Showing posts sorted by relevance for query dean baker. Sort by date Show all posts
Showing posts sorted by relevance for query dean baker. Sort by date Show all posts

Friday, August 27, 2010

Why Are Home Sales Plummeting?


Why are home sales plummeting?

On the surface, it is because the government's tax-credit for first-time home buyers lapsed in April. It takes a couple of months lag-time between buyer purchase decisions and the actual close of escrow, and so the expiration of the tax-credit is just now hammering the market.

And there is a huge backlog of housing stock.

And sellers are holding out hope that they can get close to peak prices for their homes, while buyers believe that prices will fall further - and so are waiting until prices decline further.

But there is a more fundamental reason that home sales are plummeting.

Specifically, when housing crashed in 2007 and 2008, the government had two choices. It could have:

(1) Tried to artificially prop up housing prices;

or

(2) Created sustainable jobs, broken up the big banks so that they stop driving our economy into a ditch, and restored honesty and trustworthiness to the economy and the financial system. All this would have meant that the economy would recover, and people would have enough money to afford to buy a new house. (See this).

The government opted to try to prop up prices.

Indeed, as I have repeatedly pointed out, the government's entire strategy has been to try to artificially prop up the prices of all types of assets.

For example, I noted in March:

The leading monetary economist told the Wall Street Journal that this was not a liquidity crisis, but an insolvency crisis. She said that Bernanke is fighting the last war, and is taking the wrong approach. Nobel economist Paul Krugman and leading economist James Galbraith agree. They say that the government's attempts to prop up the price of toxic assets no one wants is not helpful.

The Bank for International Settlements – often described as a central bank for central banks (BIS) – slammed the easy credit policy of the Fed and other central banks, the failure to regulate the shadow banking system, "the use of gimmicks and palliatives", and said that anything other than (1) letting asset prices fall to their true market value, (2) increasing savings rates, and (3) forcing companies to write off bad debts "will only make things worse".

***

David Rosenberg [former chief economist for Merrill Lynch] writes:

Our advice to the Obama team would be to create and nurture a fiscal backdrop that tackles this jobs crisis with some permanent solutions rather than recurring populist short-term fiscal goodies that are only inducing households to add to their burdensome debt loads with no long-term multiplier impacts. The problem is not that we have an insufficient number of vehicles on the road or homes on the market; the problem is that we have insufficient labour demand.

Indeed, as I pointed out in April, unemployment is so bad that 1.2 million households have "disappeared", as people move out of their own houses and move in with friends or family.

BIS wrote in 2007:

Should governments feel it necessary to take direct actions to alleviate debt burdens, it is crucial that they understand one thing beforehand. If asset prices are unrealistically high, they must fall. If savings rates are unrealistically low, they must rise. If debts cannot be serviced, they must be written off.

I pointed out in March 2009:

Paul Krugman wrote a couple of weeks ago:

The truth is that the Bernanke-Geithner plan — the plan the administration keeps floating, in slightly different versions — isn’t going to fly ....

Why won't it fly?

One reason is that economic psychologists tells us that consumer psychology has shifted for many years to come, and Americans are hunkering down and not buying anything other than the bare necessities. The Fed can try to play the part of all of the actors in the economy, but it won't work.

Today, Edward Harrison's must-read post explains provides additional reasons why the Geithner-Summers-Bernanke plan to prop up asset prices cannot succeed (if you don't read the whole post, at least read the following excerpts):

The U.S. government's efforts point in [only one direction]:

Increase asset prices. If the assets on the balance sheets of banks are falling, then why not buy them at higher prices and stop the bloodletting? This is the purpose of the TALF, Obama's mortgage relief program and the original purpose of the TARP.

***

There is only one direction the government is headed: increase asset prices (or, at least keep them from falling). Read White House Economic Advisor Larry Summers' recent prepared remarks to see what I mean. (Summers on How to Deal With a ‘Rarer Kind of Recession’ - WSJ) ....

These plans are not going to work
As aggressive as this campaign by the U.S. government is, it will have limited effectiveness because the extent of the writedowns of assets already on the books is going to be too massive. ...
And Ryan Grim reported in April 2009:
Critics of Geithner, including Nobel Prize winning economist Paul Krugman, insist that the real problem is an asset collapse that led to a crisis of solvency in the banking system. In other words, Krugman argues that home values have come back to Earth, while Geithner hopes to solve the problem by pushing home values back to where they were. The conflict is a serious one because it dictates what response is appropriate.

***

At a closed-door meeting with House Democrats on Monday night, according two members of Congress who were in the meeting, Geithner repeated that he believed the problem with the financial system was a lack of liquidity and that if he could get credit flowing again, the problem would right itself. Key to this analysis is the question of whether one thinks the rise of housing prices was an artificial bubble or if the collapse is reversible and we can return to those highs. Policymakers have resisted labeling it as a bubble. [head of the president's Council of Economic Advisers Christina] Romer, on Monday, came close, referring to a "run-up in housing prices that sure looks like a bubble."...

If the crisis is understood as one of liquidity, then the appropriate response is to continue injecting capital into the banking system and fiscal stimulus into the general economy until asset prices return toward previous highs. Japanese policymakers initially understood their crisis to be one of liquidity and injected hundreds of billions during the 1990s, to little effect. But if the problem is something different -- a solvency crisis brought on by essentially permanent asset-price declines -- then the policy response needed is different.

