Thursday, September 19, 2013

Ron Paul: We Ought To Face The Consequences Of Our Spending

A Morgan Stanley College Fund I started for my daughter (Coverdell ESA) $500 initial investment is $175, 13 years later! Almost 3/4 loss of money!

I just had to inform everyone.  NEVER NEVER start a college fund for your child.  13 years ago I started one for my child when she was one year old with Morgan Stanley/Dean Witter.

I called, as I remembered it today and had never received any statements in all these years.

I figured there would be a few more dollars in the account after 13 years, after all it is a college savings account that is suppose to earn money and the stock market is UP.

Well, I got a Huge Shock!  The amount left in the college fund is only $175.00 After 13 YEARS!

So... the fund lost almost 3/4 of it's value!  No fees were involved, all just bad investments on Morgan Stanley's part.

How typical of the Wall Street banks.  A College (Coverdell ESA account) is eaten up by their Wall Street bad investments for the clients but good investments for themselves as they bet against what they put your money into.

When talking to them today, their attitude was "Oh Well" that is how it goes.

I told him, I had not had a choice of where the money went to and they are the ones who invested it.

He said they had put it in technology stocks in 2000 when the stocks were at the top of their market.  He tried to make me feel better saying "Well within 3 years it had gone down to $75 and then it went up to $125.  Then it went down again to $88 in 2007 and so it has doubled since then."

I laughed not in a nice way and said, yeah doubled since 2007 but loss about 3/4 over the 13 years!  I did let him know what I thought of how they invested other people's money! 

His attitude was of complete boredom and could care less about it.  

If only I would have put that $500 in gold or silver in 2000, then it would be triple or more in value instead of a loss.

Oh, one other thing... I can't get the $175 until next week.    They wonder why people dislike them so much too...

I will NEVER invest money with any Wall Street firm again.

By the way, putting money in an IRA and giving it to a Wall street bank is just like a college fund. When they lose your money it is "Oh well, too bad for you attitude."

I will be interviewing a company next week and will put it up on the blog about a new way of investing with your IRA.  It is where you can hold physical gold and silver at home yourself and it is still considered an IRA yet you have the physical personally.  I have put the banners for them on the side - Perpetual Assets.   It will be explained more next week.

Don't trust anyone with your investment money, except for yourself.  That is my opinion.

Here’s a Capitalist Who Doesn’t Understand Capitalism

In a recent column for The Wall Street Journal, Cypress Semiconductor President and CEO T.J. Rodgers tried to defend capitalists and in the process, showed that he really doesn’t understand how markets work at all.
Rodgers’ editorial was pretty much your standard right-wing talking point piece about how important so-called “job-creators” are to the economy. Without rich people like him, he argued, there would be no investors, no businesses, and no jobs. Therefore, he argued, raising taxes on rich people like him is counterproductive because it sucks away capital from the people who can best use it.
To prove his point, Rodgers brought up an example from his own life. He wrote:
“A couple of years ago, I decided to invest in my hometown of Oshkosh, Wis., by building a $1.2 million lakefront restaurant. That restaurant now permanently employs 65 people at an investment of $18,000 per job, a figure consistent with U.S. small businesses. If progressive taxation in the name of ‘fairness’ had taken my “extra” $1.2 million and spent it on a government stimulus program, would 65 jobs have been created?”
What Rodgers is saying is that he is responsible for the jobs created by his restaurant and that any attempt to raise taxes on wealthy individuals like him would take away the resources necessary to create more jobs.
This sort of argument has become so common, so ingrained in the right-wing meme machine in the 32 years since Reagan took office that it’s easy to forget how flawed it is.
Contrary to what Rodgers claims in his Wall Street Journal piece, business-owners don’t create successful businesses or the jobs they generate: consumers do.
Despite what you may hear from the talking heads on “Fox So-Called News” and CNBC, economies are driven from the ground up. They’re run on demand, by how much consumers actually want to buy goods or services. If a business doesn’t meet an existing demand in the marketplace, or create demand through innovation, it won’t succeed. It’s as simple as that.
I know this from firsthand experience. Back in the 1980s, my wife and I started a travel small agency down in Atlanta. I had very little money at the time and I used my $15,000 line of credit from American Express as our start-up capital. Like every entrepreneur, I took a risk. But what made that risk turn into a $6 million dollar a year business within a matter of years and gave our travel agency an edge over its competitors is the same thing that gave T.J. Rodgers’ business an edge over its competitors: we met a demand in the marketplace.
Unlike other travel agencies, ours identified a niche of smaller businesses or less frequent travelers to serve. The big travel agencies like American Express only wanted the business of big corporations and super frequent travelers. The small travel agencies only wanted to serve rich people who wanted cruises. There was nobody in our growing part of Atlanta that was serving the smaller business travelers. We were ahead of the curve and were rewarded for it both by making a lot of money and having our business featured on the front page of The Wall Street Journal.
Although much of it happened after we had sold in 1986, that little company we started on my line of credit went on to sell over $250 million worth of travel.
As long as our economy is based on some sort of free market system, businesses will succeed or fail based on market demand for their services. That’s why T.J. Rodgers’ argument that wealthy people are responsible for the jobs their businesses create is so wrong.
Even if the government did tax him so highly that he couldn’t use his own money to finance his restaurant, he still could have taken out a line of credit, like I did when I started my travel agency – like most small business do – and his restaurant still would have generated the jobs he brags about in his Wall Street Journal column. And it would have generated those jobs because it met a demand niche in the Oshkosh, Wisconsin marketplace.
The big secret right-wingers like T.J. Rodgers don’t want you to know is that you don’t even need a wealthy entrepreneur like him to make a business successful. Workers cooperatives work just as well.
A couple of years ago, I visited the town of Madragon in the Basque Country of Spain, home of the great Mondragon Cooperative. The cooperative employs more than 90,000 people, includes more than 250 companies, and generates a yearly revenue of around $25 billion.
Like other good businesses, the Mondragon Cooperative satisfies a demand in the marketplace. The only difference between the cooperative and a big American corporation like Walmart, however, is that the cooperative is owned entirely by its employees and the most highly paid person earns less than six times the lowest paid person. Cooperative, worker-owned companies right here in the U.S., like the Madison, Wisconsin based Union Cab Company, have had similar success, all while flouting the traditional hierarchical model of capitalism.
Of course, the only downside to co-ops for someone like T.J.Rodgers is that they don’t let CEOs rake in the millions. For their workers, their customers, and their community, they’re a great deal.
The idea that wealthy business owners are the sole source of jobs in our economy is just one big lie. It’s time to put that lie to rest and start looking for alternatives to top-down capitalism, alternatives that offer the same benefits as businesses do today without enriching those at the top at the expense of everyone else. We really have nothing to lose but our chain stores.
Copyright: Truth Out

Stocks jump to record highs after Fed holds steady on stimulus

Discussing the latest move by Federal Reserve policymakers.

