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Category: Economy

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By Erich Vieth on November 02nd, 2009

Dylan Ratigan asks why Tim Geithner still has a job

In a succinct and powerful video, Dylan Ratigan wonders why Tim Geithner still is our Treasury Secretary. Senator Maria Cantwell, who makes an appearance on this video, wonders this too, calling Geithner’s job performance “appalling.” I agree. It’s time for Obama to start fresh while we are not in crisis mode. He can do this without starting a panic by saying something like, “We thank Mr. Geithner for his service getting us through this crisis.” But then, by all means, throw the bum out and let’s pick an honest outsider (not another Goldman Sachs alum) to lead the way. Am I being harsh when I say “bum”? Nope . . . I’m being restrained. Geithner should be taking the time to use the mass media to teach common people what went wrong, how we can avoid it happening again, and explaining exactly where our public tax dollars have gone. Because he refuses to do any of this, and he refuses to be an powerful advocate for taxpayers, he should step aside. It is clear that he doesn’t understand who he is supposed to represent.

If I were to speak more bluntly, I would say that Tim Geithner is committing a fraud on the U.S. public. Here are the words of Robert Johnson, former economist at the Senate Banking Committee and the Senate Budget Committee

[Geithner] speaks as though they’re doing very comprehensive reform. Unfortunately, in the United States, one of the reasons we had the bubble and the crisis was because we have a broken political system, where campaign money, lobbying influence of the financial sector is enormous, and it created bad regulations, bad laws. I’m going back into the Reagan period, Bush the senior, particularly the Clinton era. We’ve made a mess, and now we come back from a crisis where the population knows darn well what a mess we’ve made. But the problem is, at this point, the people in power, the moneyed interests are still in power. And a large portion of these reforms are either cosmetic or designed by the industry and quite ineffective. . .

Ground Zero, the San Andreas Fault of our financial system, where it blew up last time, was in the intersection between “too big to fail” firms and over-the-counter derivatives and that these derivatives need to be put on exchanges, because they’re too complex, and when they’re combined with the “too big to fail” firms, which have a 95 percent market share in OTC derivatives, five banks, that it can create a situation, like we were talking about moments ago, where Citibank could not be restructured. The spider web of positions in derivatives is so complex and so entangled that it deters policy officials from being able to put them through restructuring, because they’re afraid of what kind of spin-offs and consequences will happen. I spoke about the credit default swap market and the illusion of safety that those credit default swap contracts created when they’re unregulated, because everybody thought AIG was going to be able to pay the bill, but they weren’t, and then the taxpayer got to provide that capital.

It’s also time for Cantwell and her Senate colleagues to quit blaming Treasury for failing to lead the way. Congress has the power to make laws; it should should pass the necessary laws to close the “loopholes” she finds so appalling.

Economy • Featured • Politics • Psychology Cognition
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By Erich Vieth on October 28th, 2009

Bond raters hiding behind First Amendment

This is insanity: The bond raters, those three big Wall Street companies that rated crappy mortgages to be great investments, thereby plunging the country into economic chaos, are hiding behind the First Amendment. They are claiming that they can’t be sued for the financial equivalent of calling a mouse an elephant, because their work product is just an “opinion.” We charge millions of dollars for giving you a rating, and you can’t hold us accountable because it’s an “opinion.”

I’ll tell you this: I work as a lawyer. If a screw up someone’s case because I give him bad advice (in return for charging her a fee), she could (rightfully) sue me for malpractice. If I raised the defense that I can’t be sued for terrible advice because it was merely “an opinion,” I’d be laughed out of court with an adverse judgment tattooed onto my forehead. That the courts aren’t letting these ratings firms get hammered makes you wonder whether the unspoken defense is “too big to fail.” If they didn’t have this ridiculous “First Amendment” defense, the smug and irresponsible raters would be ripped apart by millions of justifiably irate plaintiffs.

And, of course, Congress is in no hurry to beat back the ratings firms’ lobbyists and hold these jokers accountable for all of the 401K’s they’ve trashed.