So were housing prices in a bubble or not? And - if so - have housing prices now come back to earth?

Well, as liberal PhD economist Dean Baker points out:

Real [i.e. inflation-adjusted] house prices are still 15-20 percent above long-term trend.

In other words, housing was in a bubble, and still has a ways to go before it is back to normal.

As the Wall Street Journal wrote in January:

Housing economist Dean Baker, the co-director of the Center for Economic and Policy Research, laid out his case at a risk conference last week for why we still have a housing bubble. Adjusted for inflation, home prices are still 15-20% higher than they were in the mid-1990s. “There’s no plausible fundamental explanation for that,” he says.

Why? Simple, he says: Economic fundamentals are all going in the other direction. Rental apartment vacancies are reaching record highs. Many segments of the housing market are still oversupplied. And the core demographic in the country—the baby boomers—are reaching the age where they’re more likely to downsize, buying less house in the years to come.

Far from some rosy estimates that housing is going through a temporary, once in a lifetime downturn, and that once the market bottoms, homes will again appreciate well beyond the rate of inflation, Mr. Baker argues that home prices are far more likely to increase annually at the rate of inflation, at best.

“If anything, I expect housing to be weaker than normal rather than stronger over the next decade,” he says. “People who say this is a temporary story, there’s no real reason to believe anything like that.”

The recent burst of good housing news has been fueled by government stimulus, including the tax credit, low mortgage rates and easy financing from the Federal Housing Administration. Mr. Baker, who had been a skeptic of the tax credit, concedes that it has worked. So, too, he says, has the FHA effectively supplied credit to goose sales.

But that’s likely for the worse, he argues, taking the opposite view of policymakers at the FHA.

“As a matter of policy I can’t see that we want people to buy a house in 2009 that’s 10-20% higher than it would sell for in 2011,” he says. “In so far as the FHA was encouraging people to buy homes in bubble markets that were not deflated, that’s not good for the FHA and you didn’t help the homeowner. We didn’t do those people a favor.”

Indeed, Baker said last November that the government's hasn't really helped homeowners, but has really been helping out the big banks instead:

The big talk in Washington these days is "helping homeowners". Unfortunately, what passes for help to homeowners in the capitol might look more like handing out money to banks anywhere else.

***

So, who benefits from "helping homeowners" in this story? Naturally the big beneficiaries are the banks. If the government pays for a mortgage modification where the homeowner is still paying more for the mortgage than they would for rent, then the bank gets a big gift from the government, but the homeowner is still coming out behind.

***

There are simple, low-cost ways to help homeowners who were victims of the housing bubble and lending sharks.... But this would mean hurting the banks rather than giving them taxpayer dollars, and we still don't talk about hurting banks in Washington DC.

Similarly, Zack Carter wrote yesterday:

The Treasury Dept.'s mortgage relief program isn't just failing, it's actively funneling money from homeowners to bankers, and Treasury likes it that way.

***

Economics whiz Steve Waldman [writes]:
The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with "the system," "the economy," and "ordinary Americans."
Baker has also said in numerous interviews this week that the only thing the temporary tax break for first-time buyers has done is moved home purchases up by a couple of months. In other words, the credit didn't motivate people who weren't planning on buying a house in the near future to buy. All it did was motivate people who were already planning on buying this year to buy before the credit expired, thus creating no real boost to the housing market.

The bottom line is that home sales are plummeting because housing was in a bubble. While most assuming that Americans are being more frugal and deleveraging - so that we will soon "get thorough this" and home sales will finally bottom - that assumption might not be true.

And there are huge waves of foreclosures coming down the pike. See this, this and this.

And the co-creator of the leading house price index - Robert Shiller - says that he is worried housing prices could decline for another five years. He noted that Japan saw land prices decline for 15 consecutive years up to 2006:


Indeed, it is possible that housing prices may never return to their peak bubble levels. See this, this and this.

Instead of fixing the real problems with our economy or genuinely helping struggling homeowners, the government has made everything worse by trying to artificially prop up asset prices in a way that only helps the big banks.

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Sunday, October 18, 2009

PhD Economists and Economic Professors Call For Protests


You know that the government and the giant banks are not being responsive to the needs of the economy and the American people when even PhD economists and economics professors are calling for protests.

Indeed, many top experts and even politicians say that the American political system has suffered almost total regulatory capture, where Wall Street calls the shots. See this, this, this, this, and this.

As respected financial commentator Yves Smith points out, PhD economist Dean Baker, economics professor William K. Black and others are helping to organize peaceful protests outside of the annual meeting of the American Association of Bankers.

Smith notes:

If you saw Michael Moore’s Capitalism: A Love Story, a disconcerting bit was his discussion of a series of research reports put out by Citigroup for some of its asset management client in 2005 on “Plutonomy”. It argued that a world ordered to suit the whims of the top 1% was well underway. The only thing that might get in the way was that the other 99% had the force of numbers on its side.

Sometimes it takes a show of numbers to change the dynamic. As Baker pointed out:

The elites hate to acknowledge it, but when large numbers of ordinary people are moved to action, it changes the narrow political world where the elites call the shots. Inside accounts reveal the extent to which Johnson and Nixon’s conduct of the Vietnam War was constrained by the huge anti-war movement. It was the civil rights movement, not compelling arguments, that convinced members of Congress to end legal racial discrimination. More recently, the townhall meetings, dominated by people opposed to health care reform, have been a serious roadblock for those pushing reform….

