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In Goldman Sachs we trust: classic example of regulatory capture by professional financial system hackers

News The “Too Big To Fail” Problem Recommended Links Corruption of Treasury Corruption of SEC Corruption of FED
Corruption of Regulators High frequency trading Insider Trading CDS -- weapons of mass financial destruction Control Fraud Principal-agent problem
Senate Hearing on Goldman The Secret to Goldman’s Success AIG collapse Abacus Deal Settlement with SEC Commodities manipulation
Goldman CDS saga Buffet Saga Commodities manipulation Aleynikov   Lobbying and the Financial Crisis
Banking Bonuses as Money Laundering Naked short selling "These F#@king Guys" (GS humor) Financial Humor Goldman Sachs related humor Etc

Professional financial hackers have a lot of common with the organized crime. And  not only in respect to common addictions to cocaine and prostitutes. But there is a subtle difference: financial hackers make it daily (and very lucrative) business to figure out ways to abide by the letter of the law while violating its spirit. Although the claim that they do not break the law has very little credibility. They do break the law, but at the same time their political influence is big enough to keep them out of jail. In 2012 Lanny Breuer, then the head of the Justice Department's criminal division  openly admitted that. In a speech at the New York City Bar Association he said that he felt that it was his duty to consider the health of the company, the industry, and the markets in deciding whether or not to file charges.  Which in case of Goldman represents insurmountable obstacle to criminal prosecution.

In any case GS converted itself into a special type of TBTF  company, the company that specialized in hacking financial system. And in a large company internal politic can turn really destructive both to the firm and society at large. In fact, in large companies there are people with very high IQ at the top with personal traits that  makes them more dangerous in comparison with bosses of Mexican gangs. It also makes internal political battles more vicious.  BTW, a lot of psychopaths have above average IQ.

In a way the USA never had a subprime crisis. What we had was systemic, neoliberalism-induced  crisis that involves FED, government, congress, banking, ratings, insurance, investment and financial industries (the banks were at the center of this crime syndicate and they were the largest beneficiaries of the crimes committed), one manifestation of which was 2008 subprime crisis.  Large banks became huge, dominant political force and based on their political weight, they hacked the financial system in the same way computer hackers hack computers systems to suit their short term needs and first of all for enrichment of the brass (appetite for "make money fast" schemes was greatly raised during dot-com crisis).

As Simon Johnson wrote in May 2009 the USA had a The Quiet Coup with banks becoming the most favored and the most protected industry of the Congress. Financial system is essentially a system of rules. If a rich and powerful organization is directed toward hacking the rules: finding weaknesses and exploiting them it is undistinguishable from mafia in a very precise meaning of the term (organize crime syndicate with strong ethnic component), only more sophisticated.  Again they are not gangsters in traditional meaning of this word, they are of a hackers, and as such they are much more difficult to prosecute.  As a comment to blog post at EconomistView by "Eric" (Paul Krugman The Unwisdom of Elites) aptly stated:

Villains....who exactly? The principle reason that there have been few prosecutions of high level bankers is that not so much that got done was illegal. Reckless, maybe. But even here is it really reckless behavior if you have a belief -- which turns out to be true -- that public finances will bear the downside risks on your behalf?

In hindsight it feels like these things should have been illegal, but the available serious punishments, such as not bailing out AIG, not allowing various investment firms to become bank holding entites, not backstopping the GSEs (read their debt issues and you'll see that nowhere is a claim made for public backing), not taking first loss positions on Bear Stearn assets, etc., etc., were foregone by voluntary actions by public officials.

Make peace with the truth that there will be no sweeping prosecutions, least of all by the federal government of the USA.

Those are serious, well educated and well motivated guys which are paid good money for finding the flaws and based on this knowledge subverting existing system of rules, rules which are the essence of financial system.  Essentially they are professional financial system hackers.  Or a strange brand of Harvard trained Mafiosi (and again, Mafia is nothing more that a diversified criminal business with strong ethnic component ;-).  But unlike Mafia they have really good connections in government and essentially captured the government in a silent coup. In a way this organization behaves like cancer cells in a human body and prognosis is not that good, despite the fact that the patient survived one time:

Finanally, the Great Recession was brought on by a runaway financial sector, empowered by reckless deregulation. And who was responsible for that deregulation? Powerful people in Washington with close ties to the financial industry, that’s who....

Due to deregulation which was the important part of neoliberal doctrine, they become legislators of their own business...  Here is what  a telling quote from the post Overruled found on macrobusiness.com.au

But in global finance there are some things happening that are genuinely different. Dangerously so. It is becoming a hall of mirrors, money referring to itself in an infinite regress. Little wonder that people are attracted to gold, because gold seems to be a tangible, solid measure of value, something we can rest on in an environment where everything seems relative. Yet this, too, is an illusion. The yellow metal only has value because it has a history of being deemed to have value. It is no more an objective measure of value than the pieces of coloured plastic, notes, that make up legal tender.

To explain what I mean, let’s start with a definition of what money is. It is rules. Rules about value and obligation. Those rules are usually based on legally enforced structures, although that need not be the case. In the case of cross border capital markets, the enforcement is informal because there is no supranational government to impose penalties. Disputes are resolved by a handful of law firms, the main penalty is to be prevented from participating for a period.

Now if money is rules, then what does it mean to “de-regulate financial markets” as was claimed in the 1990s? Can you de-regulate rules? Obviously not. So what happened? The place where rules were set shifted.

Instead of government for the most part making the rules, the traders started making the rules. The logic was, as Alan Greenspan argued, that because everyone was acting in their self interest then nothing could possibly go wrong. Pricing would be accurate, the less formal self organisation of the market would be superior to the formal oversight of governments (what would governments, which are always bad, know?) and everyone would win. Free lunches as far as the eye can see.

So the rules proliferated, especially after the advent of the Black and Scholes pricing of risk, a clever piece of maths based on what is probably circular argument, but one that is sufficiently concealed to give traders the impression that they are handing off risk accurately. This led to the explosion of derivatives and securities markets, including such instruments as collateralised debt obligations, credit default swaps and endless hedging games (my personl favourite is a derivative on “volatility”).

Now the point about rules is that they are based on agreement, and their creation can be without any limit provided traders are prepared to agree, to trust each other enough to transact. They are not finite in the way that, say, gold is. And so the rule making exploded. The global stock of derivatives is $US600 trillion, about twice the capital stock of the world (all the shares, property, equities, bonds and bank deposits). Far from deregulation making the rules of finance more more streamlined and more efficient — as if the efficiency of money could be measured anyway, given that it would mean measuring money with itself — the rule making expanded wildly. And we all know what happened when the trust that underlies those rules collapsed.

Lloyd Blankfein personality (The Independent called him the prince of Casino Capitalism)  also suggests that GS might operate in the throes of an addiction to gambling. And they know they are controlled by their addiction, and so they hate themselves, like addicts typically do, for their lack of self-control. They also see what their addiction is doing to the nation and the world, and guilt collides with craving, making the addiction even more disturbing.

From the Wall Street Journal

In December 2007, after the firm distributed multimillion-dollar bonus checks in part thanks to bets on a mortgage meltdown, about 10 Goldman mortgage traders, surrounded by dozens of cheering colleagues, wolfed down the burgers, according to attendees. Bystanders wagered cash on how many burgers the traders could eat.

The annual event resembled a scene out of “Liar’s Poker,” a book depicting bawdy antics of bond traders at Salomon Brothers in the 1980s. In fact, the 2007 contest was held just a few floors away from where the Salomon traders worked when that firm leased space in the same Manhattan building.

It was a lower-stakes version of what went on every day in the group: aggressive, take-no-prisoners trading. Mortgage-backed bonds, including complex derivatives that tracked pools of risky loans, were traded for big money in Goldman’s 400-person mortgage unit.

Addicts used to hate their actions, hate the world that lets them act, and they dehumanize the victims who suffer from it in a way that the strong hate the weak.

The real question about Goldman is what constructive role in economy those guys play. Are they just government supported and government protected extortion gang operating mainly in developing market, but due to inertia ripping off home constituents? Is Goldman really such an indispensable financial intermediary? If one looks at the firm’s revenue breakdown it's clear that this is more of a casino than anything else, and some of GS moves are savagely predatory and put the economy in danger (they were instrumental in causing the collapse of AIG (see Janet Tavakoli- Goldman Sachs Nearly Bankrupted AIG); saving AIG was largely about saving the derivatives market, which is so big and unstable that the bankruptcy of a large and intertwined counterparty could mean the bankruptcy of all gamblers including Goldman). AS Karl Denninger noted on April 12, 2009:

Goldman (and other banks') "Hedges"

There is a rumor about Goldman Sachs flying around on the street - allegedly they are about to report their second-best quarter in history, +$12 billion or so.

In addition, there is this from Bloomberg:

A 47 percent gain for the company’s stock price this year and a return to profitability in the first quarter may help Chief Executive Officer Lloyd Blankfein raise new money, analysts said. That might let Goldman Sachs, the sixth-biggest bank, return the cash received in October from the Treasury’s Troubled Asset Relief Program and shake off compensation and hiring restrictions imposed on banks that took the U.S. aid.

Gee, you don't think being paid by the taxpayer through AIG's "conduit" for losses that didn't (yet) happen at 100 cents on the dollar might have anything to do with that, do you?

And further (and potentially much worse) there is the repeated statement by Goldman executives that they were "fully hedged" against a potential counterparty default by AIG.

One wonders - was that "hedge" to be short the equity on AIG itself, perhaps?

Why is this important?

Because if that's how Goldman hedged they got paid twice and the taxpayer literally got robbed.

Someone in Congress needs to look into this now; there are already rumblings of investigation. Those rumblings need to get a lot louder and turn into subpoenas, not "polite inquiries."

If in fact Goldman (or anyone else) was "hedged" against a possible credit loss from their CDS with AIG and they were able to collect on that hedge (no matter what it was) those payments through AIG need to be clawed back immediately as nobody is entitled to be paid twice for the same risk and reap what amounts to a windfall profit by quite literally engineering a multi-billion dollar transfer of funds from the Taxpayer to the firm!

This is not small potatoes either - we're talking $100 billion+ in aggregate with these various banks on a worldwide basis.

We the people deserve answers on this right now and if persons in our government handed these banks $100 billion dollars of our tax money for what was a covered bet, allowing them to collect twice on a risk that had not yet been realized (when at most they were entitled to collect once via their private hedging activity) every single person involved in that scandal must be immediately removed from office, prosecuted if possible, and every nickel of those funds must be clawed back by whatever means are necessary.

The fact that GS is run by a compulsive  gambler completes the picture. It’s a hybrid hedge fund and bookie, with an investment bank and asset management business attached to create some respectability. As NYT wrote (Clients Worried About Goldman’s Many Hats )

Goldman’s trading operation has grown so pivotal and influential that many analysts say the firm as a whole now operates more like a hedge fund than an investment bank — another benchmark of the firm’s internal evolution that can create new friction with clients.

Is we assume that GS is a parasite on the body of the society, the question arise who is protecting such a mass scale racket in comparison with which Russian mobsters are just children. “Great vampire squid" Goldman Sachs is a strange firm and sometimes it is difficult to figure where GS ends and government starts and vise versa.

Paulson continued to appoint Goldman Sachs alumni to positions of power after the AIG decision—he named Edward C. Forst, a former head of Goldman’s investment-management division, to help draft the $700 billion Toxic Asset Relief Program (of which $10 billion went to Goldman Sachs), and then Neel Kashkari, a former Goldman V.P., as the TARP manager. And of course Edward Liddy, former Goldman board member, was already serving as the new CEO of AIG. Suddenly, everywhere you looked, men who had passed through the Goldman gauntlet of loyalty and rewards were now in key positions overseeing the rescue of the financial system. The company was earning its nickname: “Government Sachs.”

Many observers suggest that it is the insider information from government connections that fuels GS profits. See FT Alphaville The not-so-subtle management of markets

"Goldman's activity is of negative social value. Its recent profits came from trading, which basically amounts to profiting from insider information at the expense of others," says Stiglitz.

GS is more like a hedge fund then an investment bank. While slimy business practices of Goldman Sacks flourished in the atmosphere of deregulation, the idea of milking fiat money system  with stock market is the central in GS business model. That's why a recent Rolling Stone article called the firm a "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." And a 2007 New York Times column likened its culture to the KGB, the former Soviet Union's secret police.

It's not as if Goldman escaped the financial crisis unscathed. There was a period of chaos last year when Blankfein admits he was willing to consider any option to survive, including merging with Citigroup, which by contrast is today considered one of the weakest financial institutions, 34%-owned by the government. Recently Goldman short selling of MBS during the time the other arm of the firm was packaging them caused a lot of outrage, but nothing was done so far by Obama administration to curb abuses. We will see if Blankfein will go to jail for perjury.

Some comments from Krugman column The Joy of Sachs - Readers' Comments - NYTimes.com

"When the people fear their government, there is tyranny; when the government fears the people, there is liberty." - Thomas Jefferson

===

For more in depth analysis of Goldman Sachs' slimy business practices I recommend:

1. Matt Taibbi's "Vampire Squid" take on Goldman Sachs in the latest Rolling Stone: http://bit.ly/hwCbZ

2. CBC's 30 minute interview with Pulitzer-Prize-winning investigative reporter David Cay Johnston on Goldman Sachs & Gov't. Here's the MP3: Even Jack Bauer couldn't stop 'The Goldman Conspiracy' - MarketWatch

===

Professor Krugman, other wise people have also noticed the same mind boggling phenomenon that you very well pointed out. What has this great country become now? Goldman Sachs and what it represents have shear contempt for each and everyone of those they have the Audacity to repeatedly and legally rob, the retirees, the pension funds of teachers and firefighters, 401ks of the workers and savings of all decent people.

Eliot Spitzer and Matt Taibbi on Goldman Sachs
http://www.zerohedge.com...
http://trueslant.com...
http://www.rollingstone.com...

===

Your suggestion that Goldman worked its miracles by being clever is disingenuous. As the Times own Gretchen Morgenson demonstrated, Government Sachs worked it miracles by sitting down at the private table with goverment decision-makers -- like its old boss Hank Paulson --& hammering out recovery program that benefitted Goldman & whenever possible maimed or killed its competitors (bon voyage, Lehman brothers). If Goldman is corrupt, its Toadies in Treasury T-shirts are worse. Geithner & the top Goldman alum who run Treasury should all be fired, & Goldman should never again enjoy the special status it has acquired through well-placed veterans. There can never be honest & effective regulation when Goldman & its revolving bureaucrats decide what & who is to be regulated. The change we can believe in come from leaders who serve the people; not those who serve big banking.

The Constant Weader at 222.RealityChex.com

===

I am on a completely different ideological plane than you are. I think your Keynesian economics are a complete and absolute fraud. BUT what you say about Goldman Sachs is fact. I do not think that you go far enough. Too many government players are involved with or developed from Goldman. They guided our policies in a way that helped Goldman. More than anything, a special prosecutor needs to be appointed to investigate this travesty of justice.

One quick side note, Asset Backed Securities and other derivatives are not inherently bad, they are bad in the hands of scummy New York investment banks. But otherwise they can help small entities raise capital and allow their business models to flourish and withstand the onslaught of larger entities.

===

This isn't the American Dream anymore, but the great American Fraud! The US has now the best of both worlds: the privatisation of the profits, and the socialization of the losses!

I do hope that with their robust democracy the US will come out of this situation in a better manner.

10 reasons why Wall Street has absolute power over America's democracy
Paul B. Farrell, MarketWatch Last update: 7:13 p.m. EDT April 20,

ARROYO GRANDE, Calif. (MarketWatch) -- Two mind-numbing fast-paced dramas. Two parallel worlds. One real, one fiction, both deadly. Jack Bauer, mythic hero of "24." Dying from a deadly bio-pathogen leaked from weapons developed by Starkwood, a rogue mercenary army attacking the presidency, hell-bent on taking over America.

The other drama in play: "Hank the Hammer" Paulson, iconic Wall Street hero, a Trojan Horse placed inside Washington by Goldman Sachs as Treasury Secretary in control of America's $15 trillion economy. Goldman, a modern dynasty with vast financial powers much like those once used by the de' Medici, Rothschilds and Morgans to control nations.

One of the confounding aspects of bear market rallies is that the longer they last, the more likely investors are to expect a correction, says Barron's Bob O'Brien.

Both dramas play high-stakes games with financial WMDs that have lethal consequences. Jack compresses thrills, kills and chills into 24 hours. Hank, Goldman and their army of Wall Street mercenaries move with equally blinding speed, heart-pounding action.

Drama? You bet. Six short months ago Hank led an assault on Congress. The scene parallels one in "24:" Sangala War Lord Juma's brazen attack inside the White House. But no AK-47s necessary. The Hammer assaulted Congress with just a two-and-a-half page memo in hand. Like a crack special-ops warrior, he took down the enemy, demanding $750 billion, absolute control, total secrecy, no accountability and emergency powers to act immediately ... warning that inaction was not an option, that collapse of America's banking system was imminent, would bring down the global monetary system, pushing world's economies into a "Great Depression II." Congress surrendered.

Here's the whole plot:

Scene 1. American government is now run by the 'Goldman Conspiracy'

Oh, you really think just I'm plotting a television series? Or just paranoid, exaggerating this power grab? You better read "The Usual Suspects," Matthew Malone's brilliant article in Portfolio magazine: He "exposed" the "Goldman Sachs 'conspiracy' to take over the U.S. financial system." Read it in this context: America's financial sector has exploded from 19% of corporate profits in 1986 to 41% today, becoming a magnet for every wannabe billionaire. They know why Wall Street must control Washington.

Malone focuses on the incestuous "conspiracy" of Goldman alumni in Treasury, Bank of America, Merrill Lynch, AIG, Citigroup, Washington lobbyists and politicians.

Scene 2. Huge conflicts motivating Wall Street's 'Trojan Horse'

And just in case you think any emphasis on The Hammer's conflict of interest was invented purely to increase drama, please remember that he worked at Goldman for three decades after serving under Nixon. He got $38 million his last year as CEO in 2006 before becoming Treasury Secretary.

Then during the market meltdown six months ago the $700 million personal fortune he built at Goldman was threatened by Goldman's huge $20 billion derivatives exposure at AIG: Suddenly his responsibilities at Treasury merged with a strong self-interest in protecting his personal fortune. AIG was "saved."

Scene 3. Wall Street's 'quiet coup' also runs world's banking system

There's another equally disturbing expose in "The Quiet Coup," Simon Johnson's great article in Atlantic magazine. A former chief economist at the International Monetary Fund, Johnson also warns that America's "financial industry has effectively captured our government" and is "blocking essential reform."

Worse, he says that unless we break Wall Street's stranglehold (unlikely in the new Washington) we will be unable "to prevent a true depression," warning that "we're running out of time," echoing many of our predictions of the "Great Depression II" coming soon. See previous Paul B. Farrell.

Scene 4. Wall Street used the meltdown to take over America's government

Matt Taibbi, author of "The Great Derangement," captured this drama in a Rolling Stone piece, "The Big Takeover, how Wall Street insiders are using the bailout to stage a revolution." A must-read: "As complex as all the finances are, the politics aren't hard to follow. By creating a crisis that can only be solved by those fluent in a language too complex for ordinary people to understand, the Wall Street crowd has turned the vast majority of Americans into non-participants in their own political future. ... in the age of CDS and CBO, most of us are financial illiterates."

Wall Street "used the crisis to effect a historic, revolutionary change in our political system -- transforming a democracy into a two-tiered state, one with plugged-in financial bureaucrats above and clueless customers below."

Scene 5. How Obama is keeping alive Bush's 'disaster capitalism'

Back in 2007 at the start of the meltdown, Hank was misleading us in Fortune: "This is far and away the strongest global economy I've seen in my business lifetime." In the real world, Naomi Klein, author of "The Shock Doctrine: Rise of Disaster Capitalism," was warning us that "during boom times it's profitable to preach laissez faire, because an absentee government allows speculative bubbles."

But "when those bubbles burst, the ideology becomes a hindrance and goes dormant while big government rides to the rescue." Then, free-market "ideology will come roaring back when the bailouts are done. The massive debts the public is accumulating to bail out the speculators will then become part of a global budget crisis." TARP paybacks: Obama has a new "disaster capitalism."

Scene 6. Wall Street's CEOs rule like dictators in a banana republic

Seriously, here's how bad Taibbi sees it: "Paulson and his cronies turned the federal government into one gigantic half-opaque holding company, one whose balance sheet includes the world's most appallingly large and risky hedge fund, a controlling interest in a dying insurance giant, huge investments in a group of teetering megabanks, and shares here and there in various auto-finance companies, student loans, and other failing business."

And let's include $5.5 trillion in Fannie Mae and Freddie Mac. Wall Street's greed and stupidity resembles the self-destructive reigns of banana republic dictators.

Scene 7. Wall Street makes an un-American bet on 'disaster capitalism'

Today as you ponder buying some Goldman stock, remember, you're really betting that "disaster capitalism" is back, strong, tightening its stranglehold on Washington and on the American taxpayers, who will guarantee all Wall Street's future failures. Yes, this is un-American, but so what?

The "Goldman Conspiracy" is still probably a good short-term buy ... if you're interested in betting on America's new "democracy of capitalists, by capitalists, and for capitalists," with "The Conspiracy" leading the joint chiefs of this new mercenary army ... and it only took six short months for their "Quiet Coup!"

Scene 8. Banks recycle TARP money, pump earnings, cheat America

Here's how it worked: The Hammer conned a clueless Congress, then shelled out $350 billion of our taxpayer money (Helicopter Ben Bernanke helped by upping the ante with a couple trillion side-bet), buying toxic debt to save his ol' Wall Street buddies. They stopped lending and used the dough to doctor their balance sheets.

So no surprise that Goldman, Wells Fargo and J.P. Morgan Chase are now reporting "blockbuster" first-quarter earnings, says the New York Times, while just months ago "many of the nation's biggest banks were on life support."

Get it? They screwed taxpayers and borrowers so they can repay TARP with (you guessed it) our recycled TARP money. Now it's back to business-as-usual, with no restrictions on CEO pay and bonuses ... no thank-yous ... no admissions of guilt ... while some even arrogantly deny that they ever needed TARP money.

Scene 9. Wall Street's already set the stage for new disaster

Right after the election in November, at the peak of the banking crisis, when Hank, Goldman and the Wall Street mercenary armies were divvying up the $350 billion TARP money, we detailed 30 reasons for the "Great Depression II" likely coming around 2011. We quoted John Whitehead, former Goldman Sachs chairman, former chairman of the New York Fed, former Reagan deputy secretary of state. He warned America's problems will take years, burn trillions, result in massive deficits:

"This is a road to disaster," he said. "I've always been a positive person and optimistic, but I don't see a solution here." He did see a depression at the end of that road, one you can call the "Great Depression II."

Scene 10. Obama turned 'The Goldman Conspiracy' into a superpower

Do you see the parallels: Jack and Starkwood, Hank and Goldman? Jack's a great mythic hero. We need to believe a hero will defend the little guy, stand between us and total annihilation. But Jack Bauer's "dead." Yes, dead. Jack's not real. Never was "alive." Jack's a fiction, a figment of Main Street America's vivid imagination, the symbol of "hope" for a populist revolution. Hope that Jack, Barack or some other new hero will emerge, take power back from Wall Street and return it to the people.

Unfortunately that won't happen, folks. Yes, on TV Jack will come back from near-death, again. But in real life, Hank, Goldman and Wall Street's mercenaries are winning the war. Read and weep Portfolio's chilling finale: "Obama's victory and Geithner's appointment are the completion of Goldman's meticulously crafted plan to become a superpower. The firm now has the clout to impose its will on the financial markets, and the world."

GOP or Dems? Conservatives or liberals? It doesn't matter. We'll all controlled by "The Conspiracy." So why not surrender, let them have the power? The truth is, through their lobbyists and surrogates in Washington, they already rule America. Surrender is a mere formality.

Accept reality. Hold them accountable later. After the next crisis. After the next meltdown of disaster capitalism -- if there's anything left after the "Great Depression II" sweeps like a pandemic across the planet, consuming all economies, for a long time. But for now, Goldman and other banks may well be short-term buys. Just be ready to dump them in the near future ... a scenario that will be here sooner than you think.

See also Goldman Sachs aka "These F#@king Guys"


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[Apr 08, 2019] Insofar as the Fed's "independence" has meant close ties to the financial industry, it has not been good news for most people in this country.

Apr 08, 2019 | economistsview.typepad.com

anne , April 06, 2019 at 12:56 PM

http://cepr.net/blogs/beat-the-press/the-independent-fed-isn-t-quite-what-it-is-cracked-up-to-be

April 6, 2019

The "Independent" Federal Reserve Isn't Quite What It Is Cracked Up to Be
By Dean Baker

Neil Irwin had a New York Times article * warning readers of the potential harm if the Federal Reserve loses its independence. The basis for the warning is that Donald Trump seems prepared to nominate Steven Moore and Herman Cain to the Fed, two individuals with no obvious qualifications for the job, other than their loyalty to Donald Trump. While Irwin is right to warn about filling the Fed with people with no understanding of economics, it is wrong to imagine that we have in general been well-served by the Fed in recent decades or that it is necessarily independent in the way we would want.

The examples Irwin gives are telling. Irwin comments:

"The United States' role as the global reserve currency -- which results in persistently low interest rates and little fear of capital flight -- is built in significant part on the credibility the Fed has accumulated over decades.

"During the global financial crisis and its aftermath, for example, the Fed could feel comfortable pursuing efforts to stimulate the United States economy without a loss of faith in the dollar and Treasury bonds by global investors. The dollar actually rose against other currencies even as the economy was in free fall in late 2008, and the Fed deployed trillions of dollars in unconventional programs to try to stop the crisis."

First, the dollar is a global reserve currency, it is not the only global reserve currency. Central banks also use euros, British pounds, Japanese yen, and even Swiss francs as reserve currencies. This point is important because we do not seriously risk the dollar not be accepted as a reserve currency. It is possible to imagine scenarios where its predominance fades, as other currencies become more widely used. This would not be in any way catastrophic for the United States.

On the issue of the dollar rising in the wake of the financial collapse in 2008, this was actually bad news for the U.S. economy. After the plunge in demand from residential construction and consumption following the collapse of the housing bubble, net exports was one of the few sources of demand that could potentially boost the U.S. economy. The rise in the dollar severely limited growth in this component.

The other example given is when Nixon pressured then Fed Chair Arthur Burns to keep interest rates low to help his re-election in 1972. This was supposed to have worsened the subsequent inflation and then severe recessions in the 1970s and early 1980s. The economic damage of that era was mostly due to a huge jump in world oil prices at a time when the U.S. economy was heavily dependent on oil.

While Nixon's interference with the Fed may have had some negative effect, it is worth noting that the economies of other wealthy countries did not perform notably better than the U.S. through this decade. It would be wrong to imply that the problems of the 1970s were to any important extent due to Burns keeping interest rates lower than he might have otherwise at the start of the decade.

It is also worth noting that the Fed has been very close to the financial sector. The twelve regional bank presidents who sit on the open market committee that sets monetary policy are largely appointed by the banks in the region. (When she was Fed chair, Janet Yellen attempted to make the appointment process more open.) This has led to a Fed that is far more concerned about keeping down inflation (a concern of bankers) than the full employment portion of its mandate.

Arguably, Fed policy has led unemployment to be higher than necessary over much of the last four decades. This has prevented millions of workers from having jobs and lowered wages for tens of millions more. The people who were hurt most are those who are disadvantaged in the labor market, such as African Americans, Hispanics, and people with less education.

Insofar as the Fed's "independence" has meant close ties to the financial industry, it has not been good news for most people in this country.

* https://www.nytimes.com/2019/04/06/upshot/fed-moore-cain-risk-partisanship.html

[Apr 08, 2019] Has Privatization Benefitted the Public naked capitalism

Notable quotes:
"... Privatization typically enriches the politically connected few who secure lucrative rents by sacrificing the national or public interest for private profit, even when privatization may not seem to benefit them. ..."
"... For example, following Russian voucher privatization and other Western recommended reforms, for which there was a limited domestic constituency then, within three years (1992-1994), the Russian economy had collapsed by half, and adult male life expectancy fell by six years. It was the greatest such recorded catastrophe in the last six millennia of recorded human history. ..."
"... Soon, a couple of dozen young Russian oligarchs had taken over the commanding heights of the Russian economy; many then monetized their gains and invested abroad, migrating to follow their new wealth. Much of this was celebrated by the Western media as economic progress. ..."
Apr 08, 2019 | www.nakedcapitalism.com

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<img src="http://b.scorecardresearch.com/p?c1=2&c2=16807273&cv=2.0&cj=1" /> Has Privatization Benefitted the Public? Posted on April 7, 2019 by Jerri-Lynn Scofield Jerri-Lynn here. Another succinct post by Jomo Kwame Sundaram that makes clear the "benefits" of privatization are not evenly distributed, and in fact, typically, "many are even worse off" when the government chooses to transfer ownership of the family silver.

Note that SOE is the acronym for state owned enterprise.

For those interested in the topic, see also another short post by the same author from last September, debunking other arguments to promote the privatization fairy, Revisiting Privatization's Claims .

By Jomo Kwame Sundaram, former UN Assistant Secretary General for Economic Development. Originally published at Inter Press Service

In most cases of privatization, some outcomes benefit some, which serves to legitimize the change. Nevertheless, overall net welfare improvements are the exception, not the rule.

Never is everyone better off. Rather, some are better off, while others are not, and typically, many are even worse off. The partial gains are typically high, or even negated by overall costs, which may be diffuse, and less directly felt by losers.

Privatized Monopoly Powers

Since many SOEs are public monopolies, privatization has typically transformed them into private monopolies. In turn, abuse of such market monopoly power enables more rents and corporate profits.

As corporate profits are the private sector's yardstick of success, privatized monopolies are likely to abuse their market power to maximize rents for themselves. Thus, privatization tends to burden the public, e.g., if charges are raised.

In most cases, privatization has not closed the governments' fiscal deficits, and may even worsen budgetary problems. Privatization may worsen the fiscal situation due to loss of revenue from privatized SOEs, or tax evasion by the new privatized entity.

Options for cross-subsidization, e.g., to broaden coverage are reduced as the government is usually left with unprofitable activities while the potentially profitable is acquired by the private sector. Thus, governments are often forced to cut essential public services.

In most cases, profitable SOEs were privatized as prospective private owners are driven to maximize profits. Fiscal deficits have often been exacerbated as new private owners use creative accounting to avoid tax, secure tax credits and subsidies, and maximize retained earnings.

Meanwhile, governments lose vital revenue sources due to privatization if SOEs are profitable, and are often obliged to subsidize privatized monopolies to ensure the poor and underserved still have access to the privatized utilities or services.

Privatization Burdens Many

Privatization burdens the public when charges or fees are not reduced, or when the services provided are significantly reduced. Thus, privatization often burdens the public in different ways, depending on how market power is exercised or abused.

Often, instead of trying to provide a public good to all, many are excluded because it is not considered commercially viable or economic to serve them. Consequently, privatization may worsen overall enterprise performance. 'Value for money' may go down despite ostensible improvements used to justify higher user charges.

SOEs are widely presumed to be more likely to be inefficient. The most profitable and potentially profitable are typically the first and most likely to be privatized. This leaves the rest of the public sector even less profitable, and thus considered more inefficient, in turn justifying further privatizations.

Efficiency Elusive

It is often argued that privatization is needed as the government is inherently inefficient and does not know how to run enterprises well. Incredibly, the government is expected to subsidize privatized SOEs, which are presumed to be more efficient, in order to fulfil its obligations to the citizenry.

Such obligations may not involve direct payments or transfers, but rather, lucrative concessions to the privatized SOE. Thus, they may well make far more from these additional concessions than the actual cost of fulfilling government obligations.

Thus, privatization of profitable enterprises or segments not only perpetuates exclusion of the deserving, but also worsens overall public sector performance now encumbered with remaining unprofitable obligations.

One consequence is poorer public sector performance, contributing to what appears to be a self-fulfilling prophecy. To make matters worse, the public sector is then stuck with financing the unprofitable, thus seemingly supporting to the privatization prophecy.

Benefits Accrue to Relatively Few

Privatization typically enriches the politically connected few who secure lucrative rents by sacrificing the national or public interest for private profit, even when privatization may not seem to benefit them.

Privatization in many developing and transition economies has primarily enriched these few as the public interest is sacrificed to such powerful private business interests. This has, in turn, exacerbated corruption, patronage and other related problems.

For example, following Russian voucher privatization and other Western recommended reforms, for which there was a limited domestic constituency then, within three years (1992-1994), the Russian economy had collapsed by half, and adult male life expectancy fell by six years. It was the greatest such recorded catastrophe in the last six millennia of recorded human history.

Soon, a couple of dozen young Russian oligarchs had taken over the commanding heights of the Russian economy; many then monetized their gains and invested abroad, migrating to follow their new wealth. Much of this was celebrated by the Western media as economic progress.

diptherio , April 7, 2019 at 9:11 am

SOE must stand for "state owned enterprise."

Jerri-Lynn Scofield Post author , April 7, 2019 at 9:30 am

Yes it does. I've now added a sentence to my introduction to make that clear. I noticed the omission when I was uploading the post, but wasn't sure whether readers would be confused.

Thanks for your comment.

caloba , April 7, 2019 at 10:45 am

As a rule of thumb, I'd say that any privatisations that require the introduction of convoluted pseudo-market structures or vast new regulatory bureaucracies or which derive most of their ongoing income from the public sector are likely to be contrary to the long-term public interest. In the UK, unfortunately, all these ships sailed a long time ago

DJG , April 7, 2019 at 11:15 am

After the recent Chicago municipal elections, I wrote up some notes on the reasons for the discontent. This article by Sundaram explains exactly how these schemes work. Further, you can apply his criteria of subsidies for the rich, skimming, and disinheriting the middle class and poor to all of the following instances in Chicago.

If I may–some for instances of how Sundaram's observations turn up in U.S. cities:

Chicago is the proving grounds for thirty or so years of the Democrats' surrender to neoliberalism and austerity politics. Let us not forget, brethren and sistren, that Rahm is the Spawn of Bill + Hill as well as dear friend and advisor of Obama. So there is the work of Daley to undo and the work of the Clintonians to undo. It will take more than one term for Lightfoot.

Consider:
–Parking meters and enforcement have been privatized, starving the city of funds and, more importantly, of its police power.
–Taxes have been privatized in TIFs, where money goes and is never heard from again.
–There have been attempts to privatize the park system in the form of the Lucas museum and the current Obama Theme Park imbroglio, involving some fifty acres of park land.
–The school system has been looted and privatized. The Democrats are big fans of charter schools (right, "Beto"), seeing them as ways to skim money off the middle class and the poor.
–Fare collection on public transit has been privatized using a system so deliberately rudimentary and so deliberately corrupt that it cannot tell you at point of service how much you have paid as fare.
–Boeing was enticed to Chicago with tax breaks. Yes, that Boeing, the one that now deliberately puts bad software in your airplane.
–Property tax assessment has been an opaque system and source of skimming for lawyers.
–Zoning: Eddie Burke, pond scum, is just the top layer of pollution.
–And as we have made our descent, all of these economic dogmata have been enforced by petty harassment of the citizenry (endless tickets) and an ever-brutal police force.

And yet: The current Republican Party also supports all of these policies, so let's not pretend that a bunch of Mitch McConnell lookalikes are headed to Chicago to reform it.

California is no better , April 7, 2019 at 5:16 pm

Providing professional services i.e. architecture, engineering, etc. for a public entity, local or federal, does not yield unreasonable profits. Typically, the public agencies have their own staff to monitor and cost control a project. The professional services provided to private developers yields far more profit- oftentimes twice the profits associated with public agency work. Most professional services companies will transition their work to the public agencies during a recession.

At any rate, especially in Illinois, privatizing the work to avoid pension liabilities is no longer a choice. Michael Madigan pension promises will require the public to maintain a public service budget with no staff to fill potholes. Essentially, these are the no work jobs made popular by the Soprano crew twenty years ago.

Discussion of the downside of the privatization of public services is merely an oscillation from discussing the weather, the Bears or any other kitchen table discussion – nothing more than pleasant small talk to pass the time.

Privatization, at any cost, is no longer a choice. We have abused the pension system and now the public must pay for private companies to provide the most basic services.

stan6565 , April 7, 2019 at 6:36 pm

The question is, what can one do to help arrest this wholesale theft of public resources and their expropriation into the hands of well connected. " Public", as in, it is the working public over the last 100 or 200 years that created (or paid for), the electricity grid, or public schools, or entire armed or police forces

I keep thinking that perhaps an Act could or should be introduced here in UK (same for the States, i suppose), which should ensure that all politicians that enable any type of privatisation of public resources or PFI arrangement (yes that old chesnut), should be made personally responsible for the results therof.

And any losses to the public accidentally or "accidentally" occasioned by such commandeering over public resources, to be treated like deliberate misappropriation by the said public officials.

With the financial and custodial penalties as may be appropriate.

Anybody out there with similar thoughts or should i really try harder and give up on drugs?

eg , April 7, 2019 at 12:04 pm

Michael Hudson, to his immense credit, explains the pernicious effects of privatization of common goods repeatedly throughout his work, and demonstrates that it has been with us at least as long as the ancient practice of land alienation and rural usury.

Natural monopolies ought to be nationalised, full stop.

Grizziz , April 7, 2019 at 12:39 pm

I support public ownership of natural monopolies, however it would be helpful if these pieces contained data, case studies or footnoted entries providing some empirical evidence of the author's thesis.

Thuto , April 7, 2019 at 1:00 pm

This article comes at a time when the clarion call for privatizing Eskom, SA's electricity utility, is hitting deafening levels. To the private sector, efficiency = maximizing profits by making the "bloated" enterprise lean (aka cutting the workforce) and quite literally mean (aka cutting services to "unprofitable" segments of the market, iow, the poor and vulnerable). When profits soar because the holy grail of efficiency is achieved, the mainstream business press brings out the champagne and toasts this "success" as proof that the previously "moribund" (they always exaggerate the state of things) monopolistic monolith has been given a new lease on life by privatizing it and the template is set for rescuing other "ailing" SOEs.

The drawbacks are never laid out as cleary as they are in this article and the plight of those worst affected, whether laid-off workers or those whose services have been cut, never makes it into the headlines.

PhilB , April 7, 2019 at 2:53 pm

And then there is prison privatization where the burden of operation and maintaining the institution should clearly be on the public so as to be constant reminder of the burden, among others reasons. The motivations by private prison operators to reduce services and costs out of site of the pesky prying eyes of the public are manifold.

RepubAnon , April 7, 2019 at 7:54 pm

Privatization is a great way to avoid having user fees wasted by providing services, and instead put to better use funding the re-election campaigns of politicians supporting privatization. Plus, it provides much-needed consulting fees for former politicians as well as job-creating 7-figure salaries for the CEOs,

(/snark, if you couldn't tell)

On a side note, the Dilbert comic strip is written about private industry ,

Iapetus , April 7, 2019 at 3:39 pm

There was a rudimentary plan put forward last June that recommended some pretty substantial privatizations of U.S. government assets and services which include:

-Privatizing the US Post Office ( through an Initial Public Offering or outright sale to a private entity ).
-Sell off U.S. government owned electricity transmission lines ( U.S. government owns 14% of this nations power transmission lines through TVA, Southwestern Power Administration, Western Area Power Administration, and Bonneville Power Administration ).
-Spin-off the Federal Aviation Administrations air traffic control operations into a private nonprofit entity.
-Spin-off the Department of Transportations operations of the Saint Lawrence Seaways Locks and Channels into a private non-profit entity.
-End the federal conservatorship of Fannie Mae and Freddie Mac, then regulate a new system of private guarantors for their MBS securities.

Not sure if these are still being considered.

Tom Stone , April 7, 2019 at 3:54 pm

There's no way I could ask that question with a straight face.

Jack Parsons , April 7, 2019 at 6:35 pm

At heart, the problem with privatization is that marketing to a government-employed purchaser or "purchase influencer" is ridiculously cheap, due to their poor accountability strictures.

This is abetted by the Katamari Damacy process (self-accretionary tendency) of money and power.

https://youtu.be/-U_Tccwyh70?t=139

The Rev Kev , April 7, 2019 at 7:50 pm

In Oz the electricity grids were privatized as they would be cheaper that way – or so people were told. Instead, the cost of electricity has risen sharply over the years to the point that it is effecting elections on both the State and Federal level as the price hikes are so controversial. A problem is that those companies have to pay back the loans used to buy the public electricity grids and as well, the senior management award themselves sky-high wages because they are totally worth it. These are factors that were never present when it was publicly owned. And just to put the boot in, those very same companies have been 'gold-plating' the electricity grid for their gain-

https://www.abc.net.au/news/2017-07-18/australian-gold-plated-power-grid/8721566

Meanwhile, whatever money the governments made selling their electricity companies has been long spent on white elephants or buying themselves re-elections by giving out goodies to voters.

Procopius , April 7, 2019 at 8:54 pm

buying themselves re-elections by giving out goodies to voters.

I don't reside in the states, so I don't see much of the detail of daily life. What are these "goodies" of which you speak? In what I am able to read on the internet, people aren't being given goodies any more. At least the old-time politicians handed out jobs, and turkeys at Christmas. The current crop do hand out jobs to their kids and immediate family, but not so much to anyone else.

[Apr 05, 2019] Pelosi Accused of Deploying 'Most Dishonest Argument' Against Medicare for All by Jake Johnson

Pelosi: Sock Puppet For the Insurance Industry
Apr 05, 2019 | www.commondreams.org
described as "probably the most dishonest argument in the entire Medicare for All debate."

"People who love their employer-based insurance do not get to hold on to it in our current system. Instead, they lose that insurance constantly, all the time. It is a complete nightmare."
-- Matt Bruenig, People's Policy Project

In an interview with the Washington Post , the Democratic leader said she is "agnostic" on Medicare for All and claimed, "A lot of people love having their employer-based insurance and the Affordable Care Act gave them better benefits."

Matt Bruenig, founder of the left-wing think tank People's Policy Project, argued in a blog post that Pelosi's statement "implies that, under our current health insurance system, people who like their employer-based insurance can hold on to it."

"This then is contrasted with a Medicare for All transition where people will lose their employer-based insurance as part of being shifted over to an excellent government plan," Bruenig wrote. "But the truth is that people who love their employer-based insurance do not get to hold on to it in our current system. Instead, they lose that insurance constantly, all the time, over and over again. It is a complete nightmare."

To illustrate his point, Bruenig highlighted a University of Michigan study showing that among Michiganders "who had employer-sponsored insurance in 2014, only 72 percent were continuously enrolled in that insurance for the next 12 months.

"This means that 28 percent of people on an employer plan were not on that same plan one year later," Bruenig noted.

me title=

"Critics of Medicare for All are right to point out that losing your insurance sucks," Bruenig concluded. "But the only way to stop that from happening to people is to create a seamless system where people do not constantly churn on and off of insurance. Medicare for All offers that. Our current system offers the exact opposite. If you like losing your insurance all the time, then our current healthcare system is the right one for you."

All On Medicare -- a pro-Medicare for All Twitter account -- slammed Pelosi's remarks, accusing the Democratic leader of parroting insurance industry talking points:

The Speaker's alternative to the Medicare for All legislation co-sponsored by over 100 members of her caucus is a bill to strengthen the Affordable Care Act (ACA), which she introduced last week .

"We all share the value of healthcare for all Americans -- quality, affordable healthcare for all Americans," Pelosi told the Post . "What is the path to that? I think it's the Affordable Care Act, and if that leads to Medicare for All, that may be the path."

The nation's largest nurses union was among those who expressed disagreement with the Speaker's incrementalist approach.

In a statement last week, National Nurses United president Zenei Cortez, RN, said Pelosi's plan would "only put a Band-Aid on a broken healthcare system."

"National Nurses United, along with our allies, will continue to build the grassroots movement for genuine healthcare justice and push to pass Medicare for All," Cortez concluded.

This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License

[Apr 04, 2019] How much of the present-day US economy is even real i.e., results in the production of actual goods that people might want, as opposed to dodgy financial/insurance transactions which may add a lot of dollar value to GDP, but don't create anything real that enhances the quality of life for the masses?

Apr 04, 2019 | www.unz.com

Digital Samizdat , says: April 4, 2019 at 5:33 pm GMT

@Andrei Martyanov All true. And one more point: compared with China, how much of the present-day US economy is even real – i.e., results in the production of actual goods that people might want, as opposed to dodgy financial/insurance transactions which may add a lot of dollar value to GDP, but don't create anything real that enhances the quality of life for the masses?

Economist used to have a joke: every time you break your leg, you increase GDP. First, you gotta pay the hospital (transaction), then you gotta pay your doctor (another transaction), then you gotta pay for your case (yet another transaction). All those transactions make it look like 'wealth' is being created, because they are–numerically, at least–increasing per capita GDP. But still: wouldn't you and the country actually be better off if you hadn't broken your leg in the first place?

[Apr 04, 2019] Finance Capitalism came out of London and hopped to America, especially post WW2.

Apr 04, 2019 | www.unz.com

MEFOBILLS , says: April 4, 2019 at 3:57 pm GMT

China, emerged as an "honest broker" among countries in the Middle East, and used the free market system to improve relations with its trading partners and grow its economy. The IC appears to find fault with Russia because it is using the system the US created to better advantage than the US.

Industrial Capitalism is the system China and Russia are running on. America briefly had this system from 1868 to 1912; it was called the American System of Economy (Henry Clay/Peshine Smith).

This type of economy uses state credit (from Treasury not banks) and injects it into industry. Industry then grows, and people's welfare is increased through improved productivity.

Finance Capitalism came out of London and hopped to America, especially post WW2. At the same time Atlantacism and Rim theory hopped. America still runs under this BIZWOG (Britain Israel World Government) matrix. This matrix depends on finance capitalism.

Finance Capitalism is the placing of EXISTING ASSETS onto a private bank ledger, to then hypothecate said assets into new bank credit. For example, a ships bill of lading may be used to create new bank credit, or existing homes are put on double entry ledger to make housing bubbles.

The closer analogs to China and Russian economy are American System of Economy, not the current American BIZWOG finance capital. The historical analogs would also be Canada 1938-1974, when Canada had a sovereign economy. Canada post 1974 was converted to finance capitalism and now are debt laden and suffering like the rest of the west.

Kaiser's Germany used industrial capitalism then Japan's Manchurian Railroad Engineers copied it for Japan. Mussolini in Italy copied parts of it, and NSDAP in Germany resurrected Frederick List and the Kaiser's methods.

Finance Capital out of wall street funded the Bolsheviks in what amounted to a looting operation of Russia. It is any wonder that finance capitalism found succor with communism since they are both pyramid schemes?

Rim Theory, Atlantacism, Finance Capitalism, and Brzezinsky's chessboard are part of the same thing, an excuse matrix for gobbling up the world into one double entry private bank ledger, to then benefit a special (((usury))) finance class of plutocrats.

The "markets" that China and Russia operate on are those of industrial capitalism, using state credit. China has four large state banks, and they often cancel debt instruments (housed in the state bank) to then effectively put debt free money into their economy. Russia injects gold into their Central Bank Reserves, to then emit Rubles. Both China and Russia inject into industry, their farm sectors, and other sectors to get a desired output to help their people, not put them into debt servitude.

The BIZWOG matrix will collapse, it is anti-logos and hence against the natural order. It is on the wrong side of history.

[Mar 23, 2019] Note on palace-coup attempts of Rod Rosenstein and Andrew McCabe

Mar 23, 2019 | news.yahoo.com

W e are still trying to fathom the apparent but transient palace-coup attempts of Rod Rosenstein and Andrew McCabe. No one has gotten to the bottom of the serial lying by McCabe and James Comey, much less their systematic and illegal leaking to pet reporters.

We do not know all the ways in which James Clapper and John Brennan seeded the dossier and its related gossip among the press and liberal politicians -- only that both were prior admitted fabricators who respectively while under oath misled congressional representatives on a host of issues.

The central role of Hillary Clinton in funding the anti-Trump, Russian-"collusion," Fusion/GPS/Christopher Steele dossier is still not fully disclosed. Did the deluded FISA court know it was being used by Obama-administration DOJ and FBI officials, who withheld from it evidence to ensure permission to spy on American citizens? Could any justice knowingly be so naïve?

Do we remember at all that Devin Nunes came to national prominence when he uncovered information that members of the Obama administration's national-security team, along with others, had systematically unmasked surveilled Americans, whose names then were leaked illegally to the press?

One day historians will have the full story of how Robert Mueller stocked his legal team inordinately with partisans. He certainly did not promptly disclose the chronology of, or the interconnected reasons for, the firings of Lisa Page and Peter Strozk. And his team has largely used process-crime allegations to leverage mostly minor figures to divulge some sort of incriminating evidence about the president -- none of it pertaining to the original mandated rationale of collusion.

These are the central issues and key players of this entire sordid attempt to remove a sitting president.

But we should remember there were dozens of other minor players who did their own parts in acting unethically, and in some cases illegally, to destroy a presidency. We have mostly forgotten them. But they reflect what can happen when Washington becomes unhinged, the media go berserk, and a reign of terror ensues in which any means necessary is redefined as what James Comey recently monetized as a "Higher Loyalty" to destroy an elected president.

Here are just a few of the foot soldiers we have forgotten.

Anonymous

On September 5, 2018 (a date seemingly picked roughly to coincide with the publication of Bob Woodward's sensational tell-all book about the inside of the Trump White House), the New York Times printed a credo from a supposed anonymous Republican official deep within the Trump administration. In a supposed fit of ethical conviction, he (or she) warned the nation of the dangers it faced under his boss, President Trump, and admitted to a systematic effort to subvert his presidency:

The dilemma -- which he does not fully grasp -- is that many of the senior officials in his own administration are working diligently from within to frustrate parts of his agenda and his worst inclinations. I would know. I am one of them.

Anonymous elaborated:

Given the instability many witnessed, there were early whispers within the cabinet of invoking the 25th Amendment, which would start a complex process for removing the president. But no one wanted to precipitate a constitutional crisis. So we will do what we can to steer the administration in the right direction until -- one way or another -- it's over.

We do not know whether Anonymous was describing the coup attempt as described by Andrew McCabe that apparently entailed Rod Rosenstein at the Justice Department informally polling cabinet officials, or marked a wider effort among Never Trump Republicans and deep-state functionaries to ensure that Trump failed -- whether marked by earlier efforts to leak confidential calls with foreign officials or to serve up unsubstantiated rumors to muckrakers or simply slow-walk or ignore presidential directives.

In any case, Anonymous's efforts largely explain why almost daily we hear yet another mostly unsubstantiated account that a paranoid, deranged, and dangerous Trump is holed up in his bedroom with his Big Macs as he plans unconstitutional measures to wreck the United States -- and then, by accident, achieves near-record-low peacetime unemployment, near-record-low minority unemployment, annualized 3 percent GDP growth, record natural-gas and oil production, record deregulation, comprehensive tax reform and reduction, and foreign-policy breakthroughs from the destruction of ISIS to cancellation of the flawed Iran deal.

James Baker

In the course of congressional testimony, it was learned that the FBI general counsel, James Baker, for a time had been under investigation for leaking classified information to the press. Among the leaks were rumored scraps from the Steele dossier passed to Mother Jones reporter David Corn (who has denied any such connection) that may have fueled his sensational pre-election accusation of Trump–Russian collusion.

Nonetheless, about a week before the 2016 election, Corn of Mother Jones was writing lurid exposés, such as the following, to spread gossip likely inspired from the Christopher Steele dossier (italics inserted):

Does this mean the FBI is investigating whether Russian intelligence has attempted to develop a secret relationship with Trump or cultivate him as an asset? Was the former intelligence officer and his material deemed credible or not?

An FBI spokeswoman says, "Normally, we don't talk about whether we are investigating anything." But a senior US government official not involved in this case but familiar with the former spy tells Mother Jones that he has been a credible source with a proven record of providing reliable, sensitive, and important information to the US government. In June, the former Western intelligence officer -- who spent almost two decades on Russian intelligence matters and who now works with a US firm that gathers information on Russia for corporate clients -- was assigned the task of researching Trump's dealings in Russia and elsewhere, according to the former spy and his associates in this American firm.

What does "assigned" mean, and by whom? That Fusion/GPS (which, in fact, is a generic opposition-research firm with no particular expertise in Russia) hired with disguised Clinton campaign funds a has-been foreign-national spy to buy dirt from Russian sources to subvert a presidential campaign?

Those leaks of Christopher Steele's dirt also did their small part in planting doubt in voters' minds right that electing Trump was tantamount to implanting a Russian asset in the White House. Baker has been the alleged center of a number of reported leaks, even though the FBI's general counsel should have been the last person to disclose any government communication to the press during a heated presidential campaign. And there is still no accurate information concerning what role, if any, Baker played in Andrew McCabe's efforts to discuss removing the president following the Comey firing.

Evelyn Farkas

On March 1, 2017, just weeks after Trump took office, the New York Times revealed that. in a last-minute order, outgoing president Obama had vastly expanded the number of government officials with access to top-secret intelligence data. The Obama administration apparently sought to ensure a narrative spread that Trump may have colluded with the Russians. The day following the disclosure, a former Pentagon official, Evelyn Farkas (who might have been a source for the strange disclosure of a day earlier), explained Obama's desperate eleventh-hour effort in an MSNBC interview:

I was urging my former colleagues, and, and frankly speaking the people on the Hill . . . it was more actually aimed at telling the Hill people, get as much information as you can, get as much intelligence as you can before President Obama leaves the administration.

Because I had a fear that somehow that information would disappear with the senior people who left so it would be hidden away in the bureaucracy, um, that the [stutters] Trump folks -- if they found out how we knew what we knew about their [the] Trump staff, dealing with Russians -- that they would try to compromise those sources and methods, meaning we no longer have access to that intelligence.

So I became very worried because not enough was coming out into the open and I knew that there was more. We have very good intelligence on Russia, so then I had talked to some of my former colleagues and I knew that they were also trying to help get information to the Hill.

Despite media efforts to spin Farkas's disclosure, she was essentially contextualizing how outgoing Obama officials were worried that the incoming administration would discover their own past efforts ("sources and methods") to monitor and surveil Trump-campaign officials, and would seek an accounting. Her worry was not just that the dossier-inspired dirt would not spread after Trump took office, but that the Obama administration's methods used to thwart Trump might be disclosed (e.g., " if they found out how we knew what we knew about their [the] Trump staff, dealing with Russians -- that they would try to compromise those sources and methods, meaning we no longer have access to that intelligence" ).

So Farkas et al. desperately sought to change the law so that their rumors and narratives would be so deeply seeded within the administrative state that the collusion narrative would inevitably lead to Congress and the press, and thereby overshadow any shock at the improper or illegal methods the Obama-administration officials had authorized to monitor the Trump campaign.

And Farkas was correct. Even today, urination in a Russian hotel room has overshadowed perjury traps, warping the FISA courts, illegal leaking, inserting a spy into the Trump campaign, and Russian collusion with Clinton hireling and foreign agent Christopher Steele.

Samantha Power
We now forget that for some reason, in her last year in office, but especially during and after the 2016 election, Power, the outgoing U.S. ambassador to the United Nations, reportedly asked to unmask the names of over 260 Americans picked up in government surveillance. She offered no real explanations of such requests.

Even stranger than a U.N. ambassador suddenly playing the role of a counterintelligence officer, Power continued her requests literally until the moments before Trump took office in January 2017. And, strangest of all, after Power testified before the House Oversight and Government Reform Committee, Representative Trey Gowdy reported that "her testimony is 'they [the unmasking requests] may be under my name, but I did not make those requests.'"