Economy • Featured • Fraud • Law
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By Erich Vieth on October 21st, 2009

What’s up with economic reform? Not enough.

At Alternet, you can read Art Levine’s detailed account of legal corruption of the economic “reform.” It’s not pretty, and the good guys are losing many of the important battles. Here’s a passage, but go read the whole thing–it’s well written and critically important:

So, the sleek, blond J.P Morgan lobbyist in a smart gray suit set off by a brightly colored scarf was able to saunter in shortly before the doors opened for the hearing to see just how many more loopholes could be added. (She declined to identify herself.)

Like the evicted family in Michael Moore’s new film being hired by the bank to clean out their own home, the banking-industry lobbyists in Washington have at long last created the ultimate trickle-down effect from the bailouts: hiring the jobless ( for $11 to $35 an hour) to hold their places in line to make sure there’s no effective federal crackdown preventing more job-destroying speculation in credit default swaps and other derivatives.

Corruption • Economy • Featured • Politics
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The unspoken reality of “Peak Oil”
By Brynn Jacobs on October 20th, 2009

The unspoken reality of “Peak Oil”

THE world will have to find four Saudi Arabias by 2030 if it wants to maintain its oil dependency, the International Energy Agency says.

The reality of peak oil is fast approaching, and more must be done to develop and encourage the use of alternatives including solar and nuclear, the agency’s chief economist has warned.

“My main motto never changes, the era of low oil prices is over,” Dr Fatih Birol said.

That’s the verdict reported today in The Australian. I thought I’d check to see what other sources had to say about Birol’s assertion, but I cannot find a single U.S.- based source reporting it, other than blogs that are dedicated to peak-oil issues. This is rapidly becoming a crisis, and almost nobody is discussing it in America. Not just here, of course– study groups in Britain have been trying to get their government to begin planning for the reality of peak oil for years, and now they are saying it’s simply too late. (see this also).

Current Events • Economy • Featured • War
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By Erich Vieth on October 18th, 2009

Elizabeth Warren: Nothing much has changed

Elizabeth Warren has lots of bad news, the “stabilized” economy and the huge Wall Street bonuses notwithstanding. Warren is the Chair of the Congressional TARP Oversight Panel.

Good for her, hammering on Henry Paulson’s enormous bait and switch. Most of that TARP money was supposed to be used for loans for small businesses, not more gambling and bonuses, which is where it appears to have gone. Yet, according to Warren, there will “never” be a meaningful accounting of that money.

Economy • Politics • Psychology Cognition
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California court declines to publish anti-camera decision
By Brynn Jacobs on October 18th, 2009

California court declines to publish anti-camera decision

Many of us have been caught by those increasingly ubiquitous red-light cameras. Police departments and local governments argue that these sorts of cameras improve safety and increase revenue. Studies are increasingly putting the lie to the safety claim, but nobody’s disputing that these traffic enforcement mechanisms bring in revenue.

The Wall Street Journal reported in March that

… a study in last month’s Journal of Law and Economics concluded that, as many motorists have long suspected, “governments use traffic tickets as a means of generating revenue.” The authors, Thomas Garrett of the St. Louis Fed and Gary Wagner of the University of Arkansas at Little Rock, studied 14 years of traffic-ticket data from 96 counties in North Carolina. They found that when local-government revenue declines, police issue more tickets in the following year. Officials at the North Carolina Association of Chiefs of Police didn’t respond to requests for comment.

California state law prohibits compensation to operators of these red-light cameras based on the number of tickets issued. Localities have been side-stepping this law through “cost-neutrality” provisions, which allow the cities to pay the operators up to a certain monthly amount. After that cap is reached, the city keeps all the revenue beyond that point. The intent of the law is to remove an incentive to ticket as a means of increasing revenue to the private operators. There is now a second appellate court ruling that has struck down the red-light programs as illegal under the state law.

