federal Reserve has a range of tools that could be used to provide additional monetary stimulus," Bernanke said in a speech in Minneapolis.

The members of the Fed's policy board, which meets on September 21-22, "are prepared to employ these tools as appropriate to promote a stronger economic recovery in a context of price stability," he said.

Bernanke gave no indication of just what the central bank could do to stimulate the sluggish economy. Many analysts say that it could at least adjust its purchases of government bonds to push down long-term interest rates rather than focus on short term rates as in the past two years

Bernanke also said that after a first-half pace of less than one percent the economy is poised to pick up speed in the second half, with little danger of inflation.

But he added that growth remains under threat, particularly from spending cuts by government authorities at all levels.

"There is ample room for debate about the appropriate size and role for the government in the longer term, but -- in the absence of adequate demand from the private sector -- a substantial fiscal consolidation in the shorter term could add to the headwinds facing economic growth and hiring."

Bernanke did not repeat his caveat of August 26, when he told a central bank symposium in Jackson Hole, Wyoming that "most of the economic policies that support robust economic growth in the long run are outside the province of the central bank."

But he did stress that government policy to reverse the weakness in the housing sector, and to generate jobs, was crucial for charging up growth.

"While prompt and decisive action to put the federal government's finances on a sustainable trajectory is urgently needed, fiscal policymakers should not, as a consequence, disregard the fragility of the economic recovery."

Bernanke spoke just hours before President Barack Obama is slated to announce a $300 billion job creation effort in a major speech before Congress.

With some 14 million Americans officially unemployed, and millions more having dropped out of the work force, Obama aims to reset the government agenda after a bruising battle with Republicans who have forced sweeping spending cuts on the White House.

© AFP -- Published at Activist Post with license

David Galland: The System Is Coming Unglued

Our video host Stefan Molyneux speaks with Casey Research Managing Director David Galland about the debt situation in the US and whether the federal government can do anything about it… assuming they’d even want to.



[Are you prepared to face the coming debt storm? Learn more about it, including how to protect yourself and your assets, by joining us for a free online event. The American Debt Crisis will be held September 14 at 2 p.m. EDT. Sign up today.]
TRANSCRIPT

