Looting the Pension Funds

All across America, Wall Street is grabbing money meant for public workers

Illustration by Victor Juhasz

By Matt Taibbi

In the final months of 2011, almost two years before the city of Detroit would shock America by declaring bankruptcy in the face of what it claimed were insurmountable pension costs, the state of Rhode Island took bold action to avert what it called its own looming pension crisis. Led by its newly elected treasurer, Gina Raimondo – an ostentatiously ambitious 42-year-old Rhodes scholar and former venture capitalist – the state declared war on public pensions, ramming through an ingenious new law slashing benefits of state employees with a speed and ferocity seldom before seen by any local government.
Detroit's Debt Crisis: Everything Must Go
Called the Rhode Island Retirement Security Act of 2011, her plan would later be hailed as the most comprehensive pension reform ever implemented. The rap was so convincing at first that the overwhelmed local burghers of her little petri-dish state didn't even know how to react. "She's Yale, Harvard, Oxford – she worked on Wall Street," says Paul Doughty, the current president of the Providence firefighters union. "Nobody wanted to be the first to raise his hand and admit he didn't know what the fuck she was talking about."
Soon she was being talked about as a probable candidate for Rhode Island's 2014 gubernatorial race. By 2013, Raimondo had raised more than $2 million, a staggering sum for a still-undeclared candidate in a thimble-size state. Donors from Wall Street firms like Goldman Sachs, Bain Capital and JPMorgan Chase showered her with money, with more than $247,000 coming from New York contributors alone. A shadowy organization called EngageRI, a public-advocacy group of the 501(c)4 type whose donors were shielded from public scrutiny by the infamous Citizens United decision, spent $740,000 promoting Raimondo's ideas. Within Rhode Island, there began to be whispers that Raimondo had her sights on the presidency. Even former Obama right hand and Chicago mayor Rahm Emanuel pointed to Rhode Island as an example to be followed in curing pension woes.
What few people knew at the time was that Raimondo's "tool kit" wasn't just meant for local consumption. The dynamic young Rhodes scholar was allowing her state to be used as a test case for the rest of the country, at the behest of powerful out-of-state financiers with dreams of pushing pension reform down the throats of taxpayers and public workers from coast to coast. One of her key supporters was billionaire former Enron executive John Arnold – a dickishly ubiquitous young right-wing kingmaker with clear designs on becoming the next generation's Koch brothers, and who for years had been funding a nationwide campaign to slash benefits for public workers.
Nor did anyone know that part of Raimondo's strategy for saving money involved handing more than $1 billion – 14 percent of the state fund – to hedge funds, including a trio of well-known New York-based funds: Dan Loeb's Third Point Capital was given $66 million, Ken Garschina's Mason Capital got $64 million and $70 million went to Paul Singer's Elliott Management. The funds now stood collectively to be paid tens of millions in fees every single year by the already overburdened taxpayers of her ostensibly flat-broke state. Felicitously, Loeb, Garschina and Singer serve on the board of the Manhattan Institute, a prominent conservative think tank with a history of supporting benefit-slashing reforms. The institute named Raimondo its 2011 "Urban Innovator" of the year.
The state's workers, in other words, were being forced to subsidize their own political disenfranchisement, coughing up at least $200 million to members of a group that had supported anti-labor laws. Later, when Edward Siedle, a former SEC lawyer, asked Raimondo in a column for Forbes.com how much the state was paying in fees to these hedge funds, she first claimed she didn't know. Raimondo later told the Providence Journal she was contractually obliged to defer to hedge funds on the release of "proprietary" information, which immediately prompted a letter in protest from a series of freaked-out interest groups. Under pressure, the state later released some fee information, but the information was originally kept hidden, even from the workers themselves. "When I asked, I was basically hammered," says Marcia Reback, a former sixth-grade schoolteacher and retired Providence Teachers Union president who serves as the lone union rep on Rhode Island's nine-member State Investment Commission. "I couldn't get any information about the actual costs."
This is the third act in an improbable triple-fucking of ordinary people that Wall Street is seeking to pull off as a shocker epilogue to the crisis era. Five years ago this fall, an epidemic of fraud and thievery in the financial-services industry triggered the collapse of our economy. The resultant loss of tax revenue plunged states everywhere into spiraling fiscal crises, and local governments suffered huge losses in their retirement portfolios – remember, these public pension funds were some of the most frequently targeted suckers upon whom Wall Street dumped its fraud-riddled mortgage-backed securities in the pre-crash years.
Today, the same Wall Street crowd that caused the crash is not merely rolling in money again but aggressively counterattacking on the public-relations front. The battle increasingly centers around public funds like state and municipal pensions. This war isn't just about money. Crucially, in ways invisible to most Americans, it's also about blame. In state after state, politicians are following the Rhode Island playbook, using scare tactics and lavishly funded PR campaigns to cast teachers, firefighters and cops – not bankers – as the budget-devouring boogeymen responsible for the mounting fiscal problems of America's states and cities.
Secrets and Lies of the Bailout
Not only did these middle-class workers already lose huge chunks of retirement money to huckster financiers in the crash, and not only are they now being asked to take the long-term hit for those years of greed and speculative excess, but in many cases they're also being forced to sit by and watch helplessly as Gordon Gekko wanna-be's like Loeb or scorched-earth takeover artists like Bain Capital are put in charge of their retirement savings.

• 
  
• 1
• 
  
• 2
• 
  
• 3
• 
  
• 4
• 
  
• 5
• Next ››

Audit: Army paid $16M to deserters, AWOL soldiers

(AP) — Even as the Army faces shrinking budgets, an audit shows it paid out $16 million in paychecks over a 2 ½-year period to soldiers designated as AWOL or as deserters, the second time since 2006 the military has been dinged for the error.
A memo issued by Human Resources Command at Fort Knox, Ky., found that the Army lacked sufficient controls to enforce policies and procedures for reporting deserters and absentee soldiers to cut off their pay and benefits immediately. The oversight was blamed primarily on a failure by commanders to fill out paperwork in a timely manner.
The payments from 2010 to 2012 represent only a fraction of the Army's nearly $44 billion projected payroll for 2013
http://news.yahoo.com/audit-army-paid-16m-deserters-awol-soldiers-150621055.html
Check out the member blogs, videos, and discussions http://12160.info/

Governments stealing from bank accounts

 Don't Buy Silver Or Gold

Until You Read This Free Report And Learn The Secrets Of The Pros

 

WASHINGTON – The questionable practice of “bail-ins” begun by Cyprus a year ago to keep banks solvent is beginning to spread to other nations, and holders of large deposits are starting to see their balances plunge literally overnight.

A “bail-in,” as opposed to a bailout that countries especially in Europe have been seeking from the International Monetary Fund and the European Union, is a recognition that such outside monetary injections won’t be forthcoming.

Consequently, banks have been seeking money from another source – their large depositors. The funds are simply taken and applied to a bank’s recapitalization in lieu of government bailouts.

The practice essentially is a transfer from a personal savings account to the bank’s operating account, without the customers’ permission or even any notice.

The example set in Cyprus when the island nation confronted its financial crisis now is spreading to such other countries as Italy, Poland, New Zealand and now Canada.

Get “I Want Your Money” and find out what may be coming to your neighborhood.

Financial experts agree that the practice soon could spread to the United States.

The “bail-in” a year ago in Cyprus developed after the island nation was refused further outside financing from the IMF and the European Central Bank of the EU, of which the Mediterranean island is a member.

Cyprus never was looked upon as a place to spend money. Instead, it was seen more as a place to safely hide large deposits of cash for private individuals and companies not only in Europe and Russia but for major shareholders and top executives from all over the world.

Hiding huge sums of cash was made easy in Cyprus with such mechanisms as outright bank deposits, shell companies and holding companies, with massive transfers taking place between them.

