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  "The American political process is about as broken as the financial system....The Treasury is an outstanding example of a broken system, but it's not the only one....I think people have lost confidence in government, they've lost trust in government, and it shows. This isn't a question just of this Administration. It's been kind of a steady, downhill path."

Paul Volcker

Paul Volcker The Lion Lets Loose - BusinessWeek

I submit that capture of Congress and the Federal Reserve System by the TBTF banks comprise the paramount political tendency in America today. This tripartite "Alliance of Convenience," let's not call it a conspiracy, fits beautifully into the corporatist mold that seems to be America in the 21st Century -- enjoied by the elites in cities like New York and Washington. Many Americans of all political descriptions oppose this new political reality but they have no power to institute any changes.

If you really analyze the way in which political power flows in the US today, there are three significant groupings:

  1. First we have a central bank that manages a global fiat dollar system based on a currency unit that is not convertible into specie or commodities. The Fed enables the issuance of dollar debt by the Treasury and imposes no effective policy restraint, no check to balance US fiscal policy. In fact, since the October 1987 crisis, the Fed has never said "no" to the Congress or the markets in terms of liquidity or collateral. It has only been a matter of price. When was the last time we had a Fed Chairman willing to say no to the politicians in the White House or the Congress? Paul Volcker? I suggest that it has been far too long.
  2. Second we have a corrupt, entrenched Congress that equates tax revenues with the proceeds of debt. All fiat paper dollars are one and the same to our esteemed Congress, which believes that the borrowing capacity of the US is infinite. There is no effective limit on spending to keep the electorate mollified and the entrenched political class in power. The Fed enables the spending habit of the Congress and whatever administration occupies the White House.

    Some of the supporters of former Fed Chairman Alan Greenspan like to argue that no Fed chairman could have stopped the party in housing early; that no Fed chairman could go up to Capitol Hill and say tough things to members of the Congress about housing policy or public spending. I think that tough talking Fed governors is precisely what we need. If the heads of independent agencies are not ready to lose their jobs every day and be willing to take tough policy stands on equally tough issues, then we need new leaders. I would hold up Chairman Bair at the FDIC as an example of a public servant who understands that part of her job is to offer advice to the Congress and the White House, and not to be a creature of politics or special interests as so many of our supposed leaders seem to be today.

  3. Thirdly we have the dealer community, especially the members of the primary dealers of US government securities, who have a special relationship with the Fed and the Treasury, most recently by placing former Wall Street chieftains and their minions as Secretary of the Treasury. Many of these banks created the trillions of dollars in toxic waste that has crippled our financial system and were subsequently bailed out by the extraordinary actions taken by NYFRB President Tim Geithner and the Fed's Board of Governors starting last year.

These large dealers such as JPMorgan, Goldman Sachs, Wells Fargo, Morgan Stanley and Citigroup, enable the US Treasury to sell debt and thereby keep the US fiat dollar system stable for another day. These large, TBTF banks are also the mechanism through which the Fed executes monetary policy or at least used to until the Fed itself grew operationally into a de facto primary dealer in its own right, merging fiscal and monetary policy explicitly.

In order to boost the profitability of these TBTF dealer banks, the Fed and the Congress encouraged the creation of opaque, unregulated over-the-counter ("OTC") markets for derivatives and complex assets. The growth of OTC markets were a retrograde development in historical terms and again illustrate the tendency of the Fed and Treasury, the Congress and the large banks to take an anti-American view of issues like market structure, transparency and solvency, encouraging instruments of fraud like OTC derivatives and private placements, while the FDIC, state regulators and smaller banks tend to oppose such innovations. By allowing the creation of derivatives for which there was no basis, the Fed enabled some of the worst acts by the dealer community.

OTC markets for derivatives and structure assets have been the primary source of "systemic risk" over the past 24 months and have contributed the lion's share of losses sustained by banks and the taxpayers of the industrial nations. Indeed, without the active support from the Congress and the Fed for "innovations" such as OTC and opaque, unregistered complex structured securities, the current crisis might never have occurred. It important to be very specific as to the alien nature of things like "dark pools" and closed, bilateral market structures such as OTC, structures that go against the most basic American principles of transparency and fairness.

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[Jun 09, 2015]People and Power – The Technology Threat

Jun 09, 2015 | naked capitalism
A two-part Al Jazeera documentary examines how technology is hollowing out former mid-range skill, middle income jobs, and how that process is set to intensify over the coming decade. My brother and sister-in-law, who are both in outsourcing, say the studies they've seen on the number of jobs expected to be displaced come up with mind-bogglingly high estimates.

The documentary acknowledges that Luddites in the past have worried about workers being threatened by the march of technology when in fact growth has led to more jobs. But things aren't that simple. The first two generations of the Industrial Revolution led to lower standards of large swathes of the population. And the prognosis for lower and even many higher skilled workers now is grim, with experts saying that they see the potential for substitution of workers as far greater than in other periods of technological advances.

Needless to say, these forecasts explain the reluctance of the top wealthy to continue to support public education. They don't anticipate needing as many skilled workers. Moreover, well educated under-employed citizens would make for a more effective opposition.

Kas Thomas, June 8, 2015 at 4:26 am

In 1900, if you lost your job due to technology, you could find another one because 99.99% of all jobs could be done only by humans. That's no longer the case. From here on out, an ever-greater number of unemployed will be chasing the ever-shrinking number of jobs that can't be eliminated (or crapified) by technology. That's why this time, things for the Luddites are qualitatively quite different indeed. Historically so.

The musical chairs game will continue until (as Frey and Osborne say) half of all jobs have been either been eliminated or turned into Mechanical Turk "gigs" a la Thumbtack (which pay far less than minimum wage and come with zero benefits). In the Uber economy there will be plenty of (non)employees living in their cars, perhaps giving new meaning to the word "livery."

James Levy, June 8, 2015 at 6:48 am

I agree, and furthermore I object to the contention that in the past lost jobs are automatically replaced with new ones. If you scan the Rust Belt you'll find that jobs lost in the 70s-80s were either 1) never replaced, 2) replaced with much less well-paid and socially valorized jobs, or 3) jobs did emerge, but the actual men (almost always men) who lost those jobs were not the ones to get the new ones.

What Economists and their minions demand is that we be a nation of vagabonds, endlessly tramping from place to place like farmworkers in The Grapes of Wrath. And even that peripatetic way of living no longer guarantees anything. This inability of Economists to quantify the value of communities and rootedness and the self-esteem that comes from performing a socially respected occupation (like steel worker or tool and die maker) is one critical way in which their pronouncements are not only flawed, they are socially destructive.

JTMcPhee, June 8, 2015 at 9:22 pm

Both bio- and nanotech offer some really great likelihoods that accident, error, and/ or misanthropic evil intent will turn loose all four of the Horsemen.. , a mild link among some with hair maybe justifiably on fire.

Not to mention that a few people are starting to see some thorns among the roses of infinite Skynet, and that so artfully ill-named "artificial intelligence…" Some Scientists and even Engineers are noticing that none of the Three ( or Four) Laws of Robotics aren't being built onto any part of the "technology:" in fact, they are shocked, shocked they say, to discover, the War Gamers are already fielding autonomous battle robots making "kill the fleshly pig and drink his blood" decisions.

And a Commission has been commissioned to study the issue.. I wonder if any of them will review the "Terminator" movies, or that children's favorite, the "Transformers" franchise, let alone generations of speculative sci-fi thought experiments that examine the Golem theme and fables…

Stupid f___king humans. We do it to ourselves, for pride and profit and pseudopatiotism 'n stuff…

Ep3, June 8, 2015 at 6:15 am

Yves, my first level accounting professor told me to minor in computers, and he was tremendously correct. All accounting today relies on database management, either SQL or some close cousin.

Sure, u still have to be able to put together a balance sheet and P&L. But the more u can automate that, the less the traditional accounting function is needed.

sam s smith, June 8, 2015 at 1:08 pm

Automation has been very useful to accounting fraud.

washunate, June 8, 2015 at 7:48 am

This is one of those areas where I will continue politely but firmly pushing back against the technology/jobs neoliberal meme.

The issue is not skills or technology or outsourcing or anything like that. Those are concepts created out of thin air to distract attention from the looting.

Work is crappy today because public policy makes it that way.

Jesper, June 8, 2015 at 8:05 am

The three bottlenecks:

1. Need for social intelligence. Not a bottleneck, just not there yet but voice- and facial-analysis is making progress. Maybe add the body-monitor read-outs (blood-pressure, pulse etc) and the feeling of the human can be analysed well. The tricky part might be the response but people are already today easily manipulated by sociopaths so….

2. Need for creativity. Not a bottleneck. Music, movies and literature is more formulaic than ever now. Yep, I'm feeling old…. & already today many creative people work for nothing, some earn a little and even less can live on their creative talents.

3. Environment is needs to be more structured. Not a bottleneck. Most working environments were many are working are hugely structured.

If nothing is changed then the future will belong to two groups: capital owners and the few who managed to out-compete the rest. Impossible to guess which of the two group will be the largest.

The question is how to divide all the efficiency gains.

dk, June 8, 2015 at 8:41 am

When population increases past the point where each individual can contribute unique or rare capability, that population (the individuals in it, by eventual extension the population as a whole) becomes more vulnerable to predation in the form of consolidation of skill for competitive advantage. Being able to off load work performance from the species entirely only exacerbates the problem.

In our quest for preserving life from challenge (disease, trauma, war, disaster) we have generated a population too huge to manage to our own satisfaction(1).. We achieved this by creating elaborate technologies; we have always leveraged these technologies against what we considered threats, without foreseeing that over-leverage would cause us to threaten ourselves. This is now happening on several fronts, it distresses me somewhat when people notice one or more fronts without including population as a driving factor in the base scenario. Of course, this is not the only way in which a group/community/culture/species can fail, but it's the one that's happening now.

1) Diversities, which are healthy for populations in the biological and cultural sense, make uniform management impossible; the ideal of uniform management is purely abstract, arising when an individual (or small group) sees themselves as independently superior to others. This kind of thinking arises from a limited view of hierarchy which limits itself to pyramidal tree models. Pyramidal trees are powerful general tools, but they can be optimized for given tasks, by rendering to other models/shapes.

TG, June 8, 2015 at 9:05 am

The rich don't care about higher education because they know that there is a virtually infinite supply of skilled (and unskilled) workers in the overpopulated third world. Oh, and of course, because our present generation of oligarchs is completely short term: it's how much can I strip-mine from the nation before it's all used up, then I will simply sail away on my yacht, renounce my now-worthless citizenship and wring my hands that the American people were not worthy of my great leadership.

Automation does not greatly threaten unskilled jobs. This is sometimes called "Moravec's Paradox": what seems simple to us, like sorting laundry, is in reality a very complex task, and what seems hard – like playing chess at the master level – is actually easy. It's just that sorting laundry SEEMS easy because this is the kind of task that the human body evolved to do. For example, the "Roomba" robotic vacuum cleaner is, after all these years of development, still just an expensive toy. It has zero impact on the market for janitors and maids. Wages for American janitors and maids have fallen because of massive immigration, combined with all those people displaced from outsourcing, flooding the market for labor.

The issue of automation displacing "skilled" workers is more complex. Certainly it is not having a substantive impact NOW. It may have an impact in automated tech support and things like that. More generally? Until computers have true natural language ability and have solved the "grounding problem", I suspect not that much. As of this moment, we are a lot farther away from solving these issues than you might think.

Steven, June 8, 2015 at 11:33 am

This country's fate was sealed when the children of its Robber Barons turned the wealth their ancestors had accumulated for them to Wall Street and its banks, just as Britain's was foreordained when the wealth of its landed aristocracy and its first industrialists was monetized and sent beyond its borders in search of higher returns than could be had at home. For the monetarily wealthy, all that matters is the ability to buy low(er) and sell high(er). There is no 'long term', no 'investing'; there is only day-trading, nothing beyond the legally enforceable details of the current deal, beyond finding the next 'greater fool'.

It is a measure of just how insane the public mind has become that someone like Mitt Romney could get away with calling himself a patriotic American and 'wealth creator' by selling out the country. (It was probably the same kind of thinking behind all the treason by Ford, IBM, Standard Oil et al. during WWII, i.e. they had a higher duty to make themselves rich regardless of who won.)

Frederick Soddy listed the three ingredients of genuine wealth creation as discovery, natural (i.e. inanimate) energy, and diligence. Mechanization and automation have perhaps all but annihilated the need for diligence. But along with it they may have also destroyed opportunities for discovery, at least in connection with the processes necessary for sustaining life. How many of us would have a basic grasp of the science required to make a 'discovery', e.g. to understand and perhaps improve the processes employed in say an oil refinery or a magnetic imaging device?

Oligarchs, not just in the US but the world over, are probably united in their belief of the transcendent importance of money. Who needs science and technology, an industrial society, when the world is teeming with skilled and unskilled labor and resources you can buy with money you don't even have to have? Just ask Janet Yellen and her Fed to create it for you.

It is not yet clear that the leaders of China and other developing nations understand what Western oligarchs apparently do not – the real sources of wealth and power in the modern world. Particularly in the US there seems to be a belief a country can specialize in high technology death and destruction, leaving the production of day to day necessities to countries that haven't yet caught onto the secrets of financial engineering and the essential worthlessness of the private money they are creating – even when they succeed in offloading it onto a gullible public using clever euphemisms like QE for their looting.

But the day may be fast approaching when we find out – whether the Chinese, for example, remember that "Political power grows out of the barrel of a gun." ('and our enemies are so stupid they have destroyed the foundations of the power they once used so effectively to colonize and oppress us'.) The date of the last 'big game' is fast approaching with the West's oligarchs staking their (our) all on the US dollars they've been able to stack up in their off-shore bank accounts (a pair of twos) against a combination of most of the world's industrial capacity and a workforce that knows how to use it and Russian fossil fuel resources and military technology.

Mark, June 8, 2015 at 11:41 am

In the fall of 1970, Governor Reagan's aide Roger Freeman, who later served as President Nixon's educational policy advisor, while he was working at the time for California Governor Ronald Reagan's reelection campaign, commented on Reagan's education policy: "We are in danger of producing an educated proletariat. That's dynamite! We have to be selective about who we allow to through higher education. If not, we will have a large number of highly trained and unemployed people."

Steven, June 8, 2015 at 12:18 pm

I'd bet the first draft of the Patriot Act came shortly thereafter. Now I know why we need the Homeland Security Agency!

sam s smith, June 8, 2015 at 2:30 pm

If you watch film from the protests and riots of the 1960's, that is what the oligarchs are afraid of.

Dealing with that is the true mission of the Dept of Homeland Security.

Anonymous123, June 8, 2015 at 11:41 am

My husband and I were actually discussing this exact issue yesterday. I was pointing out that in economics, the Solow model assumes that technology increases the potential output of the economy–the tide rises for everyone. But what we see in reality is that technology actually contributes to massive job losses for some groups, which is never accounted for in the model–groups that may have very specialized skills and are hard to retrain, in some cases.

My husband argued that since the Solow model predicts long term growth, so many of these short term inefficiencies are moot in the long run. But I think the problem remains that you can have a skill mismatch that persists for quite some time. Can a radiologist (a job ripe for automation) really be retrained into a job that still gives that individual a similar level of income? Doubtful. I think models like this show just how much economists are divorced from the reality of what's happening on the ground.

craazyboy, June 8, 2015 at 12:03 pm

Well, combine massive job loss and the fact that corporate American has been successful in reducing the effective corporate tax "burden" over the last 20 years to half of what it was, in terms of the percentage of USG tax revenues collected from individuals vs. corporations, we should be able to more accurately predict when America ends.

OTOH, in the mundane biz world we began transitioning from sneaker net in the '80s, so I'm rather pleased the "professions" are finally catching up. IBM's Dr. Watson could be a huge benefit – depending on what his fees are, of course.

Then again, Dr Watson's fees could be mitigated by going to the advertising model. Health care and pharma companies could buy ads from Dr. Watson and Dr. Watson would diagnose illnesses and recommend the advertiser's products and services. That could happen too. Dr. Google!

casino implosion, June 8, 2015 at 7:28 pm

This guy has a great blog dealing with this:

Also check out Nick Land's blogs and Martin Ford's "LIghts In the Tunnel".

Bill Houghton, June 8, 2015 at 9:15 pm

In medicine, a computer scanner can look at a tissue slice and diagnosis it as well as the pathologist, most of the time. The pathologist is out of a job. In some subtle cases the scanner gets it wrong. Nurse practitioners can prescribe medication almost as well as doctors, for large numbers of people.

What are called "treatment guidelines" can steer them pretty well, and even the MD workers start to use the guidelines after a while. The technology has advantages for large numbers of patients.

The two areas where it misses are more subtle diagnostic challenges, and the fact that many ordinary citizens, as patients, can tell that they do not have a full human being helping them. They can tell they are doing with a robot . The result is that they will not form a firm attachment to the caretaker. Feeling more alone, particularly under a time of stress, it's apt to lead to more mental illness. Not only will there be fewer jobs for the middle class, but many people will be more depressed. Would you rather live to be 110 years old, and be unhappy, or would you rather work and be happy, but die at 60?

Felix, June 8, 2015 at 9:46 pm

An easier and cheaper way to make medical care more efficient would be to eliminate measures of patient satisfaction and outlaw the use of antibiotics for the common cold…..don't bother visiting the doctor because you are not going to get what you want…….outlaw the use of narcotics for chronic musculoskeletal pain……don't bother visiting the doctor because all you are going to get is over the counter motrin………and eliminate the entire work/disability/cash nexus……you don't get to visit the doctor to get an off work order……..perhaps there could be a mandatory allocation of sick days to be taken for whatever cause……..That would take care of about 80% of all primary care visits……with no deterioration in the quality of care…….

And why would a hospital buy a DaVinci robot for surgery for 2 million if it was really anything other than a marketing tool?

Invest the 2 million and hire yourself a surgeon from Bombay…..a lot cheaper……surgical robots are just that……marketing gimmicks aimed at unsophisticated consumers. Even better……a computerized laser Robot!!!!!