A big turnout at this event can make a real difference.

Baker is correct about Vietnam.

Specifically, in a little known fact, Nixon was considering using nuclear weapons in Vietnam (and see this).

At that time, Nixon was also repeatedly publicly saying that he didn't care what the American people thought about Vietnam, and that he was going to escalate the war anyway. However, according to a biography by a well-known historian, when Nixon saw hundreds of thousands of protesters on TV, he dropped his secret plan for nuking Vietnam. Remember, Nixon dropped those plans even though he said he didn't care what people thought.

Indeed, this has happened repeatedly throughout history whenever people have been willing to stand up. The Ukranian people stood up to tyranny and won. The East German people stood up to tyranny and won. The people of the Philippines, Serbia, Czechoslovakia, Indonesia and other countries around the world have won against tyranny whenever ordinary people have poured into the streets in massive numbers and demanded freedom.

Note: Any websites publicizing this or any other protest should have web readers click an "I Agree" button promising to be peaceful before they are taken to the web page giving specifics about when and where the protest will occur.

Everyone attending a protest should sign written pledges in advance to be peaceful and not use any violence under any circumstance.

Everyone should dress nicely for protests. As Yves Smith says: "Dress nicely! One favorite strategy is to dismiss protestors as ruffians.".

Everyone should also bring cellphone cameras or videocameras. If police turn violent or use agents provocateur to incite violence, we film it all, and broadcast it worldwide on the web. That would make the government look really, really bad.

If you see anyone trying to incite violence, have a group of people escort them away from the protest.


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Tuesday, May 12, 2009

Baker: If the Stress Tests are Accurate and the Banks Are Solvent, then Get the Bankers' Hands Out of Our Pockets

Everyone knows that the stress tests were a p.r. stunt and that the big banks are really all insolvent.

But economist Dean Baker has a different take on it.

Okay, Baker says. Let's pretend that the stress tests were accurate. They show the banking system has stabilized, and that none of the banks are insolvent.

Then cancel the trillions in emergency bailouts, including the PPIP toxic asset scam, the countless billions being funneled to AIG's credit default swap buyers, and all of the other crazy bailout schemes.

Banker ends with this great quote:

In short, we should take the stress test results as good news. Based on what Geithner has told [us], the bailouts should be over. It's time for the banks to stand on their own two feet and to get their hands out of our pockets.

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Wednesday, September 29, 2010

Summers Skews the Playing Field for the Big Boys, then Blames Skyrocketing Inequality on a "Ruthless Economy"


Dan Froomkin notes:

Asked about new Census data showing that the income gap between the richest and poorest Americans grew last year to its widest amount on record, Summers said one factor is that "we have a more ruthless economy. There's breaking down in social norms by people in a position to take."

Skyrocketing income disparity is something I've repeatedly written about.

But increasing income disparity hasn't just happened like some unforeseen natural disaster which is difficult to forecast, such as an earthquake. It has been the result of certain efforts by the wealthy and their lackeys in government.

As Warren Buffet said in 2006:

There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.

Indeed, as I pointed out last year, Summers is more responsible for our economic problems than just about anyone else (Greenspan and Rubin also played their parts):

Summers is the guy responsible for:
  • Repealing New Deal era legislation which separated investment banks from commercial banks, insurers and stock brokers, and which kept companies from becoming "too big to fail"

As a 1999 New York Times article entitled "Congress Passes Wide-Ranging Bill Easing Bank Laws" quotes Summers as saying:

''Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,'' Treasury Secretary Lawrence H. Summers said. ''This historic legislation will better enable American companies to compete in the new economy.''

As I pointed out in April:

On Friday, Summers basically said we should continue to do the exact same things which got us into this mess because:

All crises must end. The “self-equilibrating” nature of the economy will ultimately prevail, although that may take massive one-off government actions. Such a crisis happens only ”three or four times” per century, so taking on huge amounts of government debt is fine; implicitly, we will grow out of that debt burden.
Um . . . sorry to break it to you there Larry, but a group of economics professors has recently demolished the "self-equilibrating economy" theory:
If one browses through the academic macroeconomics and finance literature, “systemic crisis” appears like an otherworldly event that is absent from economic models. Most models, by design, offer no immediate handle on how to think about or deal with this recurring phenomenon. In our hour of greatest need, societies around the world are left to grope in the dark without a theory. ...

The implicit view behind standard models is that markets and economies are inherently stable and that they only temporarily get off track. The majority of economists thus failed to warn policy makers about the threatening system crisis and ignored the work of those who did. ...

The confinement of macroeconomics to models of stable states that are perturbed by limited external shocks and that neglect the intrinsic recurrent boom-and-bust dynamics of our economic system is remarkable. After all, worldwide financial and economic crises are hardly new and they have had a tremendous impact beyond the immediate economic consequences of mass unemployment and hyper inflation. This is even more surprising, given the long academic legacy of earlier economists’ study of crisis phenomena ... This tradition, however, has been neglected ...

And when economist James Galbraith spoke at a recent panel on the causes of the financial crisis, the first thing he listed as the main cause of the crisis was "The idea that capitalism ... is inherently self-stabilizing" ...