Who, in the world, then, did make those requests and why and, if true, did she know she was so being used?

And were some of those unmasking requests leaked, thus helping to fuel media rumors in late 2016 and early 2017 that Trump officials were veritable traitors in league with Russia? And why were John Brennan, James Clapper, Susan Rice, and Sally Yates reportedly in the last days (or, in some cases, the last hours) requesting that the names of Americans swept up in surveillance of others be unmasked? What was the point of it all?

In sum, did a U.N. ambassador let her name be used by aides or associates to spread rumors throughout the administrative state, and thereby brand them with classified government authenticity, and then all but ensure they were leaked to the press?

We the public most certainly wondered why the moment Trump was elected, the very name Carter Page became synonymous with collusion, and soon Michael Flynn went from a respected high-ranking military official to a near traitor, as both were announced as emblematic of their erstwhile complicit boss.

Ali Watkins and James Wolf

Watkins was the young reporter for Buzzfeed (which initially leaked the largely fake Steele dossier and erroneously reported that Michael Cohen would implicate Trump in suborning perjury) who conducted an affair with James Wolf, a staffer, 30 years her senior, on the Senate Intelligence Committee.

Wolf, remember, systematically and illegally began leaking information to her that found its way into sensationalized stories about collusion. But as Margot Cleveland of the Federalist pointed out, Watkins was also identified by Buzzfeed "in court filings as one of the individuals who 'conducted newsgathering in connection with the Dossier before Buzzfeed published the Article' on the dossier. This fact raises the question of whether Watkins received information from Wolfe concerning the dossier and, if so, what he leaked."

In other words, the dossier was probably planted among U.S. senators and deliberately leaked through a senior Senate aide, who made sure that the unverified dirt was published by the press to damage Donald Trump.

And it did all that and more.

The list of these bit players could be easily expanded. These satellites were not coordinated in some tight-knit vast conspiracy, but rather took their cue from their superiors and the media to freelance with assumed impunity, as their part in either preventing or ending a Trump presidency. And no doubt the Left would argue that the sheer number of federal bureaucrats and political appointees, in a variety of cabinets and agencies, throughout the legislative and the executive branches, all proves that Trump is culpable of something.

Perhaps. But the most likely explanation is that a progressive administrative state, a liberal media, and an increasingly radicalized liberal order were terrified by the thought of an outsider Trump presidency. Therefore, they did what they could, often both unethically and illegally, to stop his election, and then to subvert his presidency.

In their arrogance, they assumed that their noble professions of higher loyalties and duties gave them exemption to do what they deemed necessary and patriotic. And others like them will continue to do so, thereby setting the precedent that unelected federal officials can break the law or violate any ethical protocols they please -- if they disagree with the ideology of the commander in chief. We ridicule Trump for going ballistic at each one of these periodically leaked and planted new stories that raised some new charge about his stupidity, insanity, incompetence, etc. But no one has before witnessed any president subjected to such a comprehensive effort of the media, the deep state, political opponents, and his own party establishment to destroy him.

Subversion is the new political opposition. The nation -- and the Left especially -- will come to regret the legacy of the foot soldiers of the Resistance in the decades to come.

[Mar 21, 2019] Pentagon to probe if Shanahan used office to help Boeing

Mar 21, 2019 | finance.yahoo.com

The Pentagon's inspector general has formally opened an investigation into a watchdog group's allegations that acting Defense Secretary Patrick Shanahan has used his office to promote his former employer, Boeing Co.

Citizens for Responsibility and Ethics in Washington filed an ethics complaint with the Pentagon's inspector general a week ago, alleging that Shanahan has appeared to make statements promoting Boeing and disparaging competitors, such as Lockheed Martin.

Shanahan, who was traveling with President Donald Trump to Ohio on Wednesday, spent more than 30 years at Boeing, leading programs for commercial planes and missile defense systems. He has been serving as acting Pentagon chief since the beginning of the year, after James Mattis stepped down.

The probe comes as Boeing struggles to deal with a public firestorm over two deadly crashes of the Boeing 737 Max 8 jetliner within the last five months. And it focuses attention on whether Trump will nominate Shanahan as his formal pick for defense chief, rather than letting him languish as an acting leader of a major federal agency.

Dwrena Allen, spokeswoman for the inspector general, said Shanahan has been informed of the investigation. And, in a statement, Pentagon spokesman Tom Crosson said Shanahan welcomes the review.

"Acting Secretary Shanahan has at all times remained committed to upholding his ethics agreement filed with the DoD," said Crosson. "This agreement ensures any matters pertaining to Boeing are handled by appropriate officials within the Pentagon to eliminate any perceived or actual conflict of interest issue(s) with Boeing."

During a Senate hearing last week, Shanahan was asked by U.S. Sen. Richard Blumenthal, D-Conn., about the 737 Max issue. Shanahan said he had not spoken to anyone in the administration about it and had not been briefed on it. Asked whether he favored an investigation into the matter, Shanahan said it was for regulators to investigate.

On Wednesday, Blumenthal said that scrutiny of Shanahan's Boeing ties is necessary. "In fact, it's overdue. Boeing is a behemoth 800-pound gorilla -- raising possible questions of undue influence at DOD, FAA and elsewhere," said Blumenthal.

Shanahan signed an ethics agreement in June 2017, when he was being nominated for the job of deputy defense secretary, a job he held during Mattis' tenure. It outlined the steps he would take to avoid "any actual or apparent conflict of interest," and said he would not participate in any matter involving Boeing.

The CREW ethics complaint, based to a large part on published reports, including one by Politico in January, said Shanahan has made comments praising Boeing in meetings about government contracts, raising concerns about "whether Shanahan, intentionally or not, is putting his finger on the scale when it comes to Pentagon priorities."

One example raised by the complaint is the Pentagon's decision to request funding for Boeing 15EX fighter jets in the 2020 proposed budget. The Pentagon is requesting about $1 billion to buy eight of the aircraft.

Shanahan, 56, joined Boeing in 1986, rose through its ranks and is credited with rescuing a troubled Dreamliner 787 program. He also led the company's missile defense and military helicopter programs.

Trump has seemed attracted to Shanahan partially for his work on one of the president's pet projects -- creating a Space Force. He also has publicly lauded Shanahan's former employer, Boeing, builder of many of the military's most prominent aircraft, including the Apache and Chinook helicopters, the C-17 cargo plane and the B-52 bomber, as well as the iconic presidential aircraft, Air Force One.

This is only the third time in history that the Pentagon has been led by an acting chief, and Shanahan has served in that capacity for longer than any of the others.

Presidents typically take pains to ensure the Pentagon is being run by a Senate-confirmed official, given the grave responsibilities that include sending young Americans into battle, ensuring the military is ready for extreme emergencies like nuclear war and managing overseas alliances that are central to U.S. security.


3 hours ago Why did Trump appoint a former Boeing executive and industry lobbyist to the the Secretary of Defense to replace General Mattis? What in Shananhan's background makes him qualified to lead our nation's military forces? 3 hours ago WITHOUT A DOUBT HE DID., ALSO INVESTIGATE NIKKI HALEY'S APPOINTED ON BOEING'S BOARD TO REPLACE SHANAHAN. FOLLOW THE HOEING KICKBACKS(MONEY), TO DONALD TRUMP'S FAMILY. 3 hours ago Shanahan probably helped Boeing on the promise of a later payback just like Ms. Nikki Haley did while Gov of SC where Boeing built a new plant on her watch. She helped big time to keep the Unions out of the new Boeing plant and now Boeing is going to put her on their board of directors. Nothing like a bit of an obvious payoff. 2 hours ago Reminds me of the Bush Jr days in the White House. During the Gulf War (#2) Vice President #$%$ Cheney awarded oil company Halliburton (Cheney was CEO before accepting the VP job) to deliver meals for the troops. The contract was ?No Bid.? Why was an oil company delivering food to troops with a no bid contract? After Cheney?s Job was over being VP he went back to being CEO at Halliburton and moved Halliburton?s headquarters to Dubai. What an American! 2 hours ago Now we understand why Boeing & the FAA hesitated to ground those planes for few days despite many countries who did grounded those plane which is a precedent for a country to ground & NOT wait for the manufacturer. ONLY after Canada grounded those planes Boeing & the FAA & that's because Canada IS a the #1 flight partner of the US ! 4 hours ago Years ago there was a Boeing procurement scandal and Trump does love the swamp he claims to hate.

[Mar 21, 2019] Well, if you are concerted that Pentagon is run by former Boing official, please remain silent. Trump is as far from a typical President as one can get.

Is there anyone in this administration not under investigation?
Mar 21, 2019 | finance.yahoo.com

Dee 3 hours ago

"President typically take pains to ensure the Pentagon is being run by Senate confirmed official" .Presidents typically don't put incompetent people in cabinet positions or give his kids top security level clearances when they have no need and no experience that requires one...well, no one has accused trump of being presidential or typical - ever

Dianna 4 hours ago

The swamp is now the " Trump Cesspool."

Nonconservative 3 hours ago

Hey deplorables....hows that swamp draining going?...ANYWORD on that great big beautiful health plan with lower premiums and keeping my own doctor?....what about infrastructure?...any idea when the roads in every city will be driveable again...or did we spend all the money from the US govt. paying Trump to stay at his own hotels?........hello?......hello deplorables?......anybody home????

Pierre Escargot 1 hour ago

Pentagon to probe if Shanahan used office to help Boeing. Why not? Robert Mueller's and James Comey turned government service into self-service.

>

[Mar 20, 2019] What will happen if no energy source can cover the decline rate

Notable quotes:
"... "If that was to happen and no energy source can cover the decline rate, wouldn't the world be pretty fucked economically thereafter? Hence one can assume or take a wild ass guess that the decline after peak would resemble something like Venezuela. So not a smooth short % decline rate." ..."
"... Realistically the global economy is already in a tight spot. It started back in 2000 when Oil prices started climbing from about $10/bbl in 1998 to about $30/bbl in 2000. Then the World Major Central banks dropped interest which ended triggering the Housing Boom\Bust and carried Oil prices to $147/bbl. Since then Interest rates have remained extremely low while World Debt has soared (expected to top $250T in 2019). ..."
"... Probably the biggest concern for me is the risking risks for another World war: The US has been targeting all of the major Oil exporters. The two remaining independent targets are Venezuela & Iran. I suspect Venzuela will be the next US take over since it will be a push over compared to Iran. ..."
Mar 16, 2019 | peakoilbarrel.com

Ignored says: 03/16/2019 at 12:42 am

Iron Mike Asked:

"If that was to happen and no energy source can cover the decline rate, wouldn't the world be pretty fucked economically thereafter? Hence one can assume or take a wild ass guess that the decline after peak would resemble something like Venezuela. So not a smooth short % decline rate."

Energy is the economy, The economy cannot function without energy. Thus its logical that a decline in energy supply will reduce the economy. The only way for this not to apply is if there are efficiency gains that offset the decline. But at this point the majority of cost effective efficiency gains are already in place. At this point gains become increasing expensive with much smaller gains (law of diminishing returns). Major infrastructure changes like modernizing rail lines take many decades to implement and also require lots of capital. Real capital needed will be difficult to obtain do to population demographics (ie boomers dependent on massive unfunded entitlement & pensions).

Realistically the global economy is already in a tight spot. It started back in 2000 when Oil prices started climbing from about $10/bbl in 1998 to about $30/bbl in 2000. Then the World Major Central banks dropped interest which ended triggering the Housing Boom\Bust and carried Oil prices to $147/bbl. Since then Interest rates have remained extremely low while World Debt has soared (expected to top $250T in 2019).

My guess is that global economy will wipe saw in the future as demographics, resource depletion (including Oil) and Debt all merge into another crisis. Gov't will act with more cheap and easy credit (since there is no alterative TINA) as well as QE\Asset buying to avoid a global depression. This creating a wipesaw effect that has already been happening since 2000 with Boom Bust cycles. This current cycle has lasted longer because the Major central banks kept interest rates low, When The Fed started QT and raising rate it ended up triggering a major stock market correction In Dec 2018. I believe at this point the Fed will no longer seek any further credit tightening that will trip the economy back into recession. However its likely they the global economy will fall into another recession as consumers & business even without further credit tighting by CB (Central Banks) Because they've been loading up on cheap debt, which will eventually run into issues servicing their debt. For instance there are about 7M auto loans in delinquency in March of 2019. Stock valuations are largely driven by stock buybacks, which is funded by debt. I presume companies are close to debt limit which is likely going to prevent them from purchase more stock back.

Probably the biggest concern for me is the risking risks for another World war: The US has been targeting all of the major Oil exporters. The two remaining independent targets are Venezuela & Iran. I suspect Venzuela will be the next US take over since it will be a push over compared to Iran. I think once all of remaining independent Oil Exports are seized that is when the major powers start fighting each other. However is possible that some of the proxy nations (Pakastan\India),(Israel\Iran), etc trigger direct war between the US, China, and Russia at any time.

Notice that the US is now withdrawing from all its major arms treaties, and the US\China\Russia are now locked into a Arms race. Nuclear powers are now rebuilding their nuclear capacity (more Nukes) and modernizing their deployment systems (Hypersonic, Very large MIRV ICBMS, Undersea drones, Subs, Bombers, etc.

My guess is that nations like the US & China will duke it out before collapsing into the next Venezuela. If my assessment is correct, The current state of Venezuela will look like the garden of Eden compared to the aftermath of a full scale nuclear war.

Currently the Doomsday clock (2019) is tied with 1953 at 2 minutes:

https://thebulletin.org/doomsday-clock/past-announcements/

1953 was the height of the cold war. I presume soon the Doomsday clock will be reduced to less than 2 Minutes later this year, due to recent events in the past few weeks.

https://thebulletin.org/doomsday-clock/current-time/

"the world's nuclear nations proceeded with programs of "nuclear modernization" that are all but indistinguishable from a worldwide arms race, and the military doctrines of Russia and the United States have increasingly eroded the long-held taboo against the use of nuclear weapons."

" The current international security situation -- what we call the "new abnormal" -- has extended over two years now. It's a state as worrisome as the most dangerous times of the Cold War, a state that features an unpredictable and shifting landscape of simmering disputes that multiply the chances for major military conflict to erupt."

[Mar 19, 2019] Elizabeth Warren had a good speech at UC-Berkeley. She focused on the middle class family balance sheet and risk shifting

Mar 19, 2019 | www.nakedcapitalism.com

rc, March 18, 2019 at 4:01 pm

Elizabeth Warren had a good speech at UC-Berkeley. She focused on the middle class family balance sheet and risk shifting. Regulatory policies and a credit based monetary system have resulted in massive real price increases in inelastic areas of demand such as healthcare, education and housing eroding purchasing power.

Further, trade policies have put U.S. manufacturing at a massive disadvantage to the likes of China, which has subsidized state-owned enterprises, has essentially slave labor costs and low to no environmental regulations. Unrestrained immigration policies have resulted in a massive supply wave of semi- and unskilled labor suppressing wages.

Recommended initial steps to reform:

1. Change the monetary system-deleverage economy with the Chicago Plan (100% reserve banking) and fund massive infrastructure lowering total factor costs and increasing productivity. This would eliminate

2. Adopt a healthcare system that drives HC to 10% to 12% of GDP. France's maybe? Medicare model needs serious reform but is great at low admin costs.

3. Raise tariffs across the board or enact labor and environmental tariffs on the likes of China and other Asian export model countries.

4. Take savings from healthcare costs and interest and invest in human capital–educational attainment and apprenticeships programs.

5. Enforce border security restricting future immigration dramatically and let economy absorb labor supply over time.

Video of UC-B lecture: https://www.youtube.com/watch?v=akVL7QY0S8A&feature=youtu.be

Jerry B, March 18, 2019 at 5:26 pm

As I have said in other comments, I like Liz Warren a lot within the limits of what she is good at doing (i.e. not President) such as Secretary of the Treasury etc. And I think she likes the media spotlight and to hear herself talk a little to much, but all quibbling aside, can we clone her??? The above comment and video just reinforce "Stick to what you are really good at Liz!".

I am not a Liz Warren fan boi to the extent Lambert is of AOC, but it seems that most of the time when I hear Warren, Sanders, or AOC say something my first reaction is "Yes, what she/he said!".

[Mar 18, 2019] Boeing (BA) Secures $250M Deal to Support LRSO Cruise Missile

Mar 18, 2019 | finance.yahoo.com

Zacks Equity Research , Zacks March 18, 2019

The Boeing Company BA recently won a $250 million contract to offer weapon system integration for the Long Range Stand-Off (LRSO) Cruise Missile. Work related to the deal is scheduled to be completed by Dec 31, 2024.

The contract was awarded by the Air Force Nuclear Weapons Center, Eglin Air Force Base, Florida. Per the terms of the deal, this aerospace giant will provide aircraft and missile carriage equipment development and modification, engineering, testing, software development, training, facilities and support necessary to fully integrate the LRSO Cruise Missile on the B-52H bomber platform.

Attributes of LRSO

The LRSO is a nuclear-armed air-launched cruise missile, under development. It is set to replace the current AGM-86 air launched cruise missile (ALCM). LRSO, might be up to about 50% longer than Joint Air-to-Surface Standoff Missile-Extended Range (JASSM-ER) and still be suitable for internal carriage by the B-2 and B-52.

Our View

AGM-86 ALCM has been serving the U.S. Air Force quite efficiently. However, with increasingly sophisticated air defense systems developed by America's nemeses, especially Russia, demand for a new stealth nuclear-armed cruise missile capable of either destroying these defenses or penetrating them has been increasing consistently. In this scenario, the LRSO comes as the most credible stealthy and low-yield option available to the United States (according to Strategic Studies Quarterly Report).

Boeing's B-52, which has been the U.S. Air Force's one of the most preferred bombers, is completely dependent on long-range cruise missiles and cannot continue in the nuclear mission beyond 2030 without LRSO. As B-52 is expected to play a primary role in the U.S. nuclear mission for at least next decade and ALCM is already well beyond its originally planned end of life, we may expect more contracts similar to the latest one to usher in from the Pentagon in the coming days. This, in turn, should prove conducive to Boeing.

Price Performance

In a year's time, shares of Boeing have gained about 16.5% against the industry's 2.2% decline.

[Mar 18, 2019] A Recession Is Coming, And Maybe a Bear Market, Too by Gary Shilling

My be so, but it looks like Trump is adamant to keep stocks high flying. Such a S&500 promoter in chief...
Mar 18, 2019 | finance.yahoo.com

I first suggested the U.S. economy was headed toward a recession more than a year ago, and now others are forecasting the same. I give a business downturn starting this year a two-thirds probability.

The recessionary indicators are numerous. Tighter monetary policy by the Federal Reserve that the central bank now worries it may have overdone. The near-inversion in the Treasury yield curve. The swoon in stocks at the end of last year. Weaker housing activity. Soft consumer spending. The tiny 20,000 increase in February payrolls, compared to the 223,000 monthly average gain last year. Then there are the effects of the deteriorating European economies and decelerating growth in China as well as President Donald Trump's ongoing trade war with that country.

There is, of course, a small chance of a soft landing such as in the mid-1990s. At that time, the Fed ended its interest-rate hiking cycle and cut the federal funds rate with no ensuing recession. By my count, the other 12 times the central bank restricted credit in the post-World War II era, a recession resulted.

It's also possible that the current economic softening is temporary, but a revival would bring more Fed restraint. Policy makers want higher rates in order to have significant room to cut in the next recession, and the current 2.25 percent to 2.50 percent range doesn't give them much leeway. The Fed also dislikes investors' zeal for riskier assets, from hedge funds to private equity and leveraged loans, to say nothing of that rankest of rank speculations, Bitcoin. With a resumption in economic growth, a tight credit-induced recession would be postponed until 2020.

"Recession" conjures up specters of 2007-2009, the most severe business downturn since the 1930s in which the S&P 500 Index plunged 57 percent from its peak to its trough. The Fed raised its target rate from 1 percent in June 2004 to 5.25 percent in June 2006, but the main event was the financial crisis spawned by the collapse in the vastly-inflated subprime mortgage market.

Similarly, the central bank increased its policy rate from 4.75 percent in June 1999 to 6.5 percent in May 2000. Still, the mild 2001 recession that followed was principally driven by the collapse in the late 1990s dot-com bubble that pushed the tech-laden Nasdaq Composite Index down by a whopping 78 percent.

The 1973-1975 recession, the second deepest since the 1930s, resulted from the collapse in the early 1970s inflation hedge buying of excess inventories. That deflated the S&P 500 by 48.2 percent. The federal funds rate hike from 9 percent in February 1974 to 13 percent in July of that year was a minor contributor.

The remaining eight post-World War II recessions were not the result of major financial or economic excesses, but just the normal late economic cycle business and investor overconfidence. The average drop in the S&P 500 was 21.2 percent.

At present, I don't see any major economic or financial bubbles that are just begging to be pricked. The only possibilities are excess debt among U.S. nonfinancial corporations and the heavy borrowing in dollars by emerging-market economies in the face of a rising greenback. Housing never fully recovered from the subprime mortgage debacle. The financial sector is still deleveraging in the wake of the financial crisis. Consumer debt remains substantial but well off its 2008 peak in relation to household income.

Consequently, the recession I foresee will probably be accompanied by about an average drop in stock prices. The S&P 500 fell 19.6 percent from Oct. 3 to Dec. 24, but the recovery since has almost eliminated that loss. A normal recession-related decline of 21.2 percent – meeting the definition of a bear market – from that Oct. 3 top would take it to 2,305, down about 18 percent from Friday's close, but not much below the Christmas Eve low of 2,351.

A. Gary Shilling is president of A. Gary Shilling & Co., a New Jersey consultancy, a Registered Investment Advisor and author of "The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation." Some portfolios he manages invest in currencies and commodities.


The_Mick, 9 hours ago

"I first suggested the U.S. economy was headed toward a recession more than a year ago, and now others are forecasting the same."
And yet you were WRONG a year ago! You don't get excused for last year just because you're still predicting it!

Of course a recession is coming - maybe this year but maybe not for 10 years. Recessions happen from time to time but they are not predictable because economics has too many variables we can't quantify.

And do you think you're impressing anyone by adding "maybe a bear market too"???

What do you mean "maybe"? If there's a recession then, of course, our slightly overpriced market will experience a bear market! DUH! Terry7 hours ago I expected a deeper understanding from My Shilling. This article seems very week. If he had submitted it as an an economic paper I don't think he would get high marks. Many historical economic facts glossed over or omitted. Terrible job of describing the causes of the early 1970s world recession . As for a recession without a bear market.....? Don't make me laugh.... And buy the way we are already in a bear market !

This decade is a lot like the 1990s in that it has been a nice long run. But no business cycle goes on for every. It's just does not work like that because it is cycle in nature. After a ten year run in stocks it is less risky for serious money to be out of them that in them. That is why the bond market is so solid right not. Because it's not work risking all your cash for maybe a couple more percent when you have already make 300% or more..

The western economies are just running off free or very cheap money being constantly pumped into investment assets by the central banks. There are no real guts to them. USA, EU and Japan have been running the printing presses with abandonment. At the same time China and India are becoming the industrial power houses because they had over one billion people who will work for next to nothing.

Because every investment asset is pumped up of "free" money in the form of very low interest rate loans from the FED etc. Things are very fragile. And someone has give Powel this "reality check". So the FED does a 180 on policy and now looks like a Wall St poodle. And they speculators have gone back to pumping FANG stocks

But they all know this market is very pumped up and fragile. And they all keep their stop loss triggers very tight. That is why it falls so dramatically when it takes a hit. Like OMG the FED funds rate going from 2.75% to 3.00% !! So tread very carefully . The cracks are all around

Salo, 7 hours ago

I am only surprised when I read that another recession is not coming.

Almost 10 years since the "end" of the Great Recession, and all it took was $22 Trillion of borrowed money, a $4 Trillion in the red Fed balance sheet and interest rates just barely north of 2%. Oh, and one big beautiful corporate tax cut. Who knew expansionary economies were so uncomplicated?

Ricardo, 6 hours ago

I remember reading Gary Shilling's articles a few years after the Crash of 2009 when he attempted to prove without a doubt that market returns would be sub-par for decades to come. He was wrong and you would have missed out on the longest and biggest bull market in history. Be wary of what Gary has to tell you.

[Mar 18, 2019] Boeing Drops as Role in Vetting Its Own Jets Comes Under Fire

Mar 18, 2019 | finance.yahoo.com

Boeing Co. tumbled early Monday on heightened scrutiny by regulators and prosecutors over whether the approval process for the company's 737 Max jetliner was flawed.

A person familiar with the matter on Sunday said that the U.S. Transportation Department's Inspector General was examining the plane's design certification before the second of two deadly crashes of the almost brand-new aircraft.

Separately, the Wall Street Journal reported that a grand jury in Washington, D.C., on March 11 issued a subpoena to at least one person involved in the development process of the Max. And a Seattle Times investigation found that U.S. regulators delegated much of the plane's safety assessment to Boeing and that the company in turn delivered an analysis with crucial flaws.

Boeing dropped 2.8 percent to $368.53 before the start of regular trading Monday in New York, well below any closing price since the deadly crash of Ethiopian Airlines Flight 302 on March 10. Ethiopia's transport minister said Sunday that flight-data recorders showed "clear similarities" between the crashes of that plane and Lion Air Flight 610 last October.

U.S. Federal Aviation Administration employees warned as early as seven years ago that Boeing had too much sway over safety approvals of new aircraft, prompting an investigation by Transportation Department auditors who confirmed the agency hadn't done enough to "hold Boeing accountable."

The 2012 investigation also found that discord over Boeing's treatment had created a "negative work environment" among FAA employees who approve new and modified aircraft designs, with many of them saying they'd faced retaliation for speaking up. Their concerns pre-dated the 737 Max development.

In recent years, the FAA has shifted more authority over the approval of new aircraft to the manufacturer itself, even allowing Boeing to choose many of the personnel who oversee tests and vouch for safety. Just in the past few months, Congress expanded the outsourcing arrangement even further.

"It raises for me the question of whether the agency is properly funded, properly staffed and whether there has been enough independent oversight," said Jim Hall, who was chairman of the National Transportation Safety Board from 1994 to 2001 and is now an aviation-safety consultant.

Outsourcing Safety

At least a portion of the flight-control software suspected in the 737 Max crashes was certified by one or more Boeing employees who worked in the outsourcing arrangement, according to one person familiar with the work who wasn't authorized to speak about the matter.

The Wall Street Journal first reported the inspector general's latest inquiry. The watchdog is trying to assess whether the FAA used appropriate design standards and engineering analysis in approving the 737 Max's anti-stall system, the newspaper said.

Both Boeing and the Transportation Department declined to comment about that inquiry.

In a statement on Sunday, the agency said its "aircraft certification processes are well established and have consistently produced safe aircraft designs," adding that the "737 Max certification program followed the FAA's standard certification process."

The Ethiopian Airlines plane crashed minutes after it took off from Addis Ababa, killing all 157 people on board. The accident prompted most of the world to ground Boeing's 737 Max 8 aircraft on safety concerns, coming on the heels of the October crash of a Max 8 operated by Indonesia's Lion Air that killed 189 people. Much of the attention focused on a flight-control system that can automatically push a plane into a catastrophic nose dive if it malfunctions and pilots don't react properly.

In one of the most detailed descriptions yet of the relationship between Boeing and the FAA during the 737 Max's certification, the Seattle Times quoted unnamed engineers who said the planemaker had understated the power of the flight-control software in a System Safety Analysis submitted to the FAA. The newspaper said the analysis also failed to account for how the system could reset itself each time a pilot responded -- in essence, gradually ratcheting the horizontal stabilizer into a dive position.

Software Fix

Boeing told the newspaper in a statement that the FAA had reviewed the company's data and concluded the aircraft "met all certification and regulatory requirements." The company, which is based in Chicago but designs and builds commercial jets in the Seattle area, said there are "some significant mischaracterizations" in the engineers' comments.

[Mar 17, 2019] OPEC Threatens To Kill US Shale

Mar 17, 2019 | finance.yahoo.com

The Organization of Petroleum Exporting Countries will once again become a nemesis for U.S. shale if the U.S. Congress passes a bill dubbed NOPEC, or No Oil Producing and Exporting Cartels Act, Bloomberg reported this week , citing sources present at a meeting between a senior OPEC official and U.S. bankers.

The oil minister of the UAE, Suhail al-Mazrouei, reportedly told lenders at the meeting that if the bill was made into law that made OPEC members liable to U.S. anti-cartel legislation, the group, which is to all intents and purposes indeed a cartel, would break up and every member would boost production to its maximum.

This would be a repeat of what happened in 2013 and 2014, and ultimately led to another oil price crash like the one that saw Brent crude and WTI sink below US$30 a barrel. As a result, a lot of U.S. shale-focused, debt-dependent producers would go under.

Bankers who provide the debt financing that shale producers need are the natural target for opponents of the NOPEC bill. Banks got burned during the 2014 crisis and are still recovering and regaining their trust in the industry. Purse strings are being loosened as WTI climbs closer to US$60 a barrel, but lenders are certainly aware that this is to a large extent the result of OPEC action: the cartel is cutting production again and the effect on prices is becoming increasingly visible.

Related: Pakistan Aims To Become A Natural Gas Hotspot

Indeed, if OPEC starts pumping again at maximum capacity, even without Iran and Venezuela, and with continued outages in Libya, it would pressure prices significantly, especially if Russia joins in. After all, its state oil companies have been itching to start pumping more.

The NOPEC legislation has little chance of becoming a law. It is not the first attempt by U.S. legislators to make OPEC liable for its cartel behavior, and none of the others made it to a law. However, Al-Mazrouei's not too subtle threat highlights the weakest point of U.S. shale: the industry's dependence on borrowed money.

The issue was analyzed in depth by energy expert Philip Verleger in an Oilprice story earlier this month and what the problem boils down to is too much debt. Shale, as Total's chief executive put it in a 2018 interview with Bloomberg, is very capital-intensive. The returns can be appealing if you're drilling and fracking in a sweet spot in the shale patch. They can also be improved by making everything more efficient but ultimately you'd need quite a lot of cash to continue drilling and fracking, despite all the praise about the decline in production costs across shale plays.

The fact that a lot of this cash could come only from banks has been highlighted before: the shale oil and gas industry faced a crisis of investor confidence after the 2014 crash because the only way it knew how to do business was to pump ever-increasing amounts of oil and gas. Shareholder returns were not top of the agenda. This had to change after the crash and most of the smaller players -- those that survived -- have yet to fully recover. Free cash remains a luxury.

Related: The EIA Cuts U.S. Oil Output Projections

The industry is aware of this vulnerability. The American Petroleum Institute has vocally opposed NOPEC, almost as vocally as OPEC itself, and BP's Bob Dudley said this week at CERAWeek in Houston that NOPEC "could have severe unintended consequences if it unleashed litigation around the world."

"Severe unintended consequences" is not a phrase bankers like to hear. Chances are they will join in the opposition to the legislation to keep shale's wheels turning. The industry, meanwhile, might want to consider ways to reduce its reliance on borrowed money, perhaps by capping production at some point before it becomes forced to do it.

By Irina Slav for Oilprice.com

[Mar 10, 2019] Bond-Market Inflation Skeptics See Little to Fear in Coming Data by Emily Barrett

Mar 10, 2019 | finance.yahoo.com

"At this point in the cycle, a pickup in inflation will generally lead to corporate margin compression, which is potentially more supportive of maintaining a long duration stance," Bartolini, lead portfolio manager for U.S. core bond strategies, said after the jobs figures. He sees annual CPI remaining around this report's consensus of 1.6 percent -- the slowest since 2016 -- for a while.

Benchmark 10-year yields enter the week at 2.63 percent, close to the lowest level in two months. In the interest-rate options market, traders have been ramping up positions that target lower yields in five- and 10-year notes.

DougDoug,

The Fed is pretty much DONE with rate hikes, as paying the INTEREST on, 22 Trillion in Debt will get,.. UGLIER and UGLIER ! Especially with, all the new,.. Tax and SPEND Demo'Rat Liberals, coming into, Congress ! "We the People", will be,.. TOAST !!

I'm HOLDING, my "Floating Rate" senior secured, Bond CEF's and my Utility and Tech, CEF's, too ! Drawing NICE Dividends,.. Monthly !

The World is NOT ending for, the USA,.. THANKS,.. to Trump !

[Mar 10, 2019] U.S. SEC to review stock trading rules in big potential shakeup by John McCrank

Mar 10, 2019 | finance.yahoo.com

NEW YORK (Reuters) - The U.S. Securities and Exchange Commission is launching a review of the main set of rules governing stock trading, opening the door to the biggest potential changes in a decade-and-a-half, the head of the agency said on Friday.

The possible changes are aimed at making it easier to trade illiquid stocks, making more trading information available to investors, and improving the speed and quality of public data feeds needed for trading.

The SEC in 2005 adopted a broad framework called Regulation National Market System that was largely aimed at ensuring retail investors get the best price possible and preventing trades from being executed at prices that are inferior to bids and offers displayed on other trading venues.

Since then, faster, more sophisticated technology has put a bigger focus on rapid-fire, high-speed trading. There has also been an influx of new electronic stock exchanges, fragmenting liquidity and increasing costs for brokers around exchange connectivity and market data needed to fuel algorithmic trading.

"It is clear that the market challenges we faced in the early 2000s are not the same as the issues that we confront over a decade later," Jay Clayton, chairman of the SEC, said at an event in New York.

To get a better grasp of current market issues, the SEC held a series of roundtable discussions with industry experts last year that led to potential rule-making recommendations around thinly-traded securities, combating retail fraud, and market data and market access, Clayton said.

Some areas the SEC is looking at include:

The 2019 review follows an active 2018 for the SEC.

The regulator adopted rules to increase transparency around broker-dealer stock order routing and private off-exchange trading venues. It also ordered a pilot program to test banning lucrative rebate payments that exchanges make to brokers for liquidity-adding stock orders.

(Reporting by John McCrank; Editing by Tom Brown)

https://s.yimg.com/rq/darla/3-6-3/html/r-sf.html

Sign in to post a message. 17 viewing1 person reacting

judi 1 hour ago What about Naked Shorting? It is out of control and no one including the SEC is doing anything to stop it??

Tara 41 minutes ago The rules implemented in 2005 did nothing to help retail traders with accounts under 25K.
When are you going to address the real issue of stock price manipulation? Also, bring back the uptick rule. And while you are at it, we need rules to punish dishonest analysts who publish opinions of price that are so far off the charts, they never reflect actual earnings often announced days later.

Rob 38 minutes ago They are going to make it more in favor of big boys aka the banks

[Mar 10, 2019] Oil Market About To Enter Supply Deficit

Mar 10, 2019 | finance.yahoo.com

• The OPEC+ cuts have likely already tipped the oil market into a supply deficit, according to Barclays.
• OECD inventories fell dramatically over the past two years, and came back to the five-year average in 2018, where they have mostly remained.
• The OPEC+ cuts quickly headed off a renewed surplus, and will likely drain inventories over the course of this year. Inventories are set to fall below the five-year average.
• Still, Barclays says the market return to balance or even a small surplus in the second half of 2019.

2. China's oil demand not collapsing

<img src="https://s.yimg.com/it/api/res/1.2/.fxgVesli1gE.apMTKU4BQ--~A/YXBwaWQ9eW5ld3M7c209MTt3PTQ1MTtoPTMxNg--/http://media.zenfs.com/en-US/homerun/oilprice.com/43a64118adc9d08dff397f7e71a52626" itemprop="url"/>

• Some of the more catastrophic oil forecasts for 2019 centered on a sharp slowdown in Chinese demand.
• China's car sales actually contracted year-on-year over the last few months, and car sales could continue to fall this year.
• But China's demand, while slowing relative to years past, is still expected to grow by 0.5 mb/d in 2019, according to Barclays, the same rate of expansion as 2018.
• Next year, however, China's demand growth could slow a bit more, dipping below 0.4 mb/d, continuing a gradual deceleration in demand growth.

[Mar 05, 2019] Democratic senator to introduce tax on trading [Video]

Mar 05, 2019 | finance.yahoo.com

CNBC Videos

Senator Brian Schatz (D-Hawaii) is expected to introduce a new tax bill today. The senator says his bill would tax the sale of stocks, bonds and derivatives at a 0.1 rate. It would apply to any transaction in the United States. The senator says his proposal would clamp down on speculation and some high frequency trading that artificially creates more market volatility.

[Feb 27, 2019] Angry Bear " Mars Descending U.S. Security Alliances and the International Status of the Dollar

Feb 27, 2019 | angrybearblog.com

Mars Descending? U.S. Security Alliances and the International Status of the Dollar

Dan Crawford | February 26, 2019 6:11 am

US/Global Economics by Joseph Joyce

Mars Descending? U.S. Security Alliances and the International Status of the Dollar

A decade after the global financial crisis, the dollar continues to maintain its status as the chief international currency. Possible alternatives such as the euro or renminbi lack the broad financial markets that the U.S. possesses, and in the case of China the financial openness that allows foreign investors to enter and exit at will. Any change in the dollar's predominance, therefore, will likely occur in response to geopolitical factors.

Linda S. Goldberg and Robert Lerman of the Federal Reserve Bank of New York provide an update on the dollar's various roles. The dollar remains the dominant reserve currency, with a 63% share of global foreign exchange reserves, and serves as the anchor currency for about 65% of those countries with fixed exchange rates. The dollar is also widely utilized for private international transactions. It is used for the invoicing of 40% of the imports of countries other than the U.S., and about half of all cross-border bank claims are denominated in dollars.

This wide use of the dollar gives the U.S. government the ability to fund an increasing debt burden at relatively low interest rates. Moreover, as pointed out by the New York Times , the Trump administration can enforce its sanctions on countries such as Iran and Venezuela because global banks cannot function without access to dollars. While European leaders resent this dependence, they have yet to evolve a financial system that could serve as a viable alternative.

The dollar's continued predominance may also reflect other factors. Barry Eichengreen of UC-Berkeley and Arnaud J. Mehl and Livia Chitu of the European Central Bank have examined the effect of geopolitical factors -- the "Mars hypothesis" -- versus pecuniary factors -- the "Mercury hypothesis" -- in determining the currency composition of the international reserves of 19 countries during the period of 1890-1913. Official reserves during this time could be held in the form of British sterling, French francs, German marks, U.S. dollars and Dutch guilders.

The authors find evidence that both sets of factors played roles. For example, a military alliance between a reserve issuing country and one that held reserves would boost the share of the currency of the reserve issuer by almost 30% if there was a military alliance between these nations. They conjecture that the reserve issuer may have used security guarantees to obtain financing from the security-dependent nation, or to serve the role of financial center when the allied country needed to borrow internationally.

Eichengreen, Mehl and Chitu then use their parameter estimates to measure by how much the dollar share of the international reserves of nations that currently have security arrangements with the U.S. would fall if such arrangements no longer existed. South Korea, for example, currently holds 84% of its foreign reserves in dollars; this share would fall to 54% in the absence of its security alliance with the U.S. Similarly, the dollar component of German foreign exchange reserves would decline from 98% to 68%.

In previous eras, such calculations might be seen as interesting only for providing counterfactuals. But the Trump administration seems intent on cutting back on America's foreign military commitments. The U.S. and Korea, for example, have not negotiated a renewal of the Special Measures Agreement to finance the placement of U.S. troops in Korea. German Chancellor Angela Merkel has defended her country's role in NATO in the face of criticism from President Trump that Germany must spend more on defense expenditures. The possibility of a pan-European army to serve as an alternative security guarantee is no longer seen as totally far-fetched.

The dollar may be safe from replacement on economic grounds. But the imminent shrinkage of the British financial sector due to the United Kingdom's withdrawal from the European Union shows that political decisions follow their own logic, sometimes without regard for the economic consequences. If the dollar lose some of its dominance, it may be because of self-inflicted wounds.

[Feb 17, 2019] The Subtle Signal That the Bull Market Could Soon End

Feb 17, 2019 | finance.yahoo.com

A great predictor

What is this amazingly accurate indicator of a coming recession? The unemployment rate trend. I first came across this idea on the Philosophical Economics blog , whose author has adopted the pseudonym Jesse Livermore, in honor of the 20th-century investor.

This Livermore conducted a rigorous analysis in search of the perfect recession indicator. He evaluated several potential signals, including real retail sales growth, industrial production growth, real S&P 500 earnings-per-share growth, employment growth, real personal income growth, and housing starts growth. While some of these indicators were promising, none of them compared to the predictive ability of the unemployment rate trend.

Note that it's the unemployment rate trend that's the great predictor of a recession and not the unemployment rate itself. The unemployment rate is a lagging indicator of a recession. In other words, the rate goes up significantly only after a recession is in effect.

But before the unemployment rate moves significantly higher, the unemployment rate trend must change from downward to upward. And that's what Livermore found was a great leading indicator, or predictor, of an economic recession. This change in trend is determined by simply seeing when the latest unemployment rate is higher than the 12-month simple moving average of previous monthly unemployment rates.

So how well does this predictor work? Over the last 70 years, a change in the unemployment rate trend predicted every recession that occurred. In two cases, the recession came immediately after the change in the unemployment rate trend. In other cases, the trend changed several months in advance of the start of a recession.

The U.S. hasn't experienced an economic recession since the Great Recession of 2008 and 2009. Unemployment rates remain low. However, the U.S. unemployment rate for January, which was reported in early February, moved higher than the 12-month simple moving average of previous monthly unemployment rates.

The subtle signal that has proven to be accurate at predicting the onset of a recession has flashed. And if a recession is indeed on the way, the bull market will soon end.

One drawback

Is there a catch? Yep. While the unemployment rate trend has been uncannily accurate at indicating recessions, it also sometimes provides a false signal. In other words, the trend changes but a recession doesn't occur.

This scenario happened as recently as September 2016. The unemployment rate rose above the 12-month simple moving average for previous unemployment rates for one month. A recession didn't ensue, though, and the bull market kept on trucking.

[Feb 17, 2019] Gundlach Last year's market selloff was just a 'taste of things to come' by Julia La Roche

Feb 17, 2019 | finance.yahoo.com

Late last year, the S&P 500 ( ^GSPC ) tumbled 20% from its Oct. 3 intraday high to its Dec. 24 intraday. And despite the market's sharp 17% rally from those lows, Bond king Jeffrey Gundlach says we're in a bear market and that we could see new lows.

"A bear market has nothing to do with this 20% arbitrary thing," Gundlach, the CEO of $121 billion DoubleLine Capital, told Yahoo Finance in an exclusive interview. "It has to do with something crazy happening first, and then the crazy thing gives it up. And yet more traditional things continue to march on. But one by one they give it up." December's dip buyers will sell at lower levels

The market has since been saved by the Fed's pivot to be "patient" on monetary policy and the subsequent rally in the bond market, all of which has kept interest rates low. For now.

"If the long end of rates starts to rise, as I expect, and if we break through 3.50% on the 30-year, I think it's over," Gundlach added. "Because the competition from the bond market, particularly against a climate of limiting one of the engines of stock price appreciation, which is buybacks , is thought to be potentially in jeopardy."

Gundlach believes that investors who bought during December's dip will likely end up selling at a lower point.

See also

[Feb 15, 2019] CAPE Fear The Bulls Are Wrong. Shiller's Measure Is the Real Deal

Notable quotes:
"... The CAPE aims to correct for those distortions. It smooths the denominator by using not current profits, but a ten-year average, of S&P 500 earnings-per-share, adjusted for inflation. Today, the CAPE for the 500 reads 29.7. It's only been that high in two previous periods: Before the crash of 1929, and during the tech bubble from 1998 to 2001, suggesting that when stocks are this expensive, a downturn may be at hand. ..."
"... is 36.1% higher ..."
"... Here's the problem that the CAPE highlights. Earnings in the past two decades have been far outpacing GDP; in the current decade, they've beaten growth in national income by 1.2 points (3.2% versus 2%). That's a reversal of long-term trends. ..."
"... Right now, earnings constitute an unusually higher share of national income. That's because record-low interest rates have restrained cost of borrowing for the past several years, and companies have managed to produce more cars, steel and semiconductors while shedding workers and holding raises to a minimum. ..."
"... t's often overlooked that although profits grow in line with GDP, which by the way, is now expanding a lot more slowly than two decades ago, earnings per share ..."
"... The reason is dilution. Companies are constantly issuing new shares, for everything from expensive acquisitions to stock option redemptions to secondary offerings. New enterprises are also challenging incumbents, raising the number of shares that divide up an industry's profits faster than those profits are increasing. Since total earnings grow with GDP, and the share count grows faster than profits, it's mathematically impossible for EPS growth to consistently rise in double digits, although it does over brief periods––followed by intervals of zero or minuscule increases. ..."
"... The huge gap between the official PE of 19 and the CAPE at 30 signals that unsustainably high profits are artificially depressing the former. and that profits are bound to stagnate at best, and more likely decline. ..."
"... In an investing world dominated by hype, the CAPE is a rare truth-teller ..."
Feb 15, 2019 | finance.yahoo.com

For the past half-decade, a controversial yardstick called the CAPE has been flashing red, warning that stock prices are extremely rich, and vulnerable to a sharp correction. And over the same period, the Wall Street bulls and a number of academics led by Jeremy Siegel of the Wharton School, have been claiming that CAPE is a kind of fun house mirror that makes reasonable valuations appear grotesquely stretched.

CAPE, an acronym "Cyclically-adjusted price-to-earnings ratio," was developed by economist Robert Shiller of Yale to correct for a flaw in judging where stock prices stand on the continuum from dirt cheap to highly expensive based on the current P/E ratio. The problem: Reported earnings careen from lofty peaks to deep troughs, so that when they're in a funk, multiples jump so high that shares appear overpriced when they're really reasonable, and when profits explode, they can skew the P/E by creating the false signal that they're a great buy.

The CAPE aims to correct for those distortions. It smooths the denominator by using not current profits, but a ten-year average, of S&P 500 earnings-per-share, adjusted for inflation. Today, the CAPE for the 500 reads 29.7. It's only been that high in two previous periods: Before the crash of 1929, and during the tech bubble from 1998 to 2001, suggesting that when stocks are this expensive, a downturn may be at hand.

The CAPE's critics argue that its adjusted PE is highly inflated, because the past decade includes a portion of the financial crisis that decimated earnings. That period was so unusual, their thinking goes, that it makes the ten-year average denominator much too low, producing what looks like a dangerous number when valuations are actually reasonable by historical norms. They point to the traditional P/E based on 12-month trailing, GAAP profits. By that yardstick today's multiple is 19.7, a touch above the 20-year average of 19, though exceeding the century-long norm of around 16.

I've run some numbers, and my analysis indicates that the CAPE doesn't suffer from those alleged shortcoming, and presents a much truer picture than today's seemingly reassuring P/E. Here's why. Contrary to its opponents' assertions, the CAPE's earnings number is not artificially depressed. I calculated ten year average of real profits for six decade-long periods starting in February of 1959 and ending today, (the last one running from 2/2009 to 2/2019). On average, the adjusted earnings number rose 22% from one period to the next. The biggest leap came from 1999 to 2009, when the 10-year average of real earnings advanced 42%.

So did profits since then languish to the point where the current CAPE figure is unrealistically big? Not at all. The Shiller profit number of $91 per share is 36.1% higher than the reading for the 1999 to 2009 period, when it had surged a record 40%-plus over the preceding decade. If anything, today's denominator looks high, meaning the CAPE of almost 30 is at least reasonable, and if anything overstates what today's investors will reap from each dollar they've invested in stocks.

Indeed, in the latest ten-year span, adjusted profits have waxed at a 3.2% annual pace, slightly below the 3.6% from 1999 to 2009, but far above the average of 1.6% from 1959 to 1999.

Here's the problem that the CAPE highlights. Earnings in the past two decades have been far outpacing GDP; in the current decade, they've beaten growth in national income by 1.2 points (3.2% versus 2%). That's a reversal of long-term trends. Over our entire 60 year period, GDP rose at 3.3% annually, and profits trailed by 1.3 points, advancing at just 2%. So the rationale that P/Es are modest is based on the assumption that today's earnings aren't unusually high at all, and should continue growing from here, on a trajectory that outstrips national income.

It won't happen. It's true that total corporate profits follow GDP over the long term, though they fluctuate above and below that benchmark along the way. Right now, earnings constitute an unusually higher share of national income. That's because record-low interest rates have restrained cost of borrowing for the past several years, and companies have managed to produce more cars, steel and semiconductors while shedding workers and holding raises to a minimum.

Now, rates are rising and so it pay and employment, forces that will crimp profits. I t's often overlooked that although profits grow in line with GDP, which by the way, is now expanding a lot more slowly than two decades ago, earnings per share grow a lot slower, as I've shown, lagging by 1.3 points over the past six decades.

An influential study from 2003 by Rob Arnott, founder of Research Affiliates, and co-author William J. Bernstein, found that EPS typically trails overall profit and economic growth by even more, an estimated 2 points a year.

The reason is dilution. Companies are constantly issuing new shares, for everything from expensive acquisitions to stock option redemptions to secondary offerings. New enterprises are also challenging incumbents, raising the number of shares that divide up an industry's profits faster than those profits are increasing. Since total earnings grow with GDP, and the share count grows faster than profits, it's mathematically impossible for EPS growth to consistently rise in double digits, although it does over brief periods––followed by intervals of zero or minuscule increases.

The huge gap between the official PE of 19 and the CAPE at 30 signals that unsustainably high profits are artificially depressing the former. and that profits are bound to stagnate at best, and more likely decline. The retreat appears to have already started. The Wall Street "consensus" Wall Street earnings forecast compiled by FactSet calls for an EPS decline of 1.7% for the first quarter of 2017, and zero inflation-adjusted gains for the first nine months of the year.

In an investing world dominated by hype, the CAPE is a rare truth-teller .

[Feb 15, 2019] Oil Rises as Aramco Said to Cut Output at Biggest Offshore Field

KSA and Russia together can drive oil price to anywhere they wish... Wall street sharks can do nothing with those giants if they cut oil output.
Notable quotes:
"... Russia plans to accelerate the output cuts it agreed to with OPEC+. ..."
Feb 15, 2019 | finance.yahoo.com

Oil climbed as Saudi Arabia was said to curtail some output from its Safaniyah offshore oil field, the largest in the world.

Futures in New York rose as much as 2.2 percent Friday, pushing toward its biggest weekly gain in a month. Saudi Arabia was said to trim supply from Safaniyah to repair a damaged power cable, while Russia plans to accelerate the output cuts it agreed to with OPEC+.

... ... ...

Saudi Arabian Oil Co.'s Safaniyah field has the capacity to pump 1.2 million to 1.5 million barrels of crude a day, and is a major component of the Arab Heavy grade. The cable was damaged in an accident about two weeks ago and repairs are expected to be completed by early March, people with knowledge of the matter said.

[Feb 15, 2019] Losing a job in your 50s is especially tough. Here are 3 steps to take when layoffs happen by Peter Dunn

Unemployment usually is just six month or so; this is the time when you can plan you "downsizing". You do not need to rush.
Often losing job logically requires selling your home and moving to a modest apartment, especially if no children are living with you. At 50 it is abut time... You need to do it later anyway, so why not now.
But that's a very tough decision to make... Still, if the current housing market is close to the top, this is one of the best moves you can make. Getting from your house several hundred thousand dollars allows you to create kind of private pension to compensate for losses in income till you hit your Social Security check, which currently means 66.
$300K investment in A quality bonds that returns 3% per year are enough to provides you with $24K per year "pension" from 50 to age of 66. That allows you to pay for the apartment and amenities. The food is extra...
This way you can take lower paid job and survive.
And in this case you 401k remains intact and can supplement your SS income later on. Simple Excel spreadsheet can provide you with a complete picture of what you can afford and what not. Actually ability to walk of fresh air for 3 or more hours each day worth a lot of money ;-)
Notable quotes:
"... Losing a job in your 50s is a devastating moment, especially if the job is connected to a long career ripe with upward mobility. As a frequent observer of this phenomenon, it's as scary and troublesome as unchecked credit card debt or an expensive chronic health condition. This is one of the many reasons why I believe our 50s can be the most challenging decade of our lives. ..."
"... The first thing you should do is identify the exact day your job income stops arriving ..."
"... Next, and by next I mean five minutes later, explore your eligibility for unemployment benefits, and then file for them if you're able. ..."
"... Grab your bank statement, a marker, and a calculator. As much as you want to pretend its business as usual, you shouldn't. Identify expenses that don't make sense if you don't have a job. Circle them. Add them up. Resolve to eliminate them for the time being, and possibly permanently. While this won't necessarily lengthen your fuse, it could lessen the severity of a potential boom. ..."
Feb 15, 2019 | finance.yahoo.com

... ... ...

Losing a job in your 50s is a devastating moment, especially if the job is connected to a long career ripe with upward mobility. As a frequent observer of this phenomenon, it's as scary and troublesome as unchecked credit card debt or an expensive chronic health condition. This is one of the many reasons why I believe our 50s can be the most challenging decade of our lives.

Assuming you can clear the mental challenges, the financial and administrative obstacles can leave you feeling like a Rube Goldberg machine.

Income, health insurance, life insurance, disability insurance, bills, expenses, short-term savings and retirement savings are all immediately important in the face of a job loss. Never mind your Parent PLUS loans, financially-dependent aging parents, and boomerang children (adult kids who live at home), which might all be lurking as well.

When does your income stop?

From the shocking moment a person learns their job is no longer their job, the word "triage" must flash in bright lights like an obnoxiously large sign in Times Square. This is more challenging than you might think. Like a pickpocket bumping into you right before he grabs your wallet, the distraction is the problem that takes your focus away from the real problem.

This is hard to do because of the emotion that arrives with the dirty deed. The mind immediately begins to race to sources of money and relief. And unfortunately that relief is often found in the wrong place.

The first thing you should do is identify the exact day your job income stops arriving . That's how much time you have to defuse the bomb. Your fuse may come in the form of a severance package, or work you've performed but have't been paid for yet.

When do benefits kick in?

Next, and by next I mean five minutes later, explore your eligibility for unemployment benefits, and then file for them if you're able. However, in some states severance pay affects your immediate eligibility for unemployment benefits. In other words, you can't file for unemployment until your severance payments go away.

Assuming you can't just retire at this moment, which you likely can't, you must secure fresh employment income quickly. But quickly is relative to the length of your fuse. I've witnessed way too many people miscalculate the length and importance of their fuse. If you're able to get back to work quickly, the initial job loss plus severance ends up enhancing your financial life. If you take too much time, by your choice or that of the cosmos, boom.

The next move is much more hands-on, and must also be performed the day you find yourself without a job.

What nonessentials do I cut?

Grab your bank statement, a marker, and a calculator. As much as you want to pretend its business as usual, you shouldn't. Identify expenses that don't make sense if you don't have a job. Circle them. Add them up. Resolve to eliminate them for the time being, and possibly permanently. While this won't necessarily lengthen your fuse, it could lessen the severity of a potential boom.

The idea of diving into your spending habits on the day you lose your job is no fun. But when else will you have such a powerful reason to do so? You won't. It's better than dipping into your assets to fund your current lifestyle. And that's where we'll pick it up the next time.

We've covered day one. In my next column we will tackle day two and beyond.

Peter Dunn is an author, speaker and radio host, and he has a free podcast: "Million Dollar Plan." Have a question for Pete the Planner? Email him at AskPete@petetheplanner.com. The views and opinions expressed in this column are the author's and do not necessarily reflect those of USA TODAY.