“Cyprus was a leader – in some circles and for some applications, the leader – in quiet storage, management and structuring of exceptionally large sums for private individuals and corporations all over the world,” financial expert Franklin Raff wrote in a March 2013 WND article.

“Cypriots were fast learners in the fields of global asset protection and ‘tax optimization,’” Raff said. “Cyprus’ 2004 entrance into the E.U. gave financial operations a deeper veneer of legitimacy and security.

“All of this meant almost a decade of rapidly expanding business,” he said. “This was surely from Europeans and Russians wary of unpredictable tax laws and indiscriminate, extralegal confiscations, but also from entities in North America and elsewhere.”

Because a long line of EU banks had been bailed out at major public expense during the 2008-2009 financial crisis, the EU decided to turn down two of Cyprus’ major banks, Laiki and the Bank of Cyprus, for similar help.

In an effort to save the Cypriot economy from collapse, the government passed a law that took some 4.3 billion euros in deposits belonging to some 14,000 depositors just in the Laiki bank alone, leaving each depositor with no more than 100,000 euros, the limit on deposit insurance under EU regulations.

Ultimately, Laiki bank folded, with depositors’ diminished assets transferred to the Bank of Cyprus.

In an effort to recapitalize the Bank of Cyprus, Cypriot officials imposed a 47.5 percent loss on deposits exceeding the 100,000 euro limit, exchanging the seized deposits for shares in the bank.

Depositors in Cyprus lost an estimated total of 10.6 billion euros.

In viewing the recapitalization experience in Cyprus, financial experts say “bail-ins” are increasingly becoming accepted practice around the world due to the lack of any outside bailouts.

In jeopardy will be all private bank accounts and private pension funds.

Financial sources say that the government of Poland just “raided” private pension funds in an effort to reduce the size of the government debt.

According to a Reuters report, the Polish government will transfer to the state many of the assets held by private pension funds, slashing public debt but putting in doubt the future of the multi-billion-euro funds, much of which is foreign-owned.

“The Polish government is doing the best that it can to make this sound like some sort of complicated legal maneuver, but the truth is that what they have done is stolen private assets without giving any compensation in return,” said financial expert Michael Snyder writing for the Financial Collapse blog.

Now, finance ministers in the EU are undertaking a similar approach.

They have approved a plan to force bondholders and shareholders to finance future bank failures before going to taxpayers for bailouts.

This will apply to bondholders and shareholders with deposits over 100,000 euros. Those with less than 100,000 euros of insured deposits will be protected.

“What this means is that if you have over 100,000 euros in a bank account in Europe, you could lose every single bit of the unprotected amount if your bank collapses,” Snyder said.

Italy also is organizing a form of its own “bail-in” for the country’s oldest bank as it has halted any further interest payments and doesn’t intend to make up for the missed payments if and when they resume.

While deposits will remain untouched for now, financial experts believe it will only be a matter of time before its depositors experience a Cypriot-type “bail-in.”

In Canada, the government has actually written a “bail-in” provision into its new government budget proposal in its “Economic Action Plan 2013.”

“This new budget actually proposes to implement a ‘bail-in’ regime for systemically important banks’ in Canada,” Snyder said.

Snyder believes that governments throughout the world will be eyeing depositors’ money as part of the solution to halt future failures of major banks.

“As a result, there is no longer any truly ‘safe’ place to put your money,” Snyder said.

“One of the best ways to protect yourself is to spread your money around,” he said. “In other words, don’t put all of your eggs in one basket. If you have your money in a bunch of different places, it is going to be much harder for the government to grab it all.

“But if you don’t listen to the warnings and you continue to keep all of your wealth in one giant pile somewhere, don’t be surprised when you get wiped out in a single moment someday,” he added.

That certainly was the experience of the Andrew Georgiou family in Cyprus earlier this year. Literally overnight, his life’s savings of 750,000 euros, except for 100,000 euros which were covered by deposit insurance, were wiped out. Georgiou subsequently had a heart attack, though he survived.

He, like hundreds of other depositors in Cyprus, has gone to court against the central bank and the Cypriot government, but the outcome is far from certain.

 

Until You Read This Free Report And Learn The Secrets Of The Pros

A “bail-in,” as opposed to a bailout that countries especially in Europe have been seeking from the International Monetary Fund and the European Union, is a recognition that such outside monetary injections won’t be forthcoming.

Read more at http://www.wnd.com/2013/09/governments-coming-to-steal-savings-accounts/#ZPeBHMwsLeZ6Zwhz.99

Feds Botch New $100 Bills (Again), Taxpayers Left With the Tab

Due to a printing error committed by its Washington, D.C., facility, the Federal Reserve’s rollout of the new $100 bill has hit yet another serious snag, David Wolman writes for The New Yorker, citing a document from the Bureau of Engraving and Printing.

The Federal Reserve has for the past few years been meaning to introduce a sleeker, sharper and more technologically advanced $100 bill. In fact, the new bill was supposed to be released in 2011. However, the scheduled release was pushed back because of a printing error that left blank spots on the bill.

And now there’s another problem involving a thing called “mashing,” according to bureau spokeswoman Darlene Anderson.

The new $100 bill. (Image source: U.S. Treasury)

Wolman explains: “When too much ink is applied to the paper, the lines of the artwork aren’t as crisp as they should be, like when a kid tries to carefully color inside the lines—using watercolors and a fat paintbrush.”

“Mashing,” according to Anderson, is “infrequent.”

Still, the latest printing error has left stacks of the redesigned bills “clearly unacceptable” – and they are mixed with passable ones, said bureau director Larry Felix in a July memo, adding that the Fed will return more than 30 million hundred-dollar notes and demand its money back.

This means that another 30 billion dollars’ worth of paper “sits in limbo awaiting examination,” writes Wolman.

Due to the lack of quality control, Fed officials announced they will not accept any $100 notes from the Washington, D.C., facility until further notice. This means it falls on the printing facility in Fort Worth, Texas, to help the Fed meet its Oct. 8 deadline for putting the new bills into circulation and delivering its cash orders.

And the Fed doesn’t really have a choice.

“There are dire consequences involved here because BEP sells Federal Reserve notes to the Board to finance our entire operation,” Felix’s memo reads. “If the BEP does not meet the order, the BEP does not get paid.”

Though it’s difficult to put a dollar amount on the cost of the printing error (the Fed has little interest in figuring this out), it will most likely be taken out on U.S. taxpayers.

“Taxpayers will have to pay to inspect, correct, produce, transport, and secure all the additional money that will replace the botched notes. Disposing of the bad bills? That’s on taxpayers, too, as are the additional hours spent making up for the mistake by employees of the bureau,” Wolman writes.

And let’s not forget the psychological toll the printing SNAFUs could take. Faith in U.S. currency is everything. If people lose faith in the ability of the Fed to produce trustworthy and reliable bills, those bill may lose their value.

“The situation is akin to a magician getting caught unloading a crate of bunnies from the back of his truck,” Wolman explains.

“It threatens to injure the aura—the almightiness—of the dollar that enables most people to go about their business without ever stopping to examine the bills in their hand or to contemplate what gives them value.”

–

Federal Contractors Employ More Low-Wage Workers Than Walmart and McDonald’s Combined, While Paying Top Execs. $24 Billion

Crowd: We can’t survive on eight twenty-five!
Jessica Desvarieux, Capitol Hill Correspondent: Eight twenty-five is currently the minimum wage for federally contracted employees in D.C. Workers like 54-year-old Melissa Roseboro are making around that, and she says it’s simply not enough to live on.
Melissa works part-time as a cook for McDonald’s at the Smithsonian’s National Air and Space Museum in Washington. And the conditions have gotten so bad that she says she can’t even pay her bills.
Melissa Roseboro, Low-Wage Worker: You know, a lot of people out here, we are struggling day to day [incompr.] homeless. I even have to go try to [incompr.] just to make ends meet.
Desvarieux: Workers are calling for help from President Obama, demanding the president sign an executive order mandating government contractors to pay a higher wage, similar to how President Johnson signed an executive order in 1965 mandating government contractors not discriminate against prospective employees based on race.