NEW YORK -- The Federal Reserve's surprise decision to hold steady on its easy-money policies sent major stock indexes climbing about 1% to new all-time highs.
The Dow Jones industrial average surged 147.21 points, or 0.9%, to close at 15,676.94.
The broader Standard & Poor's 500 index added 20.73 points, or 1.2%, to 1,725.49. The technology-focused Nasdaq composite index rose 37.94 points, or 1%, to 3,783.64.
QUIZ: How much do you know about the stock market?
The Fed's $85 billion a month in bond purchases have helped fuel this year's stock rally, lifting major indexes about 20% for the year as of Wednesday.
But in its decision to hold off on "tapering" the bond-buying stimulus program, the Fed said the economy wasn't yet strong enough to stand on its own.
“It just feels better to investors knowing that the Fed is there," said Larry Palmer, managing director of Morgan Stanley Private Wealth Management in Los Angeles. "It’s almost a false sense of security."
Bonds also rallied. The yield on the benchmark 10-year Treasury bond -- which had been hovering around 3% -- fell sharply after the Fed's announcement. In a 10-minute span Wednesday afternoon, the 10-year yield fell from 2.87% to 2.74%, according to Tradeweb. A bond's price rises as its yield falls.
The Fed's bond purchases, known as quantitative easing, have kept a lid on long-term interest rates to make borrowing cheaper. They also have pushed investors into riskier assets such as stocks, as bonds became less attractive.
“We want to see stock prices go up for the right reasons,” said Jeffrey Cleveland, a senior economist at Payden & Rygel in Los Angeles. "It's a little perverse."
Still, the Fed alone hasn't fueled the rally, Cleveland said.
“The economy is healing slowly," he said. "We are seeing record corporate profits, so the entire rally we’ve seen is not just built on sand."

City of Detroit hopes to boost permitting revenues, plans to shut down 20 small businesses a week with Operation Compliance. What could go wrong?

Downturn Despair: Suicides Spike in Age of Austerity

The global economic crisis in 2008 has been linked to a rise in suicides in Europe and the U.S., among other countries, according to a new study.
There were nearly 5,000 more suicides than expected in the year after the global economic crisis, “one of the clearest signs of austerity’s human cost.” (Photo: Grant Jones/cc/flickr) In an analysis of the impact of the crisis published Tuesday in the British Medical Journal, researchers looked at the number of suicides that actually occurred in 54 countries in 2009 as compared to those that had been expected to occur.
They found that there were almost 5,000 more suicides than expected. There was a 4.2% higher rate in Europe, and a 6.4% higher rate in the Americas, with men experiencing a higher rate than women. The higher rates were linked to a surge in unemployment levels.
The researchers write:
Rises in national suicide rates in 2009 seemed to be associated with the magnitude of increases in unemployment, particularly for men and in countries with low unemployment levels before the crisis. Our finding is likely to be an underestimate of the true global impact of the economic crisis on suicide as some affected countries, such as Australia and Italy, were not included. The rise in the number of suicides is only a small part of the emotional distress caused by the economic downturn. Non-fatal suicide attempts could be 40 times more common than completed suicides, and for every suicide attempt about 10 people experience suicidal thoughts.
Part of the study’s implications, the authors write, is for governments to take “urgent action,” noting that the increased suicide risks are not inevitable; rather than choosing austerity, which exacerbates unemployment and leads to higher suicide levels, in the wake of crises, they should foster employment opportunities.
‘The rise in suicide rates is one of the clearest signs of austerity’s human cost.’Fiona Godlee, editor of the Journal, writes that while her publication does not involve itself in politics, “where there is evidence that a [government] policy is harming health, we must speak as we find. The policy in this case is austerity…”
“Whatever the economic arguments in favor of austerity, the rise in suicide rates is one of the clearest signs of its human cost,” the Independent quotes Richard Garside, director of the Center for Crime and Justice Studies, as saying.
In an editorial linked to the study, Keith Hawton and Camilla Haw write:
It seems that where governments choose austerity measures to tackle national financial debt the impact is worse. In contrast, active programmes to keep as many people in work or other meaningful activity and to support community healthcare and benefits can reduce or even fully counter these effects.
Hawton and Haw reference The Body Economic: Why Austerity Kills by David Stuckler and Sanjay Basu and its summary that says, “recessions can hurt, but austerity kills.” They say that with the analysis provided in the new study, that summary might be rephrased to: “recessions and their sequelae have wide ranging socioeconomic consequences—how governments respond may determine whether this is translated into despair and suicide.”
Copyright: Common Dreams

Obama admin. starts preparations for shutdown

WASHINGTON (AP) -- The Obama administration is telling federal agencies to prepare for a possible government shutdown.
The Office of Management and Budget sent a letter to agency heads this week ordering them to make contingency plans if Congress does not reach a deal to fund the government after Sept. 30. The letter from OMB director Sylvia Burwell says there is still enough time for Congress to prevent a lapse in funding, but "prudent management" requires that the government get ready for a shutdown.
House Republicans plan to vote on a budget bill this week that withholds funding for President Barack Obama's health care law. But the effort stands little chance in the Democratic-controlled Senate.
OMB has sent similar warnings to agencies during previous budget battles.

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Shutdown increasingly seen as tone sharpens

Analysts were ratcheting up their expectations of a government shutdown on Oct. 1 on Wednesday as House Republicans and the White House geared for a clash.
Stan Collender, the Washington budget analyst, says that a shutdown may be Speaker John Boehner‘s “only way out,” who notes that the only discussions that seem to be taking place are between the two main factions in the House GOP.
Chris Krueger of Guggenheim Securities is putting shutdown odds at 40% — up from 1 in 3 previously — and admits the 60% probability that there won’t be is based on “blind faith.” Krueger notes that stocks in the healthcare, tourism and defense sectors have the most negative risk from a shutdown, while Social Security and other entitlement programs would continue.
On Wednesday, Boehner said the House would pass a continuing resolution that would include a defunding of the Affordable Care Act, or Obamacare. Read more on Boehner’s comments.
Obama pinned the blame on Republicans at a speech in front of business executives. A faction of House Republicans is simply saying that they “will blow the whole thing up unless you do what I want,” he said.
In a memo to federal departments and agencies, White House Office of Management and Budget Director Sylvia Burwell notified agencies that funding for many programs and departments would expire at 11:59 p.m. on Sept. 30 and that “prudent management requires that agencies be prepared for the possibility of a lapse.” See the full memo.
– Steve Goldstein
Follow Steve on Twitter @mktwgoldstein
Follow Capitol Report @capitolreport

Obama Calls On CEOs To Help Avoid Debt Ceiling Battle With Republicans

WASHINGTON — President Barack Obama, facing a budget showdown with Congress, called on some of the nation's top corporate executives Wednesday to use their influence with Congress to avoid a potentially damaging confrontation over the nation's debt ceiling.
Obama reiterated his vow not to negotiate with Republicans over raising the borrowing limit, which the government is about to hit as early as next month. And he blamed "a faction" of the GOP that he said is trying to eliminate his health care law by threatening a government shutdown or a default on the debt.
"We're not going to set up a situation where the full faith and credit of the United States is put on the table every year or every year and a half and we go through some sort of terrifying financial brinksmanship because of some ideological arguments that people are having about some particular issue of the day," Obama told members of the Business Roundtable. "We're not going to do that."
He argued that the modest economic recovery would be hurt if Republican lawmakers can't work with Democrats to pass a stopgap spending measure to keep the government operating after the fiscal year ends Sept. 30.
After that, Congress must find a way to raise the current $16.7 trillion borrowing limit, expected to hit its ceiling sometime in mid- to late October.
Obama also urged his CEO audience to appeal to congressional Republicans to resolve budget differences in ways that "do not promise apocalypse every three months."
Obama has been using the fifth anniversary of the nation's financial near-meltdown this week to make his case, delivering an economic address at the White House on Monday and scheduling a trip to a Ford Motor Co. plant near Kansas City, Mo., on Friday to illustrate the comeback of the auto industry.