[Feb 14, 2019] Pension vs. 401(k) Comparing Retirement Plans

Feb 14, 2019 | finance.yahoo.com

2 hours ago The biggest difference is that employers on average contribute 1/3 to your 401K that they contributed on your behalf for your pension.

[Feb 13, 2019] Condensate can't replace heavy oil

IEA is one-half EU marketing agency with the explisit goal to keep oil price low, and one half a research organization. In different reports one role can be prevalent.
The U.S. Energy Information Administration (EIA) estimates that margins for U.S. Gulf Coast refiners have declined to the lowest levels since late 2014, based on recent price trends in certain grades of crude oil and petroleum products. https://www.eia.gov/petroleum/weekly/
Comment on Yahoo are absolutly idiotic. I have dount only a couple more or less reasonable comment in the first 48. This level of incompetence and brainwashing is simply amazing.
Feb 13, 2019 | news.yahoo.com

The "call" on OPEC crude is now forecast at 30.7 million bpd in 2019, down from the IEA's last estimate of 31.6 million bpd in January.

U.S. sanctions on Iran and Venezuela have choked off supply of the heavier, more sour crude that tends to yield larger volumes of higher-value distillates, as opposed to gasoline. The move has created disruption for some refiners, but has not led to a dramatic increase in the oil price in 2019.

"In terms of crude oil quantity, markets may be able to adjust after initial logistical dislocations (from Venezuela sanctions)", the Paris-based IEA said.

"Stocks in most markets are currently ample and ... there is more spare production capacity available."

Venezuela's production has almost halved in two years to 1.17 million bpd, as an economic crisis decimated its energy industry and U.S. sanctions have now crippled its exports.

Brent crude futures have risen 20 percent in 2019 to around $63 a barrel, but most of that increase took place in early January. The price has largely plateaued since then, in spite of the subsequent imposition of U.S. sanctions.

"Oil prices have not increased alarmingly because the market is still working off the surpluses built up in the second half of 2018," the IEA said.

"In quantity terms, in 2019, the U.S. alone will grow its crude oil production by more than Venezuela's current output. In quality terms, it is more complicated. Quality matters."

dlider909, 7 hours ago Story will change in 30 days.

Robert, 7 hours ago ... ... ...

What this report fails to do is to pay the appropriate homage to American oilfield roughnecks...

ralf

7 hours ago Nonsense. I see military action against Venezuela soon, just because of our thirst for oil.
Talk about shale is like talk about Moon conquests, not supported by hard facts.

[Feb 13, 2019] Oil gains 2 percent as Saudi Arabia readies more supply cuts

Feb 13, 2019 | finance.yahoo.com

Saudi Arabia planning to drop March crude output by more than a half a million barrels per day below its initial pledge.

... ... ...

OPEC said on Tuesday it had reduced oil production almost 800,000 bpd in January to 30.81 million bpd under its voluntary global supply pact.

Saudi Arabia Energy Minister Khalid al-Falih told the Financial Times that the kingdom would reduce cut production to about 9.8 million bpd in March to bolster oil prices.

[Feb 12, 2019] Bill Gates suggests Ocasio-Cortez's tax plan a 'misfocus' by Brittany De Lea

Feb 12, 2019 | finance.yahoo.com

Microsoft co-founder Bill Gates does not think the way to increase U.S. tax revenue is through policies like raising the tax rate on the wealthy to 70 percent – as has been floated by some Democratic lawmakers like New York Rep. Alexandria Ocasio-Cortez.

During a podcast interview with The Verge , Gates responded to a question about whether raising the top rate to 70 percent in order to fund social programs – like infrastructure initiatives – appeals to him by saying government can be more effective in running social programs, but that's not the best way to raise revenue.

"You finally have some politicians who are so extreme that I'd say, 'No, that's even beyond,'" Gates said. "You do start to create tax dodging and disincentives, and an incentive to have the income show up in other countries and things."

Gates added that the country's richest people often don't pay the highest rate because their wealth doesn't always show up as income, it can be in the value of their stock, for example.

"So it's a misfocus," he added. "If you focus on that, you're missing the picture."

The billionaire businessman, however, does believe there are ways to make the current tax code more progressive. Some of those ways include more progressive policies regarding the estate tax, the tax on capital, or reforming FICA and Social Security taxes. Independent Vermont Sen. Bernie Sanders recently released a proposal to expand the estate tax to a rate of 77 percent for those passing on assets in excess of $1 billion.

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Bill Gates also called modern monetary theory (MMT) – which asserts that because the government controls its own currency, there is no need to worry about balancing the budget – "some crazy talk." Ocasio-Cortez recently indicated she was open to supporting MMT.

Gates is one of the richest people in the world. He has said, despite the fact that he has paid more in taxes than most, he should be paying more .

[Feb 12, 2019] Oil gains 2 percent

Feb 12, 2019 | finance.yahoo.com

Rising oil prices help Venezuela more than it helps the rest of OPEC because Venezuela needs the money more.

[Feb 12, 2019] Sanctions, OPEC cuts push Asia's heavy crude oil prices above Brent

Feb 12, 2019 | finance.yahoo.com

Middle East oil benchmarks Dubai and DME Oman have nudged above prices for Brent crude, an unusual move as U.S. sanctions on Venezuela and Iran along with output cuts by OPEC tighten supply of medium to heavy oil, traders and analysts said.

Heavier grades, mainly produced in the Middle East, Canada and Latin America, typically have a high sulphur content and are usually cheaper than Brent, the benchmark for lighter oil in the Atlantic Basin.

[Feb 07, 2019] Saudi Arabia cuts oil output by about 400,000 bpd in January sources

Feb 07, 2019 | finance.yahoo.com

DUBAI/LONDON (Reuters) - Saudi Arabia, the world's top oil exporter, cut its crude output in January by about 400,000 barrels per day (bpd), two OPEC sources said, as the kingdom follows through on its pledge to reduce production to prevent a supply glut.

Riyadh told OPEC that the kingdom pumped 10.24 million bpd in January, the sources said. That's down from 10.643 million bpd in December, representing a cut that was 70,000 bpd deeper than targeted under the OPEC-led pact to balance the market and support prices.

The Organisation of the Petroleum Exporting Countries, Russia and other non-OPEC producers - an alliance known as OPEC+ - agreed in December to reduce supply by 1.2 million bpd from Jan. 1.

The agreement stipulated that Saudi Arabia should cut output to 10.311 million bpd, but energy minister Khalid al-Falih has said it will exceed the required reduction to demonstrate its commitment.

[Feb 07, 2019] OPEC's Oil Exports to U.S. Fall to Five-Year Low in January

Feb 07, 2019 | finance.yahoo.com

Crude shipments to the U.S. from OPEC and its partners fell to 1.41 million barrels a day in January, the lowest in five years, according to data from cargo-tracking and intelligence company Kpler. Shrinking Iraqi imports and deep output cuts by Saudi Arabia fueled the decline

[Feb 04, 2019] Cuomo Blames Trump Tax Plan for Reduced New York Tax Collections

Feb 04, 2019 | finance.yahoo.com

New York collected $2.3 billion less income-tax revenue than predicted for December and January, a development that Governor Andrew Cuomo blamed on wealthy residents leaving for second homes in Florida and other states that received more favorable treatment in the tax law enacted by President Donald Trump and the Republican Congress.

The shortfall will require a new look at the $175 billion budget Cuomo submitted to the legislature last month, he said. If the trend continues, the governor said it would affect spending on high-expense items such as health, education, infrastructure and a planned middle-class tax cut.

"There is no doubt that the budget we put forward is not supported by the revenue," the Democratic governor said during a news conference in Albany. "If even a small number of high-income taxpayers leave, it has a great effect on this tax base. You are relying on a very small number of people for the vast amount of your tax dollars."

While acknowledging that stock market volatility is among several factors that may have suppressed income-tax revenue in the past two months, the governor placed most of the blame on Trump and the Republican-dominated Congress of 2017, which enacted a tax plan limiting federal deductions on real estate and other local taxes.

Related: New York's Income-Tax Revenue Falls 'Abruptly' Under Forecast

"It was politically diabolical and also highly effective," Cuomo said. "And if your goal is to help Republican states and hurt Democratic states this is the way to do it."

[Feb 04, 2019] Citi expects Brent crude to continue rising into the mid-$60 range and hit $70 before year end

Feb 04, 2019 | finance.yahoo.com

The bank expects oil supply to tighten in the first quarter as top exporter Saudi Arabia cuts production , but Citi's Ed Morse also forecasts a soft spot for demand in the opening months of 2019. Further complicating matters are a series of geopolitical and market dramas that will play out through the beginning of May.

This follows a three-month period that saw oil prices spike to nearly four-year highs as the market braced for U.S. sanctions on Iran. Prices then tumbled more then 40 percent to 18-month lows, blowing up long-held trading strategies and forcing drillers to rethink their 2019 budgets.

"The volatility every year is a good $20 to $25 a barrel between low and high," Morse said. "December was kind of the nightmare for the world where the swings were $50 at a low, $86 at a high and $68 for the average of Brent."

... ... ...

Citi expects Brent crude to continue rising into the mid-$60 range and hit $70 before year end. That will be enough to keep in play another wild card: surging U.S. oil production.

[Feb 04, 2019] Absolute control over people and resources is the ultimate goal of financial oligarchy

Financial industry has inherent trend toward parasitism and gangsterism and as such should be as tightly regulated as gambling. Probably even more. But under neoliberalism where financial oligarchy a the ruling class this is a pipe dream. I do not see any significant countervailing force other the far right nationalism. Far right nationalism has power to brake bankers spine, but usually they allied with them (fascism)
Feb 04, 2019 | www.zerohedge.com
Authored by Tom Chatham via Project Chesapeake blog,

Those that have been following events for several years know they are under attack by an enemy that has no face and means to do them great harm. Nothing less than their sovereignty and freedom is at stake.

Absolute control over people and resources is the ultimate goal.

Davidduke2000 , 9 minutes ago link

On his deathbed, Andrew Jackson said " I beat the bank".

Davidduke2000 , 9 minutes ago link

On his deathbed, Andrew Jackson said " I beat the bank".

freedommusic , 2 hours ago link

...the bankers want to show up after the population has lost everything in a collapse, to be their savior and gain control of everyone by offering resources in exchange for compliance.

In the end these bankers are just people . They yield NO power other than a cheap magi c trick called money. They are simply losers pulling levers behind the curtain . They are terrified of real people. They are terrified of being exposed. They are worthless conjurers of useless paper. Their power is a cheap spell. They always have known that once people are aware of the trick, they are done. They are afraid of elevated souls. They are afraid of the awakened. They are terrified of the big red pill that is coming for the masses. Game over.

SickDollar , 2 hours ago link

Uncle Shmuel (the Neocon's version of Uncle Sam)

new term BITCHEZ

Uncle Sam is dead

[Feb 02, 2019] The US has a secret weapon in the trade war

Technological superiority is a weapon and the USA know how to use it.
Notable quotes:
"... Made in China 2025 is the Chinese government's 10-year plan to update the country's 10 high-tech manufacturing industries, which include information technology, robotics, aerospace, rail transport, and new-energy vehicles, among others. ..."
"... Without U.S. semis, China will not be able to process the technology necessary to push forward the Made in China 2025 program. "American chips in many ways form the backbone of China's tech economy," Shah said. ..."
"... The Trump Administration's tariffs on Chinese goods were intended to severely disrupt the Chinese tech-advancement initiative. But Shah says that making U.S. chips more expensive for China could have consequences for the U.S. as well. ..."
"... "Over 50% of Chinese semiconductor consumption is supplied by U.S. firms In 2017, China consumed $138bn in integrated circuits (ICs), of which it only produced $18.5bn domestically, implying China imported $120bn of semis in 2017, up from $98bn in 2016 and $73bn in 2012." ..."
"... If the two leaders are unable to come to some sort of trade resolution at the meeting, U.S. tariffs on over $200 billion worth of Chinese goods will increase from 10% to 25% on January 1, 2019. ..."
"... While US has the upper hand on semis, a trade embargo on semis will (1) slows down China's move towards achieving Made in China 2025, (2) at the same time give China the impetus to rush ahead will all resources available to achieve the originally omitted goal of being self-sufficient in tech skills and technology, and (3) seriously hurt companies like Intel, AMD, Micron, and Qualcom as a huge percentage of their businesses are with China, and with that portion of their business gone, all these companies will end up in a loss and without the needed financial resources to invest into new technology in the near future. ..."
Nov 30, 2018 | www.yahoo.com

https://platform.twitter.com/widgets/follow_button.html?screen_name=heidi_chung&show_screen_name=false&show_count=false

Heidi Chung Reporter , Yahoo Finance November 28, 2018

As trade tensions run hot between the U.S. and China, President Trump might have one key advantage in the trade war, according to Nomura.

Analyst Romit Shah explained that China's dependence on U.S.-made advanced microchips could give Trump the upper hand.

"We believe that as China-U.S. tensions escalate, U.S. semiconductors give Washington a strong hand because the core components of Made in China 2025 (AI, smart factories, 5G, bigdata and full self-driving electric vehicles) can't happen without advanced microchips from the U.S.," Shah said in a note to clients.

BEIJING, CHINA – NOVEMBER 9, 2017: US President Donald Trump (L) and China's President Xi Jinping shake hands at a press conference following their meeting at the Great Hall of the People in Beijing. Artyom Ivanov/TASS (Photo by Artyom Ivanov\TASS via Getty Images)

Made in China 2025 is the Chinese government's 10-year plan to update the country's 10 high-tech manufacturing industries, which include information technology, robotics, aerospace, rail transport, and new-energy vehicles, among others.

One of Made in China 2025's main goals is to become semiconductor self sufficient. China hopes that at least 40% of the semiconductors used in China will be made locally by 2020, and at least 70% by 2025. "Made in China 2025 made abundantly clear China's commitment to semiconductor self-sufficiency. Made in China 2025 will upgrade multiple facets of the Chinese economy," Shah said.

According to Nomura's estimates, China is currently about 3 to 5 years behind the U.S. in dynamic random-access memory (DRAM) chip production. However, Shah explained that if the trade war persists, the consequences could set Chinese chip production behind by 5 to 15 years.

Without U.S. semis, China will not be able to process the technology necessary to push forward the Made in China 2025 program. "American chips in many ways form the backbone of China's tech economy," Shah said.

Consequences for U.S.

The Trump Administration's tariffs on Chinese goods were intended to severely disrupt the Chinese tech-advancement initiative. But Shah says that making U.S. chips more expensive for China could have consequences for the U.S. as well.

One concern centers around intellectual property theft. The Department of Justice (DOJ) has been working hard to punish China for allegedly attempting to commit espionage. For example, the DOJ believes China was attempting to spy on the U.S. through Huawei and asked U.S. allies to drop the Chinese tech equipment maker.

However, while many U.S. chipmakers, such as Advanced Micro Devices ( AMD ), Qualcomm ( QCOM ) and Micron ( MU ), expressed gratitude that the DOJ was intervening to prevent intellectual property theft, the companies are also concerned that it could spark retaliation from their Chinese business partners and result in loss of access to the Chinese market. "Joint ventures, IP sharing agreements and manufacturing partnerships are the price of admission into China, and thus far, companies are playing ball," Shah explained.

Shah essentially calls the Chinese tariffs a double-edged sword. While tariffs will hurt the Chinese if they can't have access to freely source U.S. chips, it could also hurt U.S. chipmakers if they lose their business in China. According to Shah's research, "Over 50% of Chinese semiconductor consumption is supplied by U.S. firms In 2017, China consumed $138bn in integrated circuits (ICs), of which it only produced $18.5bn domestically, implying China imported $120bn of semis in 2017, up from $98bn in 2016 and $73bn in 2012."

Trump and China's President Xi Jinping are scheduled to meet at the G20 summit in Buenos Aires, Argentina, on Thursday for a two-day meeting. If the two leaders are unable to come to some sort of trade resolution at the meeting, U.S. tariffs on over $200 billion worth of Chinese goods will increase from 10% to 25% on January 1, 2019.

"China could source equipment from Europe and Japan; however, we believe there are certain mission-critical tools that can only be purchased from the U.S. We believe that U.S.-China trade is the biggest theme for U.S. semis and equipment stocks in 2019. Made in China 2025 can't happen without U.S. semis, and U.S. semis can't grow without China. We hope this backdrop drives resolution," Shah said.

Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung .

R

[Feb 02, 2019] As goes January, so goes the year Old Wall Street indicator puts odds of 2019 gain at more than 80% by Patti Domm

This is a classic, textbook example of financial astrology... You probably should read it in full to appreciate the depth of junk science here. But this is financial casino my friends, and they try to entice you with naked girls and drinks...
Feb 01, 2019 | finance.yahoo.com

Stocks had their best January gains in more than 30 years, and that should mean 2019 will be a pretty good year for the market.

That's what the widely watched January barometer tells you - as goes January, so goes the year. According to Stock Trader's Almanac, going back to 1950, that metric of January's performance predicting the year has worked 87 percent of the time with only nine major errors, through 2017. In the years January was positive, going back to 1945, the market ended higher 83 percent of the time, according to CFRA.

But the indicator also signaled a positive year last year, and the market suffered an unusual late-year sell-off, wiping out all of the gains. The S&P 500 ended 2018 down 6.6 percent, despite rising 5.6 percent in January. But the S&P also defied history with a terrible December decline of 9.6 percent , the biggest loss for the final month of the year since 1931.

This January, the S&P 500 was up 7.9 percent. The best January performance since 1987, when it rose 13.2 percent. It was its best overall month since October 2015.

Some market pros worry the sharp snapback in stocks since the late December low means January could be stealing the gains from the rest of the year. Some also believe there could be another test at lower levels in the not too distant future. Yet, Wall Street forecasters have a median target of 2,950 for the S&P 500 at year end, a big leap from the current 2,704.

"I'm still struck between the contrast of a year ago and now," said James Paulsen, chief investment strategist at Leuthhold Group. "We came in last year with nothing but optimism. At this point last year, we had synchronized global growth, confidence had spiked to record post-war highs, and everyone knew we had this steroid-induced earnings boost coming. The thought was how could stocks lose, and of course they did."

The market has sprung back from December's low, with the S&P gaining 15 percent since Dec. 26.

"This year, we came in with nothing but bad news - the economy was slowing down. ... The rest of the world is slowing. We have trade wars. We have the shutdown, and analysts are revising earnings lower," Paulsen added. "We're worried about a recession and a bear market. It's strikingly different, and yet it's kind of like how can stocks win, but they are and I think they will."

Strategists also point to the differences in the way the market traded in each January. This January has been full of volatile swings, with ultimately larger gains than losses. Last year, the market was at the end of a long smooth glide path higher.

Last year didn't work

Stocks did well through most of January 2018, but by the end of the month, a correction started. "On January 30, in 2018, it was the first 1 percent decline in 112 days. That was basically the start of the fall off the cliff. In terms of percent gains, this January is similar to last, but in terms of where we've come from, it's very different. That was one of the calmest advances in history," said Frank Cappelleri, executive director at Instinet.

Cappelleri said it's important to put this year's market move in context, when considering the January barometer. "You have one of the biggest snapbacks after a very bad December, so the odds were in the market's favor to do better than that. I think maybe you have to look where we are now. You're up 15, 20 percent from the low depending on where you look. Are we going to go up that much more for the rest of the year?" he said.

Paulsen sees the gains continuing, after a possible pause. "I think it's going to continue to be a fairly good year, and I think we probably go up and get close to the highs or 3,000 on the S&P, and I'm not expecting hardly anything on the economy, and earnings are going to be weak, if not flat or maybe down," Paulsen said.

He said the slowing economy and a potential U.S.-China trade deal could push the dollar down and that would be a positive for stocks. At the same time, the Fed has paused in interest rate hikes and may even stop its balance sheet unwind.

Jeff Hirsch, editor-in-chief of the Stock Trader's Almanac, said there's another set of statistics that are in the market's favor for a positive 2019, though they also failed last year. He said for the years when the S&P 500 was positive in the first five days of the year, plus gained during the Santa rally period, and was up for the month of January, the S&P 500 had a positive year 27 out of 30 times. It also had an average gain of 17.1 percent in those years, since 1950.

Nick 29 minutes ago

Job growth is solid. Unemployment remains near all time lows even while labor force participation increases. Wage growth outpaced inflation last year. The economy is humming right along...its just the liberal media wants to bombard us with articles claiming the Trump recession is imminent.

I'm surprised they actually published an article sayings its going to be a good year.

[Feb 02, 2019] Wall Street s 2019 S P 500 forecasts

Parade of eminent astrologists ;-) Those financial prostitutes of casino capitlism, aka financial analysts most often are wrong year after year, but still have a solid coverage by the neoliberal media due to the shire wieght of the companies they represent. This bets are not connected with some kind of possible financial loss so they just talking up this firms portfolio, which of course is heavily tilted in favor of stocks. God even Vanguard retirement 2015 fund has 40% in stock, while formula 100-age would give you less then 35%. If this is bullish bias I do not know what is. Of course, they play with "other people money" and commissions are everything...
Notable quotes:
"... Their guesses about a great market in 2018 was kind of a miss. But they only had like 340 days so far. They still have 25 days left to turn in around. ..."
"... These guys are seldom right. I've been tracking these predictions more closely since 2014, usually 12-15 of the large financial institutions. Last year's average consensus was the SP at 2874. We closed Tuesday (Dec 4) at 2700. ..."
"... The average of the figures cited in the article is 3068. I think that is wishful thinking considering the slow downs in many sectors, slowing GDP and a flattening yield curve. ..."
"... With regard to upside potential, these all sound wildly optimistic to me. Ten years of printing money out of thin air and exploding deficits does not a future robust economy make, IMO. ..."
"... They cannot say 2500 cause people will not invest (and no commissions); they have to say equal or higher than today. To me it is screaming between the lines the index will hit 2500. ..."
"... So all of them predict the S&P will be higher then it is today even though many are saying we are already in a Bear Market...these people only make money if the market goes up so don't trust them! ..."
Feb 02, 2019 | finance.yahoo.com

[Feb 02, 2019] Former AOL exec Jean Case faults tech giants for trying to 'own the world'

Notable quotes:
"... Big tech companies have bullied competitors and outrun ethical standards in an effort to "own the world," Jean Case, the CEO of the Case Foundation and a former senior executive at AOL, told Yahoo Finance this week. "Many of those big companies are crowding out new innovations of young upstarts. That's not healthy," she said, in response to a question about Google and Facebook. ..."
Feb 02, 2019 | finance.yahoo.com

Big tech companies have bullied competitors and outrun ethical standards in an effort to "own the world," Jean Case, the CEO of the Case Foundation and a former senior executive at AOL, told Yahoo Finance this week. "Many of those big companies are crowding out new innovations of young upstarts. That's not healthy," she said, in response to a question about Google and Facebook.

"On the technology side, look, things have changed so fast," Case said. "I think we just haven't kept pace with some of the ethics policies and frameworks that we need to put around this stuff...used by millions of millions before thought is given to implications."

Case made the comments in a conversation that aired on Yahoo Finance on Thursday at 5 p.m. EST in an episode of " Influencers with Andy Serwer ," a weekly interview series with leaders in business, politics, and entertainment. In addition to her comments on big tech, Case explained why a woman can be elected president, what National Geographic has done to thrive amid media industry tumult, and how it felt at AOL in the heady early days of the internet.

... ... ...

[Jan 29, 2019] Bloodbath In Oil Gas Stocks Could Continue by Nick Cunningham

Notable quotes:
"... In the meantime, the strategy for oil and gas executives to appease investors is to focus on "quick cash, quarterly payouts and fast talk," Sanzillo says. "Either way the stocks lack a long-term value rationale." ..."
"... Meanwhile, the Wall Street Journal reports that the U.S. shale industry has been over-hyping the production potential from their wells. The WSJ compared well-productivity estimates from shale companies to those from third parties. After looking at the production data at thousands of wells and how much oil and gas those wells were on track to produce over the course of their lifespans, the WSJ found that company forecasts seemed to be misleading. ..."
"... Schlumberger, for instance, has reported that secondary shale wells near older wells in West Texas have been 30 percent less productive than the initial wells, the WSJ found. Also, many shale companies used data from their best wells and extrapolated forward, projecting enormous growth numbers that have not panned out. ..."
Jan 04, 2019 | finance.yahoo.com

Of course, that is largely just a reflection of the sharp decline in oil prices. But the share prices of most oil and gas companies are also largely based on oil price movements. So, the steep slide in oil prices in the final two months of 2018 led to disaster for investors in energy stocks.

"The stock market went to hell in December. And when it got there, it found that the energy sector had already moved in, signed a lease and decorated the place," Tom Sanzillo, Director of Finance at the Institute for Energy Economics and Financial Analysis (IEEFA), wrote in a commentary .

The energy sector was at or near the bottom of the S&P 500 for the second year in a row, Sanzillo pointed out. And that was true even within segments of the oil and gas industry. For instance, companies specializing in hydraulic fracturing fell by 30 percent, while oil and gas supply companies lost 40 percent. "The fracking boom has produced a lot of oil and gas, but not much profit," Sanzillo argued.

Looking forward, there are even larger hurdles, especially in the medium- to long-term. Oil demand growth is flat in developed countries and slowing beginning to slow in China and elsewhere. The EV revolution is just getting started.

The last great hope for the oil industry is to pile into petrochemicals , as oil demand for transportation is headed for a peak. But profits in that sector could also prove elusive. "The industry's rush to invest in petrochemicals to maintain demand for oil and gas is likely to continue, but the profit potential in this sector is more limited than oil and gas exploration, and is likely to keep the energy sector at or near the bottom of the S&P 500," Sanzillo concluded.

In the meantime, the strategy for oil and gas executives to appease investors is to focus on "quick cash, quarterly payouts and fast talk," Sanzillo says. "Either way the stocks lack a long-term value rationale."

Meanwhile, the Wall Street Journal reports that the U.S. shale industry has been over-hyping the production potential from their wells. The WSJ compared well-productivity estimates from shale companies to those from third parties. After looking at the production data at thousands of wells and how much oil and gas those wells were on track to produce over the course of their lifespans, the WSJ found that company forecasts seemed to be misleading.

Related: 2019 Could Make Or Break OPEC

"Two-thirds of projections made by the fracking companies between 2014 and 2017 in America's four hottest drilling regions appear to have been overly optimistic, according to the analysis of some 16,000 wells operated by 29 of the biggest producers in oil basins in Texas and North Dakota," reporters for the WSJ wrote . "Collectively, the companies that made projections are on track to pump nearly 10% less oil and gas than they forecast for those areas, according to the analysis of data from Rystad Energy AS, an energy consulting firm."

Schlumberger, for instance, has reported that secondary shale wells near older wells in West Texas have been 30 percent less productive than the initial wells, the WSJ found. Also, many shale companies used data from their best wells and extrapolated forward, projecting enormous growth numbers that have not panned out.

The upshot is that shale companies will have to step up spending in order to hit the promised production targets. However, so many of them have struggled to turn a profit, and the recent downturn in oil prices has put even more pressure on them to rein in costs.

That raises questions about the production potential not just from individual shale companies, but also from the U.S. as a whole.

By Nick Cunningham of Oilprice.com

[Jan 29, 2019] Why Trump's $1.5 Trillion Tax Cut Hasn't Sparked Hiring or Investment

Jan 29, 2019 | finance.yahoo.com

The Trump administration's $1.5 trillion in tax cuts appears to have not made any major impact on businesses' capital investment or hiring plans, according to a new survey.

A quarterly poll from the National Association for Business Economics published Monday found that some companies reported accelerating investments because of lower corporate taxes, but a whopping 84% of respondents said they had not changed their plans. That's up slightly from 81% in the previous survey published in October, Reuters reports.

The White House had said the massive stimulus package, which cut the corporate tax rate to 21% from 35%, would boost business spending and job growth. The tax cuts that came into effect in January 2018 were the biggest overhaul of the U.S. tax code in more than 30 years.

"A large majority of respondents, 84%, indicate that one year after its passage, the corporate tax reform has not caused their firms to change hiring or investment plans," NABE President Kevin Swift said in a release. "Fewer firms increased capital spending compared to the October survey responses, but the cutback appeared to be concentrated more in structures than in information and communication technology investments."

The lower tax rates did have an impact in the goods-producing sector, NABE found, with 50% of respondents reporting increased investments at their companies, and 20% saying they redirected hiring and investments to the U.S. from abroad.

An analysis of how S&P 500 firms were reacting to the tax cut by researchers at the University of Michigan found that 4% of the sample said in Q1 of 2018 they would pay some of their tax savings back to workers, and 22% mentioned in earnings conference calls they would increase investment because of the tax cuts.

Though for small businesses, a new survey from the National Federation of Independent Business released earlier this month found 61% of owners reported making capital investments, unchanged from last month but 5 points higher than in August. In December, 35% of small-business owners reported increasing employee compensation and 24% reported planned increases in the next few months.

[Jan 24, 2019] Your retirement questions answered Social Security, buying service credits and Medicare

Jan 24, 2019 | finance.yahoo.com

Q: I am 62. Last year, I got a Social Security calculation showing that when I am 66-plus-years-old, I will receive $400-plus in Social Security benefits per month. Because of my health, I started to work only three days a week. Will this reduce the amount of my benefits? If l decide to quit my job, but not apply for my Social Security benefits until I'm 66-plus, will it reduce my monthly Social Security benefits?

A: Social Security calculates your monthly benefit by taking your highest 35 years of earnings and your age, says Rick Fingerman, a managing partner with Financial Planning Solutions. "So, if you stop working before your full retirement age or FRA, as you suggest, you could see a lower benefit if you do not have 35 years of higher earnings already."

The same answer applies if you quit your job altogether at 62 and wait until 66 to collect, he says.

One option, says Fingerman, could be if you were going to wait until your FRA and you have a spouse that is already collecting on their own benefit. "You might receive a higher monthly benefit on their record as you would get 50% of what they are receiving, which could be more than the $400 a month under your own benefit," he says.

[Jan 24, 2019] Claiming Social Security Early vs. Delaying Pros and Cons

Jan 24, 2019 | finance.yahoo.com

Of course, nobody can predict exactly how long they'll live -- the average man and woman turning 65 today can expect to live until age 84 and 86, respectively, according to the Social Security Administration. However, if you're facing health issues and don't expect to live that long, it may be wiser to claim as early as possible rather than waiting until you have only a few years left to enjoy your benefits.

... ... ...

Your full retirement age (FRA) is the age at which you'll receive 100% of the benefits to which you're entitled. So if your FRA is 67, and you wait until then to claim, you'd receive $1,300 per month. If you claim at 62, your benefits will be cut by 30% -- leaving you with just $910 per month.

... ... ...

If you wait until your FRA to claim, you'll receive 100% of your entitled benefits. But if you wait beyond that age, you'll receive a bonus on top of your full amount to make up for all the months you weren't receiving benefits at all. If your FRA is, say, 67 and you wait to claim benefits until 70, you'll receive a 24% bonus over your full amount. So if you would have received $1,300 per month by claiming at 67, you'd receive $1,612 by waiting until 70. (Keep in mind, too, that this bonus maxes out at age 70, so there's no additional benefit to waiting to claim until after that age.)

This can be a lifesaver for those who are seriously behind on saving for retirement . If you're going to rely on Social Security to make ends meet, it's in your best interest to maximize those benefits.

The amount you receive in benefits will be locked in once you claim. If you delay and receive that boost, you'll continue receiving that boost for the rest of your life. Likewise, if you claim early and your benefits are reduced, you'll receive those smaller checks for life. So delaying can play out in your favor if you spend several decades in retirement -- the longer you live, the more you will receive over your lifetime.

While delaying claiming benefits by a few years will result in bigger checks, you may not actually receive more over a lifetime than you would if you had claimed earlier. Although you're receiving more each month, that's just to make up for the years you weren't receiving any benefits at all. If you don't reach your "break even age" -- or the age at which you've received more over a lifetime by waiting to claim than you would have received by claiming early -- it may not be worth it to wait.

For example, say your FRA is 67. If you claim early at 62, you'd receive $910 per month (or $10,920 per year), and if you delay until 70, you'd receive $1,612 per month ($19,344 per year). Here's how much you'd have received in total benefits at different ages:

Age at Death Total Lifetime Benefits When Claiming at 62 Total Lifetime Benefits When Claiming at 70
70 $87,360 N/A
75 $141,960 $96,720
80 $196,560 $193,440
85 $251,160 $290,160

Source: Author's calculations

So in this scenario, you'll have to live past age 80 in order to "break even" and earn more in lifetime benefits by delaying rather than claiming early. That can be a good thing if you expect to live a long time, but if you don't expect to live past 80, it may be more advantageous to claim earlier rather than later.

[Jan 24, 2019] Robert Shiller interviewed by Andy Serwer at Davos 2019

[Video] He views housing prices as a leading indicator, but he is not ready to forecast slowdown yet. Yes Home Sales Sank 6.4% in December . No, a recession isn't about to hit. The International Monetary Fund still thinks the global economy will grow a respectable 3.5% this year . By with the recent downgrade risks are higher and probably highest since 2010.
As for 2019 he said we are always at risk entering the recession. He thinks that as in June there will be the longest recession, that might be time for a recession including in housing market. Inverted curve is a sign of such comes are coming.
Housing market is closing down and that can lead to recession, but he is not giving it probability higher that 50 for this year. He also mentions that real interest rate of short end there are not much above inflation.
Jan 24, 2019 | finance.yahoo.com

Yale Economics Professor and Nobel Laureate Robert Shiller spoke with Yahoo Finance at Davos, telling Editor-in-Chief Andy Serwer: "People are starting to think housing is expensive, and that could lead to a turnaround and a drop in home prices. But I'm not ready to forecast that yet."

[Jan 24, 2019] Rubenstein predicts near-term resolutions on U.S.-China trade 'dispute' govt. shutdown

[Video]
Interesting discussion... He said tariff might not work as expected. He does not think recession in probable in 2018 but later it might became inveitable
14% are functionally illiterate. Those people are at he bottom and will stay at the bottom.
Jan 23, 2019 | finance.yahoo.com

David Rubenstein, Co-Founder and Co-Executive Chairman of The Carlyle Group, sits down for a one on one with Yahoo Finance editor-in-chief Andy Serwer at the World Economic Forum's annual meeting in Davos, Switzerland. They discuss U.S.-China relations, Alexandria Ocasio-Cortez, income inequality, the government shutdown, and more.

[Jan 24, 2019] Davos 2019 the thing that scares hedge fund titan Ray Dalio the most

Jan 24, 2019 | finance.yahoo.com

Speaking at a panel discussion on the first day of the World Economic Forum (WEF) , Dalio said: "The US, Europe, China – all of those will experience a greater level of slowing, probably a greater level of disappointment.

"I think there's a reasonable chance that by end of that, monetary policy and fiscal policy will have to become easier relative to what is now discounted in the markets.

He added: " What scares me the most longer-term is that we have limitations to monetary policy, which is our most valuable tool, at the same time as we have greater political and social antagonism.

"So the next downturn worries me the most. There are a lot of parallels with the late 1930s.

READ MORE: Ray Dalio's three-step formula for anyone to start investing

"In 1929-1932 we had a debt crisis, and interest rates hit zero. Then there was a lot of printing of money and purchases of financial assets which drives financial assets higher.

"It creates also a polarity, a populism and an antagonism. We also had at that time the phenomenon of a rising power, like China, dealing with conflict with an existing power.

"These types of political issues are now very connected to economic issues in policy."

Asked at the summit in Switzerland about increasing debt levels and signs of a global slowdown, Dalio said the world economy was in the later stages of a short-term debt cycle.

READ MORE: What is Davos? The 2019 World Economic Forum explained

He said there had been an "inappropriate, mistaken desire to tighten monetary policy at a level that was faster than what the capital markets could handle."

The renowned 69-year-old investor, who authored a free book called ' Principles for Navigating Big Debt Crises', also offered his take on corporate debt levels.

He said: "W hen we cut corporate taxes and made interest rates low enough that it was attractive enough to buy financial assets, particularly by companies having mergers and acquisitions, that caused a lot of growth in corporate debt. And that growth in corporate debt was used to finance the purchases. That is going to be less."

He suggested a slowdown could increase the link between politics and economic policy, and predicted increased debate over a 70% income tax rate next year.

[Jan 23, 2019] Another sign of collapse of neoliberal ideology: discussion of 70% tax rate on income over 10 million is no longer viewed as anathema

Jan 23, 2019 | finance.yahoo.com

Billionaire Michael Dell, chief executive officer of the eponymous technology giant, rejected a suggestion by U.S. Representative Alexandria Ocasio-Cortez of a 70-percent marginal tax rate on the wealthiest Americans.

"No, I'm not supportive of that," Dell said at a Davos panel on making digital globalization inclusive. "And I don't think it will help the growth of the U.S. economy. Name a country where that's worked."

She may not be in Davos, but the New York representative's influence is being felt on the slopes of the Swiss Alps. Three weeks after Ocasio-Cortez floated the idea in an interview on "60 Minutes" to raise the top marginal tax rate on Americans' income of more than $10 million to 70 percent, it was a hot topic at the gathering of the global financial and political elite.

... ... ...

"My wife and I set up a foundation about 20 years ago and we would've contributed quite a bit more than a 70 percent tax rate on my annual income," Dell said. "I feel much more comfortable with our ability as a private foundation to allocate those funds than I do giving them to the government."

Erik Brynjolfsson, a professor at the Massachusetts Institute of Technology who was on the panel with Dell, said such a rate worked in the U.S. after World War II. But other executives were opposed, including Salesforce.com Inc. Co-Chief Executive Officer Keith Block.

... ... ...

Billionaire investor Ray Dalio suggested that the idea may have legs in the run-up to the U.S. presidential election. Discussing the outlook for a slowing world economy Tuesday, Dalio said that next year will see "the beginning of thinking about politics and how that might affect economic policy beyond. Something like the talk of the 70 percent income tax, for example, will play a bigger role." He didn't mention Ocasio-Cortez by name.

Currently in the U.S., the top marginal tax rate is 37 percent, which takes effect on income of more than $510,300 for individuals and $612,350 for married couples, according to the Tax Foundation.

The fortunes of a dozen attendees at the World Economic Forum in 2009 have soared by a combined $175 billion, a Bloomberg analysis found. The same cannot be said for people on the other end of the social spectrum: A report from Oxfam on Monday revealed that the poorest half of the world saw their wealth fall by 11 percent last year.

[Jan 22, 2019] The elite at Davos may have just destroyed the 2019 stock market rally

Jan 22, 2019 | finance.yahoo.com

Meanwhile, the International Monetary Fund slashed its global growth outlook for 2019 and 2020 the day before the WEF kicked off. Its growth forecasts for China in 2019 and 2020 -- 6.2% -- is lower than most top minds on Wall Street have modeled.

Credit Suisse came out today with a doozy of a 90-page "study" looking at global debt levels. A shout out like this in the report does nothing to engender confidence in risk assets: "Defaults are likely to rise in segments of the corporate debt markets once economic growth weakens more markedly or if monetary policy tightens further; in such a situation, an unwinding of positions could generate significant market stress due to illiquidity."

Credit Suisse Chairman Urs Rohner suggests on the first page of the report that a full-scale global debt blowup is unlikely. But the overall scope of the report is bearish to stocks, trust this writer who read the study in its entirety.

[Jan 22, 2019] The International Monetary Fund serves up depressing new outlook on the world for investors to ponder

Notable quotes:
"... Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter ..."
Jan 22, 2019 | finance.yahoo.com

The International Monetary Fund just uncorked a sobering outlook on the global economy and asset markets for the elite billionaires huddled up in Davos, Switzerland for the World Economic Forum to ponder.

In its latest World Economic Update report, the IMF said Monday the global economy is projected to grow at a meager 3.5% this year and only accelerate to 3.6% in 2020. The outlooks for 2019 and 2020 are 0.2 percentage point and 0.1 percentage point below the IMF's projections issued in October.

Hat tips to the ongoing U.S. trade war with China, tightening financial conditions globally and more volatile risk asset markets.

The finer points: The IMF pretty much had nothing good to say on the outlooks for developed and emerging markets. Although that is nothing unusual for the IMF -- who often takes a cautious stance on its outlooks for economies and financial markets -- it may give many investors a wake up call amid a somewhat hot start to the stock market in 2019.

Of note, U.S. growth is seen slowing to 2.5% in 2019 and dipping to 1.9% in 2020 at the hands of the unwinding of fiscal stimulus (see Trump tax cuts), higher interest rates and the U.S. trade war with China. The IMF tossed the U.S. a bone by noting the pace of expansion is above the country's estimated potential growth in both years.

As for Europe, the IMF is now more bearish on growth compared to its October outlook. Growth for emerging and developing Europe in 2019 is forecast to cool to 0.7% (from 3.8% in 2018) and then bounce to 2.4% in 2020. Previously, the IMF was looking for growth of 2% and 2.8% in 2019 and 2020, respectively. Lackluster growth in Italy, France and Germany as well as policy tightening in Turkey are the main culprits for the IMF's European growth downgrade.

Growth in emerging and developing Asia is expected to drop from 6.5% in 2018 to 6.3% in 2019 and reach 6.4% in 2020, said the IMF. The IMF expects growth in China to be 6.2% both in 2019 and 2020 versus 6.6% in 2018.

Interestingly, the IMF incorporates the impact of continued tariffs by the U.S. on China and vice versa in its baseline forecast. In other words, the organization does not expect there to be a trade truce between the countries on their self-imposed March 1 deadline.

For the investors out there: For those bulls that have returned to beaten up stocks in January, the IMF does its best to squash the hopium infiltrating your brains. "A range of catalyzing events in key systemic economies could spark a broader deterioration in investor sentiment and a sudden, sharp repricing of assets amid elevated debt burdens. Global growth would likely fall short of the baseline projection if any such events were to materialize and trigger a generalized risk-off episode," cautioned the IMF.

China's growth slowdown is also a risk that the IMF suggests investors don't fully appreciate.

"As seen in 2015–16, concerns about the health of China's economy can trigger abrupt, wide reaching sell-offs in financial and commodity markets that place its trading partners, commodity exporters, and other emerging markets under pressure," the IMF pointed out.

The bottom line: The IMF isn't exactly super plugged into global asset markets in the same vein as forecasters at Goldman Sachs and Morgan Stanley. But their latest assessment of the global economy and risk markets offers up a good counterbalance to the enthusiasm that has begun to creep back into financial markets after the October 2017 through December 2018 rout.

Happy trading, folks.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter

[Jan 19, 2019] Stock Rebound Will Collapse as Recession Risk Rises Morgan Stanley

Jan 19, 2019 | finance.yahoo.com

The stock market has staged a rebound in January, but Morgan Stanley sees a number of bearish indicators. Indeed, they estimate that odds of the U.S. economy slipping into a recession are now the highest since the financial crisis of 2008, and they project that the S&P 500 Index (SPX) ultimately will settle back to a value of 2,400 in 2019, revisiting the recent lows seen in December and more than 18% below the record high set in September 2018. "We expect upcoming negative data will prove 2600-2650 [on the S&P 500] to be a good sale before a proper retest of the December lows," Morgan Stanley says in the latest Weekly Warm-Up report from their U.S. equity strategy team headed by Michael Wilson.

[Jan 17, 2019] The financial struggles of unplanned retirement

People who are kicked out of their IT jobs around 55 now has difficulties to find even full-time McJobs... Only part time jobs are available. With the current round of layoff and job freezes, neoliberalism in the USA is entering terminal phase, I think.
Jan 17, 2019 | finance.yahoo.com

A survey by Transamerica Center for Retirement Studies found on average Americans are retiring at age 63, with more than half indicating they retired sooner than they had planned. Among them, most retired for health or employment-related reasons.

... ... ...

On April 3, 2018, Linda LaBarbera received the phone call that changed her life forever. "We are outsourcing your work to India and your services are no longer needed, effective today," the voice on the other end of the phone line said.

... ... ...

"It's not like we are starving or don't have a home or anything like that," she says. "But we did have other plans for before we retired and setting ourselves up a little better while we both still had jobs."

... ... ...

Linda hasn't needed to dip into her 401(k) yet. She plans to start collecting Social Security when she turns 70, which will give her the maximum benefit. To earn money and keep busy, Linda has taken short-term contract editing jobs. She says she will only withdraw money from her savings if something catastrophic happens. Her husband's salary is their main source of income.

"I am used to going out and spending money on other people," she says. "We are very generous with our family and friends who are not as well off as we are. So we take care of a lot of people. We can't do that anymore. I can't go out and be frivolous anymore. I do have to look at what we spend - what I spend."

Vogelbacher says cutting costs is essential when living in retirement, especially for those on a fixed income. He suggests moving to a tax-friendly location if possible. Kiplinger ranks Alaska, Wyoming, South Dakota, Mississippi, and Florida as the top five tax-friendly states for retirees. If their health allows, Vogelbacher recommends getting a part-time job. For those who own a home, he says paying off the mortgage is a smart financial move.

... ... ...

Monica is one of the 44 percent of unmarried persons who rely on Social Security for 90 percent or more of their income. At the beginning of 2019, Monica and more than 62 million Americans received a 2.8 percent cost of living adjustment from Social Security. The increase is the largest since 2012.

With the Social Security hike, Monica's monthly check climbed $33. Unfortunately, the new year also brought her a slight increase in what she pays for Medicare; along with a $500 property tax bill and the usual laundry list of monthly expenses.

"If you don't have much, the (Social Security) raise doesn't represent anything," she says with a dry laugh. "But it's good to get it."

[Jan 17, 2019] Jamie Dimon Next US recession won't look like 07

Notable quotes:
"... On Tuesday, Dimon and JPMorgan CFO Marianne Lake said they think the current outlook for growth is positive considering the consumer is still strong and healthy. ..."
Jan 17, 2019 | finance.yahoo.com

During an interview with FOX Business earlier this month, Dimon told FOX Business' Maria Bartiromo that while it didn't look like a recession was imminent, there will eventually be a meaningful slowdown.

"There will be a recession one day. So when people say, 'Is there going to be a recession?' Yeah, I don't know when it's going to be, but there will be one and something will trigger it and it will be a little bit different than the last one," he said.

On Tuesday, Dimon and JPMorgan CFO Marianne Lake said they think the current outlook for growth is positive considering the consumer is still strong and healthy.

For the fourth quarter, the largest U.S. bank by assets reported lower-than-expected profit despite gains from higher interest rates and a bump within its loan sector. Losses were driven by market volatility, global growth worries and an ongoing trade war between the U.S. and China.


Ryan S 8 hours ago

Yes the pending recession will cause many debt bubbles to burst and not just isolated primarily to banking and housing sector.

Think of what happens to the college/university system when student can no longer get loans for subsidized rates. A house or vehicle can serve as an asset to be used as collateral to control rate ceilings. However, there is no collateral in Billy and Genie's BA History degree. Good luck to all these ivory tower universities when your funding dries up and nobody can afford your way overpriced programs. Anubis 9 hours ago I have read Americans hold over 50 trillion in debt yet over half the population has only $1,000 in savings.

Bob 9 hours ago

Why is the US increasing deficit spending doing a good economy???? Reply
s 8 hours ago
Why does no one ask....why does higher education cost so much compared to other costs? The rate of increases in higher education is never challenged by anyone. It is automatically assumed good. People are so blind and accepting.
Bart 7 hours ago
"At some point in the future we will have a recession and it will be a little bit different from the last recession." He is paid $28,500,000.00 a year and sounds like my car mechanic.
buddhist 8 hours ago
Same like it was in 2007. Everything in the world was fine until Lehmann declared bankruptcy and hell started to break. May be this time around it's Deutsche bank's turn.
Sam 5 hours ago
Signs of the economy slowing are everywhere. Company earnings are down and layoffs are increasingly more common. Min wage jobs might be plentiful right now, but that will change in less than a year. Better hold on and you better keep your job. Next recession will eliminate a lot of jobs. Those over 40 - forget it.
Chinas Love 8 hours ago
The next recession will occur when the US government hit over $25 Trillion in debt thus surpassing out total GDP thus making the US bankrupt or Trump enacts the remaining $600 billion of the $820 Billion in tariffs on China and the rest of the world because China trade deficit has grown under his watch to historic levels each each!

[Jan 13, 2019] This is Main Street versus Wall Street. This is honest books versus dirty books by Greg Hunter

Notable quotes:
"... I watched Greg Hunter's show on this. Very disturbing because of it's currency. This backdoor off-the-books financing of whatever they want is as she says, the introduction of free fascism in the US. ..."
"... Deep State is REAL: https://www.youtube.com/watch?v=LLTzpDFGWjI ..."
Jan 13, 2019 | www.zerohedge.com

Via Greg Hunter's USAWatchdog.com,

originally from: Secret Money For Private Armies Austin Fitts Exposes America's Open Running Bailout

Investment advisor and former Assistant Secretary of Housing Catherine Austin Fitts says it looks like a "global recession is coming."

Is that going to cause the debt reset we've been hearing about for years? Fitts says, " Make no mistake about it, there is no reason for the federal government to default or monkey with any debt because they can literally print the currency..."

" The question is how do they make sure whatever they are printing really holds any kind of store of value. I think the reason you are seeing them reengineer the federal bureaucracy and financial transactions infrastructure is because they want much greater and tighter control to do whatever they do, and that includes to continue to debase the currency. They could do this (reset) entirely by debasing the currency...

What we are watching . . . is essentially a coup. We had a financial coup, and now we are watching a legal coup to consolidate that financial coup. I would keep my eye on the fundamental governance structure of the U.S. The important thing is not what they do. The important thing is who controls no matter what they do. Now, we have created a mechanism for them to control entirely in secret and create policies entirely in secret, including around the back of a U.S. President... It's pirating by the 'just do it' method. I said to someone the other day, what is it about secret money for secret private armies that you don 't understand? "

$21 trillion in "missing money" at the DOD and HUD that was discovered by Dr. Mark Skidmore and Catherine Austin Fitts in 2017 has now become a national security issue.

The federal government is not talking or answering questions, even though the DOD recently failed its first ever audit. Fitts says, "This is basically an open running bailout..."

"Under this structure, you can transfer assets out of the federal government into private ownership, and nobody will know and nobody can stop it. There is no oversight whatsoever. You can't even know who is doing it. I'm telling you they just took the United States government, they just changed the governance model by accounting policy to a fascist government. If you are an investor, you don't know who owns those assets, and there is no evidence that you do...

If the law says you have to produce audited financial statements and you refuse to do so for 20 years, and then when somebody calls you on it, you proceed to change the accounting laws that say you can now run secret books for all the agencies and over 100 related entities ."

In closing, Fitts says, "We cannot sit around and passively depend on a guy we elected President..."

"The President cannot fix this. We need to fix this...

This is Main Street versus Wall Street. This is honest books versus dirty books. If you want the United States in 10 years to resemble anything what it looked like 20 years ago, you are going to have to do it, and there is no one else who can do it. You have to first get the intelligence to know what is happening."

Join Greg Hunter as he goes One-on-One with Catherine Austin Fitts, Publisher of "The Solari Report."

https://www.youtube.com/embed/Mi6S4zrFjPg

To Donate to USAWatchdog.com


Withdrawn Sanction , 15 minutes ago link

"If the law says you have to produce audited financial statements and you refuse to do so for 20 years, and then when somebody calls you on it, you proceed to change the accounting laws that say you can now run secret books for all the agencies and over 100 related entities ."

She's referring to FASB standards, but those dont sound like a Constitutional Amendment to me.

Article i, Section 9, paragraph 7: "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time."

Perhaps when $20+ trillion are involved, the Constitution be damned, I suppose. Or perhaps the govt boys will claim the $20T didn't come from an appropriation but instead from their own "industrious" activities...you know, like drug and gun running, and human trafficking perhaps?

DjangoCat , 21 minutes ago link

I watched Greg Hunter's show on this. Very disturbing because of it's currency. This backdoor off-the-books financing of whatever they want is as she says, the introduction of free fascism in the US.

Is the Donald on this case? Sure hope so.

JBlount123 , 22 minutes ago link

Deep State is REAL: https://www.youtube.com/watch?v=LLTzpDFGWjI

Duc888 , 24 minutes ago link

One of the smartest women out there. Huge fan here. She almost got snuffed for blowing the whistle at HUD (two sets of books and all). It's only recently that she's come out and said that there's no such thing as the "money being lost". It's digital and 100% traceable.

Arrowflinger , 15 minutes ago link

Fitts is correct and her approach is sound. Money flows are traceable. The problem is more complicated, though. As Enron proved and the Parmalat scandal cemented, the CRONY CUT is fatal. The Auditors gave up fiduciary duties for FIDOCIARIES riches. They rolled over and played dead.

Duc888 , 12 minutes ago link

They've already tried to off her. They broke her financially and she bounced back. She made a lot of enemies but luckily she has some good friends in high places too. Watch a few Vids about what they did to her after she blew the whistle at HUD. She's lucky to be above ground.

Her extensive studies and reports that follow crack cocaine being dumped into various areas the subsequent drug related violence and BS "WOD" response and then what happened to the real estate, as in, WHO WINDS UP BUYING block after block after block of blighted buildings is absolutely fascinating . She should have gotten more recognition for those exhaustive studies.

There's a VERY LARGE HAND at work there...for profit.

[Jan 13, 2019] More Americans fleeing high-tax states

Jan 13, 2019 | finance.yahoo.com

Last year, these were the ten highest income tax states, according to TurboTax (*These rates do not include local taxes.):

[Jan 13, 2019] Goldman Sachs Says Markets Indicate a 50% Chance of a Recession

Notable quotes:
"... However, despite the signs, Goldman Sachs assumes the indicators are wrong and that "recession risk remains fairly low, in the neighborhood of 15% over the next year." The bank has predicted that the S&P 500 will finish 2019 at 3,000, up from the current value just below 2,600. ..."
Jan 13, 2019 | finance.yahoo.com

Confidence in continued economic growth has been waning. A huge majority of chief financial officers around the world say a recession will happen by the end of 2020. Most voters think one will hit by the end of this year.

Now the Goldman Sachs economic research team says that the market shows a roughly 50% chance of a recession over the next year, according to Axios.

Goldman Sachs looked at two different measures: the yield curve slope and credit spreads. The former refers to a graph of government bond interest rates versus the years attaining maturity requires. In a growing economy, interest rates are higher the longer the investment because investors have confidence in the future. A frequent sign of a recession is the inversion of the slope, when investors are uncertain about the future, so are less willing to bet on it.

Credit spreads compare the interest paid by government bonds, which are considered the safest. Corporate bonds, which are riskier, of the same maturity have to offer higher interest rates. As a recession approaches, credit spreads tend to expand, as investors are more worried about companies defaulting on their debt.

However, despite the signs, Goldman Sachs assumes the indicators are wrong and that "recession risk remains fairly low, in the neighborhood of 15% over the next year." The bank has predicted that the S&P 500 will finish 2019 at 3,000, up from the current value just below 2,600.

[Jan 13, 2019] UAE energy minister says average oil price in 2018 was $70 a barrel

Jan 13, 2019 | finance.yahoo.com

ABU DHABI (Reuters) - United Arab Emirates Energy Minister Suhail al-Mazrouei said on Saturday the average oil price in 2018 was $70 a barrel.

The Organization of the Petroleum Exporting Countries and other leading global oil producers led by Russia agreed in December to cut their combined oil output by 1.2 million barrels per day to balance the oil market starting from January.

"Today we look at an average year of around $70 for Brent," Mazrouei told an industry news conference in Abu Dhabi, adding that this level would help encourage global oil investments. An energy ministry spokesman said the minister was referring to the average oil price in 2018.

