Monday, January 24, 2011

Do You Feel Safer Yet?

In New York City, my hometown, as in so many cities across the country, a hard-pressed local government and a desperate transit authority are cutting back on services while hiking prices for a deteriorating subway and bus system. For night workers and those out in the lonely, dark early morning hours, some bus lines are simply being eliminated. Meanwhile, in one small settlement of 14,000 people in embattled Helmand Province in southern Afghanistan, a single marine platoon is spending on average $400,000 a month on "reconstruction projects." The Marines have, according to a BBC reporter who visited, "put up street lights, cleaned irrigation channels, handed out radios, paved the bazaar, built bridges, and are currently building a new school." Do I feel safer?

In the U.S., policemen and firemen are being laid off, and the budgets of police and fire departments cut back or, in a few small places, eliminated. In Afghanistan, the U.S., having already invested $20 billion in building up the Afghan police and military, is now planning to spend $11.6 billion more this year alone, $12.8 billion in 2012, and more than $6 billion a year thereafter. According to Washington's latest scheme, the Afghan security forces will be increased to 378,000 men in a poverty-stricken land, which means committing U.S. tax dollars to the project into the distant future. Do you feel safer?

In the United States, teachers are being laid off, class-sizes are on the rise, and tuition at public colleges is soaring. In Afghanistan, the U.S. Agency for International Development (USAID) claims to have built or refurbished 524 schools and to be completing another 130 of them. Do you feel safer now?

In the U.S., basic infrastructure has been fraying, bridges collapsing, natural gas pipelines exploding, and projects like a commuter-rail tunnel connecting New Jersey to New York City are being canceled or put off. In Afghanistan and Pakistan, giant American-funded building projects are revving up (for which locals are being hired), especially a giant embassy/citadel in Kabul at the cost of $511 million (with nearly $200 million more going to the expansion of consular establishments elsewhere in that country). Meanwhile in Islamabad, Pakistan's capital, another monster U.S. citadel-cum-regional-command-center is being built for nearly three-quarters of a billion dollars. Do you feel safer yet?

In the United States, according to the director of the Argonne National Laboratory, the aging national power grid "resembles the patchwork of narrow, winding, badly maintained highways of the 1920s and 1930s" before they were rebuilt as the interstate highway system and cries out for "strategic upgrading." In Afghanistan, USAID has just awarded the Black & Veatch Corporation "a no-bid contract worth $266 million... to pump more power into Kandahar and Helmand provinces." Meanwhile the U.S. Army Corps of Engineers is investing $227 million in diesel-generator power plants and electrical-system upgrades for southern Afghanistan. Finally feeling a little safer?

Oh, and in case you think that these reconstruction projects are actually making Afghans feel safer, many of them are ill-built, visible boondoggles, and already crumbling. The cost of 15 large-scale reconstruction programs in Afghanistan studied by McClatchy News ballooned from slightly more than one billion dollars to just under three billion dollars "despite the government's questions about effectiveness or cost." A previous Black & Veatch project to build a diesel-fueled power plant in Kabul for $100 million, for instance, ended up costing $300 million and was a year behind schedule. Schools have reportedly been constructed so shoddily that they would have no hope of withstanding an earthquake and, according to the Washington Post, "roads, canals, and schools built... as part of a special U.S. military program are crumbling under Afghan stewardship." Does anyone feel safer?

Think about this and then consider what TomDispatch regular Ira Chernus calls America's myth of national insecurity.

9/11 Museum "Non-Profit" Execs Cash-In?

Ed. Note: This is pure greed, endemic of the people behind the 9/11 false flag, by these multi-generational serial killers and their outreach managers. I lost family when THEYblew up the towers, but even the average apathetic person on the street should be bothered by this "non-profit" Disease Industry®™ scam based on fear, playing on emotions to line their pockets, following the Wall Street and federal government model in this engineered economic collapse for F'n financial gain.

Kids' Small Donations Pay for Inflated Salaries

By ANNIE KARNI | Last Updated: 10:43 AM, January 23, 2011

Schoolchildren thought their penny jars and bake-sale proceeds would go toward building a 9/11 memorial at Ground Zero -- not the six-figure salaries of nonprofit execs.

But 11 staffers at the National September 11 Memorial & Museum each pulled down more than $170,000 in total compensation in 2009, according to the most recent filings. Four execs took home more than $320,000.

Foundation President Joseph Daniels, 38, pocketed $371,307 after receiving hefty raises three years in a row -- 28 percent in 2006, when he was promoted from acting president, followed by 12 percent and 6 percent.

Museum director Alice Greenwald made $351,000, and capital planning Vice President Joan Gerner soaked up $337,143 before leaving last spring. Development director Cathy Blaney raked in $322,292. The full-time foundation employee also worked last year as a fund-raiser for Gov. Cuomo's election campaign.

The money to pay the $5.3 million in compensation for the foundation's 87 staffers in 2009 came from private donations -- $220 million raised in a Herculean grass-roots effort to honor the 2,974 victims of the Sept. 11, 2001, attacks, and $150 million from blue-ribbon board members. More than 60,000 individuals in all 50 states and 31 countries donated to the cause.

The rest of the foundation's money -- about $330 million in tax funds from the state and the Lower Manhattan Development Corp. -- is earmarked for construction of the $610 million project.

Donors ranged from Ohio high-school students who raised $14,000 by completing a 650-mile trek from their Toledo suburb to Ground Zero, to pupils at Bethpage HS in New Jersey who collected $746 in pennies.

Teacher Shawn Clincy of the Mary Volz School in Runnemede, NJ, whose middle-school students raised $1,000 knocking on doors, was shocked by the salaries. "They're taking money from 13-year-olds who went out and collected donations.

That doesn't sit right with me," he said.

Michael Burke, whose firefighter brother, William, was killed in the attacks, questioned the generous pay: "These guys are making a fortune -- it seems extravagant."

Sandra Miniutti, a spokeswoman for the nonprofit watchdog Charity Navigator, said the salaries were "on the high side for a comparable-sized organization." The average base salary for a CEO of a mid-size foundation like the memorial is about $160,000, and second-tier managers usually make much less, she said.