Republicans in the GOP-controlled House want to tie continued spending to defunding or delaying Obama's signature health care law.
The White House said Obama would specifically ask the corporate leaders to deliver a message to Congress that a default would hurt businesses. Obama was expected to blame what the White House calls "extreme members of the Republican Party" for the threats.
The White House said Obama would note that during the last debt ceiling fight in 2011, the brinkmanship caused the stock market to plunge, prompted Standard & Poor's to downgrade the U.S. credit rating and resulted in a plunge in consumer confidence.
Obama insists he won't negotiate to raise the debt ceiling, though the talks in 2011 yielded a deficit-cutting bargain. The White House especially rejects any attempt to defund or delay the health care law.
Republican leaders note that it's not unusual for debt ceiling increases to be tied to budget deals, though several borrowing limits during past administrations have been raised with few or no strings attached.
"No one is threatening to default," said Brendan Buck, a spokesman for House Speaker John Boehner, R-Ohio. "The president only uses these scare tactics to avoid having to show the courage needed to deal with our coming debt crisis. Every major deficit deal in the last 30 years has been tied to a debt limit increase, and this time should be no different."

Another 250 Million Rounds Of Ammunition For An Agency On A Bullet Diet

James Smith
Activist Post

In the middle of December 2012, the Customs and Border Protection Agency presented a pre-solicitation for 50,000,000 rounds of .40 S&W caliber ammunition, ostensibly for training. The contract would provide a total of 250,000,000 rounds over the life of the 5-year contract. The contract was to be issued on 20 January 2013. CPB, an agency within the Department of Homeland Security (DHS) has included the Immigration and Customs Enforcement (ICE) agency with this solicitation.

Today, CPB and ICE announced via the solicitation process that they will be awarding the contract on or about October 7, 2013. Added to the original solicitation was this sentence:

Resulting award will be used for training/qualifications only, not for duty use, and will be used as a direct substitution in lieu of procuring like quantities of duty ammunition.
From their individual websites:
U.S. Immigration and Customs Enforcement is the principal investigative arm of the U.S. Department of Homeland Security (DHS). Created in 2003 through a merger of the investigative and interior enforcement elements of the U.S. Customs Service and the Immigration and Naturalization Service, ICE now has more than 20,000 employees in offices in all 50 states and 47 foreign countries. 
CBP is one of the Department of Homeland Security’s largest and most complex components, with a priority mission of keeping terrorists and their weapons out of the U.S. It also has a responsibility for securing the border and facilitating lawful international trade and travel while enforcing hundreds of U.S. laws and regulations, including immigration and drug laws.

ICE and CPB both have approximately 21,000 employees. This number is not solely agents, but administrative staff who would never be allowed to train with a firearm.

However, if every employee was allowed to train with a firearm, using this one solicitation alone, each employee would have the opportunity to fire 1,190 rounds a year.

This sort of ammunition purchase is what led to the US House of Representatives to stop DHS from entering into new contracts. There have been no news reports of this limitation being removed from DHS.

We will keep you updated on this matter as information comes available.

Read more about government munitions purchases here:

James is a father of four and grandfather to four. He and his wife of almost 30 years have been prepping since 2003. They live in a small town, with neighbors as close as 10 feet away and have raised chickens for 2 years covertly on less than 1/5 of an acre. He is a former corrections officer, insurance fraud investigator, and he served in the Navy for 6 years. He currently works for a corporation dealing with the disabled population and their benefits. He is the host of The Covert Prepper show and the Prepper Podcast Radio Network News, both heard on Blogtalk Radio.

Fed Stole Germany's Gold. Won't Give Gold Back

BIS: Worldwide credit excess ‘worse’ than pre-Global Financial Crisis

Source: SMH
The Swiss-based ‘bank of central banks’ says a hunt for yield is luring investors en masse into high-risk instruments, “a phenomenon reminiscent of exuberance prior to the global financial crisis”.
This is happening just as the US Federal Reserve prepares to wind down stimulus and starts to drain dollar liquidity from global markets, an inflexion point that is fraught with danger and could go badly wrong.
“This looks like to me like 2007 all over again, but even worse,” said William White, the Bank for International Settlement’s former chief economist, famous for flagging the wild behaviour in the debt markets before the global storm hit in 2008.
“All the previous imbalances are still there. Total public and private debt levels are 30 per cent higher as a share of GDP in the advanced economies than they were then, and we have added a whole new problem with bubbles in emerging markets that are ending in a boom-bust cycle,” said Mr White, now chairman of the OECD’s Economic Development and Review Committee.
The BIS said in its quarterly review that the issuance of subordinated debt — which leaves lenders exposed to bigger losses if things go wrong — has jumped more than threefold over the last year to $US52 billion ($55.87 billion) in Europe, and jumped tenfold to $US22 billion in the US.
The share of “leveraged loans” used by the weakest borrowers in the syndicated loan market has jumped to an all-time high of 45 per cent, ten percentage points higher than the pre-crisis peak in 2007-2008.
The BIS said investors are snapping up “covenant-lite” loans that offer little protection to creditors, as well as a form of hybrid capital for banks known as CoCos (contingent convertible capital instruments) that switch debt into equity if bank capital ratios fall too low. While CoCos help shield taxpayers from losses in a banking crisis by leaving private creditors with more of the risk, the recent appetite for such an instrument is also a warning sign.
The BIS said interbank credit to emerging markets has reached the “highest level on record” while the value of bonds issued in off-shore centres by private companies from China, Brazil and other developing nations exceeds total issuance by firms from rich economies for the first time, underscoring the sheer size of the debt build-up in Asia, Latin Africa, and the Mid-East.
Claudio Borio, the BIS research chief, said the ructions in emerging markets since the Fed turned hawkish in May is a warning to investors that they must tread with care. “Global financial markets have reacted very strongly. If there were any doubts about the strength of international policy spillovers, they have now been put to rest,” he said.
Mr Borio said nobody knows how far global borrowing costs will rise as the Fed tightens or “how disorderly the process might be”.
“The challenge is to be prepared. This means being prudent, limiting leverage, and avoiding the temptation of believing that the market will remain liquid under stress, the illusion of liquidity,” he said.
The BIS enjoys great authority. It was the only major global body that clearly foresaw the global banking crisis, calling early for a change of policy at a time when others were being swept along by the euphoria of the era.
Mr White said the five years since Lehman have largely been wasted, leaving a global system that is even more unbalanced, and may be running out of lifelines. “The ultimate driver for the whole world is the US interest rate and as this goes up there will be fall-out for everybody. The trigger could be Fed tapering but there are a lot of things that can go wrong. I very am worried that Abenomics could go awry in Japan, and Europe remains exceedingly vulnerable to outside shocks.”
Mr White said the world has become addicted to easy money, with rates falling ever lower with each cycle and each crisis. There is little ammunition left if the system buckles again. “I don’t know what they will do: Abenomics for the world I suppose, but this is the last refuge of the scoundrel,” he said.
The BIS quietly scolded Bank of England Governor Mark Carney and his eurozone counterpart Mario Draghi, saying the attempt to use “forward guidance” to hold down long-term rates by rhetoric alone had essentially failed. “There are limits as to how far good communications can steer markets. Those limits have become all too apparent,” said Mr Borio.