[Jan 13, 2019] Canada's Crude Oil Production Cuts Are Unsustainable by Haley Zaremba

I especially like the phase "This directive was particularly surprising in the context of Canada's free market economy" That's really deep understanding of the situation ;-) . It is so difficult to understand that Canada as a large oil producer, needs higher oil prices and it does not make sense from the point of market economy to pollute the environment and at the same time lose money in the process ?
Notable quotes:
"... Alberta's oil production has been cut 8.7 percent according to the mandate set by the province's government under Rachel Notley with the objective of cutting out around 325,000 barrels per day from the Canadian market. ..."
"... So far, the government-imposed productive caps have been extremely successful. In October Canadian oil prices were so depressed that the Canadian benchmark oil Western Canadian Select (WCS) was trading at a whopping $50 per barrel less than United States benchmark oil West Texas Intermediate (WTI). now, in the wake of production cuts, the price gap between WCS and WTI has diminished by a dramatic margin to a difference of just under $13 per barrel. ..."
"... The current production caps in Canada are only intended to last through the middle of this year, at which point Canadian oil companies will be permitted to decrease their cutbacks to just 95,000 barrels per day fewer than the numbers from November 2018's production rates. ..."
Jan 13, 2019 | finance.yahoo.com

In an attempt to combat a ballooning oil glut and dramatically plummeting prices, the premier of Alberta Rachel Notley introduced an unprecedented measure at the beginning of December when she is mandating that oil companies in her province cut production. This directive was particularly surprising in the context of Canada's free market economy, where oil production is rarely so directly regulated.

Canada's recent oil glut woes are not due to a lack of demand, but rather a severe lack of pipeline infrastructure. There is plenty of demand, and more than enough supply, but no way to get the oil flowing where it needs to go. Canada's pipelines are running at maximum capacity, storage facilities are filled to bursting, and the pipeline bottleneck has only continued to worsen . Now, in an effort to alleviate the struggling industry, Alberta's oil production has been cut 8.7 percent according to the mandate set by the province's government under Rachel Notley with the objective of cutting out around 325,000 barrels per day from the Canadian market.

Even before the government stepped in, some private oil companies had already self-imposed production caps in order to combat the ever-expanding glut and bottomed-out oil prices. Cenovus Energy, Canadian Natural Resource, Devon Energy, Athabasca Oil, and others announced curtailments that totaled around 140,000 barrels a day and Cenovus Energy, one of Canada's major producers, even went so far as to plead with the government to impose production caps late last year.

So far, the government-imposed productive caps have been extremely successful. In October Canadian oil prices were so depressed that the Canadian benchmark oil Western Canadian Select (WCS) was trading at a whopping $50 per barrel less than United States benchmark oil West Texas Intermediate (WTI). now, in the wake of production cuts, the price gap between WCS and WTI has diminished by a dramatic margin to a difference of just under $13 per barrel.

Related: The Natural Gas Crash Isn't Over

While on the surface this would seem to be a roundly glowing review of the production caps in Alberta, production cuts are not a long-term solution for Canada's oil glut woes. The current production caps in Canada are only intended to last through the middle of this year, at which point Canadian oil companies will be permitted to decrease their cutbacks to just 95,000 barrels per day fewer than the numbers from November 2018's production rates. The cuts are a just a treatment, not a cure, for oversupply in Alberta. The problem needs to be addressed at its source--the pipelines.

Unfortunately, the pipeline shortage in Alberta has no quick and easy fix. While there are multiple major pipeline projects underway, the two largest, the Keystone XL pipeline and the Trans Mountain pipeline, are stalled indefinitely thanks to legal woes and seemingly endless litigation. The Enbridge Line 3 pipeline, intended to replace one of the region's already existing pipelines, is currently under construction and projected to be up and running by the end of the year, but will not go a long way toward fixing the bottleneck.

Even if the Albertan government re-evaluates the present mid-2019 expiration date for the current stricter production cuts, extending the production caps could have enduring negative consequences in the region's oil industry. Keeping a long-term cap on production in Alberta would potentially discourage investment in future production as well as in the infrastructure the local industry so sorely needs. According to some reporting , the cuts will not be able to control the gap between Canadian and U.S. oil for much longer anyway, just another downside to drawing out what should be a short-term solution. The government will need to weigh the possible outcomes very carefully as the expiration date approaches, when the and the pipeline shortage is still a long way from being solved and the price of oil remains dangerously variable.

By Haley Zaremba for Oilprice.com

[Jan 12, 2019] Gundlach Warns U.S. Economy Is Floating on 'an Ocean of Debt'

Jan 12, 2019 | finance.yahoo.com

(Bloomberg) -- Jeffrey Gundlach said yet again that the U.S. economy is gorging on debt.

Echoing many of the themes from his annual "Just Markets" webcast on Tuesday, Gundlach took part in a round-table of 10 of Wall Street's smartest investors for Barron's. He highlighted the dangers especially posed by the U.S. corporate bond market.

Prolific sales of junk bonds and significant growth in investment grade corporate debt, coupled with the Federal Reserve weaning the market off quantitative easing, have resulted in what the DoubleLine Capital LP boss called "an ocean of debt."

The investment manager countered President Donald Trump's claim that he's presiding over the strongest economy ever. The growth is debt-based, he said.

Gundlach's forecast for real GDP expansion this year is just 0.5 percent. Citing numbers spinning out of the USDebtClock.org website, he pointed out that the U.S.'s unfunded liabilities are $122 trillion -- or six times GDP.

"I'm not looking for a terrible economy, but an artificially strong one, due to stimulus spending," Gundlach told the panel. "We have floated incremental debt when we should be doing the opposite if the economy is so strong."

Stock Bear

Gundlach is coming off another year in which his Total Return Bond Fund outperformed its fixed-income peers. It returned 1.8 percent in 2018, the best performance among the 10 largest actively managed U.S. bond funds, according to data compiled by Bloomberg.

Gundlach expects further declines in the U.S. stock market, which recently have steadied after reeling for most of December since the Great Depression. Equities will be weak early in the year and strengthen later in 2019, effectively a reversal of what happened last year, he said.

"So now we are in a bear market, which isn't defined by me as stocks being down 20 percent. A bear market is determined by the way stocks are acting," he said.

Rupal Bhansali, chief investment officer of International & Global Equities at Ariel Investments, picked up on Gundlach's debt theme in the Barron's cover story. Citing General Electric's woes, she urged investors to focus more on balance-sheet risk rather than whether a company could beat or miss earnings. Companies with net cash are worth looking at, she said.

To contact the reporters on this story: James Ludden in New York at jludden@bloomberg.net;Hailey Waller in New York at hwaller@bloomberg.net

To contact the editors responsible for this story: Matthew G. Miller at mmiller144@bloomberg.net, Ros Krasny

For more articles like this, please visit us at bloomberg.com

[Jan 12, 2019] These US companies employ the most H-1B visa holders

Jan 12, 2019 | finance.yahoo.com

One of the most sought-after visa programs in the U.S., the H-1B, could see some significant changes in 2019, according to President Trump , including a potential path to citizenship for recipients of the non-immigrant visa.

The H-1B visa program allows U.S. employers to hire graduate-level workers in specialty occupations, like IT, finance, accounting, architecture, engineering, science and medicine. Any job that requires workers to have at least a bachelor's degree falls under the H-1B for specialty occupations.

Each year, the U.S. Citizenship and Immigration Services (USCIS) allots about 85,000 of the H-1B visas -- 65,000 for applicants with a bachelor's degree or equivalent, and 20,000 for those with a master's degree or higher.

As of April 2017, when Trump signed an executive order -- "Buy American and Hire American" -- it's become more difficult for U.S. companies to hire people via H-1B. It directs the Department of Homeland Security to only grant the visas to the "most-skilled or highest-paid beneficiaries."

Here's a look at the American companies (and industries) that benefited the most from the program in 2017.

Cognizant: The IT services business had a whopping 3,194 H-1B initial petitions approved in 2017, the most of any U.S. company by almost 600.

Amazon: In 2017, the e-commerce behemoth hired 2,515 employees via the H-1B visa program, according to data compiled by the National Foundation for American Policy . That was about a 78 percent increase from 2016, or 1,099 more employees.

Microsoft: Microsoft hired 1,479 workers through H-1B in 2017, the second most of U.S. companies -- an increase in 334 employees from the year prior, or close to 29 percent.

IBM: In 2017, IBM employed about 1,231 workers through the H-1B visa program.

Intel: The California-based company employed 1,230 workers through H-1B in 2017, 200 more workers -- or a 19 percent increase -- compared to 2016.

Google: The search engine giant had 1,213 H-1B initial petitions approved for fiscal year 2017, a 31 percent increase of about 289 from 2016.

[Jan 11, 2019] How Shocking Was Shock Therapy

Highly recommended!
Notable quotes:
"... You should have come here in the 90's to see a shock of the Doctrine to face social trauma of "PGR"(Huge National Farms) workers (it's the electorate of PiS (Law and Justice)), Miners near Wałbrzych, workers of textile industry near łódź bereft of everything from day to day (literally). Even the contemporary visit might ensure you quite a thrill if you knew where to look. Most of the firms that would easily survive if given some protectionism were hostily taken over by a foreigner capital and shut down with their production instantly replaced by imported goods. ..."
"... I do remember his speeches well. Form the spectrum offered by the Chicago boys he chosen the hardest option. It was Michnik and Kuroń who opted for less "Chicago" direction. But they were in minority. The prevailing Zeitgeist of the period caused words "social", "common" to be treated as a curse and socially stigmatizing. ..."
"... For a better understanding what went wrong you may take example of railroad privatization and compare it to the Czech way. ..."
"... the global elite perspective is that a quick way to rid the globe of the problems we face is to kill off enough people so that the problem dissipates -- war, fraud, nationalism/racism used to point the finger at the other (making it easier for people to harm one another or look the other way (Arendt). ..."
"... Efficiency requires a variety of gains, returns, profits and fairness. Otherwise it is simply theft. And when all is accounted for there might not be any profit to be had in the real world. Only in the minds of the neoliberals. Efficiency is something that should be accounted for carefully so that no vital systems are harmed. ..."
Jan 11, 2019 | www.nakedcapitalism.com

likbez , January 11, 2019 at 1:33 am

The level of the naivety of Barkley Rosser is astounding.

Poland was a political project, the showcase for the neoliberal project in Eastern Europe and the USSR. EU was pressed to provide large subsidies, and that marionette complied. The commenter ilpalazzo (above) is right that there has been " a tremendous development in real estate and infrastructure mostly funded by the EU that has been a serious engine of growth." Like in Baltics and Ukraine, German, French, Swedish and other Western buyers were most interested in opening market for their products and getting rid of local and xUSSR competitors (and this supported and promoted Russophobia). With very few exceptions. University education system also was partially destroyed, but still fared better than most manufacturing industries.

I remember talking to one of the Polish professors of economics when I was in Poland around 1992. He said that no matter how things will develop, the Polish economy will never be allowed to fail as the USA is interested in propelling it at all costs. Still, they lost quite a bit of manufacturing: for example all shipbuilding, which is ironic as Lech Wałęsa and Solidarity emerged in this industry.

Eventually, Poland emerged as the major US agent of influence within the EU (along with GB) with the adamant anti-Russian stance. Which taking into account the real state of Polish manufacturing deprived of the major market is very questionable. Later by joining sanctions, they lost Russian agricultural market (including all apple market in which they have a prominent position).

But they have a large gas pipeline on their territory, so I suspect that like Ukraine they make a lot of money via transit fees simply due to geographic. So they parochially live off rent -- that why they bark so much at North Stream 2.

Polish elite is a real horror show, almost beyond redemption, and not only in economics. I do not remember, but I think it was Churchill who said " Poland is a greedy hyena of Europe." This is as true now as it was before WWII.

Jura , January 11, 2019 at 4:54 am

Gosh! I used to actively fight the commies here in the 80's. But then with Balcerowicz I almost regretted it. as to your words:

"Balcerowicz himself at one point advocated something pretty much like what came to pass, a gradual privatization and maintaining most of the sociaal safety net while advocating shock monetary policies to bring inflation under control." – They derail.

You should have come here in the 90's to see a shock of the Doctrine to face social trauma of "PGR"(Huge National Farms) workers (it's the electorate of PiS (Law and Justice)), Miners near Wałbrzych, workers of textile industry near łódź bereft of everything from day to day (literally). Even the contemporary visit might ensure you quite a thrill if you knew where to look. Most of the firms that would easily survive if given some protectionism were hostily taken over by a foreigner capital and shut down with their production instantly replaced by imported goods.

I do remember his speeches well. Form the spectrum offered by the Chicago boys he chosen the hardest option. It was Michnik and Kuroń who opted for less "Chicago" direction. But they were in minority. The prevailing Zeitgeist of the period caused words "social", "common" to be treated as a curse and socially stigmatizing.

For a better understanding what went wrong you may take example of railroad privatization and compare it to the Czech way.

Don't believe the official statistics, we have a huge part of our working poors here. Their voice will never be heard as they live in a subsistence economy and the've got neither time nor power to shout struggling to survive..

John Mc , January 11, 2019 at 11:28 am

One wonders why there is a need to revisit Klein's thesis to debunk parts of it in this moment?

And the point is so small in this article about Poland, that one wonders why a James Madison prof of econ does not have more time to look at significant problems everywhere instead of parse the progressive beast?

In my lifetime, I have not witnessed a time where more of the political machinery has drifted to the right -- caught in the headlights of what Chris Hedges calls the illusion of democracy in the decay of capitalism.

Its important to not forget Gina Haspel's contribution here and torture -- how torture (economic, physical, and social shock) is implicated, vaulting her to the head of our top Spy agency --

It reminds me of a recent article from Arundhati Roy's, that the global elite perspective is that a quick way to rid the globe of the problems we face is to kill off enough people so that the problem dissipates -- war, fraud, nationalism/racism used to point the finger at the other (making it easier for people to harm one another or look the other way (Arendt).

Susan the Other , January 11, 2019 at 1:21 pm

China is wisely looking at the efficiency of state owned enterprises with a reluctance to privatize them. It will become very clear now that everyone is sobering up from the collapse of the USSR that neoliberal capitalist efficiency (profits) can only be made by socializing costs and externalizing everything that reduces their bottom line with answers like "That ain't mine."

If even the doofuses at Davos are looking at various forms of "capital" (social, political, civil, environmental, etc.) they have begun to mitigate their global catastrophe.

Efficiency requires a variety of gains, returns, profits and fairness. Otherwise it is simply theft. And when all is accounted for there might not be any profit to be had in the real world. Only in the minds of the neoliberals. Efficiency is something that should be accounted for carefully so that no vital systems are harmed.

bruce wilder , January 11, 2019 at 2:17 pm

Barkley insists on a left-right split for his analysis of political parties and their attachment to vague policy tendencies and that insistence makes a mess of the central issue: why the rise of right-wing populism in a "successful" economy?

Naomi Klein's book is about how and why centrist neoliberals got control of policy. The rise of right-wing populism is often supposed (see Mark Blyth) to be about the dissatisfaction bred by the long-term shortcomings of or blowback from neoliberal policy.

Barkley Rosser treats neoliberal policy as implicitly successful and, therefore, the reaction from the populist right appears mysterious, something to investigate. His thesis regarding neoliberal success in Poland is predicated on policy being less severe, less "shocky".

In his left-right division of Polish politics, the centrist neoliberals -- in the 21st century, Civic Platform -- seem to disappear into the background even though I think they are still the second largest Party in Parliament, though some seem to think they will sink in elections this year.

Electoral participation is another factor that receives little attention in this analysis. Politics is shaped in part by the people who do NOT show up. And, in Poland that has sometimes been a lot of people, indeed.

Finally, there's the matter of the neoliberal straitjacket -- the flip-side of the shock in the one-two punch of "there's no alternative". What the policy options for a Party representing the interests of the angry and dissatisfied? If you make policy impossible for a party of the left, of course that breeds parties of the right. duh.

Likbez,

Bruce,

Blowback from the neoliberal policy is coming. I would consider the current situation in the USA as the starting point of this "slow-motion collapse of the neoliberal garbage truck against the wall." Neoliberalism like Bolshevism in 1945 has no future, only the past. That does not mean that will not limp forward in zombie (and pretty bloodthirsty ) stage for another 50 years. But it is doomed, notwithstanding recently staged revenge in countries like Ukraine, Argentina, and Brazil.

Excessive financialization is the Achilles' heel of neoliberalism. It inevitably distorts everything, blows the asset bubble, which then pops. With each pop, the level of political support of neoliberalism shrinks. Hillary defeat would have been impossible without 2008 events.

At least half of Americans now hate soft neoliberals of Democratic Party (Clinton wing of Bought by Wall Street technocrats), as well as hard neoliberal of Republican Party, which created the " crisis of confidence" toward governing neoliberal elite in countries like the USA, GB, and France. And that probably why the intelligence agencies became the prominent political players and staged the color revolution against Trump (aka Russiagate ) in the USA.

The situation with the support of neoliberalism now is very different than in 1994 when Bill Clinton came to power. Of course, as Otto von Bismarck once quipped "God has a special providence for fools, drunkards, and the United States of America." and another turn of the technological spiral might well save the USA. But the danger of never-ending secular stagnation is substantial and growing. This fact was admitted even by such dyed-in-the-wool neoliberals as Summers.

This illusion that advances in statistics gave neoliberal access to such fine-grained and timely economic data, that now it is possible to regulated economy indirectly, by strictly monetary means is pure religious hubris. Milton Friedman would now be laughed out the room if he tried to repeat his monetarist junk science now. Actually he himself discarded his monetarist illusions before he died.

We probably need to the return of strong direct investments in the economy by the state and nationalization of some assets, if we want to survive and compete with China. Australian politicians are already openly discussing this, we still lagging because of "walking dead" neoliberals in Congress like Pelosi, Schumer, and company.

But we have another huge problem, which Australia and other countries (other than GB) do not have: neoliberalism in the USA is a state religion which completely displaced Christianity (and is hostile to Christianity), so it might be that the lemming will go off the cliff. I hope not.

The only thing that still keeps neoliberalism from being thrown out to the garbage bin of history is that it is unclear what would the alternative. And that means that like in 1920th far-right nationalism and fascism have a fighting chance against decadent neoliberal oligarchy.

Previously financial oligarchy was in many minds associated with Jewish bankers. Now people are more educated and probably can hang from the lampposts Anglo-Saxon and bankers of other nationalities as well ;-)

I think that in some countries neoliberal oligarchs might soon feel very uncomfortable, much like Soros in Hungary.

As far as I understood the level of animosity and suppressed anger toward financial oligarchy and their stooges including some professors in economics departments of the major universities might soon be approaching the level which existed in the Weimar Republic. And as Lenin noted, " the ideas could become a material force." This true about anger as well.

[Jan 08, 2019] The smaller the financial sector is the more real wealth there is for the rest of society to enjoy. The bigger the financial sector becomes the more money it siphons off from the productive sectors

Highly recommended!
There is probably an optimum size of financial sector after which it easily go out of control and start grabbing political power. So it is important to prohibit banksters to participate in political activity of any kind or in lobbing. Lobbing by financial sector should be criminalized. They also should be prohibited from hired any for government employee for 10 years after he/she left this/her position in government (revolving door style of corruption).
The other interesting point is that taxes can server as powerful inhibitor of destructive behaviour of financial sector. So the fight for the level of taxation of particular social groups is the most important political fight in modern society.
Also some actions of banksters sho</blockquote>uld be criminalized with high duration of jail term, just to create negative incentives for certain types of behavior. For example selling insurance without adequate capital to cover loses. Also important is to criminalize changing more then a minimum fees (say, 0.25% a year) in 401K accounts as well as provided insufficiently diversified 401k portfolios.
Jan 08, 2019 | neweconomicperspectives.org
Ben | March 18, 2014 at 5:32 pm

This was a fascinating piece, very readable for those of us with minimal financial education. However, since this is such a good explainer for the layman, I think it would be very beneficial to explain how big a difference 1% in fees makes for an investor over a lifetime. I know personally when I used to compare funds the difference between 1 and 2% in fees seemed negligible. But then I saw that fantastic PBS Frontline on this topic and saw how much that 1% could cost me over a lifetime! I now have everything that I personally manage in index funds!

Doc | March 19, 2014 at 5:26 am

You can't really argue with what has been said, and all (of us) involved in the sector know it is massive rip off.

While a free market advocate, I think a first step would be to introduce meaningful fee caps on all state promoted or mandated saving arrangements (eg ISAS, and Pensions), on the grounds that the market is skewed by the government intervention that creates the glut of forced buyers, and so to correct that imbalance the market (i.e. consumers) need protection through fee caps. I'd say no more than 20 – 25bps should be permitted for all ISAS and pension savings (DC or DB). Individual wealthy investors (investments of more than say £5m?) can pay what they like.

Paul | March 28, 2014 at 4:18 pm

Ben,

>>The job of the finance sector is simply to manage existing resources. It creates nothing.

This is a dubious assertion, but you clearly believe it. How then, can you in good conscience, charge 1.25% (plus indirect costs for the funds you hold in client portfolios) to manage people's money when you yourself admit you are adding no value?
(source: http://strubelim.com/wp/our-funds/ar-fund/ )

golfer1john | March 30, 2014 at 11:23 pm

Semantics.

There are 6000 publicly traded companies. Some of them will have rising stock prices, some falling. If a money manager can steer you to the rising ones, he is doing something of value. It doesn't mean he created anything physical that didn't exist before. He's doing a service for you that would otherwise have taken you some time and effort to do, and that's what you pay for.

Briana | March 31, 2014 at 10:22 am

Yes, it's a different definition of value. The growth of financial services has been outpacing the growth of other sectors to a monstrous scale, and that makes this distinction important. It signals a kind of corruption that can only mean high inflation and decoupling money from economic output.

golfer1john | April 1, 2014 at 12:05 am

I don't follow. How is financial services different from any other kind of services, in the impact on inflation? Why not also actors, barbers, or any other service profession?

The growth of the financial sector might be explained by the fact that it is the industry most able to exploit computers, and the first to do so on a large scale.

The corruption is, I think, a separate issue that is present whenever other people's money is involved. Financial services and government are simply more involved that way than most other industries, and have been all along, dating to long before the recent growth. Corruption is not impossible in any industry, just more attractive when the numbers are larger.

Jim Shannon | April 1, 2014 at 9:20 am

Corruption is never a separate in ANY corporate activity. The TAX CODE treats the wealth of the .01% radically different than Income from Labor, because all Taxes on Capital Gains are deferred until taken and are not TAXED as ordinary income. The TAX CODE is responsible for the corruption of our government because it has put real POWER, the Power of Wealth in the hands of the .01%, to buy whatever it wants, while labor and the poor spend everything they earn or are given , every single year to survive in a economic culture designed for the benefit of the .01%, something no one will write about!

Change the TAX CODE and the Corruption of Society will end!

Briana | April 1, 2014 at 7:23 pm

Barbers and actors being paid for their labor do not have the same impact on inflation as a bank giving out loans and consumer credit at interest. It's not equivalent at all.

Corruption in financial industries is what this article is discussing. If it's a separate issue, I'm confused as to the point of talking about this at all!

golfer1john | April 2, 2014 at 1:50 pm

No, I wasn't, though I have heard that. My theory of markets, and human group behavior in general, is a statistical approach. There are averages, distributions, and temporary equilibriums, but the interesting parts are the outliers. I guess that is more of a quantum flavor than Newtonian. Over time, economies behave cyclically. Much of nature and human group behavior is cyclical.

Paul | April 11, 2014 at 11:48 am

"This argument hinges on everyone that purchases these services knowing their true value."

In a literal sense, you are correct, it is an imperfect measure of value. However, I think it is far and away the most reliable one we have as value is extremely subjective. I don't think it is right or prudent for third, non cost bearing parties to preempt decisions made by consenting adults, rather, I would accord them the dignity of free choice. There are many things that consumers purchase that I do not understand, why anyone would pay a premium for a fast car seems like a waste of money to me, for example. Why anyone would pay money to golf, not to mention the huge cost in terms of time it takes to get through 18 holes, seems like a waste of money to me. These are things that make no sense to me because I do not see the value there. But, I recognize that people have various tastes and preferences, and I respect that and presume that individuals know themselves and their own tastes and preferences better than I (or someone else) does. Therefore, when someone values something that I do not understand, I tend to believe it is a result of a difference in preference, rather than they are too dumb to figure out what they like, or that they are "tricked" into buying something and hence need protection delivered by those who fancy themselves as enlightened enough to see the real truth. Nothing about this is unique to the financial industry, by the way.

"Countless services and products we rely on were funded by taxes to make them profitable. They are "worthwhile" but apparently not "profitable" enough to invest in. Making money and creating value aren't the same thing. Ideally, everyone decides what is worthwhile."

Apparently not enough people decided these services and products were worthwhile, so politicians decided they were worthwhile and used the force and power of government to get them done. Substituting preferences of politicians, spending other people's money for those of millions of individuals spending their own money does not seem like an efficient way to allocate resources.

[Jan 08, 2019] Rewriting Economic Thought - Michael Hudson

Highly recommended!
Notable quotes:
"... The following is a transcript of CounterPunch Radio – Episode 19 (originally aired September 21, 2015). Eric Draitser interviews Michael Hudson. ..."
"... The Troika and IMF doctrine of austerity and privatization ..."
Oct 05, 2015 | michael-hudson.com

The following is a transcript of CounterPunch Radio – Episode 19 (originally aired September 21, 2015). Eric Draitser interviews Michael Hudson.

Eric Draitser: Today I have the privilege of introducing Michael Hudson to the program. Doctor Hudson is the author of the new book Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy , available in print on Amazon and an e-version on CounterPunch. Michael Hudson, welcome to CounterPunch Radio.

Michael Hudson: It's good to be here.

ED: Thanks so much for coming on. As I mentioned already, the title of your book – Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy – is an apt metaphor. So parasitic finance capital is really what you're writing about. You explain that it essentially survives by feeding off what we might call the real economy. Could you draw out that analogy a little bit? What does that mean? How does finance behave like a parasite toward the rest of the economy?

MH: Economists for the last 50 years have used the term "host economy" for a country that lets in foreign investment. This term appears in most mainstream textbooks. A host implies a parasite. The term parasitism has been applied to finance by Martin Luther and others, but usually in the sense that you just talked about: simply taking something from the host.

But that's not how biological parasites work in nature. Biological parasitism is more complex, and precisely for that reason it's a better and more sophisticated metaphor for economics. The key is how a parasite takes over a host. It has enzymes that numb the host's nervous system and brain. So if it stings or gets its claws into it, there's a soporific anesthetic to block the host from realizing that it's being taken over. Then the parasite sends enzymes into the brain. A parasite cannot take anything from the host unless it takes over the brain.

The brain in modern economies is the government, the educational system, and the way that governments and societies make their economic policy models of how to behave. In nature, the parasite makes the host think that the free rider, the parasite, is its baby, part of its body, to convince the host actually to protect the parasite over itself.

That's how the financial sector has taken over the economy. Its lobbyists and academic advocates have persuaded governments and voters that they need to protect banks, and even need to bail them out when they become overly predatory and face collapse. Governments and politicians are persuaded to save banks instead of saving the economy, as if the economy can't function without banks being left in private hands to do whatever they want, free of serious regulation and even from prosecution when they commit fraud. This means saving creditors – the One Percent – not the indebted 99 Percent.

It was not always this way. A century ago, two centuries ago, three centuries ago and all the way back to the Bronze Age, almost every society has realized that the great destabilizing force is finance – that is, debt. Debt grows exponentially, enabling creditors ultimately to foreclose on the assets of debtors. Creditors end up reducing societies to debt bondage, as when the Roman Empire ended in serfdom.

About a hundred years ago in America, John Bates Clark and other pro-financial ideologues argued that finance is not external to the economy. It's not extraneous, it's part of the economy, just like landlords are part of the economy. This means that if the financial sector takes more revenue out of the economy as interest, fees or monopoly charges, it's because finance is an inherent and vital part of the economy, adding to GDP, not merely siphoning it off from producers to pay Wall Street and the One Percent. So our economic policy protects finance as if it helps us grow, not siphons off our growth.

A year or two ago, Lloyd Blankfein of Goldman Sachs said that the reason Goldman Sachs' managers are paid more than anybody else is because they're so productive. The question is, productive of what? The National Income and Product Accounts (NIPA) say that everybody is productive in proportion to the amount of money they make/take. It doesn't matter whether it's extractive income or productive income. It doesn't matter whether it's by manufacturing products or simply taking money from people, or simply by the fraud that Goldman Sachs, Citigroup, Bank of America and others paid tens of millions of dollars in fines for committing. Any way of earning income is considered to be as productive as any other way. This is a parasite-friendly mentality, because it denies that there's any such thing as unearned income. It denies that there's a free lunch. Milton Friedman got famous for promoting the idea that there's no such thing as a free lunch, when Wall Street knows quite well that this is what the economy is all about. It's all about how to get a free lunch, with risks picked up by the government. No wonder they back economists who deny that there's any such thing!

ED: To get to the root of the issue, what's interesting to me about this analogy that we're talking about is that we hear the term neoliberalism all the time. It is an ideology I that's used to promote the environment within which this parasitic sort of finance capital can operate. So could you talk a bit about the relationship between finance capital and neoliberalism as its ideology.

MH: Today's vocabulary is what Orwell would call DoubleThink. If you're going to call something anti-liberal and against what Adam Smith and John Stuart Mill and other classical economists described as free markets, you pretend to be neoliberal. The focus of Smith, Mill, Quesnay and the whole of 19th-century classical economics was to draw a distinction between productive and unproductive labor – that is, between people who earn wages and profits, and rentiers who, as Mill said, "get rich in their sleep." That is how he described landowners receiving groundrent. It also describes the financial sector receiving interest and "capital" gains.

The first thing the neoliberal Chicago School did when they took over Chile was to close down every economics department in the country except the one they controlled at the Catholic University. They started an assassination program of left wing professors, labor leaders and politicians, and imposed neoliberalism by gunpoint. Their idea is you cannot have anti-labor, deregulated "free markets" stripping away social protections and benefits unless you have totalitarian control. You have to censor any idea that there's ever been an alternative, by rewriting economic history to deny the progressive tax and regulatory reforms that Smith, Mill, and other classical economists urged to free industrial capitalism from the surviving feudal privileges of landlords and predatory finance.

This rewriting of the history of economic thought involves inverting the common vocabulary that people use. So, the idea of the parasitism is to replace the meaning of everyday words and vocabulary with their opposite. It's DoubleThink.

Democratic vs. oligarchic government and their respective economic doctrines
ED: I don't want to go too far off on a tangent, but you mentioned the example of Chile's 1973 coup and the assassination of Allende to impose the Pinochet dictatorship. That was a Kissinger/Nixon operation as we know, but what's interesting about that is Chile was transformed into a sort of experimental laboratory to impose the Chicago school economic model of what we now would call neoliberalism. Later in our conversation I want to talk a bit about some recent laboratories we have seen in Eastern Europe, and now in Southern Europe as well. The important point about neoliberalism is the relationship between totalitarian government and this form of economics.

MH: That's right. Neoliberals say they're against government, but what they're really against is democratic government. The kind of governments they support are pre-referendum Greece or post-coup Ukraine. As Germany's Wolfgang Schäuble said, "democracy doesn't count." Neoliberals want the kind of government that will create gains for the banks, not necessarily for se the economy at large. Such governments basically are oligarchic. Once high finance takes over governments as a means of exploiting the 99 Percent, it's all for active government policy – for itself.

Aristotle talked about this more than 2,000 years ago. He said that democracy is the stage immediately proceeding oligarchy. All economies go through three stages repeating a cycle: from democracy into oligarchy, and then the oligarchs make themselves hereditary. Today, Jeb Bush wants to abolish the estate tax to help the emerging power elite make itself into a hereditary aristocracy. Then, some of the aristocratic families will fight among themselves, and take the public into their camp and promote democracy, so you have the cycle going all over again. That's the kind of cycle we're having now, just as in ancient Athens. It's a transition from democracy to oligarchy on its way to becoming an aristocracy of the power elite.

ED: I want to return to the book in a second but I have to interject that one particular economist hasn't been mentioned yet: Karl Marx. It's an inversion of Marx as well, because Marx's labor theory of value was that that value ultimately is derived from labor. Parasitic finance capital is the opposite of that. It may increase prices without value.

MH: Correct, but I should point out that there's often a misinterpretation of the context in which the labor theory of value was formulated and refined. The reason why Marx and the other classical economists – William Petty, Smith, Mill and the others – talked about the labor theory of value was to isolate that part of price that wasn't value. Their purpose was to define economic rent as something that was not value. It was extraneous to production, and was a free lunch – the element of price that is charged to consumers and others that has no basis in labor, no basis in real cost, but is purely a monopoly price or return to privilege. This was mainly a survival of the feudal epoch, above all of the landed aristocracy who were the heirs of the military conquers, and also the financial sector of banking families and their heirs.

The aim of the labor theory of value was to divide the economy between excessive price gouging and labor. The objective of the classical economists was to bring prices in line with value to prevent a free ride, to prevent monopolies, to prevent an absentee landlord class so as to free society from the legacy of feudalism and the military conquests that carved up Europe's land a thousand years ago and that still underlies our property relations.

The concept and theory of economic rent
ED: That's a great point, and it leads me into the next issue that I want to touch on. You've mentioned the term already a number of times: the concept of economic rent. We all know rent in terms of what we have to pay every month to the landlord, but we might not think about what it means conceptually. It's one of the fabrics with which you've woven this book together. One of the running themes, rent extraction, and its role in the development of what we've now termed this parasitic relationship. So, explain for laymen what this means – rent extraction – and how this concept evolved.

MH: To put the concept of economic rent in perspective, I should point out when I went to get my PhD over a half a century ago, every university offering a graduate economics degree taught the history of economic thought. That has now been erased from the curriculum. People get mathematics instead, so they're unexposed to the concept of economic rent as unearned income. It's a concept that has been turned on its head by "free market" ideologues who use "rent seeking" mainly to characterize government bureaucrats taxing the private sector to enhance their authority – not free lunchers seeking to untax their unearned income. Or, neoclassical economists define rent as "imperfect competition" (as if their myth of "perfect competition" really existed) stemming from "insufficient knowledge of the market," patents and so forth.

Most rent theory was developed in England, and also in France. English practice is more complex than America. The military conquers imposed a pure groundrent fee on the land, as distinct from the building and improvements. So if you buy a house from a seller in England, somebody else may own the land underneath it. You have to pay a separate rent for the land. The landlord doesn't do anything at all to collect land rent, that's why they call them rentiers or coupon clippers. In New York City, for example, Columbia University long owned the land underneath Rockefeller Center. Finally they sold it to the Japanese, who lost their shirt. This practice is a carry-over from the Norman Conquest and its absentee landlord class.

The word "rent" originally was French, for a government bond (rente). Owners received a regular income every quarter or every year. A lot of bonds used to have coupons, and you would clip off the coupon and collect your interest. It's passively earned income, that is, income not actually earned by your own labor or enterprise. It's just a claim that society has to pay, whether you're a government bond holder or whether you own land.

This concept of income without labor – but simply from privileges that had been made hereditary – was extended to the ideas of monopolies like the East India Company and other trade monopolies. They could produce or buy goods for, let's say, a dollar a unit, and sell them for whatever the market will bear – say, $4.00. The markup is "empty pricing." It's pure price gouging by a natural monopoly, like today's drug companies.

To prevent such price gouging and to keep economies competitive with low costs of living and doing business, European kept the most important natural monopolies in the public domain: the post office, the BBC and other state broadcasting companies, roads and basic transportation, as well as early national airlines. European governments prevented monopoly rent by providing basic infrastructure services at cost, or even at subsidized prices or freely in the case of roads. The guiding idea is for public infrastructure – which you should think of as a factor of production along with labor and capital – was to lower the cost of living and doing business.

But since Margaret Thatcher led Britain down the road to debt peonage and rent serfdom by privatizing this infrastructure, she and her emulators other countries turned them into tollbooth economies. The resulting economic rent takes the form of a rise in prices to cover interest, stock options, soaring executive salaries and underwriting fees. The economy ends up being turned into a collection of tollbooths instead of factories. So, you can think of rent as the "right" or special legal privilege to erect a tollbooth and say, "You can't get television over your cable channel unless you pay us, and what we charge you is anything we can get from you."

This price doesn't have any relation to what it costs to produce what they sell. Such extortionate pricing is now sponsored by U.S. diplomacy, the World Bank, and what's called the Washington Consensus forcing governments to privatize the public domain and create such rent-extracting opportunities.

In Mexico, when they told it to be more "efficient" and privatize its telephone monopoly, the government sold it to Carlos Slim, who became one of the richest people in the world by making Mexico's phones among the highest priced in the world. The government provided an opportunity for price gouging. Similar high-priced privatized phone systems plague the neoliberalized post-Soviet economies. Classical economists viewed this as a kind of theft. The French novelist Balzac wrote about this more clearly than most economists when he said that every family fortune originates in a great theft. He added that this not only was undiscovered, but has come taken for granted so naturally that it just doesn't matter.

If you look at the Forbes 100 or 500 lists of each nation's richest people, most made their fortunes through insider dealing to obtain land, mineral rights or monopolies. If you look at American history, early real estate fortunes were made by insiders bribing the British Colonial governors. The railroad barrens bribed Congressmen and other public officials to let them privatize the railroads and rip off the country. Frank Norris's The Octopus is a great novel about this, and many Hollywood movies describe the kind of real estate and banking rip-offs that made America what it is. The nation's power elite basically begun as robber barons, as they did in England, France and other countries.

The difference, of course, is that in past centuries this was viewed as corrupt and a crime. Today, neoliberal economists recommend it as the way to raise "productivity" and make countries wealthier, as if it were not the road to neofeudal serfdom.

The Austrian School vs. government regulation and pro-labor policies
ED: I don't want to go too far off on a tangent because we have a lot to cover specific to your book. But I heard an interesting story when I was doing a bit of my own research throughout the years about the evolution of economic thought, and specifically the origins of the so-called Austrian School of Economics – people like von Mises and von Hayek. In the early 20th century they were essentially, as far as I could tell, creating an ideological framework in which they could make theoretical arguments to justify exorbitant rent and make it seem almost like a product of natural law – something akin to a phenomenon of nature.

MH: The key to the Austrian School is their hatred of labor and socialism. It saw the danger of democratic government spreading to the Habsburg Empire, and it said, "The one thing we have to stop is democracy. Their idea of a free market was one free of democracy and of democratic government regulating and taxing wealthy rentiers. It was a short step to fighting in the streets, using murder as a "persuader" for the particular kind of "free markets" they wanted – a privatized Thatcherite deregulated kind. To the rentiers they said: "It's either our freedom or that of labor."

Kari Polanyi-Levitt has recently written about how her father, Karl Polanyi, was confronted with these right-wing Viennese. His doctrine was designed to rescue economics from this school, which makes up a fake history of how economics and civilization originated.

One of the first Austrian's was Carl Menger in the 1870s. His "individualistic" theory about the origins of money – without any role played by temples, palaces or other public institutions – still governs Austrian economics. Just as Margaret Thatcher said, "There's no such thing as society," the Austrians developed a picture of the economy without any positive role for government. It was as if money were created by producers and merchants bartering their output. This is a travesty of history. All ancient money was issued by temples or public mints so as to guarantee standards of purity and weight. You can read Biblical and Babylonian denunciation of merchants using false weights and measures so see why money had to be public. The major trading areas were agora spaces in front of temples, which kept the official weights and measures. And much exchange was between the community's families and the public institutions.

Most important, money was brought into being not for trade (which was conducted mainly on credit), but for paying debts. And most debts were owed to the temples and palaces for pubic services or tribute. But to the Austrians, the idea was that anything the government does to protect labor, consumers and society from rentiers and grabbers is deadweight overhead.

Above all, they opposed governments creating their own money, e.g. as the United States did with its greenbacks in the Civil War. They wanted to privatize money creation in the hands of commercial banks, so that they could receive interest on their privilege of credit creation and also to determine the allocation of resources.

Today's neoliberals follow this Austrian tradition of viewing government as a burden, instead of producing infrastructure free of rent extraction. As we just said in the previous discussion, the greatest fortunes of our time have come from privatizing the public domain. Obviously the government isn't just deadweight. But it is becoming prey to the financial interests and the smashers and grabbers they have chosen to back.

ED: You're right, I agree 100%. You encounter this ideology even in the political sociological realm like Joseph Schumpeter, or through the quasi-economic realm like von Hayek in The Road to Serfdom.

MH: Its policy conclusion actually advocates neo-serfdom. Real serfdom was when families had to pay all their income to the landlords as rent. Centuries of classical economists backed democratic political reform of parliaments to roll back the landlords' power (and that of bankers). But Hayek claimed that this rollback was the road to serfdom, not away from it. He said democratic regulation and taxation of rentiers is serfdom. In reality, of course, it's the antidote.

ED: It's the inversion you were talking about earlier. We're going to go into a break here in a minute but before we do I want to touch on one other point that is important in the book, again the book, Killing the Host: How Financial Parasites and Debt Bondage Destroyed the Global Economy, available from CounterPunch – very important that people pick up this book.

MH: And from Amazon! You can get a hard copy for those who don't want to read on computers.

Finance as the new mode of warfare
ED: Yes, and on amazon as well, thank you. This issue that I want to touch on before we go to the break is debt. On this program a couple of months ago I had the journalist John Pilger. He and I touched on debt specifically as a weapon, and how it is used as a weapon. You can see this in the form of debt enslavement, if you want to call it that, in postcolonial Africa. You see the same thing in Latin America where, Michael, I know you have a lot of experience in Latin America in the last couple of decades. So let's talk a little bit, if we could, before we go to the break, about debt as a weapon, because I think this is an important concept for understanding what's happening now in Greece, and is really the framework through which we have to understand what we would call 21st-century austerity.

MH: If you treat debt as a weapon, the basic idea is that finance is the new mode of warfare. That's one of my chapters in the book. In the past, in order to take over a country's land and its public domain, its basic infrastructure and its mineral resources, you had to have a military invasion. But that's very expensive. And politically, almost no modern democracy can afford a military invasion anymore.

So the objectives of the financial sector – of Wall Street, the City of London or Frankfurt in Germany – is to obtain the land. You can look at what's happening in Greece. What its creditors, the IMF and European Central Bank (ECB) want are the Greek islands, and they want the gas rights in the Aegean Sea. They want whatever buildings and property there is, including the museums.

Matters are not so much different in the private sector. If you can get a company or individual into debt, you can strip away the assets they have when they can't pay. A Hayek-style government would block society from protecting itself against such asset stripping. Defending "property rights" of creditors, such "free market" ideology deprives the rest of the economy – businesses, individuals and public agencies. It treats debt writedowns as the road to serfdom, not the road away from debt dependency.

In antiquity, private individuals obtained labor services by making loans to families in need, and obliging their servant girls, children or even wives to work off the loan in the form of labor service. My Harvard-based archaeological group has published a series of five books that I co-edited, most recently Labor in the Ancient World . Creditors (often palace infrastructure managers or collectors) would get people into bondage. When new Bronze Age rulers started their first full year on the throne, it was customary to declare an amnesty to free bond servants and return them to their families, and annul personal debts as well as to return whatever lands were forfeited. So in the Bronze Age, debt serfdom and debt bondage was only temporary. The biblical Jubilee law was a literal translation of Babylonian practice that went back two thousand years.

In America, in colonial times, sharpies (especially from Britain) would lend farmers money that they knew the farmer couldn't pay, then they would foreclose just before the crops came in. Right now you have corporate raiders, who are raiding whole companies by forcing them into debt, and then smashing and grabbing. You now have the IMF, European Central Bank and Washington Consensus taking over whole countries like Ukraine. The tactic is to purposely lend them the money that clearly cannot be repaid, and say, "Oh you cannot pay? Well, we're not going to take a loss. We have a solution." The solution is to sell off public enterprises, land and natural resources. In Greece's case, 50 billion euros of its property, everything that it has in the public sector. The country is to be sold off to foreigners (including domestic oligarchs working out of their offshore accounts). Debt leverage is thus the way to achieve what it took armies to win in times past.

ED: Exactly. One last point on that as well. I want to get your comment on and we see this in post-colonial Africa, especially when the French and the British had to nominally give up control of their colonies. You saw debt become an important tool to maintain hegemony within their spheres of influence. Of course, asset stripping and seizing control, smashing and grabbing was part of that. But also it is the debt servicing payments, it is the cycle of debt repayment and taking new loans on top of original loans to service the original loans – this process this cycle is also really an example of this debt servitude or debt bondage.

MH: That's correct, and mainstream economics denies any of this. It began with Ricardo, who's brothers were major bankers at the time, and he himself was the major bank lobbyist in England. Right after Greece won its independence from Turkey, the Ricardo brothers made a rack-renting loan to Greece at far below par (that is, below the face value that Greece committed itself to pay). Greece tried to pay over the next century, but the terms of the loan ended up stripping and keeping it on the edge of bankruptcy well into the 20th century.

But Ricardo testified before Parliament that there could be no debt-servicing problem. Any country, he said, could repay the debts automatically, because there is an automatic stabilization mechanism that enables every country to be able to pay. This is the theory that underlines Milton Friedman and the Chicago School of monetarism: the misleading idea that debt cannot be a problem.

That's what's taught now in international trade and financial textbooks. It's false pleading. It draws a fictitious "What If" picture of the world. When criticized, the authors of these textbooks, like Paul Samuelson, say that it doesn't matter whether economic theory is realistic or not. The judgment of whether an economic theory is scientific is simply whether it is internally consistent. So you have these fictitious economists given Nobel Prizes for promoting an inside out, upside down version of how the global economy actually works.

ED: One other thing that they no longer teach is what used to be called political economy. The influence of the Chicago School, neoliberalism and monetarism has removed classical political economy from academia, from the Canon if you will. Instead, as you said, it's all about mathematics and formulas that treat economics like a natural science, when in fact it really should be more of a historically grounded social science.

MH: The formulas that they teach don't have government in them,. If you have a theory that everything is just an exchange, a trade, and that there isn't any government, then you have a theory that has nothing to do with the real world. And if you assume that the environment remains constant instead of using economics to guide public and national policy, you're using economics for the opposite of what the classical economists did. Adam Smith, Mill, Marx, Veblen – they all developed their economic theory to reform the world. The classical economists were reformers. They wanted to free society from the legacy of feudalism – to get rid of land rent, to take money creation and credit creation into the public domain. Whatever their views, whether they were right wingers or left wingers, whether they were Christian socialists, Ricardian socialists or Marxian socialists, all the capitalist theorists of the 19th century called themselves socialists, because they saw capitalism as evolving into socialism.

But what you now have, since World War I, is a reaction against this, stripping away of the idea that governments have a productive role to play. If government is not the director and planner of the economy, then who is? It's the financial sector. It's Wall Street. So the essence of neoliberalism that you were mentioning before, is indeed a doctrine of central planning. It states that the central planning should be done by Wall Street, by the financial sector.

The problem is, what is the objective of central planning by Wall Street? It's not to raise living standards, and it's not to increase employment. It is to smash and grab. That is the society we're in now.

A number of chapters of my book (I think five), describe how the Obama administration has implemented this smash and grab, doing the exact opposite of what he promised voters. Obama has implemented the Rubin-omics [Robert Rubin] doctrine of Wall Street to force America into what looks like a chronic debt depression.

ED: Exactly right. I couldn't agree more. Let's take a short break and we'll continue the discussion. Again, I'm chatting with Michael Hudson about his new book, Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

The case of Latvia: Is it a success story, or a neoliberal disaster?
ED: I want to go back to some of the important issues that we introduced or alluded to in the first part of our discussion. As I was mentioning to you off-air, a couple years ago I twice interviewed your colleague Jeffrey Sommers, with whom you've worked and co-published a number of papers. We talked a lot about many of the same issues that you and I are touching on. Specifically Sommers – and I know you as well – did a lot of work in Latvia, a country in the former Soviet space in Eastern Europe on the Baltic Sea. Your book has a whole chapter on it, as well as references throughout the book.

So let's talk about how Latvia serves as a template for understanding the austerity model. It is touted by technocrats of the financial elite as a major success story – how austerity can work. I find it absurd on so many different levels. So tell us what happened in Latvia, what the real costs were, and why neoliberals claim it as a success story.

MH: Latvia is the disaster story of the last two decades. That's why I took it as an object lesson. You're right, it was Jeff Sommers who first brought me over to Latvia. I then became Director of Economic Research and Professor of Economics at the Riga Graduate School of Law.

When Latvia was given its independence when the Soviet Union broke up in 1991, a number of former Latvians had studied at George Washington University, and they brought neoliberalism over there – the most extreme grabitization and de-industrialization of any country I know. Latvians, Russians and other post-Soviet countries were under the impression that U.S. advisors would help them become modernized like the U.S. economy – with high living and consumption standards. But what they got was advice to emulate American experience. It got something just the opposite – how to enable foreign investors and bankers to carve it up, dismantle its industry and become a bizarre neoliberal experiment.

You may remember the Republican presidential candidate Steve Forbes, who in 2008 proposed a flat tax to replace progressive taxation. The idea never could have won in the United States, but Latvia was another story. The Americans set the flat tax at an amazingly low 12 percent of income – and no significant property tax on real estate or capital gains. It was a financial and real estate dream, and created a classic housing and financial bubble.

Jeff and I visited the head of the tax authority, who told us that she was appointed because she had done her PhD dissertation on Latvia's last land value assessment – which was in 1917. They hadn't increased the assessments since then, because the Soviet economy didn't have private land ownership and didn't even have a concept of rent-of-location for planning purposes. (Neither did Russia.)

Latvia emerged from the Soviet Union without any debt, and also with a lot of real estate and a highly educated population. But its political insiders turned over most of the government enterprises to themselves. Latvia had been a computer center and also the money-laundering center of the Soviet leadership already in the late 1980s (largely as a byproduct of Russian oil exports through Ventspils), and Riga remains the money-laundering city for today's Russia.

Privatizing housing and other property led to soaring real estate prices. But this bubble wasn't financed by domestic banks. The Soviet Union didn't have private banks, because the government had simply created the credit to fund the economy as needed. The main banks in a position to lend to Latvia were Swedish and other Scandinavian banks. They pounce on the lending opportunities to opened up by an entire nation whose real estate had almost no tax on it. The result was the biggest real estate bubble in the world, along with Russia's. Latvians found that in order to buy housing of their own, they had to go deeply into debt. Assets were only given to insiders, not to the people.

A few years ago there was a reform movement in Latvia to stop the economic bleeding. Jeff and I brought over American property appraisers and economists. We visited the leading bank, regulatory agencies. Latvia was going broke because its population had to pay so much for real estate. And it was under foreign-exchange pressure because debt service on its mortgage loans was being paid to the Swedish and foreign banks. The bank regulator told us that her problem was that her agency's clients are the banks, not the population. So the regulators thought of themselves as working for the banks, even though they were foreign-owned. She acknowledged that the banks were lending much more money than property actually was worth. But her regulatory agency had a solution: It was to have not only the buyer be obligated to pay the mortgage, but also the parents, uncles or aunts. Get the whole family involved, so that if the first signer couldn't pay the cosigners would be obligated.

That is how Latvia stabilized its banking system. But it did so by destabilizing the economy. The result is that Latvia has lost 20 percent of its population over the past decade or so. For much the same reasons that Greece has lost 20 percent of its population, with Ireland in a similar condition. The Latvians have a joke "Will the last person who leaves in 2020 please turn off the lights at the airport."

The population is shrinking because the economy is being run by looters, domestic and foreign. I was shown an island in the middle of the Daugava river that runs to the middle of Latvia, and was sold for half a million dollars. Our appraisers said that it's worth half a billion dollars, potentially. There are no plans to raise the property tax to recapture these gains for the country – so that it can lower its heaviest labor taxes in the world, nearly half each paycheck for income tax and "social security" spending so that finance and real estate won't be taxed.

A few years ago, I was at the only meeting of INET (George Soros's group) that I was invited to, and in the morning one of the lead talks was on how Latvia was a model that all countries could follow to balance the budget. Latvia has balanced the budget by cutting back public spending, reducing employment and lowering wage levels while indebting its population and forcing to immigrate. The neoliberal strategy is to balance by selling off whatever remains in the public domain. Soros funded a foundation there (like similar ones he started in other post-Soviet countries) to get a part of the loot.

These giveaways at insider prices have created a kleptocracy obviously loyal to neoliberal economics. I go into the details in my chapter. It's hard to talk about it without losing my temper, so I'm trying to be reasonable but it's a country that was destroyed and smashed. That was the U.S. neoliberal model alternative to post-Stalinism. It wasn't a new American economy. It was a travesty.

Why then does the population continue to vote for these neoliberals? The answer is, the neoliberals say, the alternative is Stalinism. To Latvians, this means exile, deportations and memories of the old pro-Russian policy. The Russian-speaking parties are the main people backers of a social democracy party. But neoliberals have merged with Latvian nationalists. They are not only making the election over resentment against the Russian-speaking population, but the fact that many are Jewish.

I find it amazing to see someone who is Jewish, like George Soros, allying with anti-Semitic and even neo-Nazi movements in Latvia, Estonia, and most recently, of course, Ukraine. It's an irony that you could not have anticipated deductively. If you had written this plot in a futuristic novel twenty years ago, no one would have believed that politics could turn more on national and linguistic identity politics than economic self-interest. The issue is whether you are Latvian or are Russian-Jewish, not whether you want to untax yourself and make? Voting is along ethnic lines, not whether Latvians really want to be forced to emigrate to find work instead of making Latvia what it could have been: an successful economy free of debt. Everybody could have gotten their homes free instead of giving real estate only to the kleptocrats.

The government could have taxed the land's rental value rather than letting real estate valuation be pledged to pay banks – and foreign banks at that. It could have been a low-cost economy with high living standards, but neoliberals turned in into a smash and grab exercise. They now call it an idea for other nations to follow. Hence, the U.S.-Soros strategy re Ukraine.

ED: That's an excellent point. It's a more extreme case for a number of reasons in Ukraine – the same tendency. They talk about, "Putin and his gaggle of Jews." That's the idea, that Putin and the Jews will come in and steal everything – while neoliberals plan to appropriate Ukraine's land and other resources themselves. In this intersection between economics and politics, Latvia, Lithuania, Estonia – the Baltic States of the former Soviet Union – are really the front lines of NATO expansion. They were some of the first and most pivotal countries brought into the NATO orbit. It is the threat of "Russian aggression" via the enclave at Kaliningrad, or just Russia in general. That is the threat they use to justify the NATO umbrella, and simultaneously to justify continuing these economic policies. So in many ways Russia serves as this convenient villain on a political, military and economic level.

MH: It's amazing how the popular press doesn't report what's going on. Primakov, who died a few months ago, said during the last crisis a few years ago that Russia has no need to invade Latvia, because it owns the oil export terminals and other key points. Russia has learned to play the Western game of taking countries over financially and acquiring ownership. Russia doesn't need to invade to control Latvia any more than America needs to invade to control Saudi Arabia or the Near East. If it controls exports or access to markets, what motive would it have to invade? As things stand, Russia uses Latvia it as a money laundering center.

The same logic applies to Ukraine today. The idea is that Russia is expansionary in a world where no one can afford to be militarily expansionary. After Russia's disaster in Afghanistan, no country in the world that's subject to democratic checks, whether it's America after the Vietnam War or Russia or Europe, no democratic country can invade another country. All they can do is drop bombs. This can't capture a country. For that you need major troop commitments.