[Jun 08, 2015] Falling Job Tenure Labor as Just another Commodity

Jun 08, 2015 | Economist's View

Julie L. Hotchkiss and Christopher J. Macpherson at the Atlanta Fed's Macroblog:

Falling Job Tenure: It's Not Just about Millennials: The image of a worker in the 1950s is one of a man (for the most part) who plans on spending his entire career with one employer. We hear today, however, that "...long gone is the lifelong loyalty to a corporation with steadfast servitude for years on end." One report tells us that "people entering the workforce within the past few years may have more than 10 different jobs before they retire." The reason? "Millennials don't like commitments." Well, the explanation is probably not that simple, but even simply measuring trends in job tenure is also not all that straightforward.
Despite a strong impression that entire careers spent with one employer are a thing of the past, some have declared the image of job-hopping millennials a myth. (You can read some discussions at, CNBC, and Marketwatch, for example.) These reports are all based on a September 2014 news release from the U.S. Bureau of Labor Statistics (BLS) stating that among every employee age group (even the youngest), median job tenure has not declined from when it was reported 10 years earlier. (Median job tenure is basically the "middle" amount of job tenure. If all workers are lined up from lowest tenure to highest tenure, the median tenure would be the amount of time the person in the middle of that line has been with his/her employer.)
Chart 1 illustrates the biennial data on job tenure reported by the BLS and interpreted by the reports mentioned above as indication that job tenure is not falling. Each line represents an age range, from 20- to 30-year-olds at the bottom (the lowest median tenure among all age groups) to 61- to 70-year-olds on the top (the age group with the highest median tenure). It sure doesn't look as though workers at each age group are staying with their jobs for shorter periods.

However, the problem with simply comparing median tenure across time by age group is that different ages at different time periods face different labor market institutions, incentives, and expectations. There are generational, or cohort, differences in what the labor market looks like and has to offer a 25-year-old born in 1923 and a 25-year-old born in 1993. In other words, each generation is represented across the age groups at different points in time.

The different colored points across age groups in chart 1 indicate the range of years the people in that particular year, in that age group, were born (and to what named generation they belong). The labor market facing a 31-to 40-year-old baby boomer in 1996 looks quite different from the labor market facing a 31-to-40-year-old Gen Xer in 2012, and the social, economic, and behavioral differences are even more dramatic the farther apart the generations become.

For example, one of the most dramatic changes facing workers has been the transformation from defined-benefit to defined-contribution retirement plans. The number of years a worker spends with an employer is no longer an investment in the employee's retirement. (William Even and David Macpherson (1996) illustrated the important link between the presence of an employer-sponsored retirement plan and worker tenure in their paper "Employer Size and Labor Turnover: The Role of Pensions.")

Additionally, the share of those 25 and over with a college degree in the United States has increased from 5 percent in 1950 to 32 percent in 2014, according to data from the U.S. Census Bureau. A more educated workforce is one with more general, or transferable, human capital, reducing the need to stay with just one employer to reap a return on one's investment in human capital. The transition of the U.S. economy from a basis in manufacturing to one based in services, supported by technology, also means employers require more general, rather than specific, human capital.

Firms have also changed the way they invest in workers, offering less on-the-job training than they used to, weakening their ties to the worker. And on top of all of this, because of near-instantaneous access to information, movies, and music brought by the digital age, younger cohorts are purported to have shorter attention spans than older cohorts (as reported here). All these factors shape the environment in which workers and employers view the value of longevity in their relationship.

To get a more accurate picture of the lifetime pattern of median job tenure and how it has changed across generations, we use the same BLS data used to produce the chart above to group workers into cohorts, or people who have similar experiences by virtue of when they were born. In other words, we rearrange the data used in chart 1 to line people up by birth year rather than by calendar year in order to illustrate (in chart 2) that median job tenure is indeed declining through the generations.


What we see in this chart-using the 20- to 30-year-olds, for example-is that the median job tenure was four years among those born in 1953 (baby boomers) when they were between 20 and 30 years old. For 20- to 30-year-olds born in 1993 (millennials), however, median job tenure is only one year. Similar-and some even more dramatic-declines occur across cohorts within each age group.

Declining job tenure is not just all about millennials having short attention spans. In fact, there is a greater (five-year) decline in median job tenure between 41- and 50-year-old "Depression babies" (born in 1933) and 41- to 50-year-old Gen Xers (born in 1973). So, just as our colleagues here at the Atlanta Fed discovered with regard to declines in first-time home mortgages, millennials aren't to blame for everything!

So what does declining job tenure mean for the U.S. labor market? From the perspective of the worker, portable retirement savings and, now, portable health insurance mean that workers confront a world of possibilities that our parents and grandparents never dreamt of. Yes, perhaps the days of predictability in one's career is a thing of the past. But so is the "eggs-in-one-basket" loss of retirement savings when your employer goes out of business as well as potentially slower career progression within a single firm.

From the economy's perspective, the flexibility of workers seeking their highest rents and the flexibility of firms to seek better matches for their needed skills mean greater productivity-not to mention growth-all around.

Posted by Mark Thoma on Monday, June 8, 2015 at 02:24 PM in Economics, Unemployment | Permalink Comments (23)

Sandwichman said...

"From the economy's perspective, the flexibility of workers seeking their highest rents and the flexibility of firms to seek better matches for their needed skills mean greater productivity-not to mention growth-all around."

Who is this "economy" and why should we care about its perspective?

Oh, you mean creditors, right? Ah now it's clear. "Labor as a commodity" is NOT a bonanza for workers.

anne said in reply to Sandwichman...

From the economy's perspective, the flexibility of workers seeking their highest rents and the flexibility of firms to seek better matches for their needed skills mean greater productivity-not to mention growth-all around.

-- Julie L. Hotchkiss and Christopher J. Macpherson

[ Wildly comical. The language choices immediately show the essay has nothing to do with people. I am reminded of why Branko Milanovic dislikes the term "human capital," where at least the term word human appears:

February 13, 2015

Junk the phrase 'human capital'
The term has added nothing but conceptual confusion for the last 50 years
By Branko Milanovic ]

Julio said in reply to anne...

[Lewis Carroll describes Hotchkiss and Macpherson's economy:]

HOWEVER, the egg only got larger and larger, and more and more human: when she had come within a few yards of it, she saw that it had eyes and a nose and mouth; and, when she had come close to it, she saw clearly that it was HUMPTY DUMPTY himself. 'It can't be anybody else!' she said to herself. 'I'm as certain of it, as if his name were written all over his face!'

[and the economy explains 'flexibility':]

'When I use a word,' Humpty Dumpty said, in rather a scornful tone, 'it means just what I choose it to mean - neither more nor less.'

'The question is,' said Alice, 'whether you can make words mean so many different things.'

'The question is,' said Humpty Dumpty, 'which is to be master - that's all.'

anne said in reply to Julio...


Through the Looking-Glass, and What Alice Found There
By Lewis Carroll

Humpty Dumpty

anne said in reply to Sandwichman...


As I suspected if there is thought to be a grounding necessary for studying and discussing history, Tolstoy presents a wonderfully humane grounding while Sidney Hook so far as I can understand present a mechanically inhumane grounding that I wish no part of (no wonder David Brooks is a follower).

"The Hero in History" by Hook is a remarkable saddening contrast with Tolstoy's sympathetic theory of history in War and Peace."

anne said in reply to anne...

Tolstoy's theory of history is found all through "War and Peace" but formally begins here:

1865 - 1869

War and Peace
By Leo Tolstoy

First Epilogue: 1813 - 20

anne said in reply to Sandwichman...

Also, when Hook is called a pragmatist, William James who first used the term would never have recognized such a "pragmatism" as that of Hook. For James, pragmatism meant that the truth of an idea is determined by the difference the idea makes in a life, such is humanism and not the "what works" pragmatism of Hook.

Sandwichman said...

Labor is (not) a Commodity

"Labour is a commodity like every other, and rises or falls according to the demand." – Edmund Burke

"Labour is not a commodity." – International Labour Organization, Declaration of Philadelphia

"We must now examine more closely this peculiar commodity, labour-power." – Karl Marx

Organized labor's millennium lasted exactly six years, two months, two weeks and five days. On October 15, 1914, U.S. President Woodrow Wilson signed the Clayton Antitrust Act. Samuel Gompers, founding president of the American Federation of Labor, hailed the labor provisions of that law as "the most comprehensive and most fundamental legislation in behalf of human liberty that has been enacted anywhere in the world", "the foundation upon which the workers can establish greater liberty and greater opportunity for all those who do the beneficent work of the world" and the "industrial Magna Carta upon which the working people will rear their structure of industrial freedom." Gompers gushed that the words contained in Section 6 of the Act, "That the labor of a human being is not a commodity or article of commerce," were "sledge-hammer blows to the wrongs and injustices so long inflicted on the workers."

On January 3, 1921, in the case of Duplex Printing Press Co. v. Deering, the U.S. Supreme Court ruled that "there is nothing in the section to exempt such an organization [i.e., union] or its members from accountability where it or they depart from its normal and legitimate objects and engage in an actual combination or conspiracy in restraint of trade," thereby confirming an opinion long held by objective observers that the labor provisions of the Clayton Act didn't actually exempt unions from court injunctions. In the meanwhile, Gompers journeyed to Paris to lobby for virtually identical language in the Treaty of Versailles, affirming the official non-commodity status of workers everywhere: "Labour should not be regarded merely as a commodity or article of commerce." In 1944, the International Labour Organization reiterated as the first principle of its Declaration of Philadelphia that "Labor is not a commodity."

The everyday experience of working people, economic policies of governments, bargaining priorities of trade unions and theoretical models of economists refute the idealistic maxim that labor is not a commodity. An early rationale for the proposition was given in 1834 by William Longson of Stockport in his evidence to the House of Commons Select Committee on Hand-Loom Weavers:

"…every other commodity when brought to market, if you cannot get the price intended, it may be taken out of the market, and taken home, and brought and sold another day; but if a day's labour is offered on any day, and is not sold on that day, that day's labour is lost to the labourer and to the whole community…"

Longson concluded from these observations of labor's peculiarities that, "I can only say I should be as ready to call a verb a substantive as any longer to call labour a commodity."

Karl Marx was emphatic about the peculiar historical nature of labor – or, more precisely, labor-power – as a commodity. Rather than reject the label outright, though, he chose to examine it more closely. Marx observed that for labor-power to appear on the market as a commodity, the sellers must first be free to dispose of it (but only for a definite period) and also must be obliged to offer labor-power for sale because they are not in a position to sell commodities in which their labor is embodied.

Connecting Longson's observation to Marx's, it would seem as though, aside from moral strictures, one of the qualities that most distinguishes labor-power from other commodities – its absolute and immediate perishability – is what compels its seller to submit unconditionally to the vagaries of demand. To paraphrase Joan Robinson, the misery of being regarded as a commodity is nothing compared to the misery of not being regarded at all.

So if labor-power is not a commodity, or is only one due to peculiar and rather disagreeable circumstances, what is it, then? Consider the idea of labor-power as a common-pool resource. Labor-power can be distinguished from labor as the mental and physical capacity to work and produce use-values, notwithstanding whether that labor-power is employed. Labor, then, is what is actually performed as a consequence of the employment of a quantity of labor-power.

Human mental and physical capacities to work have elastic but definite natural limits. Those capacities must be continuously restored and enhanced through nourishment, rest and social interaction. "When we speak of capacity for labour," as Marx put it, "we do not abstract from the necessary means of subsistence." It is the combination of definite limits and of the need for continuous recuperation and replacement that gives labor-power the characteristics of a common-pool resource. As Paul Burkett explains, Marx regarded labor power not merely as a marketable asset of private individuals but as the "reserve fund for the regeneration of the vital force of nations". "From the standpoint of the reproduction and development of society," Burkett elaborates, "labor power is a common pool resource – one with definite (albeit elastic) natural limits."

"Common pool resource" is not the terminology Marx used; Burkett has adopted it from Elinor Ostrom's research. For Ostrom, common pool resources are goods that don't fit tidily into the categories of either private or public property. Some obvious examples are forests, fisheries, aquifers and the atmosphere. Relating the concept to labor is especially apt in that it illuminates, as Burkett points out, "the parallel between capital's extension of work time beyond the limits of human recuperative abilities [including social vitality], and capital's overstretching of the regenerative powers of the land." That parallel debunks the hoary jobs vs. the environment myth.

The basic idea behind common-pool resources has a venerable place in the history of neoclassical economic thought. It can't be dismissed as some socialistic or radical environmentalist heresy. In the second edition of his Principles of Political Economy, Henry Sidgwick observed that "private enterprise may sometimes be socially uneconomical because the undertaker is able to appropriate not less but more than the whole net gain of his enterprise to the community." In fact, from the perspective of the profit-seeking firm, there is no difference between introducing a new, more efficient production process and simply shifting a portion of their costs or risks onto someone else, society or the environment. The opportunities for the latter may be more readily available.

One example Sidgwick used to illustrate this was "the case of certain fisheries, where it is clearly for the general interest that the fish should not be caught at certain times, or in certain places, or with certain instruments; because the increase of actual supply obtained by such captures is much overbalanced by the detriment it causes to prospective supply." Sidgwick admitted that many fishermen may voluntarily agree to limit their catch but even in this circumstance, "the larger the number that thus voluntarily abstain, the stronger inducement is offered to the remaining few to pursue their fishing in the objectionable times, places, and ways, so long as they are under no legal coercion to abstain."

In the case of labor-power, "fishing in the objectionable times, places and ways" manifests itself in the standard practice of employers considering labor as a "variable cost." From the perspective of society as a whole, maintaining labor-power in good stead is an overhead cost. The point is not to preach that firms ought to treat the subsistence of their workforce as an overhead cost. That would no doubt be as effectual as proclaiming that labor is not a commodity. As with Sidgwick's fishery, a greater advantage would accrue to firms that didn't conform to the socially-responsible policy.

Ostrom explained the differences between various kinds of goods by calling attention to two features: whether enjoyment of the good subtracts from the total supply still available for consumption and the difficulty of restricting access to the good. Private goods are typically easy to restrict access to and their use subtracts from total available supply. Public goods are more difficult to restrict access to and their use doesn't subtract from what is available for others. Common-pool goods are similar to private goods in that there use subtracts from the total supply but they are like public goods in that it is more difficult to restrict access to them.

If it were merely a matter of selling to employers, then labor-power would have the uncomplicated characteristics of a private good. Working for one employer at a given time precludes working for another. Hypothetically, the worker can refuse to work for any particular employer thereby restricting access. But here we need also to contend with that peculiarity of labor-power noted by the silk weaver, William Longson that a day's labor not sold on the day it is offered is "lost to the labourer and to the whole community."

"If his capacity for labour remains unsold," Marx concurred, "the labourer derives no benefit from it, but rather he will feel it to be a cruel nature-imposed necessity that this capacity has cost for its production a definite amount of the means of subsistence and that it will continue to do so for its reproduction." This contingency and urgency of employment effectively undermines the worker's option of refusing work, so that in practice labor-power has the features of a common-pool good rather than of a private one. Collectively, the choice of refusing work is further weakened by competition from incrementally more desperate job seekers – a population Marx called "the industrial reserve army."

So is labor a commodity or is it not? The arch, paradoxical answer would be "both." Examined more closely, the capacity for labor – labor-power – reveals itself as a peculiar commodity that exhibits the characteristics of a common-pool resource rather than a private good. An actual Charter of Industrial Freedom must address these peculiar characteristics rather than bask contentedly in the utopian platitude that labor is not a commodity.

anne said in reply to Sandwichman...

Branko Milanovic‏ @BrankoMilan

Human capital:

"The Mingrelian ambassador arrived at Constantinople with two hundred persons; but he sold them day by day, till his retinue was diminished to a secretary and two valets. To purchase his mistress, a Mingrelian gentleman [another one] sold twelve priests and his wife to the Turks." *



The History of the Decline and Fall of the Roman Empire
By Edward Gibbon

JohnH said...

"Among every employee age group (even the youngest), median job tenure has not declined from when it was reported 10 years earlier."

Yet another sign that the Fed's policies have been a resounding success [NOT!] Couple shortening tenure with a labor participation rates rivaling those of the 1970s and a real median household income rivaling the 1980s and you get a clear pattern--a failed recovery.

In addition, we get the Federal Reserve's own Labor Market Conditions index to confirm how weak the labor market really is.

Yet, according to the SF Fed's John Williams, the Fed has powerful tools to stimulate the economy. I guess they've been AWOL (or oblivious to reality.)

mulp said in reply to JohnH...

Until some economist tells the Fed to buy only infrastructure bonds for NEW totally Made in America construction jobs will Fed policies have any hope of creating jobs instead of causing asset price inflation which leads to jobs losses rather than gains because higher asset prices requires higher profits to justify the higher prices.

Normally government borrow from the central bank to build assets which can be productive, or merely status building, but free lunch economic since Reagan prevents government from borrow and spending because governments pay workers, so the preferred method is consumers borrowing and spending, and along the way some jobs will be created. This consumer credit is unsustainable no matter how much money the Fed creates because the Fed does not buy bad consumer debt and hold it for 50-100 years at 0% interest.

And no amount of Fed money driving Apple's market cap to new heights will result in Apple creating a new job in America when manufacturing can only be done in Asia thanks to the industrial policies set in motion by Reagan's administration which was based on growth by cutting labor income and replacing labor income growth with growth in debt to buy high profit US production and low profit imports.

ken melvin said...

Talk about blaming the victim. How could any one get it so wrong?

pgl said...

Young workers don't like commitments? No - the real story is companies hate commitments to workers. Or as Wal-Mart says "always low wages".

Dorian Cole said...

Report seems biased. Surveys and statistics indicate that Millennials don't want to job hop long distances, like their parents. It just isn't worth it. Employer loyalty faded in the 1980s with the new (tech oriented) business models (NEBM), that has found its way into most industries.

Business prefers an on-demand employee business model, not a loyalty business model. I was a manager with one of the last major corporations to "right size" in the 1980s, which had never laid off employees before.

They had to. The new business economics and competition demand no loyalty.

mulp said in reply to Dorian Cole...

Economists sold America on a new economic theory, free lunch economics.

Basically, you can pillage and plunder capital to create wealth, and the biggest target is the labor force income.

In free lunch economics, killing jobs is free in that it increases profits while increasing consumer spending due to the wealth effect and asset price inflation that allows consumer borrow and spend in excess of the fall in labor incomes.

Getting rid of Regulation Q and related banking regulations that prevented the poor from borrow and spending to wealth without income was the first step. Getting bankers to see the profit in lending other people's money to bad credit risks was another.

But this is what We the People who vote in ALL elections want, free lunches and Republicans promise lots of free lunches. Lower taxes leading to higher growth and more money in your pocket to make you rich.

Julio said...

Given the "flexible" scheduling imposed on many hourly workers, the typical "job tenure" is down to hours -- since you don't know when you will be called again.