Taper Time – No matter what the Fed says today, markets are probably going to get crazy

This morning, the S&P 500 Index e-mini futures (ES-U3) are trading higher by just 0.50 points to 1705.50 per contract. Most institutional traders and investors are eagerly awaiting the FOMC announcement. Later today, the Federal Reserve is expected to start tapering its QE-3 program. QE-3 is a program where the central bank buys $85 billion a month of U.S. treasuries and mortgage backed securities. How much money will the Federal Reserve cut from the $85 billion a month program? That is the big question that most investors are asking.

Fed news may already be baked in, but when it hits, markets are still going to react
Housing Starts, Permits Miss; Demand For Rental Units Continues Slide
Warning: #Fannie Mae, #Freddie Mac are about to get tougher on mortgages originators who cut corners
Jefferies’ Epic Plunge In Bond Trading Revenues Shows Not All Is Well
Why no matter what the Fed says today, markets are probably going to get crazy
Today’s Federal Reserve decision is momentous for a number of reasons.
Foremost among them: the Fed’s monetary policymaking body, the FOMC, is widely expected to announce the first reduction in the pace of monthly bond purchases under the open-ended quantitative easing (QE) program it introduced exactly a year ago.
In a broader sense, this first “tapering” of QE represents the beginning of a shift away from the easy-money policies that have dominated the monetary policy landscape over the last five years coming out of the financial crisis and recession.
There is some debate over how big of a reduction in bond purchases the Fed will make, but the consensus is that the central bank will elect to taper by $10 billion, bringing total monthly purchases down to $75 billion.
If the taper is bigger or smaller, markets could move. But there are a lot of other outcomes from today’s announcement that could move markets as well, as Citi currency strategist Steven Englander reminds clients in a note this morning (emphasis added):
Today’s FOMC carries volatility risk, not because the policy decision is likely to signal a dramatic surprise but because there are an unusual number of dimensions along which FOMC can surprise, and whose implications will be debated. This includes timing and magnitude of tapering, 2014-15 forecast changes, 2016 first forecast, shift in the threshold for unemployment, a potential inflation threshold, among others. So the order of the headlines may determine extreme volatility until markets settle down.
We continue to think that economic data trump tapering and that the tapering timetable trumps forward guidance. It is most likely that a month from now the economic data flow will be viewed as much more significant than the forward guidance. This is eminently illustrated by the GBP and gilt reaction to UK forward guidance.
For the record, it looks as if expectations have converged to 1) September tapering USD10-15bn; 2) end by middle of 2014; 3) some downward revision to 2013-15 forecasts, but 2016 not to far from full employment; 4) a low trajectory of policy rate increase after mid 2015 (although they may view the projected start as a forward guidance tool); 5) some inflation threshold; 6) downward revision to the unemployment rate threshold possible but up in the air. We view 1) and 2) as more important than 3)-6) in determining how markets trade. If they hit expectations on 1) and 2), do not surprise too much on 3) or 4), but do nothing on 5) or 6) – that would be viewed as slightly hawkish.
In FX the stress point is still the weak end of EM, followed by AUD and NZD in G10, followed by JPY. The policy debate is about the pace and size of liquidity unwinding, and vulnerable currencies will bask in a dovish glow, and get hammered on perceived Fed hawkishness.

U.S. ‘lower class’ booming even as poverty rate holds steady

By The Christian Science Monitor

Poorer Americans were no better off – and no worse off – in 2012 than in 2011, compared with their richer neighbors, the Census Bureau reported Tuesday. The news may indicate that struggling workers and families whose fortunes have plummeted since the Great Recession have at last hit a financial plateau. 
Sociologists say the true percentage of the lower class may be as high as 20 percent, and primarily includes people who hold low-rung service jobs or are chronically unemployed.
One possibility is that they feel stuck. According to the GSS, only 55 percent of Americans these days believe things will get better for themselves and their kids – a rather paltry number for a country built on the notion that everyone has an equal chance to get ahead.
Class consciousness, moreover, might have been at a high when University of Chicago researchers conducted their General Social Survey. It was an election year, and "class warfare" was a theme of the presidential contest – with GOP candidate Mitt Romney saying, famously, that “47 percent” of Americans saw themselves as victims in need of handouts, and with President Obama defining the election as “a make-or-break moment for the middle class.”
“People perceive that [class advancement] has become a zero-sum game, and that’s corrosive,” says Philip Cohen, a sociologist at the University of Maryland, in College Park. “The overall economic uncertainty exacerbates some of the problems we’re having. Look at this intensive parenting mania … that’s partly because we see inequality widening and we don’t want our kids to end up on the wrong side of that line.”
That’s another reason the rising self-identification with the “lower class” is notable. “Working class” has always been the admirable way to frame a life of self-sufficiency and grit, if not great riches. The question now is whether people who see themselves as "lower class" accept the permanence of piecemeal or nonexistent work – and have waved goodbye to the middle class.
Other commentators say surveys of American workers suggest that many are waiting for political redemption and new leadership to help them replace creeping resignation with a sense of opportunity.
“A besieged middle class is increasingly aware that the rules are rigged against them,” writes Robert Borosage in a recent article for Slate. “They are increasingly skeptical of politicians and parties, and believe – not incorrectly – that Washington is largely bought and sold. But they are looking for champions.”