In the trips that I've taken to Russia and China, they're in a purely defensive mode. They're wondering why America is forcing all this. Why is it destroying the Near East, creating a refugee problem and then telling Europe to clean up the mess it's created? The question is why Europe is willing to keep doing this. Why is Europe part of NATO fighting in the Near East? When America tells Europe, "Let's you and Russia fight over Ukraine," that puts Europe in the first line of fire. Why would it have an interest in taking this risk, instead of trying to build a mutual economic relationship with Russia as seemed to be developing in the 19th century?

ED: That's the ultimate strategy that the United States has used – driving a wedge between Russia and Europe. This is the argument that Putin and the Russians have made for a long time. You can see tangible examples of that sort of a relationship even right now if you look at the Nord Stream pipeline connecting Russian energy to German industrial output – that is a tangible example of the economic relationship, that is only just beginning between Russia and Europe. That's really what I think the United States wanted to put the brakes on, in order to be able to maintain hegemony. The number one way it does that is through NATO.

MH: It's not only put the brakes on, it has created a new iron curtain. Two years ago, Greece was supposed to privatize 5 billion euros of its public domain. Half of this, 2.5 billion, was to be the sale of its gas pipeline. But the largest bidder was Gazprom, and America said, "No, you can't accept the highest bidder if its Russian." Same thing in Ukraine. It has just been smashed economically, and the U.S. says, "No Ukrainian or Russian can buy into the Ukrainian assets to be sold off. Only George Soros and his fellow Americans can buy into this." This shows that the neoliberalism of free markets, of "let's everybody pay the highest price," is only patter talk. If the winner in the rigged market is not the United States, it sends in ISIS or Al Qaeda and the assassination teams, or backs the neo-Nazis as in Ukraine.

So, we're in a New Cold War. Its first victims, apart from Southern Europe, will be the rest of Europe. You can imagine how this is just beginning to tear European politics apart, with Germany's Die Linke and similar parties making a resurgence.

The Troika and IMF doctrine of austerity and privatization
ED: I want to return us back to the book and some other key issues that you bring up that I think are most important. One that we hear in the news all the time, and you write extensively about it in the book, is the Troika. That's the IMF, the European Central Bank (ECB) and the European Commission. It could be characterized as the political arm of finance capital in Europe, one that imposes and manages austerity in the interest of the ruling class of finance capital, as I guess we could call them. These are technocrats, not academically trained economists primarily (maybe with a few exceptions), but I want you to talk a bit about how the Troika functions and why it's so important in what we could call this crisis stage of neoliberal finance capitalism.

MH: Basically, the Troika is run by Frankfurt bankers as foreclosure and collection agents. If you read recently what former Greek finance minister Yanis Varoufakis has written, and his advisor James Galbraith, they said that when Syriza was elected in January, they tried to reason with the IMF. But it said that it could only do what the European Central Bank said, and that it would approve whatever they decided to do. The European Central Bank said that its role wasn't to negotiate democracy. Its negotiators were not economists. They were lawyers. "All we can say is, here's what you have to pay, here's how to do it. We're not here to talk about whether this is going to bankrupt Greece. We're just interested in in how you're going to pay the banks what they're owe. Your electric companies and other industry will have to go to German companies, the other infrastructure to other investors – but not from Russia."

It's much like England and France divided up the Near East after World War I. There's a kind of a gentlemen's agreement as to how the creditor economies will divide up Greece, carving it up much like neighboring Yugoslavia to the north.

In 2001 the IMF made a big loan to Argentina (I have a chapter on Argentina too), and it went bad after a year. So the IMF passed a rule, called the No More Argentinas rule, stating that the Fund was not going to participate in a loan where the government obviously can not pay.

A decade later came the Greek crisis of 2011. The staff found that Greece could not possibly pay a loan large enough to bail out the French, German and other creditors. So there has to be a debt write-down of the principal. The staff said that, and the IMF's board members agreed. But its Managing Director, Strauss-Kahn wanted to run for the presidency of France, and most of the Greek bonds were held by French banks. French President Sarkozy said "Well you can't win political office in France if you stiff the French banks." And German Chancellor Merkel said that Greece had to pay the German banks. Then, to top matters, President Obama came over to the G-20 meetings and they said that the American banks had made such big default insurance contracts and casino gambles betting that Greece would pay, that if it didn't, if the Europeans and IMF did not bail out Greece, then the American banks might go under. The implicit threat was that the U.S. would make sure that Europe's financial system would be torn to pieces.

ED: And Michael, I just want to clarify, I guess it's sort of a question: about what you're talking about here in terms of Geithner and Obama coming in: These would be credit default swaps and collateralized debt obligations?

MH: Yes. U.S. officials said that Wall Street had made so many gambles that if the French and German banks were not paid, they would turn to their Wall Street insurers. The Wall Street casino would go under, bringing Europe's banking system down with it. This prompted the European Central Bank to say that it didn't want the IMF to be a part of the Troika unless it agreed to take a subordinate role and to support the ECB bailout. It didn't matter whether Greece later could pay or not. In that case, creditors would smash and grab. This lead the some of the IMF European staff to resign, most notably Susan Schadler, and later to act as whistle blowers to write up what happened.

The same thing happened again earlier this year in Greece. Lagarde said that the IMF doesn't do debt reduction, but would give them a little longer to pay. Not a penny, not a euro will be written down, but the debt will be stretched out and perhaps the interest rate will be lowered – as long as Greece permits foreigners to grab its infrastructure, land and natural resources.

The staff once again leaked a report to the Financial Times (and maybe also the Wall Street Journal) that said that Greece couldn't pay, there's no way it can later sell off the IMF loan to private bondholders, so any bailout would be against the IMF's own rules. Lagarde was embarrassed, and tried to save face by saying that Germany has to agree to stretch out the payments on the debt – as if that somehow would enable it to pay, while its assets pass into foreign hands, which will remit their profits back home and subject Greece to even steeper deflation.

Then, a few weeks ago, you have the Ukraine crisis and the IMF is not allowed to make loans to countries that cannot pay. But now the whole purpose is to make loans to countries who can't pay, so that creditors can turn around and demand that they pay by selling off their public domain – and implicitly, force their population to emigrate.

ED: Also, technically they're not supposed to be making loans to countries that are at war, and they're ignoring that rule as well.

MH: That's the second violation of IMF rules. At least in the earlier Greek bailout, Strauss Kahn got around the "No More Argentinas" rule by having a new IMF policy that if a country is systemically important, the IMF can lend it the money even if it can't pay, even though it's not credit-worthy, if its default would cause a problem in the global financial system (meaning a loss by Wall Street or other bankers). But Ukraine is not systemically important. It's part of the Russian system, not the western system. Most of its trade is with Russia.

As you just pointed out, when Lagarde made the IMF's last Ukrainian loan, she said that she hoped its economy would stabilize instead of fighting more war in its eastern export region. The next day, President Poroshenko said that now that it had got the loan, it could go to war against the Donbass, the Russian speaking region. Some $1.5 billion of the IMF loan was given to banks run by Kolomoisky, one of the kleptocrats who fields his own army. His banks send the IMF's gift abroad to his own foreign banks, using his domestic Ukrainian money to pay his own army, allied with Ukrainian nationalists flying the old Nazi SS insignia fighting against the Russian speakers. So in effect, the IMF is serving as an am of the U.S. military and State Department, just as the World Bank has long been.

ED: I want to interject two points here for listeners who haven't followed it as closely. Number one is the private army that you're talking about – the Right Sector which is essentially a mercenary force of Nazis in the employ of Kolomoisky. They're also part of what's now called the Ukrainian National Guard. This paramilitary organization that is being paid directly by Kolomoisky. Number two – and this relates back to something that you were saying earlier, Michael – that IMF loan went to pay for a lot of the military equipment that Kiev has now used to obliterate the economic and industrial infrastructure of Donbass, which was Ukraine's industrial heartland. So from the western perspective it's killing two birds with one stone. If they can't strip the assets and capitalize on them, at least they can destroy them, because the number one customer was Russia.

MH: Russia had made much of its military hardware in Ukraine, including its liftoff engines for satellites. The West doesn't want that to continue. What it wants for its own investors is Ukraine's land, the gas rights in the Black Sea, electric and other public utilities, because these are the major tollbooths to extract economic rent from the economy. Basically, US/NATO strategists want to make sure, by destroying Ukraine's eastern export industry, that Ukraine will be chronically bankrupt and will have to settle its balance-of-payments deficit by selling off its private domain to American, German and other foreign buyers.

ED: Yes, that's Monsanto, and that's Hunter Biden on the Burisma board (the gas company). It's like you said earlier, you wouldn't even believe it if someone would have made it up. It's so transparent, what they're doing in Ukraine.

Financialization of pension plans and retirement savings
I want to switch gears a bit in the short time we have remaining, because I have two more things I want to talk about. Referring back to this parasitical relationship on the real economy, one aspect that's rarely mentioned is the way in which many regular working people get swindled. One example that comes to my mind is the mutual funds and other money managers that control what pension funds and lots of retirees invest in. Much of their savings are tied up in heavily leveraged junk bonds and in places like Greece, but also recently in Puerto Rico which is going through a very similar scenario right now. So in many ways, US taxpayers and pensioners are funding the looting and exploitation of these countries and they're then financially invested in continuing the destruction of these countries. It's almost like these pensioners are human shields for Wall Street.

MH: This actually is the main theme of my book – financialization. Mutual funds are not pension funds. They're different. But half a century ago a new term was coined: pension fund capitalism, sometimes called pension fund socialism. Then we got back to Orwellian doublethink when Pinochet came to power behind the natural alliance of the Chicago School with Kissinger at the State Department. They immediately organized what they called labor capitalism. n labor capitalism labor is the victim, not the beneficiary. The first thing they did was compulsory setting aside of wages in the form of ostensible pension funds controlled by the employers. The employers could do whatever they wanted with it. Ultimately they invested their corporate pension funds in their own stocks or turned them over to the banks, around which their grupo conglomerates were organized. They then simply drove the businesses with employee pension funds under, wiping out the pension fund liabilities – after moving the assets into their captive banks. Businesses were left as empty corporate shells.

Something similar happened in America a few years ago with the Chicago Tribune. Real estate developer Sam Zell borrowed money, bought the Tribune, using the Employee Stock Ownership Plan (ESOP) essentially to pay off the bondholders. He then drove/looted the Tribune into bankruptcy and wiped out the stockholders. Employees brought a fraudulent conveyance suit.

Already fifty years ago, critics noted that about half of the ESOPs are wiped out, because they're invested by the employers, often in their own stock. Managers give themselves stock options, which are given value by employee purchases. Something similar occurs with pension funds in general. Employee wages are paid into pension funds, which bid up the stock prices in general. On an economy-wide basis, employees are buying the stock that managers give themselves. That's pension fund capitalism.

The underlying problem with this kind of financialization of pensions and retirement savings is that modern American industry is being run basically for financial purposes, not for industrial purposes. The major industrial firms have been financialized. For many years General Motors made most of its profits from its financial arm, General Motors Acceptance Corporation. Likewise General Electric. When I was going to school 50 years ago, Macy's made most of its money not by selling products, but by getting customers to use its credit cards. In effect, it used its store to get people to use its credit cards.
Last year, 92% of the earnings of the Fortune 100 companies were used for stock buy-backs -- corporations buying back their stock to support its price – or for dividend payouts, also to increase the stock's price (and thus management bonuses and stock options). The purpose of running a company in today's financialized world is to increase the price of the stock, not to expand the business. And who do they sell the stock to? Essentially, pension funds.

There's a lot of money coming in. I don't know if you remember, but George W. Bush wanted to privatize Social Security. The idea was to spend all of its contributions – the 15+% that FICA withholds from workers paychecks every month – into the stock market. This would fuel a giant stock market boom. Money management companies, the big banks, would get an enormous flow of commissions, and speculators would get rich off the inflow. It would make billionaires into hundred-billionaires. All this would soar like the South Sea Bubble, until the American population began to age – or, more likely, begin to be unemployed. At that point the funds would begin to sell the stocks to pay retirees. This would withdraw money from the stock market. Prices would crash as speculators and insiders sold out, wiping out the savings that workers had put into the scheme.

The basic idea is that when Wall Street plays finance, the casino wins. When employees and pension funds play the financial game, they lose and the casino wins.

ED: Right, and just as an example for listeners – to make what Michael was just talking about it even more real – if we think back to 2009 and the collapse of General Motors, it was not General Motors automotive manufacturing that was collapsing. It was GMAC, their finance arm, which was leveraged on credit default swaps, collateralized debt obligations and similar financial derivatives – what they call exotic instruments. So when Obama comes in and claimed that he "saved General Motors," it wasn't really that. He came in for the Wall Street arm of General Motors.

Obama's demagogic role as Wall Street shill for the Rubinomics gang
MH: That's correct. He was the Wall Street candidate, promoted by Robert Rubin, who was Clinton's Treasury Secretary. Basically, American economic policies can run by a combination of Goldman Sachs and Citigroup, often interchangeably.

ED: This was demonstrated very clearly in the first days of Obama taking office. Who does he meet with to talk about the financial crisis? He invites the CEOs of Goldman Sachs and JP Morgan, Bank of America, Citi and all of the rest of them. They're the ones who come to the White House. It's been written about in books, in the New Yorker and elsewhere. Obama basically says, "Don't worry guys, I got this."

MH: Ron Suskind wrote this. He said that Obama said, "I'm the only guy standing between you and the pitchforks. Listen to me: I can basically fool them." (I give the actual quote in my book.) The interesting thing is that the signs of this meeting were all erased from the White House website, but Suskind has it in his book. Obama emerges as one of the great demagogues of the century. He may be even worse than Andrew Jackson.

ED: So much of it is based on obvious policies and his actions. The moment he came to power was a critical moment when action was needed. Not only did he not take the right action, he did exactly what Wall Street wanted. In many ways we can look back to 2008 when he was championing the TARP, the bailout, and all the rest of that. None of that would have been possible without Obama. That's something that Democrats like to avoid in their conversations.

MH: That's exactly the point. It was Orwellian rhetoric. He ran as the candidate of Hope and Change, but his real role was to smash hope and prevent change. By keeping the debts in place instead of writing them down as he had promised, he oversaw the wrecking of the American economy.

He had done something similar in Chicago, when he worked as a community organizer for the big real estate interests to tear up the poorer neighborhoods where the lower income Blacks lived. His role was to gentrify them and jack up property prices to move in higher-income Blacks. This made billions for the Pritzker family. So Penny Pritzker introduced him to Robert Rubin. Obama evidently promised to let Rubin appoint his cabinet, so they appointed the vicious anti-labor Rahm Emanuel, now Chicago's mayor, as his Chief of Staff to drive any Democrat to the left of Herbert Hoover out of the party. Obama essentially pushed the Democrats to the right, as the Republicans gave him plenty of room to move rightward and still be the "lesser evil."

So now you have people like Donald Trump saying that he's for what Dennis Kucinich was for: a single payer healthcare program. Obama fought against this, and backed the lobbyists of the pharmaceutical and health insurance sectors. His genius is being able to make most voters believe that he's on their side when he's actually defending the Wall Street special interests that were his major campaign contributors.

ED: That's true. You can see that in literally every arena in which Obama has taken action. From championing so-called Obamacare, which is really a boon for the insurance industry, to the charter schools to privatize public education and also become a major boon for Wall Street, for Pearson and all these major education corporations. In terms of real estate, in the gentrification, all the rest. Literally every perspective, every angle from which you look at Obama, he is a servant of finance capital of investors, not of the people. And that's what the Democratic Party has become, delivering its constituency to Wall Street.

A left-wing economic alternative
MH: So here's the problem: How do we get the left to realize this? How do we get it to talk about economics instead of ethnic identity and sexual identity and culture alone? How do we get the left to do what they were talking about a century ago – economic reform and how to take the side of labor, consumers and debtors? How do we tell the Blacks that it's more important to get a well paying job? That's the way to gain power. I think Deng said: "Black cat, white cat, it doesn't matter as long as it catches mice." How do we say "Black president, white president, it doesn't matter, as long as they give jobs for us and help our community economically?"

ED: I think that's important and I want to close with this issue: solutions. One of the things I appreciate in reading your book is that it is broken up into sections. The final section, I think, is really important. You titled it: "There Is An Alternative." That is of course a reference to Margaret Thatcher's TINA (There Is No Alternative). That ideology and mindset took over the left, or at least the nominally left-wing parties. So you're saying that there is an alternative. In that section you propose a number of important reforms. You argue that they would restore industrial prosperity. Now, I'm not asking you to name all of them, to run down the list, but maybe touch on a little bit of what you included, and why that's important for beginning to build this alternative.

MH: There are two main aims that classical economists had 200 years ago. One was to free society from debt. You didn't want people to have to spend their lives working off the debt, whether for a home, for living or to get an education. Second, you wanted to fund industry, not by debt but by equity. That is what the Saint-Simonians and France did. It's what German banking was famous for before World War I. There was a debate in the English speaking countries, especially in England saying that maybe England and the Allies might lose World War I because the banks are running everything, and finance should be subordinated to fund industry. It can be used to help the economy grow, not be parasitic.

But instead, our tax laws make debt service tax deductible. If a company pays $2 billion a year in dividends, a corporate raider can buy it on credit and, if there's a 50% stock rate, he can pay $4 billion to bondholders instead of $2 billion to stockholders. Over the past twenty years the American stock market has become a vehicle for corporate raiding, replacing equity with debt. That makes break-even costs much higher.

The other point I'm making concerns economic rent. The guiding idea of an economic and tax system should be to lower the cost of living and doing business. I show what the average American wage earner has to pay. Under the most recent federal housing authority laws, the government guarantees mortgage loans that absorb up to 43% of family income. Suppose you pay this 43% of income for your home mortgage, after the 15% of your wages set aside for Social Security under FICA.

Instead of funding Social Security out of the general budget and hence out of what is still progressive taxation, Congress has said that the rich shouldn't pay for Social Security; only blue-collar workers should pay. So if you make over $115,000, you don't have to pay anything. In addition to that 15% wage tax, about 20% ends up being paid for other taxes – sales taxes, income taxes, and various other taxes that fall on consumers. And perhaps another 10% goes for bank loans besides mortgages – credit card loans, student loans and other debts.

That leaves only about 25% of what American families earn to be spent on goods and services – unless they borrow to maintain their living standards. This means that if you would give wage earners all of their food, all their transportation, all their clothing for nothing, they still could not compete with foreign economies, because so much of the budget has to go for finance, insurance and real estate (FIRE). That's why our employment is not going to recover. That's why our living standards are not going to recover.

Even if wages do go up for some workers, they're going to have to pay it to the bank for education loans, mortgage loans (or rent), bank debt and credit card debt, and now also for our amazingly expensive and rent-extracting medical insurance and health care and medications. The result is that if they try to join the middle class by getting higher education and buying a home, they will spend the rest of their lives paying the banks. They don't end up keeping their higher wages. They pay them to the banks.

ED: You don't have to tell me. I'm living that reality. Interestingly, in that final section of your book you talk about alternatives, like a public banking option that many people have discussed. You talk about the Social Security cap that you were just mentioning, and focus on taxing economic rent. Some critics would suggest that these sorts of reforms are not going to be able to salvage the capitalist model that is so ensconced in the United States. So I want to give you a chance to sort of present that argument or maybe rebut it.

MH: I won't rebut that criticism, because it's right. Marx thought that it was the task of industrial capitalism to free economies from the economic legacies of feudalism. He saw that the bourgeois parties wanted to get rid of the "excrescences" of the industrial capitalist marketplace. They wanted to get rid of the parasites, the landowners and usurious creditors. Marx said that even if you get rid of the parasites, even if you socialize finance and land that he dealt with in volume II and III of Capital, you're still going to have the Volume I problem. You're still going to have the exploitation problem between employers and employees – the labor/capital problem.

My point is that most academic Marxists and the left in general have focused so much on the fight of workers and labor unions against employers that they tend to overlook that there's this huge FIRE sector – Finance, Insurance, and Real Estate – tsunami is swamping the economy. Finance is wrecking industry and government, along with labor. The reforms that Marx expected the bourgeois parties to enact against rentiers haven't occurred. Marx was overly optimistic about the role of industrial capitalism and industrialized banking to prepare the ground for socialism.

This means that until you complete the task of freeing of society from feudalism – corrosive banking and economic rent as unearned income – you can't solve the industrial problems that Marx dealt with in Volume I. And of course even when you do solve them, these problems of labor exploitation and markets will still exist.

ED: Yes, absolutely. Well we're out of time. I want to thank you for coming onto the program. Listeners, you heard it. There's so much information to digest here. The book is really brilliant, I think essential reading, required reading – Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy, available through CounterPunch, as well as on Amazon. Michael Hudson professor of economics at University of Missouri Kansas City, his work is all over the place. Find it regularly on CounterPunch, as well as on his website michael-hudson.com. Michael Hudson thanks so much for coming on CounterPunch Radio.

MH: It's great to be here. It's been a wonderful discussion.

ED: Thank you

[Jan 08, 2019] The Financial Sector Is the Greatest Parasite in Human History by Ben Strubel

Highly recommended!
The key point is that financial industry needs to be strictly regulated and suppressed, because after a cirtain point it stage coup d'état, banksters come to power and turn the industry into cancer for the society with it uncontrolled parasitic growth.
Notable quotes:
"... In economics, the financial sector is typically lumped in with the insurance sector and real estate (the financial portion of the real estate sector, not construction) sector. Together, the sectors are often abbreviated and called the FIRE sector. In this article I will talk mainly about the finance portion of the FIRE sector since it is by far the largest, most visible, and most corrupt. ..."
"... The job of the finance sector is simply to manage existing resources . It creates nothing. Therefore, the smaller the financial sector is the more real wealth there is for the rest of society to enjoy. The bigger the financial sector becomes the more money it siphons off from the productive sectors. ..."
"... Neither of these two friendly fellows actually does much, if anything, in the way of actual investing. Sure, they learn the lingo, dress sharply, and probably know more than the average Joe, but they don't call the shots. That happens at Big Bank HQ. ..."
"... Somewhere in the belly of the beast there is a gaggle of highly paid, largely worthless economists and market technicians. Using some combination of tea leaves, voodoo, crystal balls, and tarot cards, these guys come up with the selection of one-size-fits-most, happy-meal portfolios that clients will be invested in. Actually, scratch that. Portfolios aren't assembled using all kinds of mystical methods; they are assembled using cold hard cash. (It's the finance sector. Did you think they spoke a language other than green?) See, various mutual fund companies pay marketing fees and other dubiously legal payments to the advisory firms to get them to sell their funds. In 2010, mutual fund companies paid $3.5B in perfectly legal "pay to play" schemes to get their funds featured in various investment lineups. ..."
"... One significant source of profit for the financial sector has been exploiting public, taxpayer-owned infrastructure. It should be blatantly obvious that these deals are bad for citizens, as the fees charged to citizens for use of the asset must not only cover servicing costs and maintenance capital expenditures but must also generate profit for the firms buying the assets. ..."
"... As the financial sector funnels more and more resources into lobbying and bribes (let's face it, campaign contributions are nothing more than legal bribery), it has been able to strip an ever-greater amount of state-owned assets from the public. Public asset strip mining is one of the chief causes of the increasing profitability of the financial sector. ..."
March 13, 2014

Before I begin this article want to make the point that what I'm about to say doesn't apply to everyone in the industry. While the average mutual fund, broker, wealth manager, and hedge fund charges high fees and delivers poor results it doesn't apply to everyone. I know lots of good, honest hedge fund managers that charge reasonable fees. I know lots of wealth managers that act in their client's best interest and don't gouge them on fees. Unfortunately these are the exceptions rather than the rule.

Over the past year or so, the issue of rising income inequality in the United States (and even worldwide) has come front and center. Most of what I've read has focused on wages, union membership, unemployment, taxation, government subsidy, and executive pay issues.

There is one issue whose role I think is overlooked in the mainstream media: the role the financial sector plays in exacerbating income inequality. In fact, I believe the financial sector is one of the prime causes, and at its current point is perhaps the greatest parasite in human history. It is sucking wealth from the productive sectors of the economy at an unprecedented rate.

Before we go any further, I want to define the term "income inequality." When I use that term, I am referring to the fact that, on average, the incomes and standard of living of American workers is not keeping pace with productivity. I'm also using the term, in part, to explain why workers and executives in some parts of the economy are overpaid in relation to the benefits they provide. What I am not doing is making a blanket statement that money should be taken away from successful, hardworking people and given or "redistributed" to the lazy.

The Role of the Financial Sector

In economics, the financial sector is typically lumped in with the insurance sector and real estate (the financial portion of the real estate sector, not construction) sector. Together, the sectors are often abbreviated and called the FIRE sector. In this article I will talk mainly about the finance portion of the FIRE sector since it is by far the largest, most visible, and most corrupt.

The problem is that the financial, insurance, and real estate (FIRE) sectors do not actually produce any goods or services. If you go on Google Finance you'll see it divides the economy into ten sectors: energy, basic materials, industrials, cyclical consumer goods, non-cyclical consumer goods, financials, healthcare, technology, telecommunications, and utilities.

The nine nonfinancial sectors all produce goods or services. For example, the energy sector companies drill for our oil and refine it into gasoline (e.g., ExxonMobil); the basic materials sector mines our iron (BHP Billiton) and refines it into steel (Nucor); the industrial sector produces the mining equipment (Caterpillar) used by the previously mentioned sectors; the cyclical consumer goods sector produces our cars (Ford) or sells our everyday items (Wal-Mart); the non-cyclical consumer goods sector sells the things we need no matter what, such as groceries (Safeway); the healthcare sector provides the medicines that heal us (Johnson & Johnson); the technology sector gives us the computers and software we use (Apple); the telecommunications sector gives us the ability to communicate (Verizon); and the utility sector gives us the power to run our homes and businesses (Duke Energy).

The financial sector? Well, according to Harvard professor Greg Mankiw, chief academic apologist for the financial sector, this is what it's supposed to do:

Those who work in banking, venture capital, and other financial firms are in charge of allocating the economy's investment resources. They decide, in a decentralized and competitive way, which companies and industries will shrink and which will grow.

The job of the finance sector is simply to manage existing resources . It creates nothing. Therefore, the smaller the financial sector is the more real wealth there is for the rest of society to enjoy. The bigger the financial sector becomes the more money it siphons off from the productive sectors.

The graph below shows how the financial sector has grown since 1960. The figures are shown as a percentage of investment (using both gross and net investment).

Graphic source: Jacobin Magazine

Graphic source: Jacobin Magazine

As you can see, the financial sector has almost doubled or tripled in size since 1960. That means it is extracting double or triple the amount of money from the real economy!

Just how much?

I want to go through several areas of the economy to show you how the financial sector is extracting money and offering no benefit.

The Grift in Your Retirement Plan

I want to start with the industry I work in, wealth management. When I started my business, I was cognizant of how investors were ill served by the traditional model of wealth management and vowed to run my business differently. Unfortunately, a vast majority of the financial industry has built an unrivaled apparatus for extracting huge sums of money from retirees and mom-and-pop investors.

Say, you're sitting on your couch, watching TV and thinking about retirement. You just got part of your inheritance and think investing it for the future would be a sensible idea. Imagine you haven't the slightest idea how to get started. Then a commercial comes on with Tommy Lee Jones telling you how trustworthy Ameriprise is. Maybe you hear the reassuring voice of John Houseman pitching Smith Barney, or you might see the iconic bull charging across the desert for Merrill Lynch.

Say you decide to go down to your local brokerage and meet with a financial advisor. His (or her) pitch sounds good, so you decide to become a client.

The first problem is the guy you met. Remember how he told you he has his finger on the pulse of the market, he has access to the best investment research, he is always taking continuing education classes, and he is always monitoring your portfolio? He isn't. He could be a complete moron. He got hired (and survived and thrived) because he is a good salesman. Nothing less and nothing more. He takes his orders on what to sell from the top -- the gaggle of people with their fingers in your retirement pie, helping themselves to regular bites.

The first person behind the scenes telling our hapless salesman what to do is some sort of office, district, or regional manager. This is manager is just like the salesman but with more ambition. Almost all of these guys were promoted from sales, and their job is do an impersonation of Alec Baldwin from Glengarry Glen Ross, yelling at the underperformers ("Coffee is for closers!") to get out there and sell the turd of the month. ("XYZ Mutual Fund Company just paid our firm $200M," this manager says, "so get out there and sell their funds! And, Jones, if you don't gross $20,000 by the end of this month you're fired! Meeting adjourned.")

Neither of these two friendly fellows actually does much, if anything, in the way of actual investing. Sure, they learn the lingo, dress sharply, and probably know more than the average Joe, but they don't call the shots. That happens at Big Bank HQ.

Somewhere in the belly of the beast there is a gaggle of highly paid, largely worthless economists and market technicians. Using some combination of tea leaves, voodoo, crystal balls, and tarot cards, these guys come up with the selection of one-size-fits-most, happy-meal portfolios that clients will be invested in. Actually, scratch that. Portfolios aren't assembled using all kinds of mystical methods; they are assembled using cold hard cash. (It's the finance sector. Did you think they spoke a language other than green?) See, various mutual fund companies pay marketing fees and other dubiously legal payments to the advisory firms to get them to sell their funds. In 2010, mutual fund companies paid $3.5B in perfectly legal "pay to play" schemes to get their funds featured in various investment lineups.

You, the investor, are usually charged somewhere around 1% to 1.5% of assets annually for this "service." I've seen clients charged as much as 1.65% and I've come across firms advertising fees as high as 2% per year for clients with small account balances. For large portfolios (typically $1M or more) the fees start going down and I've seen rates as low as .5% or less. These fees are split up between your advisor, the district manager, and the firm itself. Keep in mind that these are fees before any investments have been made!

So who actually makes the investments in stocks and bonds? It's the portfolio managers at the mutual fund companies. According to the Investment Company Institute 2011 Fact Book (the ICI is a pro-mutual fund organization), the average mutual fund in 2010 charged 1.47% of assets annually. That's in addition to an average up-front sales charge of 1%.

Why so expensive? Well, the funds are towing a lot of dead weight. According to the ICI 2013 Fact Book, only 42% of mutual fund employees were employed in fund management positions or fund administrative positions. The rest, 58%, were employed in either investor servicing (34%) or sales and distribution (24%) job functions.

Like any good infomercial says, "But wait! There's more!" When you buy a stock or bond, you can't just go grab it off the shelf like you are shopping at Wal-Mart. You need to go through a brokerage. A 1999 study by Chalmers, Edelen, and Kadlec found that the average mutual fund incurs trading expenses of .78% per annum. A newer study in 2004 by Karceski, Livingston, and O'Neal found brokerage commissions cost funds around .38% per annum, or .58% if you account for the effect trading large blocks of stock has on the bid-ask spread.

But wait! There's more! Mutual funds and your average retail investor are relatively unsophisticated, so a new industry has popped up to take advantage of them. It's called "high frequency trading" or HFT for short. These are powerful computers programmed to take advantage of "dumb" traders in the market. These HFT firms place their computers physically next to the stock exchange computers in the datacenters and buy access to market quotes milliseconds before they are made public. They use these and other advantages to skim profits from other legitimate investors (that is, people buying stocks because they want to own part of the underlying company).

All told, it's not uncommon to see investors incurring annual expenses of 2%, all the way up to 4% per year.

Institutions and the Rich Have the Same Problem

The problem isn't just limited to Joe Six-pack Retiree. Large institutional investors, such as pension funds, and "sophisticated" rich investors get taken to the cleaners too.

Once upon a time someone came up with a great idea: Since an all-stock portfolio is volatile, why not "hedge" the portfolio and sell some stocks short? If you bet that good stocks will go up (buying stocks in the good companies or going long) and bad stocks will go down (selling the stock short) then you could limit volatility and maybe make some extra money. (You'd make money both when the good stocks went up and the bad stocks went down). It was and is a pretty good idea when done correctly. Unfortunately, the term "hedge fund," like the term "mutual fund," has lost its original meaning. The term hedge fund is now used to refer to any type of pooled investment vehicle that is limited to select clients (usually rich, sophisticated investors and institutions, although the rules vary worldwide).

The rule of thumb is that hedge funds charge a 2% per year management fee and keep 20% of all profits, the proverbial "2 and 20" compensation. According to a WSJ article , this old adage isn't too far off; the average hedge fund charges 1.6% per year and keeps 18% of profits.

In 2012, hedge funds removed $50.5B from their investors' pockets. In fact, according to an article in Jacobin Magazine, the top 25 hedge fund managers make more money than the CEOs of all S&P 500 companies combined. Combined!

Have they earned it? Well, the answer seems to be no. I pulled the last four years of return data for two hedge fund indices: the Barclays Hedge Fund Index and the Credit Suisse AllHedge Index. These two indices track thousands of hedge funds across the globe. I compared them with the returns of the Vanguard Total World Stock Index Fund and the Vanguard Total World Bond Market Index Fund as well as a 50/50 portfolio of the two Vanguard Funds. All returns shown are net of fees.

strbl2

The Vanguard stock fund trounced both hedge fund indices, and the Credit Suisse index managed only to beat the returns of bonds by .01%.

Right about now you will hear the howls of the "hedgies" complaining. I wasn't quite fair to the hedge funds. A lot, but not all, of them are hedged so returns in down markets will be better and four years isn't a terribly long time to look at.

The two graphs below show the returns for the Credit Suisse index since 2004 and the maximum drawdowns (losses) since 2004.

strbl3

strbl4

First, over 10 years the returns for hedge funds are atrocious, only about 25% in total. They do have a point that the draw downs are lower. The maximum losses experienced during the downturn only averaged about 25%. Fine, but the Vanguard Total Bond Market Index had barely any draw downs during the crisis and returned over 50% during a similar time period.

strbl5

Unfortunately, Vanguard does not have return data for any of its World Stock funds for a complete 2008 calendar year so I was unable to get exact data for my 50/50 portfolio. But I'd be willing to bet it beats the hedge fund indices on a risk adjusted basis.

When you hear about underfunded pension plans, part of the blame lies with pension investment committees and their investments in hedge funds. These funds, in aggregate, have not earned the fees they charge and have instead funneled the money of retirees into the hands of a wealthy few.

I'm not alone in reaching this conclusion. Pension funds are slowly starting to see the light and reducing their allocations to "alternative" investments, such as hedge funds, and reallocating the capital to indexed products or negotiating with the funds for lower fees.

It's not just the traditional investment arena where the financial sector has run wild. Its unending quest for siphoning money from the economy has spilled out into other areas.

Speculation in Commodities Costs Main Street Billions

Speculation by the financial sector in the commodities market is impacting the entire world. The passage of the Commodities Futures Modernization Act (CFMA) has allowed big banks to engage in almost limitless speculation in the commodities market. Wall Street has convinced everyone from individual investors to pension funds and endowments that they need to include commodities in their portfolios for deworsification, I mean, diversification purposes. Between investors plowing more than $350B into the commodities market and what appears to be outright manipulation of commodities prices, the financial sector has increased the costs of everything from wheat to heating oil and aluminum to gasoline.

An executive for MillerCoors testified that manipulation of the aluminum market cost manufacturers over $3B. The World Bank estimated that in 2010, 44 million people worldwide were pushed into poverty because of high food prices. The chief cause? More than 100 studies agree the cause is speculation in the commodities market. (Goldman Sachs made $440M in 2012 from food market speculation.) For Americans who love their cars (and SUVs), the biggest impact might be felt at the gas pump where experts estimate that financial speculation has added anywhere from $1 to $1.50 to gas prices.

For more information on speculation in the commodities, I recommend Matt Taibbi's excellent pieces, in-depth information at Better Markets , or some of my articles on commodities.

If you think it's bad enough that Wall Street is raising the price of your food, heating oil, gasoline, and Pepsi, then wait until you get a load of one of the Street's other ingenious ideas for helping themselves to more of your money.

Corruption of Public Infrastructure

One significant source of profit for the financial sector has been exploiting public, taxpayer-owned infrastructure. It should be blatantly obvious that these deals are bad for citizens, as the fees charged to citizens for use of the asset must not only cover servicing costs and maintenance capital expenditures but must also generate profit for the firms buying the assets.

The first and most obvious examples of this type of fraud (I choose to use the term "fraud" because I believe that is exactly what these deals are) are government entities selling public, taxpayer-owned infrastructure, such as road, bridges, parking facilities, and ports, to the private sector so that they can extract rent from the users. The deals are usually touted as saving taxpayers money and letting the "more efficient" private sector better manage the asset. This is false. Many studies show private ownership of public goods does not lead to any cost savings. A comprehensive econometric study done in 2010 of all available public vs. private studies by Germa Bel, Xavier Fageda, Mildred E. Warner at the University of Barcelona found no cost saving in privatizing public water or solid waste management services and infrastructure.

The case is no different when it comes to public roads. A 2007 paper by US PIRG found that privatizing roads never benefits citizens. Financial firms were typically able to buy the assets on the cheap and then raise toll rates while usually sneaking language into the agreements that prevented governments from building competing infrastructure. The paper presented evidence that the Indiana Toll Road lease will cost taxpayers at least $7.5B.

One of the most egregious examples of the financial sector extracting rent is the 2009 sale of Chicago's parking meters to a consortium led by Morgan Stanley. Shortly after the lease was finalized, rates at many parking meters increased (in some case by quadruple the amount). The Chicago Inspector General found that the city was underpaid by almost $1B for the lease. Meanwhile, in 2010 Morgan Stanley banked $58 million in profits from the parking meters. With no way out of the deal , the citizens of Chicago are now paying Morgan Stanley for the right to use assets they used to own!

The second way in which taxpayers are exploited by the financial sector is so-called public-private partnerships (also referred to as PPP or P 3 ). There is no set definition for what constitutes a PPP arrangement, and it is possible some might be beneficial in limited circumstances. I want to focus on one specific type of PPP that enriches the financial sector: when public projects are privately financed. There is absolutely no reason for any government project to ever require paying "rent" to the financial sector in the form of financing.

The United States federal government is the monopoly supplier of US dollars. It can add them to the economy at will through deficit spending or remove them via taxation. There is no earthly reason for a public entity to be forced to depend on the private sector to provide any type of financing. The only constraint on whether or not money should be spent is whether the economy is at full capacity (full employment and full industrial capacity utilization) where the additional deficit spending may cause inflation.

State and local governments are unable to issue currency and therefore must depend on revenue raised via taxation, distributions from the federal government, or money raised through bond issuance. Even then, studies have shown that PPPs are more expensive compared to the state or local entity securing financing through the municipal bond market.

As the financial sector funnels more and more resources into lobbying and bribes (let's face it, campaign contributions are nothing more than legal bribery), it has been able to strip an ever-greater amount of state-owned assets from the public. Public asset strip mining is one of the chief causes of the increasing profitability of the financial sector.

So far we've dealt with examples that are pretty easy to see. Everyone who owns a car knows that gas prices have been rising too fast and food is more expensive. The citizens of Chicago know they are getting shafted on the parking meter deal since parking rates have quadrupled. But there are hidden areas of the economy where the financial sector is ripping off the public too.

Interest Rate Manipulation

Do you know what LIBOR is? And what it's used for? A lot of financial types read my newsletters, so I'm sure some of you do. But the average man or woman on the street likely does not.

LIBOR stands for London Interbank Offered Rate and is the average interest rate banks in London estimate that they would be charged if they borrowed from other banks. This rate is used worldwide by mortgage lenders, credit card agencies, banks, and other financial institutions to set interest rates. By some estimates, more than $350T in financial products, derivatives, and contracts are tied to LIBOR.

In 2012, it was discovered that, since 1991, banks were falsely inflating or deflating the interest rates they reported. (Remember banks essentially make up their own interest rates and report them with the results being essentially averaged and reported as LIBOR.) The banks did this in order to profit from trades or to make themselves look more creditworthy than they were.

The Macquarie Group estimated that the manipulation of LIBOR cost investors $176B. (Keep in mind this is an estimate coming from a financial firm, so it would be prudent to assume it's on the low end.)

Andrew Lo, a finance professor at MIT, said the fraud "dwarfs by orders of magnitude any financial scam in the history of the markets."

Food Stamps (SNAP) and Welfare (TANF)
I highly doubt any of my clients or readers are beneficiaries of the SNAP or "food stamps" program and are probably not very familiar with it. While it is nominally a government program it has been corrupted by the big banks. Benefits are provided electronically via debit cards (EBT cards). JP Morgan has made over $500M from 2004 to 2012 providing EBT benefits to 18 states. The banks then are free to reap fees from users for such things as cash withdraws for TANF benefits, out of network ATM fees, lost card replacement fees, and even customer service calls.

I believe you can judge how profitable a service is to a company how much it spends on lobbying. In the case of JPMorgan, its bribes, I mean campaign contributions to Agriculture Committee (SNAP is part of the Department of Agriculture) members increased sharply after it entered the EBT market in 2004.

strbl6

(Graphic source: GAI via data from CRP) Summary

A bloated and out-of-control financial sector does not add any value to society. Society benefits when the financial sector is kept as small as possible.

The financial sector is a parasite that depends on its host organism, the productive sector of the economy, to fuel its profits. The larger the financial sector grows, the more wealth it extracts from the productive sectors of the economy. With all due respect to Matt Taibbi, Goldman Sachs isn't a vampire squid; the entire financial sector is the vampire squid with its tentacles reaching into the pockets of citizens everywhere and sucking out money.


Brian | March 13, 2014 at 9:44 am

Quite a damning critique, and if I may step away from the main point I have to ask: why is it that some guys involved with finance, Strubel as well as Auerback, Mosler and Ritholtz, talk like this while so many in the field do not? Does everyone involved "know" all this but most simply choose to put on blinders?

Jim Shannon | March 13, 2014 at 9:57 am

Great Article about the .01% "Taker Class". This can all end by the 99% demanding a change to the TAX CODE! Yet another clear indication of the manipulation of the "Giver Class" by government!

Jonathan | March 13, 2014 at 11:00 am

Its truly frightening to see how the public has been blindsided/mislead about the root causes of rapid income inequality. As a social worker I am somwhat familiar with the SNAP benefit program Depressing to think JP Morgan Chase skimmed at least 500m over an eight year period for SNAP and welfare benefits. I suppose this is the new age enclosure movement where Wall Street is picking up public assets for pennies on the dollar and charging enormous rents..

The questions is.. what happens when it is used up?? A scorched wasteland of dysfunctional infrastruture/gated communites housing a tiny elite protected from beggars, street criminals, and gang bandits??

Zane Zodrow | March 13, 2014 at 2:07 pm

Excellent article. Easy for a layperson to understand and covers a good portion of the pervasive, ongoing, worldwide financial system theft. I worked for a stock brokerage firm years ago while studying for the series 7. Once I figured out they were all just well-dressed telemarketers, I quit and found a more productive job. Remember 'dogs of the Dow' ?

Dale Pierce | March 13, 2014 at 2:11 pm

A very well-written and eye-opening post – thanks, Ben. I think the formulation of this central point may be a little skewed, though: " the smaller the financial sector is the more real wealth there is for the rest of society to enjoy. The bigger the financial sector becomes the more money it siphons off from the productive sectors."

I think this formulation may be somewhat muddling the real-vs.-financial dichotomy that MMT revolves around. Sort of by definition, the financial sector is 100 percent nominal – even when it posits ownership of real assets, it is really just money-valuing them, applying the unit-of-account property of money. The ownership is an abstraction. The owner of a share of stock or a gold ETF has no concrete interaction with the company or commodity in question. So, contrasting the total size of the financial sector to the totality of real wealth available – for those members of society who do *not* receive income from the financial sector – leaves me scratching my head. I'm not clear what is being measured. I know that profits flowing to the financial sector have exploded from around two percent of total corporate profits in the 1950s to around forty percent now. This means it is over-charging for its so-called services, but I think the real-economy effects are non-linear, and more complex than this.

Regarding the financial sector's growing tendency to siphon off money from the productive sectors – yes, they do this. But it is up to the state, with its currency-issuing and taxing powers, to regulate how far this process goes and what happens next. In a recent post, J.D. Alt took note of the ephemeral nature of the financial sector's nominal money-wealth. It is "fictitious capital". Electronic poker chips. Just zeros and ones, really. As long as the plutocrats simply hoard them – use them to keep score – the state can just replace them by increasing spending. I also tend to think that the consumption spending of the .01 percent is rather inelastic. They already have everything they want. Keynes' attitude was to let them live it up, up to a point, and then tax the excess back when they die.

For me, the most important part of your post is the section on commodity speculation and infrastructure privatization. This truly is a huge deal, a clear interaction with the real economy and a terrible crime, actually. Again, though, it is up to the state to permit these outrages or ban them – we used to ban them but we stopped. So. One more big thank-you to the Big Dog, I guess. To think – before Clinton, America actually based aid to poor children on their ages and their poverty rather than the supposed moral imperfections of their parents. We even had no-fee food stamps.

Obviously, the other reason we can't just let the one percent play their casino games is that they eventually blow up the real economy, as a totality, through financial crises and destabilization. And, due to all the fabulist monetary propaganda out there, there is now a big reservoir of public opinion and political will *in favor* of financial collapse. The libertarians and other Paul-Partiers think it would do us all good. And bring back the gold standard. And "End the Fed", and all the rest of that good 19th Century stuff. I'm not a ready-for-Hillary kind of guy in general, but is it possible to imagine a scarier idea than President Rand?

Thanks again, Ben – great post.

golfer1john | March 13, 2014 at 4:44 pm

While most of your specific criticisms are quite valid, I think your brush is a bit too broad. "The problem is that the financial, insurance, and real estate (FIRE) sectors do not actually produce any goods or services. "

This is obviously false. I have many times used services provided by banks, credit unions, insurance companies, and real estate brokers and agents. It would be practically impossible to find the right house to buy, to sell it for a fair price, to get the loan necessary to buy it, or to protect myself and my family from a catastrophic loss without their services.

It is undoubtedly true that most of the volatility of the FIRE sector since 1990 is due to speculation and parasitical activities, but there is undoubtedly also some growth of useful services that has facilitated growth of the other sectors, not detracted from it. Thus it is not always true that "the smaller the financial sector is the more real wealth there is for the rest of society to enjoy".

Bottom line, you have a good point. Excessively broad statements might be more dramatic, but if they are not true they don't help your cause.

golfer1john | March 18, 2014 at 10:04 am

I have gotten real value from real estate brokers. Did you ever try to sell a house without one? Qualify the serious buyers and deal with the lookie-loos? And the government paperwork!! I've always gotten my money's worth.

No, the fire doesn't care if you have insurance, but the insurance company will advise you on how to prevent fires and minimize the damage. Paying an insurance company has protected me from paying the unaffordable high cost of the insured risks. The service provided by insurance is not incident prevention, it is management of financial risk, and it does that very well. My claims have been handled quickly and fairly. I had one unusual case where I thought the insurance company should have paid me more than their original offer (the nation-wide blue book value of the car didn't reflect the unique situation in my State), and after discussion they agreed with me and paid. I've been with them for over 40 years and I'm very happy with their services.

If you want your bank to create wealth for you, you're looking in the wrong place. Banks are good for storing and protecting your money, and many will do that for you without fees, and even pay you interest. They'll let you use their computers to pay your creditors, also without charge. They'll even give you short-term interest-free loans, and pay you cash rebates, if you use their credit cards. I like my banks' services, too. And, of course, if you want to borrow money they will lend it to you and if your payment is late they don't break your legs. They will make a profit, though. That's why they do it. You don't have to participate if you don't want to.

Not every bank is Goldman Sachs, and not every insurance company is AIG. Those are good examples of companies that often serve no useful purpose, but there are many others who do provide useful services at a reasonable cost.

zak | March 17, 2014 at 8:25 pm

Although I can be sympathetic of the no-value creation thesis in the financial industry, comparing the performance of hedge funds with the recent performance of bonds is a no big no-no, because it assumes a negative correlation between equities and bonds. If one look at the world markets in the last 100 years, that has been the exception rather than the rule.

And you forgot to mention the important roles of capital markets in deploying capital and financing companies through IPOs, bond offers, etc.

FSK | March 17, 2014 at 10:05 pm

You missed another big point, negative real interest rates. The Fed Funds Rate is currently 0%-0.25%, while real inflation is much higher. (The CPI is not an accurate measure of inflation.) Big banks can profit by borrowing at 0% and buying stuff (bonds, stocks, commodities, real estate, politicians, whatever).

On LIBOR, here's another interesting bit. Cities and states lost a TON of money on interest rate swaps with banks. What was sold as a "hedge" wound up blowing up and costing a fortune.

http://www.realfreemarket.org/blog/2012/07/10/banksters-rob-cities-via-interest-rate-swaps-and-libor-rate-manipulation/

Ben | March 18, 2014 at 5:32 pm

This was a fascinating piece, very readable for those of us with minimal financial education. However, since this is such a good explainer for the layman, I think it would be very beneficial to explain how big a difference 1% in fees makes for an investor over a lifetime. I know personally when I used to compare funds the difference between 1 and 2% in fees seemed negligible. But then I saw that fantastic PBS Frontline on this topic and saw how much that 1% could cost me over a lifetime! I now have everything that I personally manage in index funds!

Doc | March 19, 2014 at 5:26 am

You can't really argue with what has been said, and all (of us) involved in the sector know it is massive rip off.

While a free market advocate, I think a first step would be to introduce meaningful fee caps on all state promoted or mandated saving arrangements (eg ISAS, and Pensions), on the grounds that the market is skewed by the government intervention that creates the glut of forced buyers, and so to correct that imbalance the market (i.e. consumers) need protection through fee caps. I'd say no more than 20 – 25bps should be permitted for all ISAS and pension savings (DC or DB). Individual wealthy investors (investments of more than say £5m?) can pay what they like.

Paul | March 28, 2014 at 4:18 pm

Ben,

>>The job of the finance sector is simply to manage existing resources. It creates nothing.

This is a dubious assertion, but you clearly believe it. How then, can you in good conscience, charge 1.25% (plus indirect costs for the funds you hold in client portfolios) to manage people's money when you yourself admit you are adding no value?

(source: http://strubelim.com/wp/our-funds/ar-fund/ )

Briana | March 30, 2014 at 8:32 pm

Hi Paul,

I know this was for Ben, but there's a pretty simple answer to that question: They don't charge 1.25% because they create value, they're charging a fee to access the profit created by companies they invest in. Say I told you that I knew a guy named Jimmy who was going to make three bucks for every buck he gets, and I asked if you'd lend me a dollar to give to Jimmy with the promise that he'd give me 1.50 cents of it. I'd want to keep 25 cents but you can have 1.25, and so you agree. I didn't create the 2 extra dollars of value -- Jimmy did -- but I feel justified in asking for a cut because I gave you the tip about Jimmy's value creation ability.

At least, that is my understanding of Ben's statement.

golfer1john | March 30, 2014 at 11:23 pm

Semantics.

There are 6000 publicly traded companies. Some of them will have rising stock prices, some falling. If a money manager can steer you to the rising ones, he is doing something of value. It doesn't mean he created anything physical that didn't exist before. He's doing a service for you that would otherwise have taken you some time and effort to do, and that's what you pay for.

Briana | March 31, 2014 at 10:22 am

Yes, it's a different definition of value. The growth of financial services has been outpacing the growth of other sectors to a monstrous scale, and that makes this distinction important. It signals a kind of corruption that can only mean high inflation and decoupling money from economic output.

golfer1john | April 1, 2014 at 12:05 am

I don't follow. How is financial services different from any other kind of services, in the impact on inflation? Why not also actors, barbers, or any other service profession? The growth of the financial sector might be explained by the fact that it is the industry most able to exploit computers, and the first to do so on a large scale.

The corruption is, I think, a separate issue that is present whenever other people's money is involved. Financial services and government are simply more involved that way than most other industries, and have been all along, dating to long before the recent growth. Corruption is not impossible in any industry, just more attractive when the numbers are larger.

Jim Shannon | April 1, 2014 at 9:20 am

Corruption is never a separate in ANY corporate activity. The TAX CODE treats the wealth of the .01% radically different than Income from Labor, because all Taxes on Capital Gains are deferred until taken and are not TAXED as ordinary income. The TAX CODE is responsible for the corruption of our government because it has put real POWER, the Power of Wealth in the hands of the .01%, to buy whatever it wants, while labor and the poor spend everything they earn or are given , every single year to survive in a economic culture designed for the benefit of the .01%, something no one will write about!

Change the TAX CODE and the Corruption of Society will end!

Briana | April 1, 2014 at 7:23 pm

Barbers and actors being paid for their labor do not have the same impact on inflation as a bank giving out loans and consumer credit at interest. It's not equivalent at all.

Corruption in financial industries is what this article is discussing. If it's a separate issue, I'm confused as to the point of talking about this at all!

Paul | April 1, 2014 at 9:41 am

Briana,

I don't think your explanation is correct. Why wouldn't I go directly to Jimmy in that case and cut out the middle man since he is offering no value add? The fact is, the middle man, Ben, in this case, believes that he can identify superior companies to invest his clients money in and earn a greater return. This is Ben's value add and why he charges 1.25%.

Golfer John is correct and that point, essentially, blows a hole in Ben's thesis here that the financial sector adds no value because they only manage "existing resources". Steering capital to the good ideas that improve consumer wealth and generate a return is a value add and the fact that millions of transactions like this happen voluntarily between consenting adults further supports this.

Physics tells us that matter cannot be created or destroyed, so the same resources that are on this earth today are the same ones that were here 10,000 years ago. So, in that sense, Apple is simply managing "existing resources" when they build the iphone, Toyota simply managing "existing resources" when they build a car, and UPS and US Mail are merely moving "existing resources" from one location to another when they make deliveries, must be no value add there right?

Asserting that the financial sector only manages existing resources, and then citing that as proof of no value add is simply a non sequiter.

golfer1john | April 2, 2014 at 1:50 pm

No, I wasn't, though I have heard that. My theory of markets, and human group behavior in general, is a statistical approach. There are averages, distributions, and temporary equilibriums, but the interesting parts are the outliers. I guess that is more of a quantum flavor than Newtonian. Over time, economies behave cyclically. Much of nature and human group behavior is cyclical.

Briana | April 1, 2014 at 6:21 pm

Paul -- That's true, and a good analogy, except you're getting a bit reductive with the term "existing resources". I agree that "no value" is a bit extreme, which is why I became more interested in the -type- of value.

Paul | April 3, 2014 at 11:44 am

John – My physics is flawed to the extent that the law of conservation of matter is flawed, this I admit. I am much more economist than physicist though so better that I get my physics wrong and econ right! I see a lot of similarities between the two, as well as crucial differences, but I don't want to get too off topic.

Briana – "No Value is a bit extreme"

I agree, and as the absurdly hyperbolic title* of this article states, the author takes it to an even greater extreme – namely that the financial sector is actually a systematic destroyer of value (parasite) that is created by all of the other industries. The crux of his assertion rests on that they only "manage existing resources" and also calling Greg Mankiw an apologist, neither strikes me as an intellectually rigorous argument.

And interestingly, on his own firm's website, the author apparently contradicts the thesis of this article when advertising his financial services and the fees he charges for his own value add. I can think of several explanations for this, none of which are particularly flattering, others can draw their own conclusions.

*a worse parasite than all of the murderous dictatorial regimes in human history that have institutionalized the slaughter and torture of millions? Really? I note this because it is so obviously false that it makes the rest of the content seem unserious and shallow even if valid points exist. Acidic comments tend to preach to the already converted, but perhaps that is the goal here.

Briana | April 4, 2014 at 7:02 pm

Yeah, ok. I should know better, Paul. My brain tried to rationalize the argument by making it less extreme. The goal probably was to mobilize the choir to go Occupy Wall Street for a few more months, haha.

