Wednesday, April 21, 2010

U.S. limits urged for salt in processed food

Washington (CNN) -- Salt, a staple in most food, could soon be regulated if the Institute of Medicine has its way.

In a new report, the institute, the health arm of the National Academy of Sciences, is calling on the Food and Drug Administration to set national standards for salt added to processed foods and prepared meals in an effort to reduce Americans' consumption of sodium.

Salt consumption, long associated with increased risk of hypertension, heart disease and stroke, would be cut back gradually through a series of incremental reductions intended to help keep flavors consistent.

The new standards would set how much salt food manufacturers and restaurants could add to their products. The Institute of Medicine says that a ban on salt is not necessary but that regulation is, because decades of public education campaigns have failed to reduce Americans' intake.

"For 40 years, we have known about the relationship between sodium and the development of hypertension and other life-threatening diseases, but we have had virtually no success in cutting back the salt in our diets," said institute committee Chairwoman Jane Henney, professor of medicine at the University of Cincinnati College of Medicine in Ohio.

"This report outlines strategies that will enable all of us to effectively lower our sodium consumption to healthy levels. Lowering sodium by the food industry in a stepwise, monitored fashion will minimize changes in flavor and still provide adequate amounts of this essential nutrient that are compatible with good health."

Read about a New England Journal of Medicine study on salt intake

Food and Drug Administration officials have begun industry conversations about voluntary reduction and are encouraged by the response, the agency says. But no decision has been made to regulate salt.

An FDA spokesman said that consensus is needed to reduce Americans' daily salt intake but that officials still don't know the best path to getting there.

"Today's average sodium intake is several times what the body requires and its long-term effects are very serious," an FDA statement said. "Over the coming weeks, the FDA will more thoroughly review the recommendations of the IOM report and build plans for how the FDA can continue to work with other federal agencies, public health and consumer groups, and the food industry to support the reduction of sodium levels in the food supply."

The U.S. Department of Health and Human Services will establish a group to review options and next steps, the FDA said.

Health and Human Services recommends that adults limit their daily salt intake to 2,300 milligrams: about 1 teaspoon. If you are over 40, are African-American or have high blood pressure, you shouldn't have more than 1,500 mg a day. According to the Centers for Disease Control and Prevention, nearly 70 percent of adults fall into one or more of these three categories.

The average American consumes far more, however, eating about 3,900 milligrams of sodium a day. In a study last month from Stanford University, researchers found that reducing the country's salt intake by 9.5 percent could reduce nearly half a million strokes and heart attacks and save more than $32 billion in medical costs over the lifetime of adults.

More on why reducing salt intake is good

Along with mandatory national standards, the Institute of Medicine is recommending voluntary reductions by the food industry and urging government agencies such as the U.S. Department of Agriculture to revise and update nutrition labels.

The institute says that because the new regulations will take time to implement, food and beverage manufacturers, restaurants and food service companies should voluntarily begin reducing levels in foods.

The Center for Science in the Public Interest has been pressing federal officials for more than 30 years to take measures to reduce salt in packaged and restaurant foods.

"Limiting salt in packaged and restaurant foods is perhaps the single most important thing that the Food and Drug Administration could do to save hundreds of thousands of lives and save billions of dollars in health care expenses," center Executive Director Michael Jacobson said.

"As the Institute of Medicine report unambiguously points out, 40 years of voluntary initiatives on the part of manufacturers have failed to reduce salt intake. We call on food manufacturers and restaurant chains to step up their efforts at voluntary salt reduction while the FDA and USDA implement the IOM's recommendations."

The Grocery Manufacturers Association says that's something its member companies have been working on for at least a decade. The group says "silent reduction" or incremental reductions over the years is not new.

"For years, food companies have been introducing a wide variety of new products into the marketplace containing no sodium or low sodium or with no added salt," Brian Kennedy, the association's communications director, said in a statement.

"During that time, food companies have been very successful at making incremental reductions in sodium levels in food products that maintain consumer taste preferences. The food industry is committed to continue to reduce the sodium content in thousands of products to help consumers reach the U.S. Dietary Guidelines recommendation of no more than 2,300 milligrams of sodium per day."

The Salt Institute, which represents salt producers, says that instituting a one-size-fits-all policy on sodium could hurt some consumers.

"The science simply doesn't back up these recommendations. Should the federal government regulate consumption of very low levels of salt, they are effectively compelling the entire population take part in the largest clinical trial ever carried out, without their knowledge or consent," said Lori Roman, president of the Salt Institute.

"There will be negative unintended consequences, including the introduction of substitutes, which consumers may find much less desirable than salt, which has been consumed safely for thousands of years."

Dear Andrea Merkel: How much do Raul Hilberg and I owe you?

[Note: I will be interviewing Thomas Dalton, author of Debating the Holocaust: A New Look at Both Sides this Saturday, April 24th, 5-6 pm Central, on AmericanFreedomRadio (to be archived here for free on-demand listening). I am still looking for a mainstream Holocaust expert to refute him during the second hour. Over the past few months I have invited Deborah Lipstadt, Michael Shermer, John Zimmerman--the three most prominent critics of the "Holocaust deniers" -- as well as many dozens of professors from several of the leading Holocaust and Genocide Studies and Jewish Studies programs. While I have received a few cordial refusals, notably from Shermer and Lipstadt, the vast majority of the academic "experts" have refused to has anti-revisionist blogger Muehlenkamp. I will be publishing my email to these experts in a later blog. Meanwhile, I am worrying about how to fill the second hour of the show. If you know any Holocaust experts who dare to defend the conventional wisdom, please have them contact me: kbarrett*AT* Otherwise I will just have to keep Dalton on for the second hour to respond to callers, many of whom, I hope, will critique his interpretations. a free speech absolutist and a card-carrying non-coward, I am disgusted by the fear that surrounds this topic--not to mention the criminal sanctions. Below is my letter to West German Chancellor Andrea Merkel offering to turn myself in for beginning to doubt the standard six-million-Jewish-victim figure.]

Dear Andrea Merkel,

I read in the news that your German government has fined Bishop Richard Williamson 10,000 Euros for "partial Holocaust denial." According to reports, the 10,000 Euros fine reflects Williamson's public statement that he believes that "200,000 to 300,000 Jews died in Nazi concentration camps" rather than the widely touted figure of six million.

According to the report, you stated that the pope must "'clarify unambiguously that there can be no denying' that the Nazis killed six million Jews." So I am writing to tell you that as a Muslim and a nonbeliever in both papal infallibility and Zionist historiography, I am not going to endorse the six million figure even if the Pope threatens me with hellfire and damnation. After reading three books on the issue--Lipstadt's Denying the Holocaust, Shermer's Denying History, and Dalton's Debating the Holocaust--I am now prepared to state that I find pre-eminent Holocaust scholar Raul Hilberg's estimate of 5.1 million Jewish Holocaust victims a more reasonable estimate.

Since it is against the law in Germany to state ones belief that fewer than six million Jews died in the Holocaust, Hilberg and I are apparently partners in crime. The question is, precisely what penalties should Hilberg and I face? Since Bishop Williamson was fined 10,000 euros for underestimating the six-million-Holocaust by 5.75 million people, that means that underestimating the six-million-Holocaust by roughly one million, as Hilberg and I do, should be penalized by a fine of $1,739.13 Euros. Please let me know where I should go to turn myself in -- the nearest German consulate is in Chicago -- and whether you would like that in the form of cash, check, or credit card. Or should I just send it straight to Israel and bypass the middleman? (Hilberg, fortunately for him, passed away a couple of years ago, and will thus never have to feel the fiscal jackboot of German justice.)

But seriously, Ms. Merkel, you may ask why I side with Hilberg's estimate of 5.1 Holocaust deaths rather than the well-known figure of six million. My answer is that Thomas Dalton, in his book Debating the Holocaust, presents evidence that the figure of six million European Jewish victims threatened with destruction repeatedly occurs long before anyone could possibly have known the real figure. For example, the February 23rd, 1938 New York Times describes six million European Jews as "slowly dying of starvation, all hope gone." Yet at that time the Holocaust, much less its precise body count, was still several years away. A few decades earlier, the May 7, 1920 New York Times cited "Jewish war sufferers in Central and Eastern Europe, where six millions face horrifying conditions of famine, disease and death..."

These two cases are not isolated instances. All told, Dalton cites seven such references to the six million Jews threatened/killed figure during World War II but before accurate body counts were possible; two such references from the 1930s; eight from the period during and after World War I; five between 1900 and 1914; and even four from the 19th century, the first occurring in 1869! He also states that when the official death toll at Auschwitz was revised downward from 4 million to 1.1 million in 1989, the official consensus held that the previously-believed-in 2.9 million Holocaust victims who suddenly turned out never to have existed were all non-Jewish Poles, thus preserving the apparently magical six million Jewish victims figure...while the anti-revisionist Shermer, as I recall, claims that the overall Holocaust total didn't change, despite the sudden evaporation of 2.9 million previously assumed death camp victims, because about that number could be added to the previously-accepted figures for victims killed on the Eastern front, mainly by firing squads. Either way, it seems very strange that the well-known six million figure (and the less-known 11 million figure that includes non-Jewish victims) could survive the sudden disappearance of almost three million previously-assumed deaths.