25 Fast Facts About The Federal Reserve

Michael Snyder
As we approach the 100 year anniversary of the creation of the Federal Reserve, it is absolutely imperative that we get the American people to understand that the Fed is at the very heart of our economic problems.  It is a system of money that was created by the bankers and that operates for the benefit of the bankers.  The American people like to think that we have a “democratic system”, but there is nothing “democratic” about the Federal Reserve.  Unelected, unaccountable central planners from a private central bank run our financial system and manage our economy.  There is a reason why financial markets respond with a yawn when Barack Obama says something about the economy, but they swing wildly whenever Federal Reserve Chairman Ben Bernanke opens his mouth.  The Federal Reserve has far more power over the U.S. economy than anyone else does by a huge margin.  The Fed is the biggest Ponzi scheme in the history of the world, and if the American people truly understood how it really works, they would be screaming for it to be abolished immediately.  The following are 25 fast facts about the Federal Reserve that everyone should know…
25 Fast Facts About The Federal Reserve – Please Share With Everyone You Know
#1 The greatest period of economic growth in U.S. history was when there was no central bank.
#2 The United States never had a persistent, ongoing problem with inflation until the Federal Reserve was created.  In the century before the Federal Reserve was created, the average annual rate of inflation was about half a percent.  In the century since the Federal Reserve was created, the average annual rate of inflation has been about 3.5 percent, and it would be even higher than that if the inflation numbers were not being so grossly manipulated.
#3 Even using the official numbers, the value of the U.S. dollar has declined by more than 95 percent since the Federal Reserve was created nearly 100 years ago.
#4 The secret November 1910 gathering at Jekyll Island, Georgia during which the plan for the Federal Reserve was hatched was attended by U.S. Senator Nelson W. Aldrich, Assistant Secretary of the Treasury Department A.P. Andrews and a whole host of representatives from the upper crust of the Wall Street banking establishment.
#5 In 1913, Congress was promised that if the Federal Reserve Act was passed that it would eliminate the business cycle.
#6 The following comes directly from the Fed’s official mission statement: “To provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded.”
#7 It was not an accident that a permanent income tax was also introduced the same year when the Federal Reserve system was established.  The whole idea was to transfer wealth from our pockets to the federal government and from the federal government to the bankers.
#8 Within 20 years of the creation of the Federal Reserve, the U.S. economy was plunged into the Great Depression.
#9 If you can believe it, there have been 10 different economic recessions since 1950.  The Federal Reserve created the “dotcom bubble”, the Federal Reserve created the “housing bubble” and now it has created the largest bond bubble in the history of the planet.
#10 According to an official government report, the Federal Reserve made 16.1 trillion dollars in secret loans to the big banks during the last financial crisis.  The following is a list of loan recipients that was taken directly from page 131 of the report…
Citigroup - $2.513 trillion
Morgan Stanley - $2.041 trillion
Merrill Lynch - $1.949 trillion
Bank of America - $1.344 trillion
Barclays PLC - $868 billion
Bear Sterns - $853 billion
Goldman Sachs - $814 billion
Royal Bank of Scotland - $541 billion
JP Morgan Chase - $391 billion
Deutsche Bank - $354 billion
UBS - $287 billion
Credit Suisse - $262 billion
Lehman Brothers - $183 billion
Bank of Scotland - $181 billion
BNP Paribas - $175 billion
Wells Fargo - $159 billion
Dexia - $159 billion
Wachovia - $142 billion
Dresdner Bank - $135 billion
Societe Generale - $124 billion
“All Other Borrowers” - $2.639 trillion
#11 The Federal Reserve also paid those big banks $659.4 million in fees to help “administer” those secret loans.
#12 The Federal Reserve has created approximately 2.75 trillion dollars out of thin air and injected it into the financial system over the past five years.  This has allowed the stock market to soar to unprecedented heights, but it has also caused our financial system to become extremely unstable.
#13 We were told that the purpose of quantitative easing is to help “stimulate the economy”, but today the Federal Reserve is actually paying the big banks not to lend out 1.8 trillion dollars in “excess reserves” that they have parked at the Fed.
#14 Quantitative easing overwhelming benefits those that own stocks and other financial investments.  In other words, quantitative easing overwhelmingly favors the very wealthy.  Even Barack Obama has admitted that 95 percent of the income gains since he has been president have gone to the top one percent of income earners.
#15 The gap between the top one percent and the rest of the country is now the greatest that it has been since the 1920s.
#16 The Federal Reserve has argued vehemently in federal court that it is “not an agency” of the federal government and therefore not subject to the Freedom of Information Act.
#17 The Federal Reserve openly admits that the 12 regional Federal Reserve banks are organized “much like private corporations“.
#18 The regional Federal Reserve banks issue shares of stock to the “member banks” that own them.
#19 The Federal Reserve system greatly favors the biggest banks.  Back in 1970, the five largest U.S. banks held 17 percent of all U.S. banking industry assets.  Today, the five largest U.S. banks hold 52 percent of all U.S. banking industry assets.
#20 The Federal Reserve is supposed to “regulate” the big banks, but it has done nothing to stop a 441 trillion dollar interest rate derivatives bubble from inflating which could absolutely devastate our entire financial system.
#21 The Federal Reserve was designed to be a perpetual debt machine.  The bankers that designed it intended to trap the U.S. government in a perpetual debt spiral from which it could never possibly escape.  Since the Federal Reserve was established nearly 100 years ago, the U.S. national debt has gotten more than 5000 times larger.
#22 The U.S. government will spend more than 400 billion dollars just on interest on the national debt this year.
#23 If the average rate of interest on U.S. government debt rises to just 6 percent (and it has been much higher than that in the past), we will be paying out more than a trillion dollars a year just in interest on the national debt.
#24 According to Article I, Section 8 of the U.S. Constitution, the U.S. Congress is the one that is supposed to have the authority to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.  So exactly why is the Federal Reserve doing it?
#25 There are plenty of possible alternative financial systems, but at this point all 187 nations that belong to the IMF have a central bank.  Are we supposed to believe that this is just some sort of a bizarre coincidence?

Fed likely to make a 'token' move today: Johnson

If the Fed feels it must reduce its bond-buying program, a "token taper" is the right way to go about it, says Hugh Johnson of Hugh Johnson Advisors. But as the Fed's timing goes, the economic numbers have not been encouraging.

The Treasury Secretary on How Unstable U.S. Government Finances Are

Treasury Secretary Jack Lew made the following statement during remarks today before the Economic Club of Washington D.C.:

[W]e are relying on investors from all over the world to continue to hold U.S. bonds.  Every Thursday, we roll-over approximately $100 billion in U.S. bills.  If U.S. bond holders decided that they wanted to be repaid rather than continuing to roll-over their investments, we could unexpectedly dissipate our entire cash balance. 

Census on Obama’s 1st Term: Real Median Income Down $2,627; People in Poverty Up 6,667,000; Record 46,496,000 Now Poor - During the four years that marked President Barack Obama’s first term in office, the real median income of American households dropped by $2,627 and the number of people in poverty increased by approximately 6,667,000, according to data released today by the Census Bureau.he record total of approximately 46,496,000 people in the United States who are now in poverty, according to the Census Bureau, is more than twice the population of Syria, which, according to the CIA, has 22,457,336 people.n 2008, the year Obama was elected, real median household income in the United States was $53,644 according to the Census Bureau. In 2012, the last full year of Obama’s first term, median household income was $51,017. Thus, real median household income dropped $2,627—or 4.89 percent—from 2008 to 2012.n fact, real median household income dropped in every year of Obama's first term. In 2008, when he was elected, it was $53,644. In 2009, the year he was inaugurated, it dropped to 53,285. In 2010, his second year in office, it dropped to $51,892. In 2011, his third year in office, it dropped to $51,100. And, in 2012, his fourth year in office, it dropped to $51,017.t the same time the number of people living in poverty in the United States increased. In 2008, according to the Census Bureau, there were approximately 39,829,000 people living in poverty in this country. In 2012, there were 46,496,000. That is an increase of approximately 6,667,000—of 16.73 percent—from 2008 to 2012.he number of people in poverty increased during three of the four years of Obama's first term--taking a slight dip from 2010 to 2011, but then rising again from 2011 to 2012. In 2008, there were 39,829 people in poverty in the U.S. In 2009, it climbed to 43,569. In 2010, it climbed again to 46,343. In 2011, it dipped to 46,247. And, in 2012, it climbed to an all-time high 46,496.n 2008, the year Obama was elected, people in poverty represented 13.2 percent of the national population. In 2012, they represented 15.0 percent of the population.he income threshold at which a person was determined to be in “poverty,” according to the Census Bureau, depended on the size of their household. If a person lived by themselves and earned less than $11,270 in 2012, they were considered to be in poverty. A family of two people was considered in poverty if they earned less than $14,937. The threshold for a family of three was $18,284, for a family of four it was $23,492, and for a family of five it was $27,827.he data reported here on real median household income and the number of people in poverty come from the Census Bureau’s report “Income, Poverty and Health Insurance Coverage in the United States: 2012,” which was released is not funded by the government like NPR. is not funded by the government like PBS.

