AFL-CIO: Stronger Financial Reform Would Have Saved Jobs

By Simon Johnson

The Brown-Kaufman SAFE Banking Amendment proposed a hard size cap on our largest banks, limiting their assets to a very small fraction of the size of our economy.  The premise was simple – and could fit on a bumper sticker (or in a campaign flyer for November) – “too big to fail” is too big to exist.

But this proposal to modify the Dodd-Frank financial reform bill failed in the Senate in early May, by a vote of 33-61, with 27 Democrats voting against the idea.  Since that time, Democratic supporters have been asking their representatives the obvious question: Why did you vote against Brown-Kaufman?

Interestingly, no senators yet have replied – at least on the record – that the power of the megabanks was too great to be overcome.  Instead, there are three main arguments going the rounds.

First, some argue that the Brown-Kaufman would by itself not have completely solved all the problems that can cause our financial system to meltdown.  As one senator put it in a recent letter, “[Brown-Kaufman] would not solve the problem of systemic risk and systemically important institutions in a comprehensive manner.”

Another senator claims in a recent email to a constituent, “The notion of “too big to fail” is not simply about size, but is more about risk, leverage and interconnectedness; in many instances, breaking up financial institutions is not the most effective way to curb risk.”

These are odd arguments, because no one ever claimed that limiting the size of our largest banks was sufficient for financial stability.  Rather the argument was that this step was necessary – given the political power of these banks and their manifest ability to individually (and collectively) wreck great damage.

In addition, while the slogan “it’s all about interconnectedness” sounds fine at the level of sound bites, the harsh reality is that the very best technology available for measuring interconnectedness between financial institutions is still a long way from being ready to guide policy.  If you are waiting for the government to get a firm grip on this concept and, for example, for the Federal Reserve to do something about it, you will wait a very long time.

Second, it is also claimed – for example by leading members of the administration (in private) – that Brown-Kaufman would somehow have led to job losses and lower tax revenue.    This is also an odd claim, because the amendment had a three year phase in period, which would have provided ample time for the financial system to adjust.

Rich Trumka, President of the AFL-CIO, has waded in on that specific issue, in a detailed written exchange with one member of Congress that refutes the claims of likely job losses.  As Trumka puts it,

“Moreover, it was the financial crisis and the reckless speculation of too big to fail financial institutions that caused 8 million working people to lose their jobs and huge drops in the stock market and losses to pension funds.”

The big potential distortion in our lending markets moving forward, as Trumka points out, is that “too big to fail” banks can borrow more cheaply than their competitors – because their creditors feel there is an additional level of implicit government guarantee available to the biggest banks, precisely because their failure would cause an unacceptable level of collateral damage. 

Nothing in the market reaction since Dodd-Frank passed suggests that this perception – and this reality – has at all changed.  Such a distorted system most likely leads to further financial excess – followed by crash and painful rounds of job loss.

Third, it is claimed that Brown-Kaufman would “affect the global competitiveness of US banks and could potentially undercut our banks’ ability to finance the largest companies worldwide.”

This is completely implausible.  Brown-Kaufman would have reduced the size of precisely five large banks – and it would have reduced them to a size they last had a decade or so ago, when both the financial system and the nonfinancial part of the economy were much healthier.  There is precisely zero evidence that the nonfinancial part of our economy would have been harmed.

Trumka sums it all up well, “By voting against the amendment, you voted to continue the status quo, to avoid addressing the problem of too big to fail institutions and to leave our economy at risk of another financial crisis  precipitated by the failure of a systemically risky institution.”

An edited version of this post appeared this morning on the NYT.com’s Economix; it is used here with permission.  If you wish to republish the entire entry, please contact the New York Times.

84 responses to “AFL-CIO: Stronger Financial Reform Would Have Saved Jobs

  1. If you come to think about it, there are not too many things we still do well in this country. You can easily tell those by looking at what is moving a lot money: banks, defense, medical-complex, higher-ed, bureaucracy. What is actually MAKING a lot of money is a different conversation, for capitalism believes more than anything in transactions.

    Now, why would those in power take down one of the money-moving mechanisms, especially when it helped them put Greece/Euro on its knees?

    No, they won’t take finance down; we’ll go down and one of the few things still standing is going to be finance, albeit a much paler version of it.

  2. “US banks receive Basel III boost… The analysis by BarCap’s debt capital markets group estimates that the 35 largest US banks will have to come up with half as much new capital as had been expected following last month’s rewrite of proposed requirements by the Basel Committee on Banking Supervision.”

    http://www.ft.com/cms/s/0/0d54e652-ab01-11df-9e6b-00144feabdc0.html

    Our leaders have to failed to understand the danger of leverage in the banking system. Even in the face of Lehman and AIG. Thus, they could not bring themselves to vote for an amendment that would reduce leverage and too big to fail.

    “BarCap, for example, estimates that the 35 largest US bank holding companies will need to come up with $115bn in new equity or retained earnings to bring the ratio of their equity tier one capital to risk-weighted assets – a key measure of financial strength – to 8 per cent under the revised rules.” ….

    “That is about half the $225bn in new capital the biggest US banks would have had to raise under a tougher draft of the rules circulated in December, said BarCap’s Tom McGuire, whose unit did the calculations.” …

    “The difference comes from a series of compromises allowing banks to keep tax credits, mortgage servicing agreements and other assets in their calculation of their tier one capital.”

    It would seem that the purpose of tier one capital is solvency, with enough capital to weather a storm without collapsing. Additionally, tier one capital should be real cash and not bogus mark to model/myth securities that have little value in a crisis. The guaranteed deposits which are highly levered will not be returned to depositors in a real crisis because there is not enough money in FDIC and it is impossible for sovereigns to pay the depositors.

    It is all smoke and mirrors. We have set the course for the next crisis.

  3. Mr. Johnson,

    I seem to recall you and Mr. Kwak writing over the past year that breaking up TBTF banks WOULD decrease risk or the fragility of the banking system, am I wrong on that?
    The political argument against big banks that you are now making is new, to me anyway.
    Anyway, once again you’ve not answered Paul Krugman’s arguments against TBTF, that is, you regulate what banks do, not how big they are. That a tiny hedge fund, LTCM nearly brought down the world financial system in the 90s, so was it TBTF? That Canada is dominated by 4 or 5 large banks, but did not experience any of the systemic problems the US did?
    You have no response to these objections as far as I know, therefore you’re just a YAT, not someone from Metairie, La. but “Yet Another Technocrat” and entirely useless.

  4. The three “responses” are clear lies.

    The first boils down to, if you can’t do everything at once you shouldn’t do anything at all (and also includes the straw man that breaking up the big banks was the only thing which needed to be done).

    In that case, why pass any bill at all, since by their own contention it’s a sham since it’s incomplete? (The first response implicitly grants that the kind of policy represented by Brown-Kaufamnn is part of the package of things to be done; so according to it any bill which didn’t include this was incomplete.)

    The second is a lie on its face. We’ve already lost millions of jobs and will continue to lose them, precisely because of the policy which includes the Bailout and this sham bill.

    Part of the purpose of the bill is to normalize permanent mass unemployment.