Fast forward almost 50 years and the fight for fair pay continues.
Crowd: We can’t survive on eight twenty-five!
Desvarieux: Many are barely surviving, and taxpayers are the ones subsidizing this low-wage economy, according to a study by public policy organization Demos. Data shows that hundreds of billions of public funds go to private companies that pay low wages. There are more than half a million low-wage private sector jobs funded by federal contracts. Demos found that government contracts support almost two million low-wage jobs. That’s more than McDonald’s and Walmart combined.
But not all federal contract employees fit into this category. Executive pay can be as high as $760,000 a year. And a new report from Demos shows that nearly $24 billion a year goes to paying salaries of federal contractor executives.
Now a group of senators and congressmen have called on President Obama to step in and sign an executive order to raise the minimum wage to a living wage. Of those calling for higher pay was independent senator Bernie Sanders from Vermont.
Bernie Sanders, U.S. Senator (I-Vt): Most of the new jobs being created in this country today are part-time jobs. They are low-wage jobs. And we have got to get a handle not only on unemployment, not only on income and wealth inequality; we have got to get a handle on raising wages throughout this country so that workers do not depend upon starvation wages.
The Real News also spoke with Democratic Congressman Keith Ellison and asked why there hasn’t be more progress on the bill for a higher minimum wage or the executive order, considering the proposal was sent in July.
Keith Ellison, U.S. Representative (D-Mn): But we haven’t seen the president put pen to paper and sign the executive order, even working on the people who work for federal contractors. And we believe it’s time to do that. We’ve got 49 members of the House who agree that the president needs to sign an executive order. And we believe that he should do it and he should do it now.
Now, somebody asked: well, why hasn’t he done it? You know, I specifically asked him that question directly. He told me it was under advisement. I hope that he’s working on it. And, of course, the naysayers might say, well, it has budgetary implications; with the sequester maybe it might be tough. And there might be reasons, but I’m telling you that this is a fight worth having.
Desvarieux: President Obama has said in the past that no American should work full-time and live in poverty. And today protestors are making sure that he’s keeping his word. Several of them were invited into the White House to speak to officials about their day-to-day struggles.
Roseboro: When you go to tell your story, then, you know, they are really amazed. But I do know this much, that they know that it’s a lot of us out here. You know. And I don’t know why I actually say they are amazed, because we’re–it’s a lot of us out here. You know, it’s not our first time doing this, even though we’re doing this the first time at the White House.
Desvarieux: Melissa and several other low-wage workers fighting with the group Good Jobs Nation wrapped up their meeting with officials from the White House. While there, they presented letters and a petition with 250,000 signatures calling for a higher pay.
Melissa says she remains hopeful that the change that she voted for by electing President Obama will one day come.
For The Real News Network, Jessica Desvarieux, Washington.
Copyright: Truth Out

White House To Announce $300M In Aid Friday To Make Detroit Safer, Erase Blight

White House To Announce $300M In Aid Friday To Make Detroit Safer, Erase Blight

By Todd Spangler
Detroit Free Press Washington Staff

WASHINGTON — Nearly $300 million in aid for Detroit — from federal and state coffers, private businesses and charitable foundations — will be announced Friday as Obama administration officials visit the city to discuss what can be done to help eradicate blight, improve transportation, encourage new business and make residents safer.

The funding will include $150 million in blight eradication and community redevelopment, including $65 million in Community Development Block Grant funding — which had already been awarded over two years but could not be accessed by the city. An additional $25 million could help hire as many as 150 firefighters in the city.
Read more: http://www.freep.com/article/20130926/NEWS01/309260199/
Check out the member blogs, videos, and discussions http://12160.info/

Peace is Not Profitable

Mr. President, Mr. Secretary General, fellow delegates, ladies and gentlemen: Each year we come together to reaffirm the founding vision of this institution. For most of recorded history, individual aspirations were subject to the whims of tyrants and empires. For recent recorded history, individual aspirations will be subject to the whims of US tyrants and Empire.
The leaders who built the United Nations were not naïve. They understood that humanity could not survive the course it was on. So, we, the exceptionally exceptional United States stepped up to resolve conflicts, our way, to enforce rules of behavior, our way, and build habits of cooperation, our way.
For decades, the UN has made a difference, albeit, in small areas—eradicating disease, educating children. Admirable. But there’s that larger loom-er—the protection of American interests.
For much of my presidency, I have worked to enrich further the already filthy wealthy. Now, five years after the global economic collapse, the uber-rich are being lifted to greater heights of prosperity. More effort must be made to assure that they, the 2%, continue to thrive.
The UN has worked to end a decade of war. All our troops have left Iraq. An international coalition soon will end its mission to dismantle al Qaeda. Remember though that there are those who wish to harm us—9/11, 9/11, 9/11. Never forget the shoe bomber, the underwear bomber, Boston, and 9/11.

As we shift our war footing, mercenaries will replace troops. And, yes, mercenaries are expensive. We pay them handsomely to be unaccountable.
Further, we are limiting the use of drones to target only those posing an imminent threat. Each week on what I call casual Tuesday, we have a killer party during which I list America’s most wanted. Moreover, we are transferring detainees to other countries whose justice systems are not unlike ours, although their cages may be a little smaller. And here’s additional good news: We hope to close Guantanamo Bay, as soon as the last detainee commits suicide. And, yes, we have begun to review the way we gather intelligence, so as to balance security and privacy. Your secrets are safe with me.
As a result of this work among our partners throughout the world, partners that defer to our exceptionalism, the planet is more stable. Still, dangers remain. With each massacre, we learn. We now know that guns should be available at the entrances to malls. Both the NRA and General Dynamics have endorsed this.
Convulsions in the Middle East and North Africa have laid bare deep divisions within societies. Peaceful movements have been answered by violence. And when there is violence the path to peace may be a military strike, sometimes so small it is recognizable only to the people it devastates. In Syria, for example, we can avert more suffering. If we fail to take action, someone may determine who’s responsible for the use of chemical weapons. Children died. Children were writhing in pain. And then they died. Let me be clear.
Children died agonizing deaths. I call a drone strike and some unfortunate child is collateralized, POOF. Only a smudge is left to tidy. But sarin gas. Oh, I am weeping now. I can barely swallow.
The ban on the use of chemical weapons in war has been agreed to by 98 percent of humanity. And what about that remainder—the other 2 percent? Well, I spoke of them earlier. They are the fittest—those whose calculations were rewarded with huge bonuses. We are grateful to them. They, Congress, and I determine who is responsible enough to use chemical weapons.
I do not believe that America or any nation should influence who will lead Syria – that is for the Syrian people to decide. Nevertheless, a leader who slaughtered his citizens and gassed children to death cannot regain the legitimacy to lead a badly fractured country. I am pleased to provide at least three or four names of capable Assad replacements so that the people of Syria have a choice.
And I am prepared to wield my power to secure American interests in the region. Even though we are reducing our dependence on imported oil, we reserve our right, deserving we are for being exceptional.
Further, we will not tolerate the development or use of weapons of mass destruction—by anyone. Except the USA. USA! USA! USA!
I want to be clear on Iran. President Rouhani’s conciliatory words must be matched by transparency. Rouhani received a mandate to pursue a moderate course. Just as I attained the highest office for promising hope and change.
Let me be clear on Israel. The United States will never compromise on our commitment to Israel’s security. The state of Israel is here to stay.
Israel. Israel. Israel. Israeli children. Israeli children have the right to live without having rockets fired at their homes. And Palestinians have a right to not be displaced, much.
America must remain engaged in everyone else’s business. The world is better for it. America is exceptional. Because we are willing to stand up for our interests through the sacrifice of blood and treasure, the blood of our young and tax dollars on behalf of those who will thrive into the 21st century. And we stand ready to commit mass atrocities to safeguard this.
We live in a world of imperfect choices. Certainly, some would prefer I choose peace. But peace is not profitable.
These are extraordinary times, with extraordinary opportunities for opportunism. That is why we look to the future, not with fear, but, instead, salivating.
Thank you, very much.
Missy Beattie has written for National Public Radio and Nashville Life Magazine. She was an instructor of memoirs writing at Johns Hopkins’ Osher Lifelong Learning Institute in Baltimore. Email: missybeat@gmail.com.
Copyright: Counterpunch