The arguments cited above, along with others too lengthy to elaborate here, suggest that the magic figure of six million is some sort of tribal shibboleth, rather than an empirically-verified, historically-accurate body count. Hilberg's estimate of 5.1 million Jewish Holocaust deaths thus seems far more probable.

Honestly, Ms. Merkel, I do not understand why the six-million-Holocaust, if it is really a well-verified historical fact, needs to be protected by criminal prosecutions, fines, prison sentences, ad-hominem vilification, the destruction of careers and reputations, and all the other trappings of the Orwellian police state. Some African-Americans and Native Americans argue that their holocausts involved up to one hundred million deaths, while other historians claim that the real figures are only a small fraction of that...and yet I have never heard of anybody being fined, imprisoned, or driven out of polite society for the all-too-common "crime" of "underestimating" these holocausts by millions or even tens of millions. Why should underestimations of the Jewish body count from the Nazi Holocaust be treated differently? Isn't this a case of racist double-standards, in which the "inferior races" (Native Americans and Africans) are neglected, while superior "white" Jewish suffering is lionized? And isn't it the case that if denying the Palestinian holocaust, the Nakba, were criminalized, virtually the entire population of the USA, Europe, and Israel would have to be prosecuted?

Truth does not need the support of criminal sanctions, Ms. Merkel. By prosecuting Holocaust revisionists for thoughtcrime, you are announcing that you believe they are right. That makes you a Holocaust revisionist yourself. Please turn yourself in to your nearest Gestapo Thoughtcrime unit immediately. Who knows, maybe you'll end up sharing a cell with me and the ghost of Raul Hilberg.

Is Goldman Obama's Enron? No, it's worse (Updated)

Campaign contributions from Goldman Sachs employees to President Obama are nearly seven times as much as President Bush received from Enron workers, according to numbers on

President Bush's connections to Enron were well-hyped during the company's accounting debacle that rippled through the economy. Time magazine even had an article called, "Bush's Enron Problem." The Associated Press ran with the headline, "Bush-backing Enron makes big money off crisis." David Callaway wrote that Enron for Bush was worse than Whitewater for Clinton.

In 2002, the New York Times wrote: "President Bush is seeking to play down his relationship with Enron's embattled chairman, Kenneth L. Lay. But their ties are broad and deep and go back many years, and the relationship has been beneficial to both." (h/t Lachlan Markey)

But the mere $151,722.42 (inflation adjusted) in contributions from Enron-affiliated executives, employees, and PACs to Bush hardly add up to Obama's $1,007,370.85 (inflation adjusted) from Goldman-affiliated executives and employees. That's also not taking into account how much Goldman contributed to Obama cabinet member Hillary Clinton ($415,595.63 inflation adjusted), which was itself almost three times as much as Bush received as well.

It would be fair to say that the total amount the Obama administration has received from those affiliated with Goldman Sachs is ten times that of what Bush received from Enron.

Goldman is being sued for civil fraud by the Securities and Exchange Commission for deliberately putting unwitting clients on the wrong side of a mortgage security trade that had been designed to fail.

UPDATE: It's not even just campaign contributions. There's quite the revolving door. According to our own Tim Carney:

Greg Craig, Obama's first White House counsel, has joined Goldman, we learned this week. He may not have too much pull in the West Wing, which drove him out for hewing too close to Obama's campaign promises, but as a former insider he will provide valuable intelligence to the world's largest investment bank.

Rahm Emanuel, White House chief of staff, was paid $35,000 as a consultant to Goldman while also working as Bill Clinton's top fundraiser. Obama's fundraiser and economic adviser Warren Buffett is very long on Goldman, having bet on them in 2008 in the expectation of a bailout. Mark Patterson, chief of staff to Treasury Secretary Tim Geithner, was a Goldman Sachs lobbyist until months before joining Team Obama.

What does that add up to? Getting a hand in making the regulations:

Politico quoted a Goldman lobbyist Monday saying, "We're not against regulation. We're for regulation. We partner with regulators." At least three times in Goldman's conference call Tuesday, spokesmen trumpeted the firm's support for more federal control.

... Goldman's annual report explicitly endorsed stricter federal capital and liquidity requirements. Goldman reported on the conference call that it holds 15 percent "Tier 1 capital," meaning it is very liquid and not very risky. Goldman can play it safe, you see, without needing a regulation. But regulations prevent smaller competitors from taking the risks needed to compete with Goldman (and every competitor is smaller).

Read more of what Carney has to say about it here.

A Backlash in Europe Has Politicians Calling for a Goldman Ban

Goldman Sachs Group Inc. in danger of losing business with a key group of clients as a result of the fraud allegations it faces: governments in Europe and the U.S.

Politicians in the U.K. and Germany are starting to call on their governments to cut ties with Goldman, which has long been one of the top financial advisers to European policy makers.

U.K. Liberal Democrat leader Nick Clegg, riding high in opinion polls less than three weeks before national elections, said on Tuesday that Goldman "should now be suspended in its role as one of the advisers to the government until these allegations are properly looked into." His comments follow Prime Minister Gordon Brown's recent characterization of Goldman's alleged behavior as "morally bankrupt."

"We should let the business relationship with [Goldman] rest until the allegations are cleared up," lawmaker Frank Schäffler of Germany's Free Democratic Party, part of Chancellor Angela Merkel's governing coalition, told German newspaper Handelsblatt on Tuesday. Mr. Schäffler's office confirmed the comment.

The New York-based bank denies allegations by the U.S. Securities and Exchange Commission that it committed fraud by withholding important information from investors to whom it sold mortgage-related securities.

But the political backlash in Europe and the U.S. threatens to damage the network of political ties with policy makers that the bank has carefully built up on both sides of the Atlantic over two decades.

Goldman declined to comment on the European politicians' remarks. In a message to employees on Sunday, Lloyd C. Blankfein, Goldman's chairman and chief executive, said the bank was "taking all appropriate steps to defend the firm and its reputation."

Fair or not, the growing perception in Europe that Goldman used cutthroat tactics to turn a profit could make it an unpalatable partner for politicians who are facing voter pressure to clamp down on risk-taking by the financial sector, analysts say.

The firm is among the leading arrangers of government bond issues in Britain, Germany and many other European countries, and has a played a prominent role in privatizations in both countries.

In the U.S., the poisonous atmosphere surrounding Goldman Sachs has done more than just provide fodder for "Saturday Night Live." Anger toward Goldman was at play when the Treasury Department selected a manager to oversee the sale of the government's $32 billion stake in Citigroup Inc.

Career officials at the Treasury chose Morgan Stanley to manage the account, and said the decision was based on the firm's ability to do the work. But at the time of the decision, an administration official said there was recognition inside the government that choosing Goldman, which has similar expertise, could trigger a firestorm.

The SEC probe has resonated in Europe because the Goldman transaction in question led to write-downs at British and German banks that later needed taxpayer bailouts. Royal Bank of Scotland PLC of the U.K. lost $841 million on the deal, while IKB Industrie Bank AG of Germany lost $150 million, according to the SEC. RBS and IKB declined to comment.

With the U.K. in the midst of a heated election campaign, the charges against Goldman have made the bank an attractive target.

Mr. Clegg, speaking at a news conference in London, called the SEC's allegations against Goldman "extremely serious" and a sign of "how reckless and greed the global banking industry had become" in the run-up to the 2008 financial crisis.

The Conservative Party also joined in, seizing on Mr. Brown's criticism of Goldman.

"Why is he still using them as advisers?" asked Mark Hoban, a top Conservative finance official.

U.K. Treasury chief Alistair Darling rejected calls to ostracize the U.S. bank. "I don't think you can stop doing business with a firm because an individual is accused of doing something," Mr. Darling said in an interview with Bloomberg News. Mr. Darling's spokeswoman confirmed the remarks.

Conservatives and Liberal Democrats are competing to oust Labour leader Mr. Brown from power in elections due May 6.

In Germany, Bavarian conservatives also said government dealings with Goldman should be put on ice.

[BACKLASH] Bloomberg News

'I don't think you can stop doing business with a firm because an individual is accused of doing something,' said Alistair Darling, the U.K. Treasury chief.

The German finance ministry said it will examine the SEC case against Goldman before deciding on what steps, if any, to take. A finance ministry official said it was "completely open" whether possible steps might include dropping Goldman as an adviser or securities underwriter, because Berlin is still waiting for information about the case from the SEC.

Chancellor Merkel's spokesman Ulrich Wilhelm said over the weekend that Germany might take legal action, depending on its assessment of the allegations against Goldman. German authorities are waiting for further information from the SEC, officials in Berlin said Tuesday.