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Benefits at the Top, Sacrifice at the Bottom

Five years after the beginning of the financial collapse and the Great Recession, where are we? This week, President Obama offered Americans a progress report. He hailed thedamage to the slow recovery by manufacturing another unnecessary budget crisis.
The president was candid about how far we have to go. He suggested that the very trends that were destroying the middle class prior to the Great Recession have gotten worse. The wealthiest 1 percent has captured virtually all of the rewards from growth coming out of the recession, while most Americans haven’t experienced a recovery at all.
This isn’t an accident. The auto industry was rescued, and the big three are generating profits and beginning to hire more workers. The big banks were rescued, and are now bigger, more concentrated and more dangerous than ever.
But while the big boats were righted, too little was done for the boats on the bottom.
We still experience mass unemployment, with some 21 million people in need of full-time work. Wages for most workers are stagnant at best. The jobs being created have lower pay and fewer benefits than the jobs that were lost. The housing market is coming back, but about 20 percent of homeowners are still underwater. The rich are getting richer, while the middle class continues to sink.
This is a matter of choice, not fate. The government acted quickly and boldly to bail out the big banks, and rescue the auto companies. But it was slow and timid in offering aid to underwater homeowners, or those displaced from jobs. Citibank was saved from bankruptcy; Detroit was allowed to sink.
Now, House Republicans are manufacturing another budget crisis, once more holding the economy and the government hostage, to get what they want. And what they want is to force working and poor people to pick up more of the cost of cleaning up Wall Street’s excesses.
They say they are concerned about deficits and about making government smaller, but that’s simply a cover story. They oppose rolling back subsidies to Big Oil, the richest group of companies in corporate history. They oppose shutting down tax havens abroad, where multinationals stash literally trillions of dollars to avoid taxes. They oppose even a law to keep millionaires from paying lower taxes than their secretaries. They want to increase spending on the Pentagon, the biggest bureaucracy of them all.
What do they want? They want to cut up to $40 billion out of food stamps, the program that keeps Americans in trouble from going hungry. They want to defund health-care reform, depriving millions of Americans of the chance to gain affordable health care. They want to cut education, child nutrition, Head Start, Meals on Wheels for seniors, Medicaid and other domestic programs, while providing more money for the Pentagon.
Americans respond to calls for shared sacrifice, but the current arrangement lavishes the benefits on the top and exacts the sacrifice from working and poor people. That isn’t right.
Five years later, President Obama says we have removed the rubble but not laid the new foundation for growth and good jobs. But a new foundation will require a level playing field. And that will require politicians who will defend principles, not interests. Five years later, we still have a lot of work to do.
Jesse Jackson is the founder of Rainbow PUSH.
Copyright: Counterpunch

A fifth of older Britons will work till they drop

A global study by HSBC has found Britons have the worst retirement prospects with a fifth of those in their late 50s and early 60s resigned to never retiring.

pensioners on bench
Many feel unprepared for retirement Photo: Alamy
One in five workers nearing the normal retirement age believe that they will never be able to afford to retire, a wide-ranging global study has found.
Twenty per cent of those aged between 55 and 64 years old – expect to have to continue working indefinitely.
HSBC's Future of Retirement report, which questioned over 16,000 people in 15 countries revealed, also found that Britons had the worst retirement prospects of any of the countries.
It found that workers living in the UK typically expect to spend 19 years in retirement but only have enough savings to last for the first seven years, leaving them with a 12-year shortfall.
People living in the United States, in contrast, had enough cash put by to last for 14 years during their retirement - the highest expectation of any country.
It also portrayed a bleak future for many single Britons approaching retirement. The UK had the highest number of people, at 36pc, divorced or separated who were expecting to work indefinitely – almost double the global average of 20pc.
Christine Foyster, head of wealth management at HSBC, said: "Today’s workers should prepare for retirement as early as possible to have some certainty for retirement. Life is full of reasons to prioritise short term spending over longer term planning, but the sooner people start saving, the less likely they will have to rely on working in old age."
Two fifths (39pc) of Britons asked said that they had not financially prepared adequately, or at all, for a comfortable retirement. Thirty-five per cent of those only noticed how unprepared they were after retiring.
The report also warned that the UK has the biggest inter-generational drop in the number of years that retirement savings are expected to last for.
Those surveyed in the UK who have already retired said they expect their savings to last them for 13 years on average - a figure which then almost halves to seven years among the UK's next generation of retirees.
Several countries in the study - Brazil, India, China and Taiwan - bucked the trend seen in the UK, with younger people expecting their retirement savings to last longer than those of their parents.
The findings come at a time when the Government is rolling out landmark reforms to reverse a looming retirement savings crisis as people live for longer.
One million people have already been placed into workplace pensions as a result of automatic enrolment, which started last autumn with larger companies. Recent official figures showed that private pension saving slid to record lows just before the reforms were launched.
The survey also included Australia, Canada, Egypt, France, Hong Kong, Malaysia, Mexico, Singapore and the United Arab Emirates.
- How to retire early on a DIY pension

Greece's birthrate falls as austerity measures hit healthcare

Hospitals report 10% reduction in births in past four years as ministers say families cannot afford to have children
Children on a rollercoaster ride at Luna Park, Athens.
Children on a rollercoaster ride at Luna Park, Athens: Greece is worried its population will age if families cannot afford to have children. Photograph: John Kolesidis/Reuters
Greece has suffered a huge drop in its number of live births because of austerity and unemployment, according to a senior government official.
The decline of almost 15% in the past four years is unparalleled in Europe and highlights the savage impact costcutting measures are having on the nation at the heart of the eurozone's financial woes.
"The falling fertility rate is a natural consequence of harsh austerity and record levels of unemployment, especially among the young," said Christina Papanikolaou, general secretary at the health ministry. "It is the mirror image of the 25% drop in our GDP since the start of the crisis," she said.
If further evidence was ever needed of the human cost of austerity, it is the effect budget-reducing policies are clearly having on childbirth in Greece. Figures released by the state-run Institute of Child Health show that the number of births dropped from 118,302 in 2008 to 100,980 in 2012.
The health minister, Adonis Georgiadis, has attributed the decline squarely to the effect of the economic crisis on Greeks. "The problem of low fertility among the Greek population has grown continuously over the past two decades and worsened significantly, recently, as a result of the profound economic crisis the country is facing," he said, acknowledging that the number of stillbirths had also risen.
Mired in its sixth straight year of recession – the longest on record for an advanced western economy – Greece is in the midst of a public health disaster that according to doctors is worsening by the day.
Stringent cuts imposed on Athens in return for €240bn (£201bn) in rescue funds from the European Union, International Monetary Fund and European Central Bank, have resulted in the country's health budget being slashed by close to 40%. State funds for medication have been axed by almost half, from €5bn euro to just over €2bn, since the turmoil began.
Soaring joblessness – at nearly 28%, Greece has the highest unemployment rate in the eurozone – has also meant that growing numbers are no longer covered by free healthcare. The migration of thousands of private insurance holders to state-sponsored schemes has added to the strain.
"This is by far our biggest problem, the long-term unemployed no longer having access to health services because they are uninsured," said Papanikolaou, a physician herself. "We have had to make cuts in a very short period of time and some have been unfair. Pregnant women, for instance, no longer receive any kind of help or benefits."
With more than a fifth of the country's 11.4 million-strong population living under the poverty line, prenatal screening and other tests have been abandoned by prospective mothers who can no longer afford them. The decline in crucial medical examinations has fuelled fears that unemployed mothers are increasingly at risk of losing babies.
Earlier this year, the National School of Public Health said stillbirths had increased 21.5% from 3.31 per 1,000 in 2008 to 4.01 per 1,000 in 2011, attributing the rise to the growing rate of unemployment among women and the inability to access healthcare.
In a four-page analysis submitted to parliament, Adonis Georgiadis, the health minister, conceded that steps needed to be taken to ensure that the uninsured and financially vulnerable could be covered by insurance funds in prenatal screening.
The collapse of medical services has also affected Greece's large migrant community. At hospitals in Athens, which have been worst hit by the crisis, social workers say growing numbers of uninsured migrant mothers are failing to register children at birth for fear of being forced to pay delivery rates that at €600 (€1,200 for caesarians) few can afford.
"There is a growing population of undeclared children in Greece," said one social worker, who spoke only on condition of anonymity. "We have had cases of mothers fleeing hospitals with babes in arms in the middle of the night."