A good read on the horrors of modern scheduling (made worse as usual by software) is this (unfortunately gated) article from Harper's Magazine:

A small excerpt:

"The news filtered in from the retail workers she spoke with: the Gap was scheduling four-hour shifts; DSW salespeople were getting only twelve hours of work a week; at some stores Zara was changing employees' schedules without notice, leading many to snap photos of posted schedules to avoid getting disciplined for missing a shift they weren't aware they had; Abercrombie & Fitch employees started receiving entire schedules composed of on-call shifts that never materialized. Facebook pages began to crop up for workers desperate to pick up extra hours - or to get someone to cover a shift they'd been saddled with on little or no notice. Employees were slowly being turned into day laborers. "

Julio said in reply to Julio...

[Can't resist another bit from the article, hope it's still fair use. Kronos is a major implementer of these "labor analytics" tools:]

Labor costs have long been a pressure point in retail, but the impact of data-driven software systems is dramatic. In August 2013, less than two weeks after the teen-fashion chain Forever 21 began using Kronos, hundreds of full-time workers were notified that they'd be switched to part-time and that their health benefits would be terminated. Something similar happened last year at Century 21, the high-fashion retailer in New York to which people make pilgrimages for discount Versace, Kate Spade, and Burberry. I spoke with two saleswomen who had worked at the flagship store near the World Trade Center for a combined forty-four years. They said they had always had consistent and full-time schedules until the chain expanded and implemented a Kronos system. Within the space of a day, Colleen Gibson's regular schedule went up in smoke.

[The other Kronos was killed by Zeus. There's a point here, I don't know what it is yet.]

mulp said in reply to Julio...

It works well as long as government makes sure consumers have plenty of credit, or welfare, to keep buying all the cheap import fashion at the same rate. If not, killing jobs leads to falling sales and then to being K-Mart or Sears.

[Apr 20, 2015] Stop The Presses Nobel-Prize Winning Economist Slams QE

Apr 20, 2015 | Zero Hedge
Whether it is due to pervasive groupthink, a chronic lack of vision, the perpetuation of failed ideas, or just because the alternative casts grave doubts about the value of their very existence, conventional economists and their media lackeys have almost without exception been supportive of the Fed's "recovery" efforts, be it ZIRP or QE. After all, neoclassical economics demands it, and if the Fed is wrong about its response to the second great depression, then the value of every single economist likewise goes out the window.

... ... ...

... Nobel-prize winning economist Robert Merton (of expanded Black-Scholes fame) with Arun Muralidhar as co-author, released an Op-Ed in Pensions and Investments magazine titled "Monetary policy: It's all relative", in which they slammed not only the current monetary policy response to economic ills (as observed through the prism of pension math and the adverse impact of low rates), but question if instead of leading to an improvement, QE isn't in fact making the situation even worse.

Here are the key excerpts from the op-ed:

... while QE has increased absolute wealth, it has simultaneously lowered relative wealth for a large class of investors. This could lead to the opposite of the desired effect for this group of investors. Lower relative wealth means investors need to save more to improve their funded status, especially where regulations are strict, and it results in less consumption and investment, and may not remove the deflationary overhang.


An alternate, more sophisticated approach to explaining why QE may not work to stimulate aggregate consumption is, perhaps, because the demographic mix of the U.S. (and most parts of the developed world) has shifted toward older people. Unlike 30 or 40 years ago, the enormous baby boomer generation, and even retirees, are much wealthier (including human capital) than in the past, and they are wealthier than current generations earlier in their life cycle. So the wealth effect does not lead to an increase in consumption and, potentially, has the opposite outcome.

When baby boomers were in the sweet spot for housing needs, expenditures on children and cars, etc. 30 to 40 years ago, the effect the central banks were expecting from QE might have worked better, as they expected it would, but that need not be a reliable prediction under the changed current demographic and wealth distribution.


We believe it is imperative for central banks and academia to examine this perspective immediately and develop a new monetary policy toolkit, because it would be tragic if the central banks' attempts to improve economic security with the current orthodoxy leads, instead, to less consumption, less investment and greater retirement insecurity.

And the punchline:

A recent study by the Center for American Progress shows that millions of Americans (as high as 50% of households) are in danger of retiring with insufficient money to maintain the standard of living to which they are accustomed, and the problem is getting progressively worse. Your previous editorial argues that QE by the central bank may impose unintended costs on pensions, at both the institutional and retail level. This suggests more research needs to be conducted to examine how monetary policy affects relative wealth, not just absolute wealth, and whether traditional approaches are outdated given the current retirement landscape. This may call for central banks to use a different set of policy tools than manipulating long-term rates, and may even argue for the Fed to actually raise long-term rates faster than what is recommended by traditional monetary policy.

Alas, with central banks now proudly owning $22 trillion in "assets", it is far too late. The best one can hope for is that the social collapse the results after QE's failure is finally accepted by all, and that includes all other economists, will be somewhat contained.

Needless to say, all it would take for the Fed to "lose credibility" (if only among its "very serious" peers; it has long since lost all credibility across the broader population) is for a few more economists to have a comparable epiphany and declare that the money-printing emperor is naked, and then all bets - at least for the current failed economic and monetary regime - are off.


Yes, I have a nail gun. You can borrow it at any time. Just wash the blood off before you give it back.

And, just FYI, I am an economist by training (but I'm feeling much better now). I never throught QE was a good idea and have stated bluntly many times why I always thought QE was a bad idea, sounding somewhat similar to the points made in this article. But, sadly, with no PhD, nobody gives a crap what I think. Fortunately, I never ran a well known financial company up on the rocks 20 years ago, either.

NOT ALL ECONOMISTS THINK ENDLESS MONEY PRINTING IS GOING TO SOLVE ANYTHING OR EVEN "WORK" IN ANY MEANINGFUL WAY. Dissenting opinions are regularly filtered out of the discussion by the media, much like climate change 'deniers' opinions are filtered out in discussions of the environment, or the way no 'environmentalist' ever mentions anything bad about radiation leaking from Fukushima. I could go on and on, but the basic point is, not every economist is a clueless moron worshipping at the altar of stimulating aggregate demand.


Somebody should write a book about this stuff...oh, er...somebody did and all major publishers rejected it??? Shocker...


Yes the same Long Term Capital Management Merton


Why is anyone listening to this guy? He blew his credibility back in the 90s.

"Members of LTCM's board of directors included Myron S. Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences for a "new method to determine the value of derivatives".[3] Initially successful with annualized return of over 21% (after fees) in its first year, 43% in the second year and 41% in the third year, in 1998 it lost $4.6 billion in less than four months following the 1997 Asian financial crisis and 1998 Russian financial crisis requiring financial intervention by the Federal Reserve, with the fund liquidating and dissolving in early 2000."


"They lie even when they are telling the truth." Hence this scumbag's statement.

My belief is that they are preparing to kill off the dollar, which is why it is "up." As part of the setup they need to prepare a fall-guy, and that is to be the FedRes.

Of course, part of the plan is to not allow their fiat-dollar debts to evaporate, but be converted to SDRs--"Pay us now in gold or euros." (Remember, they own the courts.)

Liberty is a demand. Tyranny is submission.

Is the dollar up on "exit," or "strength?"


I personally think that instead of another QE, which they may still do, the goal is to assure those so connected and the Amongst be permitted a golden exit to the euro, shekel, or other. They will then "pull it" and lay it all at the feet of the FedRes so as to prepare the sheeple for their worldwide central bank and SDRs.

Fits in with the Saudis price war collaboration as well. As a reward for their cooperation, they can be permitted the ability to reapportion their assets while their Zionist friends prop the "markets" up and the "exit" open, and be spared when they "pull it."

We shall see. At any rate, the dollar is doomed.

Liberty is a demand. Tyranny is submission.

"When did daylight get a train whistle?"


We don't need more mathematical models. We need to embrace common sense.

It was excessive borrowing and casual accounting standards that caused the problem. QE didn't counter-act those situations -- it embraced them. The only question left to ask is "when will this experiment arrive at the inflection point of impact?"


QE (and ZIRP) really pushed this retirement couple out of the US. Gosh - I remember years(as savers) when we were making more money on the interest from our savings than our actual earnings. Personally - I think monetary policy in the US today is all about trying to maximize the tax base. The longer ZIRP continues the fewer retiree aged people can walk away from their jobs, the more tax revenues coming in.


Keen had forecast debt deflation prior to 2008. Hudson also knew it was coming.

MMT theorists have analyzed the problem ad-infinitum.

It takes a Nobel prize winner, when others have been yelling the answers from the rooftops for 7 years?

It is simple, those that are in the back pocket of banking will always promulgate banker solutions. For example, QE swapping fresh FED keyboard money for debt instruments. All this does is change composition of the money supply from less debt to more money, and the money in turn channels into finance or gets caught up in banker reserve loops. If in finance, it finances yet more debt. This particular type of financialized debt has no connection to the real economy other than being extractive. QE money in banker reserve channels gets stuck because cash reserves now get FED interest, to then prevent rate collapse to zero on overnight market. You heard right, cash - which is not a debt instrument - gets paid interest and thus it gets stuck, with banks enjoying being fully capitalized.

But, bankers don't really own monetary policy, even though as a parasite they have usurped money creation, to then loan their credit into existence, Bankers certainly don't own fiscal (taxation) policy. For them to give up their pretender control over monetary policy, they will have to admit that money is actually law, and not private credit.

To admit that, their entire market theory of credit money will have to be shoved into history's trash bin, and they will also lose their easy rentier lifestyles. Better to keep peddling lies and keep humanity hypnotized.

Like Tyler's often say, 12T of QE money already spent, would have paid off all mortgages in U.S. If 12T had been SPENT into existence and channeled into mortgages, debt depression most certainly would be over. Effectively, mortgage debt instruments would have been erased, especially as the new money would have vanished into ledger as it bought down principle.

People's future labor (which is now) would then have had extra wallet money to buy from their producing neighbors, rather than having their output vector to credit destruction on banker ledger. This action would have created a wealth cycle as people work with each other to create and produce. Debt depression also pays banker usury, thus further draining credit money supply. Finance has an upper loop where they trade debt instruments and do financial games, and real economy has a lower loop that is in constant drain.

A land tax via fiscal policy would have been required to prevent a new debt bubble against land though -so had we paid off mortgages, it would have had to come with new fiscal stipulations.

Did Obama ever hear this from Geithner, Bernanke or any other members of the tribe and their sayanim fraternity? Its highly doubtful; parasitism runs deep when money creation power is so lucrative and ordained by God. It is especially good to be self chosen and have operative control methods on humanity.

Owning and holding debts on the people, to then gain usury and do Magic swaps, is the parasites control method.

falak pema

Having robbed the future we now rob the present which only leads to a tomorrow which will rob the past; the core baby boomer generation THAT OPTED OUT AND SURRENDERED TO EASY, SLEAZY REAGANOMICS...

The Bushes, the Clintons, the Blairs, the Muttis the Sarkos and the Browns...They should have fought the legacy of Dear Henry and the Cold War CiA/MIC scam that had gotten us into Nam and had shown its corruption in Watergate et al. No, they just bought into it and screwed the welfare productive state!

What a sell out of western values. Now its multiplied and this new millennium generation cannot tell an Apple from a Google big data scam.

Its all Facebook to them --


This guy is as dumb as Krugman. He's basically saying that QE should be good but might not be because of the weather - or rather that people are a bit older. He doesnt understand economics either. QE fails because the system is debt saturated. The economy is like a sponge, when debt free it quickly absorbs the extra money but as it gets soaked it becomes less effective until the economy / sponge just oozes and fails. The problem that all these brain-dead morons don't understand is that the economy is soaked with too much debt.

Never found an economist who understood reality -- but then i trained as an Economic Historian. Economists don't read history therefore they are doomed to repeat past failures. Just like statisticians - another voodoo outfit.

[Apr 03, 2015] Americans Not In The Labor Force Soar To Record 93.2 Million As Participation Rate Drops To February 1978 Levels

"... the labor force participation rate dropped once more, from 62.8% to 62.7%, a level seen back in February 1978, even as the BLS reported that the entire labor force actually declined for the second consecutive month, down almost 100K in March to 156,906. ..."

So much for yet another "above consensus" recovery, and what's worse it is, well, about to get even worse, because while the Fed keeps baning some illusory drum that slack in the economy is almost non-existent, the reality is that in March the number of people who dropped out of the labor force rose by yet another 277K, up 2.1 million in the past year, and has reached a record 93.175 million. Indicatively, this means that the labor force participation rate dropped once more, from 62.8% to 62.7%, a level seen back in February 1978, even as the BLS reported that the entire labor force actually declined for the second consecutive month, down almost 100K in March to 156,906.

[Mar 31, 2015] Generous Welfare Benefits Make People More Likely To Want to Work, Not Less

Mar 31, 2015 | Economist's View

Not so sure this is conclusive -- it seems like the survey question could have been sharpened:

Generous welfare benefits make people more likely to want to work, not less: Survey responses from 19,000 people in 18 European countries, including the UK, showed that "the notion that big welfare states are associated with widespread cultures of dependency, or other adverse consequences of poor short term incentives to work, receives little support."

Sociologists Dr Kjetil van der Wel and Dr Knut Halvorsen examined responses to the statement 'I would enjoy having a paid job even if I did not need the money' put to the interviewees for the European Social Survey in 2010.

In a paper published in the journal Work, employment and society they compare this response with the amount the country spent on welfare benefits and employment schemes, while taking into account the population differences between states.

The researchers, of Oslo and Akershus University College, Norway, found that the more a country paid to the unemployed or sick, and invested in employment schemes, the more its likely people were likely to agree with the statement, whether employed or not. ...

The researchers also found that government programmes that intervene in the labour market to help the unemployed find work made people in general more likely to agree that they wanted work even if they didn't need the money. In the more active countries around 80% agreed with the statement and in the least around 45%. ...

"This article concludes that there are few signs that groups with traditionally weaker bonds to the labour market are less motivated to work if they live in generous and activating welfare states.

"The notion that big welfare states are associated with widespread cultures of dependency, or other adverse consequences of poor short term incentives to work, receives little support.

"On the contrary, employment commitment was much higher in all the studied groups in bigger welfare states. ..."

Darryl FKA Ron said...

When surveyed Bill Clinton responded "I did not have sexual relations with that woman, Miss Lewinsky. I never told anybody to lie, not a single time; never. These allegations are false. And I need to go back to work for the American people."

Bill's statement established strong precedents for both the validity of survey information and the work ethic :<)

Personally I would stick with correlations of prime working age LFPR to employment insurance and re-employment benefits among nations with various levels of support for unemployment.

Support can be either too weak or too strong perhaps, but too weak would be the obvious mistake. Unemployment has high costs for individuals and prolonged unemployment makes re-employment more difficult for several social reasons as well as possible skills erosion. Employers generally avoid hiring the long term unemployed. The long term unemployed may lack the living conditions to present themselves at their best for job interviews (clothes and appearance) or to even show up (transporation or childcare). Necessity may place them into the grey or black markets for employment that become increasingly difficult to separate from.

I am unable to find anywhere support for the unemployed is too strong; i.e., where high levels of support correlate to high levels of unemployment. The unemployment rate in Qatar was 0.30% in 2013. The maximum unemployment rate in Qatar during this century to date was 3.9% in 2012. You can hardly be more supportive than Qatar.

This survey analysis is an example of discrediting the obvious truth of the veracity of support for unemployment and re-employment with a ridiculous and unconvincing approach. It is more about how to provide employment for inadequate social scientists than how to prove that the general wage working population benefits greatly from support during unemployment without any overall increase in the tendency to freeload.

Lafayette said in reply to Darryl FKA Ron...

Confucius say: "When employing tongue-in-cheek, be careful not to bite ..." ;^)

Darryl FKA Ron said in reply to Lafayette...

Not exactly sure which part you were referring to, but my comments were admittedly a rushed bunch of snark. Generally I believe sociologists have a lot to add to the economics discussion, but in this case the economists already had it covered and did not need their "help."

Lafayette said in reply to Darryl FKA Ron...

{Generally I believe sociologists have a lot to add to the economics discussion, but in this case the economists already had it covered and did not need their "help."}

Which is what I have been trying to get across in this forum as well for a long, long time.

The numbers help formulate policy decision making, towards helping us understand where we are going. But the end-results depend upon implementing those policies towards specific goals.

That aint happinin.

cm said...

The doubt comes from people apparently assuming that in the European "welfare states", somebody who doesn't want to work can just apply for no questions asked welfare and then hang out on their hammock.

The reality is that the amount and duration of UE benefits is based on one's history of (UE insured) employment and past benefits receipt - more or less, so much UE for that much work; and there are very stringent income and asset hurdles to qualifying for welfare, depending on circumstances you may not be allowed to keep a car or live in larger square footage than deemed necessary.

And anybody on benefits not of advanced and "unemployable" age will be strongly "encouraged" with an array of "measures" to take work or "job market integration" programs. But in the end there are still too few jobs.

Darryl FKA Ron said in reply to cm...

Yep. And also the benefits really are not all that great for someone that might have been working and paying their mortgage each month before the 2008 crises. The benefit maximums here in the US are such that a lot of people would lose their homes if they lost their jobs.

anne said in reply to anne...

The employment-population ratios for men and women 25 to 54 in the Nordic countries and the United States were 86.1, 84.1, 82.1 80.6 and 76.8 at the close of 2014.

Guess which ratio belongs to the US.

Richard H. Serlin said in reply to 400 ppm...

Welfare payments are very poor. There's still a huge incentive to get a job, when any job will be a huge increase in income. You're saying that if someone gets $10,000/year there's no incentive to get a job paying $25,000 or 50. And besides, job search, and going to training classes, etc. can just be required to still get the welfare.

[Mar 31, 2015] Four TBTF Banks Threaten To Withhold Funds To Democrats Over Elizabeth Warren's Wall Street Rants

Mar 31, 2015 | zeroh

Having already proven that their institutions are above the law in the aftermath of the financial crisis, executives at the "Too Big to Fail and Jail" banks have decided it's time to teach Senate Democrats a lesson.

Not being content with trillions in taxpayer backed bailouts to protect and further consolidate virtually all wealth within their oligarch fiefdoms, these bankers are irate at the notion that a commoner would dare criticize their unassailable crony privilege.

What Wall Street wants is one hundred Chucky Schumers in the Senate.

[Mar 30, 2015] Elizabeth Warren Strikes Back as Citigroup Tries to Blackmail the Democratic Party by Yves Smith

March 29, 2015 | naked capitalism

An unusual move by a thin-skinned too big to fail bank, Citigroup, to slap down the finance-skeptic faction of the Democratic party appears to be backfiring.