Court Decisions • Economy • Featured
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By Erich Vieth on October 14th, 2009

Time to shine more light on the Federal Reserve

Ben Bernanke wants the Senate Banking Committee to reconfirm him as Chairman of the Federal Reserve. U.S. Representative Alan Grayson wants to see more information about the inner workings of the Fed before Bernanke is reconfirmed, “given how little is known about what he has actually done.”

In a mass-emailing, Grayson points out that “Ben Bernanke didn’t see the crisis coming and has added $1.2 trillion to the Fed’s balance sheet through covert bailouts.” He points out that there can’t be a full debate over Bernanke’s “record if nothing is public.” That’s why Grayson is asking for the release of the following information:

  • Information that Bloomberg reporter Mark Pittman has requested via a Freedom of Information Act Request on the Bear Stearns rescue and that the Federal Reserve is contesting in the courts.
  • Information I requested in February on which institutions received the additional $1.2 trillion, how much each institution received, and what was promised in return.
  • All Federal Reserve documents that went to Attorney General Andrew Cuomo’s office relating to the Bank of America/Merrill Lynch merger in which potentially illegal and coercive activity might have occurred, as well as all Federal Reserve documents relating to the lawsuit pursued by Merrill Lynch shareholders in the U.S. District court for the Southern District of New York.
  • Transcripts of all Federal Open Market Committee meeting minutes up to and including that of September 2009.
  • Full disclosure of all terms and conditions of all off-balance sheet Fed transactions in the past three years.

If this controversy were about ACORN, or any other person or organization without great power, Congress would have turned the organization inside out with subpoenas, and we would have had a real discussion. I agree with Grayson that it’s time to shine much more light on the Fed, especially in light of these statistics recently reported by Think Progress.

Economy • Featured
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By Erich Vieth on October 12th, 2009

William Black’s five fatal flaws of finance

William Black is a white-collar criminologist who has written a compelling account of how the bloated parasitic financial sector is ruining America in his recent post at Huffpo. These are Black’s five “fatal flaws” of finance:

1. The financial sector harms the real economy. Even when not in crisis, the financial sector harms the real economy. First, it is vastly too large.

2. The financial sector produces recurrent, intensifying economic crises here and abroad.

3. The financial sector’s predation is so extraordinary that it now drives the upper one percent of our nation’s income distribution and has driven much of the increase in our grotesque income inequality.

4. The financial sector’s predation and its leading role in committing and aiding and abetting accounting control fraud combine to: A) Corrupt financial elites and professionals, and B) Spur a rise in Social Darwinism in an attempt to justify the elites’ power and wealth.

5. The CEOs of the largest financial firms are so powerful that they pose a critical risk to the financial sector, the real economy, and our democracy.

The Solution: Fix the real economy, if you can find it. “The real economy came off the rails at least three decades ago for the great majority of Americans.”

I was highly impressed with William Black after seeing him interviewed by Bill Moyers. And now, after reading this detailed by accessible analysis, I’m even more impressed. We can’t begin to fix the economy unless we begin to implement basic principles we can actually understand. Fixing the real economy and making sure that finance is merely the servant of the real economy are clearly steps one and two, for each of the reasons listed by Black.

Economy • Featured • Fraud • Politics
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By Erich Vieth on October 11th, 2009

My recurring nightmare

What I am posting here is a gnawing, recurring and growing concern that sometimes seems like a nightmare to me. It embarrasses me that this thought keeps recurring because it makes me look like one of those crazy conspiracy theorists.

What brought this “nightmare” to a head was watching Bill Moyers’ interview with U.S. Rep. Marcy Kaptur. Here’s an excerpt:

MARCY KAPTUR: Let me give you a reality from ground zero in Toledo, Ohio. Our foreclosures have gone up 94 percent. A few months ago, I met with our realtors. And I said, ‘What should I know?’ They said, ‘Well, first of all, you should know the worst companies that are doing this to us.’ I said, ‘Well, give me the top one.’ They said, ‘J.P. Morgan Chase.’ I went back to Washington that night. And one of my colleagues said, ‘You want to come to dinner?’ I said, ‘Well, what is it?’ He said, ‘Well, it’s a meeting with Jamie Dimon, the head of J.P. Morgan Chase.’ I said, ‘Wow, yes. I really do.’ So, I go to this meeting in a fancy hotel, fancy dinner, and everyone is complimenting him. I mean, it was just like a love fest.