Our Middle Class, Dollar & Economy Is Being Destroyed! We Have To Stop it! – Ron Paul

China SELLING U.S. BONDS – Jason Burack

A.M. Kitco Metals Roundup: Gold Pops Following Fresh "Fed Speak"

(Kitco News) - Comex gold futures prices are solidly higher in early U.S. trading Friday, and saw a pop up just before U.S. futures trading opened. More comments coming from a U.S. Federal Reserve official were deemed as near-term bullish by gold traders. Short covering, bargain-hunting and some safe-haven buying are featured in gold. Buy stop orders were also triggered in Friday morning’s price spurt. December Comex gold was last up $16.20 at $1,340.30 an ounce. Spot gold was last quoted up $17.30 at $1341.70. December Comex silver last traded up $0.294 at $22.065 an ounce.
Gold prices were trading near unchanged levels and then spurted solidly higher following wire reports that Chicago Federal Reserve president Charles Evans said the U.S. central bank may not begin to scale back its monthly bond-buying program until 2014 because the U.S. economic environment still needs to improve.  The U.S. dollar index also slumped to its session low in the wake of Evans’ remarks. However, his comments, overall, were ambiguous. Still, the gold market bulls chose to jump on those specific Evans remarks they deemed to be bullish.
In other overnight news, consumer confidence in the European Union rose to its highest level in more than two years during August. The EU’s economic sentiment indicator rose to 96.9 in September versus 95.3 in August. However, European stock markets were weaker due to concerns about the Italian government’s stability amid a fraud scandal involving former prime minister Berlusconi. Asian stock markets were firmer in uneventful action Friday, following Wall Street’s advance Thursday.
The main focus of the market place is now on the U.S. budget and debt ceiling impasses that threaten to shut down the U.S. government as soon as next Tuesday. Congress needs to pass a budget by that time and is working on bills. Presently, it’s highly uncertain if the Congress can come to agreement by October 1.  Also, in mid-October the U.S. will hit its borrowing limit. These matters are presently an underlying bearish factor for most markets and could become a major bearish factor in the next couple weeks.
Some analysts are saying gold is presently seeing selling interest limited due to some safe-haven demand ahead of the U.S. budget and spending deadlines and the uncertainty of the matter. But other analysts are saying recent selling pressure in gold is because it’s acting like a raw commodity ahead of the U.S. budget deadlines. It’s likely one of these scenarios will more clearly come to the forefront by early next week.
Reports overnight said gold imports to India are set to increase significantly as a main festival season approaches and because the Indian government is now allowing heretofore delayed gold shipments into the country. The delay was because the government was not allowing gold imports into the country because of confusing import rules that have now been cleared up.
U.S. economic data due for release Friday includes personal income and outlays, and the University of Michigan consumer sentiment survey. A couple more Federal Reserve officials are scheduled to speak Friday, and their comments will be closely watched by the market place.
The London A.M. gold fix is $1,321.50 versus the previous P.M. fixing of $1,333.00.
Technically, December gold futures bears still have the overall near-term technical advantage. Prices are in a four-week-old downtrend on the daily bar chart. The gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at last week’s high of $1,375.40. Bears' next near-term downside breakout price objective is closing prices below solid technical support at last week’s low of $1,291.50. First resistance is seen at the overnight high of $1,345.20 and then at $1,350.00. First support is seen at $1,330.00 and then at the overnight low of $1,320.00.  
December silver futures bears still have the overall near-term technical advantage. A four-week-old downtrend is in place on the daily bar chart. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at last week’s high of $23.445 an ounce. The next downside price breakout objective for the bears is closing prices below solid technical support at last week’s low of $21.225. First resistance is seen at this week’s high of $22.13 and then at $22.50. Next support is seen at the overnight low of $21.41 and then at this week’s low of $21.30.
Follow me on Twitter to immediately get the very latest market developments. If you are not on board, then you are not getting key analysis and perspective as fast or as often as you could! Follow me on Twitter to get my very timely intra-day and after-hours briefs on precious metals price action. The precious markets will remain very active. If you want market analysis fast, and in after-hours trading, then follow my up-to-the-second precious metals market perspective on Twitter. It's free, too. My account is @jimwyckoff. By Jim Wyckoff, contributing to Kitco News; jwyckoff@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

Gold Analysts Bullish Due To Money Creation On Scale Never Seen In History

by GoldCore

Today’s AM fix was USD 1,321.50, EUR 978.45 and GBP 822.03 per ounce.

Yesterday’s AM fix was USD 1,332.50, EUR 987.92 and GBP 830.22 per ounce

Gold slid $9.40 or 0.7% yesterday, closing at $1,323.70/oz. Silver fell $0.06 or 0.28%, closing at $21.70. Platinum dropped $21.70 or 1.5% to $1,404.50/oz, while palladium slipped $1.75 or 0.2% to $718.75/oz.

After initial gains, gold sold off soon after U.S. markets opened, falling from $1,336.40/oz to $1,322.53/oz in concentrated selling over a few minutes. Gold traded sideways in Asia prior to eking out marginal gains in early European trading prior to giving up those initial gains.

U.S. Total Debt Versus Gold (1970-2013)

While data has been mixed lately, some important data points have been negative including purchases of second hand homes which fell for the third straight month in August.

The misguided speculation regarding Fed tapering has begun again.  A Bloomberg survey of 41 economists last week showed 24 expect the Fed will pare ‘stimulus’ in December. None of these same economists predicted that the Fed would not taper last week and their views on tapering should be taken with a pinch of salt.

As we have long contended, QE is set to continue for the foreseeable future as a discontinuation of QE would lead to market declines or worse and a serious recession or depression.

It remains prudent to ignore the noise from the Fed and the constant speculation from many analysts and economists – most of whom have a dismal track record in predicting events before or since the global financial and economic crisis.

Gold in USD, 5 Days – (Bloomberg)

Gold analysts are bullish for a second week due to the view that ultra loose monetary policies and budget talks risk a U.S. government shutdown which will spur demand for gold bullion as a haven.

According to Bloomberg as featured in The Washington Post:Seventeen analysts surveyed by Bloomberg expect prices to rise next week, seven are bearish and three neutral. Gold, which fell into a bear market in April, rose 7.3% since the start of July, poised for the first quarterly advance in a year.

Bullion is still heading for its first annual drop in 13 years after some investors lost faith in the metal as a store of value. The Federal Reserve unexpectedly left its bond-purchase program unchanged last week, saying that restrictive fiscal policies pose risks for the economy. President Barack Obama and congressional Republicans are debating the federal budget in a confrontation that risks a government shutdown within days.

“The outlook is positive due to the twin risks of continued ultra-loose monetary policies as seen in the lack of tapering and also due to forthcoming risks regarding the U.S. debt ceiling. They may resolve the debt ceiling, but how they resolve it is most likely to kick the can down the road. People may buy gold as a safe haven.”

