Friday, June 17, 2011

Foreclosures might swamp isle courts

Fannie Mae eschews a quicker, nonjudicial process in response to a new Hawaii law

One of the nation's biggest owners of home mortgages has made a move that could add to an already overburdened Hawaii court system's caseload.
Fannie Mae, a publicly owned company created and overseen by the federal government, recently instructed companies that handle foreclosures for its loans to file all new Hawaii foreclosures in court.
Fannie Mae also told the firms known as loan servicers to cancel any pending nonjudicial Hawaii foreclosures and restart them in court.
Fannie Mae took the steps in response to Hawaii's new foreclosure law enacted last month. Critics are concerned Fannie Mae might be attempting to sidestep the main intent of the law, which was to engage mediators to help homeowners avoid foreclosure.
The vast majority of residential foreclosures in Hawaii in recent years have been conducted out of court through a nonjudicial process because it was quicker and cheaper than going through court.
The law was changed in part because the nonjudicial foreclosures left borrowers with little opportunity to contest repossessions even in cases where they believed a lender was improperly taking their home.
The new law, Act 48, gives qualified owner-occupants of Hawaii homes the option of having a dispute resolution professional assist with foreclosure mitigation in front of a lender representative before a foreclosure sale can proceed.
Fannie Mae's directive, issued Friday, drew criticism from a local homeowner advocacy group that lobbied for Hawaii's new law.
The Rev. Bob Nakata, a member of Faith Action for Community Equity, said Fannie Mae is attempting to bypass the new law. "Just two days ago, 25 churches got together from two islands and celebrated our new foreclosure mediation law, and now Fannie Mae is trying to outmaneuver us," he said. "It stinks. Our government-sponsored enterprises are supposed to help us, not take away everything we have fought for."
Some supporters of Hawaii's new law fear the move by Fannie Mae, which buys U.S. single-family home loans from loan originators, could spur similar moves by giant banks and other big holders of Hawaii home mortgages, shunting aside the revamped nonjudicial foreclosure law and overwhelming the state court system.
Fannie Mae declined to say whether it established its new policy to avoid nonjudicial foreclosures in Hawaii under the new law or whether the policy is only temporary until it's possible to file new nonjudicial foreclosures.
The new law resulted in a de facto moratorium on nonjudicial foreclosures because the state Department of Commerce and Consumer Affairs won't accept any new nonjudicial foreclosure filings until the mediation program is running. The law also prohibits any nonjudicial foreclosure auctions until borrowers have an opportunity to participate in the program.
The program is expected to be running by Oct. 1.
Fannie Mae spokeswoman Amy Bonitatibus said policies are regularly reviewed and adjusted as needed.
"Our announcement is consistent with Hawaii law and was made in response to recent Hawaii legislation," she said. "Currently, nonjudicial foreclosures cannot be pursued in Hawaii. There is not currently an end date listed in the announcement we issued, but again, we regularly make updates and changes to reflect the current law and foreclosure processes in a state."
Kim Harman, Hawaii policy director for Faith Action for Community Equity, questioned whether Fannie Mae is trying to avoid requirements for documenting original and amended mortgage agreements and promissory notes under the new law.
Harman said the documentation requirement is the only substantial difference between Hawaii's law and a Nevada foreclosure mitigation law upon which Hawaii's law was modeled. Fannie Mae hasn't banned nonjudicial foreclosures in Nevada.
State Rep. Bob Herkes, who along with Sen. Rosalyn Baker was a chief architect of the law, said Fannie Mae would be misguided if it intends to avoid better documentation by running foreclosures through Hawaii courts.
Herkes intends to ask the Judiciary to hold mortgage holders to the same documentation standards contained in the nonjudicial foreclosure law.
Some Hawaii foreclosure industry attorneys had warned that lenders might flock to judicial foreclosures, in part because lenders can pursue borrowers for any difference between what a borrower owes and proceeds from selling a foreclosed home. This difference, referred to as a deficiency judgment, could help offset higher expenses of judicial foreclosure.
However, others believe the extra time and expense of judicial foreclosure, especially if Hawaii courts get bogged down, still make judicial foreclosure less attractive than the revamped nonjudicial foreclosure process.
While Fannie Mae seeks to proceed with Hawaii foreclosures in court, it is also offering financial incentives for loan servicers to avoid foreclosure and was instructed by the Federal Housing Finance Agency in April to not start a foreclosure if a borrower and servicer are engaged in a good-faith effort to resolve a mortgage delinquency.
So far, there has not been a huge increase in judicial foreclosures in Hawaii, considering that the new law went into effect May 5.
For all of May, there were 141 judicial foreclosure cases, up from 119 in May 2010, according to Judiciary figures. Nearly all of the increase occurred on the Big Island.
For all of last year, state Circuit Courts handled 1,331 foreclosure cases. That figure is estimated to be around 10 percent of all Hawaii foreclosures.
The Judiciary, in testimony on Senate Bill 651 that became the foreclosure mitigation law, expressed concern that any big increase in judicial foreclosures could dramatically delay cases unless new judges and staff are hired.
According to real estate research firm RealtyTrac, close to 500 new foreclosure cases a month were filed on average this year through April.
The Judiciary estimated it would cost about $4.3 million a year for additional personnel to handle such an increase.

Midwest Floods: Both Nebraska Nuke Stations Threatened

Rady Ananda, Contributing Writer
Activist Post

Tens of millions of acres in the US corn belt have flooded, which will spike the cost of gas and food over the next several months. Worse, several nuclear power plants sit in the flooded plains. Both nuclear plants in Nebraska are partly submerged and the FAA has issued a no-fly order over both of them.

On June 7, the Fort Calhoun Nuclear Power Plant filed an Alert with the Nuclear Regulatory Commission after a fire broke out in the switchgear room. During the event, “spent fuel pool cooling was lost” when two fuel pumps failed for about 90 minutes.

On June 9, Nebraska’s other plant, Cooper Nuclear Power Station near Brownville, filed a Notice of Unusual Event (NOUE), advising it is unable to discharge sludge into the Missouri River due to flooding, and therefore “overtopped” its sludge pond.

The Fort Calhoun TFR (temporary flight restriction) was issued the day before the nuclear Alert. The FAA issued another TFR on June 7 for the Cooper plant.

Other flood-related TFRs were issued on June 13 for the Garrison Dam in Bismarck, North Dakota and on June 5 for rescue operations in Sioux City, SD.

Under the four-level nuclear event scale used in the US, an NOUE is the least hazardous. In an Alert, however, “events are in process or have occurred that involve an actual or potential substantial degradation in the level of safety of the plant,” according to the NRC.

Despite some media reports, Ft Calhoun is not at a stage 4 level of emergency, which under the US scale, would be “actual or imminent substantial core damage or melting of reactor fuel with the potential for loss of containment integrity.”

If that rumor refers to the seven-level International Nuclear and Radiological Event Scale, a Level 4 incident requires at least one death, which has not occurred.

Continued flooding does threaten the plants, however. As nuclear engineer Arnie Gundersen explains in the above video, cooling pumps must operate continuously, even years after a plant is shut down.

One group, the Foundation for Resilient Societies, has proposed solar panels and other high-reliability power sources to supply backup cooling for the fuel pools at nuclear plants.

Thomas Popik told Food Freedom that FRS “invited the Chief Nuclear Officers of nearly every nuclear power utility to comment” on their proposal and only heard back from one operator. Otherwise, not one CNO has officially responded to the NRC-filed proposal.

While hindsight might be 20/20, the lack of foresight can be blindingly deadly when it comes to radioactive waste that lasts tens of thousands of years for the measly prize of 40 years of electricity.

The Ft. Calhoun plant — which stores its fuel rods at ground level according to Tom Burnett — is already partly submerged.