Goldman has already faced criticism in Europe this year for a series of transactions with Greece that exploited loopholes in EU accounting rules and had the effect of understating Greece's budget deficit. The transactions, which took place nearly a decade ago, have helped to undermine financial markets' confidence in Greece's official statistics, contributing to a debt crisis that has pushed Greece to the verge of a bailout by the European Union and the International Monetary Fund.

Analysts at BNP Paribas said last week's SEC accusations are "a massive blow" to Goldman's reputation, "which was already under pressure due to the Greek swap episode and other issues."

Goldman's Mr. Blankfein drew ire from U.S. and European officials late last year by quipping that the bank does "God's work." The head of Goldman's German operations, Alexander Dibelius, sparked more controversy in January by saying banks "do not have an obligation to promote the public good."

Bankers from rival firms have complained in recent months that Goldman's worsening public image is adding to the political momentum behind a regulatory clampdown on the whole sector.

—Margot Patrick and Deborah Solomon contributed to this article.

Goldman Sachs and the Mega Banks: Too Big To Obey The Law

On a short-term tactical basis, Goldman Sachs clearly has little to fear. It has relatively deep pockets and will fight the securities “Fab” allegations tooth and nail; resolving that case, through all the appeals stages, will take many years. Friday’s announcement had a significant negative impact on the market perception of Goldman’s franchise value – partly because what they are accused of doing to unsuspecting customers is so disgusting. But, as a Bank of America analyst (Guy Mozkowski) points out this morning, the dollar amount of this specific allegation is small relative to Goldman’s overall business and – frankly – Goldman’s market position is so strong that most customers feel a lack of plausible alternatives.

The main action, obviously, is in the potential widening of the investigation. This is likely to include more Goldman deals as well as other major banks, most of which are generally presumed to have engaged in at least roughly parallel activities – although the precise degree of nondisclosure for adverse material information presumably varied. Two congressmen have reasonably already drawn the link to the AIG bailout (how much of that was made necessary by fundamentally fraudulent transactions?), Gordon Brown is piling on (a regulatory sheep trying to squeeze into wolf’s clothing for election day on May 6), and the German government would dearly love to blame the governance problems in its own banks (e.g., IKB) on someone else.

But as the White House surveys the battlefield this morning and considers how best to press home the advantage, one major fact dominates. Any pursuit of Goldman and others through our legal system increases uncertainty and could even cause a political run on the bank – through politicians and class action lawsuits piling on.

And, as no doubt Jamie Dimon (the articulate and very well connected head of JP Morgan Chase) already told Treasury Secretary Tim Geithner over the weekend, if we “demonize” our big banks in this fashion, it will undermine our economic recovery and could weaken financial stability around the world.

Dimon’s points are valid, given our financial structure – this is exactly what makes him so very dangerous. Our biggest banks, in effect, have become too big to be held accountable before the law.

On a more positive note, the administration continues to wake from its deep slumber on banking matters, at least at some level. As Michael Barr said recently to the New York Times,

“The intensity, ferocity and the ugliness of the lobbying in the financial sector — it’s gotten worse. It’s more intense.”

This is exactly in line with what we say in 13 Bankers – just take a look at the introduction (free), and you’ll see why our concerns about “The Wall Street Takeover and the Next Financial Meltdown” have grabbed attention in Mr. Barr’s part of official Washington.

But at the very top of the White House there is still a remaining illusion – or there was in the middle of last week – that big banks are not overly powerful politically. “Savvy businessmen” is President Obama’s most unfortunate recent phrase – he was talking about Dimon and Lloyd Blankfein (head of Goldman). After all, some reason, auto dealers are at least as powerful as auto makers – so if we break up our largest banks, the resulting financial lobby could be even stronger.

But this misses the key point, which Senator Kaufman will no doubt be hammering home this week: There is fraud at the heart of Wall Street.

And we can only hold firms accountable, in both political and legal terms, if they are not too big.

It is much harder to sue a big bank and win; ask your favorite lawyer about this. Big banks can more easily hold onto their customers despite so obviously treating them as cannon fodder (take this up with the people who manage your retirement funds). Big banks spend crazy amounts on political lobbying – even right after being saved by the government (chapter and verse on this in 13 Bankers.)

When you really do want to take on megabanks through the courts – and have found the right legal theory and compelling lines of enquiry – they will threaten to collapse or just contract credit.

No auto dealer has this power. No Savings and Loan could ultimately stand against the force of law – roughly 2,000 S&Ls went out of business and around 1,000 people ended up in jail after the rampant financial fraud of the 1980s.

We should not exaggerate the extent to which we really have equality before the law in the United States. Still, the behavior and de facto immunity of the biggest banks is out of control.

These huge banks will behave better only when and if their executives face credible criminal penalties. This simply cannot happen while these banks are anywhere near their current size.

Fortunately there is precisely zero evidence that we need banks anywhere near their current size – we document this at length in 13 Bankers (in fact, this was a major motivation for writing the book).

Break up the big banks before they do even more damage.

Simon Johnson, co-author of 13 Bankers.

Obama Now Pushing Sneaky Wall Street Bailout

Talk about taking another giant leap in the wrong direction.

Fresh off his successful (for now) effort to ram through an unpopular healthcare “reform” law, President Barack Obama is now fighting for legislation on Capitol Hill that would set up a permanent fund to bail out companies in the financial sector.

Of course, that’s not how his team is spinning things. On the White House Blog, Jen Psaki claims that “under the Senate bill, the taxpayers will never be asked to foot the bill for Wall Street’s irresponsibility.” But that’s simply not true.

“If you liked the bailouts in 2008, you’ll love the Dodd bill,” Sen. David Vitter (R.-La.) tells HUMAN EVENTS. “Congressional Democrats and the Obama Administration want to create a permanent bailout mechanism all while spouting their rhetoric of getting tough on Wall Street, but if you look at who is already lining up to support their ‘reform’ measure it’s a who’s who of the big banks that have already received the taxpayer bailout the first time.”

Vitter is right to note that Wall Street supports this measure. Why? Because big investment houses realize they’ll get bailed out and would have less reason to worry about risky behavior.

Sen. Chris Dodd (D.-Conn.) crafted the Senate version of so-called “Financial Reform” with the support of the President. The procedure used to date resembles the non-transparent and secretive tactics used to pass ObamaCare. The Senate Banking
Committee marked up the bill in 22 minutes, with no amendments offered and no debate allowed. Now, Senate Majority Leader Harry Reid and President Obama are trying to rush the bill to the floor before the American people have a chance to understand that it contains a hidden, permanent bailout fund.

The Dodd legislation may be on the floor of the Senate as early as next week. A version passed the House, in a slightly different form, on December 11 by a 223-to-202 margin.

Much like with ObamaCare, any bill that passes the Senate will then be sent to the House.

There are two specific problems with the Senate approach to “reform.”

First, this legislation would create a new $50-billion bailout slush fund controlled by the Federal Deposit Insurance Corporation (FDIC). Very big banks and other “eligible financial companies” would be taxed by the FDIC to build up this fund. As with any tax, though, it’s consumers--you and me–who would eventually pay this levy.

The Obama Administration this weekend requested that the $50 billion pre-funded bailout money be removed from the bill. But according to, Treasury Secretary Tim Geithner advocated last year that any bailout funding should be addressed post bailout through a tax on big Wall Street firms. If Senate Democrats only take out the $50 billion slush fund and leave the bailout authority intact, then the taxpayers will still be on the hook for any future bailouts.

Another problem with this bill is that it would bail out the creditors of companies and wouldn’t require any creditor to take a loss after a company starts to fail. If the bailout slush fund is tapped, the FDIC would have the power to reimburse creditors. That could allow the FDIC to pay creditors more than they invested (pursuant to Section 210 of the Dodd bill).

Think about that. If creditors know they aren’t likely take a loss, and risk has been eliminated from an investment, its taxpayers who are assuming all the risk. Of course, taxpayers get none of the rewards if the investments pay off–we would simply be on the hook if they fail. Taxpayers could expect no reward for having insured transactions and protected wealthy investors from any risk. The AIG bailout is a great example of this model.

If the strong-arm tactics used in the passage of ObamaCare are any lesson to Americans, we should get ready for Senate Majority Leader Harry Reid (D.-Nev.) to block all amendments in an attempt to jam a bad bill through the Senate. The Senate bill has many problems, but the multiple bailouts in the bill should raise the eyebrows of Tea Partiers nationwide and taxpayers who are concerned about becoming the insurer of last resort for Wall Street gamblers.

US will act if China does not revalue yuan-lawmaker

WASHINGTON, April 19 (Reuters) - A U.S. House of Representatives committee chairman on Monday warned the United States will take action if China does not begin steps in coming months to raise the value of its currency.

Global Markets

"The G20 are meeting in a couple of months. It's clear to me the (Obama) administration is endeavoring to try to bring about a change" in China's currency, Ways and Means Committee Chairman Sander Levin said at the National Press Club.

"They're going to try to use a multilateral process to help bring that about. If it doesn't work, the U.S. will act. I have no doubt about it. I think the administration will act and I think the Congress will act," the Michigan Democrat said.