Summers [is] like a guy swearing that the Sun really does revolve around the Earth and that the current orbit is just a temporary aberration . . . and that if we just wait a little while, "everything will return to normal".
As I pointed out in September, Summers has totally misunderstood the multiplier effect.

Indeed, Summers has admitted that too big to fail banks are a huge roadblock to economic recovery, yet he has blocked all attempts to break them up or meaningfully rein them in.

Summers said in 2000 "a healthy financial system cannot be built on the Expectation of bailouts", and then has built much of his recovery strategy on the expectation of bailouts.

A lot of his strategy has also been built on artificially propping up asset prices for things like toxic derivatives, and that strategy has failed miserably.

And it's not just that Summers has blown it. He has actively promoted a "more ruthless economy" and the "breaking down in social norms by people in a position to take" which he is now whining about.

As I wrote in March 2009:

Does a single independent economist buy the Geithner-Summers-Bernanke approach?

On the left, you have:

  • Nobel economist Joseph Stiglitz saying that they have failed to address the structural and regulatory flaws at the heart of the financial crisis that stand in the way of economic recovery, and that they have confused saving the banks with saving the bankers
  • Nobel economist Paul Krugman saying their plan to prop up asset prices "isn't going to fly". He also said:
    At every stage, Geithner et al have made it clear that they still have faith in the people who created the financial crisis — that they believe that all we have is a liquidity crisis that can be undone with a bit of financial engineering, that “governments do a bad job of running banks” (as opposed, presumably, to the wonderful job the private bankers have done), that financial bailouts and guarantees should come with no strings attached. This was bad analysis, bad policy, and terrible politics. This administration, elected on the promise of change, has already managed, in an astonishingly short time, to create the impression that it’s owned by the wheeler-dealers.

On the right, you have:

  • Leading monetary economist Anna Schwartz saying that they are fighting the last war and doing it all wrong
  • Former Assistant Secretary of the Treasury and former editor of the Wall Street Journal Paul Craig Roberts lambasting their approach
  • Economist John Williams saying "the federal government is bankrupt ... If the federal government were a corporation … the president and senior treasury officers would be in federal penitentiary."
  • Prominent economist Marc Faber and many others tearing their approach to shreds.
Of course, other Nobel economists, high-level fed officials, former White House economist, and numerous others have slammed their approach as well.

Sure, the economists for the banks and other financial giants which are receiving billions at the government trough think that the Geithner-Summers-Bernanke approach is swell.

And perhaps a couple of economists for investment funds which use their giant interventions into the free market to make some quick money.

But other than them, no one seems to be buying it.
As I noted last year:
Economist Dean Baker said the true purpose of the bank rescue plan is "a massive redistribution of wealth to the bank shareholders and their top executives".

And Nobel economist Joe Stiglitz says the Geithner plan will rob US taxpayers.

And congressman Grayson puts it succinctly when he demands "Stop stealing our money!"

And as I pointed out this summer:

The bailout money didn't actually go to any productive economic uses:

The bailout money is just going to line the pockets of the wealthy, instead of helping to stabilize the economy or even the companies receiving the bailouts:

  • A lot of the bailout money is going to the failing companies' shareholders
  • Indeed, a leading progressive economist says that the true purpose of the bank rescue plans is "a massive redistribution of wealth to the bank shareholders and their top executives"
  • The Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws which rewards mergers in the banking industry (this has caused a lot of companies to bite off more than they can chew, destabilizing the acquiring companies)
And as the New York Times notes, "Tens of billions of [bailout] dollars have merely passed through A.I.G. to its derivatives trading partners".

***

In other words, through a little game-playing by the Fed, taxpayer money is going straight into the pockets of investors in AIG's credit default swaps and is not even really stabilizing AIG.
The super-wealthy have been bailed out, and life is great for them. For everyone else, things are not so good.

The system is rigged to benefit the elites and their sycophants at the expense of the country. See this, this, this, and this.
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Thursday, October 15, 2009

The Ongoing Cover Up of the Truth Behind the Financial Crisis May Lead to Another Crash


William K. Black - professor of economics and law, and the senior regulator during the S & L crisis - says that that the government's entire strategy now - as during the S&L crisis - is to cover up how bad things are ("the entire strategy is to keep people from getting the facts").

Indeed, as I have previously documented, 7 out of the 8 giant, money center banks went bankrupt in the 1980's during the "Latin American Crisis", and the government's response was to cover up their insolvency.

Black also says:

There has been no honest examination of the crisis because it would embarrass C.E.O.s and politicians . . .

Instead, the Treasury and the Fed are urging us not to examine the crisis and to believe that all will soon be well.

PhD economist Dean Baker made a similar point, lambasting the Federal Reserve for blowing the bubble, and pointing out that those who caused the disaster are trying to shift the focus as fast as they can:

The current craze in DC policy circles is to create a "systematic risk regulator" to make sure that the country never experiences another economic crisis like the current one. This push is part of a cover-up of what really went wrong and does absolutely nothing to address the underlying problem that led to this financial and economic collapse.