Ft. Calhoun is the designated spent fuel storage facility for the entire state of Nebraska…and maybe for more than one state. Calhoun stores its spent fuel in ground-level pools which are underwater anyway – but they are open at the top. When the Missouri river pours in there, it’s going to make Fukushima look like an x-ray.
In 2010, Nebraska stored 840 metric tons of the highly radioactive spent fuel rods, reports the Nuclear Energy Institute. That’s one-tenth of what Illinois stores (8,440 MT), and less than Louisiana (1,210) and Minnesota (1,160). But it’s more than other flood-threatened states like Missouri (650) and Iowa (420).

“But that’s not all,” adds Burnett. “There are a LOT of nuclear plants on both the Missouri and Mississippi and they can all go to hell fast.”

The black triangles in the below image prepared by the Center for Public Integrity show the disclosed locations of nuclear power plants in the US, minus research and military plants. (Red lines indicate both Mississippi and Missouri rivers):

Fort Calhoun is the smallest nuke plant in the nation, with one pressurized water reactor generating less than 500 MW. The NRC relicensed the plant thru 2033, giving it a lifespan of 60 years. Cooper was first commissioned in 1974 and has been relicensed thru 2034, also giving it a 60-year lifespan.
Since June 7, Cooper has been running under “Abnormal Operating Procedures” when river depth topped 38.5 feet (895 feet MSL), flooding the north access road. Sandbags and extra diesel fuel were brought in, reports WOWT.

As of 1:15 pm ET on June 16, the river height of just over 40 feet near Cooper is still 5 feet below the elevation required for a plant shutdown. Near Fort Calhoun, the river is even lower as of 1:15 pm ET on June 16 (under 32 feet).

In 1993, the Cooper Nuclear Station was critically flooded, prompting an emergency shut down:

Photo: Diane Krogh/Lighthawk.
The Midwest floods will seriously impact food and gas prices over the next year. Angela Tague at Business Gather suspects the lost farmland is behind the price spike to $7.55 a bushel for corn — twice last year’s price. Tague notes that the corn shortage will have far-reaching consequences:
Corn is a key ingredient in ethanol gasoline, feeds America’s livestock and is found in many food products including soft drinks and cereal. Prices will undoubtedly increase steadily at the grocery store, gas pump and butcher shop throughout the summer as Midwest flooding continues along the Missouri River basin. Not only are farmers losing their homes, land and fields — ultimately their bank accounts will also suffer this season.
And let’s not forget all that genetically modified seed washing south to contaminate natural fields.

Click here to hear the entire 40-minute podcast of Robert Knight’s 5 o’clock Shadow radio show interviewing Arnie Gundersen of Fairewinds Associates.

Click here to hear Gundersen’s testimony before the Nuclear Regulatory Commission Advisory Committee on Reactor Safeguards on Thursday May 26, 2011.

Rady Ananda specializes in Natural Resources and administers the sites, Food Freedom and COTO Report

The UK Is Preparing To Return To "Glass-Steagall"

In a very surprising move, the AP reports that the UK finance minister George Osborne has announced a major overhaul of British banks, the key provision of which will be the separation of bank retail and investment business "in order to help avoid another financial crisis" - an act which is in essence a reintroduction of Glass-Steagall. What is stunning about this development is that the banking cartel has allowed the UK to get so far as to effectively repeal Gramm-Leach-Bliley, the act that ended Glass Steagall and allowed unprecedented deregulation to convert formerly safe banks into the mastodon, 50x levered, TBTF hedge funds they are now. And if this is happening in the UK, how long before Europe adopts the same overhaul in order to placate its austerity-ired population, and deflect populist anger where it belongs: the banking oligarchy which continues to defy nature, and the simple laws of bankruptcy, and demands that there is never even the smallest impairment of senior claims. All this may very soon be changing.
From the AP:
Osborne backed the findings of the government-appointed Independent Commission on Banking (ICB) which earlier this year called for a "ring-fencing" of retail businesses.

"Today I have told the Commission that the government endorses both these proposals in principle... We will make these changes to banking to protect taxpayers in the future," he said.

Osborne said he had taken the decision bearing in mind what he said was a British dilemma.

"As a global financial centre that generates hundreds of thousands of jobs, a successful banking and financial services industry is clearly in our national economic interests," he said.

"But we cannot afford to let it pose a risk to the stability and prosperity of the nation's entire economy."
On Zero Hedge, as well as on any other thinking financial websites, the repeal of Glass Steagall has been excoriated to the core, as the gating factor that allowed the financial collapse of 2008. It seems others share the sentiment.
The practice of banks using money from their retail arms to fund investment operations has been widely blamed as a major factor behind the global banking crisis.
Additionally, Osborne seems to mean business by putting Northern Rock up for sale:
After months of speculation over Northern Rock, which was nationalised by the previous Labour government, Osborne said the coalition had to "clear up the mess of the past".

"I can announce tonight that on behalf of you the British taxpayer, I have decided to put Northern Rock up for sale," he said, adding that they could "at least get some of our money back."

He did not set a price but the BBC said the government planned to sell it to a single buyer for about £1.0 billion (1.14 billion euros, $1.62 billion), rather less than the £1.4 billion it cost to bail out the lender.

Potential buyers for Northern Rock could include Virgin Money, the Coventry and Yorkshire building societies, investment groups NBNK and Olivant, and Tesco Bank.

Northern Rock plunged into crisis in mid-September 2007 when its exposure to the US-triggered credit crunch forced it to seek emergency assistance from the Bank of England, sparking the first run on a British bank in recent history.

To avert financial meltdown, the government agreed in December 2007 to guarantee all customer deposits and then later nationalised the bank in February 2008 to prevent its collapse.

The lender was broken up into two parts last year, forming a so-called "good bank" that will be up for sale -- and a "bad bank" management company to run down the remaining toxic assets.
Osborne, who has been a regular critic of the banking cartel did not stop there.
He also warned that Britain's economy faced tough challenges.

"Failure to tackle the imbalances during the seven years of plenty before 2007 threatens seven lean years thereafter," he cautioned.

"Storms from the world economy are likely to stir up the waters through which the UK economy must pass as it too adjusts to a new equilibrium with lower levels of debt and a rebalancing from domestic to external demand.

"We have to pass through turbulent waters. But we have set the right course," he added.

In an interim report published in April, the ICB also recommended that banks set aside more capital to avoid future state bailouts.
We wonder just how many mbillions in bribes will it take for our own corrupted politicians to do the right thing and follow the UK's lead in repealing the worst law to have ever been conceived by the banking lobby. Our guess is: a lot. Which is why we are not hoping that this one true means to begin fixing the system will ever come to the US. Instead, America will have to deal with the aftermath of that bloated of worthless legislation known as Dodd-Frank for years, which will likely never be instituted in our lifetimes courtesy of banks' ongoing and successful attempts to delay implementation, preferably until infinity (and not in the Norwegian sovereign wealth fund sense).
h/t Reboil Room

Simon Johnson Destroys The Myth Of Jamie Dimon's Bernanke Complaint (Crocodile Tears Fooled No One)

Solid beatdown of Jamie Dimon's desperate public plea to scuttle new banking capital requirements.
Watch the Dimon-Bernanke exchange here...
Jamie Dimon's Faulty Capital Requirement Math
By Simon Johnson
Originally published at Bloomberg
When Jamie Dimon confronted Federal Reserve Chairman Ben S. Bernanke at a conference earlier this week, he spoke for dozens of bank executives who privately believe regulators have gone overboard in seeking to prevent another financial crisis. “Has anyone bothered to study the cumulative effect of all these things?” he asked. “Is this holding us back at this point?”
Dimon, the chief executive officer of JPMorgan Chase & Co., was pressing Bernanke to admit that the total cost of new financial regulations had not been fully calculated, and could well be holding back job growth.
What evidence does Dimon have? He is a very smart executive with an impressive track record, but his account of regulatory changes is incomplete, to say the least. Most of what he lists are the direct effect of a credit boom that ended in a severe crisis. Some badly run firms, including thrifts and mortgage brokers, failed; structured investment vehicles, which were used to hold mortgage securities off-balance-sheet, are gone; there are no more subprime or Alt-A mortgages; markets have become more transparent; and financial institutions have reduced their leverage and increased their liquidity.
As Dimon conceded in his question, risk needed to be brought under control and managed better by the private sector. There is nothing about this part of the post-2008 process that should be laid at the door of the government. If any financial sector blows itself up, firms fail, products disappear and everyone becomes more careful -- at least for a while.

