Senator Ted Kaufman stands out

Arianna Huffington has recognized the excellent work of Senator Ted Kaufman, who dares to comes out swinging against Wall Street.

In the last week alone, Kaufman has taken to the Senate floor to deliver two major -- and blistering -- speeches. The first was a masterful overview, offering chapter and verse on what led to the financial crisis and what, specifically, needs to be done to ensure that we "build a regulatory system that will endure for generations instead of one that will be laid bare by an even bigger crisis in perhaps just a few years or a decade's time." . . . . The great thing about Kaufman is that he isn't afraid to use direct, pointed language, saying that "fraud and lawlessness were key ingredients" in the financial collapse. And he's willing to name names: in his attack on derivatives, he called out Alan Greenspan, Robert Rubin, and Larry Summers as key cheerleaders for unregulated derivatives markets . . .
But why is Kaufman speaking out against dysfunctional/corrupt Wall Street banks while most other senators are timid? The absence of money as a factor in his decision making.
Kaufman didn't need to raise any money to become a senator -- he was appointed. And he doesn't need to raise any money for his reelection campaign -- he's not running. At 71, with a long, distinguished career in government under his belt, Kaufman is completely unencumbered by the need to curry favor and approach moneyed interests with his hat in his hand. So let's all take a good look at Ted Kaufman. This is what it looks like when our representatives are not beholden to special interests, and are only serving the public interest.

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Finally, a politician talks straight about the need for Wall Street Reform

In an impassioned speech this morning, Sen. Ted Kaufman (D-Del.) called for the break-up of megabanks and a firmer separation between Main Street banking and Wall Street trading. At the above link video excerpts are available. OK, now we need 99 more senators and hundreds of representatives to get on board.

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Joseph Stiglitz weighs in on the Federal Reserve

Joseph Stiglitz is one of the greatest economists in the world. He's held professorships at Yale, Stanford, Duke, Princeton and Oxford Universities, and now teaches at Columbia University. He was the chair of the president's Council of Economic Advisors under Clinton. He served as Senior Vice President and Chief Economist at the World Bank from 1997 to 2000. He was awarded the Nobel Prize in Economics in 2001. There should be no disputing that he is eminently qualified in the field of economics, which is all the more reason for you to pay attention to what he says about the Federal Reserve. Speaking at a conference held by the Roosevelt Institute, he said that if a country had come to the World Bank under his tenure seeking aid, while maintaining a financial regulatory system like the Federal Reserve, it would have raised very big alarms:

"If we had seen a governance structure that corresponds to our Federal Reserve system, we would have been yelling and screaming and saying that country does not deserve any assistance, this is a corrupt governing structure," Stiglitz said during a conference on financial reform in New York. "It's time for us to reflect on our own structure today, and to say there are parts that can be improved."

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Building lifeboats

I know that my past few posts have been bleak (see here and here), but now I must temper that sense of despair with some hope. Things are bad, and will probably get worse, but that's not to say that they will not get better. But here's the trick: we all have to stop relying upon someone else for solutions. Forgive me if I sound like a politician for just a moment: we must "be the change" we want to see in the world. I cannot tell you how to solve the peak oil problem, or the unfolding economic collapse, or climate change, or the corruption which has become endemic in our political system-- you have to figure it out for yourself. I'm not selling a prepackaged kit which contains all of the answers, and I would probably distrust anyone who was. But that's precisely why I still have hope. If we are going to make it through the challenges facing us, we must learn to pull together again as a community and actually attempt to create our own solutions. There can be no more delegation to those in Washington. We cannot afford to wait for decades as they attempt to muster the political will to combat the flood of money which has so damaged our electoral and political processes. We simply don't have time to fix the system that's been damaged beyond repair.

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How do Wall Street banks make their money?

In the March 4, 2000 episode of Rolling Stone, Matt Taibbi answers a question on many peoples' minds: To exactly does Wall Street make so much money that it could hand out multi-billions of dollars in bonuses last year and this year? The story of Taibbi detailed article is that the Wall Street banks use at least seven major scams to make their money, and most of them involve taking advantage of American taxpayers. The seven scams can be summarized in one principle: "the answer . . . is basically twofold: they raped the taxpayer, and they raped their clients." Taibbi's entire article is available online. If the extremes, the corruption and the opacity of Wall Street have angered you, you'll appreciate Taibbi's facts, as well as his colorful descriptions. The first of the seven major cons described by Taibbi is the "Swoop and Squat," by which Taibbi is referring to the fact that AIG should not have been able to hand over big chunks of cash to a single creditor like Goldman when AIG was about to go belly up. Taibbi correctly refers to this maneuver as a "fraudulent conveyance." That money accounts for $19 billion in cash that Goldman would not have had without the massive intervention by the United States. As Taibbi asks: "To is that $13.4 billion in 2009 profits looking now?" Taibbi cautions that these numbers don't even include the direct bailouts of Goldman Sachs and other big banks. I'll mention one more of the seven major Wall Street cons described by Taibbi: "The Dollar store." Less than a week after the AIG bailout, Goldman and another investment bank, Morgan Stanley applied for and received permission to become bank holding companies, which made them available for increased federal financial support. Why would they do that? You probably won't read this anywhere in your local newspaper, because it's real news.

Institutions that were, in reality, high risk gambling houses were allowed to masquerade as conservative commercial banks. As a result of this new designation, they were given access to a virtually endless stream of "free money" courtesy of unsuspecting taxpayers. The $10 billion that Goldman received under the better-known TARP bailout was chump change in comparison to the smorgasbord of direct and indirect aid it qualified for as a commercial bank.

When Goldman Sachs and Morgan Stanley received those expedited federal bank charters, they were given permission to go to the Fed to borrow huge amounts of money at 0%. Taibbi points out that without this federal gravy, these banks would've totally collapsed, because they had no other way to raise capital at the time. Consider what the banks did with this taxpayer money, however.

Borrowing at 0% interest, banks like Goldman now have virtually infinite ways to make money. In one of the most common maneuvers, they simply took the money they brought from the government at 0% and went it back to the government by buying treasury bills that pay interest of three or 4%. It was basically a license to print money--no different than attaching an ATM to the side of the Federal Reserve.

Taibbi writes that that "The Dollar Store" goes a long way to explaining the enormous profits of Goldman Sachs last year. The entire article is well worth reading. Taibbi has once again done a terrific job of describing the corrupt ways of Washington and Wall Street.

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