The memorial and museum is being built on 10 acres at Ground Zero, featuring two large reflecting pools with manmade waterfalls set within the footprints of the Twin Towers.

Originally scheduled to open in 2009, the memorial designed by Michael Arad and Peter Walker will be unveiled two years late, on the 10th anniversary of the attacks. The museum is expected to open in 2012, also two years late.

The underground 100,000-
square-foot museum will exhibit the iconic "survivor stairs" and "last column" and donated artifacts from the site and victims' families.

The foundation defended the salaries disclosed in IRS tax filings reviewed by The Post.

"We're setting up a venue that will be the highest drawing venue in New York City," said board member Tom Roger, who lost his daughter on 9/11. "You don't bring in your typical, well-meaning nonprofit person off the street to get that done.

Once it's opened and operational, the salary structure will . . . come back down."

Foundation officials pointed to the compensation package of $456,558 earned by the head of the American Cancer Society's Eastern Division, which has similar annual revenue of $96 million.

Mayor Bloomberg, board chairman, said, "They're paid only a fraction of what they're worth, but at a level similar to people at comparable nonprofits."

High-priced execs Highest earners at the National September 11 Memorial & Museum (2009 total compensation):

* Joe Daniels, President: $371,307
* Alice Greenwald, Executive VP for Programs: $351,100
* Joan Gerner, Executive VP, Capital Planning (Left in Spring 2010): $337,143
* Cathy Blaney, Executive VP, Development: $322,292
* David Langford, CFO: $224,113
* Luis Mendes, VP Design and Construction: $221,429
* Lynn Rasic, Senior VP, Public Affairs: $214,270
* Noelle Lillien, General Counsel: $193,316
* Suany Chough, Senior Adviser, Design Construction and Planning: $190,831
* Allison Bailey, Chief of Staff to President: $171,417

Victims of rental scam scramble to find new home

A family with eight children is being forced to move out of their new home after finding out they were victims of a scam.

Emilia Munoz, her husband, and eight children thought they had found a beautiful new rental home with an even more attractive rate.

"We got it off of Craigslist," said Munoz.

They immediately contacted who they thought was the owner.

"They met us here and they showed us the house, they told us they have other properties," Munoz continued.

That was two weeks ago. On Friday night, police knocked on their door and told them they were living in a foreclosed home - and the man who pretended to be the owner had scammed them.

Now they have to move out as soon as possible.

"I just think it's unfair because I have kids--and there's other people who rent and have kids--and people just don't have money to rent every other day," said Munoz.

Police are still looking for the scammer but even if he's found, Emilia and her family are out hundreds, even thousands of dollars.

"These renters, the money that they're paying for first and last month's rent - not to mention for the fees for utilities, they're going to have to cut off those utilities when they do move out so they're going to incur a lot of costs they're not going to be able to get back," said APD Officer Robert Gibbs.

How could this happen?

The broker in charge of the home tells us scammers are stealing lockbox keys right from the front doors and posting ads for rent online.

"They're advertising usually below market rents, get the money get the cash and adios," said broker, Ron Campbell.

For Munoz and her family it's more than an inconvenience, affecting every aspect of their lives.

"We just moved in. We paid money to move here. And now they're telling us we're going to have to move. I don't know what's going to happen after this," she said.

How The Federal Reserve Bought The Economics Profession

Do not skip this story. Absolutely brilliant piece of investigative journalism from Ryan Grim. At a minimum, please give it a quick read.

Editor's note - We are republishing this story from last year for those who missed it the first time around.


Source - Ryan Grim - Huffington Post

Reprinted with permission.

How The Federal Reserve Bought The Economics Profession

  • The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found.
  • This dominance helps explain how, even after the Fed failed to foresee the greatest economic collapse since the Great Depression, the central bank has largely escaped criticism from academic economists. In the Fed's thrall, the economists missed it, too.

One critical way the Fed exerts control on academic economists is through its relationships with the field's gatekeepers. For instance, at the Journal of Monetary Economics, a must-publish venue for rising economists, more than half of the editorial board members are currently on the Fed payroll -- and the rest have been in the past.

The Fed failed to see the housing bubble as it happened, insisting that the rise in housing prices was normal. In 2004, after "flipping" had become a term cops and janitors were using to describe the way to get rich in real estate, then-Federal Reserve Chairman Alan Greenspan said that "a national severe price distortion [is] most unlikely." A year later, current Chairman Ben Bernanke said that the boom "largely reflect strong economic fundamentals."

The Fed also failed to sufficiently regulate major financial institutions, with Greenspan -- and the dominant economists -- believing that the banks would regulate themselves in their own self-interest.

Despite all this, Bernanke has been nominated for a second term by President Obama.

In the field of economics, the chairman remains a much-heralded figure, lauded for reaction to a crisis generated, in the first place, by the Fed itself. Congress is even considering legislation to greatly expand the powers of the Fed to systemically regulate the financial industry.

Paul Krugman, in Sunday's New York Times magazine, did his own autopsy of economics, asking "How Did Economists Get It So Wrong?" Krugman concludes that "[e]conomics, as a field, got in trouble because economists were seduced by the vision of a perfect, frictionless market system."

So who seduced them?

The Fed did it.

Three Decades of Domination

The Fed has been dominating the profession for about three decades. "For the economics profession that came out of the [second world] war, the Federal Reserve was not a very important place as far as they were concerned, and their views on monetary policy were not framed by a working relationship with the Federal Reserve. So I would date it to maybe the mid-1970s," says University of Texas economics professor -- and Fed critic -- James Galbraith. "The generation that I grew up under, which included both Milton Friedman on the right and Jim Tobin on the left, were independent of the Fed. They sent students to the Fed and they influenced the Fed, but there wasn't a culture of consulting, and it wasn't the same vast network of professional economists working there."

But by 1993, when former Fed Chairman Greenspan provided the House banking committee with a breakdown of the number of economists on contract or employed by the Fed, he reported that 189 worked for the board itself and another 171 for the various regional banks. Adding in statisticians, support staff and "officers" -- who are generally also economists -- the total number came to 730. And then there were the contracts. Over a three-year period ending in October 1994, the Fed awarded 305 contracts to 209 professors worth a total of $3 million.