IMF proposes two big new bank taxes to fund bail-outs

Banks and other financial institutions face paying two new taxes to fund future bail-outs, the BBC has learned.

Business editor Robert Peston said the global proposals by the International Monetary Fund (IMF) were "more radical" than most had anticipated.

All institutions would pay a bank levy - initially at a flat-rate - and also face a further tax on profits and pay.

The measures are designed to make banks pay for the costs of future financial and economic rescue packages.

The IMF documents were made available to governments of the G20 group of nations on Tuesday afternoon and seen by the BBC soon afterwards. The plans will be discussed by finance ministers this weekend.

"The proposals are likely to horrify banks, especially the proposed tax on pay," our business editor said.

"They will also be politically explosive both domestically and internationally."

Insurers, hedge funds and other financial institutions must also pay the taxes, the IMF argues, despite them being less implicated in the recent crisis.

If they were not included, activities currently carried out by banks would be reclassified as, for example, insurance or hedge-fund services to escape the levies.

While the general levy, or "financial stability contribution", would initially be at a flat rate, this would eventually be refined so that riskier businesses paid more.

British chancellor Alistair Darling said the IMF's proposals were "important" and should be welcomed.

"The recognition that banks should make a contribution to the society in which they operate is right," he said.

Global impact

It was agreed at the G20 summit in London last year that financial institutions and not tax-payers should pay for future bank rescue packages.

Since then several proposals have been put forward by various governments including the so-called "Tobin Tax" on financial transactions. Some nations, including Canada, oppose any new bank taxes.

However no country has yet introduced taxes to pay for future bailouts - arguing that unless the rules were brought in on a coordinated basis, institutions would simply "cherry pick" where they operated, moving to jurisdictions with less tough financial regulation.

The body which represents banks in the UK, the British Bankers' Association said it was concerned about any move which would place the UK industry "at a competitive disadvantage internationally".

"We also need to see all the detail of what is proposed - and how any new levy and tax would apply - to determine the effect it would have", it said.

Party claims

In the light of the UK's looming general election, the IMF proposals were likely to be used for some political point-scoring, our business editor said.

"Labour is bound to claim that the IMF is implicitly criticising the Tories' plan to impose a new tax on banks irrespective of what other countries do - because the IMF paper says that 'international co-operation would be beneficial'.

"I would also start to question my sanity if Gordon Brown doesn't claim credit for putting pressure on the IMF to launch its review of possible bank taxes."

But he added that the Conservatives would say that their bank tax proposals resembled the financial stability contribution.

And the Liberal Democrats would claim that their proposed tax on banks' profits was similar to the second tranche of the IMF proposal.

Next bubble: $600 trillion?

Cities, states, universities could sink from monster derivatives meltdown

As interest rates begin to rise worldwide, losses in derivatives may end up bankrupting a wide range of institutions, including municipalities, state governments, major insurance companies, top investment houses, commercial banks and universities.

Defaults now beginning to occur in a number of European cities prefigure what may end up being the largest financial bubble ever to burst – a bubble that today amounts to more than $600 trillion.

The Bank of International Settlements in Basel, Switzerland, now estimates derivatives – the complex bets financial institutions and sophisticated institutional investors make with one another on everything from commodities options to credit swaps – topped $604 trillion worldwide at the end of June 2009.

To comprehend the relative magnitude of derivative contracts globally, the CIA Factbook estimates the 2009 Gross Domestic Product, or GDP, of the world was just under $60 trillion.

Derivative contracts, therefore, have now reach a level 10 times world GDP, meaning even a 10 percent default in derivatives would equal world GDP.

The small 800-year-old town of Saint-Etienne in France has just defaulted on a $1.6 million contract owed to Deutsche Bank. The city entered into a complex currency swap arrangement to reduce the cost of borrowing some $30 million.

To cancel all 10 derivative contracts Saint-Etienne currently holds would cost the town approximately $135 million, more than six times the amount initially borrowed, largely because no bank or institutional investor would want to purchase contracts that are now on the losing side of the bet.

Saint-Etienne is only one of thousands of EU municipalities that bought into derivative contracts as a way to cut the costs of municipal borrowing.

A key problem with derivatives is that in the attempt to reduce costs or prevent losses, institutional investors typically accepted complex risks that carried little-understood liabilities widely disproportionate to the any potential savings the derivatives contract may have initially obtained.

The hedge fund and derivatives markets are so highly complex and technical that even many top economists and investment banking professionals don't fully understand them.

Moreover, both the hedge fund and derivatives markets are almost totally unregulated, either by the U.S. government or by any other government worldwide.

But losses on derivatives are not limited to government entities.

Harvard's billions

Obama administration economic guru Larry Summers may end up being best remembered for having destroyed almost single-handedly the Harvard University endowment fund as a result of misguided instructions he gave the fund's management during his tenure as Harvard University president from 2002 to 2006.

Summers, currently director of the White House National Economic Council, called for an aggressive investment strategy in which Harvard' endowment fund engaged in risky strategies, including derivative strategies that have burdened the nation' largest university endowment with billions of dollars in toxic assets.

As a result, the Harvard endowment, which peaked at $36.9 billion in June 2008, has since lost some 30 percent of its value, dropping to $26 billion, according to Bloomberg News.

In October 2009, Harvard University paid $497.6 million to investment banks to get out from $1.1 billion in interest rate swaps that were intended to hedge variable-rate debt for capital projects, Bloomberg reported.

In what amounted to Harvard's biggest endowment loss in 40 years, the university also agreed to pay $425 million over the next 30 to 40 years to offset an additional $764 million in credit-swap deals gone bad.

Citing failed interest rate swaps that forced Harvard to pay banks $1 billion just to terminate the junk contracts, Bloomberg reported the Harvard endowment's investments have become so toxic that even Summers won't explain what happened during his watch.

The Boston Globe squarely put the blame on Summers' doorstep, noting he came into office with a bold vision to expand the size of its science facilities by more than a third.

Average yearly expenditures for facilities jumped from under $150 million in 1995-2000 at Harvard, to $495 million from 2001-2005, to $644 million in 2009.

"Summers told the faculty not to think small," the Globe wrote. "Its ambitions were limited only by its imagination, he said. "Harvard could always come up with more money from its 'deeply loyal fans.'"

Unfortunately, deeply loyal fans and alumni with deep pockets were not enough to bail the university out from Sumner's ill advised investment advice.

Bloomberg reported that cash-strapped Harvard recently asked Massachusetts for fast-track approval to borrow $2.5 billion.

The damage done to Harvard is not limited to plans to expand the science facility into blue-collar Allston. Now, the university is faced with slashing faculty and staff.

Last year, more than 1,600 of Harvard's staff were offered early retirement, and more than 500 accepted.

"Loyal alumni have contributed generously to staunch the bleeding," the Globe wrote, "but huge deficits remain in spite of all the reductions. Harvard will be a smaller place when the dust settles, with less educational and scholarly reach. It will employ fewer people and will contribute less to local and national prosperity."

What are derivatives?

While the hedge fund market is small in comparison to derivatives, hedge funds in the U.S. are still a $1.5 trillion industry.

Hedge funds and derivatives share a common characteristic in that both were set up initially by professional investment advisers to assist them in managing the risk contained in institutional investment portfolios, including mutual fund assets or pension funds that typically involved hundreds of millions of dollars.

One of the original ideas behind derivatives was the realization that professional money managers, including those in banks, investment companies and hedge funds, needed to make bets to offset the possibility of taking losses.

A popular form of derivative contracts was developed to permit one money manager to "swap" a stream of variable interest payments with another money manager for a stream of fixed interest payments.

The idea was to use derivative bets on interest rates to "hedge" or balance off the risks taken on interest-rate investments owned in the underlying portfolio.

If an institutional investment manager held $100 million in fixed-rate bonds, for example, to hedge the risk, should interest rates rise or fall in a manner different than projections, a purchase of a $100 million variable interest rate derivative could be constructed to cover the risk.

Whichever way interest rates went, one side to the swap might win and the other might lose.

The money manager losing the bet could expect to get paid on the derivative to compensate for some or all of the losses.

In the strong stock and mortgage markets experienced beginning in the historically low 1-percent interest rate environments of 2003 through 2004, the number of hedge funds soared, just as the volume of derivative contracts soared from a mere $300 trillion in 2005 to the more than $600 trillion today.

Bloomberg reported the number of hedge funds tripled in the last decade to a record of 10,233 at the end of June 2008, according to the Chicago-based Hedge Fund Research Inc.

More than one-third of those funds could be "wiped out" in the economic downturn that began in December 2008, Bloomberg said.

The Bank of International Settlements, or BIS, in Basel, Switzerland, makes no estimate of how much of the $604 trillion in outstanding derivative contracts are today vulnerable to collapse.

Losses in derivatives played a major role in the bankruptcies of both AIG and Bear Stearns.

Of volcanoes and panic

“Ladies and gentlemen, this is your captain speaking. We have a small problem. All four engines have stopped. We are doing our damnedest to get them under control. I trust you are not in too much distress.”