They finally got to me, and my point to ask a question. I said, ‘Well, I don’t want to speak out of turn here, Mr. Dimon.’ I said, ‘But your company is the largest forecloser in my district. And our Realtors just said to me this morning that your people don’t return phone calls.’ I said, ‘We can’t do work outs.’ And he looked at me, he said, ‘Do you know that I talk to your Governor all the time?’ He said, ‘Our company employs 10,000 people in Ohio.’ And I’m thinking, ‘What is that? A threat?’ And he said, ‘I speak to the Mayor of Columbus.’

As I watched this, I was thinking how amazing it was that a bank president would dare to treat a U.S. representative as though she meant nothing to him, even though she is a sitting member of Congress and a member of the political party that controls both Houses and the Presidency. How is it that all the big financial players such as Chase, AIG, Goldman Sachs, always get exactly what they want out of Congress? How can Congress allow these entities to continue to grow (since the meltdown), even though it is clear that the reason Congress felt that they needed to be propped up with tax money is that they were considered “too big to fail?” Name even one other industry that can snap its fingers and watch meaningful Congressional regulation completely dissolve. Name another industry that can demand hundreds of billions of no-questions-asked tax dollars from Congress. Consider the vast power and potential abuses of the Federal Reserve, which works arrogantly and opaquely. Consider Matt Tabbi’s recent articles regarding these financial giants and Congressional Corruption (and see here). We’re not even finished paying off the damage from the S&L scandal from the 80’s, and now, in the past year, we’ve taken on a new debt that dwarfs that S&L debt. And consider that when someone like federal Judge Rakoff has the integrity to stand up to speak truth to power, he seems to be a lone voice calling from a distant hilltop, not part of any sort of chorus. Consider, too, the monumental struggle faced by Elizabeth Warren, Chair of the Congressional Oversight Panel , who is facing immense opposition in Congress to establishing a strong Consumer Financial Protection Agency (CFPA) to make sure that consumers stop getting ripped off by banks through the use of unintelligible contract language (how can this possibly be controversial?).

Pardon my French, but what-the-fuck?

Using Occam’s Razor (the principle that the simplest explanation is usually the best), how does one explain that huge numbers of our representatives have completely tanked on The People.

Corruption • Economy • Featured • Politics
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By Erich Vieth on October 09th, 2009

The bankers continue their stranglehold over Washington.

Bill Moyers interviewed economist Simon Johnson and U.S. Representative Marcie Kaptur of Ohio about the Wall Street/Washington connection and the picture isn’t pretty. In fact, it’s terrifying. I highly recommend that you make yourself watch this 30-minute segment. It’s a massive problem with no hint of a solution. Here’s an excerpt:

BILL MOYERS: Why have we not had the reform that we all knew was being was needed and being demanded a year ago?

SIMON JOHNSON: I think the opportunity the short term opportunity was missed. There was an opportunity that the Obama Administration had. President Obama campaigned on a message of change. I voted for him. I supported him. And I believed in this message. And I thought that the time for change, for the financial sector, was absolutely upon us. This was abundantly apparent by the inauguration in January of this year. . . . And Rahm Emanuel, the President’s Chief of Staff has a saying. He’s widely known for saying, ‘Never let a good crisis go to waste’. Well, the crisis is over, Bill. The crisis in the financial sector, not for people who own homes, but the crisis for the big banks is substantially over. And it was completely wasted. The Administration refused to break the power of the big banks, when they had the opportunity, earlier this year. And the regulatory reforms they are now pursuing will turn out to be, in my opinion, and I do follow this day to day, you know. These reforms will turn out to be essentially meaningless.

MARCY KAPTUR: When Lincoln ran into trouble, during the Civil War, he got new generals. He brought in Grant. I hope that President Obama will bring in some new generals on the financial front.

BILL MOYERS: Should Geithner be fired? And Summers be fired?