Gold prices languished from 1980 to 2000 and had declining correlations with debt levels because GDP growth was sufficient to mute concerns about budget and deficit issues. Debt levels in GDP terms actually fell in the 1990’s. Also the 1990’s was an era of great economic and geopolitical optimism with the end of the Cold War, a more stable world and the emergence of China, India and other  emerging markets into the global economy.

This was during the Clinton presidency and prior to the Bush and Obama presidencies which have seen the U.S. spend money like a drunken sailor. That profligacy began soon after September 11th and the U.S. military response to the terrible events of that day.

It continues today despite a very precarious fiscal position. Since September 11th the world is a far more uncertain place and geopolitically the world is now reverting to the instability of the Cold War years.

The punch and judy show that is the U.S. Congress is making creditor nations around the world very nervous and astute investors and savers are diversifying into gold to protect from the real risk of a dollar crisis and global currency crisis.

Gold In USD and All Federal Reserve Banks Total Assets – 1996 to Today (Bloomberg)

The Federal Reserve decision to refrain from a QE taper is very bullish for gold.

‘Tapering’ may be put off indefinitely due to the very fragile state of the massively indebted U.S. economy. This means that interest rates must be kept low for as long as possible, leading to money printing and electronic money creation on a scale never before seen in history.

This will inevitably lead to higher gold prices – the question is when rather than if.

QE1 and QE2, in addition to the start of the current QE3, sent gold to record nominal highs. Misleading guidance from the Fed and misguided speculation regarding tapering and the possible end of QE decreased interest in gold from more speculative buyers, contributing to its weakness in recent months. That will change in the coming weeks and months when there is a realisation that ultra loose monetary policies are set to continue.

Concerns about systemic risk and currency debasement is leading to  continuing robust central bank demand for gold.

The IMF data released Wednesday showed that eight central banks increased their gold reserves in August, some very significantly.

Russia, which has the world’s seventh largest reserves of gold, increased its holdings last month by the biggest amount since December. Russia increased reserves by 12.722 tonnes to 1,015.521 tonnes, according to the IMF’s website. Russia’s gold holdings crossed the 1,000 tonne mark in July.

Turkey raised its gold reserves by the most in five months in August. Turkey added 23.344 tonnes to lift its gold holdings to 487.351 tonnes. Turkey’s increases have been bigger this year as its central bank allowed commercial lenders to hold a portion of their lira reserves in gold.

Turkey has bought gold in 13 of the past 14 months and Russia has added to its reserves for 11 consecutive months.

Ukraine, Azerbaijan and Kazakhstan were the other countries that added to their gold reserves by more than 2 tonnes each last month. Canada, Mexico and Czech Republic were among those that reduced their holdings very marginally.

Other very large buyers of gold, include sovereign wealth funds, some of which are also continuing to diversify into gold. Azernews reports that:The State Oil Fund of the Republic of Azerbaijan (SOFAZ) has said that SOFAZ’s gold reserves will reach 40 tons in 2014. The total amount of gold purchased by SOFAZ will reach 30 tons until the end of 2013, and 20 tons of the volume will be delivered to the country.

“So far, 26 tons of gold have been purchased, most of which has already been delivered to the country,” Movsumov said.

He said the process of a phased purchase of gold over three years is effective, which allows to provide the average cost of purchased gold considering the volatility of prices for this precious metal.

According to the plans, SOFAZ buys gold in batches. The fund began buying gold in the first quarter of 2012. The first batch of gold in the amount of 32,150 troy ounces was delivered to the country on January 11, while the second batch was brought on February 1 and the third one on March 1.

The continuation of ultra loose monetary policies by the U.S. Federal Reserve and the other major central banks will lead to continuing diversification into gold by prudent money internationally. 

This will lead to gold reaching a real (inflation adjusted) high above $2,400/oz in the coming years.

Banking Holiday in Panama Announced!

By Randy Hilarski
This morning the National Bank of Panama announced that it was suspending all services until Tuesday the 1st of October. The National Bank of Panama says that the reason is to upgrade systems. The Banking Holiday in Panama was announced this am.
This system wide shutdown has country wide implications. The National Bank of Panama did not warn the people before making the announcement and shutting down the banks. The people do not have access to ATM’s either. We received word of this from family members first. This weekend is payday for people across Panama.
I am active among the Gold and Silver investing community. We have been discussing at great length about the possibility of bank holidays in countries on the Dollar standard. Could Panama just be the first domino to fall in the banking system? Could this be more than just a system upgrade? Why not tell the people ahead of time to prepare for the closure of the banking system?
What are some reasons for a bank holiday? The National Bank of Panama says it is a system upgrade, I don’t believe it is that simple. Maybe a Dollar revaluation could be coming soon. Maybe it is something more serious like a banking crisis like we had in Indonesia back in 1997 or more recently in Cyprus. I am hoping for the best and preparing for the worst.
What are some things you can do to protect yourself if Panama is just the first signal of a pending banking crisis? First and foremost make sure to have some cash. Second buy the essentials for your family. Be frugal until the storm passes. I know this sounds simplistic, but those who are prepared will be fine.
I feel for the Panama families who live paycheck to paycheck. They were expecting to be paid tomorrow. This is the time that they go grocery shopping, put gas in their cars and pay the bills. This delay will have wide ranging affects on the people of Panama.
Do not be unprepared, you have it within your power to be ready for such a situation!
Latest update. 6pm CST
The Clave (Debit Card) system has been taken offline. No wire transfers between banks and internationally until the 1st of October. Panamanians will be required to go to their local bank branch to take out cash.
http://www.randyhilarski.com/

'Massive fraud' at center of trial against BofA over U.S. mortgages

(Reuters) - Bank of America Corp's Countrywide unit placed profits over quality in a "massive fraud" selling shoddy mortgages to Fannie Mae and Freddie Mac, a U.S. government lawyer said on Tuesday.
The claim came at the start of the first case by the government to go to trial against a major bank over defective mortgage practices leading up to the 2008 financial crisis.
Pierre Armand, a lawyer in the civil division of the U.S. Attorney's Office in Manhattan, said Countrywide made $165 million selling loans that it promised were investment quality to Fannie and Freddie.
"What documents and witnesses will show is that the promise of quality was largely a joke," Armand said.
But Brendan Sullivan, a lawyer for Bank of America, said Countrywide had sought to ensure the loans it made were good and that no fraud occurred.
"No fraud," he said. "Two words. That's the heart and soul and body of the defense. No fraud. And that's what the evidence will show."
Filed in October, the lawsuit blames the bank for losses suffered by Fannie Mae and Freddie Mac on thousands of prime mortgages that later defaulted. Fannie and Freddie, government-sponsored enterprises that underwrite mortgages, were taken over by the government in 2008.
The Justice Department says the loans were pushed out through a Countrywide program called the "High Speed Swim Lane" - also called "HSSL" or "Hustle" - that began in 2007 amid rising mortgage delinquency and default rates and as Fannie and Freddie were tightening underwriting guidelines.
The program was overseen by Rebecca Mairone, a former chief operating officer of Countrywide's Full Spectrum Lending division, who is a co-defendant in the lawsuit and today works at JPMorgan Chase & Co.
The lawsuit is brought under the Financial Institutions Reform, Recovery, and Enforcement Act. The law, passed in the wake of the 1980s savings-and-loan scandals, covers fraud affecting federally insured financial institutions.
The Justice Department estimates Fannie and Freddie has a gross loss of $848.2 million on the Countrywide HSSL loans, though their net loss on loans it says were materially defective was $131.2 million.
The jury of six women and four men includes a musician, an investment bank employee and a retired civil engineer.
During opening statements before U.S. District Judge Jed Rakoff, Armand said that under the HSSL program, Countrywide slashed loan quality checkpoints by removing underwriters from the review process and began paying employees based the volume and speed of the loans they produced.
The result was an increase in bad loans, Armand said. Yet those loans were then sold to Fannie and Freddie, even though Countrywide knew homeowners couldn't pay many of them back.
"Hustle was not about quality," Armand said. "It was about speed. It was about volume. It was about profits."
But Sullivan, a lawyer at Williams & Connolly, said that Countrywide never intended to defraud Fannie or Freddie. He called Countrywide's employees "normal well-intentioned people" who never believed they were in a scheme to defraud anyone.
Fannie and Freddie were enormous mortgage companies who "knew the risks, knew the process," and knew Countrywide, he said. They never complained about loan quality, he said.
Removing underwriters wasn't intended to cause fraud but instead was done because at the time, prime loans were considered less risky than the subprime loans the Full Spectrum Lending division had previously handled, he said.
And while the division began relying on an automated computer underwriting process, Sullivan said Countrywide eventually voluntarily brought underwriters back into the process starting in April 2008 out of concern about quality.
"No one came to the door saying, 'We don't like your product,'" Sullivan said.
A lawyer for Mairone, Marc Mukasey of Bracewell & Giuliani, meanwhile depicted his client as a "decent, hardworking" woman who came into Countrywide in 2007 as the "new girl" and was now being forced to face a "preposterous" lawsuit.
"Rebecca is fighting this case all by herself as the allegations are false," Mukasey said.
The case is U.S. ex rel. O'Donnell v. Bank of America Corp et al, U.S. District Court, Southern District of New York, No. 12-01422.
(Reporting by Nate Raymond; Editing by Lisa Shumaker)