This optimistic statement was made on June 24, 1982 aboard a British Airways B-747 airliner bound from London for Auckland with stop-overs in Bombay, Madras, Kuala Lumpur, Perth and Melbourne.

The airliner, however, failed to reach its destination. At 8:40 p.m. Jakarta time, south of Java in the Indian Ocean, co-pilot Roger Greaves and flight engineer Barry Townley-Freeman noticed St. Elmo’s fire appearing on the windshield. St. Elmo’s fire is a special kind of coronal discharge originating from a high-voltage electrical field in the atmosphere. From inside it looked as though tracer bullets were hitting the plane. Soon the aircraft commander, Eric Moody, also noted the phenomenon. He had returned to the cockpit after a short absence.

As a rule, St. Elmo’s fire indicates thunderstorm clouds nearby, but the weather radar displayed nothing of the sort. Still, the crew switched on a de-icing system for safety’s sake and “fasten your belts” lights went on in the cabin.

There was no thunderstorm in the region, however. It appeared that the airliner, flying at an altitude of 11,000 meters, entered a cloud of volcanic ash suddenly spewed by the Javan volcano Galunggung.

Fumes began building in the passenger cabin. Knowing nothing of the volcano, the general conclusion was that it was cigarette smoking – in those days smoking was allowed on aircraft. Soon, however, the fumes thickened, setting off an alarm in the cabin. Crew members set about searching for the cause, but naturally failed to find any.

Meanwhile, many passengers looking out the aircraft windows spotted an unusually brilliant glow on the body surface and particularly on the engines as though each carried a lamp illuminating the way ahead through compressor blades, which created a stroboscopic effect. This glow came from electrified dust particles that had settled on the surface of engine nacelles and on the compressor blades.

At about 8:42 p.m. Jakarta time, engine No. 4 failed because of a flameout. The co-pilot and flight engineer went into the immediate procedure of shutting the engine down, cutting the fuel supply and, just in case, activating a fire-extinguishing system. In the meantime the commander handled the controls, trying to cope with uneven thrust.

The passengers also noticed long yellow glowing streaks emanating from the remaining engines. Less than a minute after shutting down engine No.4, there was a blowout in engine No.2, which also stopped.

Before the crew could initiate the process of cutting down the engine, there was a blowout in the remaining engines, No.1 and No.3, and the windshield went opaque. The flight engineer exclaimed: “I can’t believe it – all the engines have stopped.” It was at that moment that Eric Moody made the statement quoted at the beginning of the article – with a characteristically British sense of humor.

The heavy airliner headed back to Jakarta, hoping to make an emergency landing. But to reach the capital of Indonesia, it was necessary to re-start at least one engine. The alternative was ditching in the far from welcoming waters of the ocean filled with all kinds of dangers – high waves could make the rescue of the crew and passengers difficult, and strong currents could scatter the safety rafts far adrift, not to mention sharks.

An aircraft with a take-off weight of 380 tons became a glider. With the engines shut down, a Jumbo Jet (the nickname of the B-747) can glide 15 km per each kilometer in lost altitude. Commander Moody calculated that from an altitude of 11 km the airliner could glide for 23 minutes, covering a distance of 169 kilometers.

But the descent was more rapid. Air pressure in the cabin dropped: the cabin pressure compressors were driven by the engines which had stopped. Given these bleak realities, the plane was unlikely to negotiate the mountains and land in Jakarta. The crew began preparing to splashdown in the ocean.

The aircraft exited from an ash cloud at 8:56 p.m. Jakarta time, after about 13 minutes of gliding. At that point, it was at 12,000 feet in the air. At this height, the crew managed to fire one engine and then the three others (one engine, however, later went dead again when the Boeing climbed and reentered the cloud). The aircraft was able to successfully land in Jakarta.

The mechanics who broke down the engines found a great mass of molten ash in the turbines that had plugged the lines. All four engines had to be replaced.

Another volcanic incident also involved a Boeing-747, this time flown by KLM on the Amsterdam-Tokyo route. While on approach to Anchorage, Alaska, the airliner hit a cloud of ash spewed by the volcano Mt Redoubt. All four engines failed. But the aircraft captain, Karl van der Elst, managed to save the day – after descending more than 4,000 meters the crew succeeded in restarting the engines.

Both cases show the dangers of volcano eruptions for aircraft but in both cases the aircraft suddenly found themselves in dense ash clouds while in direct proximity to fire-spewing mountains where the concentration of hard particles was the highest.

At a considerable distance from a volcano, the ash concentration in the air falls off by many orders of magnitude, and such a large-scale closing of air space in Eurasia, following the eruption of the Icelandic volcano Eyjafjallojokull, is more reminiscent of hysteria than a real assessment of danger.

Seen against this background, the quiet operation of Russia’s Aeroflot, which continues its flights despite any volcanoes, is worth noting.

See also:

Volcanic ash cloud: Met Office blamed for unnecessary six-day closure

Goldman Sachs Eats Its Young

This should be a lesson to all those young, aggressive, upwardly mobile Wall Street wannabes who think they are somehow going to fast track their way into the stratosphere of high finance.

Sorry, kids! There’s no room left at the top, and soon you’re going to see even those old money families tearing each other apart for what’s left of a collapsing fiat money system that has just about run its course.

I submit to you the unfortunate tale of Goldman Sachs’ naïve boy protégé, Fabrice Tourre, the so-called ‘Fabulous Fab’ who is alleged to be the mastermind behind a scheme to sell toxic mortgage investments that were deliberately designed to fail in the US housing market crash.

Fabrice Tourre, 31, is the classic patsy and the kind of villain the American people love to hate. He’s foreign (French), flamboyant, young, rich and shrewd. He was only 22 and fresh out of college when he started working for Goldman Sachs in 2001. Just five years into his employment, he found himself at the center of a scheme devised by one of the world’s richest billionaires, hedge fund manager John Paulson.

Paulson had presented a roster of sub-prime mortgage deals that he was betting would fail in the housing market. He paid Goldman Sachs $15 million to find clients that would bet the other way. The scheme was packaged into what has come to be known as an ‘Abacus Deal’.

Tourre is alledged to have taken this portfolio to potential investors and sell them as favorable risks while hiding the fact that he was working with Paulson, who was betting against them.

To help with pitching these toxic investments, they employed the services of ACA Capital Holdings, Inc. and convinced them that Paulson was actually investing in these mortgages. Tourre and Paulson then used ACA’s endorsement of the mortgages as a credible and sound investment. Everything went as planned and Paulson cashed in on a cool $1 billion while the Goldman Sachs investors took it in the shorts.

Now the SEC has been called in to restore their tarnished image with the public by bringing suit against the investment giant and taking aim, in particular, at the novice Tourre. So far, the SEC has conducted five interviews including one with the now notorious ‘Fabulous Fab’. They have not elected to interview any one of the top Goldman Sachs executives, including Tourre’s manager Jonathan Egol. They’ve also apparently found no need to trouble Mr. Paulson with any of their inquiries. Goes to show you that only the little minnows get swallowed up in the cesspool of Wall Street.

Tourre is said to have been well liked and popular at Goldman Sachs. He is known for his impeccable charm and biting sense of humor. Up through and including 2008, he has reportedly been pulling in over $2 million a year. He has since moved to an office on Fleet street in London and has been “living it up” and throwing loud, lavish parties out of his luxurious bachealor flat. Apparently, Tourre has been laying low and ducking media interviews. But you can bet that the boys at Sachs have already sent their best attorneys to drape an arm around his back and rub his shoulders. You can probably imagine the scene: The poor kid (boo hoo) is probably cradling his face in his hands and shaking his head as the Sachs lawyers whisper in his ear that everything is going to be O.K. “Just keep quiet” they’re telling him—“We’ll do all the talking. You’re probably going to have to take the fall on this one, but we’ll do everything within our power to make sure you’re well taken care of when this thing blows over.”

Meanwhile, back in the States, his bosses are laying the groundwork for pinning all of the blame on this minor player. The most recent statement by Goldman Sachs CEO Lloyd Blankfein should convince you of that. In response to the allegations of misconduct, Blankfein told his employees Sunday “I will repeat what you have heard me say many times in the past: Goldman Sachs has never condoned and would never condone inappropriate activity by any of our people. On the contrary, we would be the first to condemn it and take immediate and appropriate action. Our responsibility as a financial intermediary requires it and our commitment to integrity and the firm’s business principles demand it.”

If that doesn’t convince you that Goldman Sachs is setting this kid up to take the fall, I don’t know what will. So you see what I mean when I say he’s the perfect “patsy”. This kid has been served up for American consumption. Your average “Sarah Palin-Tea Party” Republican, pissed off about the Wall Street bail-outs, will unwittingly accept this burnt offering as Goldman Sachs’ sacrificial lamb and will be just enough of a token gesture for the fence-sitting Democrats to come back around to Obama when he brings the whip down on this poor, hapless dupe.