    As for the crocodile tears over lost tax revenue, why are there controversies over the Bush tax cuts and the rentier parasite (estate) tax? By definition anyone who cared about tax revenues would solve these problems, and the Dems have the votes to do so, as they’ve had since 2007.

    The third has been exposed as a lie a thousand times over, including here at Baseline. Even granted the premise of globalization (which we must not grant), banks will have far more competition once they’re broken up and restored to economically functional activities (sometimes called “boring” banking), and as things are big loans are already syndicated, so size is no need here either.

    Of course, these “arguments” for why they voted against it are all fraudulent, as is this one:

    Interestingly, no senators yet have replied – at least on the record – that the power of the megabanks was too great to be overcome. Instead, there are three main arguments going the rounds.

    The reason 61 senators voted against it is because they are in fact against it. It’s false to think there was anyone who wanted this policy but was soemhow “forced” to vote against it. They voted exactly the way they wanted to.

    They’re corporatist ideologues and they’re corrupt. In both ways, they are criminals.

    That’s why they didn’t vote for it.

  5. If only banks grew to be too big to fail with muscles. The real problem though is that the banks are growing to be too obese to fail.

    I have just read the “Interim Report: Assessing the macroeconomic impact of the transition to stronger capital and liquidity requirements” produced by the Macroeconomic Assessment Group established by the Financial Stability Board and the Basel Committee on Banking Supervision.” August 2010.

    By far the most prominent feature of the current bank regulations is that it discriminates the capital requirements for the banks based on the perceived risk of default, and therefore for instance allows a bank to leverage up their capital 62.5 times to 1 when lending or investing to triple-A rated clients while only permitting them to leverage up 12.5 to 1 when lending to unrated small businesses and entrepreneurs.

    If a triple A rated client presented the banks with a margin of .5 percent then had it been regulated like when the bank lent to the small business, it would have produced the bank a return of 6.25 percent, decent but nothing to write home about. Instead because of the regulators’ inexplicable largess it could obtain a return of 31.25 percent a year. No wonder our banks disappeared in the AAA swamps and our small businesses and entrepreneurs, whom we depend so much for our next generation of decent jobs are ignored.

    Since the existence of the discrimination which obviously must have macroeconomic impact, is not even mentioned as a problem, much less studied, I assume the document to be basically worthless, as it clearly reflects that those who wrote it know little about banking and care even less about its purpose.

    Basically it is the same authors, or type of authors who, in “An Explanatory Note on the Basel II IRB Risk Weight Functions” of July 2005, produced a prime candidate for the mother of all bullshit papers ever, where they assured us that “The confidence level is fixed at 99.9%, i.e. an institution is expected to suffer losses that exceed its level of tier 1 and tier 2 capital on average once in a thousand years.”

    Indeed, we’re in big trouble with these financial regulators!

  6. No hope from Basel for those disliking fractional banking:

    The central bankers and regulators, meeting at the Bank for International Settlements in Basel, Switzerland, agreed on a new 3 percent leverage ratio to apply to banks around the world, they said in a statement. The ratio will be tested from 2013 until 2017, and banks would be required to start publishing their individual leverage figures starting in 2015.

    NYTimes goes on to title its newpiece in these terms: Long-Term Gain Seen From Bank Capital Rules

    http://dealbook.blogs.nytimes.com/2010/08/18/bank-capital-rules-could-stifle-growth-studies-assert/?scp=6&sq=basel&st=cse

  7. Canada’s 5 chartered banks may not have demonstrated the same course taken in the US banking crisis but the federal government underwrites mortgages by way of Canadian Mortgage and Housing Corp relieving the big banks of any liabilities in a housing crisis and shifting it onto the taxpayers of Canada. Only TD Bank did not take on sub-primes.

  8. Right on, Russ. The system is criminal from the Congress and Executive to Wall Street and beyond.

  9. You haven’t been paying attention, dude. Simon and James have always maintained that limiting bank size decreases risk in the system. They’ve never said that decreasing bank size is sufficient to remove all risk. Simon actually uses that “sufficient” word often. Whether you subscribe to it or not, his arguments today are pretty much consisten with what he’s been saying the past 2 years (since I’ve been reading this blog). Thank God I have an easy job and I can mine these blogs all day. . .

  10. ECON, criminality would imply intent? Or the system simply cannot work any other way…

    At some point or another, one can see mighty plenty of intent, but I doubt our system can work any other way.

    If we didn’t do/say enough when it was going up, why the indignation now?

    BTW, I dislike it just as much as the next guy. The real question is if can indeed get out of it and have real reform–this is a question I’ve been struggling for some time with, mostly here http://imotion.blogspot.com

    Respectfully Yours, fCh

  11. “it’s all about interconnectedness”

    It’s all about rake!

  12. People should read Matt Taibi’s ‘chronicles
    of the ‘Fin-Reg’shredding process:

    Financial Reform Vote-Buying, Chapter 1
    http://www.rollingstone.com/politics/matt-taibbi/blogs/TaibbiData_May2010/181648/83512 + 2 feature articles in RS

  13. Russ, “The second is a lie on its face. We’ve already lost millions of jobs and will continue to lose them, precisely because of the policy which includes the Bailout and this sham bill.

    Part of the purpose of the bill is to normalize permanent mass unemployment.”

    If part of this bill is to normalize permanent mass unemployment, then we have nothing in the way of “government” or “civilization” left to speak of. They might as well show up at the front door with a Leggs stocking pulled over their faces and an Uzi in hand as that is would be the HONEST wild west version of this INCREASINGLY vicious strategy of the criminally insane.

    Two years of churning and churning and churning…waking up every morning to find a NEW way to bring down USA by screwing one USA citizen mano et mano – one person at a time….thanks Homeland Security!

    There is no way to hide the INCOMPETENCE of the Middle East. Instead of dealing with the natives and HARD LABOR issues involved in civilizing the continent of Africa (MIDDLE EAST responsibility) – what are they doing instead? Yup, psychobabling 24/7 on the FCC airwaves over USA…

    What do Blago and Martha Stewart have in common? :-)

    They were on the same LIST….shall we talk about which “culture INVENTED

    VICIOUS “discrimination”?

    Once again, thanks Homeland Security! Have a GREAT day keeping us all “safe” from the predator class.

  14. Imagine if half, or some significant part of the 14 TRILLION dollars in direct aid, zero percent loans, and other unknown unknown forms of government largess funnelled into the offshore account of the predatorclass and the finance oligarchs over the past two brutal years, – had instead been directed toward public works projects, green technology infrastructure, infrastructure repair, zero interest small business loans, and direct aid to States and workers. Imagine the den of vipers and thieves in the TBTF oligarchs were punished for their crimes and grotesque FAILURE, and the oligarchs were dismantled through a resolutiontrust like substance? Would the economy still be teetering on the brink of insolvency as it supposedly was in the Fall of 2008, and obviously is today, since NOTHING meaningful has changed?

    The predatorclass and TBTF oligarchs extort money from the government, or bribe officials if necessary and threaten to tank the economy and shut down the credit markets, – if all the nations wealth and resources is not channeled into predatorclass and TBTF oligarch offshore accounts.