Baker also says:
"Instead of striving to uncover the truth, [Congress] may seek to conceal it" and tell banksters they're free to steal again.
Economist Thomas Palley says that Wall Street also has a vested interest in covering up how bad things are:

That rosy scenario thinking has returned to Wall Street should be no surprise. Wall Street profits from rising asset prices on which it charges a management fee, from deal-making on which it earns advisory fees, and from encouraging retail investors to buy stock, which boosts transaction fees. Such earnings are far larger when stock markets are rising, which explains Wall Street’s genetic propensity to pump the economy.
The media has largely parroted what the White House and Wall Street were saying. As a Pew Research Center study on the coverage of the crisis found:

The gravest economic crisis since the Great Depression has been covered in the media largely from the top down, told primarily from the perspective of the Obama Administration and big business, and reflected the voices and ideas of people in institutions more than those of everyday Americans…

Citizens may be the primary victims of the downturn, but they have not been not the primary actors in the media depiction of it.

A PEJ content analysis of media coverage of the economy during the first half of 2009 also found that the mainstream press focused on a relatively small number of major story lines, mostly generating from two cities, the country’s political and financial capitals.

A companion analysis of a broader array of media using new “meme tracker” technology developed at Cornell University finds that phrases and ideas that reverberated most in the coverage came early on, mostly from government, particularly from the president and the chairman of the Federal Reserve...

  • Three storylines have dominated: efforts to help revive the banking sector, the battle over the stimulus package and the struggles of the U.S. auto industry. Together they accounted for nearly 40% of the economic coverage from February 1 through August 31. Other topics related to the crisis have been covered much less. As an example, all the reporting of retail sales, food prices, the impact of the crisis on Social Security and Medicare, its effect on education and the implications for health care combined accounted for just over 2% of all the economic coverage.
  • Actions by government officials and business leaders drove much of the coverage. The White House and federal agencies alone initiated nearly a third (32%) of economic stories studied through July 3. Business triggered another 21%. About a quarter of the stories (23%) was initiated by the press itself and did not rely on an external news trigger. Ordinary citizens and union workers combined to act as the catalyst for only 2% of the stories about the economy.
  • Fully 76% of the datelines on economic stories studied during the first five months of the Obama presidency were New York (44%) or metro Washington D.C. (32%). Only about one-fifth (21%) of the stories originated in any other city in the U.S., and about a quarter of those emanated from two other major media centers: Atlanta and Los Angeles.
As I have previously reported, concentration in the mainstream media (along with a number of other dynamics) has severely undermined the credibility of the media.

Why Should We Care?

Why should we care if there has been a cover up?

Well, initially, if there has been activity which is harmful to the economy and may lead to another financial crisis, wouldn't we want to know about it, so that we prevent it from happening again?

The answer is obviously yes.

But if the government, Wall Street, and the media are all in cover-up mode, then independent auditors, financial analysts and economists cannot shine a light into financial practices to find out what really went wrong.

In addition, if we don't know what's really going on, we can't gauge whether the government's economic policies are working. For example, Time Magazine called Tim Geithner a "con man" and the stress tests a "confidence game" because those tests were so inaccurate.

William Black said:
How do you think we did the stress tests? Like doing a stress test on an airplane wing, but you don’t actually have airplane wing. And don’t know what airplane wing is made out of. It’s a farce.
I agree.

Without accurate information, we will not know if we're heading in the right or the wrong direction.

Fraud

One of the foremost experts on structured finance and derivatives - Janet Tavakoli - says that rampant fraud and Ponzi schemes caused the financial crisis.

University of Texas economics professor James K. Galbraith agrees:

You had fraud in the origination of the mortgages, fraud in the underwriting, fraud in the ratings agencies.
Congress woman Marcy Kaptur says that there was rampant fraud leading up to the crash (see this and this).

According to economist Max Wolff:

The securitization process worked by "packag(ing), sell(ing), repack(aging) and resell(ing) mortages making what was a small housing bubble, a gigantic (one) and making what became an American financial problem very much a global" one by selling mortgage bundles worldwide "without full disclosure of the lack of underlying assets or risks."


Buyers accepted them on good faith, failed in their due diligence, and rating agencies were negligent, even criminal, in overvaluing and endorsing junk assets that they knew were high-risk or toxic. "The whole process was corrupt at its core."

Elizabeth Warren suspects fraud as the cause of the crisis.

William Black says that massive fraud by is what caused the economic crisis. Specifically, he says that companies, auditors, rating agencies and regulators all committed fraud which helped blow the bubble and sowed the seeds of the inevitable crash. And see this.

Indeed, as I have previously noted, the giant ratings agencies have a culture of covering up improper ratings (and they essentially took bribes for giving higher ratings).

Black also notes:

  • Everyone involved knew that the CDOs which packaged subprime loans were not AAA credit-worthy (which means that they are completely risk-free). He also said that the exotic instruments (CDOs, CDS, etc.) which spun the mortgages into more and more abstract investments were intentionally created to defraud investors
  • The government knew about mortgage fraud a long time ago. For example, the FBI warned of an "epidemic" of mortgage fraud in 2004. However, the FBI, DOJ and other government agencies then stood down and did nothing. See this and this
  • "Accounting is the weapon of choice in the financial sphere", with the top executives involved in these fraudulent schemes vacuuming out huge profits for themselves and select insiders, and having auditors rubber stamp what's being done
  • In November 2007, one rating agency - Fitch's - dared to take a look at some loan files. Fitch concluded that there was the appearance of fraud in nearly every file reviewed
Black and economist Simon Johnson also state that the banks committed fraud by making loans to people that they knew would default, to make huge profits during the boom, knowing that the taxpayers would bail them out when things went bust.

See also this, this and this.