The American people are a predictable bunch. As long as you frame everything in the context of a Hollywood script you could have them believing just about anything. It reminds me of the Neo-con (Jerry Bruckheimer) produced film Enemy of the State where rouge elements in the NSA cover up the killing of a US Congressman. In the end, the integrity of the NSA is upheld as we see the young agents held to answer for their crimes by our heroic government. You’re bound to see that same scenario unfold here. Goldman Sachs will throw this kid under the bus and claim that they were duped right along with the rest of their investors. Goldman Sachs will let this play out in a long, drawn-out court battle until it is all but forgotten in the American public’s mind. They’ll end up paying a fine, that sounds like a lot of money to most people, but in reality amounts to nothing more than a slap on the wrist. As for Tourre? Well, he’ll be flushed down the memory hole of oblivion after a royal screwing in the press as the rouge villain who besmerched the good name of Goldman Sachs.

But the more enlightened of us will know the real truth. It was Tourre’s superiors who really engineered this debacle. Anyone with half a brain knows that a novice like Tourre would never be left unattended to make deals with heavy hitters like John Paulson. Schemes of this magnitude don’t go forward without first being signed off by the guys upstairs. On Monday, the New York Times cited eight confidential sources who made this point clear. The article stated that: “According to interviews with eight former Goldman employees, senior bank executives played a pivotal role in overseeing the mortgage unit just as the housing market began to go south. These people spoke on the condition that they not be named so as not to jeopardize business relationships or to anger executives at Goldman, viewed as the most powerful bank on Wall Street. According to these people, executives up to and including Lloyd C. Blankfein, the chairman and chief executive, took an active role in overseeing the mortgage unit. It was Goldman’s top leadership, these people say, that ended the dispute on the mortgage desk by siding with those who, like Tourre and Egol, believed home prices would decline…By early 2007, Goldman’s mortgage unit had become a hive of intense activity. In addition to Blankfein, Gary D. Cohn, Goldman’s president, and David A. Viniar, the chief financial officer, visited the mortgage unit frequently.”

This whole scandal couldn’t come at a better time for Goldman Sachs’ choice for President, Barrack Obama. He and the Democratic Party are reeling from public outcry against his sell out to the health insurance industry and the never ending bail-outs to their friends on Wall Street. This fiasco will help push through a regulatory bill that will actually concentrate more power to the FED (Goldman Sachs Alumni) and will only serve to make smaller firms vulnerable to absorption by the likes of Goldman Sachs and other giants. Obama will shake his fist, yell at Republicans who come to Wall Street’s defence, and come out looking like a maverick who took on those nasty ‘special interests’ that he loves to claim he’s a crusader against.

This is also an opportunity for the SEC to come out looking tough after their disgraceful conduct in the Bernie Madoff affair. Taking on Goldman Sachs will be a great boost to their image. But that could only happen under unusual circumstances like these. Right now, Goldman Sachs actually wants to be made to look like they’re no different from anybody else. They need to convince the American people that they are just as vulnerable and subject to public scrutiny as any other legitimate business. In other words, Goldman Sachs has given the SEC permission to take them on. Otherwise, the SEC would be just as ineffective and bias as they have always been.

The SEC is actually a public relations device for the FED. They go after the little guys to look like they’re doing something while turning a blind eye to the big investment firms that their agents hope to someday work for.

Never was this more apparent than during the Madoff scandal. Madoff whistleblower Harry Markopolos repeatedly warned the Securities and Exchange Commission that Madoff was perpetrating a massive investment fraud and said that the SEC is inept, “financially illiterate” and far too cozy with the financial titans it is supposed to be regulating. Markopolos said “The SEC is also captive to the industry it regulates and it is afraid of bringing big cases against the largest most powerful firms. Cleary the SEC was afraid of Mr. Madoff.” It was also reported that agents who were dispatched to interview Madoff were so enamored with his lavish offices and lifestyle that they were tripping over themselves trying to get their resumes onto his desk. Such is the true reality of the SEC.

This is not to say that the bright and rosy future of Goldman Sachs is etched in solid granite. As the fractional reserve system of banking starts to collapse, we are bound to see the connoisseurs of fine dining resort to cannibalistic practices as they scramble to loot and plunder what’s left of the American economy. Bon Appétit.

Vampire Squid, Meet Ravenous Piranhas

While odds favor Goldman Sachs escaping from the SEC's clutches with a political-theatre inspired wrist-slap, private litigation could shred the firm over time.

I am not an attorney, but being in business forces one to pick up a bit of the legal perspective. What is foremost in the American legal system? Justice? Perhaps for those fighting the good fight in criminal courts, but for the vast majority of those toiling away in the dark labyrinth of the U.S. judicial system, the key is always liability: who is liable, and what is their exposure?

With good reason, many see the SEC's tepid pinprick into the gargantuan body of the vampire squid as an effective bit of political theatre. After four long years of the blogosphere pounding on the implicit and explicit fraud at the heart of mortgage-backed securities and the derivatives written against them, and 1.25 years of their own humiliating derriere-kissing of Wall Street, the Democrats sorely need to establish some bonafides that they really, really, really are not beholden to Wall Street (even if they are). So some sort of simulacrum "crackdown" is needed lest their political power be eroded or even demolished in the November 2010 elections.

There is even a slight chance that the Democratic leadership prompted this precise timing to light a fire under reluctant Republican senators to pass some sort of gutted, weak, sure-to-be-unenforced "financial reform." Once again, for purposes of political theatre, it is important for the Democrats to pass a simulacrum "reform" of Wall Street to appease the frightfully hot public anger at the craven obedience of the political class to the whims and wishes of the big banks and Wall Street.

Meanwhile, as the Republicans claim to have their fingers on "the pulse of Middle America," their Wall Street-soiled fingers are actually clasped on the cold wrist of the corpse of their own credibility. Resisting bank/financial reform, even a watered-down version, will eviscerate what little credibility the Repubs have left after lording over the destruction of the U.S. economy and their despicable rewarding of Wall Street for eight dreadful years (2001-2008).

In other words, both parties desperately need some political theatre to mask their enslavement to Wall Street and the big banks. This SEC action fits the bill very nicely, along with calling a few incredibly wealthy former CEOs up to Congress for a public flaying.

Note to Congress: did any of you ever hear of the book Fiasco: The Inside Story of a Wall Street Trader which laid out in 1999 precisely how derivatives are gamed to defraud the buyers?

Claims of ignorance only make our elected officials even more pathetic, craven and hypocritical--if that is possible.

Let's establish a few things about the SEC action against Goldman Sachs.

1. After four years of doing nothing to enforce the rules already on the books and being derided as a toothless tool of lobbyists and bankers, would the SEC choose a case they might lose? No. They carefully selected the strongest case they have. They are laughingstocks, and the best of the public servants in the SEC will obviously be wanting to redeem the besmirched honor of their once-respected agency.

Let's also ask "cui bono" (to whose benefit?) of the SEC lead attorneys. Times are tough even in the legal profession, and anyone scoring a direct hit on the most hated and loathed institution in America, the vampire squid of Goldman Sachs, will see a nice boost in his/her career trajectory.

2. What liability will be established if the government wins its case? Goldman Sachs will base its defense on trying to gut any claims of willful intent to commit fraud, but I am guessing that somewhere in the statutes are a few regulations or laws which do not require proving willful intent to get a conviction or ruling of malfeasance, fraud, embezzlement, failure to disclose material facts, etc.

Any conviction for any financial crime, however modest it might appear, will open the squid to charges of malfeasance, fraud, embezzlement, failure to disclose material facts, etc., from everyone who was sold a securities or derivative by Goldman Sachs within the past seven years.

That's a lot of liability.

3. Can Goldman Sachs' protectors in the U.S. Treasury (Tim Geithner et al.) limit the lawsuits of private parties against Goldman? No, they can't.

4. Can Goldman's apologists in Congress openly limit the liability they face from private parties/investors without committing political seppuku /hara-kiri?

The Mainstream Media and Washington's politico toadies will be betting that the new TV season in September will distract the American populace from the whole issue, and by the November elections, voters will have forgotten Goldman Sachs and Wall Street, especially if those with substantial 401Ks see their accounts rising.

I think the toadies and MSM Elites have sorely misjudged the abiding hatred of the American public for Goldman Sachs, Wall Street, and the Federal government's bailout of "too big to fail" banks.

But let's grant them the benefit of the doubt and agree that the clueless, sedated, distracted, games-TV-entertainment-addicted American citizenry will forget about Goldman Sachs and boring financial reform by November.

The toadies and MSM Elites are forgetting that Goldman Sachs now faces a stupendous liability to all the private parties it defrauded.

Let's walk through this from the point of view of an agency, county, city, pension fund, etc. which has lost money from an MBS, CDO, credit default swap or other derivative underwritten by Goldman Sachs.

Filing a lawsuit against GS claiming malfeasance, fraud, embezzlement, failure to disclose material facts, etc. is a slam-dunk. These local governments and funds already have attorneys on staff; filing a lawsuit is cheap, and very importantly, it places the agency/fund/county etc. in the pool of entities which will receive a piece of any swag wrung from Goldman Sachs.