Capital Surcharge

The substantive issue that seems to be bothering Dimon is capital requirements, and particularly the news that the Fed is leaning toward making large banks, such as JPMorgan, hold a 3 percent capital “surcharge” (a complete misnomer; the requirement for more equity financing relative to debt would be a buffer against losses, and not a tax.)
To adopt Dimon’s proposed methodology, what was the cumulative effect of the previous lower capital requirements in the U.S. and globally? This part is easy -- it was the reckless risk-taking and mismanagement that led us to 2008. If you pay executives and traders on the basis of return-on-equity, unadjusted for risk, they will want to take a lot of risk, boosting payouts in the good times and handing the downside risk to someone else (ideally, from their point of view, the taxpayer).
According to Sanjai Bhagat and Brian Bolton, executives at the top 14 U.S. financial companies pocketed about $2.6 billion in cash (salary, bonus and the value of stock options sold) during 2000-2008. Much of that compensation would not have been paid if there were proper adjustment for risk.

Total Crisis Costs

The realized downside risks, as handed to the taxpayer, should be measured not merely as the cost of the Troubled Asset Relief Program (TARP) or Federal Reserve rescue plans, but in terms of the increase in federal-government debt the financial crisis caused. According to the Congressional Budget Office, the financial crisis will end up increasing government debt by at least 40 percent of gross domestic product. (I’ve covered the details of this calculation elsewhere; this point is not controversial among fiscal experts.)
So, to turn Dimon’s question around, we know that previously low capital requirements led to social losses (those borne by taxpayers) in the trillions of dollars, as well as millions of jobs and homes lost, while the private gains were in the low billions.

Lower Growth

What about the cost of raising capital requirements? On this the Federal Reserve tends to hem and haw -- as did Bernanke when questioned by Dimon on June 7. The Institute of International Finance has published estimates that suggest higher capital requirements will directly lower growth. But the institute represents global banks. And the people on its board of directors -- top management from the largest financial firms in the world -- are paid primarily for return-on-equity, unadjusted for risk. They have every incentive to lobby for lower capital requirements.
And the research that says increasing capital requirements will slow growth has no merit -- a point made at length by Anat Admati, Peter DeMarzo, Martin Hellwig and Paul Pfleiderer. Increasing capital requirements means more equity financing for banks, relative to their debt. Admati and her colleagues show this makes both their equity and debt safer, and shouldn’t significantly affect the cost of credit.
Higher capital requirements will naturally change the way banks such as JPMorgan do business. That’s a plus, not a minus. Big banks today benefit from implicit subsidies because the market expects the government to step in and save them whenever necessary.

Mispricing Risk

If you scale back the likely subsidies by requiring much more capital, perhaps the megabanks will get smaller -- but the market can sort that out for itself. The important thing is to withdraw the implicit government support that makes JPMorgan and other large banks today’s government sponsored enterprises and contributes to the mispricing of risk throughout the world.
Dimon is right to ask for the math; this is finance, after all. But he and Bernanke should be aware that the right math is staring them in the face.
Calculate the true social costs of the existing system and weigh that against the nonexistent social costs of significantly increasing capital requirements. We should be going far beyond the higher capital requirements that the Fed wants to impose on JPMorgan Chase.
Reprinted with permission from Bloomberg.
(Simon Johnson is a Bloomberg View columnist. The opinions expressed are his own.)
To contact the author of this column: Simon Johnson at
Simon Johnson, who served as chief economist at the International Monetary Fund in 2007 and 2008, is a professor of entrepreneurship at the Massachusetts Institute of Technologys Sloan School of Management.
Jamie cries for the Helicopter to ease up...
Get more detail on this clip here...

Jamie Dimon Questions Bernanke On New Bank Rules, Complains About TOO MUCH Regulation, Becomes Wall Street Hero (VIDEO)

Japan scientist synthesizes meat from human feces

poop burger 1
It's being called the "poop burger". Japanese scientists have found a way to create artificial meat from sewage containing human feces.
Somehow this feels like a Vonnegut plotline: population boom equals food shortage. Solution? Synthesize food from human waste matter. Absurd yes, but Japanese scientists have actually discovered a way to create edible steaks from human feces.
Mitsuyuki Ikeda, a researcher from the Okayama Laboratory, has developed steaks based on proteins from human excrement. Tokyo Sewage approached the scientist because of an overabundance of sewage mud. They asked him to explore the possible uses of the sewage and Ikeda found that the mud contained a great deal of protein because of all the bacteria.
The researchers then extracted those proteins, combined them with a reaction enhancer and put it in an exploder which created the artificial steak. The “meat” is 63% proteins, 25% carbohydrates, 3% lipids and 9% minerals. The researchers color the poop meat red with food coloring and enhance the flavor with soy protein. Initial tests have people saying it even tastes like beef.
Inhabitat notes that “the meatpacking industry causes 18 percent of our greenhouse gas emissions, mostly due to the release of methane from animals.” Livestock also consume huge amounts of resources and space in efforts to feed ourselves as well as the controversy over cruelty to animals. Ikeda’s recycled poop burger would reduce waste and emissions, not to mention obliterating Dante’s circle for gluttons.
The scientists hope to price it the same as actual meat, but at the moment the excrement steaks are ten to twenty times the price they should be thanks to the cost of research. Professor Ikeda understands the psychological barriers that need to be surmounted knowing that your food is made from human feces. They hope that once the research is complete, people will be able to overlook that ugly detail in favor of perks like environmental responsibility, cost and the fact that the meat will have fewer calories.
Waste not; want not.

Mass demos in Athens as Lawmakers Resign

Two Greek government lawmakers quit Thursday in protest at their party's austerity policies as unity government talks with Prime Minister George Papandreou collapsed. The parliamentarians, part of Greece's ruling Socialist Party, had criticized the government's wage cuts and tax hikes, which were mandated by the EU and the International Monetary Fund in return for a massive loan rescue last year. Papandreou will have to double previous austerity measures to $40 billion and intensify privatization schemes in exchange for yet another loan. Greece was rocked by a general strike and mass demonstrations Wednesday. Many of those taking part were young people calling themselves the “Indignant Citizens” movement, a name borrowed from Spanish demonstrators who’ve been protesting their government's austerity program. Wednesday's demonstrations in Athens evolved into street battles between some protesters armed with petrol bombs and rocks, and riot police. Source

America Is Being Raped ... Just Like Greece and Other Countries

Preface: The war between liberals and conservatives is a false divide-and-conquer dog-and-pony show created by the powers that be to keep the American people divided and distracted. See this, this, this, this, this, this, this, this, this and this. So before assuming that privatization is a good thing, read on.
If these resources had always been in the private sector, that would be fine ... that would be free market capitalism.
But if they were purchased on the people's dime with our taxpayer funds and then sold to the big boys for cheap, that's not capitalism ... that's looting.