Reuters reported on Friday that Citigroup was making clear its displeasure with the way Elizabeth Warren had been calling to its overly-cozy relationship with the Administration by threatening to withhold its customary bribe, um, donation to the Democratic party:

Big Wall Street banks are so upset with U.S. Democratic Senator Elizabeth Warren's call for them to be broken up that some have discussed withholding campaign donations to Senate Democrats in symbolic protest, sources familiar with the discussions said.

Representatives from Citigroup, JPMorgan, Goldman Sachs and Bank of America, have met to discuss ways to urge Democrats, including Warren and Ohio Senator Sherrod Brown, to soften their party's tone toward Wall Street, sources familiar with the discussions said this week.

The story noted that the amount at issue was only $15,000 per bank, so this scheme is more a warning shot that a serious move, particularly since it is aimed at the Senate, and thus pointedly steers clear of the Big Finance stalwarts, the Clintons. But if you widen the frame a bit, there is more at stake here than you might think. Warren has declared war on the Wall Street wing of the Democratic party, including the powerful network of proteges and fundraisers affiliated with former Treasury secretary, former Goldman partner, and more recently, vice chairman of Citigroup Bob Rubin. One politically-savvy financial analyst calls this cadre "the Rubino crime syndicate".

Warren fingered Citigroup's extensive connections to the Executive branch when she fought the addition of a rider to a must-pass spending bill that would eliminate a Dodd Frank provisions to force banks to stop trading certain derivatives in taxpayer-backstopped entities (the so-called swaps pushout rule). As you'll see below, not only did Warren have the bad taste to point out that the current Treasury secretary is a Citigroup alum, and that Sandy Weill, Citigroup chairman, had offered Timothy Geithner the opportunity to run the bank, she also said that Dodd Frank had come up short by not forcing Citigroup's breakup. If you've not seen this speech, you need to watch it. You'll understand why Citigroup is desperate to find a way to leash and collar Warren.

participant-observer-observed, March 29, 2015 at 3:55 am

I wonder how many of the American public know the Citigroup shareholder status of Saudi Prince Alwaleed bin Talal?

Keep interfering in legislative affairs, Citigroup, and lets get more and more daylight exposing all the dark alley ways you have over there!

How many DoD checks get processed through Citi to pay for the new Saudi front end to the US war economy? I bet that balance sheet is interesting, and may show that Citi has already moved its wares from the Dems into the Cheney/Halliburton/Xe (or whatever it is they call themselves now) camp. Must make the billions of HSBC cartel drug money look like monopoly game money! In that case, making a public show of crying over spilled milk is just hankering after more legislative give – aways and is more a call to GOP than dems.

Aren't we well into the oligarchy titan demigod wars? Prince bin Talal vs Rubin ? We have Ted Cruz's wife on leave from Goldman. Where's JR (Dallas fans)?

nat scientist, March 29, 2015 at 8:54 am

Not to mention the "sanctions" which pump up the jam for the "blessed" alternate route AKA economic warfare and Holy smoke.

John, March 29, 2015 at 9:40 am

Remember how the American taxpayer saved the majority of Saudi Prince Alwaleed bin Talal 's fortune that was invested in Citigroup when we bailed out Wall Stree ? About 11 billion at the time.

Then he went on the Charlie Rose Show about a year later after trillions of taxpayer money was extorted from us and given to Wall Street and said that America's debt and deficit were unacceptable and "entitlements" needed to be cut.

Every time he tours America since then he feels free to tell us that our debt and deficit are unacceptable and demand that the government do something about cutting "entitlements"

Jim Haygood, March 29, 2015 at 10:51 am

Citibank was a dynamic, rapidly-growing financial innovator … half a century ago. Lord, don't we miss ol' Wally Wriston.

Now Citi and its peers resemble the U.S. steel industry in its latter days, when its only edge was government handouts and using political influence to crassly bend the rules in its favor.

It didn't work for Big Steel. It wouldn't work for Big Banking, except that now the political corruption goes far deeper, and a banking cartel called the Federal Reserve has gotten itself installed as a quasi-governmental agency.

Abolish the freaking Fed.

Yves Smith, March 29, 2015 at 1:50 pm

Um, that innovation under Wriston brought us the Latin American debt crisis. It was Wriston who said countries don't go bankrupt.

flora, March 29, 2015 at 6:38 pm

Wally Wriston? Why not Charlie Mitchell, "Sunshine Charley" from the 1920's at National City Bank (later Citi)? Sen. Carter Glass – of Glass-Steagall regulation – said, "Mitchell more than any fifty men is responsible for this stock crash." (1929 crash).
Pretty devastating article about Citi in the April 2015 issue of Harper's Magazine by Andrew Cockburn. Plus ça change, plus c'est la même chose. Especially at Citi, aka National City Bank. Mr. Clinton, eliminating Glass-Steagall banking regulations, helped create the the current Citi monster.

cnchal, March 29, 2015 at 6:00 am

The story noted that the amount at issue was only $15,000 per bank . . .

The banks would like to bribe Democratic senators, and are only offering $15K each? That's on a similar scale as Apple or Walmart paying it's Chinese slaves $2.00 per day. The senators will need a much bigger bribe for the banks to be successful. The greed and the gall of the banks. They won't share their stolen money with anyone.

Ned Ludd, March 29, 2015 at 9:41 am

While in office, corporations give a taste to hook politicians. The luxurious lifestyle comes after a politician leaves office.

After leaving (or being thrown) from office, politicians who were loyal to the wealthy get to fulfill all of their desires; which entices the next generation of political opportunists to put themselves up for sale. They become advisers or lobbyists, earning six figures per speech, while traveling around the world and vacationing at resorts under the guise of "ideas" conferences, which are simply venues to discuss new ways to fleece the rest of us.

For the most talented, most ambitious, or most connected politicians; the media then works to erase their past misdeeds; giving them (or members of their family) the ability to enter elected office again, for a new cycle of deceive-betray-and-profit.

bh2, March 29, 2015 at 10:31 am

Huey Long once commented that an honest politician is one who, once bought, stays bought.

Most do, regardless of party.

The banksters fund all sides and could care less which side "wins". Hence they always come out on the "winning" side.

OpenThePodBayDoorsHAL, March 29, 2015 at 6:03 am

The pathetic idea that Elizabeth Warren's softball questioning of the BankerState's absolute right to absolute rule is somehow seen as a glimmer of hope is…pathetic.

Read your history books for real opposition that has been mounted in the past, Andrew Jackson, William Jennings Bryan.

These are criminal enterprises and must continually be brought down by a (non-somnolent) population. Yes yes blah blah "oh oh but they perform a critical function in credit creation etc etc and if they failed it would be really disruptive" blah blah blah. It has become blatantly obvious to all but the infested presstitutes that their game of ever-expanding credit and new ways to steal from the poor is teetering as badly today as it was 7 years ago when they first began gifting money from taxpayers and savers to pay off their gambling debts.

I know we'd like to have at least a little hope with someone like Warren but I think we all need to grow a pair (girls too), get mad, and start screaming and educating people about much much more radical solutions than just a kindly lady being a little impolite.

Yves Smith, March 29, 2015 at 6:40 am

It's spurious to compare what a President can to do what a Senator can accomplish; we were against Warren running for the Senate for that very reason. But she has made remarkably effective use of the very constrained bully pulpit a modern Senator commands.

Rhetoric was more heated in the 19th century than now. And pray tell, what did William Jennings Bryan actually accomplish? Remarkably little. And unlike Warren, he spent his entire career in politics and had effective control of the Democratic party. It was Roosevelt, and not failed three time presidential candidate Byran, who broke up the trusts.

Warren has repeatedly called for prosecutions of bankers. You can criticize her on other fronts, but you are really off base here.

Code Name D, March 29, 2015 at 12:12 pm

I am not so sure.

Politics, like war, has a lot of angels in operation. One may think they are taking the enemy on and holding their own, only to discover the real force has snuck past you and cut off your supply line.

Today the political strategy is to not fall for the appearance of victory. I am not sure Warren has figured that out. Her speech here still makes it appear she thinks that Republicans and Democrats can still be reasoned with, hence her conciliatory tone.

Where dose she think she can go with this? If she gets the provision pulled out… what has she actually won? It's not like there aren't already plenty of other provisions insure the banks won't get bailed out already enshrined in policy. The very term "too big to fail" is predicated on the idea that we can not afford to let Citi Bank fail. So even if Warren is able to get all of these provisions removed, once City gets into trouble again, panic will rain in Congress and they will pass an emergency act granting just such power.

The reason why reformers were firebrands in the 30s was because they understood the balance of power. When politicians are bought off, you can't reason with them – but you can turn his political base against them for their decisions and cause them to lose re-election. And you don't do that from the congressional podium, but by going directly to the people. You don't so that by being calm and consolatory, but by pounding the podium and expressing the outrage that the events deserve.

Sorry, but Warren is going after small fry and working for tiny victories. Her heart is in the right place, but her strategy is still too little, too late.

hunkerdown, March 29, 2015 at 6:06 pm

The balance of power has shifted. Now that a Senator never really *needs* to see or set foot in their state again for any reason, they have six whole years to complete their grifting project and decamp. The act of voting cannot discipline a system, especially not one that depends on it for its legitimacy. Maybe the peasants get off on the whole fantasy of judgment day and the arrogance to believe their childish electoral games are actually an exercise of meaningful power, not just giving them a father without which most Americans are too scared to think independently, let alone venture out at night.

Also, now that the political class has equated cheap pathos with deliberation and cheap ethos with common interest, the whole stupid, half-assed performance of caring on the part of the upper class depends on the willingness of the populace to suspend disbelief every time they venture out-of-doors and see something incongruous with their personal Matrix that they "earned" by "paying their dues", which is only a gross euphemism for systematic hazing and, like any other scheme of deferred compensation you can't enforce, religious nuttery.

participant-observer-observed, March 29, 2015 at 8:56 pm

I believe that you are correct that we need to be skeptical of another Hopium-for-change delerium pipe smoke and mirrors show putting the electorate back to sleep, and that the populace must be engaged to make real change. Something must be learned from the Obama presidency on that front (Clinton 2.0 'used-car salesman,' 'go back to bed, kids, everything will be fine' talk)

But given an engaged populace (for the sake of argument, since we don't have one), why not have Warren as bankster watch-dog too?

Having a skeptical, watch-dog voting public and a senator both together is not to be discounted! (And throw in Alan Grayson too, for fearless watch dog track record)

We cannot afford to wait around for 1-size fits all. Coalitions (L-R alliances in Nader-speak) have to be found to fight issue by issue, AND where they converge (War economy + Wall St together). Perhaps YOU can show E Warren where the Israeli+Saudi war economy implicates US banking and enlighten her!

Code Name D, March 29, 2015 at 10:05 pm

I love this place because of questions like these.

Let me go over these one at a time for both hunkerdown and participate-observer-observed.

1) The balance of power has shifted?

Has it? I am curious how you might present an argument for this assertion. I certainly do not see it. (As is my point, I must admit.)

2) The act of voting cannot discipline a system.

I completely agree with one caveat. The act of voting ALONE can not discipline a system. Voting can only place or remove certain people from power. But the system we have now is either random (where voters can not make informed decision on who or what they are voting for) or pointless (where the all of the options presented will produce the same outcome.)

But I suspect you would agree that a substantive political sea-change can not be legitimate if it takes place without the consent of the governed. And voting is the only formal way of registering the will of the people. At some point, you must go to the polls.

But an election is actually one of the later stages in the process. Delegitimizing the current system is among the first steps.

3) Why not have Warren as backster watch-dog too?

I actually agree with you. Why not have her as a watch-dog? Now show me how she is an effective watch-dog?

I am not calling into question the quality of Warren's intentions or even her competence. I am calling into question the soundness of her strategy, assuming that it can be argued that she actually has one.

4) We cannot around to wait around for 1-sice fits all.

I am going to assume you meant that we can not wait around for a singular savior. (Do correct me if I am reading that wrong.) I would agree actually. But then I wonder why it is that this seems to be our strategy most of the time, because right now there are plenty of people who are latching onto Warren for precisely this reason.

But I have also come to suspect that change won't come from grass-roots activism either. That strategy has had more than sufficient time to show results and thus far we have very little success we can point to.

A real push for reform will likely require something between the two, involving the participation of singular leadership as well as an active popular movement to skeptically review such ideas and act on them. It is often said that the mark of a great leader is one who inspires, calls upon, and depends on the leadership of those he pretends to lead,

I have great difficulty imagining Warren as being that kind of leader.

Adam Eran, March 29, 2015 at 12:54 pm

While I'll second the notion that Warren's "victory" is pretty weak tea, I'd suggest admiring someone besides Andrew Jackson. He's the fellow responsible for the Trail of Tears genocidal Indian relocation (*after* the Georgia supreme court validated the Cherokees' title to their land in Georgia).

For bonus points, he paid off the entire national "debt" in 1835, for which the U.S. was rewarded with the panic of 1837, the worst of its seven Great Depressions. Such Depressions follow major "debt" reductions, so the praise for the "fiscally responsible" Clintons, who ended welfare as we know it, is at least misplaced too.

susan the other, March 29, 2015 at 1:46 pm
The Saudis are the key. Together with the right wing Israelis, they are determined to create a war, however chronic it is, and luke-warm, to maintain control over the energy resources in the Middle East. The Gulf War has long since become an oxymoron because in siphoning off the money to perpetuate the war, the USA was impoverished. Just like the Cherokee had to be stripped of their land, the middle class became the goat. So busting up City is a red herring. Since our nation has been hollowed out by this modern imperialism, the only thing that will fix the mess is to assert national superiority over the clowns who can't quite ever end a war. Nationalize the banks. And take control of the military as if we were a democracy.
Ulysses, March 29, 2015 at 7:57 pm

"Nationalize the banks. And take control of the military as if we were a democracy."

If I thought someone could actually accomplish that simple 2 step program, he or she would have my vote for POTUS in a heartbeat!!

Yves Smith, March29, 2015 at 1:52 pm
Straw man. I never said Warren scored a major victory. I said she was creating the perception that the banks were vulnerable, which is an important shift given the power they wield in DC.

And fer Chrissakes, she's been a Senator for all of two years. Readers are comparing her to people who have had much longer careers in politics.

susan the other, March 29, 2015 at 3:50 pm
You are right. I confess I want her to barnstorm the whole political scene. Because I see her as a very inspired person with an understanding of the whole situation which is beyond most of us.

And because I fear that letting it go on with small fixes, is dangerous. But then it is a dangerous world.

Code Name D, March29, 2015 at 5:39 pm
What point are baby-steps when you are trying to compete with corporations that have a stride that spans the globe itself? Go big, or go home.
Code Name D, March 29, 2015 at 5:38 pm
That is what is bothering me. She is showing the banks are venerable – when we have the argument that they are indispensable and can't fail left in tact, or worse, may actually be true at this point.

And the "venerability" of the banks is an elusion, a honey pot that they want her to go after. It makes her waster her time while they find a way to outflank her politically. I don't think the banks are vulnerable in this way.

She needs to undermine the authority of the banks to have power in congress before she can point out that the banks have too much power within congress.

The average American knows intuitively that the banks are corrupt and have too much influence on congress. But they have few facts to support that intuition. When cooler heads prevail, the rational argument will currently side with the banks every time.

Meanwhile, congress operates under the concusses that the bank's power within congress is proper and justified. The banks are what create the money supply and jobs. They are responsible for growing the economy, a task that government is ill-suited to manage even with the best of intentions. I have seen nothing from Warrant to lead me to think she is skeptical of this dynamic, let alone critical.

The secret to propaganda resides in the truth that remains undisclosed – not in the lies that they would have you believe. The fact that we have a revolving door between the administration and the banking industry is hardly undisclosed and is actually outside the point. Even if she did manage to lock down the revolving door, ideas and "economic theory" that favor the banks is already in place and well established in academic curricula.

What she needs to go after are the consequences of the decisions that are made and the reasoning behind those decisions. Even the deliberative process for those decisions is a proper target. Who makes those decisions is and will continue to be a red haring.

Comparing her with more established politicians is fair game when she is repeating their mistakes and repeating their narratives.

GuyFawkesLives, March29, 2015 at 8:44 pm
Where were you when we were getting beaten up and maced in the streets? People successfully laughed like the banks wanted you to at Occupy Wall Street. And then once again the populace remains obedient.

I think I need to begin building that guillotine in my front yard.

Ulysses, March29, 2015 at 7:08 am

"Warren has repeatedly called for prosecutions of bankers."

I do agree that Elizabeth Warren is to be commended for her pushing back against the power of the banksters. Yet she could go much further than her vague calls for accountability of the "too big to jail" fraudsters.

She could use her "bully pulpit" to outline specific crimes committed, by specific criminal banksters, and insist that there will be no business as usual until these named individuals are hauled into criminal court by the DOJ.

Holding up legislation, appointments etc., is all well and good -- but we have an intensely criminogenic atmosphere today on Wall Street, and we desperately need an Elliot Ness to start putting these fraudsters behind bars!!

DanB, March29, 2015 at 8:25 am
Where Warren will go from here, if she's not engaging in a Machiavellian veal pen ruse, is to openly challenge and expose Obama, the Clintons and the entire DLC corrupt enterprise.

She's my senator and when some friends and I met her in August 2011 we told her she'd one day have to face the contradiction between the real interests the Democratic Party serves -- the 1% -- and her commitment to average Americans.

And I wish she'd knock off that "Middle class Americans" rhetoric that ignores the working poor and the dispossessed. On the other hand, maybe she's sincere and is unconsciously playing the role of "the first pancake" of -dare I still hope?- a citizens awakening to the class loyalty inspired depredations of both parties.

Carla, March29, 2015 at 11:18 am
"She could use her "bully pulpit" to outline specific crimes committed, by specific criminal banksters, and insist that there will be no business as usual until these named individuals are hauled into criminal court by the DOJ."

For that matter, Senators Sherrod Brown and Bernie Sanders could back her up. Wouldn't kill 'em.

Vatch, March29, 2015 at 12:07 pm
Excellent point about Brown and Sanders, Carla. For those Naked Capitalism readers who live in Vermont or Ohio, here's their contact information:

Brown, Sherrod – (D – OH)
713 Hart Senate Office Building
Washington DC 20510
(202) 224-2315
Toll Free: 1-888-896-OHIO (6446) or
Cincinnati: (513) 684-1021
Cleveland: (216) 522-7272
Columbus: (614) 469-2083
Lorain: (440) 242-4100

Sanders, Bernard – (I – VT)
332 Dirksen Senate Office Building
Washington DC 20510
(202) 224-5141
(800)-339-9834 (toll-free in Vermont) or
(802) 862-0697 (calling in the Burlington area)

Yves Smith, March29, 2015 at 2:00 pm
Are you crazy? If you want her to become irrelevant pronto and hand the banks a huge PR win, that's just the way to do it.