    Sadly our purchased craven gutless leaders bowed to the omnipotent will of the predatorclass, and funneled 14 TRILLION taxpayer dollars into the offshore accounts of the predatorclass den of vipers and thieves (.5% of population) who are singularly and exclusively responsible for piloting the entire global financial system to ruin. And the people are much worse off today than in 2008, while the predatorclass and the TBTF oligarchs are even more imponderably wealthy and more insulated, protected, immunized by the licking spaniels in the socalled government.

    The predatorclass is prosecuting war, (some call it economic warfare) on America’s poor and middleclass.

    An entire economy based on debt and collatoralized or securitized debt products is laughable on its face. How is this conjuring not an elaborate complex PONZI scheme?
    Why is it only the predatorclass and predatorclass oligarchs that benefit when there are exorbitant profits, and even after catastrophic FAILURE?
    What idiot would believe that an economy based on, and rooted debt, and quantumdebt products has any substantive value or longterm future? It’s a joke.

    Crimes were and are being committed. We either right these horrible wrongs, call the predatorclass and TBTF oligarchs bluff on the extortion threats – and put these den of vipers and thieves back in the keep, and out of business, – or we are certain to face an even more catastrophic financial collapse in the near future.

    The predatorclass and the TBTF oligarchs are arch enemies of the people, presenting dire threats to our lives, and the futures of our children, and must be appreciated and treated accordingly.

    Tear this monstrous system apart!!!

  15. Simon J Needs an Internship

    The real problem with Johnson’s argument is that the under-educated is now relying on the ill-informed to make their argumnets, which are lies in themselves. For example, Jhonson quotes a lie from Trumka to argue his case,

    “Moreover, it was the financial crisis and the reckless speculation of too big to fail financial institutions that caused 8 million working people to lose their jobs and huge drops in the stock market and losses to pension funds.”

    Over 2M americans recklessly speculating and aggressively bidding up home prices and then many of them walking away from their mortgages is now suddenly attributed to the respected financial institutions that keep the country running?

    Shame on Johnson for propping up the lies of Trumka.

    It is encouraging to see that the only folks want to read his book want to read it only if it available free of cost from the local library.

  16. Intern wrote:

    “The real problem… is that the under-educated is now relying on lies…”

    The following, is available, free of cost.

  17. or…must be over 18+

  18. Tony, “Tear this monstrous system apart!!!”

    People who LOVE money have carefully culled the gene pool for those who will do anything for the money.

    Feeding tons of data on “middle class USA citizens” up into a “secret” management cabal for a “mission” that,

    as a Homeland Security employees you have NO RIGHT to question what they are going to do to that person,

    is NOT a “job” – is it?

    The thread to UNRAVEL the whole monstrous system is The Patriot Act – warrantless culling of data is an unspeakable CRIME.

  19. The political argument HAS been described in this blog, but much more fully in the book. Read it.

  20. wow…relying on the AFL-CIO for economic analysis..how was the beach?

  21. Simon J Needs an Internship

    Haha. is that all you can think of?

  22. Bruce E. Woych

    See: some shadow history and financial “real politik”

    http://www.informationclearinghouse.info/article3308.htm

    and :
    The real story
    of the BCCI
    by Bill Engdahl and Jeffrey Steinberg

    In the summer of 1991, the Bank of England took the unprecedented step of shutting down one of the world’s largest banks, the Bank of Credit and Commerce International. Soon afterwards, the District Attorney of Manhattan, Robert Morgenthau, handed down criminal indictments against top officials of the bank. Soon, the popular media were filled with tales of drug-money laundering, bankrolling of Middle East terrorists, underwriting of Saddam Hussein’s quest for a nuclear bomb, etc. BCCI was linked to some of the Persian Gulf’s wealthiest sheiks, and was described as a secret slush fund for the Central Intelligence Agency. Time magazine even quoted CIA head Robert Gates, referring to BCCI as the “Bank of Crooks and Criminals International.”

    Two rather critical facts, however, were invariably left out of the story—even during the lengthy soap opera trial of former BCCI attorney Robert Altman.

    The first fact was the extraordinarily close alliance between BCCI and some of Britain’s most powerful financial houses and aristocratic families.

    The second fact was that BCCI was created, and then built up as a “world class” bank,….”(read on)http://www.larouchepub.com/other/1995/2241_bcci.html

    ALSO CHECK OUT:

    http://www.informationclearinghouse.info/article26187.htm

    “TO BIG TO FAIL AND TOO BIG TO JAIL” BY News Dissector Danny Schechter : Plunder The Crime of Our Time, now available on DVD with a companion book. Comments to dissector@mediachannel.org

  23. Bayard Waterbury

    Having read both your article and the bloggers to follow, I must say, I am impressed (maybe not so much with the Zoloft/Extasy person, but generally otherwise). I am amazed, considering the levels of both intellect AND common sense (amazing that we call it that, since it seems somehow dreadfully uncommon in today’s world), that not one of you raised the core issue. That is the broad international oligarchy at work in the world at large. I am not a conspiracy theorist, nor do I intend to argue that the Bilderberg Group or others are conspiring to take over the planet. I just think that until at least America can reform its laws governing elections, tenure in office and lobbying, we will continue to travel down the doom highway. I know that most of you believe that finance is the most powerful oligarchy in the US (or at least I assume it). Perhaps it is globally, but in America we are fully dominated by the Military-Industrial Complex. When we look at campaign contributors, they are not so huge, but they are the biggest reason that it is so hard to unseat a tenured elected official, and so hard to direct our national budget in constructive ways. Yes, the biggest banks are making progress difficult, but if we took half of the real military spending (more than one trillion in reality), and directed it to the many needs of this country, we could actually be much safer and much more successful on a per capita basis. Yes, we are dominated by the oligarchies (that would be at least food, petroleum, electronics, communication, media, finance, health care, and general manufacturing) and as a result, America has become the world’s greatest plutocracy since the Soviet Union became saner. Russia is still that way, but, believe it or not, the average Russian citizen gets a better education, eats as well, has just as good health care, and actually has a chance at becoming middle class. All that in a country where the majority of real estate is still government owned (because they haven’t yet figured out how to make it otherwise. They instituted a flat tax and now are actually generating enough in revenues to have very little national debt. Their oligarch work with the government to achieve governmental objectives, because somehow the super wealthy have come to understand that they actually have a stake in the success of the nation generally. Somehow our oligarchs have decided that the nation can damned well fall apart and they will be just fine thank you very much. Sad. I think they may soon realize that this country actually can’t survive the morality generated by their unmitigated greed and complete failure to understand that the wealthiest actually have the largest stake in a country’s success. But, oh well, I can’t do anything about this all alone.

    We live in an age where our media majority is so caught up in the day’s bogus headliners that they just ignore the big picture, but then, if they really act like the big picture is important, who, of the oligarchies will advertise on the ones who do.

  24. “First, some argue that the Brown-Kaufman would by itself not have completely solved all the problems that can cause our financial system to meltdown. As one senator put it in a recent letter, “[Brown-Kaufman] would not solve the problem of systemic risk and systemically important institutions in a comprehensive manner.”

    Another senator claims in a recent email to a constituent, “The notion of “too big to fail” is not simply about size, but is more about risk, leverage and interconnectedness; in many instances, breaking up financial institutions is not the most effective way to curb risk.”