Just how dominant is the Fed today?

The Federal Reserve's Board of Governors employs 220 PhD economists and a host of researchers and support staff, according to a Fed spokeswoman. The 12 regional banks employ scores more. (HuffPost placed calls to them but was unable to get exact numbers.) The Fed also doles out millions of dollars in contracts to economists for consulting assignments, papers, presentations, workshops, and that plum gig known as a "visiting scholarship." A Fed spokeswoman says that exact figures for the number of economists contracted with weren't available. But, she says, the Federal Reserve spent $389.2 million in 2008 on "monetary and economic policy," money spent on analysis, research, data gathering, and studies on market structure; $433 million is budgeted for 2009.

That's a lot of money for a relatively small number of economists. According to the American Economic Association, a total of only 487 economists list "monetary policy, central banking, and the supply of money and credit," as either their primary or secondary specialty; 310 list "money and interest rates"; and 244 list "macroeconomic policy formation [and] aspects of public finance and general policy." The National Association of Business Economists tells HuffPost that 611 of its roughly 2,400 members are part of their "Financial Roundtable," the closest way they can approximate a focus on monetary policy and central banking.

Robert Auerbach, a former investigator with the House banking committee, spent years looking into the workings of the Fed and published much of what he found in the 2008 book, "Deception
and Abuse at the Fed
". A chapter in that book, excerpted here, provided the impetus for this investigation.

Auerbach found that in 1992, roughly 968 members of the AEA designated "domestic monetary and financial theory and institutions" as their primary field, and 717 designated it as their secondary field. Combining his numbers with the current ones from the AEA and NABE, it's fair to conclude that there are something like 1,000 to 1,500 monetary economists working across the country. Add up the 220 economist jobs at the Board of Governors along with regional bank hires and contracted economists, and the Fed employs or contracts with easily 500 economists at any given time. Add in those who have previously worked for the Fed -- or who hope to one day soon -- and you've accounted for a very significant majority of the field.

Auerbach concludes that the "problems associated with the Fed's employing or contracting with large numbers of economists" arise "when these economists testify as witnesses at legislative hearings or as experts at judicial proceedings, and when they publish their research and views on Fed policies, including in Fed publications."

Gatekeepers On The Payroll

The Fed keeps many of the influential editors of prominent academic journals on its payroll. It is common for a journal editor to review submissions dealing with Fed policy while also taking the bank's money. A HuffPost review of seven top journals found that 84 of the 190 editorial board members were affiliated with the Federal Reserve in one way or another.

"Try to publish an article critical of the Fed with an editor who works for the Fed," says Galbraith. And the journals, in turn, determine which economists get tenure and what ideas are considered respectable.

The pharmaceutical industry has similarly worked to control key medical journals, but that involves several companies. In the field of economics, it's just the Fed.

Being on the Fed payroll isn't just about the money, either. A relationship with the Fed carries prestige; invitations to Fed conferences and offers of visiting scholarships with the bank signal a rising star or an economist who has arrived.

Affiliations with the Fed have become the oxygen of academic life for monetary economists. "It's very important, if you are tenure track and don't have tenure, to show that you are valued by the Federal Reserve," says Jane D'Arista, a Fed critic and an economist with the Political Economy Research Institute at the University of Massachusetts, Amherst.

Robert King, editor in chief of the Journal of Monetary Economics and a visiting scholar at the Richmond Federal Reserve Bank, dismisses the notion that his journal was influenced by its Fed connections. "I think that the suggestion is a silly one, based on my own experience at least," he wrote in an e-mail. (His full response is at the bottom.)

Galbraith, a Fed critic, has seen the Fed's influence on academia first hand. He and co-authors Olivier Giovannoni and Ann Russo found that in the year before a presidential election, there is a significantly tighter monetary policy coming from the Fed if a Democrat is in office and a significantly looser policy if a Republican is in office. The effects are both statistically significant, allowing for controls, and economically important.

They submitted a paper with their findings to the Review of Economics and Statistics in 2008, but the paper was rejected. "The editor assigned to it turned out to be a fellow at the Fed and that was after I requested that it not be assigned to someone affiliated with the Fed," Galbraith says.

Publishing in top journals is, like in any discipline, the key to getting tenure. Indeed, pursuing tenure ironically requires a kind of fealty to the dominant economic ideology that is the precise opposite of the purpose of tenure, which is to protect academics who present oppositional perspectives.

And while most academic disciplines and top-tier journals are controlled by some defining paradigm, in an academic field like poetry, that situation can do no harm other than to, perhaps, a forest of trees. Economics, unfortunately, collides with reality -- as it did with the Fed's incorrect reading of the housing bubble and failure to regulate financial institutions. Neither was a matter of incompetence, but both resulted from the Fed's unchallenged assumptions about the way the market worked.

Even the late Milton Friedman, whose monetary economic theories heavily influenced Greenspan, was concerned about the stifled nature of the debate. Friedman, in a 1993 letter to Auerbach that the author quotes in his book, argued that the Fed practice was harming objectivity: "I cannot disagree with you that having something like 500 economists is extremely unhealthy. As you say, it is not conducive to independent, objective research. You and I know there has been censorship of the material published. Equally important, the location of the economists in the Federal Reserve has had a significant influence on the kind of research they do, biasing that research toward noncontroversial technical papers on method as opposed to substantive papers on policy and results," Friedman wrote.

Greenspan told Congress in October 2008 that he was in a state of "shocked disbelief" and that the "whole intellectual edifice" had "collapsed." House Committee on Oversight and Government Reform Chairman Henry Waxman (D-Calif.) followed up: "In other words, you found that your view of the world, your ideology, was not right, it was not working."

"Absolutely, precisely," Greenspan replied. "You know, that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well."

But, if the intellectual edifice has collapsed, the intellectual infrastructure remains in place. The same economists who provided Greenspan his "very considerable evidence" are still running the journals and still analyzing the world using the same models that were incapable of seeing the credit boom and the coming collapse.