Warren has no subpoena powers and all of maybe a half a dozen staffers. She'd be accused of shooting from the hip, just making stuff up to raise money and get headlines, when Federal prosecutors and regulators, who have vastly more access to what really happened at the banks investigated for years and found virtually nothing criminal (the little they have involves money laundering).

She'd become the new Joe McCarthy, circa July 1954.

Code Name D, March29, 2015 at 5:49 pm
Irrelevant in what regard? To the banks and politicians that they bought off perhaps. If she tried to take these accusations to a court of law, you might be right.

But the court of public opinion is a different theater. Here she doesn't have to bring chargers; all she really needs to do is demand answers to hard questions. It will be the justification the bank apologists that will do them in because they will completely believe the bat-crazy excuses they throw out. When they back-fire, they will change there tune with a completely new theory that will still not answer the original question yet still be crazier than the first.

Ulysses, March29, 2015 at 8:09 pm

"When Federal prosecutors and regulators, who have vastly more access to what really happened at the banks investigated for years and found virtually nothing criminal (the little they have involves money laundering)."

And these prosecutors and regulators are honest??!??

So you have just been pulling our leg all these years when you have written, again and again, that these banksters have committed all sorts of control fraud and other crimes? Now your tune has changed to "nothing to see here, move along, don't make waves??!!" Please say it ain't so!!

jonboinAR, March29, 2015 at 8:45 pm
Yeah, that didn't quite make sense to me either. The message I have been getting from Yves for these several years has been that the regulators and government attorneys had never found anything prosecutable because they weren't really interested in doing so. The reply above sounds like a changing of that tune to that there may be nothing illegal to find. If so, this would support Obama's statement of several years ago to the same effect, which statement was roundly jeered by frequenters of this board and many others. But the Yves' reply is probably just slightly carelessly worded, or I'm not understanding something.
participant-observer-observed, March29, 2015 at 9:18 pm
Go back and read Bill Black's past years' of comments comparing GFC to S&L investigations, prosecutions, and convictions.

I recall that one significant factor is lack of prosecutor numbers. Don't you remember the White House calling all of the state AGs down to trade in their pitchforks for apple pie crumbs from the WH linens? (Go back and read Harris or Schneiderman from 5 years ago vs now)

Warren's prospects re Wall St regulation are a matter of pragmatism and realism. Her work is a necessary but insufficient condition! She seems to understand her limitations and to make best use of what resources she has.

JS Bach, March29, 2015 at 8:27 am
Until we elect a President who will appoint a US Attorney General who will prosecute criminal conduct by Wall Street, nothing will change. Neither Holder nor Loretta Lynch have pursued criminal prosecutions; fines by Wall Street are simply considered a cost of doing business passed along to the shareholders in the form of a temporary "hit" to the stock price.
roadrider, March29, 2015 at 8:56 am
If the Dim-o-craps had any integrity they would have told the banksters to stick their campaign contributions where the sun doesn't shine a long time ago.

But, of course, they won't.

BudinPA, March29, 2015 at 8:56 am
Please tell me, who could have removed the push-out amendment from the CR bill before the vote but didn't.
craazyboy, March29, 2015 at 9:02 am
Time is money. It's the age of ZIRP. Politicians get ZIRP for their time-money.

We must all tighten our belts for the good of the banking system.

Yves Smith, March29, 2015 at 2:03 pm
IIRC, only five Senators voted against cloture, which was the vote that mattered. The threat was Warren filibustering a must-pass bill, so holding it up would have been a big deal.
Henry Carraro, March 29, 2015 at 9:59 am
Bless her heart. Elizabeth Warren makes a hell of case, but all of this is smoke and mirrors. Bailing out the banks again the next time will be impossible.

The total U.S.A. debt is about 18 trillion dollars. But when you roll in unfunded liabilities like for example the one trillion in unfunded military retirement benefits for generals who can retire with 30% more annual income than the earned while on active duty.

The Federal Reserve hiding trillions and trillions of fictitious bond sales to no one. Paying governments to buy worthless paper. There is over 75 trillion dollars in unfunded liabilities. Yeah with a capital "T".

But wait there is more.

Last count there is nearly 625 trillion dollars in derivatives that are totally unfunded. Say what? The biggest banks are leveraged beyond my ability to fathom what could happen in case of a default. We the tax payers are liable to clean up this mess too. My question is how? And with what?

The question I leave you with is how can the U.S.A. be responsible for nearly 800 trillion dollars in unfunded liabilities. How did we allow this to happen?

Yves Smith, March29, 2015 at 1:46 pm

The derivatives number is notional, and not the economic value. And of the global banks that are major derivatives players, only about 1/3 are American. Most of that number is really plain vanilla stuff like interest rate swaps. It also includes huge markets that are exchange traded, like Treasury futures and S&P futures, which are not risks to the banks at all. If you want to worry, worry about the economic risk of credit default swaps or OTC energy derivatives.

The US will never go bankrupt. It can create too much inflation. The banks most assuredly will be bailed out. Remember, the TARP made money!

JEHR, March29, 2015 at 10:05 am
The story noted that the amount at issue was only $15,000 per bank, so this scheme is more a warning shot that [sic] a serious move, particularly since it is aimed at the Senate, and thus pointedly steers clear of the Big Finance stalwarts, the Clintons.
Expat, March29, 2015 at 11:44 am
Warren is not a threat. She is the token populist. Obama can point to her to show how his administration and party are tough on banks. The banks can use her as their bogeyman and garner sympathy. The right can use her as a lightning rod and avoid having to address the issues.

In short, Warren is perfect. The rest, however….

TimmyB, March29, 2015 at 12:15 pm
It is much too early to proclaim that Warren is "the token populist." If more populist candidates get elected, and/or more elected officials embrace populism, Warren will never be a token. If she keeps up the fight, even if she is not joined by additional elected populists, she will still retain the power of her "bully pulpit" to shine a light on Wall Street wrongdoing. To become a token populist, she will need to shut her mouth and go along with the rest of the corporate Democrats. Frankly, I don't see that happening.

While Obama might be able to point out to the public that Warren is a fighting

TimmyB, March29, 2015 at 12:34 pm
While Obama might be able to point out to the public that Warren is a fighting Democrat, to the people who really rule this country, the big money doners, pointing to Warren doesn't help at all. As this article highlights, Wall Street wants Warren neutered. If she were merely a token populist, instead of a real threat, Wall Street would have no need to neuter her. Token populists come already neutered.
Yves Smith, March29, 2015 at 2:08 pm
Warren stymied the Administration on Antonio Weiss, and they pulled out all stops to try to get him, including repeated articles attacking Warren in the Washington Post, the New York Times, and the Wall Street journal. She won a real David v. Goliath fight. And she and two other Senators stopped the Administration privately from another bank-boosting move that would have hurt large swathes of homeowners. I'm not at liberty to say more. But if I heard of one incident where a private talking-to stopped the Administration, there may be others. And more to the point, the fact that a mere tea and cookies conversation would make the Administration back down says they fear and respect her, and want to take her on only when they are confident they will win.

I see her as systematically taking on bigger and bigger targets, demonstrating that she can do damage and moving up to bigger and more important issues.

OpenThePodBayDoorsHAL, March29, 2015 at 6:04 pm
Yves I always appreciate it when you chime in. Yes Bryan didn't accomplish much. Yes A. Jackson genocided some folks (to use a current idiom). But we are very far from the point when tiny incremental wins like Antonio Weiss can make any difference at all, we are at the "hair-on-fire" stage across the board and need some true firebrands not just to speak truth to power but to inflame, enrage, inspire, and overthrow. Our Constitution says it is our right and indeed our duty to overthrow tyranny…and that's what this is by any definition of the term. The entire relationship between the citizen and the state is completely screwed up, we don't need to tinker, we need to reboot. I would call America in 1969 a reboot: we stopped a war, we threw out a crook president, and we completely changed the society. We can do it again…and boy do we need to.
jonboinAR, March29, 2015 at 9:02 pm
Warren doesn't appear so far to be the firebrand type. Will it be enough for her to be dogged and incorruptible? As Yves seems to be suggesting, biting off a little at a time, but ina relentless fashion?
Felix_47, March29, 2015 at 11:56 am
The Saudis and the Israelis figured out how cheap our politicians are long ago. I would love someone to investigate just how much mid east money was involved in the Citigroup meltdown and how much was saved for them. I suppose the bigger fees have to go to the conduits of these funds…..the Harvard/Yale lobbyist lawyers….who make money both ways. If one wants to know how the USG is going to do something simply figure out the course that would benefit Israeli and Saudi billionaires.
DJG, March29, 2015 at 12:18 pm
"The Administration (remember that Obama is still very much the party leader) again got too clever by half." I recall reading an article that Obama originally favored breaking up Citi, but somehow, Tim Geithner ignored his wishes. This seems to be a self-exonerating story, too clever by half indeed. Poor Obama, all tactics, no strategy. That applies to the article posted today about TPP as well.
Blurtman, March29, 2015 at 1:34 pm
President Obama stated on the Leno show, a few months into his first term, having conducted absolutely no investigations, that the banks had committed no crimes. He is merely a tool.
DJG, March29, 2015 at 12:20 pm
"Rubino crime family"? Talk about too clever by half. "Rubin crime family" will do. Rectification of names. There is no ethnic propensity toward crime. (And as always these are the sort of stray data and little Rubino lapses that make me wonder what people are talking about when they talk "identity politics.")
Yves Smith, March29, 2015 at 2:12 pm
Wow, are we being precious. The Mafia has a distinctive style of how it runs its crime operations. That's why we had a whole series of Godfather movies, and lots of other about treatments in novels and movies.
Fool, March29, 2015 at 3:08 pm
Yeah but let's face it: the Jewish financiers* are better than the Italian Mafia at this game. Consider this twee leverage-and-loot operation; good strategy but just a few billion short of the kind of leveraged buyout that would make it onto Dealbook. The Mafia's style isn't so distinctive - I believe Bill Moyers drew the comparison between financial advisory of IRA's' to protection rackets.

The truth is, facetious Italian suffixes are socially acceptable. And yet, had you written the "Rubinowitz crime family", by Monday morning David Brooks would place you on the neo-Nazi watchlist.

*Jewish guy, so acceptable user of the term "Jewish financiers"

Yves Smith, March29, 2015 at 3:48 pm
Oh, I dunno. The scene in The Departed where Jack Nicholson crushes Leonardo DiCaprio's hand and then throws cash at him to get it fixed is memorable. And it echoes Scorsese's scene in the Godfather where Sonny smashed a photographer's camera and then throws money on the ground.
DJG, March29, 2015 at 4:02 pm
Ahh, it's a witticism based on the mob's management style. Maybe you should have cited "Bob 'Meyer Lansky' Rubin."
timbers, March29, 2015 at 2:11 pm
Milton Friedman said a shift in intellectual view from one policy mostly universally accepted as "correct" towards another policy takes decades and happens slowly, but once it takes hold it becomes powerful. He notes the Socialist Party in America was the most influential party not because it held office but because other parties in power adopted a good part of it's program, because that was the dominate view of intellectuals of the time.

So Liz might be the early signs of that shift taking place now, and not just a Democratic Hood Ornament.

If she is, the bad news we will all be dead in the long run before any of us derive much if any benefit from this shit. Which brings us to John Keynes.

Chauncey Gardiner, March29, 2015 at 2:42 pm
Thank you for the clip of Senator Warren's speech and your related article. It is outrageous that Citigroup's lobbyists slipped that provision into the Omnibus "Must Pass" spending bill at the last minute misleadingly titled "Prohibition Against Federal Government Bailouts of Swaps Entities" that once again puts the American people on the hook for bailing out the biggest banks on their speculative derivatives trades.

Senator Warren's observations about Citigroup's grip over monetary and economic policy through their extensive network of former executives in the Executive branch of the U.S. government was enlightening to me. The amounts they have spent on lobbying, and the funds they have diverted to think tanks to influence public policy is particularly galling in light of the fact that Citigroup received over half a trillion dollars in bailout money under TARP, FDIC and the Fed. It is noteworthy that their constant lobbying pressure to pass legal loopholes has disappeared off the corporate media's radar screens along with all the other accounting, legal and regulatory forbearances, waivers, and the hidden subsidies and transfers of wealth to them over the past seven years. When does the statute of limitations expire on fraud?

I agree with Senator Warren regarding the need to pass the Brown-Kaufman amendment to the Dodd-Frank Act. It is clear that they have too much concentrated political power. That Citi and the other TBTFs are holding the entire country hostage is simply unacceptable.

Fool, March29, 2015 at 2:54 pm
I don't really understand the conflation of Obama with the Democrat "base" of limousine liberals. The limousine liberals hate Obama. For all you know, he's played a part in empowering Warren's ascent.
Yves Smith, March29, 2015 at 3:55 pm
Huh? Obama's New York City fundraiser have all been at the homes of private equity firm partners, the epitome of limousine liberals.
Fool, March29, 2015 at 8:05 pm
I grew up at the very core of limousine liberalism - and, if I were to guess, among the highest concentration of private equity firm partners' homes - and in my experience the dissatisfaction with Obama is almost unanimous (among people who voted for him). It's ironic that you would use his ties to the PE industry as an example: in theory, they should love him!…given how cheap credit is - for them to buy - and how high the public market is - for them to sell. But again, my impression is otherwise…

What I find more interesting though is the vague terms with which this sentiment among the limousine liberal class is articulated, e.g. "he does nothing," "he let me down," and so forth. So the right we know hates him, the neoliberals don't like him, and NC's linkfeed - which I arrive at daily - indicates to me that the left doesn't like him as well. It wouldn't be so strange if he wasn't doing an OK job, at least in superficial terms (buoyant stock market, reduced unemployment, etc.).

Perhaps come 2016 -- we'll have better perspective on his legacy. In any case, the ubiquitous dissatisfaction with Obama is odd, if unprecedented (indeed, at least the Carter administration was quantifiably bad). Personally, I have no read on Obama; put differently, where his ideological motives lie. However, I do think that for the President of the United States, in 2015, a transparently leftist agenda (gov't spending, progressive tax reform, etc.) would preclude the ability to get anything done. The tragedy of politics, in my view, is the paradox in which a politician cannot genuinely serve the people's interests and achieve them while at the same time acquire the accolades for having done so. That is to say: she cannot remain a politician! For that reason, I'm not quite as ready as you are to so definitively write Obama off as a neoliberal tool.

Ned Ludd, March29, 2015 at 7:35 pm
Money Chooses Sides

In a barn-burning, record-smashing fund-raising campaign season, Barack Obama tapped a new breed of Manhattan donors and won the expectations game.

- By John Heilemann, Published Oct 24, 2007, in New York

pelham, March29, 2015 at 3:55 pm
The fact that a bank would come out - publicly - and threaten to refrain from bribing Democratic senators suggests that it believes (perhaps correctly) that our mainstream political culture is so far gone that it's literally safe and acceptable to make such an admission. Even worse, Citi apparently thinks that the public will go a big step further and sympathize with it. Maybe Citi believes that the absence of its contribution to a Senate campaign will raise questions in the public mind, that the broad public will think that if a big, prestigious institution like Citi is holding back on a donation, then maybe the candidate and the party are a little sketchy after all. Better to stick with Citi-approved Republicans.

On the face of it, it appears Citi's announcement is an own goal. But it's hard to believe they didn't do some focus groups on this.

But to respond effectively, every Dem and his or her dog should be howling WE DON'T WANT YOUR STINKIN' MONEY - not just Elizabeth Warren. Where's the indignation?

hunkerdown, March29, 2015 at 7:03 pm
"Your money's no good here" is the antithesis of neoliberalism, i.e. the modern Democratic Party.

Remember, some Black people couldn't dine out over a half century ago because of the concept that everything isn't for sale to everyone, therefore, those who have money now should be able to buy their way into anything. Perfectly logical!

thom, March29, 2015 at 4:47 pm
Pure fascism - the merger of corporation and state (Mussolini) is not good enough for Citi and the Rubino Crime Syndicate.

They have 96, 97 of the 100 Senators, and all but three or four House members and the Fed and Treasury and the Supreme Court but that is Just Not Enough. They gotta have it all.

They just gotta have it all.

Pure fascism strikes any form of dissonance let alone dissent, wipes it out, exterminates it. That is why there are no more than three or four independent-minded, critically thinking, non-ideological US senators.

Authentic democracy would require more. Ten or 15? Maybe 34? It is too bad that Congressman Paul is no longer Congressman Paul.

Democracy should rule capitalism but capitalism should NEVER rule democracy.

hunkerdown, March29, 2015 at 7:41 pm
With due respect, you're fighting about five wars ago. Authentic democracy, by definition, requires that *final* say lay in the hands of the people. If in some system the people en masse are not the final deciders, then you, sir or madam, are committing violence against democracy itself by equating Potemkin popular suffrage with the ability to produce facts on the ground. Authentic democracy requires that the three branches of government be *subordinate* to the people; mere accountability has been proven ineffective when a single six-year term, sold to the right people, more than pays for any losses or embarrassment from the plebes who no longer provide you with any utility (watch Sen. Reid on trade promotion authority to see this in action). It's such an infantilizing conceit that choosing one's sovereign master by committee is *self-rule* in any meaningful fashion that I'm surprised people still want to be seen falling for it.

What's more, you should consider tokenism, classical conditioning and diminishing returns in your analysis. Tokenism is more or less a dishonest signal on the part of a group of approval or participation of some selected out-group. Classical conditioning finds that intermittent reward is more effective in conditioning the desired response to a stimulus than predictable reward or non-reward. In light of those, just what advantage would *being seen* owning the lot be? The engine that starts, lopes and shudders to a halt is more "fixable", and thus subjectively more worthy of time, effort and attention, than the one that won't even turn over. Thus, they are best served by a system that delivers the outcomes that suit their interests and pretends to respond to the efforts and interests of others while doing so in fact to the minimum extent possible. Hence the portrayal of a functioning representative government via distractions such as the culture war and affiliated kayfabe.

Finally, we should be able to read our labels for meaning and not just slap Mr. Yuk on everything. Roger Griffin's three traits of fascism: "(i) the rebirth myth, (ii) populist ultra-nationalism and (iii) the myth of decadence". Liberalism seems to negate all three of those traits: an evangelical myth that merely uttering the (for those properly indoctrinated) "self-evidently" correct answer will unlock and coalesce stunted potentials, more flowering than rebirth; anti-populist (i.e. anti-democratic) globalism under the public-private partnership; and the broad veneration of carefully circumscribed deviance (not dissent!) from tradition for its own sake. The "managed" mob rule of the creative class might arguably count as a form of faux-populist ultranationalism, but I'm not nearly convinced yet.