    These are odd arguments, because no one ever claimed that limiting the size of our largest banks was sufficient for financial stability. Rather the argument was that this step was necessary – given the political power of these banks and their manifest ability to individually (and collectively) wreck great damage.”

    Whoever these two senators are, they are correct. The reason they are correct is because they understand where the systemic risk is coming from. However, that is not sufficient justification for voting against [Brown-Kaufman]. And further, because they understand systemic risk, they had an obligation to do something about it.

    Consider the following which shows where some of the systemic risk is located. But keep in mind that more than banks are trading these interest rate futures and options.

    Interest rate futures contracts and options traded on the CME Group (Chicago) had the following valuations based on open interest and contract size at the end of July 2010.

    Eurodollar 20.600 Trillion

    10 Yr Note .342 “

    5 Yr Note .104 “

    FederalFunds 10.390 “

    Eurodollar

    Mid Curve 4.525 “

    Total 35.961 Trillion dollars.

    All of the above are interest rate exposure only. And who sets the price of money? All of the government securities on banks balance sheets, if marked to market, have very nice appreciation since interest rates are now near zero. (Who said the banks have to buy government securities.) The case can be made that banks have positions in the above numbers which minimize their risk. You don’t want to be long these contracts and options if the price of money changes. This is where the systemic risk lies.

  25. You know, here is the thing about Chris Dodd. We could say he ruined his legacy by this one single action, see here:

    http://www.huffingtonpost.com/2010/08/12/chris-dodd-top-democrat-f_n_680123.html

    But Senator Dodd didn’t really ruin his legacy, because the only legacy I can think the man has is putting drinks back with Ted Kennedy.

    Actually I don’t like to land punches this low, honestly I don’t. But when the man sells out his country as he’s leaving office, what am I left with to say about the man??? Anybody…….??

  26. Yes, how dare the working men and women of this country have an opinion on the economic policies of this nation!!! What unmitigated gall eh??? Next thing you know they’ll be asking cops how to better prevent crime. This madness must end!!!

    We should check with Dick Cheney, Newt Gingrich, AEI (American Enterprise Institute) and the Hoover Institute before we make any of the slightest economic moves. And don’t forget the ABA (American Bankers Association). I kneel and pray to their posters for answers before I fall asleep at night. I already wore out the glossy paper of my Palin and Reagan posters kissing them.

  27. Time to fess up. Who actually wrote this post? Was it done by someone else and then reviewed by Simon? Did Simon ever actually look at it? Or did he write it and then someone made a booboo in editing?

    Highly educated people with English as their first language would never make the “wreck havoc” mistake.

    Please explain.

    Regarding the rest of it: What difference does it make? We’re going down, going down hard. They can save all the analysis for chitchat on the WPA work gangs.

  28. Or even more curious: “wreck damage” as is actually written.

    That’s a twofer: two usage errors.

  29. markets.aurelius

    intern, you deliberately ignore the massive fraud in the mortgage market aided and abetted by the banks and former investment banks, many of which bought mortgage-processors that ultimately smoothed the way for this fraud. By 2004, the FBI was testifying this was a massive case of abuse of the financial system from the start of the process — the clerk filling out an app — thru to the securitization by the banks, who willfully ignored this fraud.

    Have a look: http://www.fbi.gov/congress/congress04/swecker100704.htm

    How’s this for prescient:

    “Market Impact:

    The potential impact of mortgage fraud on financial institutions and the stock market is clear. If fraudulent practices become systemic within the mortgage industry and mortgage fraud is allowed to become unrestrained, it will ultimately place financial institutions at risk and have adverse effects on the stock market. Investors may lose faith and require higher returns from mortgage backed securities. This may result in higher interest rates and fees paid by borrowers and limit the amount of investment funds available for mortgage loans.

    Often times, mortgage loans are sold in secondary markets or are used by financial institutions as collateral for other investments. Repurchase agreements have been utilized by investors for protection against mortgage fraud. When loans sold in the secondary market default and have fraudulent or material misrepresentation, loans are repurchased by the lending financial institution based on a “repurchase agreement.” As a result, these loans become a non performing asset. In extreme fraud cases, the mortgage backed security is worthless. Mortgage fraud losses adversely affect loan loss reserves, profits, liquidity levels and capitalization ratios, ultimately affecting the soundness of the financial institution.”

    That and more. In order to keep feeding the machine, the banks and former investment banks created securities that paid off based on the performance of securities on the bundles of mortgages, so great was the desire to sell this drek and pump the engine. And the banks got the ratings agencies to proclaim this stuff AAA. Could it be more silly?

    As a taxpayer and citizen, I would like to see these investigations extended all the way up thru the food chain. There are a lot of records, wiretaps, carnivore-hacks awaiting the light of day.

  30. Sufficiently CRIMINAL indeed, with presumed intent. Soon the criminal thugs will snuff out internet dissent. If China does it, the U.S. must ‘keep up,’ the thugs say. China: leading the way, in so many commercial ways.

  31. I assume you will appreciate the intellect and common sense of Michael Krieger;

    http://maxkeiser.com/2010/08/20/guest-post-the-0-blt-economy/#more-8820

  32. Puerile “internet dissent” is being carefully directed and secretly managed in such a way as to prevent bringing about the real forces of “change”.

    Yes, even China is “competing” with USA instead of developing resources on the continent of Africa.

    Stealing via “internet” psychobabble and “secret” activity from the Moon Walkers is so much easier than taming a frontier like Africa.

    Expect “slave labor” to be remain the oldest and most lucrative profession among the predator class.

    Homeland Security lined up USA citizens for exploitation by FOREIGN war lords and drug lords who have NO RECORD OF HISTORICAL SUCCESS in building and maintaining a civilization

    at a time when 7 billion people are “competing” on the planet. Thanks a pantload.

    What was the POINT of creating massive joblessness and homelessness? Did that SECURE USA “interests” for “we the people” in a world of 7 billion?!

    Get REAL about the situation for once, people.

  33. Question about strategy. If the Brown-Kaufman bill was a direct approach to break up TBTF, then are there other less direct approaches to achieve the same goals of economic security? For example, the banks not only benefit from taxpayer money through the bailouts but also generally through America’s system of tax-deferred retirement savings. Social Security, a rival to the 401K system, uses taxes to fund reliable incomes for retirees so it is subject to prudent management and is obligated to make projections 75 yrs into the future (http://www.newdeal20.org/2010/06/14/to-defict-hawks-we-the-people-know-best-on-social-security-12290/).

    However, the 401K system, which interacts heavily with the banking system and the stock market, controls a substantial portion of America’s retirement wealth but it is not subject to 75 yrs of projected solvency. 401K’s are not even required to estimate payouts and are cloaked behind disclosures that funds can increase, or can decrease. The argument for this system is that it puts retirement savings into a state of play, rather than a state of trust, and is therefore a more lucrative vehicle for retirement wealth building. However, the crash of 2008 revealed the high-risks to this system when it decimated 401K balances across the board, which had the most severe impact on retirees actively relying on those funds.