Rosner, the Wall Street analyst who foresaw the crash, says that the Fed's ideological dominance of the journals hampered his attempt to warn his colleagues about what was to come. Rosner wrote a strikingly prescient paper in 2001 arguing that relaxed lending standards and other factors would lead to a boom in housing prices over the next several years, but that the growth would be highly susceptible to an economic disruption because it was fundamentally unsound.

He expanded on those ideas over the next few years, connecting the dots and concluding that the coming housing collapse would wreak havoc on the collateralized debt obligation (CDO) and mortgage backed securities (MBS) markets, which would have a ripple effect on the rest of the economy. That, of course, is exactly what happened and it took the Fed and the economics field completely by surprise.

"What you're doing is, actually, in order to get published, having to whittle down or narrow what might otherwise be oppositional or expansionary views," says Rosner. "The only way you can actually get in a journal is by subscribing to the views of one of the journals."

When Rosner was casting his paper on CDOs and MBSs about, he knew he needed an academic economist to co-author the paper for a journal to consider it. Seven economists turned him down.

"You don't believe that markets are efficient?" he says they asked, telling him the paper was "outside the bounds" of what could be published. "I would say 'Markets are efficient when there's equal access to information, but that doesn't exist,'" he recalls.

The CDO and MBS markets froze because, as the housing market crashed, buyers didn't trust that they had reliable information about them -- precisely the case Rosner had been making.

He eventually found a co-author, Joseph Mason, an associate Professor of Finance at Drexel University LeBow College of Business, a senior fellow at the Wharton School, and a visiting scholar at the Federal Deposit Insurance Corporation. But the pair could only land their papers with the conservative Hudson Institute. In February 2007, they published a paper called "How Resilient Are Mortgage Backed Securities to Collateralized Debt Obligation Market Disruptions?" and in May posted another, "How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions."

Together, the two papers offer a better analysis of what led to the crash than the economic journals have managed to put together - and they were published by a non-PhD before the crisis.

Not As Simple As A Pay-Off

Economist Rob Johnson serves on the UN Commission of Experts on Finance and International Monetary Reform and was a top economist on the Senate banking committee under both a Democratic and Republican chairman. He says that the consulting gigs shouldn't be looked at "like it's a payoff, like money. I think it's more being one of, part of, a club -- being respected, invited to the conferences, have a hearing with the chairman, having all the prestige dimensions, as much as a paycheck."

The Fed's hiring of so many economists can be looked at in several ways, Johnson says, because the institution does, of course, need talented analysts. "You can look at it from a telescope, either direction. One, you can say well they're reaching out, they've got a big budget and what they're doing, I'd say, is canvassing as broad a range of talent," he says. "You might call that the 'healthy hypothesis.'"

The other hypothesis, he says, "is that they're essentially using taxpayer money to wrap their arms around everybody that's a critic and therefore muffle or silence the debate. And I would say that probably both dimensions are operative, in reality."

To get a mainstream take, HuffPost called monetary economists at random from the list as members of the AEA. "I think there is a pretty good number of professors of economics who want a very limited use of monetary policy and I don't think that that necessarily has a negative impact on their careers," said Ahmed Ehsan, reached at the economics department at James Madison University. "It's quite possible that if they have some new ideas, that might be attractive to the Federal Reserve."

Ehsan, reflecting on his own career and those of his students, allowed that there is, in fact, something to what the Fed critics are saying. "I don't think [the Fed has too much influence], but then my area is monetary economics and I know my own professors, who were really well known when I was at Michigan State, my adviser, he ended up at the St. Louis Fed," he recalls. "He did lots of work. He was a product of the there is some evidence, but it's not an overwhelming thing."

There's definitely prestige in spending a few years at the Fed that can give a boost to an academic career, he added. "It's one of the better career moves for lots of undergraduate students. It's very competitive."

Press officers for the Federal Reserve's board of governors provided some background information for this article, but declined to make anyone available to comment on its substance.

The Fed's Intolerance For Dissent

When dissent has arisen, the Fed has dealt with it like any other institution that cherishes homogeneity.

Take the case of Alan Blinder. Though he's squarely within the mainstream and considered one of the great economic minds of his generation, he lasted a mere year and a half as vice chairman of the Fed, leaving in January 1996.

Rob Johnson, who watched the Blinder ordeal, says Blinder made the mistake of behaving as if the Fed was a place where competing ideas and assumptions were debated. "Sociologically, what was happening was the Fed staff was really afraid of Blinder. At some level, as an applied empirical economist, Alan Blinder is really brilliant," says Johnson.

In closed-door meetings, Blinder did what so few do: challenged assumptions. "The Fed staff would come out and their ritual is: Greenspan has kind of told them what to conclude and they produce studies in which they conclude this. And Blinder treated it more like an open academic debate when he first got there and he'd come out and say, 'Well, that's not true. If you change this assumption and change this assumption and use this kind of assumption you get a completely different result.' And it just created a stir inside--it was sort of like the whole pipeline of Greenspan-arriving-at-decisions was

It didn't sit well with Greenspan or his staff. "A lot of senior staff...were pissed off about Blinder -- how should we say? -- not playing by the customs that they were accustomed to," Johnson says.

And celebrity is no shield against Fed excommunication. Paul Krugman, in fact, has gotten rough treatment. "I've been blackballed from the Fed summer conference at Jackson Hole, which I used to be a regular at, ever since I criticized him," Krugman said of Greenspan in a 2007 interview withPacifica Radio's Democracy Now! "Nobody really wants to cross him."

An invitation to the annual conference, or some other blessing from the Fed, is a signal to the economic profession that you're a certified member of the club. Even Krugman seems a bit burned by the slight. "And two years ago," he said in 2007, "the conference was devoted to a field, new economic geography, that I invented, and I wasn't invited."

Three years after the conference, Krugman won a Nobel Prize in 2008 for his work in economic geography.