Ulysses, March29, 2015 at 8:27 pm
"Potemkin popular suffrage"

I think I'll have to start using that!!

Our world is fast becoming one big Potemkin village!

Chris Grimley, March29, 2015 at 10:03 pm
Actually, Bryan was worse than that. For becoming Secretary of State he sold out to the banker interests promoting Woodrow Wilson. The banker interests also provided the money for Roosevelt against Taft (who was against a Federal Reserve) to split the Republican vote. This put their puppet, Wilson, into the White House under the careful tutelage of banker Colonel House.

I suspect the Secretary of State position was also a sop to Hillary Clinton for being gentle with Obama

[Jan 11, 2014] Millionaires' Club For First Time, Most Lawmakers are Worth $1 Million-Plus by Communications

January 9, 2014 | OpenSecrets Blog

For the first time in history, most members of Congress are millionaires, according to a new analysis of personal financial disclosure data by the Center for Responsive Politics.

Of 534 current members of Congress, at least 268 had an average net worth of $1 million or more in 2012, according to disclosures filed last year by all members of Congress and candidates. The median net worth for the 530 current lawmakers who were in Congress as of the May filing deadline was $1,008,767 -- an increase from the previous year when it was $966,000. In addition, at least one of the members elected since then, Rep. Katherine Clark (D-Mass.), is a millionaire, according to forms she filed as a candidate. (There is currently one vacancy in Congress.)

Last year only 257 members, or about 48 percent of lawmakers, had a median net worth of at least $1 million.

Members of Congress have long been far wealthier than the typical American, but the fact that now a majority of members -- albeit just a hair over 50 percent -- are millionaires represents a watershed moment at a time when lawmakers are debating issues like unemployment benefits, food stamps and the minimum wage, which affect people with far fewer resources, as well as considering an overhaul of the tax code.

"Despite the fact that polls show how dissatisfied Americans are with Congress overall, there's been no change in our appetite to elect affluent politicians to represent our concerns in Washington, said Sheila Krumholz, executive director of the Center. "Of course, it's undeniable that in our electoral system, candidates need access to wealth to run financially viable campaigns, and the most successful fundraisers are politicians who swim in those circles to begin with."

Breaking the numbers down further, congressional Democrats had a median net worth of $1.04 million, while congressional Republicans had a median net worth of almost exactly $1 million. In both cases, the figures are up from last year, when the numbers were $990,000 and $907,000, respectively.

The median net worth for all House members was $896,000 -- that's up from $856,000 in 2011 -- with House Democrats (median net worth: $929,000) holding an edge over House Republicans (median net worth: $884,000). The median net worth for both House Republicans and Democrats was higher than in 2011.

Similarly, the median net worth for all senators increased to $2.7 million from $2.5 million, but in that body it was the Republicans who were better-off. Senate Democrats reported a median net worth of $1.7 million (a decline from 2011's $2.4 million), compared to Senate Republicans, at $2.9 million (an increase from $2.5 million).

Senate Democrats were the only group reporting a drop in their median net worth from the prior year -- a decline that is at least partly because of the loss of two extremely well-off Senate Democrats from the list: now-Secretary of State John Kerry, who had been the wealthiest senator with a 2011 average net worth of $248 million, and Sen. Frank Lautenberg (D-N.J.) who had an average net worth of $87.5 million before his death last year.

[Jul 26, 2012] The Congressional Culture of Corruption

It is important to distinguish "micro corruption" (corruption on lower levels of government hierarchy) and macro corruption -- Corruption of Congress.

Jack Abramoff:

I Know the Congressional Culture of Corruption, by Jack Abramoff: ...No one would seriously propose visiting a judge before a trial and offering a financial gratuity, or choice tickets to an athletic event, in exchange for special consideration from the bench. Yet no inside-the-Beltway hackles are raised when a legislative jurist -- also known as a congressman -- receives a campaign contribution even as he contemplates action on an issue of vital importance to the donor.
During the years I was lobbying, I purveyed millions of my own and clients' dollars to congressmen, especially at such decisive moments. I never contemplated that these payments were really just bribes, but they were. Like most dissembling Washington hacks, I viewed these payments as legitimate political contributions, expressions of my admiration of and fealty to the venerable statesman I needed to influence.
Outside our capital city (and its ever-prosperous contiguous counties), the campaign contributions of special interests are rightly seen as nothing but bribes. The purposeful dissonance of the political class enables congressmen to accept donations and solemnly recite their real oath of office: My vote is not for sale for a mere contribution. They are wrong. Their votes are very much for sale, only they don't wish to admit it. ...

[Nov 11, 2011] Congress Members Took Part in Insider Trading Abramoff

"That gap between the law and the reality has made Capitol Hill a virtual free-fire zone for insider trading."
Yahoo! Finance

As many as a dozen members of Congress and their aides took part in insider trading based on foreknowledge of market moving information on Capitol Hill, disgraced Washington lobbyist Jack Abramoff told CNBC in an interview.

Abramoff, who was once one of the wealthiest and most powerful lobbyists in Washington before a corruption scandal sent him to federal prison for more than three years, said that many of those members of Congress bragged to him about their stock trading prowess while dining at the exclusive restaurant he owned on Pennsylvania Avenue.

But Abramoff, whose black trench coat and fedora became one of the most notorious images in recent Washington history after his fall from grace, said he didn't play the stock market himself - he considered it an inherently unfair "casino" in which the house had far more information than the players. Abramoff made most of his fortune representing - and, as it turned out, duping - Native American tribes rich with cash from casino operations.

The former lobbyist said the amounts members of Congress earned trading off their inside knowledge ranged from as little as $2,000 to, as much as "several hundred thousand dollars," that was claimed by one member of Congress.

Abramoff declined to name the members of Congress.

"It was more, 'Look at me, I'm a real great stock trader,'" Abramoff told CNBC of the congressional bragging. "All of a sudden somebody from a background maybe in law, maybe in some other unrelated business area, all of a sudden is picking winners and losers in the market."

At the time, Abramoff, who was involved in an extensive corruption ring, didn't think much of it. But after years in prison to reflect on the culture of corruption in Washington, Abramoff says he thinks trading based on inside Congressional knowledge is wrong.

"These people should not be using whatever information they gain as public servants to benefit themselves, any more than they should be taking bribes," he said.

Generally, however, legal analysts say that Wall Street insider trading laws do not apply to Congress. As an open and public institution, the legal assumption has long been that any member of the public can have access to information about how Congress works. In practice, though, that's simply not true, as powerful members of Congress come into contact daily with market-moving tidbits. That gap between the law and the reality has made Capitol Hill a virtual free-fire zone for insider trading. Over the years, academic studies have found that members of the House of Representatives beat the market by as much as six percent per year and members of the Senate do even better than that.

And Abramoff says everybody on the inside knew it. "I think it was pretty widely known and it is pretty widely known that it is going on," he said.

Abramoff has been making the rounds, speaking with the media this week, to promote his new book, "Capitol Punishment: The Hard Truth About Washington Corruption From America's Most Notorious Lobbyist," which went on sale Monday.

Abramoff said that the most valuable type of information for Congressional insider trading is held by congressional investigators who pry deeply into corporate goings on. A particularly easy target is advance knowledge of the announcement of an investigative hearing into a company.

"Hearings under almost every circumstance are going to have a bad impact on a company," Abramoff said. "And so some staffers I've seen in the past talking about the fact that, 'Oh, I'm gonna go out and short that company.'"

But the man who spread millions around the nation's capital said he didn't like to invest his own money in the stock market. "I'd never really played the stock market," he said. "I viewed it as a big gamble because of the fact you don't have all the information you need. The casino has all the information, and you don't."

[Jan 07, 2011] Hedge Funds Bet Heavily on Republicans at End of Election By Peter H. Stone and Michael Isikoff

Small Network of Executives Gave at Least $10 Million
January 05, 2011 | The Center for Public Integrity

A small network of hedge fund executives pumped at least $10 million into Republican campaign committees and allied groups in last year's elections, helping bankroll GOP victories that changed the balance of power in Washington, according to a review of campaign records and interviews with industry insiders.

The review by the Center for Public Integrity and NBC found that some of the heaviest contributions from industry leaders came late in the campaign or were funneled through obscure "joint fundraising committees" and other independent GOP allies - some of which were set up to maximize campaign fundraising or to avoid disclosing the names of big donors. The Center and NBC analyzed campaign data compiled by CQ Moneyline and the Internal Revenue Service.

Bitterly opposed to economic and regulatory policies backed by President Barack Obama and Democrats - including proposals to increase taxes on some of their profits - top Wall Street hedge fund moguls were unusually energized during last year's election. They held multiple fundraisers and coordinated strategy to direct what appear to be unprecedented sums into the coffers of GOP and allied political committees.

The net effect has given hedge funds important new allies at a time when they are fending off some regulations mandated by the Dodd-Frank financial reform law and an aggressive Justice Department investigation into insider trading.

A prime example is Rep. Scott Garrett, a little known Republican from northern New Jersey who has been a staunch defender of the hedge fund industry and will now chair the House financial services subcommittee on capital markets. As it became increasingly clear late last summer that Republicans were likely to capture the House, executives at the hedge fund Elliott Management Co. raised at least $195,800 for two committees that benefited Garrett directly and bolstered his standing with key Republicans. Paul Singer, chairman of the $17 billion Manhattan firm, has been one of the GOP's most prolific fundraisers and donors.

Here's how the $195,800 broke down:

The Elliott contributions provided about 96 percent of all the funds raised by Garrett's victory committee, which shared its proceeds with the National Republican Congressional Committee and other Republicans. These joint committees are not subject to the lower limit of $2,400 per election that applies to an individual candidate. As a result, the lion's share of the largesse went to the NRCC, and less than $10,000 to Garrett's campaign.

"This is particularly appalling," said Ellen Miller, executive director of the Sunlight Foundation, a nonprofit group that promotes transparency in campaign finance and has financially supported the Center. "No one in America will believe that Representative Garrett can provide impartial oversight of the hedge fund industry after taking these huge amounts of money from one company."

Asked to comment about the hefty executive contributions this year to the GOP, a spokesman for Elliott stressed that the firm itself "does not make donations to political candidates or parties. Some individual Elliott employees raise funds and donate to candidates and party organizations, both Democrat and Republican, at the federal and state levels."

Garrett's office did not respond to repeated phone calls and e-mails requesting comment. Garrett is known as a strong free market conservative who has long been supportive of the industry. The contributions from Elliott executives were largely the fundraising handiwork of Keith Horn, Elliott's chief operating officer, who is a constituent of the congressman and has been raising money for him for years, according to a Garrett ally who requested anonymity. Horn declined to comment.

The Elliott contributions to Garrett were only a small portion of a tidal wave of hedge fund contributions that have boosted the industry's fortunes in Washington. The review of campaign data showed that Singer, Elliot's publicity-shy chairman, played a critical role, holding fundraisers for GOP Senate candidates in his Central Park West apartment. He and other Elliot executives donated nearly $500,000 to the National Republican Senatorial Committee, making the firm's executives among the highest overall contributors to that group. The NRSC is the fundraising entity that doles out contributions to help GOP Senate candidates.

Singer was one of several hedge fund billionaires who opened their wallets wide to help the GOP make huge gains on Election Day.

One key industry player was Steven Cohen, the billionaire chairman of SAC Capital Advisors in Stamford, Conn. His firm recently received a subpoena seeking information related to a major Wall Street insider trading probe being conducted by the U.S. Attorney's Office in Manhattan, according to a person familiar with the probe. An SAC spokesman declined to comment for this story.

Another key player who donated to various GOP committees was Ken Griffin, the president of Chicago's Citadel Investment, which reportedly has also received a subpoena in the same insider trading probe. Bruce Kovner of Caxton Associates in Princeton, N.J., Robert Mercer, co-chairman of Renaissance Technologies, which is headquartered on Long Island, and John Paulson, the chairman of Paulson & Co. of Manhattan were also among the leading hedge fund executives to write big checks to GOP coffers.

Spokesmen for Griffin, Kovner, Mercer and Paulson all declined comment.

Some of these hedge fund honchos attended a late August dinner at Cohen's palatial home in Greenwich, Conn., including Singer and Kovner. Dinner conversation featured the upcoming elections and political contributions, according to an industry official familiar with the gathering who requested anonymity.

Among some more notable examples:

The magnitude of the industry donations are particularly notable because at least some of the hedge fund executives have in the past given generously to Democrats. Cohen, for example, has been a major donor to Sen. Chris Dodd, the former chairman of the Senate Banking Committee. The Chicago-based Griffin was even a "bundler" for Obama in the last election. In addition, Paulson was a significant donor and fundraiser for Democratic Sen. Charles Schumer, donating $30,400 to the Democratic Senatorial Campaign Committee as late as June 2009. But in 2010, he increased his giving to Republicans, contributing along with other members of his firm and his wife more than $450,000 to various GOP accounts.

Last year's contributions were driven in large part by hedge fund opposition to many of the tax and regulatory policies of Obama and congressional Democrats. Some hedge fund executives, along with others from private equity funds, were especially exercised about a measure that passed the House last year - but stalled in the Senate - that would tax their profits, known as carried interest, as ordinary income rather than capital gains. If Congress enacted the Democratic-backed tax changes, it would sharply increase taxes on many executives from a marginal rate of 15 percent to 35 percent. Further, some industry players are concerned about provisions in the Dodd-Frank financial services reform law, that would impose tighter rules on the trading of derivatives and require greater public disclosure.

But the animus of hedge fund titans towards Obama and the Democrats was also driven by what they viewed as politically charged rhetoric that stigmatized them.

Obama attacked the industry as "speculators" and criticized its role in Chrysler's bankruptcy, angering hedge fund managers who felt it amounted to demonization that played to class warfare.

To be sure, the $10 million that the network of hedge fund executives donated to GOP causes this cycle was only a small fraction of the overall $4 billion or more that was spent on the elections, but the industry leaders placed their bets on many winners and thus could reap dividends from their political investments.

The $10 million figure represents those larger sums contributed by a number of prominent hedge fund executives. But a full accounting of hedge fund donations would total considerably higher and may never be completely known because some probably donated anonymously to outside groups that don't have to disclose their funding.

The new GOP House may be far friendlier to the hedge fund industry, and some of its key allies are now poised to inherit important leadership positions.

Incoming Majority Leader Eric Cantor of Virginia has been critical of the "carried interest" proposal in the House and has fought hard to block it. In the last two years, Cantor's campaign committee and his leadership PAC, Every Republican is Crucial PAC, received substantial contributions from hedge fund executives, including at least $9,800 from Cohen, $4,800 from Singer, and $4,000 from Griffin. Further, six other executives at Cohen's firm and one of their spouses donated at least $21,500 to Cantor's PAC. And six top executives at the giant private equity firm, KKR, contributed $55,000 to the Cantor Victory Committee, a joint committee that benefitted Cantor's campaign, the NRCC and two other entities.

Asked for comment, Brad Dayspring, a spokesman for Cantor, said the majority leader "has made clear that the new Republican majority will use the oversight process and all means at its disposal -including the power of appropriations - to expose and repeal regulations that kill jobs and are barriers to capital formulation and economic growth."

The improved standing of the hedge fund business is underscored by the rise of Garrett to the chairmanship of the subcommittee that will now oversee the industry. The panel will also oversee much of the implementation of the Dodd-Frank financial services reform law by the Securities and Exchange Commission and some other agencies. Elements of the SEC's expanded powers make some hedge fund executives nervous.

After the GOP success became apparent on election night, Garrett announced that he might seek to overturn parts of the Dodd-Frank measure. And he recently threatened to use his powers to cut funding for the SEC just as the agency has begun efforts to write rules aimed at protecting investors under the law. "Why are we rewarding the agency that failed so miserably on so many fronts?" he told The Wall Street Journal.

Peter Stone is senior political reporter for The Center for Public Integrity, a nonprofit organization dedicated to investigative reporting. Michael Isikoff is national investigative correspondent for NBC News.

The Center's Data Editor David Donald also contributed to this report.

[Oct 25, 2009] The wisdom of the past - Senator Bryan Dorgon

October 25, 2009 |

Brooksley Born, the Cassandra of the Derivatives Crisis By Manuel Roig-Franzia

It was Summers who serves as a henchman for killing Burn's effort to regulate over-the-counter derivatives.
May 26, 2009 | Washington Post

Credit Crisis Cassandra Brooksley Born's Unheeded Warning Is a Rueful Echo 10 Years

... A little more than a decade ago, Born foresaw a financial cataclysm, accurately predicting that exotic investments known as over-the-counter derivatives could play a crucial role in a crisis much like the one now convulsing America. Her efforts to stop that from happening ran afoul of some of the most influential men in Washington, men with names like Greenspan and Levitt and Rubin and Summers -- the same Larry Summers who is now a key economic adviser to President Obama.

She was the head of a tiny government agency who wanted to regulate the derivatives. They were the men who stopped her.

The same class of derivatives that preoccupied Born -- including the now-infamous "credit-default swaps" -- have been blamed for accelerating last fall's financial implosion. But from 1996 to 1999, when Born was the chairman of the Commodity Futures Trading Commission, the U.S. economy was roaring and she was getting nowhere with predictions of doom.

So, upstairs in the big house in Kalorama, Born tossed and turned. She woke repeatedly "in a cold sweat," agonizing that a financial calamity was coming, she recalled one recent afternoon.

"I was really terribly worried," she said.

Before taking office, Born had been a high-octane attorney, an American Bar Association power player, a noted advocate of feminist causes and co-founder of the National Women's Law Center. But none of that carried much weight when she crossed over into government; for all her legal experience, she was a woman who wasn't adept at playing the game. She could be unyielding and coldly analytical, with a litigator's absolute assertions of right and wrong. And she was taking on Beltway pros, masters of nuance and palace politics. She marched into congressional hearing after congressional hearing -- pin neat, always with a handbag -- but no one really wanted to listen.

The Wall Street Journal declared that "the nation's top financial regulators wish Brooksley Born would just shut up." The Bond Buyer newspaper compared her to a salmon "swimming against raging currents."

That last one cracks her up.

"Maybe not an inappropriate analogy!" she says.