David Galland – We’re Living in a Degraded Democracy

Stefan: Hi everybody, it’s Stefan Molyneux, host of Conversations with Casey. I have on the line David Galland. Thank you so much, David, for taking the time to chat today.
David: Nice to be here.
Stefan: So, we are seven-tenths of the way towards fascism in the United States. I wonder if you could expand upon that. I sort of get a sense that that’s probably true, but you have a little bit more than my gut instinct – you actually have some pretty professional opinions to work with on that.
David: Well, all the elements for fascism are in place. We have a monetary system that is accountable to no one and that’s a very good start. If you think about it, the way that the monetary system is structured, the government at this point can literally spend money on anything. They talk about capping the federal deficits and all that, but they’ll get past that in no time at all. Probably by the time the viewers are watching this they will have announced a big deal, you know, that they have raised the debt cap. And you know, once you have – if you pin your money to nothing, if you have a monetary system that is based on nothing, then you can afford anything. You can afford all the wars you want, you can afford all the bureaucracy you want; and so they have. That’s a first step.
I mean, we’ve – just as an example, here in the little town in New England where Casey Research is located, they have a – they’ve just finished building a massive new Homeland Security center. This is a town of roughly 4,000 permanent residents; it’s a tourist town. It’s the kind of place where the worst crime you’ll ever see is somebody stealing skis from a ski slope, and yet we have something like 36 policemen. We’ve got this huge, brand-new Homeland Security center. Why? Well, because after 9/11 and the overreaction of 9/11 the government made this money available because it could make the money available, because there is nothing stopping it from doing that. And there’s all these local police departments, which should have an “Andy of Mayberry” type police force, took the money and they spent it, and now we’ve got a semi-militarized local operation. So this has gone on and this is multiplied right across the country… and the world.
Stefan: And of course, the decisions that people make in expanding the public sector have immediate implications in payroll, but I think what America is really facing are the long term implications of unfunded pensions that just run into the hundreds of billions of dollars. It’s a lot of the stuff that is not really counted in the public calculation of the debt, which is more immediate obligations, but the unfunded liabilities run $75 to $100 trillion according to many estimates. That’s not something that you see, which makes the whole conversation about should we have two trillion here or there ridiculous to anybody in the know.
David: Oh, absolutely. Again, on the point about whether we’re sort of on the way to a fascist state – and I – this isn’t just the US – it’s important that, you know, people understand this is all over the world. At this point, none of these governments is operating on anything that remotely resembles sound principles. They’re operating on a number of different priorities and a number of different interests – self-interests, because politicians after all are just people. So whatever it takes to kick the can down the road, they’re going to do. You mentioned $75 trillion in unfunded liabilities, absolutely. Because at this point, this is essentially sort of a rising tide of bureaucracy over the last hundred years that is cresting at this point. And they have done this because there are no real operating principles other than buying the votes that they need to get re-elected and to stay in office for as long as they can, and then they pass the baton to the next bureaucrat and the system continues. But it’s reaching the point where, I think, within a relatively short period of time it’s got to come to an end.
Stefan: Now you’ve written an article recently which I found very interesting – I just shared it through my Facebook as well – it’s called The Greater Depression. So you have the Great Depression and now we’re looking at the Greater Depression. I wonder if you could talk about the mechanics and the future as you see it as we go into this abyss.
David: Ultimately, what we’re faced with right now and this is, I think, just some fundamental principles – because there are so many aspects of what’s going on in the economy today that it makes it for most people – for virtually all people – it makes it very hard to really understand what’s going on. So sometimes you just have to sort of step back and ask a few questions to try to get some sort of a compass, if you will. And first and foremost the crisis we’re in right now is caused by debt, too much debt. As you mentioned before $75 trillion in government obligations – everybody knows that money is never going to get paid. So we’ve been brought to this point of extreme government borrowing. Who would have thought we’d see $1.5-trillion deficits? I mean, nobody – five, six years ago if you would have asked anybody on this planet if the US government could run a $1.5-trillion deficit they would have said no way. Well, here we are. So all of the conditions of what this – you can call it a debt-induced depression, all of the conditions that sort of brought us to this place have not improved since the beginning of this crisis; they’ve only gotten worse.
So what’s the ultimate outcome of this? Well, what’s the one thing that a heavily indebted person or an entity like the government can’t handle? And it’s rising interest rates. You can’t afford for the bank to bump your payments up to, you know, 20% because you’ve missed a payment. Well, the same thing’s true of the government and we are now – we are still – the US interest rates are still bouncing around, you know, all-time lows. It’s completely – it’s a complete aberration. And it can’t last. So why things are going to get worse is because interest rates have to go up. Even if they return to sort of a more normal five to six percent range, from a historical standpoint it would be devastating to the US economy. So the government is doing everything it can to try to get out of this trouble but there really is no way. They have very limited impact on long-term interest rates and if it wasn’t for the fact that Europe was such a basket case and that Japan was such a basket case right now, interest rates in the US would already be taking off but I don’t think we’re going to have to wait long for that and then things are going to get interesting.
Stefan: Let’s take a tour as you have done in a recent article around the world in eighty seconds, or so, because I think you have correctly identified that – I mean obviously North America is a basket case economically; South America has always had its problems economically; Europe is facing catastrophic debt situations; China is in pretty artificial command of the economy, Japan has had a twenty year recession/depression and now it is facing all of the problems that have come out of the nuclear power plant meltdowns. It really seems like it’s a perfect storm in a way, that there are not a lot of safe havens to go to even for good news, let alone for investor security. What are your thoughts about how all of this stuff is coming together at the same time?
David: Well, it’s scary. I mean, I didn’t coin the phrase “Greater Depression,” that was Doug Casey, my partner; and I think Doug had it exactly right. I think, you know, there has been so much of a, as I’ve said, this sort of rising tide of bad policy and extreme spending and a takeover of the economy – and not just the US economy, but all of the economies by these governments, the nation-states – that things have reached the point, people tend to think that things are going to stay the same and continue as they are, but they don’t. Sooner or later, history shows over and over again, things break, systems break, and I think we are very close to that.
I think it is important for people to understand that in – they look for the politicians to solve the problems, but to solve the current problem in America would require draconian efforts that would immediately cost the politicians their jobs. It would be, for a politician to stand up there as everybody watching this knows, and advocate deep slashes to Social Security or Medicare – and I am not talking about the stuff that they are talking about now, where modest little rearranging of the deck chairs over the next ten or twenty years, but real fundamental changes in the amount of government services being provided because all of these government services have grown and grown and grown over years now – and so to start cutting them back, every one of these government services has a constituency, people that depend upon it. You know, you start looking for cuts, and you say, okay, we have got to cut school lunches. You know, government didn’t used to give away school lunches. Well, now everybody is up in arms because you can’t cut the lunches of people because then they will have malnutrition and so on and so forth. Every single government bureaucracy has got a constituency. But the reality is that you can’t keep kicking the can down the road indefinitely.
Or put it another way: There is never a good time to fix this kind of a problem. So politicians will always make the choice to not actually address the problem, but rather to leave it to the next person’s watch. This isn’t – this would be a horrible time, absolutely a horrible time to fix the problems that face the American economy. Slashing the deficit, slashing the debt, slashing the government spending at this point would have catastrophic consequences to the average person. There would be riots in the street; but if you don’t fix it now, when do you fix it? Okay, well, do you fix it in the next year? No. Do you fix it the year after? The government will do whatever it can to keep pushing this down the road, but they can’t push it down the road much further.
Stefan: Well, it’s because fundamentally – and there are lots of reasons why politicians will not tell the truth to the population as a whole and say, “Look, we are not slashing spending if we go back five years in our deficits. You know, America and the world was not a rubble-strewn anarchic wasteland in 1995, and if all we do is cut spending back to that we will have made massive progress,” and people aren’t willing to just tell the truth and say, “Look, you people have become lazy and entitled and you have lost track of reality, we have lost track of reality, we have encouraged you to lose track of reality, so we really need to make decisions before reality makes those decisions for us in a much more brutal way,” but it seems hard to imagine anyone could get elected without sort of chanting, “USA Number One,” and actually telling the truth to the population, so it is almost like the market of the delusional population is driving politics in a way.
David: Oh, completely, because again – and this is nothing new, the people watching this know this – you know, you can point the finger at the politicians, but the people behind the politicians, the fact that, I think, Congress’s approval rating now is something like six percent, I mean it’s ridiculous, but come next election, most of those guys, most of the incumbents will be re-elected. And anybody who is elected to replace anybody who gets voted out will be just as bad as the people that they are replacing.
So you know, you have got a system, you’ve got a situation here where we live in a degrading democracy, you have to just face that fact. It is degrading, people have been trained – just like they were in the Soviet Union leading up to that collapse – they were trained to look to the state for virtually everything, and once you have stopped relying on yourself, once you start relying on the nation-state to take care of all the things that you think it needs to take care of, or that you would like it to take care of, you know, the whole thing comes crumbling down and we have absolutely reached that point. If you look at it – and again, very few people, I would say it’s sort of the fringe, if you will – people like yourself, Doug and the editors at Casey Research, and you know, the people that might be considered, you know, outside the mainstream, will talk about things like the $75 trillion of federal obligations, and – but it’s there, it’s a reality, it’s a fact, yet the mainstream media pretends that it’s not there and they do their calculations about the government covering its costs and debts and all that stuff based upon, you know, really falsified information. I mean, so if you can’t even acknowledge the scale of the problem – you can’t acknowledge the actual reality of the problem – how can you begin to come up with a solution? You can’t. And fortunately for the US, we had a great economy, and it’s still better than most. We’ve managed to get to this point although it goes far down the path of corruption, if you will, as we have, but the monetary system, at this point, is absolutely coming unglued, and I don’t think we are going to have to wait much longer. I mean, I think we might have a year before this thing really starts to break down, but I don’t think we have got much more than that.