Those valid points shouldn't be ignored because of the poorly handled hyperbole, though. The financial sector does have a great capacity to act as a parasite by overvaluing their services and squandering wealth generated by other industries instead of reinvesting it in worthwhile, valuable enterprises; or using that wealth to essentially 'gamble' or invent money that is not attached to any real value (i.e. shorting or credit default swaps). As the fruits of these behaviors are becoming obvious, it gets harder to justify policies that allow them to happen.

Paul | April 9, 2014 at 10:51 am

In many ways that is my point. You found those "valid points" obviously correct before reading the article, so it rang true despite the extreme hyperbole. I did not find those points self-evidently true so this poorly constructed argument relying on clearly false assumptions struck me as uncompelling.

For example, how does one "overvalue their services"? If one charges too much, no one is forced to buy. I may find Ben's management fee of 1.25% to be overvaluing himself, but I have the option of not paying and instead going to less expensive alternatives.

Why wouldn't the financial industry invest in "worthwhile valuable enterprises" if they provide a worthwhile return? After all, aren't they driven by an insatiable desire for profit? Who determines what enterprises are worthwhile?

I do not see anything inherently wrong with short selling. Indeed, the ability to short a stock is simply expressing a view about its value, and leads to greater and more accurate price discovery. What is wrong with shorting a stock if one believes it is overpriced relative to its instrinsic value? Is it not preferable that prices reflect underlying economic fundamentals rather than being disconnected from such? Shorting puts downward pressure on prices, and helps prevent overvaluation.

Credit Default Swaps are nothing more than insurance against a bond default. There is nothing inherently wrong with insurance.

I'm not suggesting that you, here in the comments, need to write a paper elaborating on those, just that this article did a poor job of pursuading, though again, I am coming to the realization that I am likely not the intended audience.

This discussion in the comments has actually been more fruitful than the article itself.

(Sorry for the late response, I've been away for a few days.)

Briana | April 9, 2014 at 10:43 pm

Hi Paul,

"For example, how does one "overvalue their services"?"

This argument hinges on everyone that purchases these services knowing their true value. It's very simplistic to say that if someone purchases it, that is the real value. It gets complicated when you take into account the psychological pressures of purchasing behavior, such as "middle-price" preferences, "money you don't see is money you don't miss" and other tricks that are employed to get people to pay higher prices.

"Why wouldn't the financial industry invest in "worthwhile valuable enterprises" if they provide a worthwhile return? After all, aren't they driven by an insatiable desire for profit? Who determines what enterprises are worthwhile?"

Countless services and products we rely on were funded by taxes to make them profitable. They are "worthwhile" but apparently not "profitable" enough to invest in. Making money and creating value aren't the same thing. Ideally, everyone decides what is worthwhile.

"I do not see anything inherently wrong with short selling."

Shorting is basically a bucket shop in disguise.

"Credit Default Swaps are nothing more than insurance against a bond default. There is nothing inherently wrong with insurance."

There is when it's considered "money creation" http://www.usdebtclock.org/

"This discussion in the comments has actually been more fruitful than the article itself."

Agreed. And I could write a paper elaborating on this!

Paul | April 11, 2014 at 11:48 am

"This argument hinges on everyone that purchases these services knowing their true value."

In a literal sense, you are correct, it is an imperfect measure of value. However, I think it is far and away the most reliable one we have as value is extremely subjective. I don't think it is right or prudent for third, non cost bearing parties to preempt decisions made by consenting adults, rather, I would accord them the dignity of free choice. There are many things that consumers purchase that I do not understand, why anyone would pay a premium for a fast car seems like a waste of money to me, for example. Why anyone would pay money to golf, not to mention the huge cost in terms of time it takes to get through 18 holes, seems like a waste of money to me. These are things that make no sense to me because I do not see the value there. But, I recognize that people have various tastes and preferences, and I respect that and presume that individuals know themselves and their own tastes and preferences better than I (or someone else) does. Therefore, when someone values something that I do not understand, I tend to believe it is a result of a difference in preference, rather than they are too dumb to figure out what they like, or that they are "tricked" into buying something and hence need protection delivered by those who fancy themselves as enlightened enough to see the real truth. Nothing about this is unique to the financial industry, by the way.

"Countless services and products we rely on were funded by taxes to make them profitable. They are "worthwhile" but apparently not "profitable" enough to invest in. Making money and creating value aren't the same thing. Ideally, everyone decides what is worthwhile."

Apparently not enough people decided these services and products were worthwhile, so politicians decided they were worthwhile and used the force and power of government to get them done. Substituting preferences of politicians, spending other people's money for those of millions of individuals spending their own money does not seem like an efficient way to allocate resources.

Briana | April 11, 2014 at 7:50 pm

Paul –

I agree with you on purchasing decisions. People should be free to determine value. I'm not saying people are always dumb, but I do think they are manipulated. If you want to believe they are not, that is up to you, but apparently you've never seen advertising. The financial industry advertises itself heavily, especially in consumer credit markets and insurance. But if we're going to gauge something as nebulous as "true value", it requires a level of conscientiousness from everyone, and accepting whatever people purchase as reflecting it's actual value is a quick way to guarantee abuse, especially when you have something like consumer credit. If people are free to determine value, they should also be held to the consequences of their choices, which is currently not the case in the financial industry and increasingly in the general population.

"Apparently not enough people decided these services and products were worthwhile, so politicians decided they were worthwhile and used the force and power of government to get them done. Substituting preferences of politicians, spending other people's money for those of millions of individuals spending their own money does not seem like an efficient way to allocate resources."

You mean like electricity, phone services, railroads, airlines, fortified wheat, water treatment, the internet, satellites, healthcare.. the list could go on and on. It is less efficient (a word that really needs to be defined clearly, but I'll assume I know what you mean!), and it happens because otherwise it wouldn't be possible, and yet it becomes widely adopted and lauded none-the-less; progress, they say. Like I said, worthwhile and profitable are not 1-to-1 correlation, just as willingness to purchase doesn't necessarily indicate true value.

I thought you might have some interesting opinion on the CDS as money creation I'm still trying to figure that one out!

[Jan 08, 2019] No, wealth isn t created at the top. It is merely devoured there by Rutger Bregman

Highly recommended!
Financialization is a new type of racket...
Notable quotes:
"... Bankers, pharmaceutical giants, Google, Facebook ... a new breed of rentiers are at the very top of the pyramid and they're sucking the rest of us dry @rcbregman ..."
"... 'A big part of the modern banking sector is essentially a giant tapeworm gorging on a sick body' ..."
"... This piece is about one of the biggest taboos of our times. About a truth that is seldom acknowledged, and yet – on reflection – cannot be denied. The truth that we are living in an inverse welfare state. These days, politicians from the left to the right assume that most wealth is created at the top. By the visionaries, by the job creators, and by the people who have "made it". By the go-getters oozing talent and entrepreneurialism that are helping to advance the whole world. ..."
"... To understand why, we need to recognise that there are two ways of making money. The first is what most of us do: work. That means tapping into our knowledge and know-how (our "human capital" in economic terms) to create something new, whether that's a takeout app, a wedding cake, a stylish updo, or a perfectly poured pint. To work is to create. Ergo, to work is to create new wealth. ..."
"... But there is also a second way to make money. That's the rentier way : by leveraging control over something that already exists, such as land, knowledge, or money, to increase your wealth. You produce nothing, yet profit nonetheless. By definition, the rentier makes his living at others' expense, using his power to claim economic benefit. ..."
"... For those who know their history, the term "rentier" conjures associations with heirs to estates, such as the 19th century's large class of useless rentiers, well-described by the French economist Thomas Piketty . These days, that class is making a comeback. (Ironically, however, conservative politicians adamantly defend the rentier's right to lounge around, deeming inheritance tax to be the height of unfairness.) But there are also other ways of rent-seeking. From Wall Street to Silicon Valley , from big pharma to the lobby machines in Washington and Westminster, zoom in and you'll see rentiers everywhere. ..."
"... It may take quite a mental leap to see our economy as a system that shows solidarity with the rich rather than the poor. So I'll start with the clearest illustration of modern freeloaders at the top: bankers. Studies conducted by the International Monetary Fund and the Bank for International Settlements – not exactly leftist thinktanks – have revealed that much of the financial sector has become downright parasitic. How instead of creating wealth, they gobble it up whole. ..."
"... In other words, a big part of the modern banking sector is essentially a giant tapeworm gorging on a sick body. It's not creating anything new, merely sucking others dry. Bankers have found a hundred and one ways to accomplish this. The basic mechanism, however, is always the same: offer loans like it's going out of style, which in turn inflates the price of things like houses and shares, then earn a tidy percentage off those overblown prices (in the form of interest, commissions, brokerage fees, or what have you), and if the shit hits the fan, let Uncle Sam mop it up. ..."
"... Bankers are the most obvious class of closet freeloaders, but they are certainly not alone. Many a lawyer and an accountant wields a similar revenue model. Take tax evasion . Untold hardworking, academically degreed professionals make a good living at the expense of the populations of other countries. Or take the tide of privatisations over the past three decades, which have been all but a carte blanche for rentiers. One of the richest people in the world, Carlos Slim , earned his millions by obtaining a monopoly of the Mexican telecom market and then hiking prices sky high. The same goes for the Russian oligarchs who rose after the Berlin Wall fell , who bought up valuable state-owned assets for song to live off the rent. ..."
"... Even paragons of modern progress like Apple, Amazon, Google , Facebook, Uber and Airbnb are woven from the fabric of rentierism. Firstly, because they owe their existence to government discoveries and inventions (every sliver of fundamental technology in the iPhone, from the internet to batteries and from touchscreens to voice recognition, was invented by researchers on the government payroll). And second, because they tie themselves into knots to avoid paying taxes, retaining countless bankers, lawyers, and lobbyists for this very purpose. ..."
"... Even more important, many of these companies function as "natural monopolies", operating in a positive feedback loop of increasing growth and value as more and more people contribute free content to their platforms. Companies like this are incredibly difficult to compete with, because as they grow bigger, they only get stronger. ..."
"... Most of Mark Zuckerberg's income is just rent collected off the millions of picture and video posts that we give away daily for free. And sure, we have fun doing it. But we also have no alternative – after all, everybody is on Facebook these days. Zuckerberg has a website that advertisers are clamouring to get onto, and that doesn't come cheap. Don't be fooled by endearing pilots with free internet in Zambia. Stripped down to essentials, it's an ordinary ad agency. In fact, in 2015 Google and Facebook pocketed an astounding 64% of all online ad revenue in the US. ..."
"... Rentierism is, in essence, a question of power. That the Sun King Louis XIV was able to exploit millions was purely because he had the biggest army in Europe. It's no different for the modern rentier. He's got the law, politicians and journalists squarely in his court. That's why bankers get fined peanuts for preposterous fraud, while a mother on government assistance gets penalised within an inch of her life if she checks the wrong box. ..."
"... The biggest tragedy of all, however, is that the rentier economy is gobbling up society's best and brightest. Where once upon a time Ivy League graduates chose careers in science, public service or education, these days they are more likely to opt for banks, law firms, or trumped up ad agencies like Google and Facebook. When you think about it, it's insane. We are forking over billions in taxes to help our brightest minds on and up the corporate ladder so they can learn how to score ever more outrageous handouts. ..."
"... One thing is certain: countries where rentiers gain the upper hand gradually fall into decline. Just look at the Roman Empire. Or Venice in the 15th century. Look at the Dutch Republic in the 18th century. Like a parasite stunts a child's growth, so the rentier drains a country of its vitality. ..."
Mar 30, 2017 | www.theguardian.com

Rutger Bregman

Bankers, pharmaceutical giants, Google, Facebook ... a new breed of rentiers are at the very top of the pyramid and they're sucking the rest of us dry @rcbregman

Comments 890

'A big part of the modern banking sector is essentially a giant tapeworm gorging on a sick body'.

This piece is about one of the biggest taboos of our times. About a truth that is seldom acknowledged, and yet – on reflection – cannot be denied. The truth that we are living in an inverse welfare state. These days, politicians from the left to the right assume that most wealth is created at the top. By the visionaries, by the job creators, and by the people who have "made it". By the go-getters oozing talent and entrepreneurialism that are helping to advance the whole world.

Now, we may disagree about the extent to which success deserves to be rewarded – the philosophy of the left is that the strongest shoulders should bear the heaviest burden, while the right fears high taxes will blunt enterprise – but across the spectrum virtually all agree that wealth is created primarily at the top.

So entrenched is this assumption that it's even embedded in our language. When economists talk about "productivity", what they really mean is the size of your paycheck. And when we use terms like " welfare state ", "redistribution" and "solidarity", we're implicitly subscribing to the view that there are two strata: the makers and the takers, the producers and the couch potatoes, the hardworking citizens – and everybody else.

In reality, it is precisely the other way around. In reality, it is the waste collectors, the nurses, and the cleaners whose shoulders are supporting the apex of the pyramid. They are the true mechanism of social solidarity. Meanwhile, a growing share of those we hail as "successful" and "innovative" are earning their wealth at the expense of others. The people getting the biggest handouts are not down around the bottom, but at the very top. Yet their perilous dependence on others goes unseen. Almost no one talks about it. Even for politicians on the left, it's a non-issue.

To understand why, we need to recognise that there are two ways of making money. The first is what most of us do: work. That means tapping into our knowledge and know-how (our "human capital" in economic terms) to create something new, whether that's a takeout app, a wedding cake, a stylish updo, or a perfectly poured pint. To work is to create. Ergo, to work is to create new wealth.

But there is also a second way to make money. That's the rentier way : by leveraging control over something that already exists, such as land, knowledge, or money, to increase your wealth. You produce nothing, yet profit nonetheless. By definition, the rentier makes his living at others' expense, using his power to claim economic benefit.

'From Wall Street to Silicon Valley, zoom in and you'll see rentiers everywhere.'

For those who know their history, the term "rentier" conjures associations with heirs to estates, such as the 19th century's large class of useless rentiers, well-described by the French economist Thomas Piketty . These days, that class is making a comeback. (Ironically, however, conservative politicians adamantly defend the rentier's right to lounge around, deeming inheritance tax to be the height of unfairness.) But there are also other ways of rent-seeking. From Wall Street to Silicon Valley , from big pharma to the lobby machines in Washington and Westminster, zoom in and you'll see rentiers everywhere.

There is no longer a sharp dividing line between working and rentiering. In fact, the modern-day rentier often works damn hard. Countless people in the financial sector, for example, apply great ingenuity and effort to amass "rent" on their wealth. Even the big innovations of our age – businesses like Facebook and Uber – are interested mainly in expanding the rentier economy. The problem with most rich people therefore is not that they are coach potatoes. Many a CEO toils 80 hours a week to multiply his allowance. It's hardly surprising, then, that they feel wholly entitled to their wealth.

It may take quite a mental leap to see our economy as a system that shows solidarity with the rich rather than the poor. So I'll start with the clearest illustration of modern freeloaders at the top: bankers. Studies conducted by the International Monetary Fund and the Bank for International Settlements – not exactly leftist thinktanks – have revealed that much of the financial sector has become downright parasitic. How instead of creating wealth, they gobble it up whole.

Don't get me wrong. Banks can help to gauge risks and get money where it is needed, both of which are vital to a well-functioning economy. But consider this: economists tell us that the optimum level of total private-sector debt is 100% of GDP. Based on this equation, if the financial sector only grows, it won't equal more wealth, but less. So here's the bad news. In the United Kingdom, private-sector debt is now at 157.5% . In the United States, the figure is 188.8% .

In other words, a big part of the modern banking sector is essentially a giant tapeworm gorging on a sick body. It's not creating anything new, merely sucking others dry. Bankers have found a hundred and one ways to accomplish this. The basic mechanism, however, is always the same: offer loans like it's going out of style, which in turn inflates the price of things like houses and shares, then earn a tidy percentage off those overblown prices (in the form of interest, commissions, brokerage fees, or what have you), and if the shit hits the fan, let Uncle Sam mop it up.

The financial innovation concocted by all the math whizzes working in modern banking (instead of at universities or companies that contribute to real prosperity) basically boils down to maximizing the total amount of debt. And debt, of course, is a means of earning rent. So for those who believe that pay ought to be proportionate to the value of work, the conclusion we have to draw is that many bankers should be earning a negative salary; a fine, if you will, for destroying more wealth than they create.

Bankers are the most obvious class of closet freeloaders, but they are certainly not alone. Many a lawyer and an accountant wields a similar revenue model. Take tax evasion . Untold hardworking, academically degreed professionals make a good living at the expense of the populations of other countries. Or take the tide of privatisations over the past three decades, which have been all but a carte blanche for rentiers. One of the richest people in the world, Carlos Slim , earned his millions by obtaining a monopoly of the Mexican telecom market and then hiking prices sky high. The same goes for the Russian oligarchs who rose after the Berlin Wall fell , who bought up valuable state-owned assets for song to live off the rent.

But here comes the rub. Most rentiers are not as easily identified as the greedy banker or manager. Many are disguised. On the face of it, they look like industrious folks, because for part of the time they really are doing something worthwhile. Precisely that makes us overlook their massive rent-seeking.

Take the pharmaceutical industry. Companies like GlaxoSmithKline and Pfizer regularly unveil new drugs, yet most real medical breakthroughs are made quietly at government-subsidised labs. Private companies mostly manufacture medications that resemble what we've already got. They get it patented and, with a hefty dose of marketing, a legion of lawyers, and a strong lobby, can live off the profits for years. In other words, the vast revenues of the pharmaceutical industry are the result of a tiny pinch of innovation and fistfuls of rent.

Even paragons of modern progress like Apple, Amazon, Google , Facebook, Uber and Airbnb are woven from the fabric of rentierism. Firstly, because they owe their existence to government discoveries and inventions (every sliver of fundamental technology in the iPhone, from the internet to batteries and from touchscreens to voice recognition, was invented by researchers on the government payroll). And second, because they tie themselves into knots to avoid paying taxes, retaining countless bankers, lawyers, and lobbyists for this very purpose.

Even more important, many of these companies function as "natural monopolies", operating in a positive feedback loop of increasing growth and value as more and more people contribute free content to their platforms. Companies like this are incredibly difficult to compete with, because as they grow bigger, they only get stronger.

Aptly characterising this "platform capitalism" in an article, Tom Goodwin writes : "Uber, the world's largest taxi company, owns no vehicles. Facebook, the world's most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world's largest accommodation provider, owns no real estate."

Facebook Twitter Pinterest 'Every sliver of fundamental technology in the iPhone, from the internet to batteries and from touchscreens to voice recognition, was invented by researchers on the government payroll.' Photograph: Regis Duvignau/Reuters

So what do these companies own? A platform. A platform that lots and lots of people want to use. Why? First and foremost, because they're cool and they're fun – and in that respect, they do offer something of value. However, the main reason why we're all happy to hand over free content to Facebook is because all of our friends are on Facebook too, because their friends are on Facebook because their friends are on Facebook.

Most of Mark Zuckerberg's income is just rent collected off the millions of picture and video posts that we give away daily for free. And sure, we have fun doing it. But we also have no alternative – after all, everybody is on Facebook these days. Zuckerberg has a website that advertisers are clamouring to get onto, and that doesn't come cheap. Don't be fooled by endearing pilots with free internet in Zambia. Stripped down to essentials, it's an ordinary ad agency. In fact, in 2015 Google and Facebook pocketed an astounding 64% of all online ad revenue in the US.

But don't Google and Facebook make anything useful at all? Sure they do. The irony, however, is that their best innovations only make the rentier economy even bigger. They employ scores of programmers to create new algorithms so that we'll all click on more and more ads. Uber has usurped the whole taxi sector just as Airbnb has upended the hotel industry and Amazon has overrun the book trade. The bigger such platforms grow the more powerful they become, enabling the lords of these digital feudalities to demand more and more rent.

Think back a minute to the definition of a rentier: someone who uses their control over something that already exists in order to increase their own wealth. The feudal lord of medieval times did that by building a tollgate along a road and making everybody who passed by pay. Today's tech giants are doing basically the same thing, but transposed to the digital highway. Using technology funded by taxpayers, they build tollgates between you and other people's free content and all the while pay almost no tax on their earnings.

This is the so-called innovation that has Silicon Valley gurus in raptures: ever bigger platforms that claim ever bigger handouts. So why do we accept this? Why does most of the population work itself to the bone to support these rentiers?

I think there are two answers. Firstly, the modern rentier knows to keep a low profile. There was a time when everybody knew who was freeloading. The king, the church, and the aristocrats controlled almost all the land and made peasants pay dearly to farm it. But in the modern economy, making rentierism work is a great deal more complicated. How many people can explain a credit default swap , or a collateralised debt obligation ? Or the revenue model behind those cute Google Doodles? And don't the folks on Wall Street and in Silicon Valley work themselves to the bone, too? Well then, they must be doing something useful, right?

Maybe not. The typical workday of Goldman Sachs' CEO may be worlds away from that of King Louis XIV, but their revenue models both essentially revolve around obtaining the biggest possible handouts. "The world's most powerful investment bank," wrote the journalist Matt Taibbi about Goldman Sachs , "is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

But far from squids and vampires, the average rich freeloader manages to masquerade quite successfully as a decent hard worker. He goes to great lengths to present himself as a "job creator" and an "investor" who "earns" his income by virtue of his high "productivity". Most economists, journalists, and politicians from left to right are quite happy to swallow this story. Time and again language is twisted around to cloak funneling and exploitation as creation and generation.

However, it would be wrong to think that all this is part of some ingenious conspiracy. Many modern rentiers have convinced even themselves that they are bona fide value creators. When current Goldman Sachs CEO Lloyd Blankfein was asked about the purpose of his job, his straight-faced answer was that he is " doing God's work ". The Sun King would have approved.

The second thing that keeps rentiers safe is even more insidious. We're all wannabe rentiers. They have made millions of people complicit in their revenue model. Consider this: What are our financial sector's two biggest cash cows? Answer: the housing market and pensions. Both are markets in which many of us are deeply invested.

Recent decades have seen more and more people contract debts to buy a home, and naturally it's in their interest if house prices continue to scale new heights (read: burst bubble upon bubble). The same goes for pensions. Over the past few decades we've all scrimped and saved up a mountainous pension piggy bank. Now pension funds are under immense pressure to ally with the biggest exploiters in order to ensure they pay out enough to please their investors.

The fact of the matter is that feudalism has been democratised. To a lesser or greater extent, we are all depending on handouts. En masse, we have been made complicit in this exploitation by the rentier elite, resulting in a political covenant between the rich rent-seekers and the homeowners and retirees.

Don't get me wrong, most homeowners and retirees are not benefiting from this situation. On the contrary, the banks are bleeding them far beyond the extent to which they themselves profit from their houses and pensions. Still, it's hard to point fingers at a kleptomaniac when you have sticky fingers too.

So why is this happening? The answer can be summed up in three little words: Because it can.

Rentierism is, in essence, a question of power. That the Sun King Louis XIV was able to exploit millions was purely because he had the biggest army in Europe. It's no different for the modern rentier. He's got the law, politicians and journalists squarely in his court. That's why bankers get fined peanuts for preposterous fraud, while a mother on government assistance gets penalised within an inch of her life if she checks the wrong box.

The biggest tragedy of all, however, is that the rentier economy is gobbling up society's best and brightest. Where once upon a time Ivy League graduates chose careers in science, public service or education, these days they are more likely to opt for banks, law firms, or trumped up ad agencies like Google and Facebook. When you think about it, it's insane. We are forking over billions in taxes to help our brightest minds on and up the corporate ladder so they can learn how to score ever more outrageous handouts.

One thing is certain: countries where rentiers gain the upper hand gradually fall into decline. Just look at the Roman Empire. Or Venice in the 15th century. Look at the Dutch Republic in the 18th century. Like a parasite stunts a child's growth, so the rentier drains a country of its vitality.

What innovation remains in a rentier economy is mostly just concerned with further bolstering that very same economy. This may explain why the big dreams of the 1970s, like flying cars, curing cancer, and colonising Mars, have yet to be realised, while bankers and ad-makers have at their fingertips technologies a thousand times more powerful.

Yet it doesn't have to be this way. Tollgates can be torn down, financial products can be banned, tax havens dismantled, lobbies tamed, and patents rejected. Higher taxes on the ultra-rich can make rentierism less attractive, precisely because society's biggest freeloaders are at the very top of the pyramid. And we can more fairly distribute our earnings on land, oil, and innovation through a system of, say, employee shares, or a universal basic income .

But such a revolution will require a wholly different narrative about the origins of our wealth. It will require ditching the old-fashioned faith in "solidarity" with a miserable underclass that deserves to be borne aloft on the market-level salaried shoulders of society's strongest. All we need to do is to give real hard-working people what they deserve.

And, yes, by that I mean the waste collectors, the nurses, the cleaners – theirs are the shoulders that carry us all.

• Pre-order Utopia for Realists and How Can We Get There by Rutger Bregman

• Translated from the original Dutch by Elizabeth Manton

See also:

[Jan 07, 2019] The Fed IS the Ugly Truth

Notable quotes:
"... "The entire US economy today is about the quick buck." ..."
"... " When market tumbled in 2015 and 2016, global central banks embarked on the largest combined intervention effort in history giving us a grand total of over $15 trillion." ..."
The Automatic Earth
... ... ...

Central banks are founded for one reason only: to save [private] banks from bankruptcy, invariably at the cost of society at large. They'll bring down markets and societies just to make sure banks don't go under. They'll also, and even, do that when these banks have taken insane risks. It's a battle societies can't possibly win as long as central banks can raise unlimited amounts of 'money' and shove it into private banks. Ergo: societies can't survive the existence of a central bank that serves the interests of its private banks.

Henrich:

Stock-Market Investors, It's Time To Hear The Ugly Truth

For years critics of U.S. central-bank policy have been dismissed as Negative Nellies, but the ugly truth is staring us in the face: Stock-market advances remain a game of artificial liquidity and central-bank jawboning, not organic growth. And now the jig is up. As I've been saying for a long time: There is zero evidence that markets can make or sustain new highs without some sort of intervention on the side of central banks. None. Zero. Zilch. And don't think this is hyperbole on my part. I will, of course, present evidence.

In March 2009 markets bottomed on the expansion of QE1 (quantitative easing, part one), which was introduced following the initial announcement in November 2008. Every major correction since then has been met with major central-bank interventions: QE2, Twist, QE3 and so on. When market tumbled in 2015 and 2016, global central banks embarked on the largest combined intervention effort in history. The sum: More than $5 trillion between 2016 and 2017, giving us a grand total of over $15 trillion, courtesy of the U.S. Federal Reserve, the European Central Bank and the Bank of Japan:

When did global central-bank balance sheets peak? Early 2018. When did global markets peak? January 2018. And don't think the Fed was not still active in the jawboning business despite QE3 ending. After all, their official language remained "accommodative" and their interest-rate increase schedule was the slowest in history, cautious and tinkering so as not to upset the markets.

With tax cuts coming into the U.S. economy in early 2018, along with record buybacks, the markets at first ignored the beginning of QT (quantitative tightening), but then it all changed. And guess what changed? Two things. In September 2018, for the first time in 10 years, the U.S. central bank's Federal Open Market Committee (FOMC) removed one little word from its policy stance: "accommodative." And the Fed increased its QT program. When did U.S. markets peak? September 2018.

[..] don't mistake this rally for anything but for what it really is: Central banks again coming to the rescue of stressed markets. Their action and words matter in heavily oversold markets. But the reality remains, artificial liquidity is coming out of these markets. [..] What's the larger message here? Free-market price discovery would require a full accounting of market bubbles and the realities of structural problems, which remain unresolved. Central banks exist to prevent the consequences of excess to come to fruition and give license to politicians to avoid addressing structural problems.

is it $15 trillion, or is it 20, or 30? How much did China add to the total? And for what? How much of it has been invested in productivity? I bet you it's not even 10%. The rest has just been wasted on a facade of a functioning economy. Those facades tend to get terribly expensive.

Western economies would have shrunk into negative GDP growth if not for the $15-20 trillion their central banks injected over the past decade. And that is seen, or rather presented, as something so terrible you got to do anything to prevent it from happening. As if it's completely natural, and desirable, for an economy to grow forever.

It isn't and it won't happen, but keeping the illusion alive serves to allow the rich to put their riches in a safe place, to increase inequality and to prepare those who need it least to save most to ride out the storm they themselves are creating and deepening. And everyone else can go stuff themselves.

And sure, perhaps a central bank could have some function that benefits society. It's just that none of them ever do, do they? Central banks benefit private banks, and since the latter have for some braindead reason been gifted with the power to issue our money, while we could have just as well done that ourselves, the circle is round and we ain't in it.

No, the Fed doesn't hide the ugly truth. The Fed is that ugly truth. And if we don't get rid of it, it will get a lot uglier still before the entire edifice falls to pieces. This is not complicated stuff, that's just what you're made to believe. Nobody needs the Fed who doesn't want to pervert markets and society, it is that simple.

zerosum #44732

The word your looking for "abyss" definition -- a catastrophic situation seen as likely to occur to the people with wealth that is built upon "leverage."

https://www.investopedia.com/terms/l/leverage.asp

Leverage results from using borrowed capital as a funding source when investing to expand the firm's asset base and generate returns on risk capital. Leverage is an investment strategy of using borrowed money -- specifically, the use of various financial instruments or borrowed capital -- to increase the potential return of an investment. Leverage can also refer to the amount of debt a firm uses to finance assets. When one refers to a company, property or investment as "highly leveraged," it means that item has more debt than equity.

... ... ...

Doc Robinson January 7, 2019 at 4:06 am #44737

"The entire US economy today is about the quick buck."

Even the stock market these days seems to be about the quick buck. In the US, the average holding period for stocks has dropped from 8 years (1960), to 5 years (1970), to 2 years (1990), to 4 months (in the past few years).

https://www.politifact.com/virginia/statements/2016/jul/06/mark-warner/mark-warner-says-average-holding-time-stocks-has-f/

The policies of the Fed (as well as the Board of Directors of the companies) are evidently geared towards the short-term benefits of the owners who will be leaving in a few months. The long-term health of the companies, the economy, and the overall society (mostly non-owners) is evidently not so important to the Fed and the CEOs.

" When market tumbled in 2015 and 2016, global central banks embarked on the largest combined intervention effort in history giving us a grand total of over $15 trillion."

Those $15 trillion in assets being held by the central banks propped the global stock market capitalization up to around $75 trillion. Short term thinking that gives short-term benefits. Take away the props and of course that sucker is going to fall.

What were they thinking, the overweight patient with all of those systemic problems is going to be able to walk just fine when the crutches are taken away?

[Jan 07, 2019] Junk Economics and the Parasites of Global Finance by MICHAEL HUDSON

Notable quotes:
"... At least in nature, "smart" parasites may perform helpful functions, such as helping their host find food. But as the host weakens, the parasite lays eggs, which hatch and devour the host, killing it. That is what predatory finance is doing to today's economies. It's stripping assets, not permitting growth or even letting the economy replenish itself. ..."
"... MH: The financial sector is a rentier sector – external to the "real" economy of production and consumption, and therefore a form of overhead. As overhead, it should be a subtracted from GDP. ..."
"... In the name of saving "the market," the Fed and ECB therefore overruled the market. Today, over 80 percent of U.S. home mortgages are guaranteed by the Federal Housing Authority. Banks won't make loans without the government picking up the risk of non-payment. So bankers just pretend to be free market. That's for their victims. ..."
"... The "flight to security" is a move out of the stock and bond markets into government debt. Stocks and bonds may go down in price, some companies may go bankrupt, but national governments can always print the money to pay their bondholders. Investors are mainly concerned about keeping whatthey have – security of principal. They are willing to be paid less income in exchange for preserving what they have taken. ..."
"... But the way Wall Street administrators at the Treasury and Fed plan the crisis is for small savers to lose out to the large institutional investors. So the bottom line that I see is a slow crash. ..."
"... U.S. diplomats radically changed IMF lending rules as part of their economic sanctions imposed on Russia as result of the coup d'état by the Right Sector, Svoboda and their neo-Nazi allies in Kiev. The ease with which the U.S. changed these rules to support the military coup shows how the IMF is simply a tool of President Obama's New Cold War policy. ..."
"... The main financial innovation by Apple has been to set up a branch office in Ireland and pretend that the money it makes in the Untied States and elsewhere is made in Ireland – which has only a 15 percent income-tax rate ..."
"... It would seem to be an anomaly to borrow from banks and pay dividends. But that is the "cannibalism" stage of modern finance capitalism, U.S.-style. For the stock market as a whole, some 92 percent of earnings recently were used to pay dividends or for stock buybacks. ..."
Mar 23, 2016 | www.counterpunch.org

Justin Ritchie: In your book, Killing the Host: How Financial Parasites and Debt Bondage Destroy the Local Economy , you draw this metaphor of parasites and global finance? Could you explain what you mean by this?

Michael Hudson: The financial sector today is decoupled from industrialization. Its main interface with industry is to provide credit to corporate raiders. Their objective isasset stripping, They use earnings to repay financial backers (usually junk-bond holders), not to increase production. The effect is to suck income from the company and from the economy to pay financial elites.

These elites play the role today that landlords played under feudalism. They levy interest and financial fees that are like a tax, to support what the classical economists called "unproductive activity." That is what I mean by "parasitic."

If loans are not used to finance production and increase the economic surplus, then interest has to be paid out of other income. It is what economists call a zero-sum activity. Such interest is a "transfer payment," because it that does not play a directly productive function. Credit may be a precondition for production to take place, but it is not a factor of production as such.

The situation is most notorious in the international sphere, especially in loans to governments that already are running trade and balance-of-payments deficits. Power tends to pass into the hands of lenders, so they lose control – and become less democratic.

To return to my use of the word parasite, any exploitation or "free lunch" implies a host. In this respect finance is a form of war, domestically as well as internationally.

At least in nature, "smart" parasites may perform helpful functions, such as helping their host find food. But as the host weakens, the parasite lays eggs, which hatch and devour the host, killing it. That is what predatory finance is doing to today's economies. It's stripping assets, not permitting growth or even letting the economy replenish itself.

The most important aspect of parasitism that I emphasize is the need of parasites to control the host's brain. In nature, a parasite first dulls the host's awareness that it is being attacked. Then, the free luncher produces enzymes that control the host's brain and make it think that it should protect the parasite – that the outsider is part of its own body, even like a baby to be specially protected.

The financial sector does something similar by pretending to be part of the industrial production-and-consumption economy. The National Income and Product Accounts treat the interest, profits and other revenue that Wall Street extracts – along with that of the rentier sectors it backs (real estate landlordship, natural resource extraction and monopolies) – as if these activities add to Gross Domestic Product. The reality is that they are a subtrahend, a transfer payment from the "real" economy to the Finance, Insurance and Real Estate Sector. I therefore focus on this FIRE sector as the main form of economic overhead that financialized economies have to carry.

What this means in the most general economic terms is that finance and property ownership claims are not "factors of production." They are external to the production process. But they extract income from the "real" economy.

They also extract property ownership. In the sphere of public infrastructure – roads, bridges and so forth – finance is moving into the foreclosure phase. Creditors are trying to privatize what remains in the public domains of debtor economies. Buyers of these assets – usually on credit – build interest and high monopoly rents into the prices they charge.

JR: What is your vision for the next few decades of the global economy?

MH: The financial overhead has grown so large that paying interest, amortization and fees shrinks the economy. So we are in for years of debt deflation. That means that people have to pay so much debt service for mortgages, credit cards, student loans, bank loans and other obligations that they have less to spend on goods and services. So markets shrink. New investment and employment fall off, and the economy is falls into a downward spiral.

My book therefore devotes a chapter to describing how debt deflation works. The result is a slow crash. The economy just gets poorer and poorer. More debtors default, and their property is transferred to creditors. This happens not only with homeowners who fall into arrears, but also corporations and even governments. Ireland and Greece are examples of the kind of future in store for us.

Financialized economies tend to polarize between creditors and debtors. This is the dynamic that Thomas Piketty leaves out of his book, but his statistics show that all growth in income and nearly all growth in wealth or net worth has accrued to the One Percent, almost nothing for the 99 Percent.

Basically, you can think of the economy as the One Percent getting the 99 Percent increasingly into debt, and siphoning off as interest payments and other financial charges whatever labor or business earns. The more a family earns, for instance, the more it can borrow to buy a nicer home in a better neighborhood – on mortgage. The rising price of housing ends up being paid to the bank – and over the course of a 30-year mortgage, the banker receives more in interest than the seller gets.

Economic polarization is also occurring between creditor and debtor nations. This issplitting the eurozone between Germany, France and the Netherlands in the creditor camp, against Greece, Spain, Portugal, Ireland and Italy (the PIIGS) falling deeper into debt, unemployment and austerity – followed by emigration and capital flight.

This domestic and international polarization will continue until there is a political fight to resist the creditors. Debtors will seek to cancel their debts. Creditors will try to collect, and the more they succeed, the more they will impoverish the economy.

Background

JR: Let's talk about your history, why did you become an economist?

MH: I started out wanting to be a musician – a composer and conductor. I wasn't very good at either, but I was a very good interpreter, thanks to working with Oswald Jonas in Chicago studying the musical theories of Heinrich Schenker. I got my sense of aesthetics from music theory, and also the idea of modulation from one key to another. It is dissonance that drives music forward, to resolve in a higher key or overtone.

When I was introduced to economics by the father of a schoolmate, I found it as aesthetic as music, in the sense of a self-transforming dynamic through history by challenge and response or resolution. I went to work for banks on Wall Street, and was fortunate enough to learn about how central mortgage lending and real estate were for the economy. Then, I became Chase Manhattan's balance-of-payments economist in 1964, and got entranced with tracing how the surplus was buried in the statistics – who got it, and what they used it for. Mainly the banks got it, and used it to make new loans.

I viewed the economy as modulating from one phase to the next. A good interpretation would explain history. But the way the economy worked was nothing like what I was taught in school getting my PhD in economics at New York University. So I must say, I enjoyed contrasting reality with what I now call Junk Economics.

In mainstream textbooks there is no exploitation. Even fraudulent banks, landlords and monopolists are reported as "earning" whatever they take – as if they are contributing to GDP. So I found the economics discipline ripe for a revolution.

JR: What is the difference between how economics is taught vs. what you learned in your job?

MH: For starters, when I studied economics in the 1960s there was still an emphasis on the history of economic thought, and also on economic history. That's gone now.

One can easily see why. Adam Smith, John Stuart Mill and other classical economists sought to free their societies from the legacy of feudalism: landlordism and predatory finance, as well as from the monopolies that bondholders had demanded that governments create as a means of paying their war debts.

Back in the 1960s, just like today, university courses did not give any training in actual statistics. My work on Wall Street involved National Income and Product Accounts and the balance-of-payments statisticspublished by the Commerce Department every three months, as well as IMF andFederal Reserve statistics. Academic courses didn't even make reference to accounting – so there was no conceptualization of "money," for instance, in terms of the liabilities side of the balance sheet.

New York University's money and banking course was a travesty. It was about helicopters dropping money down – to be spent on goods and services, increasing prices. There was no understanding that the Federal Reserve's helicopter only flies over Wall Street, or that banks create money on its own computers. It was not even recognized that banks lend to customers mainly to buy real estate, or speculate in stocks and bonds, or raid companies.

Economics is taught like English literature. Teachers explain the principle of "suspension of disbelief." Readers of novels are supposed to accept the author's characters and setting. In economics, students are told to accept just-pretend parallel universe assumptions, and then treat economic theory as a purely logical exercise, without any reference to the world.

The switch from fiction to reality occurs by taking the policy conclusions of these unrealistic assumptions as if they do apply to the real world: austerity, trickle-down economics shifting taxes off the wealthy, and treating government spending as "deadweight" even when it is on infrastructure.

The most fictitious assumption is that Wall Street and the FIRE sector add to output, rather than extracting revenue from the rest of the economy.

JR: What did you learn in your work on the US oil industry?

MH: For starters, I learned how the oil industry became tax-exempt. Not only by the notorious depletion allowance, but by offshoring profits in "flags of convenience" countries, in Liberia and Panama. These are not real countries. They do not have their own currency, but use U.S. dollars. And they don't have an income tax.

The international oil companies sold crude oil at low prices from the Near East or Venezuela to Panamanian or Liberian companies – telling the producing countries that oil was not that profitable. These shipping affiliates owned tankers, and charged very high prices to refineries and distributors in Europe or the Americas. The prices were so high that these refineries and other "downstream" operations marketing gas to consumers did not show a profit either. So they didn't have to pay European or U.S. taxes. Panama and Liberia had no income tax. So the global revenue of the oil companies was tax-free.

I also learned the difference between a branch and an affiliate. Oil wells and oil fields are treated as "branches," meaning that their statistics are consolidated with the head office in the United States. This enabled the companies to take a depletion allowance for emptying out oil fields abroad as well as in the United States.

My statistics showed that the average dollar invested by the U.S. oil industry was returned to the United States via balance-of-payments flows in just 18 months. (This was not a profit rate, but a balance-of-payments flow.) That finding helped the oil industry get exempted from President Lyndon Johnson's "voluntary" balance-of-payments controls imposed in 1965 when the Vietnam War accounted for the entire U.S. payments deficit. Gold was flowering out to France, Germany and other countries running payments surpluses.

The balance-of-payments accounting format I designed for this study led me to go to work for an accounting firm, Arthur Andersen, to look at the overall U.S. balance of payments. I found that the entire deficit was military spending abroad, not foreign aid or trade.

Junk Economics

JR: Why do you think there is a disconnect between academic economic theory and the way that international trade and finance really works?

MH: The aim of academic trade theory is to tell students, "Look at the model, not at how nations actually develop." So of all the branches of economic theory, trade theory is the most wrongheaded.

For lead nations, the objective of free trade theory is to persuade other countries not to protect their own markets. That means not developing in the way that Britain did under its mercantilist policies thatmade it the first home of the Industrial Revolution. It means not protecting domestic industry, as the United States and Germany did in order to catch up with British industry in the 19 th century and overtake it in theearly 20 th century.

Trade theorists start with a conclusion: either free trade or (in times past) protectionism. Free trade theory as expounded by Paul Samuelson and others starts by telling students to assume a parallel universe – one that doesn't really exist. The conclusion they start with is that free trade makes everyone's income distribution between capital and labor similar. And because the world has a common price for raw materials and dollar credit, as well as for machinery, the similar proportions turn out to mean equality. All the subsequent assumptions are designed to lead to this unrealistic conclusion.

But if you start with the real world instead of academic assumptions, you see that the world economy is polarizing. Academic trade theory can't explain this. In fact, it denies that today's reality can be happening at all!

A major reason why the world is polarizing is because of financial dynamics between creditor and debtor economies. But trade theory starts by assuming a world of barter. Finally, when the transition from trade theory to international finance is made, the assumption is that countries running trade deficits can "stabilize" by imposing austerity, by lowering wages, wiping out pension funds and joining the class war against labor.

All these assumptions were repudiated already in the 18 th century, when Britain sought to build up its empire by pursuing mercantilist policies. The protectionist American School of Economics in the 19 th century put forth the Economy of High Wages doctrine to counter free-trade theory. None of this historical background appears in today's mainstream textbooks. (I provide a historical survey in Trade, Development and Foreign Debt , new ed., 2002. That book summarizes my course in international trade and finance that I taught at the New School from 1969 to 1972.)

In the 1920s, free-trade theory was used to insist that Germany could pay reparations far beyond its ability to earn foreign exchange. Keynes, Harold Moulton and other economists controverted that theory. In fact, already in 1844, John Stuart Mill described how paying foreign debts lowered the exchange rate. When that happens, what is lowered is basically wages. So what passes for today's mainstream trade theory is basically an argument for reducing wages and fighting a class war against labor.

You can see this quite clearly in the eurozone, above all in the austerity imposed on Greece. The austerity programs that the IMF imposed on Third World debtors from the 1960s onward. It looks like a dress rehearsal to provide a cover story for the same kind of "equilibrium economics" we may see in the United States.

JR: Can the US pay its debts permanently? Does the amount of federal debt, $18 or $19 trillion even matter? Should we pay down the national debt?

MH: It is mainly anti-labor austerity advocates who urge balancing the budget, and even to run surpluses to pay down the national debt. The effect must be austerity.

A false parallel is drawn with private saving. Of course individuals should get out of debt by saving what they can. But governments are different. Governments create money and spend it into the economy by running budget deficits. The paper currency in your pocket is technically a government debt. It appears on the liabilities side of the public balance sheet.

When President Clinton ran a budget surplus in the late 1990s, that sucked revenue out of the U.S. economy. When governments do not run deficits, the economy is obliged to rely on banks – which charge interest for providing credit. Governments can create money on their own computers just as well. They can do this without having to pay bondholders or banks.

That is the essence of Modern Monetary Theory (MMT). It is elaborated mainly at the University of Missouri at Kansas City (UMKC), especially by Randy Wray – who has just published a number of books on money – and Stephanie Kelton, whom Bernie Sanders appointed as head of the Senate Democratic Budget Committee.

If the government were to pay off its debts permanently, there would be no money – except for what banks create. That has never been the case in history, going all the way back to ancient Mesopotamia. All money is a government debt, accepted in payment of taxes

This government money creation does not mean that governments can pay foreign debts. The danger comes when debts are owed in a foreign currency. Governments are unable to tax foreigners. Paying foreign debts puts downward pressure on exchange rates. This leads to crises, which often end by relinquishing political control to the IMF and foreign banks. They demand "conditionalities" in the form of anti-labor legislation and privatization.

In cases where national economies cannot pay foreign debts out of current balance-of-payments revenue, debts should be written down, not paid off. If they are not written down, you have the kind of austerity that is tearing Greece apart today.

JR: You say that mainstream economic theory and academic study is pro-creditor? Why is this the case?

MH: Thorstein Veblen pointed out that vested interests are the main endowers and backers of the higher learning in America. Hardly by surprise, they promote a bankers'-eye view of the world. Imperialists promote a similar self-serving worldview.

Economic theory, like history, is written by the winners. In today's world that means the financial sector. They depict banks as playing a productive role, as if loans are made to help borrowers earn the money to pay interest and still keep something for themselves. The pretense is that banks finance industrial capital formation, not asset stripping.

What else would you expect banks to promote? The classical distinction between productive and unproductive (that is, extractive) loans is not taught. The result has been to turn mainstream economics as a public-relations advertisement for the status quo, which meanwhile becomes more and more inequitable and polarizes the economy.

JR: What can be learned by studying the history of economic thought? What did Adam Smith and the people in his era and those which followed him understand that would be useful to us now?

MH: If you read Adam Smith and subsequent classical economists, you see that their main concern was to distinguish between productive and unproductive economic activity. They wanted to isolate unproductive rentier income, and unproductive spending and credit.

To do this, they developed the labor theory of value to distinguish value from price – with "economic rent" being the excess of price over socially necessary costs of production. They wanted tofree industrial capitalism from the legacy of feudalism: tax-like groundrent paid to a hereditary landed aristocracy. They also opposed the monopolies that bondholders had insisted that governments create to sell off to pay the public debt. That was why the East India Company and the South Sea Company were created with their special privileges.

Smith and his followers are applauded as the founding fathers of "free market" economics. But they defined free markets in a diametrically opposite way from today's self-proclaimed neoliberals. Smith and other classical economists urged markets free from economic rent.

These classical reformers realized that progressive taxation to stop favoring rentiers required a government strong enough to take on society's most powerful and entrenched vested interests. The 19 th -century drive for Parliamentary reform in Britain aimed at enabling the House of Commons to override the House of Lords and tax the landlords. (This rule finally passed in 1910 after a constitutional crisis.) Now there has been a fight by creditors to nullify democratic politics, most notoriously in Greece.

Today's neoliberals define free markets as those free for rent-seekers and predatory bankers from government regulation and taxes.

No wonder the history of economic thought has been stripped away from the curriculum. Reading the great classical economists would show how the Enlightenment's reform program has been inverted. The world is now racing down a road to the Counter-Enlightenment, a neo- rentier economy that is bringing economic growth to a halt.

JR: Why does economic thought minimize the role of debt? I.e. I read Paul Krugman and he says the total amount of debtisn't a problem, for example you can't find the internet bust in GDP or the 1987 crash?

MH: When economists speak of money, they neglect that all money and credit is debt. That is the essence of bookkeeping and accounting. There are always two sides to the balance sheet. And one party's money or savings is another party's debt.

Mainstream economic models describe a world that operates on barter, not on credit. The basic characteristic of credit and debt is that it bears interest. Any rate of interest can be thought of as a doubling time. Already in Babylonia c. 1900 BC, scribes were taught to c alculate compound interest, and how long it took a sum to double (5 years) quadruple (10 years) or multiply 64 times (30 years). Martin Luther called usury Cacus, the monster that absorbs everything. And in Volume III of Capital and also his Theories of Surplus Value , Marx collected the classical writings about how debts mount up at interest by purely mathematical laws, without regard for the economy's ability to pay.

The problem with debt is not only interest. Shylock's loan against a pound of flesh was a zero-interest loan. When crops fail, farmers cannot even pay the principal. They then may lose their land, which is their livelihood. Forfeiture is a key part of the credit/debt dynamic. But the motto of mainstream neoliberal economics is, "If the eye offends thee, pluck it out." Discussing the unpayability of debt is offensive to creditors.

Anyone who sets out to calculate the ability pay quickly recognizes that the overall volume of debts cannot be paid. Keynes that made point in the 1920s regarding Germany's inability to pay reparations.

Needless to say, banks and bondholders do not want to promote any arguments explaining the limits to how much can be paid without pushing economies into depression. That is what my Killing the Host is about. It is the direction in which the eurozone is now going, and the United States also issuffering debt deflation.

Turning to the second part of your question, Krugman and others say that debt doesn't matter because "we owe it to ourselves." But the "we" who owe it are the 99 Percent; the people who are "ourselves" are the One Percent. So the 99 Percent Owe the One Percent. And they owe more and more,thanks to the "magic of compound interest."

Krugman has a blind spot when it comes to understanding money. In his famous debate with Steve Keen, he denied that banks create money or credit. He insists that commercial banks only lend out deposits. But Keen and the Modern Monetary Theory (MMT) school show that loans create deposits , not the other way around. When a banker writes a loan on his computer keyboard, he creates a deposit as the counterpart.

Endogenous money is easily created electronically. That privilege enables banks to charge interest. Governments could just as easily create money on their own computers. Neoliberal privatizers want to block governments from doing this, so that economies will have to rely on commercial banks for the money and credit they need to grow.

The mathematics of compound interest means that economies can only pay their debts by creating a financial bubble – more and more credit to bid up asset prices for real estate, stocks and bonds, enabling banks to make larger loans. Today's economies are obliged to develop into Ponzi schemes to keep going – until they collapses\ in a crash.

JR: The models of the macroeconomy to forecast the future and to develop policy at institutions like the IMF, often consider finance and banking as just another sector of industry, like construction or manufacturing. How do these institutions consider their model of the financial sector?

MH: The IMF acts as the collection agent for global bondholders. Its projections begin by assuming that all debts can be paid, if economies will cut wages and wiping out pension funds so as to pay banks and bondholders.

As long as creditors remain in control, they are quite willing to sacrifice the 99 Percent to pay the One Percent. When IMF "stabilization" programs end up destabilizing their hapless victims, mainstream media blame the collapse on the debtor country for not shedding enough blood to impose even more austerity.

Economists often define their discipline as "the allocation of scarce resources among competing ends." But when resources or money really become scarce, economists call it a crisis and say that it's a question for politicians, not their own department. Economic models are only marginal – meaning, small changes, not structural.

The only trend that does grow inexorably is that of debt. The more it grows, the more it slows the "real" economy of production and consumption. So something must give: either the economy, or creditor claims. And that does indeed change the structure of the economy. It is a political as well as an economic change.

Regarding the second part of your question – how creditor institutions model the financial sector – when they look at prices they only consider wages and consumer prices, not asset prices. Yet most bank credit is tied to asset prices, because loans are made to buy homes or commercial real estate, stocks or bonds, not bread and butter.

Not looking at what is obviously important requires a great effort of tunnel vision. But as Upton Sinclair noted, there are some jobs – like being a central banker, or a New York Times editorial writer – that require the applicant not to understand the topic they are assigned to study. Hence, you have Paul Krugman on money and banking, the IMF on economic stabilization, and Rubinomics politicians on bailing out the banks instead of saving the economy.

If I can add a technical answer: The IMF does not recognize that the "budget problem" – squeezing domestic currency out of the economy by taxing wages and industry – is quite different from the "transfer problem" of converting this money into foreign exchange. That distinction was the essence of the German reparations debate in the 1920s. It is a focus of my history of theories of Trade, Development and Foreign Debt .

Drawing this distinction shows why austerity programs do not help countries pay their foreign debt, but tears them apart and induces emigration and capital flight.

JR: Does the financial sector add to GDP?

MH: The financial sector is a rentier sector – external to the "real" economy of production and consumption, and therefore a form of overhead. As overhead, it should be a subtracted from GDP.

JR: In the way that oil industry funded junk science on global warming denial, Wall Street funds and endows junk economics and equilibrium thinking?

Falling on your face is a state of equilibrium. So is death – and each moment of dying. Equilibrium is simply a cross section in time. Water levels 20 or 30 feet higher would be another form of equilibrium. But to the oil industry, "equilibrium" means their earnings continuing to grow at the present rate, year after year. This involves selling more and more oil, even if this raises sea levels and floods continents. That is simply ignored as not relevant to earnings. By the time that flooding occurs, today's executives will have taken their bonuses and capital gains and retired.

That kind of short-termism is the essence of junk economics. It is tunnel-visioned.

What also makes economics junky is assuming that any "disturbance" sets in motion countervailing forces that return the economy to its "original" state – as if this were stable, not moving down the road to debt peonage and similar economic polarization.

The reality is what systems analysts call positive feedback: When an economy gets out of balance, especially as a result of financial predators, the feedback and self-reinforcing tendencies push it further and further out of balance.

My trade theory book traced the history of economists who recognize this. Once a class or economy falls into debt, the debt overhead tends to grow steadily until it stifles market demand and subjects the economy to debt deflation. Income is sucked upward to the creditors, who then foreclose on the assets of debtors. This shrinks tax revenue, forcing public budgets into deficit. And when governments are indebted, they becomemore subject to pressure to privatization of public enterprise. Assets are turned over to monopolists, who further shrink the economy by predatory rent seeking.

An economy going bankrupt such as Greece and having to sell off its land, gas rights, ports and public utilities is "in equilibrium" at any given moment that its working-age population is emigrating, people are losing their pensions and suffering.

When economists treat depressions merely as self-curing "business downturns," they are really saying that no government action is required from "outside" "the market" to rectify matters and put the economy back on track to prosperity. So equilibrium thinking isbasically anti-government libertarian theory.

But when banks are subjected to "equilibrium" by writing down debts in keeping with the ability of borrowers to pay, WallStreet's pet politicians and economic journalists call this a crisis and insist that the banks and bondholders must be saved or there will be a crisis. This is not a solution. It makes the problem worse and worse.

There is an alternative, of course. That is to understand the dynamics at work transforming economic and socialstructures. That's what classical economics was about.

The post-classical revolution was marginalist. That means that economists only look at small changes, not structural changes. That isanother way of saying that reforms are not necessary – because reforms change structures, not merely redistribute a little bit of income as a bandage.

What used to be "political economy" gave way to just plain "economics" by World War I. As it became increasingly abstract and mathematical, students who studied the subject because they wanted to make the world better were driven out, into other disciplines. That was my experience teaching at the New School already nearly half a century ago. The discipline has become much more tunnel-visioned since then.