    So. If the banks are able to thwart regulations that directly take down their TBTF status, then an indirect approach could be in the form of requiring greater levels of projected solvency for tax supported retirement savings flowing through the 401Ks administered by Wall St and the banking system. That money is in a state of play for sophisticated investors but for ordinary savers, 401Ks truly are in a state of trust. And for that reason, it seems fair to clarify those relationships by strengthening the security of tax-benefited retirement funds; and use those forces as another approach to reign in the excesses of the financial system.

  34. “I kneel and pray to their posters for answers before I fall asleep at night. I already wore out the glossy paper of my Palin and Reagan posters kissing them.”

    You did not. You’ve got them framed under glass.

  35. Hey, don’t get me wrong, I have no problem with the AFL/CIO getting into the fray. I just think that Simon et al are a bit like the tired old dog who won’t give up the bone (TBTF). But instead of advancing the debate are trotting out some one elses old, retread, talking points. Hence the hope they had a pleasant day at the beach.

  36. Dear Annie,
    Glad you got back on. “what’s the POINT of creating massive joblessness and homelessness?”
    Push the violence envelope! Without a war the defense budget is not supportable.
    Labor issues seem to be the next issue to demonize. A question I have; 1. with the uproar over born citizens there is no corresponding complaint over foreign soldier enlistment citizenship. When I think of Soviet repressions, it was troops from different republics doing the enforcing. I thought our kids would never turn on us, but I’m not sure of this new breed.

  37. Oh, and another question, why in a democracy would the military side against the people?

  38. There’s a lot more murders going on intra-military, aren’t there?

    Having “foreign” soldiers in the military turns it into a mercenary army, I agree.

    Declaration of Independence and Constitution cover the whole “army” issue…

    The “new breed” is INCOMPETENT at building and maintaining a civilization. They are a CONSUMING generation. This has been obvious for a long time now…they self-identify as “consumers”, not citizens.

  39. Needed: A New Economic Paradigm

    By Joseph Stiglitz

    August 19 2010 – excerpts

    “The blame game continues over who is responsible for the worst recession since the Great Depression – the financiers who did such a bad job of managing risk or the regulators who failed to stop them. But the economics profession bears more than a little culpability. It provided the models that gave comfort to regulators that markets could be self-regulated; that they were efficient and self-correcting. The efficient markets hypothesis – the notion that market prices fully revealed all the relevant information – ruled the day. Today, not only is our economy in a shambles but so too is the economic paradigm that predominated in the years before the crisis – or at least it should be.

    It is hard for non-economists to understand how peculiar the predominant macroeconomic models were. Many assumed demand had to equal supply – and that meant there could be no unemployment. (Right now a lot of people are just enjoying an extra dose of leisure; why they are unhappy is a matter for psychiatry, not economics.)

    Many used “representative agent models” – all individuals were assumed to be identical, and this meant there could be no meaningful financial markets (who would be lending money to whom?). Information asymmetries, the cornerstone of modern economics, also had no place: they could arise only if individuals suffered from acute schizophrenia, an assumption incompatible with another of the favoured assumptions, full rationality.

    Bad models lead to bad policy: central banks, for instance, focused on the small economic inefficiencies arising from inflation, to the exclusion of the far, far greater inefficiencies arising from dysfunctional financial markets and asset price bubbles. After all, their models said that financial markets were always efficient.

    Remarkably, standard macroeconomic models did not even incorporate adequate analyses of banks. No wonder former Federal Reserve chairman Alan Greenspan, in his famous mea culpa, could express his surprise that banks did not do a better job at risk management. The real surprise was his surprise: even a cursory look at the perverse incentives confronting banks and their managers would have predicted short-sighted behaviour with excessive risk-taking…

    Changing paradigms is not easy. Too many have invested too much in the wrong models. Like the Ptolemaic attempts to preserve earth-centric views of the universe, there will be heroic efforts to add complexities and refinements to the standard paradigm. The resulting models will be an improvement and policies based on them may do better, but they too are likely to fail. Nothing less than a paradigm shift will do.

    But a new paradigm, I believe, is within our grasp: the intellectual building blocks are there and the Institute for New Economic Thinking is providing a framework for bringing the diverse group of scholars striving to create this new paradigm together. What is at stake, of course, is more than just the credibility of the economics profession or that of the policymakers who rely on their ideas: it is the stability and prosperity of our economies.”

    The writer, recipient of the 2001 Nobel Memorial Prize in economics, is University Professor at Columbia University.

  40. Per Kurowski

    Joseph Stiglitz recognizes “the invisible hand was invisible because it was not there”, and lays the blame for this squarely on “bank managers in their pursuit of their self interest”.

    But Stiglitz, is not capable, or willing, of understanding the much more important market interference played by the capital requirements for banks based on perceived risks; which regulators arbitrarily placed as a non-transparent layer of incentives and disincentives on top of the premiums used by the market to clear for risks.

    He even speaks about “excessive risk-taking” without getting that since most losses we caused not by for instance investments in Argentinean railroads, but in triple-A rated securities collateralized by mortgages, in the USA, what we really suffered from was an excessive regulatory induced risk-aversion.

    That is why I am sure that when Stiglitz mentions that he believes “a new paradigm is within our grasp” he is still just a paradigm as far away from it, as he has ever been.

  41. Per Kurowski wrote:

    “That is why I am sure that when Stiglitz mentions that he believes “a new paradigm is within our grasp” he is still just a paradigm as far away from it, as he has ever been.”

    After seeing the results of Greenspan’s Economic Shamanism, I’m willing to give others consideration.

    http://en.wikipedia.org/wiki/Shamanism

    “Get busy living or get busy dying.” SK

  42. “Sun-tzu once said, “If your enemy is superior, evade him. If angry, irritate him. If equally matched, fight….

    As we navigate this socioeconomic maelstrom, an increasing number of people are weighing their options — and some of the smarter folks I know are “going dark.”

    What does that mean? They’re selling businesses, unwinding trading operations or otherwise distancing themselves from the capital markets. The thematic reasoning is straight out of an Ayn Rand novel:

    “I can’t compete and when I do, the rules of engagement change in the middle of the game. I’ll let the powers that be vanquish themselves and return in three to five years to sift through the remains.”

  43. Per Kurowski

    Stiglitz writes above “even a cursory look at the perverse incentives confronting banks and their managers would have predicted short-sighted behaviour with excessive risk-taking…”

    If so, why did he not speak out about this before the crisis?

    I at least, while an Executive Director at the World Bank, in a formal statement at the Board in October 2004, kept busy living warning “We believe that much of the world’s financial markets are currently being dangerously overstretched through an exaggerated reliance on intrinsically weak financial models that are based on very short series of statistical evidence and very doubtful volatility assumptions.”

    I at least, in 1999 and long before the AAA-bomb exploded kept busy writing “The possible Big Bang that scares me the most is the one that could happen the day those genius bank regulators in Basel, playing Gods, manage to introduce a systemic error in the financial system, which will cause the collapse” and later in 2003 I was certain that something really bad was going to happen, because using the credit ratings the way they were used was setting us up for the “mother of all systemic risks”.

  44. Per Kurowski

    And when they do… what do they do with their money… gold?

  45. Per Kurowski wrote:

    “If so, why did he (Stiglitz) not speak out about this before the crisis?… later in 2003 I was certain that something really bad was going to happen….”

    Great minds think alike.