Bernanke Speech - Complete Text & Highlights

Here are the headlines courtesy of Bloomberg:
  • BERNANKE: POLICY MAKERS SHOULDN'T DISREGARD ECONOMY'S FRAGILITY
  • BERNANKE SAYS FED HAS `A RANGE OF TOOLS' FOR MORE STIMULUS
  • BERNANKE SAYS SUBSTANTIAL FISCAL TIGHTENING COULD HURT RECOVERY
  • BERNANKE SAYS FED PREPARED TO USE TOOLS `AS APPROPRIATE'
  • BERNANKE SAYS INFLATION `EXPECTED TO MODERATE' IN COMING Q'S
  • BERNANKE SAYS FED SEES `GREATER DOWNSIDE RISKS' TO OUTLOOK
  • BERNANKE: POLICY MAKERS SHOULDN'T DISREGARD ECONOMY'S FRAGILITY
  • BERNANKE: U.S. FINANCES COULD `SPIRAL OUT OF CONTROL'
  • Read excerpted highlights of the speech from Marketwatch
---

Chairman Ben S. Bernanke

At the Economic Club of Minnesota Luncheon, Minneapolis, Minnesota

September 8, 2011

The U.S. Economic Outlook

Good afternoon. I am delighted to be in the Twin Cities and would like to thank the Economic Club of Minnesota for inviting me to kick off its 2011-2012 speaker series. Today I will provide a brief overview of the U.S. economic outlook and conclude with a few thoughts on monetary policy and on the longer-term prospects for our economy.
The Outlook for U.S. Economic Growth
In discussing the prospects for the economy and for policy in the near term, it bears recalling briefly how we got here. The financial crisis that gripped global markets in 2008 and 2009 was more severe than any since the Great Depression. Economic policymakers around the world saw the mounting risks of a global financial meltdown in the fall of 2008 and understood the extraordinarily dire economic consequences that such an event could have. Governments and central banks consequently worked forcefully and in close coordination to avert the looming collapse. The actions to stabilize the financial system were accompanied, both in the United States and abroad, by substantial monetary and fiscal stimulus. Despite these strong and concerted efforts, severe damage to the global economy could not be avoided. The freezing of credit, the sharp drops in asset prices, dysfunction in financial markets, and the resulting blows to confidence sent global production and trade into free fall in late 2008 and early 2009.
It has been almost exactly three years since the beginning of the most intense phase of the financial crisis, in the late summer and fall of 2008, and a bit more than two years since the official beginning of the economic recovery, in June 2009, as determined by the National Bureau of Economic Research's Business Cycle Dating Committee. Where do we stand? There have been some positive developments over the past few years. In the financial sphere, our banking system and financial markets are significantly stronger and more stable. Credit availability has improved for many borrowers, though it remains tight in categories--such as small business lending--in which the balance sheets and income prospects of potential borrowers remain impaired. Importantly, given the sources of the crisis, structural reform is moving forward in the financial sector, with ambitious domestic and international efforts under way to enhance financial regulation and supervision, especially for the largest and systemically most important financial institutions.
Nevertheless, it is clear that the recovery from the crisis has been much less robust than we had hoped. From recent comprehensive revisions of government economic data, we have learned that the recession was even deeper and the recovery weaker than we had previously thought; indeed, aggregate output in the United States still has not returned to the level that it had attained before the crisis. Importantly, economic growth over the past two years has, for the most part, been at rates insufficient to achieve sustained reductions in the unemployment rate, which has recently been fluctuating a bit above 9 percent.
The pattern of sluggish economic growth was particularly evident in the first half of this year, with real gross domestic product (GDP) estimated to have increased at an annual rate of less than 1 percent, on average, in the first and second quarters. Some of this weakness can be attributed to temporary factors, including the strains put on consumer and business budgets by the run-ups earlier this year in the prices of oil and other commodities and the effects of the disaster in Japan on global supply chains and production. Accordingly, with commodity prices coming off their highs and manufacturers' problems with supply chains well along toward resolution, growth in the second half looks likely to pick up. However, the incoming data suggest that other, more persistent factors also have been holding back the recovery. Consequently, as noted in its statement following the August meeting, the Federal Open Market Committee (FOMC) now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the June meeting, with greater downside risks to the economic outlook.
One striking aspect of the recovery is the unusual weakness in household spending. After contracting very sharply during the recession, consumer spending expanded moderately through 2010, only to decelerate in the first half of 2011. The temporary factors I mentioned earlier--the rise in commodity prices, which has hurt households' purchasing power, and the disruption in manufacturing following the Japanese disaster, which reduced auto availability and hence sales--are partial explanations for this deceleration. But households are struggling with other important headwinds as well, including the persistently high level of unemployment, slow gains in wages for those who remain employed, falling house prices, and debt burdens that remain high for many, notwithstanding that households, in the aggregate, have been saving more and borrowing less. Even taking into account the many financial pressures they face, households seem exceptionally cautious. Indeed, readings on consumer confidence have fallen substantially in recent months as people have become more pessimistic about both economic conditions and their own financial prospects.
Continue reading at the Fed...