Greece is thinking of selling some islands. Austria is thinking of selling mountains to pay off their national debt. Cities throughout the U.S. are thinking of privatizing their parking meters.

What's going on?
Well, as I predicted in December 2008, bailing out the giant, insolvent banks would cause a global debt crisis:
The Bank for International Settlements (BIS) is often called the "central banks' central bank", as it coordinates transactions between central banks.
BIS points out in a new report that the bank rescue packages have transferred significant risks onto government balance sheets, which is reflected in the corresponding widening of sovereign credit default swaps:
The scope and magnitude of the bank rescue packages also meant that significant risks had been transferred onto government balance sheets. This was particularly apparent in the market for CDS referencing sovereigns involved either in large individual bank rescues or in broad-based support packages for the financial sector, including the United States. While such CDS were thinly traded prior to the announced rescue packages, spreads widened suddenly on increased demand for credit protection, while corresponding financial sector spreads tightened.
In other words, by assuming huge portions of the risk from banks trading in toxic derivatives, and by spending trillions that they don't have, central banks have put their countries at risk from default.
Top independent experts say that the biggest banks are insolvent (see this, for example), as they have been many times before.
And a study of 124 banking crises by the International Monetary Fund found that propping banks which are only pretending to be solvent hurts the economy:
Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.
Cross-country analysis to date also shows that accommodative policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions’ liabilities and forbearance from prudential regulations) tend to be fiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery.
All too often, central banks privilege stability over cost in the heat of the containment phase: if so, they may too liberally extend loans to an illiquid bank which is almost certain to prove insolvent anyway. Also, closure of a nonviable bank is often delayed for too long, even when there are clear signs of insolvency (Lindgren, 2003). Since bank closures face many obstacles, there is a tendency to rely instead on blanket government guarantees which, if the government’s fiscal and political position makes them credible, can work albeit at the cost of placing the burden on the budget, typically squeezing future provision of needed public services.
By failing to break up the giant banks, governments are forced to take counter-productive emergency measures (see this and this) to try to cover up their insolvency. Those measures drain the life blood out of the real economy ... destroying national economies.Selling the Farm to Pay for Debt Incurred to Make the Rich Richer
Matt Stoller notes:
Privatization takes inherently governmental functions — everything from national defense to mass transit and roads — and turns them over to the control of private actors, whose goal is to extract maximum revenue while costing as little as possible.
It isn’t true, as a general rule, that privatization shrinks the public sector. When investor demand for high returns is combined with the natural monopolies of public assets, what often results instead is citizens finding themselves saddled with high fees and poor service.
Even more perniciously, selling infrastructure such as toll roads puts the coercive power of the state in the hands of private actors. We have great public assets built by prior generations. We should and could be building a better country for our children, rather than liquidating what we have.


Rep. Peter DeFazio (D-Ore.) pointed out the truth of the Obama administration’s stimulus program: “Larry Summers hates infrastructure. And some of these other economists — they don’t like infrastructure. … They want to have a consumer-driven recovery.”

Both domestic manufacturing and taxation are opposed by the current corporate and political elites. Take the liberal establishment economist Alan Blinder, who horrified former Intel chief Andy Grove when he celebrated as “success” the fact that America today cannot make televisions. Or Michael Boskin, an economic adviser to President Reagan, saying potato chips, microchips, what’s the difference?

The real infrastructure trend in America today is privatizing what is left. House Transportation and Infrastructure Committee Chairman John Mica has been holding hearings on privatizating Amtrak’s Northeast corridor — ostensibly because private capital can more easily bring in high-speed rail.

Kansas Gov. Sam Brownback just turned over arts funding to the private sector, making Kansas the only state without a publicly funded arts agency. Cities across California, meanwhile, are trying to outsource nearly all municipal functions. Chicago famously sold its parking meter revenue to a consortium headed by Morgan Stanley. The Arizona Legislature sold and then leased back its state capitol.
Are these good deals? History would say no. The granddaddies of privatization were Fannie Mae and Freddie Mac, the housing giants whose public role was supporting the secondary mortgage markets. These companies were “private” in the sense that they operated without public accountability. But eventually, their losses ended up on the public’s balance sheet.

Most privatization deals of core public assets have the same essential structure as Fannie and Freddie. Listen to a Goldman Sachs managing director, John Ma, who expressed his reservations about the privatization of Amtrak’s Northeast corridor.

“Structuring these public-private transactions are always a delicate balancing act,” Ma explained, “of what risks the public sector will retain and what risks you’ll try to transfer to the private sector.” Privatization doesn’t actually make something private; it simply divides risks between public and private entities.

In fact, the real allure of privatization is that it offers what looks like a free lunch. The public receives revenue, but privatization keeps the costs hidden by deferring them to the future. Political actors get to close deficits without raising taxes on wealthy interests. And the political muscle is provided by the people who ultimately benefit from the deal — the same way that Countrywide, Fannie Mae and allied private bankers brutalized their political critics in the name of homeownership.


For Democrats, the benefits are more subtle. Privatization allows them to paper over the party schism between liberals and neoliberals by spending money for social aims through what is, essentially, an off-balance-sheet channel.