    “Happy Days Are Not Here Again”

    2003-08-06

    “So Americans are right not to let declarations about the end of the US recession make them feel good. Weak economic performance–whether it is called a recession or not–smells just as bad. Those responsible for such economic mismanagement should be held accountable.”

    – Joseph E. Stiglitz

    http://www.project-syndicate.org/commentary/stiglitz36/English

    Project Syndicate

    “Finance is a means to an end, not an end in itself. It is supposed to serve the interests of the rest of society, not the other way around.”

    Joseph E. Stiglitz

    http://www.project-syndicate.org/commentary/stiglitz127/English

  46. Per Kurowski

    The first quote you make is just a generic part of a discourse and it is really hard to read in them a specific warning about anything specific.

    For instance though Stiglitz should have been completely aware of that bank capital requirements based on risk, is equal to a regressive and discriminatory tax on those perceived as riskier, like small businessmen and entrepreneurs, and a regulatory handout to those who already made it to AAA and should presumably not need further help, he kept silence on it, and still does, because it is not in his agenda to blame regulators… much less holding them accountable.

    The second quote, only from about a month ago, “Finance is a means to an end, not an end in itself” leaves open the question of “what do the regulators think the role of the banks is. Since 1997 I have been protesting loud that the bank regulations coming out of the Basel Committee do not have a single word about the purpose of the banks… Again on this Stiglitz is silent… at least as far as I know… though of course I could be wrong.

    Why do I get upset with Stiglitz? Because he occupies so much of the debate without really wanting to take anything but his own traditional agenda further and a suffering world should have the right to expect more, especially from an intelligent Nobel-prize winner.

  47. Indeed the 64 bazillion $$$ question for the new world order:

    “What do the regulators think the role of the banks is?”

    uh, God’s work – hoarding cash for corporations since corporations are “people”?

  48. Watch The Secret of Oz

    Then you’ll understand the only solution to the financial situation is to end the debt as money paradigm. In the U.S. this means the end of the Federal Reserve and the issuance of “greenbacks.”

  49. Bruce wrote:

    “… that not one of you raised the core issue. That is the broad international oligarchy at work in the world at large.”

    Actually, Bruce E. Woych did raise that particular CORE issue! If you click through to the page underneath, I am confident that you will able to connect the dots. Please only connect the FACTUAL dots, as we do not want to be named and shamed as conspiracy theorists here on this blog. It is therefore advisable and more distinguished to speak of ruthless opportunistic profit seekers (birds of one feather) when discussing the broad international oligarchy.

    You might want to check out this page.

    http://www.informationclearinghouse.info/article3255.htm

    Furthermore, the man underneath, whom I once regarded as the grandfather of my home country, was the co-founder of the Bilderberg Group. He has also worked for IG Farben. The company with whom Standard Oil made a lucrative deal providing jet fuel to the Third Reich. The family he married into has an undisclosed amount of shares in Shell(?). In the year 1949, four years after the atrocities of WWII, the Netherlands government decided to first cull 150.000 Indonesians before they granted independence to the Republic of Indonesia. Shell had sizeable interest in Indonesia. The executive branch of the Dutch government is headed by the King and the Ministers until this very day. European aristocratic families have hired tremendously skilled P.R. firms in making them look respectable. It is also a well-known fact in Europe that a majority of those families have descended from ordinary war-lords.

    http://en.wikipedia.org/wiki/Prince_Bernhard_of_Lippe-Biesterfeld

    This is NOT about nations. I repeat this is NOT ABOUT NATIONS.

    (You might want to watch Zeitgeist: Addendum and/or Federal Reserve.)

  50. Rectification!

    Bayard Waterbury wrote:

    “… that not one of you raised the core issue. That is the broad international oligarchy at work in the world at large.”

  51. Zeitgeist: Addendum by Peter Joseph. Full movie

    Sharing this movie is encouraged.

  52. “And that after this is accomplished, and the brave new world begins

    When all men are paid for existing and no man must pay for his sins..”

    Rudyard Kipling, 1919, The Gods of the Copybook Heading

    “The central message of the poem is that basic and unvarying aspects of human nature will always re-emerge in every society.”

  53. I am afraid so Rickk, it is really something that is stuck to humanity it seems. This time we have evolved so far that we can easily destroy our planet and anything on it. Would that not imply that we have evolved enough to do a 180 and live and work together in relative harmony.

    You do not have to be neither a hippie or a tree hugger to understand that the texts underneath do hold up some fundemental truths about our societies.
    The holistic approach is rather refreshing I would say.

    http://www.iosho.com/Excerpts/Successful%20Criminals%20in%20Politics%20and%20Religion.html

  54. markets.aurelius

    Keep going, Per. You’ve got the right track here. Markets do work, but there is no defense against fraud when the people running the machine are intent on getting rich at any cost. When there’s no governor (i.e., that thing on engines that controls speed), or when a concerted effort is made to completely undermine the regulatory framework at every turn the instance of failure is only a matter of when, not if.

    http://www.nytimes.com/2008/10/03/business/03sec.html?_r=3&pagewanted=all

    We have just lived thru complete and total regulatory failure, occasioned by complete and total regulatory capture. The consequences are not unexpected.

    We have just lived thru a complete and total socialization of losses at these banks. There’s a revision to Marx that’ll come out of all this which will make the careeers of many after it’s been written up.

    And now, federal governments insist on pretending everything’s been attended to and a new normalcy will ensue. The regulatory preferences and allowances for AAA securities you’ve noted for years, the Basel III framework, …, all of it is formed by and implemented by the banks themselves. And all of it is developed for one reason and one reason only — to massively expand leverage, so that the sliver of equity the bank managers risk (not their shareholders) pays off like a lottery ticket. Every year. Year in and year out.

    This is the genius of modern banking.

    The markets know this. Anyone who makes a living in markets can see it immediately. And it is not good. The full faith and credit of central governments just means you’re dealing with counterparts who can be — and are encouraged to be by their managers — completely reckless. The real capital supporting these financial institutions has been completely hollowed out. As anyone familiar with the Federal Reserve’s balance sheet can attest to.

    Households know this too. This is the significance of the comments of Mr. Trumka. The fact that he has weighed in is important not because he’s a union leader. It’s significance lies in the fact that this very clear-headed assessment comes from way beyond the realm of finance. His constituency labors for wages. It is not without its faults and sins. And it is not without its fully dedicated effort to secure as much preference from the federal government as it possibly can. Nor is it immune to the temptations of fortunes accumulated with a minimum of risk. We all realize labor has its own agenda.

    Market participants and households both know we’re heading for another train wreck. So everyone’s hunkered down.

    Anyone who’s been paying attention for the past 5 or 6 years realizes the only economic innovation we’ve seen has been the banks’ and former investment banks’ success in getting a complete and unconditional guarantee for unconstrained risk taking at the expense of the penultimate guarantor, the federal government.

    And any market participant or head of household realizes the tab will be paid out of the hides of the ultimate guarantor, i.e., the taxpayer. At some point the ultimate guarantor will say, “enough,” and and hit the re-start button. It happened during the late 18th century here. And for many of the same reasons.

  55. Please read:

    “Where do bankers´ bonuses come from?” http://bit.ly/a38gno

    and “What do the financial regulations say about the mental capacity of the regulators, and ours?” http://bit.ly/boXbbp

    they’re both short!