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http://revolutionarypolitics.tv/video/viewVideo.php?video_id=16164

China Confirms Gold Price Suppression – Part 1

In a piece of news that certainly delights GATA, Wikileaks published a cable going back to 2009 in the year that European central banks halted their sales of gold.   It said the following:

“The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries toward reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the Renminbi [Yuan]."

Chinese Gold Accumulation
In the five years from 2003 to 2008 china added 454 tonnes of gold to their reserves. They amassed these reserves in a government agency which handed over the extra tonnage to the People’s Bank of China in 2008. We believe that they continue this policy of using a non-central bank agency to gather gold for their reserves. If they do stick to this policy they should make their next announcement in 2013. The volumes of gold added up to 2008 could be seen as adding 91 tonnes a year since 2003 or, more likely, adding the growing domestic gold production directly to their stockpile. If that is the case then we expect an additional amount of at least 2,000 tonnes to be passed from the gold buying agency to the People’s bank of China.

With the government licensing so many international banks to import gold to China, Chinese citizens are buying directly from these banks and therefore the international market. The accumulation of gold reserves in China is therefore a total of the two sources. So don’t be surprised if China is holding [citizens plus central bank] around 5,000 tonnes or more by 2013. This is still a small amount compared to their dollar reserves. But central banks don’t look at gold in quite the same way as mere mortals.

Gold Price Suppression

The Chinese belief that the U.S. and Europe have always suppressed the rising price of gold cannot be refuted reasonably. The gold sales by the U.S. and then in the seventies the gold sales by the I.M.F. were direct attempts to squash the gold price in the pretence that gold would be sold out of the system.  

In 1978 the Second Amendment of the IMF Articles was intended to delete gold from the international monetary system. The amendment followed the failure of previous attempts to establish a new international monetary system. In particular these included the failure of European countries to force the United States to either settle its deficit in gold, or else devalue the dollar against gold. This Second Amendment of the Articles barred members from fixing their exchange rates to gold and removed the obligation on members to conduct transactions in gold at the official gold price.

Not only did the United States refuse to keep gold in the system, it then led a crusade against gold (while being careful to keep a very large strategic stock of gold in its own reserve, sealed off from the outside world).  Symbolizing the plan to drive gold out of the system, the IMF was instructed [the U.S. held the deciding vote in the I.M.F.] to dispose of 50 million ounces of its gold stock of 153 million ounces. It achieved this partly by sales to the market and partly by giving some gold to members in relation to their quotas.


Ironically, this exercise had the effect of spreading gold much more widely through the international community than ever before, and gave many countries a new interest in the gold market. Few countries showed any inclination to sell the gold handed to them, and in the vast majority of cases it continues to sit on their books. The later sales of gold were snapped up so fast that the U.S. realized that they would really have to sell all their gold, if they were to succeed, but they themselves valued gold so much they halted those sales.  

Accelerated Sales

From the mid-eighties central banks took a different ‘tack’ on their anti-gold campaign. Just as there is not greater patriot than, “he who commits you to his cause”, the anti-gold campaign then allowed mining companies such as Barrick, to borrow central banks gold then sell it forward for around five years at a time when gold prices were falling. The mining companies then financed their own production, getting the gold price up-front plus the interest accruing for the five years [the Contango] and delivering their subsequent production back to the central banks. This caused an acceleration on the amount of gold produced by mining and swamped the gold market so much that the price of gold fell from $850 an ounce in the eighties to $275 by the end of the nineties. 

1999 the First Break in the Anti-Gold Campaign

The first fracture in the developed world’s anti-gold campaign came when the Governing Council of the European Central Bank decided that the national central banks participating in the euro area should include gold in the initial transfer of foreign reserve assets to the European Central Bank. The transfer was to take place on the first day of 1999, the launch date of the euro as a single currency. This action confirmed the importance of gold as a reserve asset. The Governing Council decided the initial transfer of foreign reserves would be to the maximum allowed amount of €50 billion. This figure was adjusted downwards by deducting the shares of those E.U. central banks which would not participate in the euro area at the outset i.e. to a total of approximately €39.46 billion. The E.C.B. agreed that 15% of this initial transfer should be in gold. Gold clearly enhanced public confidence a point made in the 2009 Chinese cable [above]. Despite the gold sales under the gold sale agreements, gold’s share of the ECB’s total reserves has grown considerably since then due to the sharp increase in the gold price. As at September 2010 the E.C.B. had 26% of its reserves in gold.

When the “Washington Agreement” was instituted in the year 1999 it attended the launch of the Euro as Europe’s currency. The “Washington Agreement” plus the subsequent European Central Bank Agreements were to sell ‘up to’ a ceiling level of 400 or 500 tonnes of gold and was intended to establish the euro as a major currency, without competing with gold. Like the U.S. sales of gold, there was no intention to get rid of gold as an important reserve asset, hence the strictly limited sales and the retention of the bulk of gold reserves in the different national foreign exchange and gold reserves. In it, they stated that gold would remain an important element of global monetary reserves, and agreed to limit their collective sales to 2,000 tonnes over the following five years, or around 400 tonnes a year. They also announced that their lending and use of derivatives would not increase over the same five-year period. (The signatory banks later stated that the total amount of their gold they had out on lease in September 1999 was 2,119.32 tonnes.)