Does this sound like Greece? Creating off-balance-sheet shenanigans to hide debt and try to kick the can down the road, and then having to sell off public assets and impose austerity to try to climb out of the sinkhole of debt?
There's a reason for that .
Shock Doctrine
As I explained in 2008:
Well-known Austrian economist Friedrich von Hayek wrote:
"Emergencies” have always been the pretext on which the safeguards of individual liberty have eroded.
[Obama's former chief of staff] Rahm Emanuel famously said:
Never let a serious crisis go to waste. What I mean by that is it's an opportunity to do things you couldn't do before.
Naomi Klein documented in the Shock Doctrine that the Neoliberals and Chicago school followers advocated a kind of "disaster capitalism". Specifically, whenever a natural, economic, war-related, or other disaster strikes, these folks pounce and use the opportunity to quickly impose a brand of economic policy which benefits the elite at the cost of everyone else (by increasing unemployment, pushing the cost of essential goods through the roof, and otherwise increasing poverty), while people are still in shock and before they can react.
Publishers Weekly's review of the Shock Doctrine puts it this way:
The neo-liberal economic policies—privatization, free trade, slashed social spending—that the Chicago School and the economist Milton Friedman have foisted on the world are catastrophic in two senses, argues this vigorous polemic. Because their results are disastrous—depressions, mass poverty, private corporations looting public wealth, by the author's accounting—their means must be cataclysmic, dependent on political upheavals and natural disasters as coercive pretexts for free-market reforms the public would normally reject.
Amazon's review of Klein's book states:
"At the most chaotic juncture in Iraq'' civil war, a new law is unveiled that will allow Shell and BP to claim the country's vast oil reserves… Immediately following September 11, the Bush Administration quietly outsources the running of the 'War on Terror' to Halliburton and Blackwater… After a tsunami wipes out the coasts of Southeast Asia, the pristine beaches are auctioned off to tourist resorts… New Orleans residents, scattered from Hurricane Katrina, discover that their public housing, hospitals and schools will never be re-opened." Klein not only kicks butt, she names names, notably economist Milton Friedman and his radical Chicago School of the 1950s and 60s which she notes "produced many of the leading neo-conservative and neo-liberal thinkers whose influence is still profound in Washington today."
And Pulitzer prize winning journalist David Cay Johnston provided an interesting example of disaster capitalism, noting that 2 days after 9/11, Congress was thinking about how to help the ultra-wealthy:
[Johnston]: Both parties are doing this. They’re doing it because they’re listening to a narrow group of very well to do people who do not want to pay taxes, who do not want to share in the expenses of the country that has made them rich. And they want you to pay their taxes. Those are the people who get access. Every politician will say you to, you can’t buy my vote. Generally, that’s true. The problem is that you and I don’t have the real access, and the proof that Congress is thinking about the super rich came two days after 9/11. The House Republican leadership introduced ten bills to address 9/11. One of them was a tax bill. What did it do? It gave estate tax relief, which did nothing for the firefighters and police officers and army sergeants at their desk and nurses and the busboy at the World Trade Center. All of those people that were killed. A tiny handful of people, but that’s what Congress thought these people needed, was estate tax relief even though 99% wouldn’t pay estate taxes.
[Interviewer:] It’s slipping it in as a very opportune time.
[Johnston]: That was just for this group of people. That was just for this group of people, but it’s indicative of what Congress is thinking about, what’s on the minds of Congress are not the concerns of ordinary Americans who want to educate their children, you know, who want to engage in enjoying life. Their concerns are about the super rich and within the super rich, those who are very anti-tax.
As I noted last year, this is a game which both liberals and conservatives play:
Whether that agenda is labelled "conservative" or "liberal", it is almost certain to benefit the powers-that-be, rather than the average American.
Some inside the halls of power have tried to warn of this risk:
Senator Leahy and the New York Times are questioning Paulson's use of shock and awe:
  • Senator Leahy said "If we learned anything from 9/11, the biggest mistake is to pass anything they ask for just because it's an emergency"
  • The New York Times wrote:
    "The rescue is being sold as a must-have emergency measure by an administration with a controversial record when it comes to asking Congress for special authority in time of duress."
    Mr. Paulson has argued that the powers he seeks are necessary to chase away the wolf howling at the door: a potentially swift shredding of the American financial system. That would be catastrophic for everyone, he argues, not only banks, but also ordinary Americans who depend on their finances to buy homes and cars, and to pay for college.
    Some are suspicious of Mr. Paulson’s characterizations, finding in his warnings and demands for extraordinary powers a parallel with the way the Bush administration gained authority for the war in Iraq. Then, the White House suggested that mushroom clouds could accompany Congress’s failure to act. This time, it is financial Armageddon supposedly on the doorstep.
    “This is scare tactics to try to do something that’s in the private but not the public interest,” said Allan Meltzer, a former economic adviser to President Reagan, and an expert on monetary policy at the Carnegie Mellon Tepper School of Business. “It’s terrible.”
But the first world is still being turned into the third world:
When the International Monetary Fund or World Bank offer to lend money to a struggling third-world country (or "emerging market"), they demand "austerity measures".
As Wikipedia describes it:
In economics, austerity is when a national government reduces its spending in order to pay back creditors. Austerity is usually required when a government's fiscal deficit spending is felt to be unsustainable.
Development projects, welfare programs and other social spending are common areas of spending for cuts. In many countries, austerity measures have been associated with short-term standard of living declines until economic conditions improved once fiscal balance was achieved (such as in the United Kingdom under Margaret Thatcher, Canada under Jean Chrétien, and Spain under González).
Private banks, or institutions like the International Monetary Fund (IMF), may require that a country pursues an 'austerity policy' if it wants to re-finance loans that are about to come due. The government may be asked to stop issuing subsidies or to otherwise reduce public spending. When the IMF requires such a policy, the terms are known as 'IMF conditionalities'.
Wikipedia goes on to point out:
Austerity programs are frequently controversial, as they impact the poorest segments of the population and often lead to a wider separation between the rich and poor. In many situations, austerity programs are imposed on countries that were previously under dictatorial regimes, leading to criticism that populations are forced to repay the debts of their oppressors.
What Does This Have to Do With the First World?
Since the IMF and World Bank lend to third world countries, you may reasonably assume that this has nothing to do with "first world" countries like the US and UK.
But England's economy is in dire straight, and rumors have abounded that the UK might have to rely on a loan from the IMF.
And as former U.S. Comptroller General David Walker said :
People seem to think the [American] government has money. The government doesn't have any money.
Indeed, the IMF has already performed a complete audit of the whole US financial system, something which they have only previously done to broke third world nations.

Al Martin - former contributor to the Presidential Council of Economic Advisors and retired naval intelligence officer - observed in an April 2005 newsletter that the ratio of total U.S. debt to gross domestic product (GDP) rose from 78 percent in 2000 to 308 percent in April 2005. The International Monetary Fund considers a nation-state with a total debt-to-GDP ratio of 200 percent or more to be a "de-constructed Third World nation-state."

Martin explained:
What "de-constructed" actually means is that a political regime in that country, or series of political regimes, have, through a long period of fraud, abuse, graft, corruption and mismanagement, effectively collapsed the economy of that country.
What Does It Mean?

Some have asked questions like, "Is the goal to force the US into the same kinds of IMF austerity programs that have caused riots in so many other nations?" Some predicted years ago that the "international bankers" would bring down the American economy.

I used to think, frankly, that such kinds of talk were crazy-talk. I'm not so sure anymore.

Catherine Austin Fitts - former managing director of a Wall Street investment bank and Assistant Secretary of the Department of Housing and Urban Development (HUD) under President George Bush Sr. - calls what is happening to the economy "a criminal leveraged buyout of America," something she defines as "buying a country for cheap with its own money and then jacking up the rents and fees to steal the rest." She also calls it the "American Tapeworm" model, explaining:
[T]he American Tapeworm model is to simply finance the federal deficit through warfare, currency exports, Treasury and federal credit borrowing and cutbacks in domestic "discretionary" spending .... This will then place local municipalities and local leadership in a highly vulnerable position - one that will allow them to be persuaded with bogus but high-minded sounding arguments to further cut resources. Then, to "preserve bond ratings and the rights of creditors," our leaders can he persuaded to sell our water, natural resources and infrastructure assets at significant discounts of their true value to global investors .... This will be described as a plan to "save America" by recapitalizing it on a sound financial footing. In fact, this process will simply shift more capital continuously from America to other continents and from the lower and middle classes to elites.
Writer Mike Whitney wrote in CounterPunch in April 2005:
[T]he towering [U.S.] national debt coupled with the staggering trade deficits have put the nation on a precipice and a seismic shift in the fortunes of middle-class Americans is looking more likely all the time... The country has been intentionally plundered and will eventually wind up in the hands of its creditors This same Ponzi scheme has been carried out repeatedly by the IMF and World Bank throughout the world Bankruptcy is a fairly straightforward way of delivering valuable public assets and resources to collaborative industries, and of annihilating national sovereignty. After a nation is successfully driven to destitution, public policy decisions are made by creditors and not by representatives of the people .... The catastrophe that middle class Americans face is what these elites breezily refer to as "shock therapy"; a sudden jolt, followed by fundamental changes to the system. In the near future we can expect tax reform, fiscal discipline, deregulation, free capital flows, lowered tariffs, reduced public services, and privatization.
And given that experts on third world banana republics from the IMF and the Federal Reserve have said the U.S. has become a third world banana republic (and see this and this), maybe the process of turning first world into the third world is already complete.
The Raping of America