Let's also note that there are thousands of starving attorneys nowadays without jobs or prospects. Hundreds of lawsuits pending against Goldman Sachs and the other "too big to fail" Wall Street firms will provide much-needed work and much-desired opportunities to shine. As noted above, ramming a harpoon into the thrashing body of Goldman will advance a career most admirably and could result in huge payouts to the victorious legal firms.

The SEC case against Goldman Sachs may well be the match which lights a bonfire which will burn for years to come. If I were an attorney seeking a chunk of history and GS/Wall Street swag, I would locate the jurisdictions which have a history of ruling against Wall Street and then pare the list down to those in states with appellate/district courts which have backed up rulings against banks.

I would then locate cities, counties, funds, agencies and companies which bought some toxic paper, MBS, derivatives, etc. from Goldman Sachs, Citicorp, Bank of America, etc., and then I would file an exploratory lawsuit just to get in on any windfall down the road. A smart lawyer will very likely establish sufficient grounds to subpoena all the GS records relating to the derivative sold to their client, and then pull it apart, piece by piece, to build a case for malfeasance, fraud, embezzlement, failure to disclose material facts, etc.

In years past, Wall Street's toadies in Washington could have passed legislation to limit Goldman's liability to these charges. But the public's hatred of GS and its defenders has exceeded the understanding of Wall Street and Washington toadies alike. They both over-reached, and the consequences of over-reach are inevitably die-off.

There is simply no way Wall Street's toadies in Washington and their servants in the MSM can limit Goldman's liability to private party lawsuits and lawsuits filed by local government agencies, pension funds, etc.

It is common knowledge in legal circles that local courts don't like ruling against local government, on any issue. It is also a truism that local and state courts are politically influenced, despite the rubber-stamp claims to objectivity.

Even if the Federal courts and Congress actively seek to limit Goldman's liability, they will have a very difficult time restricting Goldman Sach's liability in state courts. If I were a D.A. (district attorney) in any state, I would be ordering my clerks to burn the midnight oil until they unearthed some state statutes which could be turned against GS and by extension, all the other Wall Street players and "too big to fail" banks.

Everybody loves a crusading D.A. who takes on Wall Street and wins a settlement, and thus the public will be cheering on the ravenous legal piranhas, hoping they chew the writhing vampire squid to extinction.

If you haven't visited the forum, here's a place to start. Click on the link below and then select "new posts." You'll get to see what other readers and contributors are discussing/sharing. is now open for aggregating our collective intelligence.

April 19, 2010: These F@#king Guys - Goldman Sachs

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This Day in History: April 20 -

<- Cover from the monthly publication The Masses, June of 1914, entitled "Class War In Colorado."

On this date 21-66(?) men, women and children were murdered in what has come to be known as the Ludlow Massacre during a coal-miner’s strike in Colorado.

Rep. King: ‘I’m For Abolishing the IRS and the Fed. I. Tax

( – Rep. Steve King (R-Iowa) said he supports “abolishing” the Internal Revenue Service (IRS) and the federal income tax code. He made his remarks at a pre-tax-day event on Capitol Hill with other Republicans and several conservative activists.

“I’m for real tax reform and -- you all know this and I’m not here to necessarily drive this message -- I’m for abolishing the IRS and the federal income tax code and replacing it, and you know how and what with,” said King, a member of the House Small Business Committee.

Rep. King told after the event, sponsored by the Americans for Tax Reform, that abolishing the IRS makes “perfect sense.”

“Well, I’ve been on this plan for 30 years,” King told “It makes perfect sense. Not just to me but to anybody that will debate this issue and that is, the IRS is, they sap the vitality of American business.”

“When you go look at a major corporation, and they will have multiple tax lawyers hired – sometimes whole floors or whole buildings committed to, not tax avoidance but tax delay -- how do they maximize the capital they have in order to grow wealth and create jobs?” said King.

“This tax on productivity in America has got to go,” he said. “I want to change the entire tax structure in America, take the penalty off of production and out it over on the side of consumption. The more we produce, the more wealth we have. The president has got it wrong. This economy isn’t built upon who can spend the most money – it’s not a giant chain-letter with no substance underneath it. What’s tied underneath it is the new wealth that is either mined out of the earth or that comes out of the land and we value-add to that multiple times. That’s all productivity. Then we market our productivity and that’s where our nation has wealth.”

“We’ve chased our manufacturing overseas,” said King. “If we just simply go to a fair tax, a national sales tax, abolish the IRS and the Internal Revenue Code, it will give us a 28 percent marketing advantage over products that are made overseas.”

Rep. King also addressed the critics of his idea.

“The people are the other side of this argument will argue that there’s something about -- they would claim that there are tax increases to consumers,” he said. “There are not. The consumer, the worker will get 56 percent more in their pay check. The prices of the goods go down an average of 22 percent. It’s goods and services.”

Rep. Paul Ryan (R-Wisc.), the ranking member of the House Budget Committee, also spoke at the event along with Rep. Michelle Bachmann (R-Minn.), Rep. Mike Pence (Ind.) and others.

He said that President Obama and the Democratic-controlled Congress have enacted $670 billion in tax increases into law.

“Fourteen of these new taxes hit people making less than $250,000,” said Ryan, a member of the House Ways and Means Committee. “Over $300 billion of those tax increases affect and hit those people making less than $250,000.”

“A promise was made, a promise was broken,” said Ryan, in reference to President Barack Obama’s oft-repeated pledge not to raise taxes of any kind on Americans making less than $250,000 a year.

The House Ways and Means Committee Republican Web site recently released a list of “tax increases totaling $670.341 billion that have been enacted into law under President Obama,” said Ryan, who also urged people to visit the site and read about the taxes that are now in the law.

IRS Refuses Identify How Many New IRS Personnel Needed to Enforce Obamacare

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Ex-Lehman Brothers boss Dick Fuld denies using accounting 'gimmick'

Former Lehman CEO Fuld testifies on Capitol Hill in Washington
Dick Fuld, former chief executive of the Wall Street bank Lehman Brothers, claims he is being unfairly vilified. Photograph: Kevin Lamarque/REUTERS

The former Lehman Brothers boss Dick Fuld has denied all recollection of an accounting trick allegedly used to boost the Wall Street bank's balance sheet by $50bn (£30bn).

He has also complained of being "unfairly vilified" over the 158-year-old firm's collapse in 2008. In a defiant rebuttal of accusations of mismanagement at Lehman, the veteran chief executive has claimed that a court-appointed bankruptcy examiner distorted the truth in an exhaustive 2,200 page report. It was published last month and found grounds for legal claims against Fuld and three senior lieutenants.

In a written testimony ahead of an appearance today before a Congressional committee, Fuld maintains that Lehman's finances were broadly sound and that the bank was a victim of unprecedented turmoil in the economy: "The world is still being told that Lehman had a huge capital hole. It did not."

Fuld says he has no memory of a now notorious technique known as Repo 105 which, according to the bankruptcy examiner, was a "gimmick" used to temporarily improve Lehman's finances at the end of each reporting period. "I have absolutely no recollection whatsoever of hearing anything about Repo 105 transactions while I was CEO of Lehman. Nor do I have any recollection of seeing documents that related to Repo 105 transactions."

A former air force pilot nicknamed "the gorilla" for his hard-charging style, Fuld ran Lehman from 1993 until the spectacular implosion of the firm in September 2008 that briefly threatened to destabilise the global financial system. He was paid some $350m between 2000 and 2008. Since stepping down, he has kept a low public profile, splitting his time between a ranch in Idaho and work for a new firm, Matrix Advisors.

In his testimony, he lets rip at the court-appointed author of the Lehman bankruptcy report, Anton Valukas, saying: "I believe that the examiner's report distorted the relevant facts and that the press, in turn, distorted the examiner's report. The result is that Lehman and its people have been unfairly vilified."

The findings by Valukas, a former federal prosecutor, raised questions not only about Fuld and his colleagues, but over the conduct of Lehman's auditor, Ernst & Young, and the London law firm Linklaters, which advised the bank. Both were criticised for allowing a misleading picture of Lehman's financial position to be given to investors.

Fuld has consistently refused to accept that he did anything wrong at Lehman. His testimony says he oversaw an organisation of 28,000 people in 40 countries and insists nobody ever raised concerns with him over accounting tricks.

He said: "Lehman was forced into bankruptcy amid one of the most turbulent periods of our economic history, which culminated in a catastrophic crisis of confidence. That crisis also brought down other financial institutions, but they were saved because of government support."

Fuld has previously said he would wonder "until the day they put me in the ground" why the US government allowed Lehman to go bust.

Milton Friedman - The Robin Hood Myth

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SEC order helps maintain AIG bailout mystery

* SEC granted "confidential treatment" last May

* Secrecy order stays in place until November 2018

By Matthew Goldstein

NEW YORK, Jan 11 (Reuters) - It could take until November 2018 to get the full story behind the U.S. bailout of insurance giant American International Group (AIG.N) because of an action taken last year by the Securities and Exchange Commission.