Pending home sales fall 1.6% in August

By Ruth Mantell

WASHINGTON (MarketWatch) -- Sales contracts on homes fell 1.6% in August -- a third month of declines -- led by drops in three of four U.S. regions, according to data released Thursday by the National Association of Realtors. NAR cited higher interest rates and prices, among other factors. "Moving forward, we expect lower levels of existing-home sales, but tight inventory in many markets will continue to push up home prices in the months ahead," said Lawrence Yun, NAR's chief economist. Despite the recent drop, the pending-home sales gauge in August was up 5.8% from the year-earlier period. By region, pending home sales in August fell 3.5% in the South, 1.6% in the West and 1.4% in the Midwest. Meanwhile, pending sales rose 4% in the Northeast. A sale is listed as pending when the contract has been signed. Sales are typically finalized within one or two months of signing.

Read the full story:
Housing gets a break from skyrocketing rates

Forget Recovery: Barclays Is Shutting Down Its Wealth Management Businesses In 130 Countries!! Q3 Earnings Surprises Incoming!!

Q3 2013 Earnings\Financials: The Party is Over

It’s once again earnings season and a great deal of attention will be focused on financials. Over the past three months, the equity market values of most of the largest universal banks have traded off as investors have started to appreciate that the party is ending in terms of new mortgage originations driven by refinance transactions.  As I noted in the last post, the guidance from all of the big banks is decidedly negative for Q3 because of the prospective decline in revenue and transaction volumes in mortgages.

While refinance transactions are falling rapidly, mortgage loan purchases volumes are not growing nearly enough to make up for the drop in overall volumes.  The chart below shows the total loan originations, refinance and purchase volumes for all lenders from the Mortgage Bankers Association through Q1 2013:

…

So when we actually start the Q3 earnings cycle for financials, watch for the word “surprise” in a lot of news reports and analyst opinions.  Nobody seems to want to take notice of the very public guidance coming from some of the largest names in the banking complex because of what it implies for housing.  But just to show you that God has a sense of humor; Bank of America and Citi have actually outperformed their asset peers in the TBTFgroup over the last three months.  Hey, that’s what we need, an index comprised of TBTF banks.  Be a useful surrogate for the credit quality of the United States.

See you at Americatyst 2013 in Austin TX next week.

http://www.zerohedge.com/contributed/2013-09-26/q3-2013-earningsfinancials-party-over

Barclays Is Shutting Down Its Wealth Management Businesses In 130 Countries

(Reuters) – Barclays Plc will stop offering wealth management services in about 130 countries by 2016 and cut jobs in the unit as part of an effort to rein in costs and boost profit.
Read more: http://www.businessinsider.com/barclays-wealth-management-services-closures-2013-9#ixzz2g04MmUbA

Piling On The JCPain: Citi Lowers JCP Target To $7, Questions “Adequate Cash For 2014/15″, Sees $1/Share Floor

… it is the turn of Citi’s Deborah Weinswig which after reviewing its JCPenney cash burn analysis, goes for the jugular with phrases such as “We think adequate cash for 2014/2015 is in question”, “The turnaround is taking longer than we anticipated, and we are concerned  about a softening macro environment combined with deteriorating vendor relationships”,  and of course “We maintain our EPS ests. but are lowering our target price to $7, down from $11 prev., based on an EV/Sales valuation methodology using our 2015 sales estimate.” And it gets worse: “Where’s The Floor? — As a supplement to our EV/Sales valuation methodology, we have conducted a basic liquidation valuation, yielding $324M total value, or $1/share.” Well, as long as there is a “floor”…

http://www.zerohedge.com/news/2013-09-26/piling-jcpain-citi-lowers-jcp-target-7-questions-adequate-cash-201415-sees-1share-fl

Forget Recovery: This Is What Total European Monetary Collapse Looks Like

Presented without commentary (if confused – wink wink Mario Draghi - Ray Dalio will explain).

Source: Goldman, ECB

http://www.zerohedge.com/news/2013-09-26/forget-recovery-what-total-european-monetary-collapse-looks

This is how ICAP manipulated Libor rates.

http://www.ft.com/cms/s/2/abd442f0-2600-11e3-8ef6-00144feab7de.html#axzz2g05CosVV

Bad Government Policy Has Created the Worst Inequality In World History … And It Is Destroying Our Economy

by WashingtonsBlog

 

It’s Not an Accident … It’s Policy

Defenders of the status quo pretend that the unprecedented inequality America is experiencing is something we can’t control … like a force of nature.

In fact, inequality is rising due to bad policy.

Nobel prize winning economist Joe Stiglitz said this month:

Inequality is not inevitable. It is not … like the weather, something that just happens to us. It is not the result of the laws of nature or the laws of economics. Rather, it is something that we create, by our policies, by what we do.

We created this inequality—chose it, really—with [bad] laws …

Why is Inequality Going Through the Roof?

The world’s top economic leaders have said for years that inequality is spiraling out of control and needs to be reduced. Why is inequality soaring even though world economic leaders have talked for years about the urgent need to reduce it?

Because they’re saying one thing but doing something very different. And both mainstream Democrats and mainstream Republicans are using smoke and mirrors to hide what’s really going on. (Indeed, leading economist Steve Keen says that faulty economic models are deployed to distract us from the growing inequality.)

And it’s not surprising … Nobel winner Stiglitz says that inequality is caused by the use of money to shape government policies to benefit those with money. As Wikipedia notes:

A better explainer of growing inequality, according to Stiglitz, is the use of political power generated by wealth by certain groups to shape government policies financially beneficial to them. This process, known to economists as rent-seeking, brings income not from creation of wealth but from “grabbing a larger share of the wealth that would otherwise have been produced without their effort”

Rent seeking is often thought to be the province of societies with weak institutions and weak rule of law, but Stiglitz believes there is no shortage of it in developed societies such as the United States. Examples of rent seeking leading to inequality include

• the obtaining of public resources by “rent-collectors” at below market prices (such asgranting public land to railroads, or selling mineral resources for a nominal price in the US),

• selling services and products to the public at above market prices (medicare drug benefit in the US that prohibits government from negotiating prices of drugs with the drug companies, costing the US government an estimated $50 billion or more per year),

• securing government tolerance of monopoly power (The richest person in the world in 2011, Carlos Slim, controlled Mexico’s newly privatized telecommunication industry).

(Background here, here and here.)