Dylan Ratigan writes:
In Chicago, it's the sale of parking meters to the sovereign wealth fund of Abu Dhabi. In Indiana, it's the sale of the northern toll road to a Spanish and Australian joint venture. In Wisconsin it's public health and food programs, in California it's libraries. It's water treatment plants, schools, toll roads, airports, and power plants. It's Amtrak. There are revolving doors of corrupt politicians, big banks, and rating agencies. There are conflicts of interest. It's bipartisan.
And it's coming to a city near you -- it may already be there. We're talking about the sale of public assets to private investors... In an era of increasingly stretched local and state budgets, privatization of public assets may be so tempting to local politicians that the trend seems unstoppable. Yet, public outrage has stopped and slowed a number of initiatives.
On Wall Street, setting up and running "Infrastructure Funds" is big business, with over $140 billion run by such banks as Goldman Sachs, Morgan Stanley, and Australian infrastructure specialist Macquarie. Goldman's 2010 SEC filing should give you some sense of the scope of the campaign. Goldman says it will be involved with "ownership and operation of public services, such as airports, toll roads and shipping ports, as well as power generation facilities, physical commodities and other commodities infrastructure components, both within and outside the United States." While the bank sees increased opportunity in "distressed assets" (ie. Cities and states gone broke because of the financial crisis), the bank also recognizes "reputational concerns with the manner in which these assets are being operated or held."
The funds themselves are clear when communicating with investors about why they are good investments -- a public asset is usually a monopoly. Says Quadrant Real Estate Advisors: "Most assets are monopolistic in nature and have limited competitors, creating the opportunity for stable, long-term investment returns. Investment choices include economic assets and social assets." Quadrant notes that the market size is between $12-20 trillion, roughly the size of the American mortgage market. "Given the market and potential return opportunities, institutional investors should consider infrastructure a strategic investment allocation."
As with mortgage securitizations, the conflicts of interest are intense. Pennsylvania nearly privatized its turnpike, with Morgan Stanley on multiple sides of the deal as both an advisor to the state and a potential bidder. As you'll see, these deals are often profitable because they constrain the public's ability to govern, not because they are creating value. For instance, private infrastructure company Transurban, now attempting to privatize a section of the Beltway around DC, is ready to walk away if local governments insist on an environmental review of the project. Many of them have clauses enshrining their monopolistic positions, preventing states and localities from changing zoning, parking, or transportation options.
While the trend is worldwide, privatization of public infrastructure only came to America en masse in the 2000s. It is worth discussing, because where it has happened it has sparked deep and intense anger.
The American Legislative Exchange Council (ALEC), the influential think tank that targets conservative state and local officials, has launched an initiative called "Publicopoly", a play on the board game Monopoly. "Select your game square", says the webpage, and ALEC will help you privatize one of seven sectors: government operations, education, transportation and infrastructure, public safety, environment, health, or telecommunications.
The Obama administration has been encouraging Chinese sovereign wealth funds to invest in American infrastructure as a way to bring in foreign capital. It was Chicago Mayor and Democratic icon Richard Daley who privatized Chicago's Midway Airport, Chicago's Skyway road, and Chicago's Parking Meters. Out of office after 22 years, he is now a paid advisor to the law firm that negotiated the parking meter sale.
Ratings agencies are also in the game, rating up municipalities willing to privatize assets, or even developing potential new profit centers around the trend (see the chapter titled "Significant Debt issuance Expected with the Privatization of Military Housing" from this September 2007 Moody's report).
Where To?

The strikes and riots in Greece, Spain, England and elsewhere are one reaction to the raping of their countries by creditors and politicians.

Others talk about taking the power to create debt away from the giant banks. But the banks (and the politicians which they own) - are obviously against that idea.

Max Keiser believes that Americans will simply stop making their mortgage payments en masse, an idea which many have discussed (and see this).

Will people stand up and demand that the bondholders and other creditors take haircuts? Or will we all be scalped of our national assets, our pension funds, our money ... and our freedom? Remember, more and more national security and police services are being outsourced to the private sector, and such military, intelligence and police powers are being used to protect big business. And see this.

Mitt Romney - Net Worth Over $200 Million - Tells Unemployed People ‘I’m Also Unemployed’

Mittens Muttney is lucky he wasn't mugged at today's Tampa campaign stop.
Source - NYT
TAMPA, Fla. — Mitt Romney sat at the head of the table at a coffee shop here on Thursday, listening to a group of unemployed Floridians explain the challenges of looking for work. When they finished, he weighed in with a predicament of his own.
“I should tell my story,” Mr. Romney said. “I’m also unemployed.”
He chuckled. The eight people gathered around him, who had just finished talking about strategies of finding employment in a slow-to-recover economy, joined him in laughter.
“Are you on LinkedIn?” one of the men asked.
“I’m networking,” Mr. Romney replied. “I have my sight on a particular job.”
The references to Mr. Romney’s own unemployment status added yet another humorous, but occasionally awkward, moment to his ever-growing catalog of off-the-cuff remarks that he makes as he seeks the Republican presidential nomination. He spent the morning doing more listening than talking — a woman in the crowd openly urged him to talk about the deficit — and it was unclear whether he persuaded any voters to join his effort.
Tom Yarranton, 55, lost his job in March 2010. He had spent 31 years as an internal auditor at a manufacturing company. He said he liked Mr. Romney’s mind-set as a businessman, but added that he did not blame Mr. Obama for still being unemployed.
Continue reading...

Are We Running Out of Silver?

Wiki Image
Jeff Clark
Casey Research

(Excerpt from the Casey Research 2011 Silver Investing Guide)

Silver has been on fire over the last three years — substantially outperforming its spotlight-grabbing cousin, gold.

Because we believe this bull run is far from over, we advise investors to always maintain exposure to the precious metals markets. Even if you haven’t yet participated in the run-up of both gold and silver, I’m glad you’re ready to take a look at the investment potential of silver.

The question every investor faces in a bull market is: Do I buy now, anticipating prices will continue higher — and chance getting clobbered if a correction arrives? Or do I wait for a pullback and possibly miss out on big gains? There’s risk either way.

Our goal in this report is to suggest various ways you can invest in silver, while underscoring the importance of patience and discipline. Investors must remain patient to avoid chasing silver, overpaying, and draining their cash. Instead, we recommend that you use temporary price declines to steadily accumulate the best silver stocks and your preferred form of bullion.

Looking back after this bull market has finally run its course, we think gold and silver will have amply rewarded those who bought smart, had meaningful exposure, and stayed the course.

Silver: The Lay of the Land

There is ample data on the silver market to consider, but there are two specific issues regarding supply and demand that are critical to understand.

The first is industrial use. Demand from a number of industries that use silver has been flat or falling. Household demand for silver like cutlery, flatware, and candlesticks hasn’t risen in ten years. Jewelry fabrication is up but a blip. With the shift to digital photography and image storing, use in photographic film processing continues to fall. And yet, total demand from industrial users keeps climbing.

So what’s driving industrial demand?

Since 1999, consumption in electronics has increased 120%. Silver use in solar panels began in 2000, and usage is up 640% since. Silver was first used in biocides (antibacterial agents) in 2002 and, while a small percentage of total silver use, it has grown six-fold.

The point is that not only are the number of uses for silver growing, the demand within each of those applications is rising as well. This is important to keep in mind because, traditionally, the industrial component of silver tends to keep the price soft in a poor economy – and Doug Casey is convinced we’re on the cusp of the Greater Depression.

However, these increasing sources of demand are now more likely to keep a floor under the price in the future. In fact, the Silver Institute forecasts that total industrial use of silver will rise by 36% over the next five years, to 666 million troy ounces/year. That’s a lot of silver, meaning this portion of demand, which is roughly 60% of all fabrication, isn’t letting up anytime soon.

The second issue is mine supply. Silver mine production has been increasing over the past decade, largely due to rising prices, allowing companies to ramp up production and bring more metal to the market. In fact, global mine production is up 33% since 1999. Meanwhile, total demand, as you’ll see in the chart below, is also rising.

Mine Production Can’t Keep Up with Demand

So what’s the concern?

In spite of miners digging up more and more silver, production alone can’t meet global demand, and the gap has to be filled by scrap silver coming to market.

And there’s a catch with scrap. While scrap metal comprises about 20% of silver’s total supply, many of these new applications are difficult to reclaim. Some applications contain such small amounts that they’re uneconomic to recapture, such as many biocidal and nanotechnology applications. With others it’ll be a long wait. Solar panels, for example, have a 20- to 30-year life. Still others are waiting on more effective recovery programs; more than half of all silver in cell phones, TVs, computers and other electronics, for instance, still ends up in landfills.