The signatory banks accounted for around 45% of global gold reserves. In addition a number of other major holders - including the USA, Japan, Australia, the IMF and the BIS, either informally associated themselves with the Agreements or announced at other times that they would not sell gold. Including these, the proportion of gold reserves covered by the Agreement or a similar announcement rises to around 85%.

The announcement of the Agreement came as a major surprise to the market. It prompted a sharp spike in the gold price over the following days, but it also removed much of the uncertainty surrounding the intentions of the official sector. Once the markets had adapted to it, a major element of instability had been effectively removed with the introduction of greater transparency.

The Chinese are absolutely correct in believing that the U.S. and Europe have suppressed the price of gold! The evidence is glaring at us through history.



Part 2


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This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.  Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina only and are subject to change without notice. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.

Janet Tavakoli: Fraud As A Banking Business Model

Guest post submitted by Janet Tavakoli.
There were many factors that contributed to our recent financial bubble: deregulation, cheap money from the Fed, failure to enforce remaining regulations, crony capitalism, hubris, speculation, leverage, and fraud among other problems. While fraud wasn't the only issue, it was and is a significant contributor to the credit bubble. Restraining fraud is a necessary but not sufficient condition for a sound financial system. Congressional investigations in recent years have put ample evidence of fraud in the public domain.

To illustrate just one type of malicious mischief, Senator Carl Levin (D. Mich.), Chairman of a senate investigative panel, issued a memo stating that Goldman "magnified the impact of toxic mortgages." The Wall Street Journal reviewed data showing that a $38 million subprime-mortgage bond created in June 2006 was referenced in more than 30 debt pool causing around$280 million in losses to investors by 2008. In other words, Goldman kept repackaging, reselling or protecting (buying credit default protection on) losers. It took the wrong kind of nerve for Goldman's CEO to say he was doing "God's work."
Arianna Huffington pointed out that the financial system is rigged and that offenders get off lightly:
Until the Securities and Exchange Commission sued Goldman Sachs for fraud in April of 2010, it was easy to forget that we have a regulatory agency designed to protect the public from the pillaging of corporate America. Six months earlier, the SEC has arranged a settlement with JPMorgan that showed how rigged the system is. The banking giant agreed to pay a $25 million penalty and cancel $647 million in fees owed by Alabama's Jefferson County as the result of a complicated derivatives deal that blew up in the county's face. As part of the settlement, JPMorgan neither admitted nor denied wrongdoing--despite overwhelming evidence that it had engaged in plenty of wrongdoing.
On Friday, September 2, 2011, The U.S. Federal Housing Finance Agency (FHFA), the regulator for taxpayer-subsidized mortgage lending guarantors Fannie Mae and Freddie Mac, filed lawsuits against 17 of the world's largest banks over suspect mortgage loans which helped exacerbate the U.S. housing crisis. Both Fannie Mae and Freddie Mac were placed in conservatorship in September 2008 after they nearly collapsed. The FHFA claims banks misrepresented the value of the mortgage loans and mortgage securities they underwrote, arranged, and sold.
So far the banks being sued include Bank of America Corp along with its Countrywide Financial Corporation and Merrill Lynch & Company divisions, Goldman Sachs Group Inc., JP Morgan & Chase & Co, Citigroup Inc., Deutsche Bank AG, Barclays PLC, Nomura Holdings Inc., Morgan Stanley, Ally Financial Inc., Credit Suisse Group Inc., First Horizon National Corp, General Electric Co, the HSBC North America Holdings unit of HSBC Holdings, The Royal Bank of Scotland Group PLC and Société Générale SA. The FHFA is just getting started.
Critics of Fannie Mae, Freddie Mac, and their previous regulator, OFHEO, say that they were sophisticated investors, and they should have known better. William K. Black is a former bank regulator who played a role in hundreds of successful prosecutions after the Savings and Loan Crisis. He told the Wall Street Journal: "It's a great myth that you can't defraud sophisticated financial parties." Particularly when loans are fraudulent and material information was not disclosed.
The Financial Crisis Inquiry Commission published evidence from the testimony of officials of Clayton Holdings(among others), a due diligence firm, that underwriters and rating agenciesignored evidence of suspect loans and did not disclose this information to investors.
The FHFA's complaint involves tens of billions of dollars in potential recoveries that will benefit taxpayers. Yet, as Arianna Huffington points out, banks continue to find ways to get Americans to subsidize problems that the banks themselves were chiefly responsible for creating. Consumers struggle to keep up with payments as the unemployment rate rises along with prices for food, energy and healthcare. Meanwhile, job creation hovers near zero.
When consumers fail to keep up, banks, trying to offset losses in other areas, turn around, hike interest rates, and impose all manner of fees and penalties--all of which makes it less likely consumers will be able to pay off mounting debts.
Money is being put in taxpayers' pockets in the form of "recoveries" while being extracted again in the form of subsidies and cheap funding to shaky banks that continue to award record pay and record bonuses as they gouge consumers. We can expect more of the same if we continue to let banks off with a slap on the wrist for malfeasance--along with a taxpayer subsidized fine--while banks neither admit nor deny wrongdoing.
Banks won't change until we follow the law and take "prompt corrective action." Banks that committed widespread fraud should be placed in receivership. Bank of America was cited by William Black and Randall Wray in their October 2010 post as the place to start, and I agree.
On December 8, 2010, I presented an analysis to the Federal Housing Finance Agency (FHFA) in Washington D.C. of key causes of our current financial crisis: "Repairing the Damage of Fraud as a Business Model." The phrase "fraud as a business model" comes from a comment referenced in the presentation made by Richard Cordray, then the Attorney General of Ohio and the current Director of the Consumer Financial Protection Bureau, when he discussed foreclosure fraud.
Repairing the Damage of “Fraud as a Business Model”