MARCY KAPTUR: I don’t think that any individuals who had their hands on creating this mess should be in charge of cleaning it up. I honestly don’t think they’re capable of it.

BILL MOYERS: Let me show you an excerpt from the speech President Obama made on Wall Street last month, September. Here is the challenge he laid down to the bankers.

PRESIDENT OBAMA: We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses. Those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall.

BILL MOYERS: A reality check. Not one CEO of a Wall Street bank was there to hear the President. What do you make of that?

SIMON JOHNSON: Arrogance. Because they have no fear for the government anymore. They have no respect for the President, which I find absolutely extraordinary and shocking. All right? And I think they have no not an ounce of gratitude to the American people, who saved them, their jobs, and the way they run the world.

Economy • Politics • Psychology Cognition
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Regulation as a prerequisite to meaningful cooperation
By Erich Vieth on October 08th, 2009

Regulation as a prerequisite to meaningful cooperation

While I was reading up on free market fundamentalism, and I happened across an intriguing article by biologist David Sloan Wilson. As I started reading this article, I was wondering this: Even assuming that a “free market” works wonders in small societies, can societies be scaled up in size guided only by the free market, without formal regulations? D.S. Wilson argues that this is the wrong question. All societies are regulated. The only question is how they are regulated.

D.S. Wilson notes that humans are incredibly cooperative, especially in “small face-to-face groups.” In fact, we regulate each other’s conduct so easily in small groups that “we don’t even notice it.” This gives us the illusion that there is no regulation keeping things in check. All well-functioning groups, large and small, human and non-human, are highly regulated, however. Small groups often seem to work well without formal regulation, but free market fundamentalists (and others) confuse this lack of formal regulation for the total lack of regulation.

This self-organizing ability to function as cooperative groups is “so perfectly natural” because it evolved by a long process of natural selection, in humans no less than bees. By the same token, functioning as large cooperative groups is not natural. Large human groups scarcely existed until the advent of agriculture a mere 10 thousand years ago. This means that new cultural constructions are required that interface with our genetically evolved psychology for human society to function adaptively at a large scale.

Wilson’s approach makes intuitive sense. Throughout the Pleistocene (from about 2 MYA until 10,000 years ago), people lived in small groups. They lacked written language and written laws. They used unwritten techniques (presumably customs, habits, ostracism and various other informal methods of social control and punishment) to coordinate community efforts and punish cheaters. These informal methods worked well enough and long enough that we can now sit here and ponder how well they worked. But just because those ancient forms of regulations weren’t written down doesn’t mean they didn’t exist. And it doesn’t mean that ancient societies weren’t tightly regulated. Just as human households are highly regulated without formal rules, so are small societies. So are non-human societies:

These social preferences go beyond our own species. Cooperation and cheating are behavioral options for all social species, even bacteria, and cooperation survives only to the extent that it is protected against cheating. The eternal conflict between cooperation and cheating even takes place within our own bodies, in the form of genes and cell lineages that manage to game the system at the expense of the organism upon which they depend. We call them diseases, but they are really the failure of a vast system of regulations that enable us to function as organisms as well as we do . . .

What about the eusocial insects, such as ants, wasps and bees? Wilson would argue that a well-functioning hive doesn’t simply happen, and it certainly isn’t driven by something as simplistic as the “self-interest” of individual bees:

[B]ee behavior cannot be reduced to a single principle of self-interest, any more than human behavior. There are solid citizens and cheaters even among the bees, and the cheaters are held at bay only by a regulatory system called “policing” by the biologists who study them.

According to D.S. Wilson, you’ll find regulation (informal or formal) everywhere you find a well-functioning society of living organisms. Further, a human society based merely on individual selfishness can’t self-regulate because we can no longer depend on selfishness to be well-tuned or consistent thanks to Daniel Kahneman’s brilliant destruction of rational choice theory.