Stiglitz says:

One big part of the reason we have so much inequality is that the top 1 percent want it that way. The most obvious example involves tax policy …. Monopolies and near monopolies have always been a source of economic power—from John D. Rockefeller at the beginning of the last century to Bill Gates at the end. Lax enforcement of anti-trust laws, especially during Republican administrations, has been a godsend to the top 1 percent. Much of today’s inequality is due to manipulation of the financial system, enabled by changes in the rules that have been bought and paid for by the financial industry itself—one of its best investments ever. The government lent money to financial institutions at close to 0 percent interest and provided generous bailouts on favorable terms when all else failed. Regulators turned a blind eye to a lack of transparency and to conflicts of interest.

***

Wealth begets power, which begets more wealth …. Virtually all U.S. senators, and most of the representatives in the House, are members of the top 1 percent when they arrive, are kept in office by money from the top 1 percent, and know that if they serve the top 1 percent well they will be rewarded by the top 1 percent when they leave office. By and large, the key executive-branch policymakers on trade and economic policy also come from the top 1 percent. When pharmaceutical companies receive a trillion-dollar gift—through legislation prohibiting the government, the largest buyer of drugs, from bargaining over price—it should not come as cause for wonder. It should not make jaws drop that a tax bill cannot emerge from Congress unless big tax cuts are put in place for the wealthy. Given the power of the top 1 percent, this is the way you would expect the system to work.

Bloomberg reports:

The financial industry spends hundreds of millions of dollars every election cycle on campaign donations and lobbying, much of which is aimed at maintaining the subsidy [to the banks by the public]. The result is a bloated financial sector and recurring credit gluts.

Indeed, the big banks literally own the Federal Reserve. And they own Washington D.C. politicians, lock stock and barrel. See this, this, this and this.

Two leading IMF officials, the former Vice President of the Dallas Federal Reserve, and the the head of the Federal Reserve Bank of Kansas City, Moody’s chief economist and many others have all said that the United States is controlled by an “oligarchy” or “oligopoly”, and the big banks and giant financial institutions are key players in that oligarchy.

Economics professor Randall Wray writes:

Thieves … took over the whole economy and the political system lock, stock, and barrel.

No wonder the government has saved the big banks at taxpayer expense, chosen the banks over the little guy, and said no to helping Main Street … while continuing to throw trillions at the giant banks.

No wonder crony capitalism has gotten even worse under Obama.

No wonder Obama is prosecuting fewer financial crimes than Bush, or his father or Ronald Reagan.

No wonder:

All of the monetary and economic policy of the last 3 years has helped the wealthiest and penalized everyone else. See this, this and this.

***

Economist Steve Keen says:

“This is the biggest transfer of wealth in history”, as the giant banks have handed their toxic debts from fraudulent activities to the countries and their people.

Stiglitz said in 2009 that Geithner’s toxic asset plan “amounts to robbery of the American people”.

And economist Dean Baker said in 2009 that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”.

Moreover, it is well-documented that quantitative easing increases inequality (and see this and this.) Quantitative easing doesn’t help Main Street or the average American. It only helps big banks, giant corporations, and big investors.

Without the government’s creation of the too big to fail banks (they’ve gotten much bigger under Obama), the Fed’s intervention in interest rates and the markets (most of the quantitative easing has occurred under Obama), and government-created moral hazard emboldening casino-style speculation (there’s now more moral hazard than ever before) … things wouldn’t have gotten nearly as bad.

As I noted in March 2009:

The bailout money is just going to line the pockets of the wealthy, instead of helping to stabilize the economy or even the companies receiving the bailouts:

• Bailout money is being used to subsidize companies run by horrible business men, allowing the bankers to receive fat bonuses, to redecorate their offices, and to buygold toilets and prostitutes

• A lot of the bailout money is going to the failing companies’ shareholders

• Indeed, a leading progressive economist says that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”

• The Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws which rewards mergers in the banking industry (this has caused a lot of companies to bite off more than they can chew, destabilizing the acquiring companies)

As I wrote in 2008:

The game of capitalism only continues as long as everyone has some money to play with. If the government and corporations take everyone’s money, the game ends.The fed and Treasury are not giving more chips to those who need them: the American consumer. Instead, they are giving chips to the 800-pound gorillas at the poker table, such as Wall Street investment banks. Indeed, a good chunk of the money used by surviving mammoth players to buy the failing behemoths actually comes from the Fed.

Subsidies to Giant, Wealthy Corporations

Massive subsidies to big corporations is also part of the problem. Indeed, some financial analysts say that the taxpayer subsidy to the giant banks alone is $780 billion per year.

The average American family pays $6,000/year in subsidies to giant corporations.

Goosing the Stock Market

Moreover, the Fed has more or less admitted that it is putting almost all of its efforts into boosting the stock market.

Robert Reich has noted:

Some cheerleaders say rising stock prices make consumers feel wealthier and therefore readier to spend. But to the extent most Americans have any assets at all their net worth is mostly in their homes, and those homes are still worth less than they were in 2007. The “wealth effect” is relevant mainly to the richest 10 percent of Americans, most of whose net worth is in stocks and bonds.

AP writes:

The recovery has been the weakest and most lopsided of any since the 1930s.After previous recessions, people in all income groups tended to benefit. This time, ordinary Americans are struggling with job insecurity, too much debt and pay raises that haven’t kept up with prices at the grocery store and gas station. The economy’s meager gains are going mostly to the wealthiest.

Workers’ wages and benefits make up 57.5 percent of the economy, an all-time low. Until the mid-2000s, that figure had been remarkably stable — about 64 percent through boom and bust alike.

David Rosenberg points out:

The “labor share of national income has fallen to its lower level in modern history … some recovery it has been – a recovery in which labor’s share of the spoils has declined to unprecedented levels.”

The above-quoted AP article further notes:

Stock market gains go disproportionately to the wealthiest 10 percent of Americans, who own more than 80 percent of outstanding stock, according to an analysis by Edward Wolff, an economist at Bard College.

Indeed, as we reported in 2010:

As of 2007, the bottom 50% of the U.S. population owned only one-half of one percent of all stocks, bonds and mutual funds in the U.S. On the other hand, the top 1% owned owned 50.9%.***

(Of course, the divergence between the wealthiest and the rest has only increased since 2007.)

Professor G. William Domhoff demonstrated that the richest 10% own 98.5% of all financial securities, and that:

The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America.

Tyler Durden notes:

In today’s edition of Bloomberg Brief, the firm’s economist Richard Yamarone looks at one of the more unpleasant consequences of Federal monetary policy: the increasing schism in wealth distribution between the wealthiest percentile and everyone else. … “To the extent that Federal Reserve policy is driving equity prices higher, it is also likely widening the gap between the haves and the have-nots….The disparity between the net worth of those on the top rung of the income ladder and those on lower rungs has been growing. According to the latest data from the Federal Reserve’s Survey of Consumer Finances, the total wealth of the top 10 percent income bracket is larger in 2009 than it was in 1995. Those further down have on average barely made any gains. It is likely that data for 2010 and 2011 will reveal an even higher percentage going to the top earners, given recent increases in stocks.” Alas, this is nothing new, and merely confirms speculation that the Fed is arguably the most efficient wealth redistibution, or rather focusing, mechanism available to the status quo. This is best summarized in the chart below comparing net worth by income distribution for various percentiles among the population, based on the Fed’s own data. In short: the richest 20% have gotten richer in the past 14 years, entirely at the expense of everyone else.

***

Lastly, nowhere is the schism more evident, at least in market terms, than in the performance of retail stocks:

Saks chairman Steve Sadove recently remarked, “I’ve been saying for several years now the single biggest determinant of our business overall, is how’s the stock market doing.” Privately-owned Neiman- Marcus reported “In New York City, business at Bergdorf Goodman continues to be extremely strong.”