On Fifth Anniversary of Wall Street Crash, Obama Tries the Big Lie Technique

On Monday, US President Barack Obama marked the fifth anniversary of the Wall Street crash of September 15, 2008 with a White House speech that only underscored the unbridgeable chasm that separates the entire political establishment from the broad mass of working people.
Even as he spoke, the stock market was soaring to new highs on the news that Obama’s expected choice to succeed Ben Bernanke as chairman of the Federal Reserve, Lawrence Summers, had removed himself from consideration because of opposition from Wall Street.
Forbes magazine reported that the wealth of the 400 richest Americans had climbed to $2 trillion, a jump from $1.7 trillion in 2012.
With corporate profits at record highs, CEO pay once again hitting the tens and hundreds of millions, and the concentration of wealth the greatest since 1928, Obama boasted of the great success of his economic policies in restoring “security and opportunity for the middle class.”
With breathtaking cynicism—and contempt for the intelligence of the American people—Obama presented himself as single-mindedly focused on “my number one priority since the day I took office”: fighting for the so-called “middle class.” (There is, according to the mythology of the American ruling class, no working class in the United States, even though America is the most economically unequal of all industrialized countries).
Employing the technique of the Big Lie, Obama described his response to the financial crisis as follows: “We put people back to work repairing roads and bridges, to keep teachers in our classrooms, our first responders on the streets. We helped responsible homeowners modify their mortgages so that more of them could keep their homes. We helped jumpstart the flow of credit to help more small businesses keep their doors open. We saved the American auto industry… we took on a broken health care system … We put in place tough new rules on big banks … And what all this means is we’ve cleared away the rubble from the financial crisis and we’ve begun to lay a new foundation for economic growth and prosperity.”
No. The Obama administration categorically rejected any program of public works to hire the unemployed and refused to aid bankrupt state and local governments, resulting in the layoff of hundreds of thousands of teachers, firefighters and other public employees. As a result, mass unemployment is a permanent fixture, and the labor force participation rate is the lowest in 35 years. Moreover, the vast majority of new jobs created under Obama—still 2 million below the total before the crisis—are low-wage and part-time.
The administration refused to halt home foreclosures or force banks to reduce loan principals, allowing the banks to throw millions of families out onto the street.
While continuing and vastly expanding the bank bailout begun under Bush, Obama refused to impose any conditions on the money stolen from taxpayers, allowing the bankers to use government funds to speculate rather than provide loans to small businesses. The result was a wave of small business failures that continues to the present.
Obama forced General Motors and Chrysler into bankruptcy in order to impose plant closures, tens of thousands of layoffs, cuts in workers’ benefits, and a 50 percent pay cut for new-hires. The wage-cutting in the auto industry was the signal for an assault on wages and benefits in every sector of the economy, public as well as private.
Obama passed a health care overhaul devoted to cutting costs for corporations and the government by rationing health services, drugs, medical tests and procedures on a class basis. Millions of workers will see their coverage slashed while the health care giants and insurance companies enjoy windfall profits.
The Dodd-Frank financial “reform” bill passed in 2010 is a joke. A compendium of half measures meant to provide a fig leaf of reform while leaving the existing financial system intact, it largely remains a dead letter. Provisions such as the “Volcker Rule,” which would restrict—but not end—the legal ability of banks to speculate on their own accounts with depositors’ money, have not been enacted because of opposition from Wall Street.
Not a single leading bank executive has been criminally prosecuted, let alone jailed, for rampant fraud and criminality both before and after the 2008 crash. Over the past five years, bank scandals have proliferated—Libor-rigging, foreclosure fraud, concealing speculative losses, drug money laundering—with no serious consequences for the criminals. Not only have the biggest banks not been broken up, they have been allowed to grow even bigger and strengthen their grip on all aspects of economic and political life.
As for the “new foundation for growth and prosperity,” the offloading of the bad debts of the banks to the government and the massive money printing by the Federal Reserve to subsidize Wall Street have created the conditions for a financial crash of even greater proportions than the debacle of 2008.
The bankrupting of governments has, meanwhile, been used, in the US and around the world, to justify the launching of an historic assault on social programs and the jobs and living standards of the working class. Obama has spearheaded a social counterrevolution, utilizing the economic crisis to turn the wheel of history back to levels of exploitation and poverty last seen 100 years ago.
The centerpiece of this assault in the US is the bankruptcy of Detroit, backed by the White House, which is being used to destroy the pensions and health benefits of city workers, privatize and slash city services, and sell off public assets, from the water department to the Detroit Institute of Arts. Detroit will set a precedent for cities across the country and internationally.
In his speech, Obama made passing reference to the further growth of social inequality during his tenure, noting that “the top one percent of Americans took home twenty percent of the nation’s income last year, while the average worker isn’t seeing a raise at all.” Typically, however, he spoke as though he was an innocent bystander and the further enrichment of the financial aristocracy had nothing to do with himself or his own policies.
In reality, the single-minded focus of Obama’s domestic agenda from day one has been to enable the ruling class to recover its losses from the crash and exploit the crisis to amass even greater wealth. Even as he sought in his speech to blame congressional Republicans for obstructing his supposed campaign in behalf of the middle class, Obama signaled that he intended to intensify his attack on social programs for workers and grant new windfalls to big business.
Boasting that deficits were falling at the fastest rate since the end of World War II, he said, “there’s not a government agency or program out there that still can’t be streamlined … So I do believe we should cut out programs that we don’t need.”
He reiterated his support for “reforms” to Medicare and Social Security, including raising the retirement age for Medicare, introducing a form of means testing, and cutting cost-of-living raises for Social Security beneficiaries. At the same time, he repeated his support for a massive cut in corporate taxes.
Obama’s speech will not fool the vast majority of workers, whose anger is increasingly focusing on the White House and the former candidate of “hope” and “change.” This opposition must be mobilized on the basis of a clear, independent, socialist political program, which starts from the need to build a political movement in opposition to the entire political establishment and the capitalist system it defends.