Now that she is retired and far from a position of influence, Born, 68, may be closer than ever to vindication. No longer an outlier, she attended a small, private dinner at the Treasury Department last week with current and former regulators at the invitation of Secretary Tim Geithner, according to two sources. And the Obama administration has unveiled a plan to regulate some of the derivatives she warned about, though the proposal must still get through Congress and falls short of regulating the entire over-the-counter market that kept her awake all those years ago.

Still, maybe -- just maybe -- her old friends say, the people in charge are beginning to realize what they thought all along: "the lady with the handbag was right."

The Maestro Balks

Born's baptism as a new agency head in 1996 came in the form of an invitation. Federal Reserve Chairman Alan Greenspan -- routinely hailed as a "genius," the "maestro," the "Oracle" -- wanted her to come over for lunch.

Greenspan had an unusual take on market fraud, Born recounted: "He explained there wasn't a need for a law against fraud because if a floor broker was committing fraud, the customer would figure it out and stop doing business with him."

This made no sense to her. She'd spent much of the 1980s defending clients caught up in a vast conspiracy by two wealthy brothers, Nelson and William Hunt, who duped investors while trying to corner the world silver market.

"After all," Born said, looking back, "I'm a lawyer, and I think the existence of fraud prohibitions is critically important."

But Greenspan was insistent, she said.

Finally, he said, "Well, Brooksley, I guess you and I will never agree about fraud." (Greenspan did not respond to requests for comment. Daniel Waldman and Michael Greenberger, both top aides of Born's, were briefed on the lunch at the time and independently confirmed Born's recollection of the conversation.)

That was just the beginning. By early 1998, Born had also tangled with Treasury Secretary Robert Rubin, his deputy, Summers, and Securities and Exchange Commission head Arthur Levitt, not to mention members of Congress, financial industry heavyweights and business columnists. She wanted to release a "concept paper" -- essentially a set of questions -- that explored whether there should be regulation of over-the-counter derivatives. (Derivatives are so-named because they derive their value from something else, such as currency or bond rates.)

They warned that if she did so, the market would implode and predicted tidal waves of lawsuits. On top of that, Rubin told her, she didn't have legal authority to regulate the derivatives anyway.

She wasn't buying any of it, and she wasn't backing down.

Arguing with the Big Boys, as it turns out, is exactly what she'd been doing her whole life.

'The Little Girl Has It!'

Born's father, a San Francisco welfare agency director, wanted a son. The boy would be named after his best friend, Brooks. He got a girl instead, and came up with Brooksley in "a last-minute attempt to feminize" the name, Born said.

Born was "awful" at junior high school home-economics class, she said, and "a bit of a nerd." As an undergraduate at Stanford University (1957-1961), she scored high as a doctor on an aptitude test and low as a nurse. The guidance counselor chided her, she said, accusing her of only wanting to be a doctor because it paid well.

"It certainly was a reflection of the society we were living in," Born recalled. "To aspire to be a doctor or a lawyer was thought to be arrogant and somewhat inappropriate."

The summer after she graduated, Born was a bridesmaid in two weddings. Some of Born's girlfriends in her Stanford graduating class were going off to be stewardesses, dental hygienists, nurses, teachers. She headed for Stanford Law School.

Not long after she started law school, a male classmate confronted her.

"He told me I was taking up space in the class for a man who undoubtedly was being drafted to go to Vietnam," she recalled.

One law professor tried to trip her up by making her answer questions for an hour; another refused to call on her or any other women in the class. After watching the professor skip over female students on a question that had stumped all the men, she shouted out an answer.

"The little girl has it!" Born remembers the professor saying.

She became the first female president of the Stanford Law Review and the first to finish at the top of a Stanford Law School class. Still, a dean told her that "the faculty stood ready to take over the law review if I ever faltered," she said. "I told him I didn't intend to falter."

Traditionally, Stanford's top law student was essentially guaranteed a U.S. Supreme Court clerkship. But the law school's selection committee recommended two male students instead. She flew to Washington anyway, and had tea with Justice Potter Stewart, who told her he "wasn't ready" to have a female law clerk, Born said. Justice Arthur Goldberg, whom she'd met previously at a reception, didn't extend an offer either, but gave her a note to help her get a federal court clerkship. "It said something like, 'Of course, I can't have a woman law clerk, but she seems well qualified,' " Born recalled.

Consolation Prize

Born got her clerkship, but at the 9th U.S. Circuit Court instead of the Supreme Court, then signed on at the prestigious Arnold & Porter law firm. Marriage -- to Jack C. Landau, an attorney and journalist who was one of the founders of the influential Reporters Committee for Freedom of the Press -- followed, and a son, Nicholas, was born during a year leave for her husband's Nieman Fellowship at Harvard. Sarah Hughes, the pioneering federal judge who swore in Lyndon B. Johnson as president on Air Force One after the Kennedy assassination, had once told her that if she wanted to be a success, she "needed to give up everything in terms of a family life and dedicate myself exclusively to the law."

But, back in Washington, she had other plans. Ahead of her time, she found a solution to the work/family conundrum: She went part time at the law firm and still managed to make partner. She also became the first female head of the ABA's federal judiciary committee, which at that time played a make-or-break role in the confirmation of Supreme Court justices. In 1981, she conducted a review of President Reagan's nominee, Sandra Day O'Connor. The lawyer who couldn't get a Supreme Court clerkship because she was a woman was about to help usher in the country's first female justice and she "was thrilled."

Born was seriously considered for attorney general in 1992, but eventually lost out. Four years later, she got her consolation prize: the chairmanship of the Commodity Futures Trading Commission, an afterthought in the Washington power game that Waldman, Born's eventual general counsel there, called "a sleepy little agency."

The CFTC had been created in the 1970s, primarily to regulate futures contracts purchased by farmers to hedge against price fluctuations. But by the time Born took office in 1996, futures were a much more sophisticated game.

Four years earlier, the CFTC had created a giant opening for sharp market players, exempting most privately negotiated over-the-counter derivatives contracts from regulation. Waldman calls the decision "the seed" of the current financial crisis because bad bets on unregulated derivatives crippled large firms such as Bear Stearns and AIG last fall.

In the late 1990s, the seed had sprouted into a $25 trillion derivatives market and Born saw trouble coming. The mostly unregulated "dark markets" had shown signs of danger in the preceding years, such as the bankruptcy of Orange County, Calif., which lost heavily investing in derivatives. Born's agency set its sights on a highly caffeinated market.

"I was very concerned about the dark nature of these markets," Born said. "I didn't think we knew enough about them. I was concerned about the lack of transparency and the lack of any tools for enforcement and the lack of prohibitions against fraud and manipulation."

Based on her lunch with Greenspan, Born knew she would run into heavy resistance.

"Brooksley's view was that he didn't believe in regulation," Waldman recounted.

But Born did, and she was about to demonstrate it.

Deaf Ears

In early 1998, Born's plan to release her concept paper was turning into a showdown. Financial industry executives howled, streaming into her office to try to talk her out of it. Summers, then the deputy Treasury secretary, mounted a campaign against it, CFTC officials recalled.

"Larry Summers expressed himself several times, very strongly, that this was something we should back down from," Waldman recalled.

In one call, Summers said, "I have 13 bankers in my office and they say if you go forward with this you will cause the worst financial crisis since World War II," recounted Greenberger, a University of Maryland law school professor who was Born's director of the Division of Trading and Markets. Summers declined to comment for this article.

The discordant notes crescendoed in April 1998 during a tension-filled meeting of the President's Working Group, a gathering of top financial regulators that periodically met behind closed doors at the Treasury Department. At that meeting, Greenspan and Rubin forcefully opposed Born's plans, Waldman said.

"Greenspan was saying we shouldn't do it," Waldman recalled. "Rubin was saying we couldn't do it."

The next month, Born released her concept paper anyway.

Within weeks, she was under attack. Lauch Faircloth, then a Republican senator from North Carolina, took to the Senate floor to call her "a rogue regulator." A Boston Herald column accused her of a "power grab. . . . She reached for that brass ring and in doing so cast a pall of legal uncertainty." Greenspan, Rubin and Levitt jointly urged Congress to pass a moratorium on the CFTC regulating over-the-counter derivatives.

With emotions running high, Born was summoned to the office of House Banking Chairman Jim Leach, a Republican from Iowa, to meet with top officials from the Fed and the Treasury. Born raced to Capitol Hill from the bedside of her daughter, Ariel Landau, then 27, who was about to undergo knee surgery.

"The feelings in the room were very tense," recalled Leach, who said he felt the CFTC was too small to govern over-the-counter derivatives and wanted derivatives moved to clearinghouses regulated by the Fed or the Treasury. "In my time in public life, I have never seen the executive branch so bifurcated. You had a feeling that the Fed and the Treasury didn't have a great deal of respect for what the CFTC was made of."

Also, "There were some very profound personality clashes between Rubin and [Born], and Greenspan and her," Leach said. "They felt, I think, that they understood finance better than she did."

Barbara Holum, who was a CFTC commissioner at time, said Born irreparably damaged the agency's reputation by releasing the concept paper without achieving a consensus.

"They didn't trust her anymore; it was a matter of style, not the regulatory approach," Holum, now retired, said recently. "When she left the CFTC, the agency was back in good graces."

Born's supporters, though, said she was only exercising her agency's independence and that the other regulators simply dismissed her.

"She was not a charming, motherlike figure, which may have been what they were looking for," Greenberger said. "Her professionalism, and maybe, her lack of bonhomie had been interpreted as stridency."

"If you could fault her for anything, it's not recognizing the politics," Waldman said. "She assumed the force of her ideas were going to be sufficient."

But then, in September 1998, a huge hedge fund that had bet heavily on derivatives -- Long-Term Capital Management -- nearly failed and had to be bailed out by a group of banks. Here was a living example of Born's prophecy. Even Leach, who supported the moratorium on CFTC regulatory action, introduced Born at a hearing by saying, "You're welcome to claim some vindication, if you want."

Born responded: "I certainly will not do so." But she went on to tell the committee that the Long-Term Capital debacle "should serve as a wake-up call about the unknown risks in the over-the-counter derivatives market."

No one woke up. That same month, Congress passed the moratorium. Born says they were "muzzling an independent agency." Two months later, Born announced that she would not seek reappointment to a second term. She left office in April 1999.

She has never said she resigned because her regulatory efforts were thwarted; she says even today that she merely wanted to return to practicing law. Either way, she was finished as a government regulator and so was any hope that light would come to the Dark Markets.

Belated Respect

Born, who retired in 2003, is now more likely to fixate on the weather report -- ever looking for good sailing conditions -- as the financial world. She and her second husband -- a retired Arnold & Porter partner named Alexander Bennett -- split time between Washington and a summer home on Squirrel Island, Maine, and keep a 32-foot Morris sailboat and a 28-foot powerboat in Galesville, Md.

She maintains a little office at Arnold & Porter, where she tinkers with ABA projects, such as a sprawling oral history of women in the law. Almost every week, it seems, someone is giving her props on Capitol Hill.

At a recent hearing, Democratic Sen. Maria Cantwell, of Washington state, pointed out that Summers had opposed Born's effort to regulate over-the-counter derivatives.

"There's a few people in the administration who still can't say that it was a mistake, and those are the same people, I think, who ar e slow-walking, thinking we're all going to forget about this regulatory reform that is needed," Cantwell said recently. "I can assure you that we're not going to forget . . . my patience is running out with the administration."

Born keeps informed, but she has other concerns, bird-watching jaunts and trips to Antarctica to plan, mystery novels to read, four grandchildren to dote on. "I'm very happily retired," she says. "I've really enjoyed getting older. You don't have ambition. You know who you are."

Sometimes this woman -- whose mother always made her wear white gloves when they went downtown -- doesn't bother dyeing her hair, letting it go gray.

"I go through phases," she said one afternoon, smiling and drawing a thin, small finger across her head. "I was just looking in the mirror this morning and thinking, 'Maybe it's time.' "

Last week, with her hair colored and the gray gone, she traveled to Boston to receive the John F. Kennedy Profiles in Courage award. Finally, though perhaps too late, everyone wanted to listen to Brooksley Born. She once again warned about the danger of Dark Markets, now grown to $680 trillion of notional value, according to the Bank for International Settlements -- "more than 10 times the amount of the gross national product of all the countries in the world.

"If we fail now to take the remedial steps needed to close the regulatory gap," Born said, "we will be haunted by our failure for years to come."

All during her spotlight turn at the John F. Kennedy Library, of course, she clutched a handbag.

Staff researcher Alice Crites contributed this report.

Must-read on Financial Reform Robert Johnson's Testimony on OTC Derivative Market " by Lynn Parramore

Oct 22, 2009 | New Deal 2.0

Robert Johnson, Director of the Economic Policy Initiative of the Roosevelt Institute, submitted his full testimony yesterday to the Committee on Financial Services as part of the hearing on reform of the over-the-counter derivatives market. Johnson's hard-hitting analysis of the potentially catastrophic faults in our financial system runs counter to a troubling trend of failing to address risk that has plagued the Committee's work so far.

Johnson has grave concerns about loophole-riddled bill currently under review, describing it to me in a recent conversation as "Swiss Cheese." In his view, regulation of the "reckless" OTC derivatives market is crucial as its impact is so broad, forming "the very fabric of our financial system."

Increasingly, it appears that bold voices like Johnson's are being silenced. His original in-person testimony before the Committee was shut down after an outrageous five minutes, despite ample opportunity for industry players to speak. Johnson was forced to submit his full testimony in written form. Click here to read full text: Rob Johnson Testimony

Bank-Favoring Censorship in Government

Harper's Magazine has written up the lengths to which the authorities will go in censoring views that dissent with what is the unstated official policy: that no demand of the banking industry is too unreasonable not to be catered to.

The object lesson is the gutting of the falsely-branded derivatives reform bill. It arrived with a loophole so large you could drive a truck through it, namely that customized derivatives were not covered. So this bill will do nothing to impede the growth of complex opaque products; in fact, it encourages it, since banks will have no oversight if they tweak a product so that is can be deemed "customized." It was further weakened by excluding most of the banks in America and by excluding a whole swathe of end users. The final insult was making the derivatives clearing house self-regulating.

The hearings on the bill had testimony scheduled only from what amounted to industry flacks. Someone apparently realized at the 11th hour that that might not go over with the correctly angry public too well. So less than 24 hours prior to the session before the House Financial Services Committee, an invitation was issued to Rob Johnson, a former managing director at Bankers Trust Company and former economist at the Senate Banking Committee and Senate Budget Committee.

So what transpired? As Ken Silverstein recounts:

Johnson, who came last, offered the only serious critical viewpoint… After about five minutes of his testimony, Congresswoman Melissa Bean-another industry-funded committee member who chaired the hearing because Frank was absent-had heard enough. "I'm just going to ask you to wrap up because we're running out of time," she told Johnson.

Johnson gamely continued. "When I hear the testimony today that are largely financial institutions and end users, I believe that I represent a third group that comes to the table, which is the taxpayers, the working people of the United States," he said.

"I do need a final comment," Bean interjected seconds later.

That put an end to Johnson's testimony. "I was just called to this hearing last night, so I will provide detailed comments on your bill and a statement for the record that will finish my comments," he concluded.

So what happens next? The House Financial Services Committee has refused to publish his testimony, offering "the dog ate my homework" level excuses, first that they hadn't gotten it, then that it was in the wrong format, then that their IT department was experiencing difficulties (always a good one when real reasons are running thin). The last one was pure Catch-22: that he had gotten his written testimony in too late.

You can read his statement, which is obviously too offensive to powerful interests for it to see the light of day in any officially-sanctioned venue, at the Roosevelt Institute.

The US Power Elite: An Alliance of Convenience or a Ménage à Trois?

"I submit that our spendthrift government, the Federal Reserve System and the TBTF banks together now comprise the paramount political tendency in America today. This tripartite "Alliance of Convenience," let's not call it a conspiracy, fits beautifully into the corporatist mold that seems to be America in the 21st Century - but only viewed by the elites in cities like New York and Washington. Many Americans of all political descriptions oppose this corrupt and unaccountable political formulation." Chris Whalen, Institutional Risk Analytics

"Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power." Benito Mussolini
October 20, 2009 |

There can be little doubt now that Chris Whalen is not only a subject matter expert of the first order in the field of banking, but is additionally a brilliant mind, being able to step outside his discipline and connect the dots using his knowledge in other diverse fields including politics, history, and organizational behaviour.

I cannot judge where his thinking and my own diverge, because we do not disagree at all in this exemplary characterization of the world economy as it is today, I suspect that the solution, the path to a stable model, might offer some differences in implementation, but nothing beyond that. One cannot tell if there is a taint of the 'Chicago School' of free market romanticism in his views until one sees his detailed model of a post-recovery regulatory regime.

He does seem to be overly dismissive of a Europe in caricature, but makes many good points which are important to address at the EU. 'Europe' is one entity in the same way that New York is New Orleans. Germany has a difficult path to steer, but his criticism is right, and we have been very critical of Peer Steinbrück among others.

There are some enormous implications in the regime of the dollar as the world's currency that most economic commentators just do not 'get.' There can be no serious dollar deflation while the dollar has that role, without the world grinding to a virtual halt. This essay alone is worthwhile if one can understand that, which is a 'difference' between the US in 1929 and 2009.

But the description of the unholy alliance among Washington - the Fed - and the Banks is exceptionally good. Each depends on the other two. Washington wishes to spend while rewarding its friends, the Fed is only too eager to please by printing money to maintain the financial system which they have engineered, and the Primary Dealers on Wall Street distribute and manage the money while taking a hefty slice of the product for themselves.

Chris Whalen calls this an Alliance of Convenience, implying that of course there is no conspiracy per se, but each member of this triumvirate is merely obtaining and enabling from the others.

I would call it a willing Ménage à Trois, literally the eternal triangle, because of course this arrangement has been repeated throughout history among people of certain types who seek each other out by design.

Bootleggers need protection, corrupt politicians need criminals, and the distributors need a product. Kings desire legitimacy, churchmen need powerful defenders, and warlords wish to be paid extremely well.

There is also a great deal of intermingling and changing of positions among the actors in this arrangement. The revolving door between the Congress and the financial interests is obvious. It is hard to tell just who is on top at any given moment.

The only check and balance on this arrangement, besides the intrusion of the law as embodied in the Constitutional limitations on power, is the value, the acceptability of the dollar and the bond.

One cannot tell if Chris has thoroughly thought through the implications of what he has concluded, the Ponzi nature of the US financial system, and the consequences of its collapse. If he does, he should have more sympathy for his colleagues at the Fed who, in the American colloquial sense, should be 'scared shitless' of what they have done, if they have a mind of their own at all.