In contrast, retail giant Wal-Mart talks of its “busiest hours” coming at midnight when food stamps are activated and consumers proceed through the check-outs lines with baby formula, diapers, and other groceries. Wal-Mart has posted a decline in same-store sales for eight consecutive quarters.

As CNN Money pointed out in 2011, “Wal-Mart’s core shoppers are running out of money much faster than a year ago …” This trend has only gotten worse: The wealthy are doing great … but common folks can no longer afford to shop even at Wal-Mart, Sears, JC Penney or other low-price stores.

Durden also notes:

Another indication of the increasing polarity of US society is the disparity among consumer confidence cohorts by income as shown below, and summarized as follows: “The increase in equity prices has raised consumer spirits, particularly among higher-income consumers. The Conference Board’s Consumer Confidence index for all income levels bottomed in February/March of 2009. The recovery since then has been notable across the board, but nowhere as much as for those making $50,000 or more.”

Business Week notes:

Barry Ritholtz, [CIO of Ritholtz Wealth, and popular financial blogger], says millions of potential investors may conclude, as they did after the Great Depression, that the market is a rigged game for insiders. Such seismic shifts in popular sentiment can have lasting effects. The Dow Jones industrial average didn’t regain its September 1929 peak of 355.95 until 1954. “You’re going to lose a generation of investors,” says Ritholtz. “And that’s how you end up with a 25-year bear market. That’s the risk if people start to think there is no economic justice.”

As Elizabeth Warren correctly notes, Americans know that the system is rigged against them. See this.

Indeed, 70% of Americans know that the government’s economic policies have thrown money at the banks and hosed the people.

In such an environment, the average American has largely gotten out of stocks and other investments.

Over-Financialization

When a country’s finance sector becomes too large finance, inequality rises. As Wikipedia notes:

[Economics professor] Jamie Galbraith argues that countries with larger financial sectors have greater inequality, and the link is not an accident.[66][67]

Government policy has been encouraging the growth of the financial sector for decades:

(Economist Steve Keen has also shown that “a sustainable level of bank profits appears to be about 1% of GDP”, and that higher bank profits leads to a ponzi economy and a depression).

Unemployment and Underemployment

A major source if inequality is unemployment, underemployment and low wages.

Government policy has created these conditions. And the pretend populist Obama – who talks non-stop about the importance of job-creation – actually doesn’t mind such conditions at all.

The“jobless recovery” that the Bush and Obama governments have engineered is a redistribution of wealth from the little guy to the big boys.

The New York Times notes:

Economists at Northeastern University have found that the current economic recovery in the United States has been unusually skewed in favor of corporate profits and against increased wages for workers.

In their newly released study, the Northeastern economists found that since the recovery began in June 2009 following a deep 18-month recession, “corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1 percent” of that growth.

The study, “The ‘Jobless and Wageless Recovery’ From the Great Recession of 2007-2009,” said it was “unprecedented” for American workers to receive such a tiny share of national income growth during a recovery.

***

The share of income growth going to employee compensation was far lower than in the four other economic recoveries that have occurred over the last three decades, the study found.

Obama apologists say Obama has created jobs. But the number of people who have given up and dropped out of the labor force has skyrocketed under Obama (and see this).

And the jobs that have been created have been low-wage jobs.

For example, the New York Times noted in 2011:

The median pay for top executives at 200 big companies last year was $10.8 million. That works out to a 23 percent gain from 2009.

***

Most ordinary Americans aren’t getting raises anywhere close to those of these chief executives. Many aren’t getting raises at all — or even regular paychecks. Unemployment is still stuck at more than 9 percent.

***

“What is of more concern to shareholders is that it looks like C.E.O. pay is recovering faster than company fortunes,” says Paul Hodgson, chief communications officer for GovernanceMetrics International, a ratings and research firm.

According to a report released by GovernanceMetrics in June, the good times for chief executives just keep getting better. Many executives received stock options that were granted in 2008 and 2009, when the stock market was sinking.

Now that the market has recovered from its lows of the financial crisis, many executives are sitting on windfall profits, at least on paper. In addition, cash bonuses for the highest-paid C.E.O.’s are at three times prerecession levels, the report said.

***

The average American worker was taking home $752 a week in late 2010, up a mere 0.5 percent from a year earlier. After inflation, workers were actually making less.

AP pointed out that the average worker is not doing so well:

Unemployment has never been so high — 9.1 percent — this long after any recession since World War II. At the same point after the previous three recessions, unemployment averaged just 6.8 percent.

– The average worker’s hourly wages, after accounting for inflation, were 1.6 percent lower in May than a year earlier. Rising gasoline and food prices have devoured any pay raises for most Americans.

– The jobs that are being created pay less than the ones that vanished in the recession. Higher-paying jobs in the private sector, the ones that pay roughly $19 to $31 an hour, made up 40 percent of the jobs lost from January 2008 to February 2010 but only 27 percent of the jobs created since then.

Alan Greenspan noted:

Large banks, who are doing much better and large corporations, whom you point out and everyone is pointing out, are in excellent shape. The rest of the economy, small business, small banks, and a very significant amount of the labour force, which is in tragic unemployment, long-term unemployment – that is pulling the economy apart.

Money Being Sucked Out of the U.S. Economy … But Big Bucks Are Being Made Abroad

Part of the widening gap is due to the fact that most American companies’ profits are driven by foreign sales and foreign workers. As AP noted in 2010:

Corporate profits are up. Stock prices are up. So why isn’t anyone hiring?

Actually, many American companies are — just maybe not in your town. They’re hiring overseas, where sales are surging and the pipeline of orders is fat.

***

The trend helps explain why unemployment remains high in the United States, edging up to 9.8% last month, even though companies are performing well: All but 4% of the top 500 U.S. corporations reported profits this year, and the stock market is close to its highest point since the 2008 financial meltdown.

But the jobs are going elsewhere. The Economic Policy Institute, a Washington think tank, says American companies have created 1.4 million jobs overseas this year, compared with less than 1 million in the U.S. The additional 1.4 million jobs would have lowered the U.S. unemployment rate to 8.9%, says Robert Scott, the institute’s senior international economist.

“There’s a huge difference between what is good for American companies versus what is good for the American economy,” says Scott.

***

Many of the products being made overseas aren’t coming back to the United States. Demand has grown dramatically this year in emerging markets like India, China and Brazil.

Government policy has accelerated the growing inequality. It has encouraged American companies to move their facilities, resources and paychecks abroad. And some of the biggest companies in America have a negative tax rate … that is, not only do they pay no taxes, but they actually get tax refunds.

And a large percentage of the bailouts went to foreign banks (and see this). And so did a huge portion of the money from quantitative easing. More here and here.

Capital Gains and Dividends

According to a study published last month by a researcher at the U.S. Congressional Research Service:

The largest contributor to increasing income inequality…was changes in income from capital gains and dividends.

Business Insider explains:

Drastic income inequality growth in the United States is largely derived from changes in the way the U.S. government taxes income from capital gains and dividends, according to a new study by Thomas Hungerford of the non-partisan Congressional Research Service.

Essentially, what Democrats have been saying about income inequality — that it’s in a large part due to favorable taxation and deduction policies for high income Americans — is largely right

***

The study … conclusively found that the wealthy benefitted from low tax rates on investment income, which in turn caused their wealth to grow faster.

Essentially, taxing capital gains as ordinary income would make the playing field more fair, and reduce over time income inequality.

Joseph Stiglitz noted in 2011:

Lowering tax rates on capital gains, which is how the rich receive a large portion of their income, has given the wealthiest Americans close to a free ride.

Indeed, the Tax Policy center reports that the top 1% took home 71% of all capital gains in 2012.

Ronald Reagan’s budget director, assistant secretary of treasury, and domestic policy director all say that the Bush tax cuts were a huge mistake. See this and this.