One Journal, In Detail

The Huffington Post reviewed the mastheads of the American Journal of Economics, the Journal of Economic Perspectives, Journal of Economic Literature, the American Economic Journal: Applied Economics, American Economic Journal: Economic Policy, the Journal of Political Economy and the Journal of Monetary Economics.

HuffPost interns Googled around looking for resumes and otherwise searched for Fed connections for the 190 people on those mastheads. Of the 84 that were affiliated with the Federal Reserve at one point in their careers, 21 were on the Fed payroll even as they served as gatekeepers at prominent journals.

At the Journal of Monetary Economics, every single member of the editorial board is or has been affiliated with the Fed and 14 of the 26 board members are presently on the Fed payroll.

After the top editor, King, comes senior associate editor Marianne Baxter, who has written papers for the Chicago and Minneapolis banks and was a visiting scholar at the Minneapolis bank in '84, '85, at the Richmond bank in '97, and at the board itself in '87. She was an advisor to the president of the New York bank from '02-'05. Tim Geithner, now the Treasury Secretary, became president of the New York bank in '03.

The senior associate editors: Janice C Eberly was a Fed visiting-scholar at Philadelphia ('94), Minneapolis ('97) and the board ('97). Martin Eichenbaum has written several papers for the Fed and is a consultant to the Chicago and Atlanta banks. Sergio Rebelo has written for and was previously a consultant to the board. Stephen Williamson has written for the Cleveland, Minneapolis and Richmond banks, he worked in the Minneapolis bank's research department from '85-'87, he's on the editorial board of the Federal Reserve Bank of St. Louis Review, is the co-organizer of the '09 St. Louis Federal Reserve Bank annual economic policy conference and the co-organizer of the same bank's '08 conference on Money, Credit, and Policy, and has been a visiting scholar at the Richmond bank ever since '98.

And then there are the associate editors. Klaus Adam is a visiting scholar at the San Francisco bank. Yongsung Chang is a research associate at the Cleveland bank and has been working with the Fed in one position or another since '01. Mario Crucini was a visiting scholar at the Federal Reserve Bank of New York in '08 and has been a senior fellow at the Dallas bank since that year. Huberto Ennis is a senior economist at the Federal Reserve Bank of Richmond, a position he's held since '00. Jonathan Heathcote is a senior economist at the Minneapolis bank and has been a visiting scholar three times dating back to '01.

Ricardo Lagos is a visiting scholar at the New York bank, a former senior economist for the Minneapolis bank and a visiting scholar at that bank and Cleveland's. In fact, he was a visiting scholar at both the Cleveland and New York banks in '07 and '08. Edward Nelson was the assistant vice president of the St Louis bank from '03-'09.

Esteban Rossi-Hansberg was a visiting scholar at the Philadelphia bank from '05-'09 and similarly served at the Richmond, Minneapolis and New York banks.

Pierre-Daniel Sarte is a senior economist at the Richmond bank, a position he's held since '96. Frank Schorfheide has been a visiting scholar at the Philadelphia bank since '03 and at the New York bank since '07. He's done four such stints at the Atlanta bank and scholared for the board in '03. Alexander Wolman has been a senior economist at the Richmond bank since 1989.

Here is the complete response from King, the journal's editor in chief: "I think that the suggestion is a silly one, based on my own experience at least. In a 1988 article for AEI later republished in the Federal Reserve Bank of Richmond Review, Marvin Goodfriend (then at FRB Richmond and now at Carnegie Mellon) and I argued that it was very important for the Fed to separate monetary policy decisions (setting of interest rates) and banking policy decisions (loans to banks, via the discount window and otherwise). We argued further that there was little positive case for the Fed to be involved in the latter: broadbased liquidity could always be provided by the former. We also argued that moral hazard was a cost of banking intervention.

"Ben Bernanke understands this distinction well: he and other members of the FOMC have read my perspective and sometimes use exactly this distinction between monetary and banking policies. In difficult times, Bernanke and his fellow FOMC members have chosen to involve the Fed in major financial market interventions, well beyond the traditional banking area, a position that attracts plenty of criticism and support. JME and other economics major journals would certainly publish exciting articles that fell between these two distinct perspectives: no intervention and extensive intervention. An upcoming Carnegie-Rochester conference, with its proceeding published in JME, will host a debate on 'The Future of Central Banking'.

"You may use only the entire quotation above or no quotation at all."

Auerbach, shown King's e-mail, says it's just this simple: "If you're on the Fed payroll there's a conflict of interest."

UPDATE: Economists have written in weighing in on both sides of the debate. Here are two of them.

Stephen Williamson, the Robert S. Brookings Distinguished Professor in Arts and Sciences at Washington University in St. Louis:

Since you mentioned me in your piece on the Federal Reserve System, I thought I would drop you a note, as you clearly don't understand the relationship between the Fed and some of the economists on its payroll. I have had a long relationship with the Fed, and with other central banks in the world, including the Bank of Canada. Currently I have an academic position at Washington University in St. Louis, but I am also paid as a consultant to the Federal Reserve Banks of Richmond and St. Louis. In the past, I was a full-time economist at the Bank of Canada and at the Federal Reserve Bank of Minneapolis.

As has perhaps become clearer in the last year, economics and the science of monetary policy is a complicated business, and the Fed needs all the help it can get. The Fed is perhaps surprisingly open to new ideas, and ideas that are sometimes in conflict with the views of its top people. One of the strengths of the Federal Reserve System is that the regional Federal Reserve Banks have a good deal of independence from the Board of Governors in Washington, and this creates a healthy competition in economic ideas within the system. Indeed, some very revolutionary ideas in macroeconomics came out of the intellectual environment at the Federal Reserve Bank of Minneapolis in the 1970s and 1980s. That intellectual environment included economists who worked full-time for the Fed, and others who were paid consultants to the Fed, but with full-time academic positions. Those economists were often sharply critical of accepted Fed policy, and they certainly never seemed to suffer for it; indeed they were rewarded.

I have never felt constrained in my interactions with Fed economists (including some Presidents of Federal Reserve Banks). They are curious, and willing to think about new ideas. I am quite willing to bite the hand that feeds me, and have often chewed away quite happily. They keep paying me, so they must be happy about the interaction too.