  56. markets.aurelius

    Good stuff. Thank you. Your quadrangles are a perfect model for depicting this mess.

  57. Ah yes, “human nature”…

    Personally, I’d wish they’d stop pretending that they are “moral” leaders when in fact they have copied Jim Jones and the herding of “hippies” into Jonestown for extermination via injection…indeed “freedom of religion” has been uniquely interpreted by various USA cults since Amendment I (I couldn’t find this version on the internet today, hmmm, wonder why?)

    Amendment I.

    Religious establishment prohibited. Freedom of speech, of the press, and right to petition.
    Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.”

    I guess they should have added that the Government MUST redress the grievances. We got the “Patriot Act” instead without them SPECIFYING the next 0,1 software programming decision point back in 1776 :-)

  58. “Cold hearted orb
    That rules the night
    Removes the colours
    From our sight

    Red is gray and
    Yellow white
    But we decide
    Which is right
    And
    Which is an Illusion”

    Nights in White Satin -1967

  59. Kurowski, “For instance though Stiglitz should have been completely aware of that bank capital requirements based on risk, is equal to a regressive and discriminatory tax on those perceived as riskier, like small businessmen and entrepreneurs, and a regulatory handout to those who already made it to AAA and should presumably not need further help, he kept silence on it, and still does, because it is not in his agenda to blame regulators… much less holding them accountable.”

    Thank you for your contributions to the conversations on this website. I am learning a lot :-)

    The “riskier” group is ALSO being damaged now via “credit scores”. I was hoping at some point the issue could be addressed by people like yourself.

    There is no bail out tax $$$ to protect the “credit scores” of the unfairly treated “riskier” group you have identified so clearly

    in the enforced unemployment scam launched this week in order to alter the Nov. election cycle…

    Bad enough to be a small business before, with all that has happened, shouldn’t how “credit scores” are calculated also be “reformed”, at least in theory? :-)

  60. Re: @ rene___Please be more specific – Royal Dutch Shell, and De`Beers (worlds largest diamond industry leader) are just a small portion of this families diverse wealth.

  61. Too big to fail. Hmmm… Does that also apply to the auto workers’ union?

  62. O.k. earle, florida! A little more specific, but some dots need to be connected by the reader.

    Underneath, you will find the Dutch national Willem Oltmans, a Yale educated journalist. He has been “frustrated” by the Dutch government (read Royal family) for a substantial part of his life.

    http://en.wikipedia.org/wiki/Willem_Oltmans

  63. Mr. Richard Trunka is a fine man with well thought out intentions as is Mr. Joeseph Stiglitz, but let us not forget that they are only “Two” voices. I personally believe they are contributing in a positive constructive manner too address the aforementioned crises. As always the pendulum has swayed past its center of gravity but the laws of nature have done their magic righting this anomaly. The one caveat I have is the period of frequency built into the cycle, which is a tell-tale sign of a fractured base. PS. “what good is a “Tree Top” vantage point (paradigm aka.zenith) that gives little insight for the future – but only graciously anticipates ones only descent – ironically bringing the question of perception into the realm of collective consciousness for all – or is it nothing more than an illusion as visulized by the sky above, and mud below that sobers our grasp for equality” _____Finally, I would like to see Mr. Johnson and Mr. Kwak get an invite to CNBC (Squawk on the Street 9-11am) with “only” Mr. Mark Haines, and/or an invite to the MSNBC (Dylan Ratigan Show “only” 4-5pm) – two of the best stand-up guys on TV period! JMHO Thanks again Simon, and James :-)

  64. “Let me take you down,’cause I’m going to
    Strawberry fields
    Nothing is real
    And nothing to get hung about
    Strawberry fields forever

    Living is easy with eyes closed
    Misunderstanding all you see
    getting hard to be someone, but it all works out
    It doesn’t matter much to me…”
    John Lennon

  65. I met the walrus.

  66. Re: @ rene___I guess the dots go in circles? ref: United Nations “Secretary General” Mr. Kofi Annan (1/27/97-12/31/06) maximum two terms, and marries into family…

  67. A Few Good Man “You Can’t Handle the Truth”

  68. A Few Good “Men”. The gift of dyslexia, :-).

  69. Minutes Of The Federal Open Market Committee – 5-6 More Years Of The Same

    June 22-23, 2010 – excerpt

    “Participants generally anticipated that, in light of the severity of the economic downturn, it would take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation consistent with participants’ interpretation of the Federal Reserve’s dual objectives;

    …most expected the convergence process to take no more than five to six years.”

    http://tinyurl.com/3x34nod

  70. by Turd Ferguson

    Sat, 08/21/2010

    “…. clearly evident tipping points that are unquestionably now on the horizon. You can ignore them at your peril, but when the storm swells hit, don’t say you were never warned and no one saw this coming.”

    As savers, compounding interest works to your benefit. As a debtor, it is your death sentence.

    The end of The Great Keynesian Experiment is upon us. Prepare accordingly.”

  71. It’s ineresting to contrast the equanimity of those with jobs vrs. those without.

  72. Saturday, August 21, 2010 – Washington Post – excerpt

    “There isn’t going to be instant gratification to get us out of it.

    We’re going to have to get used to a lower growth economy, and that is going to be a big adjustment for all of us.”

    http://tinyurl.com/3xwm67w

  73. The happiest are the ones doing the cash transactions that never got/get taxed…what happens when the War Lords and Drug Lords stop laundering their booty through the banks? Back to buying second homes with cash?

    Indeed, getting hard to “become someone” outside of the business of drugs and war

    in a 7 billion population world…

    Everyone wants to be the widdle middle man – professional parasite-ing…

    For a unique look into “history”, I recommend Papers 68 through 72 of the most censored book on the planet – it’s so secret that the entire global internet is monitoring 24/7 for the appearance of the “word” and any internet posting that contains the “word” is immediately censored. Really! :-))

    Don’t mess with the people doing “god’s work”.

    Hold on to your CASH until “they” start selling condo space inside the Large Haldron Collider in Switzerland – prime real estate to hunker down in while the “economy” fixes itself…Flagstaff, AZ job number projected to be back to pre-war level in 2021.

    Need something in addition to zoloft which did not perform as expected – too many users did NOT commit suicide…darn hippies…

  74. Per Kurowski

    Annie writes “shouldn’t how “credit scores” are calculated also be “reformed”, at least in theory? :-)”

    Absolutely… but no smiling face there, they are absolutely shameful!!!
    Please read … they are short…

    http://perkurowski.blogspot.com/2009/06/how-come.html

    http://perkurowski.blogspot.com/2008/08/discrimination-based-on-financial.html

    http://perkurowski.blogspot.com/2009/03/learning-about-main-street-usa.html

  75. Enter the Patriot Act employees who tied up the FBI from doing the job – and foreclosures march on, right?

  76. “Economics is haunted by more fallacies than any other study known to man.” ……Henry Hazlitt

    The argument that ‘tax cuts for the wealthiest few stimulates growth’ aka the trickle down theory needs to be buried alongside the ‘efficient markets hypothesis’ and the other principle beliefs of voodoo economics that have brought the US from the world’s greatest nation to third world status in a generation.