Present state of financial world

JR: We see around the world something like 25% of all national debt is now has a yield priced in negative interest rates? What does this mean? Do you see this continuing?

MH: On the one hand, negative interest rates reflect a flight to security by investors. They worry that the debts can't be paid and that there are going to be defaults.

They also see that the United States and Europe are in a state of debt deflation, where people and businesses have to pay banks instead of spending their income on goods and services. So markets shrink, sales and profits fall, and the stock market turns down.

This decline was offset by the Federal Reserve and the European Central Bank trying to re-inflate the Bubble Economy by Quantitative Easing – providing reserves to the banks in exchange for their portfolio of mortgages and other loans. Otherwise, the banks would have had to sell these loans in "the market" at falling prices.

In the name of saving "the market," the Fed and ECB therefore overruled the market. Today, over 80 percent of U.S. home mortgages are guaranteed by the Federal Housing Authority. Banks won't make loans without the government picking up the risk of non-payment. So bankers just pretend to be free market. That's for their victims.

The "flight to security" is a move out of the stock and bond markets into government debt. Stocks and bonds may go down in price, some companies may go bankrupt, but national governments can always print the money to pay their bondholders. Investors are mainly concerned about keeping whatthey have – security of principal. They are willing to be paid less income in exchange for preserving what they have taken.

Here's the corner that the economy has backed itself into. The solution to most problems creates new problems – blowback or backlash, which often turn out to be even bigger problems. Negative interest rates mean that pension funds cannot invest in securities that yield enough for them to pay what they have promised their contributors. Insurance companies can't earn the money to pay their policyholders. So something has to give.

There will be breaks in the chain of payments. But the way Wall Street administrators at the Treasury and Fed plan the crisis is for small savers to lose out to the large institutional investors. So the bottom line that I see is a slow crash.

JR: Could there be a more symbiotic relationship with global financial institutions? For money to have value, doesn't it need a functioning economy, rather than an entirelyfinancialized one?

MH: Money is debt. It is a claim on some debtor. Government money is a claim by its holder on the government, settled by the government accepting it as payment for tax debts.

Being a claim on a debtor, money does not necessarily need a functioning economy. It can be part of a foreclosure process, transferring property to creditors. A financialized economy tends to strip the economy of money, by sucking up to the creditor One Percent on top. That is what happened in Rome, and the result was the Dark Age.

JR: In 2007/2008 we had a subprime crash and since 2014 we've had a commodities crash where oil prices are low, is this because of what's going on in emerging market economies? Are emerging market economies and China the next subprime?

MH: The current U.S. and Eurozone depression isn't because of China. It's because of domestic debt deflation. Commodity prices and consumer spending are falling, mainly because consumers have to pay most of their wages to the FIRE sector for rent or mortgage payments, student loans, bank and credit card debt, plus over 15 percent FICA wage withholding for Social Security and Medicare (actually, to enable the government to cut taxes on the higher income brackets), as well income and sales taxes. After all this is paid, consumers don't have that much left to spend on commodities. So of course commodity prices are crashing.

Oil is a special case. Saudi Arabia is trying to drive U.S. fracking rivals out of business, while also hurting Russia. This lowers gas prices for U.S. and Eurozone consumers, but not by enough to spur economic recovery.

JR: You've written that we're entering a financial cold war – the IMF and the US have been very strict on debt repayment for loans from debtor nations, but in Ukraine they've made an exception regarding Russia, could you discuss your recent writing on that?

MH: U.S. diplomats radically changed IMF lending rules as part of their economic sanctions imposed on Russia as result of the coup d'état by the Right Sector, Svoboda and their neo-Nazi allies in Kiev. The ease with which the U.S. changed these rules to support the military coup shows how the IMF is simply a tool of President Obama's New Cold War policy.

The aim was to enable the IMF to keep lending to the military junta even though Ukraine is in default of its $3 billion debt to Russia, even though it refuses to negotiate payment, and even though IMF money has been used to fund kleptocrats such as Kolomoisky to field his own army against Russian speakers in Donbas. Ukraine has no foreseeablemeans of paying off the IMF and other creditors, given its destruction of its export industry in the East. My articles on this are on my website, michael-hudson.com .

JR: Today's economy has some truly amazing technology from companies like Apple, but Apple is also example of financial engineering, you outline this in your book, what financial innovations havebeen associated with the story of Apple's stock?

MH: The main financial innovation by Apple has been to set up a branch office in Ireland and pretend that the money it makes in the Untied States and elsewhere is made in Ireland – which has only a 15 percent income-tax rate

The problem is that if Apple remits this income back to the United States, it will have to pay U.S. income tax. It wants to avoid this – unless Wall Street can convince politicians to declare a "tax holiday" would let tax avoiders bring all their foreign money back to the United States "tax free." That would be a tax amnesty only for the very wealthy, not for the 99 Percent.

JR: This tax angle explains why Apple, almost the wealthiest company in the world, has been urged by activist shareholders to borrow. Why should the richest company have to go into debt?

MH: The answer is that Apple can borrow from U.S. banks at a low interest rate to pay dividends on its stock, instead of paying these dividends by bringing its income back home and paying the taxes that are due.

It would seem to be an anomaly to borrow from banks and pay dividends. But that is the "cannibalism" stage of modern finance capitalism, U.S.-style. For the stock market as a whole, some 92 percent of earnings recently were used to pay dividends or for stock buybacks.

JR: What is the eventual outcome of all theses corporate buybacks to pump up share prices?

MH: The problem with a company using its revenue simply to buy its own shares to support their price (and hence, enable CEOs to increase their salaries and bonuses, and make more capital gains on their stock options) is that the price fillip is temporary. Last year saw the largest volume of U.S. stock buybacks on record. But since January 1, the market has fallen by about 20 percent. The debts that companies took on to buy stocks remain in place; and the earnings that companies used to buy these stocks are now gone.

Corporations did not use their income to invest in long-term expansion. The financial time frame always has been short-term. Projects with long-term paybacks are cut back, because CEOs and financial managers simply want to take their money and run. That is the financial mentality.

JR: What is the outcome of all theses corporate buybacks to pump up share prices?

MH: When the dust settles, companies financialized in this way are left as debt-leveraged shells. CEOs then go to their labor unions and threaten to declare bankruptcy if the unions don't scale back their pension demands. So there is a deliberate tactic to force companies into debt for short-term earnings and stock-price gains in the short term, and a more intensive class war against present and past employees and pensioners as a longer-term policy.

JR: Why do business schools endorse of financialization? Reversing short-termism?

MH: The financial sector is the major endower of business schools. They have become training grounds for Chief Financial Officers. AtHarvard, Prof. Jensen reasoned that managers should aim at serving stockholders, not the company as such. The result was an "incentive" system tying management bonuses to the stock price. So naturally, CFOs used corporate earnings for stock buybacks and dividend payouts that provided a short-term jump in the stock price.

The ideological foundation of today's business schools is that economic control should be shifted out of government hands into those of financial managers – that is, Wall Street. That is their idea of freeenterprise. Its inevitable tendency is to end in more centralized planning by Wall Street than in Washington.

The aim of this financial planning is quite different from that of governments. As I wrote in Killing the Host : "The euro and the ECB were designed in a way that blocks government money creation for any purpose other than to support the banks and bondholders. The financial sector takes over the role of economic planner, putting its technicians in charge of monetary and fiscal policy without democratic voice or referendums over debt and tax policies."

Financial planning always has been short-term. That is why planning should not be consigned to banks and bondholders. Their mentality is extractive, and that ends up hit-and-run. What passes for mainstream financial analysis is simply to add up how much is owed and demand payment, not help the economy grow. To financial managers, economic prosperity and unemployment is an "externality" – that is, not part of the equation that they are concerned with.

Future

JR: The story of Greece in recent years is relevant to our discussion because the political party Syriza took over with ideas that were traditionally representing the left? Does the body of traditional left ideas have the ability to solve some of the challenges regarding financial warfare?

MH: The left and former Social Democratic or Labour parties have dome to focus on political and cultural issues, not the economic policy that led to their original creation. What is lacking is a focus on rent theory and financial analysis. Part of the explanation probably is covert U.S. funding and sponsorship of Blair-type neoliberals.

The eurozone threatened Greece with domestic destabilization if it did not surrender to the Troika's demands. Syriza's leaders worried that the ensuing turmoil would bring a right-wing neo-Nazi group such as Golden Dawn into power, or a military dictatorship as a client oligarchy for U.S. and German neoliberals.

So the political choice today is much like the 1930s, when the global economy also broke down. The choice is between nationalism and populism on the right, or socialism reviving what used to be left-wing politics.

JR: Could there be a debt write down? Isn't someone's debts another person's savings, i.e. pension funds, 401k, retirement funds?

MH: The problem is indeed that one party's debt finds its counterpart in some other party's savings. Not paying debts therefore involves annulling some other party's financial claims on the debtor. What happens to the savings on the other side of the savings/debt balance sheet?

JR: The political question is, who will lose first?

MH: The answer is, the least politically protected. The end game is "Big fish eat little fish." Pension funds are in the front line of sacrifice, while government bondholders are the most secure. Greek pensionsalready have been written down, and the savings of U.S. pension funds, Social Security and other social programs are the first to be annulled.

The only way to achieve a fair debt cancellation is to write down the debts of the wealthiest, not the most needy. That is the opposite of how matters are being resolved today. That is why southern Europe is being radicalized over the debt issue.

JR: Will financialized economies implode? Leaving the non-financialized ones?

MH: The One Percent who hold most of the economy's savings are quite willing to plunge society into depression to collect on their savings claims. Their greed is why we are in an economic war much like Rome's Conflict of the Orders that shaped the Republic, and its century of civil war between creditors and debtors, 133-29 BC.

Argentina has been imploding, just as Third World debtors were obliged to do when they accepted IMF austerity programs and "conditionalities" for loans to keep their currencies from depreciating. To avoid being forced to adopt such self-defeating and anti-democratic policies, it looks like countries will have to move out of the U.S. and Eurozone orbit into that of the BRICS. That is why today's financial crisis is leading to a New Cold War. It is as much financial as it is military.

JR: How would you advise a politician to restore prosperity in the future?

MH: The problem is who to give advice to. Most politicians today – at least in the United States – are proxies for their campaign contributors. President Obama is basically a lobbyist for his Wall Street in the Democratic Party's Robert Rubin gang. That kind of demagogue wouldn't pay any attention to policies that I or other economists would make. Their job is not to make the economy better, but to defend their campaign contributors among the One Percent at the economy's expense.

But when I go to China or Russia, here's what I advise (without much success so far, I admit):

First, tax land rent and other economic rent. Make it the tax base. Otherwise, this rental value will end up being pledged to banks as interest on credit borrowed to buy rent-yielding assets.

Second, make banks into public utilities. Credit creation is like land or air: a monopoly created by society. As organs of public policy they would not play the derivatives casino, or make corporatetakeover loans to raiders, or falsify mortgage documents.

Third, do not privatize basic utilities. Public ownership enables basic services to be provided at cost, on a subsidized basis, or freely. That will make the economy more competitive. The cost of upgrading public infrastructure can be defrayed by basing the tax system on economic rent, not wages.

Does it have to be this way ?

The Eurozone die is cast. Countries must withdraw from the euro so that governments can create their own money once again, and resist creditor demands to carve up and privatize their public domain.

For the United States, I don't see a concerted alternative to neoliberalism squeezing more and more interest and rent out of the economy, making the present slump even deeper in debt.

How won't debts be paid?

There are two ways not to pay debts: either by annulling or repudiating them, or by foreclosure when creditors take or demand property in lieu of monetary payment.

The first way not to pay is to default or proclaim a Clean Slate. The most successful example in modern times is the German Economic Miracle – the Allied Monetary Reform of 1948. That cancelled Germany's internal debts except for wages owed by employers, and minimum working balances.

The United States Government has fought against creation of an international court to adjudicate the ability of national economies to pay debts. If such a court is not created, the global economy will fracture. That is occurring in what looks like a New Cold War pitting the United States and its NATO satellites against the BRICS (China, Russia, South Africa, Brazil and India) along with Iran and other debtors.

The US preferred policy is for countries to sell off whatever is in their public domain when they lack the money to pay their debts. This is the "foreclosure" stage.

Short of these two ways of not paying debts, economies are submitting to debt deflation. That strips income from producers and consumers, businesses and governments to pay creditors. As the debtor economy weakens, the debt arrears mount up – often at rising interest rates to reflect the risk of non-payment as creditors realize that there is no "business as usual' way in which the debts can be paid.

Debtor countries may postpone the inevitable by borrowing from the IMF or U.S. Treasury to buy out bondholders. This saves the latter from taking a loss – leaving the debtor country with debts that are even harder to annul, because they are to foreign governments and international institutions. That is why it is a very bad policy for countries to move from owing money to private bondholders to owing the IMF or European Central Bank, whose demands are unforgiving.

In the long term, debts won't be paid in the way that Rome's debts were not paid. The money economy itself was stripped, and the empire fell into a prolonged Dark Age. That is the fate that will befall the West if it continues to support the "rights" of creditors over the right of nations and economies to survive.

This is a transcript from an interview on the XE Podcast conducted by Justin Ritchie.

[Jan 04, 2019] Cramer sees an Apple bottom of $120 per share, 16% below Thursday's open

While Cramer is a clown, I see some analogy in his dance with dot-com bubble. So deflation of dot-com bubble 2 might be coming.
Jan 04, 2019 | finance.yahoo.com

[Jan 04, 2019] Shale still vulnerable if OPEC gets nasty

Jan 04, 2019 | finance.yahoo.com

America is now the largest producer of oil in the world. For the U.S., this is great news as the dream of energy independence grows and maybe one day we can tell OPEC to go take a hike.

However, while the shale oil revolution has helped change the energy landscape forever, we cannot take shale for granted. We can't just assume that the industry can withstand any price and that production can keep rising despite the market conditions. We can't assume that shale oil producers can match OPEC production cuts barrel for barrel.

We also can't assume OPEC, weakened by falling prices of late, won't strike back like they did in 2014. That's when OPEC declared a production war on U.S. shale producers. The then de facto head of the OPEC Cartel Ali al-Naimi spoke about market share rivalry with the United States and said that they wanted a battle with the U.S. There were no winners in that production war. Ali al-Naimi was sacked as he almost bankrupted Saudi Arabia. It took its toll on U.S. producers as well, as many were forced into bankruptcy despite making significant progress on efficiency and cost cutting.

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With 2019 underway, OPEC, along with Russia, agreed to remove 1.2 million barrels per day off the market for the first six months of the year. Early reports on OPEC compliance to the agreed upon production cuts is overwhelming at a time when there are new questions about how shale oil producers are faring after this recent oil price drop.

Private forecasters are showing that there are major cuts in Saudi exports and even signs that OPEC production is falling sharply. Bloomberg News confirmed that by reporting "observed crude exports from Saudi Arabia fell to 7.253 million barrels per day in December on lower flows to the U.S. and China." Furthermore, other private trackers believe that the drop may be the biggest in exports since Bloomberg began tracking shipments in early 2017. Oil saw another boost after Bloomberg reported that OPEC oil production had the biggest monthly drop in two years falling by 530,000 barrels a day to 32.6 million a day last month. It's the sharpest pullback since January 2017.

Rewind to 2017, there was talk that shale oil producers would make up the difference and the cut would not matter, but that was proven wrong. This time expect the same because it is likely that shale oil producers may have to cut back as the sharp price drop has put them in a bad position. The Wall Street Journal pointed out that, even now, some shale oil wells are not producing as much oil as expected. This coupled with a large declining production rate in shale swells means that they need capital to keep drilling to keep those record production numbers moving higher. "Two-thirds of projections made by the fracking companies between 2014 and 2017 in America's four hottest drilling regions appear to have been overly optimistic, according to the analysis of some 16,000 wells operated by 29 of the biggest producers in oil basins in Texas and North Dakota. Collectively, the companies that made projections are on track to pump nearly 10% less oil and gas than they forecast for those areas, according to the analysis of data from Rystad Energy AS, an energy consulting firm. That is the equivalent of almost one billion barrels of oil and gas over 30 years, worth more than $30 billion at current prices. Some companies are off track by more than 50% in certain regions" the Journal reported.

"While U.S. output rose to an all-time high of 11.5 million barrels a day, shaking up the geopolitical balance by putting U.S. production on par with Saudi Arabia and Russia. The Journal's findings suggest current production levels may be hard to sustain without greater spending, because operators will have to drill more wells to meet growth targets. Yet shale drillers, most of whom have yet to consistently make money, are under pressure to cut spending in the face of a 40% crude-oil price decline since October."

Of course, none of this matters if we see a prolonged slowdown in the global economy, Demand may indeed turn out to be the great equalizer. Yet if growth comes back, say if we get a China trade deal or if they ever reopen the U.S. government, we will most likely see a very tight market in the new year. The OPEC cuts will lead to a big drawdown in supply and shale oil producers will find it hard to match OPEC and demand growth barrel for barrel.

[Jan 04, 2019] This Is Not the Time to Be Initiating New Positions in Equities

Jan 04, 2019 | finance.yahoo.com

While Apple's profit warning was truly a shocker -- the first time in 16.5 years the company had issued such a guidance release, according to Bespoke Research -- the forces pressuring global equity markets today are more macro than micro. To put it simply: the yield curve looks horrible. The table at the bottom of this report contains the details, but with a near-inversion of the 12-month/10-year Treasury yield spread the market's demand for stocks is understandably pressured.

[Jan 03, 2019] Is Warren Buffett Sending a Signal About the Bond Market

Notable quotes:
"... The 30-year U.S. yield fell to 2.91 percent on Thursday, the lowest since January 2018 ..."
"... The other interpretation is that the company chose to refinance with long-term fixed-rate debt because it sees the big drop in 30-year yields as unsustainable ..."
Jan 03, 2019 | finance.yahoo.com

Berkshire, with the third-highest credit rating from both Moody's Investors Service and S&P Global Ratings, is expected to price the debt on Thursday with a spread of 150 to 155 basis points above benchmark Treasuries. The 30-year U.S. yield fell to 2.91 percent on Thursday, the lowest since January 2018.

The other interpretation is that the company chose to refinance with long-term fixed-rate debt because it sees the big drop in 30-year yields as unsustainable. After all, if a borrower expects interest rates to rise in the future, it would prefer to lock in a fixed rate now rather than face higher payments down the road.

[Jan 03, 2019] Oil drops on concerns of economic downturn, but OPEC cuts support by Henning Gloystein

Jan 03, 2019 | finance.yahoo.com

OPEC oil supply fell by 460,000 barrels per day (bpd) between November and December, to 32.68 million bpd, a Reuters survey found on Thursday, as top exporter Saudi Arabia made an early start to a supply-limiting accord, while Iran and Libya posted involuntary declines.

OPEC, Russia and other non-members - an alliance known as OPEC+ - agreed last December to reduce supply by 1.2 million bpd in 2019 versus October 2018 levels. OPEC's share of that cut is 800,000 bpd.

"If OPEC is faithful to its agreed output cut together with non-OPEC partners, it would take 3-4 months to mop up the excess inventories," energy consultancy FGE said.

[Jan 03, 2019] The Rise of the Trader

Jan 03, 2019 | www.amazon.com

No sooner did you pass the fake fireplace than you heard an ungodly roar, like the roar of a mob ... It was the sound of well-educated young white men baying for money on the bond market.

TOM WOLFE, The Bonfire of the Vanities. 1987

We are Wall Street. It's our job to make money. Whether it's a commodity, stock, bond, or some hypothetical piece of fake paper, it doesn't matter. We would trade baseball cards if it were profitable. ...

We get up at 5am & work till 10pm or later. We're used to not getting up to pee when we have a position. We don't take an hour or more for a lunch break. We don't demand a union. We don't retire at 50 with a pension. We eat what we kill, and when the only thing left to eat is on your dinner plates, we'll eat that....

We aren't dinosaurs. We are smarter and more vicious than that, and we are going to survive.

Reported by STACY-MARIE ISHMAEL, FT Alphaville, 30 April 2010

[Dec 31, 2018] Britain fell for a neoliberal con trick even the IMF says so by Aditya Chakrabortty

Looks like Guardian start turning away from neoliberalism.
Notable quotes:
"... What price is paid when a promise is broken? Because for much of my life, and probably yours, the political class has made this pledge: that the best way to run an economy is to hack back the public realm as far as possible and let the private sector run free. That way, services operate better, businesses get the resources they need, and our national finances are healthier. ..."
"... I don't wish to write about the everyday failings of neoliberalism – that piece would be filed before you could say "east coast mainline". Instead, I want to address the most stubborn belief of all: that running a small state is the soundest financial arrangement for governments and voters alike. Because 40 years on from the Thatcher revolution, more and more evidence is coming in to the contrary. ..."
"... The other big reason for the UK's financial precarity is its privatisation programme, described by the IMF as no less than a "fiscal illusion". British governments have flogged nearly everything in the cupboard, from airports to the Royal Mail – often at giveaway prices – to friends in the City. Such privatisations, judge the fund, "increase revenues and lower deficits but also reduce the government's asset holdings". ..."
"... IMF research shows is that the Westminster classes have been asset-stripping Britain for decades – and storing up financial trouble for future generations ..."
Oct 17, 2018 | www.theguardian.com

The fund reports that Britain's finances are weaker than all other nations except Portugal, and says privatisation is to blame

Columnists usually proffer answers, but today I want to ask a question, a big one. What price is paid when a promise is broken? Because for much of my life, and probably yours, the political class has made this pledge: that the best way to run an economy is to hack back the public realm as far as possible and let the private sector run free. That way, services operate better, businesses get the resources they need, and our national finances are healthier.

It's why your tax credits keep dropping , and your mum has to wait half a year to see a hospital consultant – because David Cameron slashed public spending, to stop it "crowding out" private money. It's why water bills are so high and train services can never be counted on – because both industries have been privatised.

We let finance rip and flogged our assets. Austerity was bound to follow Will Hutton

From the debacle of universal credit to the forced conversion of state schools into corporate-run academies, the ideology of the small state – defined by no less a body than the International Monetary Fund as neoliberalism – is all pervasive. It decides how much money you have left at the end of the week and what kind of future your children will enjoy, and it explains why your elderly relatives can't get a decent carer.

I don't wish to write about the everyday failings of neoliberalism – that piece would be filed before you could say "east coast mainline". Instead, I want to address the most stubborn belief of all: that running a small state is the soundest financial arrangement for governments and voters alike. Because 40 years on from the Thatcher revolution, more and more evidence is coming in to the contrary.

Let's start with the IMF itself. Last week it published a report that barely got a mention from the BBC or in Westminster, yet helps reframe the entire debate over austerity. The fund totted up both the public debt and the publicly owned assets of 31 countries, from the US to Australia, Finland to France, and found that the UK had among the weakest public finances of the lot. With less than £3 trillion of assets against £5tn in pensions and other liabilities, the UK is more than £2tn in the red . Of all the other countries examined by researchers, including the Gambia and Kenya, only Portugal's finances look worse over the long run. So much for fixing the roof.

'British governments have flogged nearly everything in the cupboard from airports to the Royal Mail – often at giveaway prices – to friends in the City.' Photograph: Amer Ghazzal/Rex/Shutterstock

Almost as startling are the IMF's reasons for why Britain is in such a state: one way or another they all come back to neoliberalism. Thatcher loosed finance from its shackles and used our North Sea oil money to pay for swingeing tax cuts. The result is an overfinancialised economy and a government that is £1tn worse off since the banking crash. Norway has similar North Sea wealth and a far smaller population, but also a sovereign wealth fund. Its net worth has soared over the past decade.

The other big reason for the UK's financial precarity is its privatisation programme, described by the IMF as no less than a "fiscal illusion". British governments have flogged nearly everything in the cupboard, from airports to the Royal Mail – often at giveaway prices – to friends in the City. Such privatisations, judge the fund, "increase revenues and lower deficits but also reduce the government's asset holdings".

Throughout the austerity decade, ministers and economists have pushed for spending cuts by pointing to the size of the government's annual overdraft, or budget deficit. Yet there are two sides to a balance sheet, as all accountants know and this IMF work recognises. The same goes for our public realm: if Labour's John McDonnell gets into No 11 and renationalises the railways, that would cost tens of billions – but it would also leave the country with assets worth tens of billions that provided a regular income.

Instead, what this IMF research shows is that the Westminster classes have been asset-stripping Britain for decades – and storing up financial trouble for future generations.

Just look at housing to see the true cost of privatisation Dawn Foster

Privatisation and austerity have not only weakened the country's financial position – they have also handed unearned wealth to a select few. Just look at a new report from the University of Greenwich finding that water companies could have funded all their day-to-day running and their long-term investments out of the bills paid by customers. Instead of which, managers have lumbered the firms with £51bn of debt to pay for shareholders' dividends. Those borrowed billions, and the millions in interest, will be paid by you and me in our water bills. We might as well stuff the cash directly into the pockets of shareholders.

Instead of competitively run utilities, record investment by the private sector and sounder public finances, we have natural monopolies handed over to the wealthy, banks that can dump their liabilities on the public when things get tough, and an outsourcing industry that feasts upon the carcass of the public sector. As if all this weren't enough, neoliberal voices complain that we need to cut taxes and red tape, and further starve our public services.

This is a genuine scandal, but it requires us to recognise what neoliberalism promised and what it has failed to deliver. Some of the loudest critics of the ideology have completely misidentified it. Academics will daub the term "neoliberal" on any passing phenomenon. Fitbits are apparently neoliberal, as is Ben & Jerry's ice-cream and Kanye West. Pundits will say that neoliberalism is about markets and choice – tell that to any commuter wedged on a Southern rail train. And centrist politicians claim that the great failing of neoliberalism is its carelessness about identity and place, which is akin to complaining that the boy on a moped who snatched your smartphone is going too fast.

Let us get it straight. Neoliberalism has ripped you off and robbed you blind. The evidence of that is mounting up – in your bills, in your services and in the finances of your country.

• Aditya Chakrabortty is a Guardian columnist and senior economics commentator

[Dec 29, 2018] U.S. retirees try to keep cool as stocks tumble by Tim McLaughlin

Overinvestment in stocks of retires is very common under neoliberalism.
There are several factors here: one is greed cultivated by neoliberal MSM, the second is insufficient retirement funds (gambling with retirement savings) and the last and not least is lack of mathematical skills an inability to use Excel for viewing their portfolio and making informed decisions.
Notable quotes:
"... At the end of 2016, 69 percent of investors in their 60s had at least 40 percent of their 401(k) portfolio invested in stocks, up from 65 percent in 2007, according to the Employee Benefit Research Institute in Washington. ..."
"... 19 percent had more than 80 percent of their 401(k) invested in stocks in 2016 ..."
"... "We had lousy forecasts in 2008. The housing market was in a tailspin," said 76-year-old John Bauer, who worked for McDonnell Douglas and Boeing Co for 36 years in St. Louis. "Today, employment is way up. The housing market is steady and corporations are flush." ..."
Dec 29, 2018 | finance.yahoo.com

BOSTON (Reuters) - Nancy Farrington, a retiree who turns 75 next month, admits to being in a constant state of anxiety over the biggest December stock market rout since Herbert Hoover was president.

"I have not looked at my numbers. I'm afraid to do it," said Farrington, who recently moved to Charleston, South Carolina, from Boston. "We've been conditioned to stand pat and not panic. I sure hope my advisers are doing the same."

Retirees are worrying about their nest eggs as this month's sell-off rounds out the worst year for stocks in a decade, and some fear they are headed for a day of reckoning like the 2008 market meltdown or dot-com crash of the early 2000s.

Retirees have less time to recover from bad investment moves than younger workers. If they or their advisers panic and sell during a brief downturn, they may lock in a more meager retirement. But their portfolio could be even more at risk if they hold on too long in a prolonged decline.

"I have no way of riding it out if that happens," said Farrington. "I can feel the anxiety in my stomach all the time."

While many industrialized countries still have generous safety nets for retirees, pensions for U.S. private-sector workers largely have been supplanted by 401(k) accounts and other private saving plans. That means millions of older Americans are effectively their own pension managers.

Workers in countries like Belgium, Canada, Germany, France and Italy receive, on average, about 65 percent of their income replaced by mandatory pensions. In the Netherlands the ratio of benefits to lifetime average earnings is abut 97 percent, according to a 2017 Organization for Economic Cooperation and Development report.

The OECD says the comparable U.S. replacement rate from Social Security benefits is about 50 percent.

U.S. retirees had watched their private accounts mushroom during a bull stock market that began in early 2009. Meanwhile, the Federal Reserve kept interest rates near zero for years, enticing retirees deeper into stocks than previous generations as investments like certificates of deposit, government bonds and money-market funds generated paltry income.

At the end of 2016, 69 percent of investors in their 60s had at least 40 percent of their 401(k) portfolio invested in stocks, up from 65 percent in 2007, according to the Employee Benefit Research Institute in Washington.

Still, fewer have gone all in on stocks in recent years. Just 19 percent had more than 80 percent of their 401(k) invested in stocks in 2016, down from 30 percent at year-end 2007, according to nonprofit research group EBRI.

"Nothing has gone wrong, but it seems the market is trying to figure out what could go wrong," said Brooke McMurray, a 69-year-old New York retiree who says she became a financial news junkie after the 2007-2009 financial crisis.

"Unlike before, I now know what I own and I constantly read up on my companies," she said.

The three major U.S. stock indexes have tumbled about 10 percent this month, weighed by investor worries including U.S.-China trade tensions, a cooling economy and rising interest rates, and are on track for their worst December since 1931.

The S&P 500 is headed for its worst annual performance since 2008, when Wall Street buckled during the subprime mortgage crisis. But some are not quite ready to draw comparisons.

"We had lousy forecasts in 2008. The housing market was in a tailspin," said 76-year-old John Bauer, who worked for McDonnell Douglas and Boeing Co for 36 years in St. Louis. "Today, employment is way up. The housing market is steady and corporations are flush."

Still, Bauer said he is uneasy about White House leadership. He and several other retirees referenced U.S. Treasury Secretary Steve Mnuchin's recent calls to top bankers, which did more to rattle than assure markets. U.S. stocks tumbled more than 2 percent the day before the Christmas holiday.

Nevertheless, Bauer is prepared to ride out any market turmoil without making dramatic moves to his retirement portfolio. "When it's up, I watch it. When it's down, I don't," he said. And there are some factors helping take the sting out of the market rout, said Larry Glazer, managing partner of Boston-based Mayflower Advisors LLC.

[Dec 27, 2018] The Markets Are Signaling Something Awful Ahead Market Recon

Dec 27, 2018 | finance.yahoo.com

The hard reality remains that the financial markets are, in the long term, forward-looking. But in the short-term, they are dominated by high-speed electronic trading. Anyone who felt Monday's (December's, Q4's) meltdown, or watched Tuesday night's reopening of equity index futures, watched in entertained astonishment, if not anguish. Clearly, sentient, reasoned thought has now been sacrificed at the altar of short-term profit. The task is to come up with a thesis moving forward, and the challenge is to stick to that conclusion at times when the evils of algorithmic, high-frequency and passive trading styles turn against those core beliefs. Risk Management. Before one might profit with sustained regularity, one must learn to effectively preserve one's capital.

5 hours ago You can have whatever opinion you want about Yahoo's reporting of the daily ups and downs of the markets, and keep in mind, the exchanges are betting parlors. That said, these types of wild swings over the last 6 weeks or so, are very similar to what took place before housing bubble burst in the late mid-ots, keep an eye on the amount of private uncollateralized debt that mid-cap companies are carrying, if they start defaulting and these private equity houses start running for cover, it create the same type of liquidity situation that Lehman's caused.

[Dec 27, 2018] Chart analyst sees a weeks-long relief rally in stocks that could offer selling opportunity

Dec 27, 2018 | finance.yahoo.com

Compare with "That's set to worsen in the new year, experts told CNBC on Monday, pointing to risks including the Federal Reserve likely raising interest rates further and mounting concerns about a global economic slowdown." The problem iether expecting rally or expecting further downturn is that stock prices are so detached from reality that everything is possible.

[Dec 25, 2018] 'The worst is yet to come' Experts say a global bear market is just getting started by Yen Nee Lee

The S&P crashed below its bear market level of 2352.7 - the lowest since April 2017 - ending the longest bull market in history. This is the worst December for the S&P 500 since The Great Depression
Dec 25, 2018 | finance.yahoo.com

[Dec 24, 2018] Wells Fargo bonuses were bad business on steroids

Dec 24, 2018 | www.yahoo.com

It was over two years ago that Wells Fargo's fake accounts scandal burst into the headlines, and since then, there has been an unrelenting torrent of bad news. In late October, the American Banker reported that two executives were placed on leave after they received notifications of pending sanctions from the Office of the Comptroller of the Currency. In November, Federal Reserve chairman Jerome Powell sent a letter to Senator Elizabeth Warren saying the Fed will not lift a cap on Wells's growth until the bank addresses deficiencies in oversight and risk management. "The underlying problem at the firm was a strategy that prioritized growth without ensuring that risks were managed, and as a result the firm harmed many of its customers," Powell wrote.

In early November, Jay Welker, who was the head of the private bank, which sits within the bank's wealth management business, retired . Under Welker, the private bank pushed wealth advisors to vigorously sell high-fee products . There may be more bad news about this aspect of the embattled bank. The Justice Department, the SEC, the Labor Department, and Wells Fargo's own board are conducting ongoing investigations into its wealth management business that have yet to be resolved.

There's still one aspect of how the wealth management business pushed for growth that former Wells Fargo employees say hasn't gotten the scrutiny it should. For four years, starting in 2012 and through the end of 2015, Wells incentivized some of its advisors in that business through something called the "Growth Award." Some former employees say these awards led to behavior that was not in the best interest of clients, including steering them towards higher-fee products. The Growth Award was much discussed internally, says a former investment strategist at Wells, although not everyone was privy to the details of how it worked.

Last summer, the Wall Street Journal reported the existence of the growth award, but not the details of how the money worked. Essentially, the growth award was a way of motivating advisors to grow their businesses. In and of itself, that isn't unusual. The industry has for years offered successful brokers incentives, often in the form of elaborate trips to exotic locales.The SEC is weighing new rules that may curtail the use of such rewards under the theory that they could make brokers "predominantly motivated" by "self enrichment." Firms have also long used rich packages to lure successful brokers to move their business.

But firms are cutting back on the use of such packages, according to industry insiders. When told about the details of the growth award, three financial advisors at other firms with whom Yahoo Finance spoke expressed shock at both the sheer size and the way it incentivized advisors for short-term growth, rather than long-term business building. (Another advisor thought that in the context of the packages that were used to incentivize brokers to switch, it wasn't so surprising.) Or as former Wells Fargo executive, who was in the retail brokerage industry for decades, says, "If a free golf outing is bad business, then the Growth Award is bad business on steroids."

In a statement to Yahoo Finance, spokesperson Shea Leordeanu said, "At Wells Fargo Wealth and Investment Management, we are committed to taking care of our clients' financial needs every day and take seriously our responsibility to help them preserve and invest their hard-earned savings. Our primary goal is to be a trusted advisor to our clients and to act in their best interests. And we have supervisory processes and controls in place so that, if a team member acts in a manner not in line with our values and our policies, we take appropriate action."

An enormous, compounding bonus for bringing revenue to Wells Fargo

The Growth Award wasn't available to the entire army of some 14,000 advisors, who make up the broad group of Wells Fargo Advisors. (Many others, most prominently those who came with the 2008 Wachovia merger, had different compensation plans with lock-ups that are just now expiring, leading to something of an exodus , according to press reports.) This Growth Award, on the other hand, was meant for the 3,000 or so advisors who were part of something known as Wealth Brokerage Services, or WBS. These advisors are located in the bank branches, or in hubs -- Wells Fargo buildings in cities -- that housed wealth management personnel among others like business bankers. (Wells Fargo subsequently announced a reorganization that is expected to combine what were separate groups of advisors.) To be eligible, you couldn't be a newbie -- you needed a two year minimum at the bank -- and you had to be doing more than $350,000 in annual revenue. The former executive and another advisor estimate that narrowed the group down to about 2,000 people.

The amounts people stood to make were extraordinary. Here's how the math worked. The goal was for an individual financial advisor to increase his or her revenue by at least 15% for each of the four years that the Growth Award was in place. The award multiplied each year the goal was achieved. So if you achieved 15% growth in the first year, you received a 15% bonus. If you achieved 15% growth again in the second year, you received a 30% bonus. If you achieved 15% growth in the third year, you received a 45% bonus. Finally, if you achieved 15% growth again in the 4th year, you received a whopping 60% bonus.

If you didn't achieve the goal, you were not penalized, but you didn't receive the bonus.

To get specific about just what these percentages could mean, say you generated $1 million in revenue in 2011, and you achieved precisely 15% growth each year for the next 4 years. In year one, your revenue would be $1,150,000, and your bonus, at 15% of that, would be $172,500. The new 2013 goal would be $1,322,500 (a 15% increase from the $1,150,000.). If you hit that goal, your Growth Award bonus for 2013 would be $396,393. And so on. If you hit the goals for 2014 and 2015, you stood to make a bonus of $684,393 and $1,049,403, respectively. That means you stood to make $2.3 million in total Growth Award bonuses. In other words, the financial incentives to hit the numbers were enormous.

Perhaps for the very reason the incentives were so enormous, more advisors hit the numbers than Wells had expected. (Of course, there was also a strong bull market during that period.) The Journal reported that Wells had allotted $250 million for the Growth Award bonuses. Instead, Wells had to pay $750 million between 2012 and 2015. "It's widely known inside Wells that they were so way over budget," says another former advisor. "I personally know brokers who were awarded bonuses of over $2 million, which is a stunning amount of money," says a former investment advisor.

Roughly two-thirds of the 2,000 or so eligible advisors earned an award.

"When you throw that kind of money out, it incentivizes."

Now consider the Growth Award from the perspective of a client, who might wander into a bank branch, maybe having gotten an unexpected inheritance. "You have to connect the dots," the former executive says. "This is where the sales pressure in the bank branches meets the wealth and investment management business."

The staff of the branch was incentivized to steer clients to a Wells financial advisor, because investment management referrals helped them meet their sales goals, and that advisor, in turn had incentives -- really big incentives -- to steer the clients toward products that generate upfront revenue. "If you don't have a high moral background, it'll put you in a position to do things for clients that aren't in their best interest," says a former advisor. "I'm always looking at what's best for the client but it's also what's best for my paycheck." "You are absolutely incentivizing advisors to sell the products with the highest upfront fees," says the former executive.

"Yeah, when you throw that kind of money out, it incentivizes," says another former advisor. "Jesus would probably be okay. But the disciples probably would have had some morals put to the test on that one."

Multiple sources say the Growth Award helps explain why annuity sales at Wells Fargo were so high, especially after the bank tried to tamp down on the amount the Award was going to cost them. In 2014, Wells Fargo decided to stop "fee fronting," which allowed advisors to count fees that would be paid in subsequent years toward their annual tally. So advisors began to search for products with high initial fees, one former advisor said.

Annuities come with high upfront revenues for the broker, making them an obvious choice for someone who is trying to hit a revenue target -- but maybe not the optimal choice for the client. "You think Wells Fargo's Bankers Are Bad? Take a Look at its Brokers," was the headline of an October 2016 piece in thestreet.com. The piece noted that Wells had argued to the Securities and Exchange Commission that it should not be subject to rules to put its investors first in cases where its advisors were making referrals for products including annuities, and that in 2015, Wells was number one in the country for annuity sales.

"It's pretty stunning that a firm that has just half the assets of its larger competitors sells more annuities," says a former advisor. "I think that just speaks to the emphasis on making sales numbers and a need to sell more of the highest payout products." Indeed, the Journal reported and several former advisors corroborate that internally, 2015 was dubbed "The Year of the Annuity."

It wasn't just annuities. One former advisor also noted that advisors trying to chase the growth award also favored mutual funds with high upfront fees. "You'd think if revenue was going up by 15% a year, your AUM would at least go up at least 12% or 13%," a former advisor said. "That was not the case. The award was only revenue based -- there was nothing in there for AUM, longevity, or anything like that. Strictly show us the money and we'll show you the money."

All the fees were disclosed to Wells Fargo's clients. But what clients didn't know was the incentive structure that was in place for their advisor. So yes, clients understood the fees -- but they were in the dark as to at least part of the reason one product might have been recommended over another. "Imagine that it's November," says the former executive. "You have to do $250,000 in revenue, or you going to leave a million dollars on the table. What are you doing to do?" He continues, "Every client of WBS has to go back and look at every trade, every single decision, from 2012 to 2015 and scrutinize whether it was impacted by the Growth Award." "I think if clients and the public knew that Wells Fargo Advisors had given such substantial and amazing well-timed retention bonuses to lock up their advisors, they would begin to wonder whether their advisors were giving the best advice to their clients," says another former investment strategist.

There could be another problem, too. "If you achieved the goal early, you would stop doing business so you didn't have the higher base to start from in the next year," says the former executive. "You'd sand bag -- and that might not be in the client's best interest either."

A golden handcuff at a very good time for Wells Fargo

The Growth Award may also help explain why Wells has been able to retain as many advisors as it has, despite the ongoing scandals. Six months before the end of the Growth Award program, midway through 2015, Wells Fargo asked those advisors who had qualified for the award how they would like to receive their pay. There were two options. The first option essentially allowed the advisor to unlock all the money at the end of February 2021. If the advisor left before that, the money was forfeited. A third of the advisors who earned awards chose this option.

The other option paid out a tenth of the bonus each year for 10 years. If the advisor so chose, they could get that money up front as a forgivable loan. Every year the advisor remained at Wells Fargo, he or she would simply pay the interest on their bonus, and a tenth of the principle would be forgiven. But if the advisor left, he or she had to pay back the unforgiven principle. (Or if the advisor hadn't taken the forgivable loan, the annual checks would stop.) Two-thirds of advisors opted for this route.

The Growth Award also had the potential to create another problem for advisors. The nice thing about building a fee-based business is that it's an annuity for the advisor. Every year, there's a fee. If, on the other hand, the advisors put clients' money into things that generate a one-time pop of revenue, the advisor doesn't get the same type of ongoing fees. So, the former executive says, some advisors are in a hole, where they owe taxes on the Growth Award, while their income has shrunk dramatically. "I know guys who got it who built or bought a huge house and are now stuck," he says.

The golden handcuff of the Growth Award has been good for the bank in the face of all of the scandals. One advisor told Yahoo Finance that the growth in the number of clients also shrank dramatically amid the unrelenting negative news.

"I went from around 30 referrals to two in six months after the scandal hit," this person said. What had been a solid stream of clients slowed to a trickle. But the only out for advisors would have been to have another firm hire them away and pay off their loan.

Perhaps the most interesting thing about the Growth Award is how deliberate it was. "It was not a computer glitch or an oversight," as the former executive says. "It was not perpetrated by a few rogue employees. The Growth Award was conceived by the Compensation Committee. The Compensation Committee is the most senior of senior management. The goal was to drive growth and drive growth it did." But perhaps at a price for clients -- making the Growth Award, in its way, the most telling evidence yet of the cultural issues within Wells Fargo.

Read more:

Exclusive: Wells Fargo pushed wealth advisors to use high-fee products, cross-sell

Exclusive: Wells Fargo automated high-net-worth wealth management as advisors faced sales pressure

[Dec 22, 2018] Crude refusal China shuns U.S. oil despite trade war truce

Dec 22, 2018 | finance.yahoo.com

Chinese refineries that used to purchase U.S. oil regularly said they had not resumed buying due to uncertainty over the outlook for trade relations between Washington and Beijing, as well as rising freight costs and poor profit-margins for refining in the region.

Costs for shipping U.S. crude to Asia on a supertanker are triple those for Middle eastern oil, data on Refinitiv Eikon showed.

A senior official with a state oil refinery said his plant had stopped buying U.S. oil from October and had not booked any cargoes for delivery in the first quarter.

"Because of the great policy uncertainty earlier on, plants have actually readjusted back to using alternatives to U.S. oil ... they just widened our supply options," he said.

He added that his plant had shifted to replacements such as North Sea Forties crude, Australian condensate and oil from Russia.

"Maybe teapots will take some cargoes, but the volume will be very limited," said a second Chinese oil executive, referring to independent refiners. The sources declined to be named because of company policy.

A sharp souring in Asian benchmark refining margins has also curbed overall demand for crude in recent months, sources said.

Despite the impasse on U.S. crude purchases, China's crude imports could top a record 45 million tonnes (10.6 million barrels per day) in December from all regions, said Refinitiv senior oil analyst Mark Tay.

Russia is set to remain the biggest supplier at 7 million tonnes in December, with Saudi Arabia second at 5.7-6.7 million tonnes, he said.

19 hours ago This is an economic/political tight rope for both countries. China is the largest auto market in the world with numerous manufacturers located inside its borders. Apple sales will disappoint inside China after Meng's arrest over Iran sanctions (Huawei is a world heavy weight in terms of sales), and this has already begun inside China due to national pride. Canada has already seen one trade agreement postponed over her detention. US firm on the main have already issued orders to not have key employees travel to their Chinese plants unless absolutely necessary for fear of retaliation. Brussels is actively working on a plan to bypass US Iranian sanctions, which are deeply unpopular in Europe.
The key to this solution might be in automotive. Oil is possibly on the endangered bargaining list. Russia is a key trading partner (for years) with China and, along with Saudi Arabia and Iran (or even without Iran) will be able to supply their needs. Our agricultural sector, particularly in soybeans, has been hit hard, forcing the US govt. into farm subsidies. Brazil just recorded a record harvest in soybeans. The US could counter with lifting Meng from arrest in return for an agricultural break, but those negotiations won't make the mainstream news. Personally, I think her arrest was a very ill-thought move on the part of law enforcement, as the benefits don't even begin to outweigh the massive retaliation to US firms operating inside their borders. It is almost akin to arresting Tim Cook of Apple or Apple's CFO. You don't kill a bug with a sledge hammer.

[Dec 21, 2018] China national charged with stealing trade secrets by David Shepardson and Makini Brice

Dec 21, 2018 | finance.yahoo.com

The U.S. Justice Department said on Friday a Chinese national had been arrested for stealing trade secrets from a U.S.-based petroleum company, his employer, related to a product worth more than $1 billion.

The department alleged Hongjin Tan downloaded hundreds of files related to the manufacture of a "research and development downstream energy market product," which he planned to use to benefit a company in China that had offered him a job. He was arrested on Thursday in Oklahoma and will next appear in court on Wednesday, the department said.

Tan's LinkedIn page said he has worked as a staff scientist for Phillips 66 (PSX.N) in Bartlesville, Oklahoma, since May 2017.

Phillips 66 said in a statement it was cooperating with the Federal Bureau of Investigation in a probe involving a "former employee at our Bartlesville location," but declined to comment further.

An FBI affidavit said Phillips 66 called the agency last week to report the theft of trade secrets and Tan told a former co-worker he was leaving to return to China.

The FBI found on Tan's laptop an employment agreement from a Chinese company that has developed production lines for lithium ion battery materials.

Tan accessed files for marketing the trade secret "in cell phone and lithium-based battery systems," the FBI said. Phillips 66 said it has one of two refineries in the world that manufacture the unspecified product.

Tan was responsible for research and development of the U.S. company's battery programme and developing battery technologies using its proprietary processes. Phillips 66 told the FBI it had earned an estimated $1.4 billion to $1.8 billion from the unspecified technology.

[Dec 19, 2018] Judge excoriates Trump ex-adviser Flynn, delays Russia probe sentencing by Jan Wolfe and Ginger Gibson

Flynn "treason" is not related to Russia probe and just confirm that Nueller in engaged in witch hunt. I believe half of Senate and House of Representative might go to jail if they were dug with the ferocity Mueller digs Flynn's past. So while Flynn behavior as Turkey lobbyist (BTW Turkey is a NATO country and not that different int his sense from the US -- and you can name a lot of UK lobbyists in high echelons of the US government, starting with McCabe and Strzok) is reprehensible, this is still a witch hunt
When American law enforcement and intelligence officials, who carry Top Secret clearances and authority to collect intelligence or pursue a criminal investigation, decide to employ lies and intimidation to silence or intimidates those who worked for Donald Trump's Presidency, we see shadow of Comrage Stalin Great Terror Trials over the USA.
Dec 19, 2018 | www.yahoo.com
Former U.S. national security adviser Michael Flynn passes by members of the media as he departs after his sentencing was delayed at U.S. District Court in Washington, U.S., December 18, 2018. REUTERS/Joshua Roberts

By Jan Wolfe and Ginger Gibson

WASHINGTON (Reuters) - A U.S. judge fiercely criticized President Donald Trump's former national security adviser Michael Flynn on Tuesday for lying to FBI agents in a probe into Russian interference in the 2016 election, and delayed sentencing him until Flynn has finished helping prosecutors.

U.S. District Judge Emmet Sullivan told Flynn, a retired U.S. Army lieutenant general and former director of the Defense Intelligence Agency, that he had arguably betrayed his country. Sullivan also noted that Flynn had operated as an undeclared lobbyist for Turkey even as he worked on Trump's campaign team and prepared to be his White House national security adviser.

Flynn pleaded guilty to lying to FBI agents about his December 2016 conversations with Sergei Kislyak, then Russia's ambassador in Washington, about U.S. sanctions imposed on Moscow by the administration of Trump's Democratic predecessor Barack Obama, after Trump's election victory but before he took office.

Special Counsel Robert Mueller, leading the investigation into possible collusion between Trump's campaign team and Russia ahead of the election, had asked the judge not to sentence Flynn to prison because he had already provided "substantial" cooperation over the course of many interviews.

But Sullivan sternly told Flynn his actions were abhorrent, noting that Flynn had also lied to senior White House officials, who in turn misled the public. The judge said he had read additional facts about Flynn's behavior that have not been made public.

At one point, Sullivan asked prosecutors if Flynn could have been charged with treason, although the judge later said he had not been suggesting such a charge was warranted.

"Arguably, you sold your country out," Sullivan told Flynn. "I'm not hiding my disgust, my disdain for this criminal offense."

Flynn, dressed in a suit and tie, showed little emotion throughout the hearing, and spoke calmly when he confirmed his guilty plea and answered questions from the judge.

Sullivan appeared ready to sentence Flynn to prison but then gave him the option of a delay in his sentencing so he could fully cooperate with any pending investigations and bolster his case for leniency. The judge told Flynn he could not promise that he would not eventually sentence him to serve prison time.

Flynn accepted that offer. Sullivan did not set a new date for sentencing but asked Mueller's team and Flynn's attorney to give him a status report by March 13.

Prosecutors said Flynn already had provided most of the cooperation he could, but it was possible he might be able to help investigators further. Flynn's attorney said his client is cooperating with federal prosecutors in a case against Bijan Rafiekian, his former business partner who has been charged with unregistered lobbying for Turkey.

Rafiekian pleaded not guilty on Tuesday to those charges in federal court in Alexandria, Virginia. His trial is scheduled for Feb. 11. Flynn is expected to testify.

Prosecutors have said Rafiekian and Flynn lobbied to have Washington extradite a Muslim cleric who lives in the United States and is accused by Turkey's government of backing a 2016 coup attempt. Flynn has not been charged in that case.

'LOCK HER UP!'

Flynn was a high-profile adviser to Trump's campaign team. At the Republican Party's national convention in 2016, Flynn led Trump's supporters in cries of "Lock her up!" directed against Democratic candidate Hillary Clinton.

A group of protesters, including some who chanted "Lock him up," gathered outside the courthouse on Tuesday, along with a large inflatable rat fashioned to look like Trump. Several Flynn supporters also were there, cheering as he entered and exited. One held a sign that read, "Michael Flynn is a hero."

Flynn became national security adviser when Trump took office in January 2017, but lasted only 24 days before being fired.

He told FBI investigators on Jan. 24, 2017, that he had not discussed the U.S. sanctions with Kislyak when in fact he had, according to his plea agreement. Trump has said he fired Flynn because he also lied to Vice President Mike Pence about the contacts with Kislyak.

Trump has said Flynn did not break the law and has voiced support for him, raising speculation the Republican president might pardon him.

"Good luck today in court to General Michael Flynn. Will be interesting to see what he has to say, despite tremendous pressure being put on him, about Russian Collusion in our great and, obviously, highly successful political campaign. There was no Collusion!" Trump wrote on Twitter on Tuesday morning.

After the hearing, White House spokeswoman Sarah Sanders told reporters the FBI had "ambushed" Flynn in the way agents questioned him, but said his "activities" at the center of the case "don't have anything to do with the president" and disputed that Flynn had committed treason.

"We wish General Flynn well," Sanders said.

In contrast, Trump has called his former long-time personal lawyer Michael Cohen, who has pleaded guilty to separate charges, a "rat."

Mueller's investigation into Russia's role in the 2016 election and whether Trump has unlawfully sought to obstruct the probe has cast a shadow over his presidency. Several former Trump aides have pleaded guilty in Mueller's probe, but Flynn was the first former Trump White House official to do so. Mueller also has charged a series of Russian individuals and entities.

Trump has called Mueller's investigation a "witch hunt" and has denied collusion with Moscow.

Russia has denied meddling in the election, contrary to the conclusion of U.S. intelligence agencies that have said Moscow used hacking and propaganda to try to sow discord in the United States and boost Trump's chances against Clinton.

Lying to the FBI carries a statutory maximum sentence of five years in prison. Flynn's plea agreement stated that he was eligible for a sentence of between zero and six months.

(Reporting by Jan Wolfe and Ginger Gibson; Additional reporting by Susan Heavey; Editing by Kieran Murray and Will Dunham)

[Dec 18, 2018] Looks like AP joined Integrity Intiative

Dec 18, 2018 | news.yahoo.com

Yahoo News - Latest News & Headlines

Matt o'Brien and Barbara Ortutay, AP Technology Writers , Associated Press December 17, 2018

<img alt="Key takeaways from new reports on Russian disinformation" src="https://s.yimg.com/ny/api/res/1.2/9VGA29inJ83dPeqC.cvqTg--~A/YXBwaWQ9aGlnaGxhbmRlcjtzbT0xO3c9ODAwO2lsPXBsYW5l/http://globalfinance.zenfs.com/images/US_AHTTP_AP_HEADLINES_BUSINESS/e66de17c8e1a4cecaf1da81f2bf87093_original.jpg" itemprop="url"/>
Some suspected Russian-backed fake social media accounts on Facebook.

Russians seeking to influence U.S. elections through social media had their eyes on Instagram and the black community.

These were among the findings in two reports released Monday by the Senate intelligence committee. Separate studies from University of Oxford researchers and the cybersecurity firm New Knowledge reveal insights into how Russian agents sought to influence Americans by saturating their favorite online services and apps with hidden propaganda.

Here are the highlights:

INSTAGRAM'S "MEME WARFARE"

Both reports show that misinformation on Facebook's Instagram may have had broader reach than the interference on Facebook itself.

The New Knowledge study says that since 2015, the Instagram posts generated 187 million engagements, such as comments or likes, compared with 77 million on Facebook.

And the barrage of image-centric Instagram "memes" has only grown since the 2016 election. Russian agents shifted their focus to Instagram after the public last year became aware of the widespread manipulation on Facebook and Twitter.

NOT JUST ADS

Revelations last year that Russian agents used rubles to pay for some of their propaganda ads drew attention to how gullible tech companies were in allowing their services to be manipulated.

But neither ads nor automated "bots" were as effective as unpaid posts hand-crafted by human agents pretending to be Americans. Such posts were more likely to be shared and commented on, and they rose in volume during key dates in U.S. politics such as during the presidential debates in 2016 or after the Obama administration's post-election announcement that it would investigate Russian hacking.