Institutional Risk Analytics
Are the Fed, the Congress and the Primary Dealers an Alliance of Convenience?
October 20, 2009

+For the better part of a year, many smart, talented people in the worlds of finance and economics have been struggling to describe the causes of the financial crisis and solutions. I witnessed such a debate recently at the international banking conference sponsored by the Federal Reserve Bank of Chicago. It is fair to say that the representatives from Europe, Asia and the Americas continue to have differing views of the crisis and how to address it; more regulation or less, more capital or less, and whether markets should be re-regulated.

Far from being dismayed by such disparity of views, I am encouraged by this difference of opinion and I hope that the debate intensifies in coming months. To recall the words of Alfred Sloan, it is only by sharpening our differences can we understand complex problems and understand those distinctions which matter and those which do not. But as we build a narrative to understand the crisis, we seem to be converging on one view of the causes of the financial "bubble" and thereby ignoring other perspectives and views that might be instructive.

In his books such as The Black Swan, the author Nassim Taleb warns us that the news media and particularly condensed versions of reality such as television force all of us into a view of the world that is often over simplified. As social creatures, we all tend to use narrative to describe and understand complexity. We speak and write and discuss. Gradually we distill our impressions and these views merge together into the collective understanding, the "official" story.

But just as bubbles are probably not a good technical metaphor to describe financial crises, we need to beware the tendency to simplify and categorize complex events when it comes to public policy for our financial institutions and markets. Americans have a wonderful tendency to look at public policy from a vertical perspective, in silos, that suggest we can somehow isolate monetary policy and bank supervision and fiscal policy into neat, separate little boxes that are never affected or disturbed by one another.

In particular, this comes to mind when we hear US economists talk about foreign capital inflows as an externality. Those fiat paper dollars belong to us. We printed them and of course they are returning home in search of at least a nominal return. That's why we have problems such a mortgage market bubbles and a surfeit of capital inflows, then a sudden outflow of these same pools of credit. In a fiat money system, after all, there is no "money" in a classical sense, merely credit. These large flows of fiat paper dollars, I submit, explain the increasingly manic behavior of markets, investors and large banks over the past decade as true investment opportunities are increasingly outnumbered by speculation.

I agree with Vince and the other speakers about the nature of the problem created by America's addiction to debt and inflationary monetary policy, and how difficult it makes it for us to address more basic structural problems in our economy. This is especially true so long as the rest of the world is willing to allow the US to retain a global monopoly on dollars as the primary means of exchange and as a short-term store of value. But I believe to achieve a true understanding of the crisis, we must step back and take a political perspective.

The evolution of the US from a democratic republic into a more statist, more corporate formulation that looks more and more like the states of Europe and Asia every day, is what makes concepts such as too big to fail ("TBTF") and "systemic risk" viable. The migration of the US from a society based on individual liberty, work and responsibility, to a society where a largely corporate and socialist perspective holds sway, in my view, is changing the way we look at our financial and monetary system. Because of the huge and some would say illegal subsidies provided to Wall Street firms during the early part of the crisis, particularly in cases such as the rescue of American International Group, the American electorate is engaged in an intense, sometimes angry debate about financial policy and government.

This debate is also very intense among the bank regulatory community, where you have FDIC Chairman Sheila Bair, the FDIC and state regulators, and smaller banks supporting a traditional if somewhat legalistic American view of banks regarding issues like insolvency and resolution, on the one hand. Then we have the internationalist tendency represented by the large banks, the Federal Reserve Board, Treasury and White House, who like the leaders of the EU advocate a socialist and proudly statist perspective where banks are "too big to fail" and under the table subsidies to well-connected institutions are encouraged. Whereas in the 1800s the New York banks advocated hard money and sound banks, and the inflationists where among the agrarian populist ranks, today it is Washington, Paris and Berlin, among the largest dealer banks and their political allies, that are found advocates of inflation and public sector debt.

Our friends at the Fed and Treasury seem to know nothing about American values when it comes to insolvency or bank safety and soundness. Our founders embedded bankruptcy in the Constitution not out of generosity, but because they knew that prompt resolution and liquidation of claims benefitted all of society. The internationalist set, like their counterparts in Europe and Japan, talk of the ill-effects of resolving zombie banks via traditional bankruptcy, but fail to notice the benefits with equal concern. If we do not have losers and well as winners in our society, then we shall have neither. For every loser in the case of the failures of Lehman Brothers and Washington Mutual, there were winners at JPMorganChase and Barclays PLC, which bought the assets of the failed companies for pennies on the dollar and absorbed thousands of valuable employees.

The internationalist tendency prefers instead to align themselves with the view of foreign nations whose governments are predominantly socialist in economic orientation and authoritarian politically. These politicians and their economists prefer to pick "losers as winners," to paraphrase my friend Bob Feinberg. Look at the situation in Germany, where the political leadership refuses to even acknowledge the depth of the crisis in the state or private banking sector. Germany is a case study illustrating the corruption and incompetence that prevails when you allow the political class to take unilateral control over all financial institutions and markets.

It is both fascinating and troubling for me to watch members of the Fed staff who I love and respect as friends and former colleagues being seduced by the siren song of political expediency when it comes to issues such as "systemic risk," a political concept that has no place in a serious discussion of finance. Certain banks, say Fed and Treasury officials, are "too big to fail." But just as true finance is about the arithmetic certainty of market prices and cash flow rather than speculative models, Fed officials seem to confuse safety and soundness in a financial sense with pleasing the political class that inhabits both of the major political parties in Washington.

I hear my colleagues at the Fed recite the mantra about how Lehman Brothers should not have been "allowed" to fail and large banks are too connected globally to be subject to traditional resolutions, as in the case of the failures of both Lehman and Washington Mutual. When I point out to these same Fed officials that Lehman had been for sale, unsuccessfully, for a year, I hear only silence. When I note that Harvey Miller working as bankruptcy trustee and SIPIC and the good people of the Southern District of New York did a very fine job handling the Lehman insolvency, there is likewise only silence from the TBTF advocates. Instead of being used as an excuse for inaction and delay, the insolvency of Lehman Brothers and WaMu should be held up as examples of the American legal system functioning well.

When you challenge officials at the Fed and Treasury about TBTF and systemic risk, they point to the fact that using bankruptcy to resolve complex institutions is too damaging to "confidence." Vince mentions in his fine presentation that avoiding damage to confidence is a top-level priority for policy makers. We must avoid damaging sacred confidence. But if you have such a rule, then you cannot have a true market system. Markets must be allowed to go from exuberance to terror in order to have a free market system and also a free and democratic society. Investors, bank managers and politicians can only be held accountable if failure is allowed to occur. If we allow government to legislate confidence via the imposition of "systemic risk" regulators and rules such as TBTF, then I suggest that we will not be a free society for much longer.

If you want to see where the US is headed by embracing concepts such as "systemic risk" and TBTF into public policy, then just look at the EU, where whole nations have lost their private banking sector, where there is no private capital formation to create new banks and the state-sector has largely monopolized many areas of personal and commercial finance. In 2008, there were more de novo banks created in the great state of Texas than in all of the EU. By not allowing failure and insolvency for even the largest banks and companies in the US, we deprive our citizens of opportunity.

That the largest portion of the damage done to EU banks in the latest speculative cycle is found among state-sector banks should come as no surprise. Claims by EU politicians as to the effectiveness of regulation in terms of mitigating financial risk seem to be belied by the facts when it comes to regenerating a healthy banking system. EU politicians and bureaucrats may have regulated away bad acts and freedom of choice for private investors, but that only means that the misbehavior has migrated to the public sector and is for the benefit of entrenched political elites. We see the same pattern now in the US.

Let's turn now to Fed policy, an area where Vince spent a great deal of time in his research, in terms of whether the Fed can be both an effective safety and soundness regulator and a monetary authority, especially given the corporatist political evolution already mentioned. If you really analyze the way in which political power flows in the US today, there are three significant groupings:

First we have a central bank that manages a global fiat dollar system based on a currency unit that is not convertible into specie or commodities. The Fed enables the issuance of dollar debt by the Treasury and imposes no effective policy restraint, no check to balance US fiscal policy. In fact, since the October 1987 crisis, the Fed has never said "no" to the Congress or the markets in terms of liquidity or collateral. It has only been a matter of price. When was the last time we had a Fed Chairman willing to say no to the politicians in the White House or the Congress? Paul Volcker? I suggest that it has been far too long.

Second we have a corrupt, entrenched Congress that equates tax revenues with the proceeds of debt. All fiat paper dollars are one and the same to our esteemed Congress, which believes that the borrowing capacity of the US is infinite. There is no effective limit on spending to keep the electorate mollified and the entrenched political class in power. The Fed enables the spending habit of the Congress and whatever administration occupies the White House.

Some of the supporters of former Fed Chairman Alan Greenspan like to argue that no Fed chairman could have stopped the party in housing early; that no Fed chairman could go up to Capitol Hill and say tough things to members of the Congress about housing policy or public spending. I think that tough talking Fed governors is precisely what we need. If the heads of independent agencies are not ready to lose their jobs every day and be willing to take tough policy stands on equally tough issues, then we need new leaders. I would hold up Chairman Bair at the FDIC as an example of a public servant who understands that part of her job is to offer advice to the Congress and the White House, and not to be a creature of politics or special interests as so many of our supposed leaders seem to be today.

Thirdly we have the dealer community, especially the members of the primary dealers of US government securities, who have a special relationship with the Fed and the Treasury, most recently by placing former Wall Street chieftains and their minions as Secretary of the Treasury. Many of these banks created the trillions of dollars in toxic waste that has crippled our financial system and were subsequently bailed out by the extraordinary actions taken by NYFRB President Tim Geithner and the Fed's Board of Governors starting last year.

These large dealers such as JPMorgan, Goldman Sachs, Wells Fargo, Morgan Stanley and Citigroup, enable the US Treasury to sell debt and thereby keep the US fiat dollar system stable for another day. These large, TBTF banks are also the mechanism through which the Fed executes monetary policy or at least used to until the Fed itself grew operationally into a de facto primary dealer in its own right, merging fiscal and monetary policy explicitly.

In order to boost the profitability of these TBTF dealer banks, the Fed and the Congress encouraged the creation of opaque, unregulated over-the-counter ("OTC") markets for derivatives and complex assets. The growth of OTC markets were a retrograde development in historical terms and again illustrate the tendency of the Fed and Treasury, the Congress and the large banks to take an anti-American view of issues like market structure, transparency and solvency, encouraging instruments of fraud like OTC derivatives and private placements, while the FDIC, state regulators and smaller banks tend to oppose such innovations. By allowing the creation of derivatives for which there was no basis, the Fed enabled some of the worst acts by the dealer community.

OTC markets for derivatives and structure assets have been the primary source of "systemic risk" over the past 24 months and have contributed the lion's share of losses sustained by banks and the taxpayers of the industrial nations. Indeed, without the active support from the Congress and the Fed for "innovations" such as OTC and opaque, unregistered complex structured securities, the current crisis might never have occurred. It important to be very specific as to the alien nature of things like "dark pools" and closed, bilateral market structures such as OTC, structures that go against the most basic American principles of transparency and fairness.

When Vince and I were in Chicago for the Fed's international banking conference, I reminded our colleagues that the analog to the political checks and balances revered in the history books is a public, open outcry market. Whether virtual or physical, an open market structure is essentially for having true confidence in markets. When markets start to slip back into retrograde formulations like OTC, we are also eroding the very basis of American markets, namely openness and fairness. If our OTC markets are deliberately opaque and unfair, deceptive by design as I told the Senate Banking Committee earlier this year, then can we reasonably hope that our financial institutions and markets will be stable?

I submit that our spendthrift government, the Federal Reserve System and the TBTF banks together now comprise the paramount political tendency in America today. This tripartite "Alliance of Convenience," let's not call it a conspiracy, fits beautifully into the corporatist mold that seems to be America in the 21st Century - but only viewed by the elites in cities like New York and Washington. Many Americans of all political descriptions oppose this corrupt and unaccountable political formulation. I hope and expect that these differences will become even more pronounced as the election approaches next November.

The difference that separates the United States from the rest of the world is the difference which has always divided us, namely our at least theoretical devotion to individual liberty and free markets. Until we break the Alliance of Convenience between the Congress, the Fed and the large, TBTF banks and force our public officials to embrace core American values regarding transparency, insolvency and accountability, we will not in my view find a way out of the crisis. In may ways, the differences that separate the popular view and the views of our political elite have been turned on their heads compared with a century ago, but this does not mean that the debate and resulting political competition for ideas will be any less intense.

Category: financial corruption, financial engineering, financial reform, Power Elite

Good News on Wall Street Means… What Exactly?

Lloyd Blankfein, the company's chairman and CEO, said Goldman is starting to see a rebound across many of its businesses even as the broader economy and consumers continue to struggle with rising unemployment and mounting loan losses.

"Although the world continues to face serious economic challenges, we are seeing improving conditions and evidence of stabilization, even growth, across a number of sectors," Blankfein said in a statement.

via Goldman Sachs profit tops $3B on strong trading – Yahoo! News.

It's literally amazing to me that our press corps hasn't yet managed to draw a distinction between good news on Wall Street for companies like Goldman, and good news in reality.

I watched carefully the reporting of the Dow breaking 10,000 the other day and not anywhere did I see a major news organization include a paragraph of the "On the other hand, so fucking what?" sort, one that might point out that unemployment is still at a staggering high, foreclosures are racing along at a terrifying clip, and real people are struggling more than ever. In fact the dichotomy between the economic health of ordinary people and the traditional "market indicators" is not merely a non-story, it is a sort of taboo - unmentionable in major news coverage.

Here's an example of the Dow-10000 coverage, from USA Today:

If investors view the Dow's recovery as a signal that the economy and financial markets are healing, it could serve as a mood-altering boost. It might also lure skeptical investors hiding in safe fixed-income investments such as money market funds and certificates of deposit, which are yielding close to 0%, to move cash back into stocks, says Bruce Bittles, chief strategist at Robert W. Baird.

"Dow 10,000 will act like a magnet," Bittles says. "It will increase optimism and bring in more money off the sidelines." But, he says, the index must stay above 10,000 for a few weeks or more before investors think it is safe to get back in.

No one mentions here that this is a carrot-and-stick story - the stick being that ordinary people have been robbed of the interest they should be getting in CDs and ordinary bank savings accounts by the various bailout programs and lending guarantees, which have brought the cost of capital down to nothing for the big banks, and punished those people who have been doing the right thing all along by saving. The Fed lends its money to Goldman Sachs and BOFA for free, why does anyone have to pay Grandma a high rate for her CD or her bank savings?

And now that those good, savings-oriented people are getting gouged, they're being encouraged to get back into the stock market, where the returns are better at the moment. They're being called people on the "sidelines" who have to be encouraged to "get back in."

What's so tiresome about all of this is that no one reports this stuff as a political story. This is politics at its most basic. The Dow is going up, sure, but what does that mean, if the rest of the economy still sucks?

Derivatives Lobby Corrupts Congress

By Barry Ritholtz - October 12th, 2009, 9:00AM

A must read column from Bloomberg's Dawn Kopecki, Matthew Leising and Shannon D. Harrington last week looks at yet another wayn the financial services industry is blunting attempted reforms: the so called "New Democrats."

While anti-regulation bankers have long had friendly relations with the GOP (i.e., as in Bought and Paid For), Bloomberg argues that New Democrats have made changes to regulatory bills at the behest of banks:

"The battle over derivatives legislation is a test for the Obama administration's efforts to tighten financial regulation to prevent a repeat of the financial crisis that shook the global economy - a crisis exacerbated by derivatives trading.

Frank, a Massachusetts Democrat who rose through the ranks in Congress fighting homelessness and advocating for gay and consumer rights, found his handiwork panned by administration officials after he released draft legislation last week that they criticized as too friendly to business. Frank's bill allows for no change in how standardized over-the-counter derivatives are traded as long as they are reported to regulators.

Commodity Futures Trading Commission Chairman Gary Gensler and Henry T.C. Hu of the Securities and Exchange Commission said Frank's "discussion draft" created too many loopholes and had the potential to exclude all hedge funds and corporate end-users from oversight . . .

With 68 of the Democrats' 256 votes in the House, the New Democrats have become a growing force within their party. Democrats hold a 38-member voting majority over Republicans and cannot pass financial legislation without coalition support.

While the concerns were raised through both Republicans and Democrats, "the New Democrats have played a central role here both in terms of interacting with the end-users but also being able to take that concern to Chairman Frank," Pickel said. A half dozen New Democrats pressed Treasury Secretary Timothy Geithner to expand the administration's exemption for end-users in an Oct. 1 meeting."

Its ironic that the one thing there is bipartisan support for involves acquiesing to those who oppose Derivatives reform.


Derivatives Lobby Links With New Democrats to Blunt Obama Plan
Dawn Kopecki, Matthew Leising and Shannon D. Harrington
Bloomberg, Oct. 9 2009

The short answer: Key members of Congress are owned by the financial services group's lobbyists.

The longer answer: Lobbyists from the financial industry have paid hundreds of millions to Congress, the Bush and Obama administrations. (See yesterday's Total Campaign Contributions/Lobbying by TARP Recipients)

Virtually all key Congressional members and senators on committees overseeing finances and banking are owned by the industry - they are Bought and Paid For.

This is easy to confirm in black-and-white. See for yourself: here, here, here, here, here and here.

Manhattan Institute senior fellow Nicole Gelinas says:

The too-big-to-fail financial industry has been good to elected officials and former elected officials of both parties over its 25-year life span

And economic historian Niall Ferguson says:

Guess which institutions are among the biggest lobbyists and campaign-finance contributors? Surprise! None other than the TBTFs [too big to fails].

No wonder two powerful congressmen said that banks run Congress.

And they are not alone, Two leading IMF officials, the former Vice President of the Dallas Federal Reserve, and the President of the Kansas City Federal Reserve have each observed that the United States is controlled by a financial oligarchy.

There are obvious exceptions: Ron Paul, Alan Grayson, and others - many of whom are independently wealthy - have resisted the siren call of lobbyists dirty money.

Hat Tip: Washingtons Blog

Top Financial Services Committee Members Rely Heavily On Finance Campaign Contributions
Paul Blumenthal
Sunlight Foundation, 10/09/09 @ 2:33 pm

TARP Recipients Paid Out $114 Million for Politicking Last Year
Open Secret.Org February 4, 2009 9:52 AM

Congress Helped Banks Defang Key Rule
WSJ, June 3, 2009

Experts On Third World Banana Republics: The U.S. has Become a Third World Banana Republic
Washingtons Blog, March 27, 2009




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