    It was the irresponsible tax cuts enacted by Bush II while increasing military spending on two wars, one highly discretionary, along with the increasing financialization of the economy through deregulation, fraud, ‘one way globalization,’ and crony capitalism that have undermined the foundation of the American economy.

    The banks must be restrained, the financial system reformed, and balance restored to the real economy before there can be any sustained recovery. Will a return to the status quo through Fed intervention ‘work?’ Is austerity directed at the middle class the answer, as in the suffering endured by the many in the Great Depression?

    What would happen if the economy ‘recovered’ with the same fundamentals in place? Fundamentals such as an overly large financial sector, increasing wealth disparity, and a stagnant median wage?

    Can ‘the many’ continue to borrow to maintain a constant standard of living? Can a democracy be maintained in conditions that start to resemble a third world country? How long before a ‘strong man’ rises to take control of the political situation on behalf of the national society of workers? And how long after that would it be before the industrialists and oligarchs lose control of this strong man, as they always seem to do?

    Can the US afford to maintain 800 overseas military bases while the domestic tax base continues to erode through a parasitical transferal of wealth from the many to the few based on leverage, speculation, monopoly, asset bubbles and fraud?

    What the US needs right now, more than ever, is a coherent industrial policy and a national strategy focused on the median wage, a serious reform movement, a reduction in its military spending, and a set of encompassing social principles with a longer term vision for the country as its goal.

    Americans may not trust government as a recent tenet of dogmatic faith, but in doing so they are entrusting their futures to other people’s governments, and soulless multinational entities who are in fact using globalization and the ‘free markets’ to aggressively advance their own ends and benefits, which are probably antithetical to yours.

    Bringing a dogmatic neo-liberal bias for “free markets” (ironically promoted by political neo-conservatives) into a game where every other major country is executing a well thought out industrial policy based on increasing net exports is like bringing a knife to a gun fight, and then stabbing yourself in the back as an opening move.

  77. While I appreciate contrary perspective to sharpen up my thoughts, you sound like an intern of Robert Glenn Hubbard, Pres. Bush’s chief of economic council stressing cut in taxes and regulation. You had your way for eight years and still no effective change in either. Is this the outcome you desire?

  78. Thanks for posting the movie, Rene.

    I agree with the sustainable TRUTH of living – how can anyone who is lucid about the material world NOT agree?

    First “problem” to solve, though, and it’s a tough one, is the proper man to land ratio. Doing it now when Spaceship Earth took on 7 billion people without a “plan” other than “profit” for a few psychos based on how much they can pollute and terrorize humans – well, you could say it will take something like “faith” to believe the problems can be solved – it’s quite a mess. The man to land ratio is exponentially altering due to ever larger man-made pollution dead zones (Gulf Coast), and “natural” changes in weather patterns (a third of a crowded country like Pakistan flooded).

    Scarcity becomes real as compared to the artificial scarcity psychos create….

    Next is the issue of human LABOR. That shiny clean future is going to be built by whom? Illiterate slave labor? But I do not want to make the same mistake that the movie makes in stepping on sacred cows, so to speak. I prefer to offer a solution for re-balancing the relationship between man and tools (what the movie calls “technology”). Repetitive activity cannot be avoided in life – consider your own daily routine of eat, sh-t, sleep…so tools/technology can contribute more to the human species than just “eliminating” repetitive activity. Maybe it can make the repetition more interesting :-) ?

    To get to there (sustainable) from here (not sustainable) will depend on evolving tools/technology that adapt to flashes of genius problem solving (smart labor). Screwdrivers in the right hands are still how you are going to get to there from here.

    I’ve been saying for years now that we need to make our own “paper” symbols for LABOR activity because for the better part of my life, I have had to witness ever more scum bag filth (pollution) spread over every inch of Spaceship Earth property coincide with a DOUBLING of the human population number wanting to steal from one another.

    Currently, the model for “sustainable” flowering before WW I in a few EU countries is being preserved in all its “details” as a museum that people can visit and learn about how grandma and grandpa lived BEFORE the delusionists and their “isms” started their psychotic blood baths of theft through war. I got the “feeling”, and I could be wrong, that people in the movie did not know that the wheel had already been invented, so to speak.

    I can’t find the video on the internet that filmed the monkey who was able to take apart the Russian stacking doll toy with great joy, only to become dangerously depressed when it could NOT reassemble the toy…the scientists stopped subjecting the monkey to face its failure every day.

    Basically, “consumers” will need someone to stack up the dolls for them :-)

    And I believe there is 100% agreement on this blog, at least, that it won’t be the Federal Reserve or Wall Street (they’re the depressed monkeys)…

    I’m not sure that our prisons are filled with good people made bad by a corrupt “economy”…it’s controversial to hold my opinion, but I believe that psychosis and other “personality” disorders are real medical conditions that have a biological basis. Agree that psychotics are “richer” in the current corrupt “system”. We MUST “contain” them – one way or another. We could start by taking the megaphone and camera off of them…they will keep believing that they are doing “god’s work” if they stay on camera or on the soapbox…

    Rene, you would probably enjoy reading some interesting Papers in the forbidden book that address “sustainablity” and “progress”…most people are incapable of acknowledging superior intelligence in another, until they need the doll toy reassembled :-)

  79. Sustainability you mention, you know what gets me down Annie?

    Not having 7 billion people and growing in a finite world. Well a little. What really drives me batty is the fact that in a country of 300 million people only 5534 people have signed the petition of Casse/SteadyState.

    http://steadystate.org/wp-content/uploads/SteadyStater_vol3_iss3.pdf

    We are commenter’s on a blog of 16.500 thousand, and the website has been mentioned over 5 times. I thought we were hanging out with the educated?

    By the way, you have really fed my appetite with this forbidden book you wrote about.

    What is the title? You can write it in French :)

  80. Rene, You might be turning “Operations”-type people off because of your mix of religion and prisoners and other tangential issues…not the paper money out of thin air, though – that’s the point of this blog, after all :-)

    I watched the two hours waiting for a Boone Pickens moment of “this is what we are going to do” to get from here to there and it never happened…disappointing.

    Also quite a lot of philosophical inconsistency with regards to “law” and “governance”, both of which will be needed to get from here to there.

    In other words, especially when “building” a shiny happy people future, where’s the scaffolding?

    The man to land ratio at this point in time can only be established for a geographical region – NOT GLOBALLY – because of pollution dead zones and “natural” weather crisis.

    If a product/service can’t be provided to a local/regional population without some piece (deconstruction must have been a DELUSIONAL “management” idea) of it needing to be shipped from 10,000 miles away, then you can be ASSURED that the product/service will stop being a part of the local civilization in a very short time now thanks to the 2 year long EXTREME nature of this GLOBAL “economic” terrorism.

    The “consumers” and “vampires” are less than useless. Just the facts, Ma’am.

    Replacing HUMAN relationship ethics (AKA “religion”) with “perception is reality” plus superstition on steroids – metaphysics – did nothing to address the problems of eat, …, sleep.

  81. Tom Therramus

    Wrote my Republican Senator Lindsey Graham on how disappointed I was that he did not support Brown-Kaufman. Got a form letter back from him waffling the usual GOP talking points – with no mention of why he favors TBTF.

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