In other words, a growing portion of the silver that’s consumed won’t be returning to the market anytime soon.

Iranian President Ahmadinejad urges Central Asian nations to create a New World Order

Iranian President Mahmoud Ahmadinejad has urged Central Asian nations to create a new world order that ends the domination of what he called the "enslavers and colonizers of the past" - a reference to Western powers.

Ahmadinejad was speaking Wednesday at the opening of a regional summit of the Shanghai Cooperation Organization (SCO) in the Kazakh capital, Astana. Addressing the summit as an observer, he said all of the participating nations have a history of avoiding conflicts and together can bring peace to the world.

The SCO is a regional security and economic forum whose members include China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.  Several nations participate as observers, including Iran, India, Pakistan and Mongolia.

The Iranian president used much of his summit speech to blame unnamed Western countries for global instability. After the summit, Russia says President Dmitry Medvedev urged Mr. Ahmadinejad to take a "more constructive approach" in resolving a dispute with six world powers about the Iranian nuclear program.

Russian Foreign Minister Sergei Lavrov says Mr. Medvedev also called on the Iranian president to improve the transparency of his contacts with the United Nations nuclear agency. The Russian president made the appeals in a three-way meeting with  Ahmadinejad and Kazakh President Nursultan Nazarbayev.

Six major powers, Russia, China, the United States, Britain, France and Germany, have been trying to persuade Iran to stop sensitive nuclear work in return for diplomatic incentives, but the talks have been stalled for months.

In private talks ahead of the summit Tuesday, Chinese President Hu Jintao also urged  Ahmadinejad to resume the six-nation talks, saying Iranian steps to establish trust and promote dialogue would be in the interest not only of Iran but of the Middle East as a whole.

Western powers accuse Iran of trying to develop nuclear weapons under the cover of a civilian energy program. Lavrov says Ahmadinejad told his Russian counterpart that Iran has no intention of becoming nuclear-armed.

During Wednesday's summit, Russia appeared to win support from other SCO members for its criticism of U.S. plans for a missile defense shield in Europe. In a declaration, the bloc said the "unilateral and unlimited" build-up of missile defense systems by one state or narrow group of states could "damage" global security.

The declaration did not mention any nation specifically. The United States has said its proposed European missile defense shield is meant to protect the region from potential attack by Iranian missiles. But Russia fears the system will weaken its nuclear deterrent.

Bloomberg's Jonathan Weil Rips Sheila Bair Over Bailout Lies: 'No Such Thing As Too Big To Fail'

Submitted by Bloomberg's Jonathan Weil.
Original Source
In the words of Sheila Bair, the departing chairman of the Federal Deposit Insurance Corp., the era of too-big-to-fail banks isn’t just ending -- it’s already over. Consider her statement two weeks ago, in a news release heralding the creation of a committee to advise the agency on how to deal with large, dying financial firms:
“Congress has given the FDIC a tremendous amount of responsibility to ensure that financial organizations formerly deemed too big to fail will no longer receive taxpayer funded bailouts.”
Formerly deemed, huh?
Maybe Bair didn’t express herself clearly or was giving voice to her inner hopes. Either way, it’s hard to believe she convinced anyone that the government wouldn’t rescue Bank of America Corp., Citigroup Inc. (C), Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS) -- to name just a few -- amid a crisis that threatened to take down the global financial system.
The capital markets sure don’t seem to buy it. Otherwise, the bonds of these banks would be trading for a lot less, as would their stocks. Bank of America and Citigroup, whose shares fetch much less than the net assets on their balance sheets, might be dead already.
The basis for Bair’s assertion rests in the FDIC’s new powers under the Dodd-Frank Act passed by Congress last year. The act, it’s worth noting, didn’t even pretend to end too big to fail at Fannie Mae or Freddie Mac, both of which are in government conservatorship almost three years after they were seized, or American International Group Inc. (AIG), which is still majority-owned by the Treasury Department.

Qualified Answer

At least the FDIC’s general counsel, Michael Krimminger, qualified his answer when he testified before Congress this week about whether Dodd-Frank will work as advertised. He said the act provides “the tools to end too big to fail, if properly implemented.”
Yes, Dodd-Frank prohibits bailouts of the sort we saw under the $700 billion Troubled Asset Relief Program. Financial companies deemed “systemically important” must submit so-called living wills to regulators, mapping out how they would dismantle themselves in a crisis. Those that don’t turn in credible plans could face sanctions, including higher capital minimums. If and when such companies become insolvent, the government would have the option of placing them into a special resolution program aimed at providing an orderly liquidation, as an alternative to a traditional bankruptcy filing.
All this remains untested. There’s little reason to expect the bureaucrats at the FDIC would know a good living will if they saw one. It’s even harder to envision that executives who don’t know what’s going on inside their own too-big-to-manage banks would be any better at designing a resolution roadmap.

Last Time

And we all remember what happened the last time regulators decided they didn’t have the right tools to deal with a financial crisis that was spiraling out of control. They scared Congress into changing the law, and in 2008 we got TARP. Congress always could change the law again in the face of a potentially cataclysmic meltdown.
Dodd-Frank doesn’t end taxpayer-supported bailouts. The liquidation scheme outlined in the act would let the FDIC borrow money from the Treasury Department to finance a company’s operations, as a way to promote calm and head off bank runs. That protects bondholders and counterparties from the sorts of large, immediate losses they otherwise might incur through a traditional bankruptcy proceeding.

Good Luck

The law says any company that enters the special resolution process must be liquidated within five years, which isn’t exactly quick. It also says there shall be “no losses to taxpayers,” and that the financial-services industry would have to foot the bill for a company’s liquidation through special fees if necessary. By then, taxpayers’ money would be out the door, and good luck getting it back. The FDIC already has a hard time charging banks enough premiums to keep its deposit- insurance fund solvent.
Congress could have broken up the nation’s banking cartel had it wanted to. It didn’t. Alternatively, regulators could saddle the largest banks with capital requirements of, say, 20 percent of assets or more, giving them an adequate cushion to absorb the inevitable losses from risky, reckless trading. That might even compel some banks to break themselves up and shed their financial casino operations. That’s not happening either.
This leaves the government with one way to demonstrate that too big to fail is dead. That’s to let a huge, systemically important company die, which means accepting the risk that others will blow up with it and take down the economy. The markets have decided they’ll believe that when they see it, and understandably so. The pain from Lehman Brothers Holdings Inc.’s death in 2008 proved too much for policy makers to bear.
The new regulations called for by Dodd-Frank remain largely unfinished. The living wills don’t exist yet, not that they would be much help during a global credit freeze. There’s no reason to believe regulators will be more competent at enforcing their new rules than the old ones. The main thing that’s changed since 2008 is some of the biggest banks have gotten bigger.
We’re no safer today than we were then.