The Economy Won't Recover Until We Prosecute

So there was a little fraud, no big deal, right?

Wouldn't looking backwards at fraudulent conduct be distracting for the people, the government, and the economy? Shouldn't we look forward so we can recover?

No.

Specifically, the Wharton School of Business has written an essay stating that restoring trust is the key to recovery, and that trust cannot be restored until wrongdoers are held accountable.

The Wharton paper states:
The public will need to "hold the perpetrators of the economic disaster responsible and take what actions they can to prevent them from harming the economy again." In addition, the public will have to see proof that government and business leaders can behave responsibly before they will trust them again...
Economist James Galbraith agrees. For more on the importance of trust in the economy, see this.

The stakes are high. As Pam Martens, who worked on Wall Street for 21 years, writes:
The massive losses by big Wall Street firms, now topping those of the Great Depression in relative terms, have yet to be adequately explained. Wall Street power players are obfuscating and Congress is too embarrassed or frightened to ask, preferring to just throw money at the problem and hope it goes away. But as job losses and foreclosures mount and pensions and 401(k)s shrink, public policy measures to address the economic stresses require a full set of unembellished facts...

It was four years after the crash of 1929 before the major titans of Wall Street were forced to give testimony under oath to Congress and the full magnitude of the fraud emerged. That delay may well have contributed to the depth and duration of the Great Depression. The modern-day Wall Street corruption hearings in Congress ... must now resume in earnest and with sworn testimony if we are to escape a similar fate.

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Tuesday, May 18, 2010

The Responses to the Gulf Oil Spill and to the Financial Crisis Are Remarkably Similar ... And Have Made Both Crises Much Worse


The Gulf oil spill and the financial crisis were both caused by excessive risk-taking by industry giants and the "capture" of politicians and regulators by the corporate behemoths.

Moreover, the response to the Gulf oil spill and the financial crisis are remarkably similar.

With regards to the financial crisis, the response has been to cover up the truth:

William K. Black - professor of economics and law, and the senior regulator during the S & L crisis - says that that the government's entire strategy now - as during the S&L crisis - is to cover up how bad things are ("the entire strategy is to keep people from getting the facts").

Indeed, as I have previously documented, 7 out of the 8 giant, money center banks went bankrupt in the 1980's during the "Latin American Crisis", and the government's response was to cover up their insolvency.

Black also says:

There has been no honest examination of the crisis because it would embarrass C.E.O.s and politicians . . .

Instead, the Treasury and the Fed are urging us not to examine the crisis and to believe that all will soon be well.

PhD economist Dean Baker made a similar point, lambasting the Federal Reserve for blowing the bubble, and pointing out that those who caused the disaster are trying to shift the focus as fast as they can:

The current craze in DC policy circles is to create a "systematic risk regulator" to make sure that the country never experiences another economic crisis like the current one. This push is part of a cover-up of what really went wrong and does absolutely nothing to address the underlying problem that led to this financial and economic collapse.
Baker also says:
"Instead of striving to uncover the truth, [Congress] may seek to conceal it" and tell banksters they're free to steal again.
Economist Thomas Palley says that Wall Street also has a vested interest in covering up how bad things are:
That rosy scenario thinking has returned to Wall Street should be no surprise. Wall Street profits from rising asset prices on which it charges a management fee, from deal-making on which it earns advisory fees, and from encouraging retail investors to buy stock, which boosts transaction fees. Such earnings are far larger when stock markets are rising, which explains Wall Street’s genetic propensity to pump the economy.
The same is true for the Gulf oil spill.

Dan Froomkin documents that the government is trying to ignore what is below the surface:

The Obama administration is actively trying to dismiss media reports that vast plumes of oil lurk beneath the surface of the Gulf of Mexico, unmeasured and uncharted.

But the National Oceanic and Atmospheric Administration, whose job it is to assess and track the damage being caused by the BP oil spill that began four weeks ago, is only monitoring what's visible -- the slick on the Gulf's surface -- and currently does not have a single research vessel taking measurements below.

The one ship associated with NOAA that had been doing such research is back in Pascagoula, Miss., having completed a week-long cruise during which scientists taking underwater samples found signs of just the kind of plume that environmentalists fear could have devastating effects on sea life of all shapes and sizes.

ABC News notes that the White House allowed BP to suppress video of the oil spill for 3 weeks. ABC also quotes a top oil spill expert as saying that BP's use of booms around the spill site now won't really do anything ... and is just an exercise in public relations so that it looks like it's doing something.

There has been tremendous underreporting of the amount of oil spilling into the Gulf. As the Houston Chronicle notes:

A prominent oceanographer, who was among the first to say official estimates understated the volume of the Gulf of Mexico oil spill, charged Tuesday that a federal agency is punishing scientists whose findings disagree with government figures.

Ian MacDonald, an oceanographer with Florida State University, who more than two weeks ago said the oil spill was likely five times as large as the 5,000 barrel-a-day estimate from the National Oceanic Atmospheric and Administration, said the agency is attacking scientists who challenged government estimates, while itself doing little to glean new information about the spill size.

“The scientific community in the Gulf of Mexico is fairly small ... and we've been very dedicated for a long time and not only is nobody listening to us in this, but it seems like they really want us to shut up,” MacDonald said. “It's very, very punitive and anybody who is doing this is getting attacked by NOAA.”

In addition, Coast Guard and BP officials threatened CBS reporters with arrest for filming oil sludge on a Louisiana Beach.