A former Fed economist disagreed. "I was an economist at the Fed for more than ten years and kept getting in trouble for things I'm proud of. I hear you, loud and clear," he said, asking not to be quoted by name for, well, the reasons laid out above.


A Daily Bail Original Film: Hank The Hammer

Video: Former Goldman Sachs CEO Henry Paulson has a message for you...

We haven't forgotten the crimes against humanity of former Goldman Sachs CEO Henry Paulson and his tax-free $700 million. We put everything that's important about your former TARP-loving Treasury Secretary into a 90-second comedy short. Take a look!

Read about Paulson's role in the SEC rule change that allowed leverage to explode on Wall Street. This single act played a devastating, but rarely-mentioned role in bringing down the system.


Note: For those who don't know this works...i wrote the text and we plugged it into the software...and this is the character and setting it spit out...we had no control over the Paulson became a blue, alien female...kinda fitting, eh?


Data Shows Less Buying of U.S. Debt by China

FOR eight years after the United States resumed running large budget deficits in 2002, China was the largest lender, buying a fifth of the new Treasury securities sold during that span — an expenditure of more than $900 billion. During 2006, China financed more than half the American deficit. When the financial crisis struck hardest, China spent more than $100 billion on Treasuries over the two-month period of September and October 2008.

But over the last year, China has been a net seller of Treasury securities, according to figures released this week by the American government. If that is true, it would be extraordinary, considering the size of the bilateral trade deficit, and there has been speculation that China has been purchasing Treasuries through accounts in other countries.

The Treasury Department estimated that China reduced its holdings of Treasuries by nearly $11 billion in November alone. For the 12 months through November, as the accompanying charts indicate, China reduced its holdings of Treasuries by more than $36 billion.

The Treasury issues separate estimates for China and Hong Kong, but they are combined for purposes of the charts and this article.

The Treasury figures indicate that over the eight years from the beginning of 2002 through the end of 2009, the total amount of United States government debt outstanding — not counting securities owned by other agencies of the American government, like the Federal Reserve and the Social Security Administration — rose by $4.4 trillion, to $9.3 trillion.

Of that, China provided about a fifth and other foreign countries provided two-fifths. The remaining 40 percent was purchased by Americans, although for a time in the middle of the decade, Americans were selling Treasuries even though the government was stepping up its borrowing.

For the first 11 months of 2010, American banks, institutions and individuals bought about three-fifths of the $1.5 trillion of additional Treasury debt, while China sold some and other foreign jurisdictions bought the rest.

The figures are estimates, and include both private and government transactions.

The charts show the cumulative 12-month changes in holdings of Treasuries for three classes of investors — China, the rest of the world and Americans. The American figures exclude purchases by the Fed and other government agencies.

It is not easy to see how the Chinese government managed to keep its currency from rising more rapidly against the dollar if it did not continue buying Treasuries in 2010, and there has been speculation that it shifted purchases to accounts managed by British money managers.

If so, such purchases would show up as British purchases. As it turns out, Britain is estimated to have been the largest purchaser of Treasuries over the 12-month period, adding $356 billion to its holdings. That made it by far the largest buyer, followed by Japan. The only other major seller during the period was Russia, according to the government estimates.

If China has been buying through money managers, it may be easier at some point for it to begin selling Treasuries through the British channel without others understanding where the selling pressure is coming from.

Floyd Norris comments on finance and the economy on his blog at

Did Schumer Shill for Madoff?

John Graham

In all the jaw-dropping and outrageous moments of the Madoff fraud saga, nothing surpassed it. But almost no one knew.

Starting about 1 hour 38 minutes 44 seconds into the Senate Banking Committee Hearing on “The SEC’s Failure to Identify the Bernard L. Madoff Ponzi Scheme and How to Improve SEC Performance” (September 10, 2009) Senator Charles Schumer (D-NY) looks over his glasses at an SEC bureaucrat and intones:

When you read Mr. Kotz’s report (PDF)…it’s just astounding…How the heck did this happen…all you had to have was an IQ of about 100 and even a semi desire to find out what happened…you didn’t have to turn over every stone…most people if they’d just read what happened they’d say there’s got to be fraud…to let Madoff escape….

That is absolutely true.

If the SEC man had been a public servant of suicidal courage he would have squared his shoulders, looked Schumer in the eye, and said

Because, Senator Schumer, you called the SEC during our last and best-informed investigation, questioning our activities. Obviously Mr.Madoff was one of your constituents, and it was easy to find out he was an important contributor of yours. We were afraid.

A true hero would have added:

We could see that both of you were Jewish and we knew that very many members of the Jewish community, some of them very powerful, were extremely pleased with the returns they were receiving from Madoff. We knew he was a hero to many Jews. We knew that any effort to shut down Madoff before he actually failed would reap terribly lethal consequences.

That would have been absolutely true as well.

The SEC man was not a hero.

The evidence that Schumer tried to influence the last SEC Madoff investigation (2006–08), which resulted in negligible sanctions on Madoff, stems primarily from whistle-blower Harry Markopolos’s book No One Would Listen.

When he volunteered to give evidence on the fraud to the newly-appointed Inspector General of the SEC, David H. Kotz, Markopolos was surprised to be asked to testify on oath:

David Kotz began by telling me right off the bat that he was conducting a criminal investigation…. He asked a lot of questions about possible interference in the investigation, ranging from asking me if I knew anything about the phone call supposedly made by Senator Schumer (I didn’t)…. (pp. 239–43)

Previously Markopolos had said, “I was told by a government agency, for example, that at some point New York Senator Chuck Schumer called the SEC to inquire about the Madoff investigation” (p. 141). (From the context, this was all clearly in connection with the last SEC probe.)

Markopolos then proceeded to stand on his head to demonstrate that he had no suspicions about Schumer, but added

the SEC is funded by Congress.… For a middle-level SEC employee with ambitions, any case in which an important politician is involved is a case he or she wants to stay far away from.

That a Schumer call would chill an investigation is all too plausible.