Barcelona Violence Provoked By Undercover Cops (Video)

Things had been pretty calm in Plaza Catalunya, epicenter of the Barcelona 15-M camp, since the incidents a couple of weeks ago when the riot cops failed to take the square. The popular assemblies continued their protest and their discussions, and finally voted to lift camp last Sunday and transfer the movement to the neighborhood committees. But first there was one last step to take, one last show of strength before moving on: to peacefully protest at the gates of the Catalan parliament yesterday, the day the politicos gathered to approve the austerity measures to be applied to the native slave stock.
The fact that the first politicos to arrive that morning came calmly on foot despite the protest is proof that no-one was expecting violence, mostly because the 15-M movement has from the start been a peaceful protest. But suddenly a group of “protestors” began pushing and insulting the politicos, throwing objects and spraying paint at them, and all hell broke loose, with the riot cops immediately shooting gas and rubber bullets, not at the agitators but at the mass of protestors who were sitting nearby.
After this reception, the remaining politicos used other means of transport to make it inside the police cordon, including a handful that were transported inside an armored police van (a karmic wink to the hopeful?) and even in police helicopters. When the session finally started, long faces in the parliament and clashes outside as the front lines practiced passive resistance to the cop’s efforts to clear the path for vehicles.
Today’s newspapers were in collective outrage on this “attack on democracy”, “loss of legitimacy of the movement” and yadda yadda about the poor politicos “elected representatives” having to endure such travails on their way to vote us out of house and home. That’s when the email arrived with the link to the video embedded below, in which certain facts about the violent “protestors” are immediately evident to anyone who knows how cops think. At the time of this writing, the Spanish and Catalan mainstream media are still ignoring the obvious –practice makes perfect– but if enough people see this video, and it is definitely making the rounds right now, maybe, just maybe, some real exposure of the true violent elements will be forthcoming.
But they’ve been doing it for years with impunity, why would it be different now? Now there is more at stake. A line has been crossed… attacking politicos is a grave offense in Spain and will definitely land one in jail. So far, nine people have been arrested for yesterday’s incidents, but none of them are the ones that appear in the video below. How tight can the impunity cover stretch before it tears apart like cheap cellophane wrap and exposes the extent of the manipulation and the lies?
Watch the video and judge for yourself. What really happened yesterday in Barcelona?
Note: the first copy of this video has been made “private” in the Tube of You; here’s another copy of the same video, but it may disappear anytime.

Greece wracked by political turmoil in debt crisis

ATHENS, Greece – Greece was wracked by political turmoil Thursday as the embattled prime minister faced down a party revolt over new austerity measures — a bitter dispute that forced the EU to hint at new loans so Greece can fend off a summer default.
Prime Minister George Papandreou has struggled to garner support for a new package of euro28 billion ($39.5 billion) in spending cuts and tax hikes demanded by the European Union and the International Monetary Fund, which last year granted his debt-ridden nation euro110 billion ($155 billion) in bailout loans.
But the measures have sparked riots on the streets of Athens and open criticism from his own Socialist lawmakers. Papandreou's desperate efforts to form a coalition government with the opposition conservatives collapsed Wednesday, and the political crisis deepened Thursday when two of Papandreou's lawmakers resigned. A planned Cabinet reshuffle was delayed till Friday, after Papandreou chaired a seven-hour emergency meeting with Socialist lawmakers to try and ease the crisis.
The party feud heightened worldwide concern that a Greek financial collapse could trigger panic elsewhere in the 17-nation eurozone — a fear that saw borrowing costs in vulnerable EU countries surge and stock markets come under pressure.
"We will prevail and we will hold on. We have as a country in the past successfully faced major crises. As hard at this struggle is, we cannot run away from our fight," Papandreou told party lawmakers. "We will fight and we will win, for Greece, its people and the future of the new generations."
Fearing further chaos, the EU's top financial official, Olli Rehn, indicated in Brussels that Greece will likely get its next financial lifeline in July, despite the EU finance ministers' failure to agree on a new bailout package for the country.
Rich EU countries like Germany and the Netherlands want private creditors to share a big part of the burden of helping Greece, while the European Central Bank fears those demands could trigger a partial default that would spark panic on financial markets and pummel banks in Greece and across Europe.
Rehn, the EU's monetary affairs commissioner, said eurozone ministers would likely agree Sunday to give Greece the next euro12 billion ($17 billion) loan from last year's euro110 billion package. However, the aid will only be paid if Papandreou's government, which faces a vote of confidence within days, can get new budget cuts and privatizations through parliament before the end of the month.
The loan would keep Greece afloat until September and give finance ministers and the ECB until their next get-together in July to resolve their differences, Rehn said.
His comments raised hopes that Greece would avoid a quick default, alleviating the selling pressure on the euro, which had earlier fallen below $1.41 for the first time in three weeks.
But fears of a second Greek bailout drove the yield on Greece's two-year bonds above 30 percent for the first time ever Thursday and kept the 10-year equivalent near all-time highs around 18 percent.
Even if a second bailout is granted to Greece, many analysts think the road will still end in default, and some even wonder if Greece will stay in the 17-nation eurozone.
"While an additional bailout package may stave off near-term disaster, a major debt restructuring seems inevitable at some point and Greece's future in the currency union is looking ever more doubtful," said Jonathan Loynes, chief international economist at Capital Economics.
Some economists fear that a Greek default would trigger financial chaos like the Sept. 2008 collapse of the U.S. investment bank Lehman Brothers.
"The risk of a 'Lehman moment' for the eurozone is increasing," says Neil MacKinnon, analyst at VTB Capital.
Nout Wellink, a member of the ECB's rate-setting council, said the situation means that European governments need to be ready to double the size of their bailout fund to euro1.5 billion — a prospect sure to irritate German Chancellor Angela Merkel, who faces unrest at home over Germany's role as the leading funder of bailouts.
In Athens, Papandreou said he would keep seeking a consensus with the opposition over the financial reforms that creditors have demanded.
"I will serve and continue to serve the effort for broader consensus and we hope that this effort ultimately is successful," he said.
He admitted his government had displayed "mistakes and weaknesses," but promised a new, stronger Cabinet in a reshuffle.
His strong words failed to reassure, and prominent Socialist lawmaker Vasso Papandreou was stinging in her criticism.
"The measures we are implementing are only cuts in salaries and pensions," she said during the emergency meeting. "We voted for other measures but we have not implemented them."
The lawmaker — who is not related to the prime minister — said Greece was in a worse condition now than when it first passed austerity measures last year.
"We have managed to mobilize nearly all of Greece's society against us," she noted.
Derek Gatopoulos and Elena Becatoros in Athens, Gabriele Steinhauser in Brussels, Pan Pylas in London and David McHugh in Frankfurt contributed.

Why Your Money-Market Fund Could Be Hit by Greek Default

Some of the safest, plain-vanilla investment accounts in the U.S. could be challenged if Greece defaults on its sovereign debt.
Forty-four percent of mutual fund assets in the U.S. are invested in the short-term debt of European banks, according to a report from Fitch.
A separate report from Moody's noted that 55 percent of those holdings are in the commercial paper of French banks, such as Societe Generale, BNP Paribas [BNP-FR  50.78    -0.33  (-0.65%)   ] and Credit Agricole. French banks are some of biggest creditors to Greece, with over $53 billion in outstanding loans to the Greek government and private sector.
While fund managers have had plenty of warning of the potential of a default in Greece, many would likely still be caught off guard. Many fund managers assume that a bailout will prevent a default by Greece.
The bankruptcy of Lehman Brothers similarly caught money-market fund managers off guard, famously causing the Reserve Fund to "break the buck."
The debt of these French banks is still very highly rated and Moody's says the risk of default on the short-term debt is very low. But the high ratings assume that the probability of a default by Greece is very low.
If Greece defaults, it is possible that the market value of the commercial paper of French banks could plummet and the ratings could be downgraded. Money-market funds would likely refuse to fund new issuances of the short term debt, creating a liquidity problem for the French banks.
Other European banks would likely face pressure as investors tried to measure their exposure to Greece and those over-exposed to Greece.
One thing that may help money-market funds weather the Greece storm better than the Lehman hurricane is that they now have an implicit US government backing. While no longer directly insured by the FDIC, many believe that in a crisis the government would once again step in to insure the accounts, just as it did in 2008.
Correction: An earlier version of this article implied that the US government still explicitly insured money market funds. It does not. Money market fund insurance expired in 2009. Money market deposit accounts with chartered financial institutions are insured by the government.