BP is also using dispersants to hide the extent of the oil spill. Specifically, as many commentators note, the dispersants cause much of the oil to sink, so that it appears that the spill isn't that big. But the dispersants are not only highly toxic, but will also probably make the damage from the oil itself even worse.

Moreover, just as the cover-up about the severity of the financial crisis has allowed Larry Summers, Tim Geithner, Ben Bernanke and most of Congress to kill real financial reform, BP and the government's drastic underplaying of the size of the spill has allowed BP to skate by without taking emergency actions, such as bringing in booms on an emergency basis, or to undertake more pro-active and creative responses.

And just as nothing has changed going forward with regard to the economy since the 2008 meltdown, nothing has changed with regard to offshore drilling.

For example, since the Deepwater Horizon oil drilling rig exploded on April 20th, the Obama administration has granted oil and gas companies at least 27 exemptions from doing in-depth environmental studies of oil exploration and production in the Gulf of Mexico. And a whistleblower who survived the Gulf oil explosion claims in a lawsuit filed today that BP's operations at another oil platform risk another catastrophic accident that could "dwarf" the Gulf oil spill, partly because BP never even reviewed critical engineering designs for the operation.

Indeed, the industry and government spokespeople have used the exact same word as each crisis - financial and environmental - unfolded. They said the problem was "contained".

In both cases, we the people are left holding the bag because the giant companies and their campaign-contribution-buddies in DC are trying to sweep the severity of the problem under the rug, to manage the crisis as p.r. campaigns to protect those who let it happen ... instead of actually taking steps necessary to solve the problems, and to make sure they won't happen again.
13 comments

Tuesday, March 2, 2010

No Wonder the Economy Isn't Improving


I've read countless news headlines recently about how economists are "surprised" over an "unexpectedly bad" economic indicator.

But it's not surprising at all. It's no mystery.

The government hasn't taken the necessary actions, and has instead been doing all of the wrong things.

Let's recap.

The leading monetary economist told the Wall Street Journal that this was not a liquidity crisis, but an insolvency crisis. She said that Bernanke is fighting the last war, and is taking the wrong approach. Nobel economist Paul Krugman and leading economist James Galbraith agree. They say that the government's attempts to prop up the price of toxic assets no one wants is not helpful.

The Bank for International Settlements – often described as a central bank for central banks (BIS) – slammed the easy credit policy of the Fed and other central banks, the failure to regulate the shadow banking system, "the use of gimmicks and palliatives", and said that anything other than (1) letting asset prices fall to their true market value, (2) increasing savings rates, and (3) forcing companies to write off bad debts "will only make things worse".

BIS also cautioned that bailouts could harm the economy (as did the former head of the Fed's open market operations).

And BIS warned that the Fed and other central banks were simply transferring risk from private banks to governments, which could lead to a sovereign debt crisis.

Virtually all leading independent economists have said that the too big to fails must be broken up, or the economy won't be able to recover (and see this). Instead, they have been allowed to get even bigger (and see this and this).

While modern economic theory shows that debts do matter (and see this), the U.S. is spending on guns and butter like debts are a good thing.

Nobel prize winning economist George Akerlof predicted in 1993 that credit default swaps would lead to a major crash, and that future crashes were guaranteed unless the government stopped letting big financial players loot by placing bets they could never pay off when things started to go wrong, and by continuing to bail out the gamblers. (Not only has the government rewarded the gamblers, bailed them out and let them engage in a new round of risky betting, but it hasn't even reined in credit default swaps.)

And instead of trying to restore trust in our financial system - which is a prerequisite for any sustainable economic recovery - Summers, Geithner, Bernanke and the boys have tried to sweep the problems under the rug and con the public into believing that everything is okay and that no real reform is needed.

As I wrote in October:

William K. Black - professor of economics and law, and the senior regulator during the S & L crisis - says that that the government's entire strategy now - as during the S&L crisis - is to cover up how bad things are ("the entire strategy is to keep people from getting the facts").

Indeed, as I have previously documented, 7 out of the 8 giant, money center banks went bankrupt in the 1980's during the "Latin American Crisis", and the government's response was to cover up their insolvency.

Black also says:

There has been no honest examination of the crisis because it would embarrass C.E.O.s and politicians . . .

Instead, the Treasury and the Fed are urging us not to examine the crisis and to believe that all will soon be well.

PhD economist Dean Baker made a similar point, lambasting the Federal Reserve for blowing the bubble, and pointing out that those who caused the disaster are trying to shift the focus as fast as they can:

The current craze in DC policy circles is to create a "systematic risk regulator" to make sure that the country never experiences another economic crisis like the current one. This push is part of a cover-up of what really went wrong and does absolutely nothing to address the underlying problem that led to this financial and economic collapse.
Baker also says:
"Instead of striving to uncover the truth, [Congress] may seek to conceal it" and tell banksters they're free to steal again.

***

Time Magazine called Tim Geithner a "con man" and the stress tests a "confidence game" because those tests were so inaccurate.

William Black said:

How do you think we did the stress tests? Like doing a stress test on an airplane wing, but you don’t actually have airplane wing. And don’t know what airplane wing is made out of. It’s a farce.

And - instead of rebuilding the real economy - the boys are simply simply rebuilding the house of cards.