Originally appeared at the Huffington Post

Cohan & Taibbi: Shut Down The SEC And Start Over


SEC Chief Mary Schapiro demonstrates the size of the problem with her agency.
William Cohan and Matt Taibbi are proposing that we scrap the SEC and create a new enforcement agency with new rules, an idea that is long overdue given the overwhelming failure of the financial watchdog to police Wall Street and watch anything other than porn.
Just yesterday the Washington Post reported that despite warnings from Congress, the SEC is STILL shredding documents related to criminal investigations, leaving no paper trail for future discovery.
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Read Cohan's proposal at Bloomberg...
Taibbi's reaction with additional detail...
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Cohan Excerpt
The SEC has long had a too-cozy relationship with Wall Street. Witness Robert Khuzami, the SEC’s director of enforcement, who used to be the general counsel for the Americas at Deutsche Bank in New York, a firm that issued one fatally flawed mortgage-backed security and collateralized-debt obligation after another during the early part of the last decade. (A Senate subcommittee report on the financial crisis devotes 45 pages to Deutsche Bank’s squirrelly securities business and the role it played in fomenting the meltdown.)

Targeting Goldman

Is it any surprise that Khuzami set his sights on Goldman Sachs, rather than on his old company, in trying to create some accountability for the mortgage mess? Deutsche Bank was a bigger player in the mortgage-securitization and CDO markets than Goldman Sachs was, yet it was Goldman that the SEC ended up going after in April 2010 when the agency filed -- to great fanfare -- a politically useful civil suit related to a synthetic CDO that Goldman created and sold in April 2007. (Deutsche Bank did many similar deals.) Goldman Sachs settled the accusations in July 2010 for $550 million, more to make the bad publicity go away than because it did anything different from any other Wall Street firm.
There’s no evidence of impropriety on Khuzami’s part, but it should hardly give investors confidence that someone with such an obvious conflict of interest could bring a suit against a competitor of his old employer. (Schapiro, meanwhile, was previously head of the Financial Industry Regulatory Authority, and was paid almost $9 million when she left to join the SEC.) It goes both ways: For years, top SEC officials have been turning in their regulatory credentials for compensation bonanzas at the very companies they were once charged with overseeing.
A new SEC would pay its top officials much higher salaries (in line with top private-sector attorneys) but not allow any of them to have previously worked on Wall Street or to go there for five years after they leave the agency. It would have genuine law-enforcement power, as opposed to the SEC’s civil-suit-only mandate, and be able to indict a firm and its top executives for wrongdoing. In other words, the agency would have the chops to regulate a powerful industry badly in need of it, free of conflicts of interest.
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Taibbi Excerpt
Cohan’s proposal would do an awful lot to clear out two of the agency’s main problems, the revolving door and its impotence to properly (and speedily) combat criminal wrongdoing. As it is, the SEC can only refer criminal cases to the Department of Justice for prosecution, which a) slows down an already slow enforcement process to an absurd degree and b) is one of the reasons that people like ex-SEC enforcement lawyer Jacob Frenkel can claim with a straight face that the SEC is “not a law enforcement agency.”
Frenkel said this yesterday in an on-air discussion with me and Michael Smallberg of the Project on Government Oversight on the Kojo Nnamdi show in Washington, and to me this symbolizes the attitude among some people in the agency. If even people from the Enforcement Division deny they’re in the "enforcement" business, you know the agency has issues.
As it is, ex-SEC officials don’t have to wait even ten minutes to start whoring for the banks after they quit the SEC. Incidentally, Frenkel had an amusing answer when asked about that yesterday on the Nnamdi show by Washington Post reporter Marc Fisher:
Fisher: In the past five years, there have been more than 400 cases of SEC enforcement employees going right to work for outside companies that had business before the SEC. Jacob Frenkel, is there a problem with that?
Frenkel: Well, federal regulations permit it. 
If “federal regulations permit it” is the best justification for allowing instant-lobbying by former SEC officials, that’s a pretty clear signal that it’s time for the policy to change.
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The Swiss Franc Abdicates the Crown - Gold and Silver are King!

On Tuesday, Switzerland abdicated the crown as the safe haven currency and pegged itself to the Euro - 1.2 Swiss Francs to the Euro. This left a void. Who would step in as the safe haven currency? Everyone thought it would be gold and silver. Last night as we slept the Central Bank sold of about a billion dollars in gold to force the price of gold down. This caused the dollar to rise and sent money running to the stock market. This is blatant manipulation of the precious metals market because the Central Bank does not want the middle class having any safe harbor. They want them tied to the fiat paper currencies. In the end it won't work because China will stabilize the PM market but it worked yesterday as the Dow rose 275 and the S&P rose 33.38 points.

Before I begin my essay let me begin with a rousing cheer of “Long Live the King.” The Japanese don't want it, the U.S. doesn't want it, and now the Swiss don't want it either. Gold on the other hand is happy to take the reins.

On Tuesday, Switzerland's National Bank sent shock waves through the market sending a clear and deliberate message to the world that it doesn't want to be the de facto safe haven currency.

For months and months, traders have been running to the Swiss franc amid the worldwide turmoil. With the Swiss stepping down as the world's safe haven currency, gold is now the de facto safe haven currency.

Lest there be any confusion there is now one king – gold. So I say “Long Live the King.”