Regulation runs a continuum from informal to formal. It is not like regulation itself just showed up for the first time in modern human societies. D.S. Wilson argues that in all large-scale societies, “regulation is required or cooperation will disappear, like water draining from a bathtub.” Without some form of regulation, all societies become rudderless and unproductive. Therefore, there must always be some form of regulation. The question to decide is “What kind of regulation?”

Let there be no more talk of unfettered competition as a moral virtue. Cooperative social life requires regulation. Regulation comes naturally for small human groups but must be engineered for large human groups. Some forms of regulation will work well and others will work poorly. We can argue at length about smart vs. dumb regulation but the concept of no regulation should be forever laid to rest . . . We also need to change the metaphors that guide behavior in everyday life to avoid the disastrous consequences of our current metaphor-guided behaviors. That is why the metaphor of the invisible hand should be declared dead.

I would agree that the “invisible hand” is shorthand for the informal regulations that have been since prehistoric times to facilitate social coordination of small primitive societies. Rather than declaring the “invisible hand” to be dead, though, it might be more accurate to suggest that the “invisible hand” lives on in modern societies, quietly and substantially supplementing our formal regulations. Seen in this way, the “invisible hand,” used in the complete absence of consciously planned social regulations and laws, is not a method for creating or maintaining a complex functioning modern society. Rather, it is the path back to the Pleistocene.

American Culture • Cultural Evolution • Economy • Featured • Human animals • Psychology Cognition
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By Erich Vieth on October 06th, 2009

I’m behaving like someone who isn’t getting an answer to his question

This is a wild ride, but a lot was put onto the table. Even Dylan Ratigan’s phrase “corporate communism. Look what happens when you put Dylan Ratigan, Betsy McCaughey and Anthony Weiner into the same room:

Visit msnbc.com for Breaking News, World News, and News about the Economy

Economy • Health • Health Care Reform • Politics
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By Erich Vieth on October 05th, 2009

Matt Tabbi on economic death by short-selling

In this month’s Rolling Stone, Matt Tabbi once again takes on Wall Street with an article entitled “Wall Street’s Naked Swindle.” This article is not yet available online. Tabbi’s focus this time is naked short selling. Tabbi has proven to be an excellent teacher of abstruse financial concepts, including the concept of short selling, and also including the insidious practice of naked short selling. With this technique (and others) Wall Street has turned the economy into “a giant asset-stripping scheme, one whose purpose is to suck up the last bits of meat from the carcass of the middle class.”

Tabbi’s article is an excellent read, which is not at all surprising given Tabbi’s track record. The bottom line is that naked short selling is a “flat-out counterfeiting scheme.” How bad is the widespread use of this technique?

That this particular scam played such a prominent role in the demise of [Bear and Lehman] was supremely ironic. After all, the boom that had ballooned both companies to fantastic heights was basically a counterfeit economy, a mountain of paste that Wall Street had built to replace the legitimate business it no longer had. By the middle of the Bush years, the great investment banks like bear and Lehman no longer made their money financing real businesses and creating jobs.

As Tabbi then reminds us, there is more than one way to counterfeit. Consider credit default swaps:

If you squint hard enough, you can see that the derivative-driven economy of the past decade has always, in a way, been about counterfeiting. At their most basic level, innovations like the ones that triggered the global collapse-credit default swaps and the collateralized debt obligations-were employed for the primary purpose of synthesizing out of thin air those revenue flows that are dying industrial economy was no longer pumping into the financial bloodstream. The basic concept in almost every case with the same: replacing hard assets with complex formulas that, once unwound, would prove to be backed by promises and IOUs instead of real stuff.

In this related piece, Tabbi further discusses “naked short selling”:

Again, a lot of this stuff is complicated and not only hard for people outside the finance world to follow, but kind of, well, boring as well. But it’s through these tiny regulatory loopholes, these little nooks and crannies, that the economy gets manipulated. The effect of all of these regulatory gaps has been to transform Wall Street from a means of connecting capital to good business ideas into a giant casino, where the object of the game is shaving little slices off the great flows of money as you push them back and forth using a great big toolbox of manipulative techniques. This is one of the tools.

Economy • Fraud • snake oil
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