The Armageddon Looting Machine: The Looming Mass Destruction From Derivatives

Increased regulation and low interest rates are driving lending from the regulated commercial banking system into the unregulated shadow banking system. The shadow banks, although free of government regulation, are propped up by a hidden government guarantee in the form of safe harbor status under the 2005 Bankruptcy Reform Act pushed through by Wall Street. The result is to create perverse incentives for the financial system to self-destruct.
Five years after the financial collapse precipitated by the Lehman Brothers bankruptcy on September 15, 2008, the risk of another full-blown financial panic is still looming large, despite the Dodd Frank legislation designed to contain it. As noted in a recent Reuters article, the risk has just moved into the shadows:
[B]anks are pulling back their balance sheets from the fringes of the credit markets, with more and more risk being driven to unregulated lenders that comprise the $60 trillion “shadow-banking” sector.
Increased regulation and low interest rates have made lending to homeowners and small businesses less attractive than before 2008. The easy subprime scams of yesteryear are no more. The void is being filled by the shadow banking system. Shadow banking comes in many forms, but the big money today is in repos and derivatives. The notional (or hypothetical) value of the derivatives market has been estimated to be as high as $1.2 quadrillion, or twenty times the GDP of all the countries of the world combined.
According to Hervé Hannoun, Deputy General Manager of the Bank for International Settlements, investment banks as well as commercial banks may conduct much of their business in the shadow banking system (SBS), although most are not generally classed as SBS institutions themselves. At least one financial regulatory expert has said that regulated banking organizations are the largest shadow banks.
The Hidden Government Guarantee that Props Up the Shadow Banking System
According to Dutch economist Enrico Perotti, banks are able to fund their loans much more cheaply than any other industry because they offer “liquidity on demand.” The promise that the depositor can get his money out at any time is made credible by government-backed deposit insurance and access to central bank funding. But what guarantee underwrites the shadow banks? Why would financial institutions feel confident lending cheaply in the shadow market, when it is not protected by deposit insurance or government bailouts?
Perotti says that liquidity-on-demand is guaranteed in the SBS through another, lesser-known form of government guarantee: “safe harbor” status in bankruptcy. Repos and derivatives, the stock in trade of shadow banks, have “superpriority” over all other claims. Perotti writes:
Security pledging grants access to cheap funding thanks to the steady expansion in the EU and US of “safe harbor status”. Also called bankruptcy privileges, this ensures lenders secured on financial collateral immediate access to their pledged securities. . . .
Safe harbor status grants the privilege of being excluded from mandatory stay, and basically all other restrictions. Safe harbor lenders, which at present include repos and derivative margins, can immediately repossess and resell pledged collateral.
This gives repos and derivatives extraordinary super-priority over all other claims, including tax and wage claims, deposits, real secured credit and insurance claims. Critically, it ensures immediacy (liquidity) for their holders. Unfortunately, it does so by undermining orderly liquidation.
When orderly liquidation is undermined, there is a rush to get the collateral, which can actually propel the debtor into bankruptcy.
The amendment to the Bankruptcy Reform Act of 2005 that created this favored status for repos and derivatives was pushed through by the banking lobby with few questions asked. In a December 2011 article titled “Plan B – How to Loot Nations and Their Banks Legally,” documentary film-maker David Malone wrote:
This amendment which was touted as necessary to reduce systemic risk in financial bankruptcies . . . allowed a whole range of far riskier assets to be used . . . . The size of the repo market hugely increased and riskier assets were gladly accepted as collateral because traders saw that if the person they had lent to went down they could get [their] money back before anyone else and no one could stop them.
Burning Down the Barn to Get the Insurance
Safe harbor status creates the sort of perverse incentives that make derivatives “financial weapons of mass destruction,” as Warren Buffett famously branded them. It is the equivalent of burning down the barn to collect the insurance. Says Malone:
All other creditors – bond holders – risk losing some of their money in a bankruptcy. So they have a reason to want to avoid bankruptcy of a trading partner. Not so the repo and derivatives partners. They would now be best served by looting the company – perfectly legally – as soon as trouble seemed likely. In fact the repo and derivatives traders could push a bank that owed them money over into bankruptcy when it most suited them as creditors. When, for example, they might be in need of a bit of cash themselves to meet a few pressing creditors of their own.
The collapse of . . . Bear Stearns, Lehman Brothers and AIG were all directly because repo and derivatives partners of those institutions suddenly stopped trading and ‘looted’ them instead.
The global credit collapse was triggered, it seems, not by wild subprime lending but by the rush to grab collateral by players with congressionally-approved safe harbor status for their repos and derivatives.
Bear Stearns and Lehman Brothers were strictly investment banks, but now we have giant depository banks gambling in derivatives as well; and with the repeal of the Glass-Steagall Act that separated depository and investment banking, they are allowed to commingle their deposits and investments. The risk to the depositors was made glaringly obvious when MF Global went bankrupt in October 2011. Malone wrote:
When MF Global went down it did so because its repo, derivative and hypothecation partners essentially foreclosed on it. And when they did so they then ‘looted’ the company. And because of the co-mingling of clients money in the hypothecation deals the ‘looters’ also seized clients money as well. . . JPMorgan allegedly has MF Global money while other people’s lawyers can only argue about it.
MF Global was followed by the Cyprus “bail-in” – the confiscation of depositor funds to recapitalize the country’s failed banks. This was followed by the coordinated appearance of bail-in templates worldwide, mandated by the Financial Stability Board, the global banking regulator in Switzerland.
The Auto-Destruct Trip Wire on the Banking System
Bail-in policies are being necessitated by the fact that governments are balking at further bank bailouts. In the US, the Dodd-Frank Act (Section 716) now bans taxpayer bailouts of most speculative derivative activities. That means the next time we have a Lehman-style event, the banking system could simply collapse into a black hole of derivative looting. Malone writes:
. . . The bankruptcy laws allow a mechanism for banks to disembowel each other. The strongest lend to the weaker and loot them when the moment of crisis approaches. The plan allows the biggest banks, those who happen to be burdened with massive holdings of dodgy euro area bonds, to leap out of the bond crisis and instead profit from a bankruptcy which might otherwise have killed them. All that is required is to know the import of the bankruptcy law and do as much repo, hypothecation and derivative trading with the weaker banks as you can.
. . . I think this means that some of the biggest banks, themselves, have already constructed and greatly enlarged a now truly massive trip wired auto-destruct on the banking system.
The weaker banks may be the victims, but it is we the people who will wind up holding the bag. Malone observes:
For the last four years who has been putting money in to the banks? And who has become a massive bond holder in all the banks? We have. First via our national banks and now via the Fed, ECB and various tax payer funded bail out funds. We are the bond holders who would be shafted by the Plan B looting. We would be the people waiting in line for the money the banks would have already made off with. . . .
. . . [T]he banks have created a financial Armageddon looting machine. Their Plan B is a mechanism to loot not just the more vulnerable banks in weaker nations, but those nations themselves. And the looting will not take months, not even days. It could happen in hours if not minutes.
Crisis and Opportunity: Building a Better Mousetrap
There is no way to regulate away this sort of risk. If both the conventional banking system and the shadow banking system are being maintained by government guarantees, then we the people are bearing the risk. We should be directing where the credit goes and collecting the interest. Banking and the creation of money-as-credit need to be made public utilities, owned by the public and having a mandate to serve the public. Public banks do not engage in derivatives.
Today, virtually the entire circulating money supply (M1, M2 and M3) consists of privately-created “bank credit” – money created on the books of banks in the form of loans. If this private credit system implodes, we will be without a money supply. One option would be to return to the system of government-issued money that was devised by the American colonists, revived by Abraham Lincoln during the Civil War, and used by other countries at various times and places around the world. Another option would be a system of publicly-owned state banks on the model of the Bank of North Dakota, leveraging the capital of the state backed by the revenues of the into public bank credit for the use of the local economy.
Change happens historically in times of crisis, and we may be there again today.
Copyright: Truth Out