There has always been a strong correlation between the price of gold and the price of silver.  There has also always been a concept that silver, like gold was currency. Indeed, when I was a child growing up silver was currency. I never knew until I went to college that silver had a strong base in industrial usage and industrial use was responsible for a large demand for the supply of silver. Be that as it may, any negative news regarding the industrial use of silver has always been eclipsed by its role as a precious metal.

           As gold prices rise, whether in the paper market or the physical market, silver surely benefits. This is because silver offers a greater exposure to the rising demand for a safe haven asset and does so at a cheaper price. Sadly, it has had to wear the thorny crown of being called “poor man’s gold.” I feel while this is a catchy phrase that allows gold to wear the crown of the king it, like most clichés, is untrue. Silver is the perfect currency for bartering. I can’t imagine using a gold double eagle as a medium of barter unless I was trading for a house.

           Silver does have a high degree of volatility due to the health of the industrial sector. There a minute traces of silver in almost every electronic device that is made. Computers, IPads, IPods’, are a few examples of devices that use silver and when they are worn out or broken they end up in the landfill. At this time it is too labor intensive to make recycling the silver profitable but the day will come when that is not so.

           Investing in silver brings many risks but in spite of these risks many investors still find silver a profitable investment.  Indeed many investors say the return on investment (ROI) can far surpass gold exponentially as movements in the price over the last tear has shown. Over the next few years I expect gold to continue to rise in price and continue to reach new highs. I also expect silver to continue to outperform gold on a percentage basis. As gold has enjoyed a parabolic run in the last several months, when I look at the ratio of gold to silver I expect silver to continue to outperform gold and expect silver to be priced at about $80.00 by the middle of next year. Silver is the perfect alternative to gold.

           According to the World Silver Survey 2011 world investment in silver rose 40% in 2010 to a new record of 279.3 million ounces. What I found fascinating was that the major demand came from the silver backed ETFs SLV, PSLV, SIVR, SIL, DBS and AGQ.. Physical markets also contributed to the demand.

           Strong demand from Asian Markets was a large factor in the growth of import levels reaching record highs. I believe that it is purely human as silver’s allure is especially attractive to the growing middle class of China and India as silver is seen as a cheaper alternative to the safe haven of gold.

In conclusion, demand for silver in China grew by 67% between 2008 and 2010, according to the Hong Kong Mercantile Exchange, which recently began trading silver future contracts due to the amazing growth in the demand for silver. Growth in China and India in the physical markets alone is expected to grow another 30% this year. Physical bar and coin hoarding will continue to gain popularity amongst the Chinese investors as they prefer physical rather than future contracts. Silver demand from India is also expected to do well as the healthy monsoon seasons are increasing the purchasing power of rural Indian farmers who account for 60% 0f India’s total silver demand.
By George Maniere
http://investingadvicebygeorge.blogspot.com/
In 2004, after retiring from a very successful building career, I became determined to learn all I could about the stock market. In 2009, I knew the market was seriously oversold and committed a serious amount of capital to the market. Needless to say things went quite nicely but I always remebered 2 important things. Hubris equals failure and the market can remain illogical longer than you can remain solvent. Please post all comments and questions. Please feel free to email me at maniereg@gmail.com. I will respond.
© 2011 Copyright George Maniere - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2011 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

More than 100K told to evacuate in Pa.

HERSHEY, Pa. - More than 100,000 residents were ordered to flee the rising Susquehanna River on Thursday as the remnants of Tropical Storm Lee dumped more rain across the Northeast, socking areas still recovering from Hurricane Irene and closing major highways at the morning rush.

The Susquehanna is projected to crest in northeastern Pennsylvania between 4 p.m. and 8 p.m. Thursday at 41 feet — the same height as the levee system protecting riverfront communities including Wilkes-Barre and Kingston, officials said. Residents were ordered to leave by 4 p.m.

"There is no need to panic," Wilkes-Barre Mayor Tom Leighton said. "This is a precautionary evacuation and the safety of our residents is our biggest concern. We have prepared for this type of emergency and we are ready to respond to whatever comes our way over the next 72 hours."

In Binghamton, N.Y., about 80 miles upstream from Wilkes-Barre, the Susquehanna broke a flood record Thursday morning and overflowed its retaining walls downtown.

Emergency responders were scrambling to evacuate holdouts who didn't heed earlier warnings to leave city neighborhoods threatened by record flooding. Evacuation orders began being issued Wednesday to some 20,000 people in the city and neighboring communities along the Susquehanna.
Broome County emergency services manager Brett Chellis told The Associated Press that water started coming over the walls about 10 a.m., less than 12 hours after officials issued a mandatory evacuation order for sections of the city near where the Susquehanna and Chenango rivers converge.

"It's getting worse by the minute," Chellis said.

The National Weather Service said the river level is over 25 feet, above the 25-foot record set in 2006 and more than 11 feet above flood stage. It's expected to rise another foot or so.

more
http://www.startribune.com/nation/129449778.html

FAKED 15-YO KUWAITI GIRL TESTIMONY BEFORE CONGRESS, 1990

Was War the Only Answer to 9/11?