"These personalized messages exposed U.S. users to a wide range of disinformation and junk news linked to on external websites, including content designed to elicit outrage and cynicism," says the report by Oxford researchers, who worked with social media analysis firm Graphika.

DEMOGRAPHIC TARGETING

Both reports found that Russian agents tried to polarize Americans in part by targeting African-American communities extensively. They did so by campaigning for black voters to boycott elections or follow the wrong voting procedures in 2016, according to the Oxford report.

The New Knowledge report added that agents were "developing Black audiences and recruiting Black Americans as assets" beyond how they were targeting either left- or right-leaning voters.

The reports also support previous findings that the influence operations sought to polarize Americans by sowing political divisions on issues such as immigration and cultural and religious identities. The goal, according to the New Knowledge report, was to "create and reinforce tribalism within each targeted community."

Such efforts extended to Google-owned YouTube, despite Google's earlier assertion to Congress that Russian-made videos didn't target specific segments of the population.

PINTEREST TO POKEMON

The New Knowledge report says the Russian troll operation worked in many ways like a conventional corporate branding campaign, using a variety of different technology services to deliver the same messages to different groups of people.

Among the sites infiltrated with propaganda were popular image-heavy services like Pinterest and Tumblr, chatty forums like Reddit, and a wonky geopolitics blog promoted from Russian-run accounts on Facebook and YouTube.

Even the silly smartphone game "Pokemon Go" wasn't immune. A Tumblr post encouraged players to name their Pokemon character after a victim of police brutality.

WHAT NOW?

Both reports warn that some of these influence campaigns are ongoing.

The Oxford researchers note that 2016 and 2017 saw "significant efforts" to disrupt elections around the world not just by Russia, but by domestic political parties spreading disinformation.

They warn that online propaganda represents a threat to democracies and public life. They urge social media companies to share data with the public far more broadly than they have so far.

"Protecting our democracies now means setting the rules of fair play before voting day, not after," the Oxford report says.

[Dec 18, 2018] Warren Buffett suggests you read this 19th century poem when the market is tanking

Notable quotes:
"... If you can keep your head when all about you are losing theirs ... If you can wait and not be tired by waiting ... If you can think – and not make thoughts your aim ... If you can trust yourself when all men doubt you ... Yours is the Earth and everything that's in it. ..."
"... Like this story? ..."
Dec 18, 2018 | finance.yahoo.com

The stock market has had a volatile year, and it's not over yet: The Dow Jones Industrial Average lost more than 520 points on Monday and the S&P 500 fell 2.1 percent. Both are in correction and on pace for their worst December performance since the Great Depression in 1931.

But for the average person, shifts in the market , even ones as dramatic as the ones we've seen this year, shouldn't be cause for panic. During times of volatility, seasoned investor Warren Buffett says it's best to stay calm and stick to the basics, meaning, buy-and-hold for the long term.

So, during downturns, "heed these lines" from the classic 19th century Rudyard Kipling poem "If -- " which help illustrate this lesson, Buffett wrote in his 2017 Berkshire Hathaway shareholder letter :

If you can keep your head when all about you are losing theirs ...
If you can wait and not be tired by waiting ...
If you can think – and not make thoughts your aim ...
If you can trust yourself when all men doubt you ...
Yours is the Earth and everything that's in it.

Market downturns are inevitable, Buffett pointed out, using his own company as an example: "Berkshire, itself, provides some vivid examples of how price randomness in the short term can obscure long-term growth in value. For the last 53 years, the company has built value by reinvesting its earnings and letting compound interest work its magic. Year by year, we have moved forward. Yet Berkshire shares have suffered four truly major dips."

He went on to cite each of the steep share-price drops, including the most recent one from September 2008 to March 2009, when Berkshire shares plummeted 50.7 percent.

Major declines have happened before and are going to happen again, he says: "No one can tell you when these will happen. The light can at any time go from green to red without pausing at yellow."

Rather than watch the market closely and panic, keep a level head. Market downturns "offer extraordinary opportunities to those who are not handicapped by debt," he says, which brings up another important investing lesson: Never borrow money to buy stocks .

"There is simply no telling how far stocks can fall in a short period," writes Buffett. "Even if your borrowings are small and your positions aren't immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions."

Don't miss: Warren Buffett and Ray Dalio agree on what to do when the stock market tanks

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[Dec 18, 2018] Stock Sell-Off Defies Everything the Bulls Hoped Would Stop It

Dec 18, 2018 | finance.yahoo.com

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Stock Sell-Off Defies Everything the Bulls Hoped Would Stop It

(Bloomberg) -- Valuations aren't stopping it. Jerome Powell's softer tone failed to soothe anyone. The moratorium on tariffs is a fading memory and now the sturdiest chart level of the year is in danger of giving way.

A stock rout that bulls thought was finished three different times since October is in a new and ominous phase, with the Dow Jones Industrial Average losing 1,004 points in two days. No Santa Claus rally. Instead, the S&P 500 Index is hurtling toward the second-worst December on record.

"The stock market doesn't care what looks good now. It's wondering if fundamentals will deteriorate in the future," said Peter Mallouk, co-chief investment officer of Creative Planning, which has around $36 billion under management. "You have a lot of people that are scared, and they're sitting on the sidelines to wait it out."

Waiting it out is starting to look like the only viable strategy. On Monday, the S&P 500 briefly pierced a level that had been a psychological foundation for 10 months, its intraday low from Feb. 9. Valuations shrink and shrink -- computer and software stocks trade at 15 times next year's earnings estimates, cheaper than utilities and soapmakers -- and the selling just gets worse.

With Monday's 54-point loss, the S&P has now fallen 2 percent or more six times this quarter. The Nasdaq Composite has done it 10 times. Both are the most since the third quarter of 2011.

Pinning a single cause on the carnage has become an exercise in absurdity, with analysts cycling through a rotating list of reasons that include trade, Donald Trump's legal travails, China data, sinking oil and cooling home prices. Anyone daring to suggest economic growth may slow in 2019 is pointed to charts showing factories, employment and profits are booming -- but those assurances are starting to fall on deaf ears.

While S&P 500 Index futures indicated a potential respite in Asian trading Tuesday, rising as much as 0.5 percent, traders remained cautious.

Investors "are too worried, but that's the big driver behind the declines we've seen recently, overall worries about U.S. growth and worries about global growth," said Kate Warne, investment strategist at Edward Jones. "Investors have gotten very nervous about the changes they're seeing ahead and they're uncertain about what they mean."

A troubling sign for Americans: equity pain, which all year has been worse overseas, is landing with more force in the U.S. The Russell 2000 Index of small caps, a proxy for domestically oriented companies, slid into a bear market Monday, falling 21 percent since Aug. 31.

On the other hand, since hitting a 19-month low in late October, the MSCI Emerging Markets Index has trended higher, even as the S&P 500 Index keeps making new lows. Stocks in the EM gauge have outperformed the S&P 500 for three consecutive weeks, the most since late January, data compiled by Bloomberg show.

To comfort themselves in the face of such depressing facts, beaten-up investors have looked at past corrections and noticed that this one is still playing out according a relatively benign plan. Under the pattern, major swoons that have interrupted the bull market that began in 2009 have taken around 100 days to tire out before dip-buyers swooped in to put things right.

At the same time, anyone betting the New Year will bring an end to the volatility should be aware that bull markets can die slow deaths. The 88-day sell-off has been going on roughly one-third as long as it has taken for the S&P 500 to fall into the 11 bear markets it's suffered going back to World War II.

How many more sellers than buyers were there on Monday? The volume of stocks trading lower on the New York Stock Exchange reached 1 billion shares, compared with 158 million that were bought. The difference in trading volume, at 883 million shares, is on track to become the biggest weekly gap since 2016, data compiled by Bloomberg show.

That the worst two-day sell-off since October landed on the same week Powell's Federal Reserve is expected to announce its ninth interest rate hike was grist for those who see central bank policy behind everything. As willingly as the Fed chairman has walked back his most hawkish pronouncements, nobody thinks monetary policy is likely to loosen even as growth in the economy and earnings slows from this year's pace.

"That's what the market is struggling with right now -- do they believe in a growth slowdown to trend or something more sinister than that?" said Phil Camporeale, managing director of multi-asset solutions for JPMorgan Asset Management. "I don't think people really want to take risk, but especially trying to catch a falling knife on equity prices."

(Adds details on S&P 500 futures trading in seventh paragraph.)

--With assistance from Elena Popina and Lu Wang.

To contact the reporters on this story: Vildana Hajric in New York at vhajric1@bloomberg.net;Sarah Ponczek in New York at sponczek2@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Chris Nagi, Eric J. Weiner

For more articles like this, please visit us at bloomberg.com

©2018 Bloomberg L.P.

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[Dec 18, 2018] DoubleLine's Gundlach says U.S. equities are in long-term bear market

Notable quotes:
"... Jeffrey Gundlach, chief executive of DoubleLine Capital, on Monday said the S&P 500 stock index is headed to new lows and that U.S. equities are in a long-term bear market. ..."
"... "I think it is a bear market. I think we've had the first leg down and the second leg down is usually more painful than the first leg down," said Gundlach, who oversees more than $123 billion. ..."
"... "I think this lasts a long time. It has a lot to do with the fact that, I believe, that we're in a situation that is ... highly unusual - that we're increasing the budget deficit so spectacularly so late in the cycle while the Fed is hiking interest rates." ..."
"... The intraday low for the year in the S&P was on Feb. 9, when it bottomed at 2532.69. The low close for the year was on April 2 at 2581.88. On Monday, the S&P closed 2545.94. ..."
Dec 17, 2018 | finance.yahoo.com
<img alt="FILE PHOTO: Jeffrey Gundlach, CEO of DoubleLine Capital, speaks during the Sohn Investment Conference in New York" src="https://s.yimg.com/it/api/res/1.2/BXVsdhZsK0OiZdcOd8_ffw--~A/YXBwaWQ9eW5ld3M7c209MTt3PTQ1MDtoPTMwMDtpbD1wbGFuZQ--/http://media.zenfs.com/en_us/News/Reuters/2018-12-17T182416Z_1_LYNXMPEEBG1NJ_RTROPTP_2_FUNDS-DOUBLELINE-GUNDLACH.JPG.cf.jpg" itemprop="url"/>

NEW YORK (Reuters) - Jeffrey Gundlach, chief executive of DoubleLine Capital, on Monday said the S&P 500 stock index is headed to new lows and that U.S. equities are in a long-term bear market.

Gundlach, speaking on CNBC TV, said passive investing has reached "mania status" and will exacerbate market problems.

"I think it is a bear market. I think we've had the first leg down and the second leg down is usually more painful than the first leg down," said Gundlach, who oversees more than $123 billion.

"I think this lasts a long time. It has a lot to do with the fact that, I believe, that we're in a situation that is ... highly unusual - that we're increasing the budget deficit so spectacularly so late in the cycle while the Fed is hiking interest rates."

The S&P 500 briefly erased its losses in late-morning trade on Monday but resumed its steep decline and pierced through Gundlach's target after he made his "bear market" comments.

The intraday low for the year in the S&P was on Feb. 9, when it bottomed at 2532.69. The low close for the year was on April 2 at 2581.88. On Monday, the S&P closed 2545.94.

Investors are also bracing for the Federal Reserve's last rate decision of the year on Wednesday, when they are expected to raise U.S. interest rates for a fourth time for 2018.

Gundlach said the Fed should not raise rates this week but will. "The bond market is basically saying, 'You know, Fed, there's no way you should be raising interest rates'," he said.

The U.S. central bank's quantitative tightening campaign has made markets nervous because of the ultra-low levels that have remained in place for several years, Gundlach said.

"The problem is that the Fed shouldn't have kept them (rates) so low for so long. The problem is, we shouldn't have had negative interest rates like we still have in Europe. We shouldn't have had done quantitative easing, which is a circular financing scheme," he said.

Gundlach also said the China-U.S. trade war gets worse from here. "China doesn't like to be told what to do by President Trump," he said. For its part, "I think they (the United States) will probably ratchet up the tariffs."

The remarks by Gundlach, who in April recommended investors short Facebook Inc, extended losses in Facebook shares on Monday after he characterized the social media giant as a "diabolical data-collection monster that would ultimately fall victim to regulation." The stock closed 2.69 percent lower.

Gundlach took a shot at passive investment strategies such as index funds, declaring the investing strategy a "mania" that is causing widespread problems in global stock markets.

"I'm not at all a fan of passive investing. In fact, I think passive investing ... has reached mania status as we went into the peak of the global stock market," Gundlach said. "I think, in fact, that passive investing and robo advisers ... are going to exacerbate problems in the market because it's hurting behavior," he said.

[Dec 18, 2018] 14,889,930,106,680 Reasons to Fear Recession

The last recession was in 2008, so yes it is time for the new one.
Dec 18, 2018 | finance.yahoo.com

(Bloomberg Opinion) -- Traders and investors will be glad to see the back of 2018. It's been the worst rout since 1901, by Deutsche Bank AG's reckoning, with almost every asset class delivering losses. These charts illustrate the backdrop to what went wrong this year – and hint at what could go better in 2019.

$14,889,930,106,680

That's how much the total value of companies listed on the world's stock markets has declined since peaking at $87,289,962,917,450 on Jan 28. In other words, almost $15 trillion has been wiped off the global equity market this year.

The list of potential motivations for the sell-off is long and includes rising geopolitical risks, the prospect of trade wars erupting, the risk that a slowdown in global growth that could degenerate into a worldwide recession, and the evergreen what-goes-up-must-come-down. But might it just be possible that investors start to take the view stocks have fallen far and fast enough to offer value next year?

Talkin' About a Recession

It's clear that one of the fundamental worries spooking investors is that the period of coordinated global growth that propelled stock markets higher in recent years is coming to an end.

The R word is increasingly cropping up in news articles. But economists put the chances of a recession in the coming year at 15 percent in the U.S. and 18 percent in the euro zone, according to Bloomberg surveys. Even the Brexit-battered U.K. economy is only at a 20 percent risk, while for Japan the likelihood rises to 30 percent. Perhaps those concerns about a recession are overdone.

Curving to Inversion

Or perhaps not. One trend was omnipresent in 2018 – the relentless flattening of the yield curve in the U.S.

Yields at the short end of the Treasury market pushed higher with every quarterly increase in the Fed's benchmark interest rate. Longer-dated bonds danced to a different beat, particularly as the October equity shakeout drove a flight to quality.

An inverted yield curve – when yields on shorter-dated bonds are higher than their longer-dated counterparts – is often seen as an indicator of impending recession. It's finally happened: yields on five-years are below those for two-years. A key question for 2019 will be how the feedback loop develops between the Federal Reserve's policy intentions and the shape of the curve.

Quantitative Tightening

The Fed has been reducing its economic stimulus by not replacing the bonds it bought under its Quantitative Easing program as they mature.

But this "normalization" is already taking its toll as the sharp equity market sell off in October showed. The Fed has a tricky choice to make in 2019 about whether it can persist both with hiking rates and reducing quantitative easing. Is the world ready yet to stand on its own feet without ongoing central bank support?

No Alarms and No Surprises

Economic surprise indexes – which measure actual economic data compared to forecasts – are designed to be portents of the future. And for 2018 they largely did their job. U.S. strength is waning and Brexit is taking a toll on the U.K. In particular the third-quarter weakness in euro-zone growth, when both Germany and Italy turned negative, was well-flagged from as early as the first quarter.

For 2019 there is a more neutral outlook, but it is interesting that the U.S. economic data is much more evenly balanced in terms of expectations. Europe continues to be the worst performer – quite something considering the predicament the U.K. is in.

Europe Stumbles

Europe has seen growth falter this year, with Italy's political crisis and Germany's diesel vehicle emissions scandal taking their toll.

Italy's third-quarter growth was revised to -0.1 percent, beating only Germany. The prospects for 2019 are none-too-rosy, bar the notable exception of Spain, as momentum has evaporated. Europe remains in the sick bay of the developed world – just as the European Central Bank prepares to remove its monetary stimulus to the economy.

Relying on China

China came to the global economy's rescue in the wake of the financial crisis, but it is starting to pay the price for increasing its debt to create additional GDP growth. Total social financing as a percentage of gross domestic product – a broad measure of credit creation – is flat-lining. Adding extra debt to boost the economy is becoming a less effective measure. It is not just the threat of a trade war with America that has pushed Chinese equities down by 20 percent in 2018.

China faces the classic emerging-market middle-income trap where growth fueled by credit runs out of road. This debt bubble will not be easily fixed.

Finding Reverse Again

Japanese Prime Minister's famous three economic arrows are failing to hit their mark. Debt that stands in excess of 250 percent of GDP is hampering all efforts to resuscitate inflation and sustainable growth in the world's third-largest economy. Third-quarter GDP contracted 2.5 percent on an annualized basis, the worst performance for four years.

Tokyo might be hosting the Olympics in 2020, but there is little benefit flowing through so far. Japan, like the rest of the once dominant Asian export powerhouses, is just as beholden to the outcome of the trade war with Trump as China is.

Hunting for Neutral

Until very recently, many economists were anticipating at least four more rate increases from the Fed next year at a pace of one per quarter. While the futures market still suggests a Dec. 19 hike is a done deal, the outlook for monetary policy in 2019 has shifted significantly in recent weeks.

Goldman Sachs Group Inc. has trimmed its forecast for number of potential Fed rate increases in 2019; billionaire fund manager Paul Tudor Jones said earlier this month that he's not expecting any additional tightening from the U.S. central bank next year. A halt to the hikes might prove as pleasing to financial markets as to President Donald Trump.

Credit Squeeze

Companies with dollar bonds have seen their borrowing costs soar relative to those of the U.S. government as the Fed has driven its benchmark interest rate higher this year. Investors have seen a corresponding slump in the value of the corporate debt they own.

Any slowdown in the ascent of U.S. borrowing costs as the Fed pauses for breath should give succor to corporate bonds – provided it isn't accompanied by a rise in defaults.

Other People's Money

It's been a terrible year for the stocks of firms that manage other people's money for a living.

Fund managers tend to invest in each other's shares. And you'd expect them to have better-than-average insight into the business prospects of their peers. So watch for an inflection point in asset management stocks – it might be a sign of a turning point for the wider market.

Happy Birthday to the Euro

The common European currency celebrates its 20th birthday at the start of January. During the two decades of its existence, rumors of the euro's demise have been proven to be greatly exaggerated.

The European debt crisis at the beginning of this decade posed an existential threat to the euro's well-being. The currency survived. At several points in the past few years, Greece seemed on the verge of either quitting or being ousted from the project. Its membership survived. And Italy's election of a populist government earlier this year raised the prospect of a founding member threatening to leave if it wasn't allowed to break the bloc's budget rules. Still, the euro survives.

In fact, as the chart above shows, investors are close to the most relaxed they've been about the euro fracturing in more than five years based on the Sentix Euro Break-Up Index, a monthly gauge of investor concern about the threat. So let's end by wishing the euro many happy returns.

To contact the authors of this story: Mark Gilbert at magilbert@bloomberg.netMarcus Ashworth at mashworth4@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."

Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

For more articles like this, please visit us at bloomberg.com/opinion

[Dec 18, 2018] FBI's Flynn Notes Show He Was Aware of Nature of First Interview

Notable quotes:
"... christophere steele admitted before a british court today that he was hired by the clintons/obama/DNC to make up the dossier as a weapon to use against trump as a backup plan in case he won the election.. this proves the DNC lied, paid for a fake dossier, and comey admitted he knew the fake dossier was false before using it to get a FISC warrant and to spy on trump, which was used as an excuse for the mueller investigation.. yahoo news and leftwing media arent covering the story.. educate yourselves ..."
Dec 18, 2018 | news.yahoo.com

[Dec 16, 2018] Trump Models His War on Bank Regulators on Bill Clinton and W's Disastrous Wars by Bill Black

Notable quotes:
"... By Bill Black, the author of The Best Way to Rob a Bank is to Own One, an associate professor of economics and law at the University of Missouri-Kansas City, and co-founder of Bank Whistleblowers United. Jointly published with New Economic Perspectives ..."
"... Wall Street Journal ..."
"... Wall Street Journal ..."
"... The idea that examiners should not criticize any bank misconduct, predation, or 'unsafe and unsound practice' that does not constitute a felony is obviously insane. ..."
"... The trade association complaint that examiners dare to criticize non-felonious bank conduct – and the WSJ ..."
"... I have more than a passing acquaintance with banking, banking regulation, and banking's rectitude (such an old fashioned word) in the importance for Main Street's survival, and for the country's as a whole survival as a trusted pivot point in world finance , or for the survival of the whole American project. I know this sounds like an over-the-top assertion on my part, however I believe it true. ..."
"... Obama et al confusing "banking" with sound banking is too ironic, imo. ..."
"... It was actually worse than this. The very deliberate strategy was to indoctrinate employees of federal regulatory agencies to see the companies they regulated not as "partners" but as "customers" to be served. This theme is repeated again and again in Bush era agency reports. Elizabeth Warren was viciously attacked early in the Obama Administration for calling for a new "watchdog" agency to protect consumers. The idea that a federal agency would dedicate itself to protecting citizens first was portrayed as dangerously radical by industry. ..."
"... Models on Clinton and Bush. What's not to like? Why isn't msm and dem elites showing him the love when he's following their long term policies? And we might assume these would be hills policies if she had been pushed over the line. A little thought realizes that in spite of the pearl clutching they far prefer him to Bernie. ..."
Dec 14, 2018 | www.nakedcapitalism.com
By Bill Black, the author of The Best Way to Rob a Bank is to Own One, an associate professor of economics and law at the University of Missouri-Kansas City, and co-founder of Bank Whistleblowers United. Jointly published with New Economic Perspectives

The Wall Street Journal published an article on December 12, 2018 that should warn us of coming disaster: "Banks Get Kinder, Gentler Treatment Under Trump." The last time a regulatory head lamented that regulators were not "kinder and gentler" promptly ushered in the Enron-era fraud epidemic. President Bush made Harvey Pitt his Securities and Exchange Commission (SEC) Chair in August 2001 and, in one of his early major addresses, he spoke on October 22, 2001 to a group of accounting leaders.

Pitt, as a private counsel, represented all the top tier audit firms, and they had successfully pushed Bush to appoint him to run the SEC. The second sentence of Pitt's speech bemoaned the fact that the SEC had not been "a kinder and gentler place for accountants." He concluded his first paragraph with the statement that the SEC and the auditors needed to work "in partnership." He soon reiterated that point: "We view the accounting profession as our partner" and amped it up by calling accountants the SEC's "critical partner."

Pitt expanded on that point: "I am committed to the principle that government is and must be a service industry." That, of course, would not be controversial if he meant a service agency (not "industry") for the public. Pitt, however, meant that the SEC should be a "service industry" for the auditors and corporations.

Pitt then turned to pronouncing the SEC to be the guilty party in the "partnership." He claimed that the SEC had terrorized accountants. He then stated that he had ordered the SEC to end this fictional terror campaign.

[A]ccountants became afraid to talk to the SEC, and the SEC appeared to be unwilling to listen to the profession. Those days are ended.

This prompted Pitt to ratchet even higher his "partnership" language.

I speak for the entire Commission when I say that we want to have a continuing dialogue, and partnership, with the accounting profession,

Recall that Pitt spoke on October 22, 2001. Here are the relevant excerpts from the NY Times' Enron timeline :

Oct. 16 – Enron announces $638 million in third-quarter losses and a $1.2 billion reduction in shareholder equity stemming from writeoffs related to failed broadband and water trading ventures as well as unwinding of so-called Raptors, or fragile entities backed by falling Enron stock created to hedge inflated asset values and keep hundreds of millions of dollars in debt off the energy company's books.

Oct. 19 – Securities and Exchange Commission launches inquiry into Enron finances.

Oct. 22 – Enron acknowledges SEC inquiry into a possible conflict of interest related to the company's dealings with Fastow's partnerships.

Oct. 23 – Lay professes confidence in Fastow to analysts.

Oct. 24 – Fastow ousted.

The key fact is that even as Enron was obviously spiraling toward imminent collapse (it filed for bankruptcy on December 2) – and the SEC knew it – Pitt offered no warning in his speech. The auditors and the corporate CEOs and CFOs were not the SEC's 'partners.' Thousands of CEOs and CFOs were filing false financial statements – with 'clean' opinions from the then 'Big 5' auditors. Pitt was blind to the 'accounting control fraud' epidemic that was raging at the time he spoke to the accountants. Thousands of his putative auditor 'partners' were getting rich by blessing fraudulent financial statements and harming the investors that the SEC is actually supposed to serve.

Tom Frank aptly characterized the Bush appointees that completed the destruction of effective financial regulation as "The Wrecking Crew." It is important, however, to understand that Bush largely adopted and intensified Clinton's war against effective regulation. Clinton and Bush led the unremitting bipartisan assault on regulation for 16 years. That produced the criminogenic environment that produced the three largest financial fraud epidemics in history that hyper-inflated the real estate bubble and drove the Great Financial Crisis (GFC). President Trump has renewed the Clinton/Bush war on regulation and he has appointed banking regulatory leaders that have consciously modeled their assault on regulation on Bush and Clinton's 'Wrecking Crews.'

Bill Clinton's euphemism for his war on effective regulation was "Reinventing Government." Clinton appointed VP Al Gore to lead the assault. (Clinton and Gore are "New Democrat" leaders – the Wall Street wing of the Democratic Party.) Gore decided he needed to choose an anti-regulator to conduct the day-to-day leadership. We know from Bob Stone's memoir the sole substantive advice he gave Gore in their first meeting that caused Gore to appoint him as that leader. "Do not 'waste one second going after waste, fraud, and abuse.'" Elite insider fraud is, historically, the leading cause of bank losses and failures, so Stone's advice was sure to lead to devastating financial crises. It is telling that it was the fact that Stone gave obviously idiotic advice to Gore that led him to select Stone as the field commander of Clinton and Gore's war on effective regulation.

Stone convinced the Clinton-Gore administration to embrace the defining element of crony capitalism as its signature mantra for its war on effective regulation. Stone and his troops ordered us to refer to the banks, not the American people, as our "customers." Peters' foreword to Stone's book admits the action, but is clueless about the impact.

Bob Stone's insistence on using the word "customer" was mocked by some -- but made an enormous difference over the course of time. In general, he changed the vocabulary of public service from 'procedure first' to 'service first.'"

That is a lie. We did not 'mock' the demand that we treat the banks rather than the American people as our "customer" – we openly protested the outrageous order that we embrace and encourage crony capitalism. Crony capitalism's core principle – which is unprincipled – is that the government should treat elite CEOs as their 'customers' or 'partners.' A number of us publicly expressed our rage at the corrupt order to treat CEOs as our customers. The corrupt order caused me to leave the government.

Our purpose as regulators is to serve the people of the United States – not bank CEOs. It was disgusting and dishonest for Peters to claim that our objection to crony capitalism represented our (fictional) disdain for serving the public. Many S&L regulators risked their careers by taking on elite S&L frauds and their powerful political fixers. Many of us paid a heavy personal price because we acted to protect the public from these elite frauds. Our efforts prevented the S&L debacle from causing a GFC – precisely because we recognized the critical need to spend most of our time preventing and prosecuting the elite frauds that Stone wanted us to ignore..

Trump's wrecking crew is devoted to recreating Clinton and Bush's disastrous crony capitalism war on regulation that produced the GFC. In a June 8, 2018 article , the Wall Street Journal mocked Trump's appointment of Joseph Otting as Comptroller of the Currency (OCC). The illustration that introduces the article bears the motto: "IN BANKS WE TRUST."

Otting, channeling his inner Pitt, declared his employees guilty of systematic misconduct and embraced crony capitalism through Pitt's favorite phrase – "partnership."

I think it is more of a partnership with the banks as opposed to a dictatorial perspective under the prior administration.

Otting, while he was in the industry, compared the OCC under President Obama to a fictional interstellar terrorist. Obama appointed federal banking regulators that were pale imitation of Ed Gray, Joe Selby, and Mike Patriarca – the leaders of the S&L reregulation. The idea that Obama's banking regulators were akin to 'terrorists' is farcical.

The WSJ's December 12, 2018 article reported that Otting had also used Bob Stone's favorite term to embrace crony capitalism.

Comptroller of the Currency Joseph Otting has also changed the tone from the top at his agency, calling banks his "customers."

There are many terrible role models Trump could copy as his model of how to destroy banking regulation and produce the next GFC, but Otting descended into unintentional self-parody when he channeled word-for-word the most incompetent and dishonest members of Clinton and Bush's wrecking crews.

The same article reported a trade association's statement that demonstrates the type of outrageous reaction that crony capitalism inevitably breeds within industry.

Banks are suffering from "examiner criticisms that do not deal with any violation of law," said Greg Baer, CEO of the Bank Policy Institute ."

The article presented no response to this statement so I will explain why it is absurd. First, "banks" do not "suffer" from "examiner criticism." Banks gain from examiner criticism. Effective regulators (and whistleblowers) are the only people who routinely 'speak truth to power.' Auditors, credit rating agencies, and attorneys routinely 'bless' the worst CEO abuses that harm banks while enriching the CEO. The bank CEO cannot fire the examiner, so the examiners' expert advice is the only truly "independent" advice the bank's board of directors receives. That makes the examiners' criticisms invaluable to the bank. CEOs hate our advice because we are the only 'control' (other than the episodic whistleblower) that is willing and competent to criticize the CEO.

The idea that examiners should not criticize any bank misconduct, predation, or 'unsafe and unsound practice' that does not constitute a felony is obviously insane. While "violations of law" (felonies) are obviously of importance to us in almost all cases, our greatest expertise is in identifying – and stopping – "unsafe and unsound practices" because such practices, like fraud, are leading causes of bank losses and failures.

Third, repeated "unsafe and unsound practices" are a leading indicator of likely elite insider bank fraud and other "violations of law."

The trade association complaint that examiners dare to criticize non-felonious bank conduct – and the WSJ reporters' failure to point out the absurdity of that complaint – demonstrate that the banking industry's goal remains the destruction of effective banking regulation. Trump's wrecking crew is using the Clinton and Bush playbook to restore fully crony capitalism. He has greatly accelerated the onset of the next GFC.


Chauncey Gardiner , December 14, 2018 at 2:01 pm

Thank you for this, Bill Black. IMO the long-term de-regulatory policies under successive administrations cited here, together with their neutering the rule of law by overturning the Glass-Steagall Act; de-funding and failing to enforce antitrust, fraud and securities laws; financial repression of the majority; hidden financial markets subsidies; and other policies are just part of an organized, long-term systemic effort to enable, organize and subsidize massive control and securities fraud; theft of and disinvestment in publicly owned resources and services; environmental damage; and transfers of social costs that enable the organizers to in turn gain a hugely disproportionate share of the nation's wealth and nearly absolute political control under their "Citizens United" political framework.

Not to diminish, but among other things the current president provides nearly daily entertainment, diversion and spectacle in our Brave New World that serves to obfuscate what has occurred and is happening.

RBHoughton , December 14, 2018 at 9:41 pm

I'm with you Chauncey. I believe the rot really got started with creative accounting in early 1970s. That's when accountants of every flavor lost themselves and were soon followed by the lawyers. Sauce for the goose.

Banks and Insurers and many industrial concerns have become too big. We could avoid all the regulatory problems by placing a maximum size on commercial endeavour.

chuck roast , December 14, 2018 at 4:28 pm

Sameo-sameo

A number of years ago I did both the primary capital program and environmental (NEPA) review for major capital projects in a Federal Region. Hundreds of millions of dollars were at stake. A local agency wanted us (the Feds) to approve pushing up many of their projects using a so-called Public Private Partnership (PPP). This required the local agency to borrow many millions from Wall Street while at the same time privatizing many of their here-to-fore public operations. And of course there was an added benefit of instituting a non-union shop.

To this end I was required to sit down with the local agency head (he actually wore white shoes), his staff and several representatives of Goldman-Sachs. After the meeting ended, I opined to the agency staff that Goldman-Sachs was "bullshit" and so were their projects.

Shortly thereafter I was removed to a less high-profile Region with projects that were not all that griftable, and there was no danger of me having to review a PPP.

Oh, and I denied, denied, denied saying "bullshit."

flora , December 14, 2018 at 10:08 pm

Thank you, NC, for featuring these posts by Bill Black.

I have more than a passing acquaintance with banking, banking regulation, and banking's rectitude (such an old fashioned word) in the importance for Main Street's survival, and for the country's as a whole survival as a trusted pivot point in world finance , or for the survival of the whole American project. I know this sounds like an over-the-top assertion on my part, however I believe it true.

Main Street also knows the importance of sound banking. Sound banking is not a 'poker chip' to be used for games. Sound banking is key to the American experiment in self-determination, as it has been called.

Politicians who 'don't get this" have lost touch with the entire American enterprise, imo. And, no, the neoliberal promise that nation-states no longer matter doesn't make this point moot.

flora , December 14, 2018 at 10:47 pm

adding: US founding father Alexander Hambleton did understand the importance of sound banking, and so Obama et al confusing "banking" with sound banking is too ironic, imo.

Tim , December 15, 2018 at 8:29 am

It was actually worse than this. The very deliberate strategy was to indoctrinate employees of federal regulatory agencies to see the companies they regulated not as "partners" but as "customers" to be served. This theme is repeated again and again in Bush era agency reports. Elizabeth Warren was viciously attacked early in the Obama Administration for calling for a new "watchdog" agency to protect consumers. The idea that a federal agency would dedicate itself to protecting citizens first was portrayed as dangerously radical by industry.

John k , December 15, 2018 at 12:14 pm

Models on Clinton and Bush. What's not to like? Why isn't msm and dem elites showing him the love when he's following their long term policies?
And we might assume these would be hills policies if she had been pushed over the line. A little thought realizes that in spite of the pearl clutching they far prefer him to Bernie.

[Dec 16, 2018] Top Democrat Schiff Adds Call for Probe of Trump, Deutsche Bank Links

CIA democrats are still determined to sink Tramp, and continues to beat the dead cat of "Russian collision". What is interesting is that Jacob Schiff financed Bolsheviks revolution in Russia.
Yahoo comments reflect the deep split in the opinions in the society, which is positioned mainly by party lines. Few commenters understadn that the problem is with neoliberalism, not Trump, or Hillary who represent just different factions of the same neoliberal elite.
Notable quotes:
"... Schiff said Deutsche Bank has paid hundreds of millions of dollars in fines to the state of New York for laundering Russian money, and that it was the one bank willing to do business with the Trump Organization. ..."
"... In an interview with the New Yorker that was posted on line on Dec. 14, Schiff said the Intelligence Committee is "going to be looking at the issue of possible money laundering by the Trump Organization, and Deutsche Bank is one obvious place to start." ..."
"... A Senate investigation, which Warren and Van Hollen want to see followed by a report and a hearing, could put further pressure on the lender. The written request from the senators, sent Dec. 13, cites Deutsche Bank's "numerous enforcement actions" and a recent raid by police officers and tax investigators in Germany. ..."
"... Schiff, a target of Trump's on Twitter, also referred to reported comments by the president's sons some years ago that they didn't need "to deal with U.S. banks because they got all of the cash they needed from Russia or disproportionate share of their assets coming from Russia." He said Sunday he expects to learn more about that claim through financial records. ..."
Dec 16, 2018 | finance.yahoo.com

(Bloomberg)

The incoming chairman of the House Intelligence Committee joined Democratic colleagues in questioning ties between Deutsche Bank AG and President Donald Trump's real estate business.

Representative Adam Schiff of California said on NBC's "Meet the Press" Sunday that any type of compromise needs to be investigated. That could add his panel's scrutiny to that of Representative Maxine Waters, who's in line to be chair of the House Financial Services Committee and has also focused on the bank's connections to Trump.

Schiff's comments came three days after Wall Street critic Elizabeth Warren of Massachusetts and fellow Senate Democrat Chris Van Hollen called for a Banking Committee investigation of Deutsche Bank's compliance with U.S. money-laundering regulations.

Schiff said Deutsche Bank has paid hundreds of millions of dollars in fines to the state of New York for laundering Russian money, and that it was the one bank willing to do business with the Trump Organization.

"Now, is that a coincidence?" Schiff said. "If this is a form of compromise, it needs to be exposed."

In an interview with the New Yorker that was posted on line on Dec. 14, Schiff said the Intelligence Committee is "going to be looking at the issue of possible money laundering by the Trump Organization, and Deutsche Bank is one obvious place to start."

More Pressure

A Senate investigation, which Warren and Van Hollen want to see followed by a report and a hearing, could put further pressure on the lender. The written request from the senators, sent Dec. 13, cites Deutsche Bank's "numerous enforcement actions" and a recent raid by police officers and tax investigators in Germany.

It also notes the lender's U.S. operations being implicated in cross-border money-laundering accusations such as in a recent case involving Danish lender Danske Bank A/S and the movement of $230 billion in illicit funds.

"The compliance history of this institution raises serious questions about the national security and criminal risks posed by its U.S. operations," the senators said in their letter. "Its correspondent banking operations in the U.S. serve as a gateway to the U.S. financial system for Deutsche Bank entities around the world."

Troy Gravitt, a Deutsche Bank spokesman, responded that the company "takes its legal obligations seriously and remains committed to cooperating with authorized investigations."

Van Hollen, a Maryland Democrat, had questioned the Federal Reserve earlier this year about how it would keep the White House from interfering with oversight of the lender, which had been a major lender to Trump's real estate business.

Schiff, a target of Trump's on Twitter, also referred to reported comments by the president's sons some years ago that they didn't need "to deal with U.S. banks because they got all of the cash they needed from Russia or disproportionate share of their assets coming from Russia." He said Sunday he expects to learn more about that claim through financial records.

To contact the reporter on this story: Jesse Hamilton in Washington at jhamilton33@bloomberg.net

To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Mark Niquette, Ros Krasny

[Dec 14, 2018] You apply for a job. You hear nothing. Here's what to do next

Dec 14, 2018 | finance.yahoo.com

But the more common situation is that applicants are ghosted by companies. They apply for a job and never hear anything in response, not even a rejection. In the U.S., companies are generally not legally obligated to deliver bad news to job candidates, so many don't.

They also don't provide feedback, because it could open the company up to a legal risk if it shows that they decided against a candidate for discriminatory reasons protected by law such as race, gender or disability.

Hiring can be a lengthy process, and rejecting 99 candidates is much more work than accepting one. But a consistently poor hiring process that leaves applicants hanging can cause companies to lose out on the best talent and even damage perception of their brand.

Here's what companies can do differently to keep applicants in the loop, and how job seekers can know that it's time to cut their losses.


What companies can do differently

There are many ways that technology can make the hiring process easier for both HR professionals and applicants.

Only about half of all companies get back to the candidates they're not planning to interview, Natalia Baryshnikova, director of product management on the enterprise product team at SmartRecruiters, tells CNBC Make It .

"Technology has defaults, one change is in the default option," Baryshnikova says. She said that SmartRecruiters changed the default on its technology from "reject without a note" to "reject with a note," so that candidates will know they're no longer involved in the process.

Companies can also use technology as a reminder to prioritize rejections. For the company, rejections are less urgent than hiring. But for a candidate, they are a top priority. "There are companies out there that get back to 100 percent of candidates, but they are not yet common," Baryshnikova says.

How one company is trying to help

WayUp was founded to make the process of applying for a job simpler.

"The No. 1 complaint from candidates we've heard, from college students and recent grads especially, is that their application goes into a black hole," Liz Wessel, co-founder and CEO of WayUp, a platform that connects college students and recent graduates with employers, tells CNBC Make It .

WayUp attempts to increase transparency in hiring by helping companies source and screen applicants, and by giving applicants feedback based on soft skills. They also let applicants know if they have advanced to the next round of interviewing within 24 hours.

Wessel says that in addition to creating a better experience for applicants, WayUp's system helps companies address bias during the resume-screening processes. Resumes are assessed for hard skills up front, then each applicant participates in a phone screening before their application is passed to an employer. This ensures that no qualified candidate is passed over because their resume is different from the typical hire at an organization – something that can happen in a company that uses computers instead of people to scan resumes .

"The companies we work with see twice as many minorities getting to offer letter," Wessel said.

When you can safely assume that no news is bad news

First, if you do feel that you're being ghosted by a company after sending in a job application, don't despair. No news could be good news, so don't assume right off the bat that silence means you didn't get the job.

Hiring takes time, especially if you're applying for roles where multiple people could be hired, which is common in entry-level positions. It's possible that an HR team is working through hundreds or even thousands of resumes, and they might not have gotten to yours yet. It is not unheard of to hear back about next steps months after submitting an initial application.

If you don't like waiting, you have a few options. Some companies have application tracking in their HR systems, so you can always check to see if the job you've applied for has that and if there's been an update to the status of your application.

Otherwise, if you haven't heard anything, Wessel said that the only way to be sure that you aren't still in the running for the job is to determine if the position has started. Some companies will publish their calendar timelines for certain jobs and programs, so check that information to see if your resume could still be in review.

"If that's the case and the deadline has passed," Wessel says, it's safe to say you didn't get the job.

And finally, if you're still unclear on the status of your application, she says there's no problem with emailing a recruiter and asking outright.

[Dec 14, 2018] The whole austerity crisis thing appears to have been engineered so that a few blinkered and unpatriotic, vulture mafia privateers can make a killing, selling off vital state assets, such as infrastructure and ports, to the Chinese. This is a very suspicious and widespread trend.

Notable quotes:
"... Bob Marley got it right.... the human race is becoming a rat race, and it's a disgrace. ..."
"... The biggest problem is the financialisation of the economy... what is the actual value of things? The market is so manipulated that real price discovery is not possible. ..."
"... We have an over-cooked service-sector economy unsustainably reliant on cheap debt, cheap energy, and cheap manufactured goods to fuel our 'high-end levels of consumption, and mobility or living standards, and an over-heated housing market that is unsustainably run according to the needs of investors and landlords rather than residents or tenants. ..."
"... What we need is a coordinated approach between our nations. Undercutting each other on corporate taxes, writing tax avoidance into law, and continuing to allow multinationals to influence our politicians and play our governments against each other is exactly the game we must end. ..."
"... Instead, it places the financially powerful beyond any state, in an international elite that makes its own rules, and holds governments to ransom. That's what the financial crisis was all about. The ransom was paid, and as a result, governments have been obliged to limit their activities yet further.... ..."
"... "Ransom". There is no better word to describe it. This (the ransom mentality) is exactly the reactionary, vindictive, doctrinaire psychology that must be extracted like a cancer from our institutional lives and the human species. A monolithic task. But identifying the cause is the first step to cure. ..."
"... these are the new medieval transnational barons ..."
Jun 09, 2013 | theguardian.com
MysticFish -> Crackerpot , 8 Jun 2013 14:43
@Crackerpot - The whole austerity crisis thing appears to have been engineered so that a few blinkered and unpatriotic, vulture mafia privateers can make a killing, selling off vital state assets, such as infrastructure and ports, to the Chinese. This is a very suspicious and widespread trend.
artheart , 8 Jun 2013 14:38

Bob Marley got it right.... the human race is becoming a rat race, and it's a disgrace.

I see it every day from the window of my flat, on a main road, in Bethnal Green. There's a 'mentally unstable' Rastafarian who stands by the overground station, and shouts things out to people like "You're living in babylon".

I do sometimes think he's not the mental one.

artheart -> HolyInsurgent , 8 Jun 2013 14:32
@HolyInsurgent

The biggest problem is the financialisation of the economy... what is the actual value of things? The market is so manipulated that real price discovery is not possible.

We have an over-cooked service-sector economy unsustainably reliant on cheap debt, cheap energy, and cheap manufactured goods to fuel our 'high-end levels of consumption, and mobility or living standards, and an over-heated housing market that is unsustainably run according to the needs of investors and landlords rather than residents or tenants.

The whole thing is going to blow apart. Our 'aspirations' are slowly killing us - they're destroying the social fabric.

MikeInCanada , 8 Jun 2013 14:28
What we need is a coordinated approach between our nations. Undercutting each other on corporate taxes, writing tax avoidance into law, and continuing to allow multinationals to influence our politicians and play our governments against each other is exactly the game we must end.
HolyInsurgent , 8 Jun 2013 14:08

Deborah Orr: Instead, it places the financially powerful beyond any state, in an international elite that makes its own rules, and holds governments to ransom. That's what the financial crisis was all about. The ransom was paid, and as a result, governments have been obliged to limit their activities yet further....

I never thought I would live long enough to see this level of honesty ATL. It should have been published long ago, but at least the discussion now begins.

"Ransom". There is no better word to describe it. This (the ransom mentality) is exactly the reactionary, vindictive, doctrinaire psychology that must be extracted like a cancer from our institutional lives and the human species. A monolithic task. But identifying the cause is the first step to cure.

peterpuffin -> PointOfYou , 8 Jun 2013 14:03
@PointOfYou - these are the new medieval transnational barons

[Dec 14, 2018] Here's the funny thing about those who cheer the broken neoliberal model. They promise we will get to those "sunny uplands" with exactly the same fervor as old Marxists.

Notable quotes:
"... Neoliberalism? This is not just a financial agenda. This a highly organized multi armed counterculture operation to force us, including Ms Orr [unless she has...connections] into what Terence McKenna [who was in on it] termed the `Archaic Revival'. That is - you and me [and Ms Orr] - our - return to the medieval dark ages, if we indeed survive that far. ..."
"... The conscious and intelligent manipulation of the organised habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. We are governed, our minds are moulded, our tastes formed, our ideas suggested, largely by men we have never heard of. ..."
"... the UK government did intervene in the economy when it bailed out the banks to the tune of many billions of pounds underwritten by the taxpayer. The markets should always be regulated sufficiently (light touch is absolutely useless) to prevent the problems currently being experienced from ever happening again. ..."
"... Traditional liberalism had died decades before WWII and was replaced by finance capitalism. What happened after WW II was that capitalism had to make various concessions to avoid a socialist revolution: social and political freedoms indeed darted ahead. ..."
"... No chance mate, at least not all the time greasy spiv and shyster outfits like hedge funds are funding Puffin face and the Vermin Party. They are never going to bite the hand that feeds them ..."
"... And in case we get uppity and endeavour to challenge the economic paradigm and the rule of these neoliberal elites, there's the surveillance state panopticon to track our movements and keep us in check. ..."
"... There is not a shred of logical sense in neoliberalism. You're doing what the fundamentalists do... they talk about what neoliberalism is in theory whilst completely ignoring what it is in practice. In theory the banks should have been allowed to go bust, but the consequences where deemed too high (as they inevitable are). The result is socialism for the rich using the poor as the excuse, which is the reality of neoliberalism. ..."
"... She, knowingly, let neo-liberal economic philosophy come trumpeting through the door of No10 and it's been there ever since; it has guided our politicians for the past 30 odd years. Hence, it is Thatcher's fault. She did this and another bad thing: the woman who glorified household economics pissed away billions of pounds of North Sea Oil. ..."
"... Bailouts have been a constant feature of neoliberalism. In fact the role of the state is simply reduced to a merely commissioning agent to private parasitical corporations. History has shown the state playing this role since neoliberalism became embedded in policy since the 1970s - Long Term Capital Management, Savings and Loans, The Brady Plan, numerous PFI bailouts and those of the Western banking system during the 1982 South American, 1997 Asian and 2010 European debt crises. ..."
Jun 08, 2013 | discussion.theguardian.com

Jenny340 -> EllisWyatt, 8 Jun 2013 13:37

@EllisWyatt - Here's the funny thing about those who cheer the broken neoliberal model. They promise we will get to those "sunny uplands" with exactly the same fervor as old Marxists.
PointOfYou , 8 Jun 2013 13:37

Neoliberalism has spawned a financial elite who hold governments to ransom

Neoliberalism? This is not just a financial agenda. This a highly organized multi armed counterculture operation to force us, including Ms Orr [unless she has...connections] into what Terence McKenna [who was in on it] termed the `Archaic Revival'. That is - you and me [and Ms Orr] - our - return to the medieval dark ages, if we indeed survive that far.

The same names come up time and time again. One of them being, father of propaganda, Edward Bernays.

Bernays wrote what can be seen as a virtual Mission Statement for anyone wishing to bring about a "counterculture." In the opening paragraph of his book Propaganda he wrote:

"..The conscious and intelligent manipulation of the organised habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. We are governed, our minds are moulded, our tastes formed, our ideas suggested, largely by men we have never heard of.

This is a logical result of the way in which our democratic society is organised. Vast numbers of human beings must cooperate in this manner if they are to live together as a smoothly functioning society. In almost every act of our daily lives, whether in the sphere of politics or business, in our social conduct or our ethical thinking, we are dominated by the relatively small number of persons who understand the mental processes and social patterns of the masses.

It is they who pull the wires which control the public mind..."[28]

Bernays' family background made him well suited to "control the public mind." He was the double nephew of psychoanalysis pioneer Sigmund Freud. His mother was Freud's sister Anna, and his father was Ely Bernays, brother of Freud's wife Martha Bernays.

Snookerboy -> OneCommentator , 8 Jun 2013 13:17
@OneCommentator - the UK government did intervene in the economy when it bailed out the banks to the tune of many billions of pounds underwritten by the taxpayer. The markets should always be regulated sufficiently (light touch is absolutely useless) to prevent the problems currently being experienced from ever happening again.

Those at the bottom of society and those in the public sector are the ones paying the price for this intervention in the UK. If you truly believe in the 'free' market then all of these failing organisations (banks, etc) should have been allowed to fail. The problem is that the wealth created under the current system is virtually all going to those at the top of the income scale and this needs to change and is one of the main reasons that neo liberalism should be binned!

ATrueFinn -> OneCommentator , 8 Jun 2013 13:09
@ OneCommentator 08 June 2013 5:21pm

No, it was as recently as ww2 more or less

Traditional liberalism had died decades before WWII and was replaced by finance capitalism. What happened after WW II was that capitalism had to make various concessions to avoid a socialist revolution: social and political freedoms indeed darted ahead.

Do read a book about history!

clairesdad -> brighton2 , 8 Jun 2013 13:06
@brighton2 - No chance mate, at least not all the time greasy spiv and shyster outfits like hedge funds are funding Puffin face and the Vermin Party. They are never going to bite the hand that feeds them.
NotWithoutMyMonkey , 8 Jun 2013 13:01
And in case we get uppity and endeavour to challenge the economic paradigm and the rule of these neoliberal elites, there's the surveillance state panopticon to track our movements and keep us in check.
TedStewart , 8 Jun 2013 12:51
Neoliberalism has spawned a financial elite who hold governments to ransom

Are you saying neoliberalism is a great big useless pile of shit? Then you are absolutely right!

kingcreosote -> MickGJ , 8 Jun 2013 12:47
@ MickGJ 08 June 2013 1:08pm . Get cifFix for Firefox .

I know what you are saying it's just sooner or later as those at the bottom continue to be squeezed the wealthy will sow their own seeds of destruction. I think we are witnessing the end game which is reflected in the desperation of the coalition to flog everything regardless of the efficacy of such behavior, they feel time is running out and they would be right.

taxhaven , 8 Jun 2013 12:44
Call it what you will - "neoliberalism", "neoconservatism", "socialism" or whatever it is...

This debate is not even really solely about money: this is about liberty , about free choice, about being permitted to engage in voluntary exchange of goods and services with others, unmolested. About the users of services becoming the ones paying for those services.

Ultimately the real effect will be to remove power from governments and hand it back to where it belongs - the free market.

dmckm -> OneCommentator , 8 Jun 2013 12:43
@ OneCommentator 08 June 2013 5:04pm . Get cifFix for Firefox .

voluntary transactions among free agents. That's called a free market and it is by far the most efficient way to produce wealth humanity has ever known.

Could you explain how someone bound by a contract of employment, with the alternative, destitution, is a 'free agent'?

jazzdrum -> SpinningHugo , 8 Jun 2013 12:25
@SpinningHugo - Nothing comes out of nothing and i well remember black Monday in the City. That was the start of the spivs running the economy as if it were a casino. If you think its only on CiF that Thatcher gets the blame, think on this, Scotland, a whole nation blames her too.
TedSmithAndSon -> theguardianisrubbish , 8 Jun 2013 12:24
@theguardianisrubbish -

Unless you are completely confused by what neoliberalism is there is not a shred of logical sense in this.

There is not a shred of logical sense in neoliberalism. You're doing what the fundamentalists do... they talk about what neoliberalism is in theory whilst completely ignoring what it is in practice. In theory the banks should have been allowed to go bust, but the consequences where deemed too high (as they inevitable are). The result is socialism for the rich using the poor as the excuse, which is the reality of neoliberalism.

Savers in a neoliberal society are lambs to the slaughter. Thatcher "revitalised" banking, while everything else withered and died.

Neoliberalism is based on the thought of personal freedom, communism is definitely not. Neoliberalist policies have lifted millions of people out of poverty in Asia and South America.

Neoliberalism is based on the thought that you get as much freedom as you can pay for, otherwise you can just pay... like everyone else. In Asia and South America it has been the economic preference of dictators that pushes profit upwards and responsibility down, just like it does here.

I find it ironic that it now has 5 year plans that absolutely must not be deviated from, massive state intervention in markets (QE, housing policy, tax credits... insert where applicable), and advocates large scale central planning even as it denies reality, and makes the announcement from a tractor factory.

Neoliberalism is a blight... a cancer on humanity... a massive lie told by rich people and believed only by peasants happy to be thrown a turnip. In theory it's one thing, the reality is entirely different. Until we're rid of it, we're all it's slaves. It's an abhorrent cult that comes up with purest bilge like expansionary fiscal contraction to keep all the money in the hands of the rich.

outragedofacton -> MickGJ , 8 Jun 2013 12:02
@MickGJ - You are wrong about the first 2 of course. Banksters get others to do their shit.

But unfortunately the poor sods who went down on D Day were in their way fighting for Wall Street as much as anything else. It's just that they weren't told about it by the Allies massive propaganda machine. So partly right

5/10

LetsGetCynical , 8 Jun 2013 11:57

The response should be a wholesale reevaluation of the way in which wealth is created and distributed around the globe

Which would be what? State planning? Communism? Totally free market capitalism? Oh wait, we already have the best of a bad bunch, a mixed capitalist economy with democracy. That really is the crux of it, our system isn't perfect, never will be, but nobody has come up with a better solution.

outragedofacton -> artheart , 8 Jun 2013 11:55
@artheart - Thank goodness for RT.

Learn also about the West's nefarious activities in the Middle East.

ATrueFinn -> fr0mn0where , 8 Jun 2013 11:51
@ fr0mn0where 08 June 2013 4:29pm

Barclays bank "only" paid out £660m in dividends to the bearers of risk capital, while its bonus pot for a very select number of its staff was £1.5bn.

Fascinating! Now, one could infer that Barclays represent "beneficial capitalism", rewarding its hard-working employees, but maybe we won't.

This is not the traditional capitalist style

The Traditional capitalist is not an extinct species but under threat. For the time being the population is stagnant in some countries and even increasing in some others. However, due to the foraging capacity of Neoliberal creature , competing in the same economical niche, the size and life expectation of it are diminishing.

dmckm -> SpinningHugo , 8 Jun 2013 11:50
@ SpinningHugo 08 June 2013 10:59am . Get cifFix for Firefox .

She, knowingly, let neo-liberal economic philosophy come trumpeting through the door of No10 and it's been there ever since; it has guided our politicians for the past 30 odd years. Hence, it is Thatcher's fault. She did this and another bad thing: the woman who glorified household economics pissed away billions of pounds of North Sea Oil.

szwalby ->