But it gets weirder. The Senate Banking Committee hearing on September 10th 2009 had two sessions. Markopolos was scheduled to testify at the second session:

I appeared before what was supposed to be the Senate Banking Committee…only Senators Chuck Schumer, who had made a phone call to the SEC [my emphasis], and Jeff Merkley, a Democrat from Oregon, returned. Schumer took over the questioning…

When we returned, the whole feeling in the hearing room had changed. The SEC had reserved all the seats in the room… [My lawyer] took one look round and whispered to me, “The fix is in”.… I was surprised that I was asked so few questions. Senator Schumer seemed to focus on the other members of the panel … [my lawyer] started handing me cards urging me, “Jump in whenever you can.” …

Schumer carefully controlled this panel. I’m sure he had his reasons.

He certainly did. Confronted with an irrepressible maverick like Markopolos, Schumer must have been terrified that his intervention at the SEC would be blurted out. No wonder he took over the committee.

Needless to say, exactly how close Schumer really was to the Madoffs is obscure. No doubt dozens of wealthy New York Jewish families gave as much as Madoff to his campaigns. But Fortune claims

New York Senator Charles Schumer stopped by [Madoff's] office in the run-up to the Iraq war and gave a rousing talk on the trading floor. (James Bandler & Nicholas Varchaver, How Bernie Did It, April 30, 2009)

And a poster at Huffington Post claims there was a Madoff-Schumer fund raiser at some point.

In our essay Is the Madoff Scandal Paradigmatic, Kevin Macdonald and I said

Thoroughly investigated, the Madoff scandal has the potential to illuminate the economic and political prerogatives usurped in late 20th-century America by what can only be described as the new ruling class. That will not be allowed to happen.

This could not be more vividly illustrated than by the Kotz report itself. This 457-page document prepared by the newly appointed Inspector General of the SEC, dated August 31 2009, spends 121 pages discussing why the investigation of 2006–08 — the last one before the collapse — failed and never mentions Senator Schumer’s call. Not even to dismiss it as a possible cause. This despite the fact that it appears to be only because of Kotz’s questions and Markopolos’ honesty that we know about the call at all.

To my mind this utterly destroys the integrity of the report. How can you evaluate a massive investigative failure and not mention an intervention by a very prominent Senator during the last and biggest probe?

H.David Kotz is Jewish and the son of an immigrant indirectly from Russia.

The only reference in the media to the Schumer intervention appears to be Schumer Denies Report He Called SEC on Madoff Probe by Glenn Thrush in Politico (February 26, 2010) — actually a denial by a staffer. Curiously this story is no longer archived on the Politico site but lingers on in cyberspace.

Recently I condemned The Picower Madoff settlement: A $7.2 Billion Whitewash.

Comparatively speaking, that was just a splash.

Ireland’s Titanic Bailout at Risk, Iceland looms ahead

The announcement by Brian Cowen that he was resigning as the leader of the Fianna Fail party, but is going to stay on as Taoiseach (Prime Minister) until the March 11 election, has put the Irish bailout into question. The November bailout of the Irish economy consisted of a series of different financing packages being combined into a larger total.

The first funds available under the bailout were provided by the raiding of the Irish retirement fund by its bankers. The next steps were to be funded by the EU and IMF funding sources, once the people of Ireland were legally subjected to the bailout requirements. The bailout never made it to a full vote before the collapse of the Fianna Fáil party.

This leaves Ireland in the unique position of being able to reclaim its future, by denying its past. The citizens of Ireland have not accepted the bailout. The coalition is not expected to be able to put the matter to a vote before the election.

“All we know is we are going to get an election on or before March 11 but that is about it,” said Micheal Marsh, professor of politics at Trinity College Dublin, calling the events of the past week “bizarre.”

“If the conditions in which all of this was going on were not so serious it really would be farcical.”

The people are clear they plan on voting for anyone who will fight the bailout. This makes the chances of a post-election bail out vote of acceptance unlikely. If the Bailout fails to be voted on in the coming days, it may never make it to a vote.

The Irish people are overwhelmingly against the loss of their Sovereignty because bankers were allowed to take outsized risk. The fact that these same bankers were allowed to book extremely large bonuses for bankrupting the nation is at the core of the problem.

The Iceland solution, the iceberg in the European bailout process, is becoming harder and harder to ignore as a solution to the problems of a Sovereign state. Iceland has managed to abandon its banks, right size its economy, and regain organic growth.

“We’re at an important turning point in many ways,” Finance Minister Steingrimur J. Sigfusson said. “We’re mainly trying to present our own case, which we think is good enough to make a convincing story that Iceland is a safe place to lend money to.”

“The economy is turning to growth and we think it’s about time to start seriously preparing to make a move on the international financial markets,” he said. “The long-term developments have been very favorable and the CDS on Iceland is now lower, or around the same, as it was well before the banking crisis.”

Today, Iceland’s Sovereign CDS swaps are at levels before the crisis. They have dropped below the level of Portugal and Spain. The nation had its first organic growth in the last two years, from July through September.

CDS on Iceland’s five-year debt traded at 310 basis points on Jan. 10, compared with 359.6 for Spain and 650 for Portugal, according to CMA data available on Bloomberg.

Iceland is sitting on large FX reserves, and due to its small number of actual citizens, it is in no need for actual funding. The first bond offering since the crisis will be small in size, but large in symbolic terms. Iceland will be fully rehabilitated; no one can say the same about any of the EU states following the proscribed internal deflation approach.

Iceland has embraced hard pain upfront, abandoned its overleveraged banks, and has weathered the storm. It is growing again, and is able to fund itself. These events are a beacon to any nation that could follow the same path.

The only question about Ireland today, is if they are going to stay debt slaves of their banks, or are they going to embrace a return of Sovereignty to the Emerald Island.

H/T TD @ Zerohedge

Links of interest to the story

Confessions of a Macro Contrarian

Accounting tweak could save Fed from losses

(Reuters) - Concerns that the Federal Reserve could suffer losses on its massive bond holdings may have driven the central bank to adopt a little-noticed accounting change with huge implications: it makes insolvency much less likely.