This is the 10th anniversary of the horrendous atrocities of Sept. 11, 2001, which, it is commonly held, changed the world.
9/11 - US WarThe impact of the attacks is not in doubt. Just keeping to western and central Asia: Afghanistan is barely surviving, Iraq has been devastated and Pakistan is edging closer to a disaster that could be catastrophic.
On May 1, 2011, the presumed mastermind of the crime, Osama bin Laden, was assassinated in Pakistan. The most immediate significant consequences have also occurred in Pakistan. There has been much discussion of Washington’s anger that Pakistan didn’t turn over bin Laden. Less has been said about the fury among Pakistanis that the U.S. invaded their territory to carry out a political assassination. Anti-American fervor had already intensified in Pakistan, and these events have stoked it further.
One of the leading specialists on Pakistan, British military historian Anatol Lieven, wrote in The National Interest in February that the war in Afghanistan is “destabilizing and radicalizing Pakistan, risking a geopolitical catastrophe for the United States – and the world – which would dwarf anything that could possibly occur in Afghanistan.”
At every level of society, Lieven writes, Pakistanis overwhelmingly sympathize with the Afghan Taliban, not because they like them but because “the Taliban are seen as a legitimate force of resistance against an alien occupation of the country,” much as the Afghan mujahedeen were perceived when they resisted the Russian occupation in the 1980s.
These feelings are shared by Pakistan’s military leaders, who bitterly resent U.S. pressures to sacrifice themselves in Washington’s war against the Taliban. Further bitterness comes from the terror attacks (drone warfare) by the U.S. within Pakistan, the frequency of which was sharply accelerated by President Obama; and from U.S. demands that the Pakistani army carry Washington’s war into tribal areas of Pakistan that had been pretty much left on their own, even under British rule.
The military is the stable institution in Pakistan, holding the country together. U.S. actions might “provoke a mutiny of parts of the military,” Lieven writes, in which case “the Pakistani state would collapse very quickly indeed, with all the disasters that this would entail.”
The potential disasters are drastically heightened by Pakistan’s huge, rapidly growing nuclear weapons arsenal, and by the country’s substantial jihadi movement.
Both of these are legacies of the Reagan administration. Reagan officials pretended they did not know that Zia ul-Haq, the most vicious of Pakistan’s military dictators and a Washington favorite, was developing nuclear weapons and carrying out a program of radical Islamization of Pakistan with Saudi funding.
The catastrophe lurking in the background is that these two legacies might combine, with fissile materials leaking into the hands of jihadis. Thus we might see nuclear weapons, most likely “dirty bombs,” exploding in London and New York.
Lieven summarizes: “U.S. and British soldiers are in effect dying in Afghanistan in order to make the world more dangerous for American and British peoples.”
Surely Washington understands that U.S. operations in what has been christened “Afpak” – Afghanistan-Pakistan – might destabilize and radicalize Pakistan.
The most significant WikiLeaks documents to have been released so far are the cables from U.S. Ambassador Anne Patterson in Islamabad, who supports U.S. actions in Afpak but warns that they “risk destabilizing the Pakistani state, alienating both the civilian government and military leadership, and provoking a broader governance crisis in Pakistan â(euro) .125.”
Patterson writes of the possibility that “someone working in (Pakistani government) facilities could gradually smuggle enough fissile material out to eventually make a weapon,” a danger enhanced by “the vulnerability of weapons in transit.”
A number of analysts have observed that bin Laden won some major successes in his war against the United States.
As Eric S. Margolis writes in The American Conservative in May, “(bin Laden) repeatedly asserted that the only way to drive the U.S. from the Muslim world and defeat its satraps was by drawing Americans into a series of small but expensive wars that would ultimately bankrupt them.”
That Washington seemed bent on fulfilling bin Laden’s wishes was evident immediately after the 9/11 attacks.
In his 2004 book “Imperial Hubris,” Michael Scheuer, a senior CIA analyst who had tracked Osama bin Laden since 1996, explains: “Bin Laden has been precise in telling America the reasons he is waging war on us. (He) is out to drastically alter U.S. and Western policies toward the Islamic world,” and largely achieved his goal.

He continues: “U.S. forces and policies are completing the radicalization of the Islamic world, something Osama bin Laden has been trying to do with substantial but incomplete success since the early 1990s. As a result, I think it is fair to conclude that the United States of America remains bin Laden’s only indispensable ally.” And arguably remains so, even after his death.
The succession of horrors across the past decade leads to the question: Was there an alternative to the West’s response to the 9/11 attacks?
The jihadi movement, much of it highly critical of bin Laden, could have been split and undermined after 9/11, if the “crime against humanity,” as the attacks were rightly called, had been approached as a crime, with an international operation to apprehend the suspects. That was recognized at the time, but no such idea was even considered in the rush to war. It is worth adding that bin Laden was condemned in much of the Arab world for his part in the attacks.
By the time of his death, bin Laden had long been a fading presence, and in the previous months was eclipsed by the Arab Spring. His significance in the Arab world is captured by the headline in a New York Times article by Middle East specialist Gilles Kepel: “Bin Laden Was Dead Already.”
That headline might have been dated far earlier, had the U.S. not mobilized the jihadi movement with retaliatory attacks on Afghanistan and Iraq.
Within the jihadi movement, bin Laden was doubtless a venerated symbol but apparently didn’t play much more of a role for al-Qaida, this “network of networks,” as analysts call it, which undertake mostly independent operations.
Even the most obvious and elementary facts about the decade lead to bleak reflections when we consider 9/11 and its consequences, and what they portend for the future.
* Noam Chomsky is an American linguist, philosopher, cognitive scientist, and activist. He is an Institute Professor and pressor emeritus of linguistics at the Massachusetts Institute of Techonology. Chomsky is well known in the academic and scientific communities as one of the fathers of modern linguistics, and a major figure of analytic philosophy. Chomsky is the author of more than 150 books and has received worldwide attention for his views.

An Example Of How The Alternative Media Is Destroying The Main Stream Media

"How Many Trillions Have We Spent Fighting Trumped-Up Wars?"

http://revolutionarypolitics.tv/video/viewVideo.php?video_id=16163