In May, the SEC approved a request by AIG to keep secret an exhibit to a year-old regulatory filing that includes some of the details on the most controversial aspect of the AIG bailout: the funneling of tens of billions of dollars to big banks like Societe Generale, Goldman Sachs (GS.N), Deutsche Bank (DBKGn.DE) and Merrill Lynch.

The SEC's Division of Corporation Finance, in granting AIG's request for confidential treatment, said the "excluded information" will not be made public until Nov. 25, 2018, according to a copy of the agency's May 22 order.

The SEC said the insurer had demonstrated the information in the exhibit, called Schedule A, "qualifies as confidential commercial or financial information."

The expiration date for the SEC order falls on the 10th anniversary of Federal Reserve of New York's decision to provide emergency financing to an entity set up to specifically acquire some $60 billion in collateralized debt obligations from 16 banks in the United States and Europe.

All the banks that got money from the Fed-sponsored entity -- Maiden Lane III -- had purchased insurance contracts, or credit default swaps, on those mortgage-related securities from AIG.

The SEC's decision to approve AIG's request for confidential treatment got scant attention at the time. But it could spark controversy now following the release last week of 14-month-old emails that reveal that some at the New York Fed had discussions with AIG officials about how much information should be disclosed to the public about the Maiden Lane III transaction.

The New York Fed, then led by Treasury Secretary Timothy Geithner, plays a critical role in the world of finance given its close dealings with all the major Wall Street banks, many of which were counterparties of AIG.

SEC spokesman John Nestor declined to comment on the reasons for granting AIG's request to treat the exhibit as confidential.

In a typical year, the SEC receives 1,500 requests from U.S. companies for confidential treatment for portions of regulatory filing, said Nestor. The agency grants those requests, "all or in part," 95 percent of the time, he said.

It's not clear what information is in the exhibit beyond a listing of the 16 banks that were beneficiaries of the Maiden Lane transaction. Last March, under pressure from Congress, AIG released the names of the banks that sold CDOs to Maiden Lane and how much money the banks got in the process.

When AIG filed the Schedule A exhibit with the SEC, it redacted the information it wanted to keep confidential, in anticipation regulators would approve its request.

The Fed's bailout of AIG long has been controversial because the banks that sold CDOs to Maiden Lane III were paid 100 percent of face value, even though many of the securities were worth substantially less at the time of the government bailout.

Last Thursday the furor over the Maiden Lane transaction was reignited after Rep. Darrell Issa, a California Republican, released copies of emails detailing discussions between the New York Fed and AIG over how much information to disclose.

The emails have provided fresh ammunition for critics of Geithner. New York Fed General Counsel Thomas Baxter Jr. said in a letter to Issa's office that Geithner "played no role in, and had no knowledge of" the emails.

Issa, the highest-ranking Republican on the House Committee on Oversight and Government Reform, said the panel will soon hold hearings about how information was disclosed to the public about the Maiden Lane deal.

Issa's spokesman Kurt Bardella declined to comment on the SEC's handling of the AIG's confidentiality request.

But Issa, in a prepared statement, said "as much information as possible should be made available to Congress to review the details and decisions" regarding the payments.

The batch of emails released by Issa discussed the SEC's requests for more information about the exhibit that AIG wanted to keep secret. But the emails did not mention the SEC's decision to grant AIG's request for confidential treatment. (Reporting by Matthew Goldstein; Editing by Gary Hill)

Goldman Sachs taps ex-White House counsel

Goldman Sachs is launching an aggressive response to its political and legal challenges with an unlikely ally at its side — President Barack Obama’s former White House counsel, Gregory Craig.

The beleaguered Wall Street bank hired Craig — now in private practice at Skadden, Arps, Slate, Meagher & Flom — in recent weeks to help in navigate the halls of power in Washington, a source familiar with the firm told POLITICO.

“He is clearly an attorney of eminence and has a deep understanding of the legal process and the world of Washington,” the source said. “And those are important worlds for everybody in finance right now.”

They’re particularly important for Goldman.

On Friday, the SEC charged the firm with securities fraud in a convoluted subprime mortgage deal that took place before the collapse of the housing market. Next week, Goldman Sachs CEO Lloyd Blankfein will face questions from the Senate Permanent Subcommittee on Investigations, which is looking into the causes of the housing meltdown, the source said.

In Craig, Goldman Sachs will have help from a lawyer with deep connections in Democratic circles.

Craig served as White House counsel during the first year of Obama’s presidency, but is seen as having been pushed out for his role in advocating a strict timeline for the closing of the U.S. detention facility at Guantanamo Bay. His departure frustrated many liberal Obama supporters who saw Craig as a strong advocate for undoing some of what they saw as the worst excesses of the Bush era.

But the source familiar with Goldman’s operations said Craig wasn’t hired just because he’s well-connected.

“It’s about advice and process,” the source said. “People will always leap to the conclusion that it’s about somebody’s Rolodex.”

Skadden declined to comment on Craig’s role with Goldman.

"A former White House employee cannot appear before any unit of the Executive Office of the President on behalf of any client for 2 years—one year under federal law and another year under the pledge pursuant to the January 2009 ethics E0," said a White House official.

The official also said that the White House had no contact with the SEC on the Goldman Sachs case. "The SEC by law is an independent agency that does not coordinate with the White House any part of their enforcement actions."

Whatever the reason for his hiring, Craig will presumably be a key player in the intricate counterattack Goldman Sachs officials in Washington and Manhattan improvised during the weekend — a plan that took clearer shape Monday as Britain and Germany announced that they might conduct their own investigations of the firm.

For three weeks, Goldman had planned to hold a conference call Tuesday to unveil its first-quarter earnings for shareholders. Shifting into campaign mode after the SEC’s surprise fraud filing, Goldman has moved the call up from 11 a.m. to 8 a.m. to try to get ahead of the day’s buzz. In an unusual addition, the firm’s chief counsel will be on the line to answer questions about the case, and Goldman is inviting policymakers and clients to listen to the earnings call themselves rather than rely on news reports.

Industry officials said the conference call — which will include, as originally planned, Chief Financial Officer David Viniar — will amount to a public unveiling of Goldman’s crisis strategy.

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Overview of Enron Scandal

Enron Corporation is an energy trading, natural gas, and electric utilities company based in Houston , Texas that employed around 21,000 people by mid-2001, before it went bankrupt.

Fraudulent accounting techniques allowed it to be listed as the seventh largest company in the United States , and it was expected to dominate the trading it had virtually invented in communications, power, and weather securities.

Instead, it became the largest corporate scandal in history, and became emblematic of institutionalized and well-planned corporate fraud.

Enron cynically and knowingly created the phony California electricity crisis of 2000 and 2001.

There was never a shortage of power in California . Using tape recordings of Enron traders on the phone with California power plants, the film chillingly overhears them asking plant managers to "get a little creative" in shutting down plants for "repairs."

Between 30 percent and 50 percent of California's energy industry was shut down by Enron a great deal of the time, and up to 76 percent at one point, as the company drove the price of electricity higher by nine times.

Its European operations filed for bankruptcy on November 30, 2001, and it sought Chapter 11 protection in the U.S. on December 2.

Enron's global reputation was undermined, by persistent rumors of bribery and political pressure to secure contracts in Central and South America, in Africa, and in the Philippines .

Especially controversial was its $30 billion contract with the Maharashtra State Electricity Board in India , where it is alleged that Enron officials used political connections within the Clinton and Bush administrations to exert pressure on the board. On January 9, 2002, the United States Department of Justice announced it was going to pursue a criminal investigation of the Enron scandal and Congressional hearings began on January 24.

After a series of scandals involving irregular accounting procedures bordering on fraud involving Enron and its accounting firm Arthur Andersen, it stood at the verge of undergoing the largest bankruptcy in history by mid-November 2001. A white knight rescue attempt by a similar, smaller energy company, Dynegy, was not viable.

During 2001, Enron shares fell from US$85 to US$0.30.

As Enron was considered a blue chip stock, this was an unprecedented and disastrous event in the financial world. Enron's plunge occurred after it was revealed that many of its profits and revenue were the result of deals with special purpose entities.

The result of this accounting scandal was that many of the losses that Enron encountered were not reported in its financial statements.

Following the 2001 bankruptcy filing, Enron has been attempting to restructure in order to compensate as many creditors as possible.

Enron's innovative core energy trading business was sold early in the bankruptcy proceedings to Merrill Lynch and Company. A last-ditch survival attempt was made in 2002 through a planned merger with arch-rival Dynegy Corporation. Dynegy backed out during merger talks, acquiring control of Enron's original, predecessor company- Northern Natural Gas- in the process.

Enron is currently pursuing legal action against Dynegy over the takeover of Northern Natural Gas, which has since been sold by Dynegy to MidAmerican Energy Holdings Company.

Enron's final bankruptcy plan provides for the creation of three new businesses to be spun off from Enron as independent, debt-free companies.

The reorganization process commenced in 2003, with the formation of two new Enron subsidiaries, CrossCountry Energy L.L.C., and Prisma Energy International Inc.