The significant shift was tucked quietly into the Fed's weekly report on its balance sheet and phrased in such technical terms that it was not even reported by financial media when originally announced on January 6.

But the new rules have slowly begun to catch the attention of market analysts. Many are at once surprised that the Fed can set its own guidelines, and also relieved that the remote but dangerous possibility that the world's most powerful central bank might need to ask the U.S. Treasury or its member banks for money is now more likely to be averted.

"Could the Fed go broke? The answer to this question was 'Yes,' but is now 'No,'" said Raymond Stone, managing director at Stone & McCarthy in Princeton, New Jersey. "An accounting methodology change at the central bank will allow the Fed to incur losses, even substantial losses, without eroding its capital."

The change essentially allows the Fed to denote losses by the various regional reserve banks that make up the Fed system as a liability to the Treasury rather than a hit to its capital. It would then simply direct future profits from Fed operations toward that liability.

This enhances transparency by providing clearer, more frequent, snapshots of the central bank's finances, analysts say. The bonus: the number can now turn negative without affecting the central bank's underlying financial condition.

"Any future losses the Fed may incur will now show up as a negative liability as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible," said Brian Smedley, a rates strategist at Bank of America-Merrill Lynch and a former New York Fed staffer.

"The timing of the change is not coincidental, as politicians and market participants alike have expressed concerns since the announcement (of a second round of asset buys) about the possibility of Fed 'insolvency' in a scenario where interest rates rise significantly," Smedley and his colleague Priya Misra wrote in a research note.


In response to the worst financial crisis and recession since the Great Depression, the U.S. central bank pulled out all the stops on monetary policy. It not only slashed interest rates effectively to zero, but also committed to buy some $2.3 trillion in Treasury and mortgage securities in order to keep long-term borrowing costs down.

For weeks now, worries had been percolating among investors about the possibility that the central bank might run into trouble when it eventually decides to unwind some of those extraordinary measures. For more, see: [ID:nN1080075]

In particular, analysts feared the Fed might be forced to sell either its Treasury or mortgage-backed securities at a steep loss in a rising interest rate environment, or end up having to pay a higher interest rate on bank reserves than it receives on the securities it holds.

Fed Chairman Ben Bernanke, asked about the possibility in congressional testimony earlier this month, said even the most extreme circumstances would not have very large implications.

"Under a scenario in which short-term interest rates rise very significantly, it's possible that there might come a period where we don't remit anything to the Treasury for a couple of years. That would be I think a worst-case scenario," Bernanke said.

However, the Fed has tended to assume that interest rates would be rising sharply only if the economy were recovering very rapidly. Fed policymakers seem to be ignoring the possibility that the country could face a bout of so-called stagflation -- a period of high inflation with depressed economic activity like that seen during the 1970s.

State bankruptcy bill imminent, Gingrich says

(Reuters) - Legislation that would allow U.S. states to file for bankruptcy will likely be introduced in Congress within the next month, Newt Gingrich, the former speaker of the House of Representatives and a powerful Republican party figure, told Reuters on Friday.

Although Gingrich, considered responsible for the "Republican Revolution" of the 1990's, is no longer in office, he has deep ties to Congress and is frequently named as a potential presidential contender in 2012.

For months he has championed letting states file for bankruptcy in order to handle their long-term budget problems despite resistance from states and investors in the $2.8 trillion municipal bond market.

"We're faced with the danger that the states are going to try to show up and say to Washington: You have to give us money," Gingrich said. "And I think we have to have an alternative that allows us to say no."

While he declined to comment on who might introduce legislation, Gingrich said there was support in both the House and the Senate. He said lawmakers have been looking into the idea for three or four months.

Gingrich first publicly broached the idea in November, the same month the Republican party won control of the House in mid-term elections, largely on promises of reducing spending.

But the legislation will likely face an uphill battle with Democrats still in control of the Senate and the White House.

Because states are sovereign, they cannot declare bankruptcy as cities can, and most have provisions in their constitutions that make defaulting on debt next to impossible.

And California -- a state which Gingrich said would likely turn to Congress for financial help along with New York and Illinois -- said on Friday it has no interest in using bankruptcy to solve its fiscal problems.

California, the eighth largest economy in the world, would not benefit from the legislation, Treasurer Bill Lockyer said.

"States didn't ask for it. We don't want it. We don't need it," Lockyer said. "Bankruptcy would devastate states' ability to recover from the recession and make the infrastructure investments that create good jobs."

Struggling to close a $25 billion budget gap, California already holds Moody's Investors Service's lowest state credit rating -- a distinction it shares with Illinois.

"Just the availability of a bankruptcy option and the potential bond default could severely damage state credit ratings and destroy the trust of bondholders," said New York State Comptroller Thomas P. DiNapoli.

Last week, the municipal bond market suffered a sharp sell-off on fears of defaults by cities and other issuers.

Representative Xavier Becerra, a member of the House Democratic leadership, said the bankruptcy idea is not new.

Professor Bernanke Explains Quantitative Easing (Cartoon)

Quantitative Easing cartoon

Bernanke, Quantitative Easing Cartoon

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How The Fed Was Born (Cartoon)

Peter Schiff - Euro, Dollar, Gold & Silver...

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B.S. - "Repealing The Healthcare is Unconstitutional"

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Jesse Jackson: US stuck in crisis hole, still digging

Spain to rescue its banks

The Spanish government is set to launch a sweeping restructuring of its troubled regional savings banks in an attempt to reassure the market it can sort out the problems of its financial system.

AP Photo
Harry Wilson

Forty out of a total of 45 Spanish cajas will merge or form operating alliances with each other as the authorities look to prevent fears over the banking system from morphing into a wider market run on the country as a whole.

Alfredo Perez Rubalcaba, Spain's deputy prime minister, said: "The government is preparing a plan, the aim of which is to increase the solvency and the credibility of the savings banks."

It is hoped that private investors can be found to put money into the cajas. However, Spain's Fund for Orderly Bank Restructuring could take stakes in those that are unable to attract outside investment.

Spain's main IBEX index of leading shares closed up nearly 2pc on the back of the news, which helped calm fears of a banking crisis brewing in the country.

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