And while stopping the rising tide of unemployment is key to reversing the financial crisis, the government hasn't done much at all to staunch the loss of jobs.

For example, as I wrote last August:

The government has committed to give trillions to the financial industry. President Obama's stimulus bill was $787 billion, which is less than a tenth of the money pledged to the banks and the financial system. [106]

Of the $787 billion, little more than perhaps 10% has been spent as of this writing. [107]

The Government Accountability Office says that the $787 billion stimulus package is not being used for stimulus. [108] Instead, the states are in such dire financial straights that the stimulus money is instead being used to "cushion" state budgets, prevent teacher layoffs, make more Medicaid payments and head off other fiscal problems. So even the money which is actually earmarked to help the states stimulate their economies is not being used for that purpose.

Indeed, much of the $787 billion was earmarked pork [109], not for anything which could actually stimulate the economy. [110]

Mark Zandi - chief economist for Moody's - has calculated which stimulus programs give the most bang for the buck in terms of the economy:

[111]

But very little of the stimulus funds are actually going to high-value stimulus projects.

Indeed, as the Los Angeles Times points out:

Critics say the [stimulus money reaching California] is being used for projects that would have been built anyway, instead of on ways to change how Californians live. Case in point: Army latrines, not high-speed rail.

***
Critics say those aren't the types of projects with lasting effects on the economy.

"Whether it's talking about building a new [military] hospital or bachelor's quarters, there isn't that return on investment that you'd find on something that increases efficiency like a road or transit project," said Ellis of Taxpayers for Common Sense.

Job creation is another question. A recent survey by the Associated General Contractors of America found that slightly more than one-third of the companies awarded stimulus projects planned to hire new employees. But about one-third of the companies that weren't awarded stimulus projects also planned to hire new employees.

"While the construction portion of the stimulus is having an impact, it is far from delivering its full promise and potential," said Stephen E. Sandherr, chief executive of the contractors group.

It's unclear how many jobs will be created through the Defense Department projects. Most of the construction jobs are awarded through multiple award contracts, in which the department guarantees a minimum amount of business to certain contractors, and lets only those contractors bid on projects.

That means many of the contractors working on stimulus projects already have been busy at work on government projects.even the stimulus money which is being spent [112]
David Rosenberg writes:
Our advice to the Obama team would be to create and nurture a fiscal backdrop that tackles this jobs crisis with some permanent solutions rather than recurring populist short-term fiscal goodies that are only inducing households to add to their burdensome debt loads with no long-term multiplier impacts. The problem is not that we have an insufficient number of vehicles on the road or homes on the market; the problem is that we have insufficient labour demand.[113]
Donald W. Riegle Jr. - former chair of the Senate Banking Committee from 1989 to 1994 - wrote (along with the former CEO of AT&T Broadband and the international president of the United Steelworkers union):
It's almost as if the administration is opting for a rose-colored-glasses PR strategy rather than taking a hard-nose look at actual consumer and employment figures and their trends, and modifying its economic policies accordingly.[114]
As yesterday's front-page story on ABC notes:

Even as many Americans still struggle to recover from the country's worst economic downturn since the Great Depression, another crisis – one that will be even worse than the current one – is looming, according to a new report from a group of leading economists, financiers, and former federal regulators.

In the report, the panel, that includes Rob Johnson of the United Nations Commission of Experts on Finance and bailout watchdog Elizabeth Warren, warns that financial regulatory reform measures proposed by the Obama administration and Congress must be beefed up to prevent banks from continuing to engage in high risk investing that precipitated the near collapse of the U.S. economy in 2008.

The report warns that the country is now immersed in a "doomsday cycle" wherein banks use borrowed money to take massive risks in an attempt to pay big dividends to shareholders and big bonuses to management – and when the risks go wrong, the banks receive taxpayer bailouts from the government.

"Risk-taking at banks," the report cautions, "will soon be larger than ever."

Without more stringent reforms, "another crisis – a bigger crisis that weakens both our financial sector and our larger economy – is more than predictable, it is inevitable," Johnson says in the report, commissioned by the nonpartisan Roosevelt Institute.

The institute's chief economist, Nobel Prize-winner Joseph Stiglitz, calls the report "an important point of departure for a debate on where we are on the road to regulatory reform."

The report blasts some of Washington's key players. Johnson writes, "Our government leaders have shown little capacity to fix the flaws in our market system." Two other panelists, Simon Johnson, a professor at MIT, and Peter Boone of the Centre for Economic Performance, voiced similar criticisms.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner "oversaw policy as the bubble was inflating," write Johnson and Boone, and "these same men are now designing our 'rescue.'"

The study says that "In 2008-09, we came remarkably close to another Great Depression. Next time we may not be so 'lucky.' The threat of the doomsday cycle remains strong and growing," they say. "What will happen when the next shock hits? We may be nearing the stage where the answer will be – just as it was in the Great Depression – a calamitous global collapse."

***

Frank Partnoy, a panelist from the University of San Diego, claims that "the balance sheets of most Wall Street banks are fiction." Another panelist, Raj Date of the Cambridge Winter Center for Financial Institutions Policy, argues that government-backed mortgage giants Fannie Mae and Freddie Mac have become "needlessly complex and irretrievably flawed" and should be eliminated. The report also calls for greater competition among credit rating agencies and increased regulation of the derivatives market, including requiring that credit-default swaps be traded on regulated exchanges.

With the Senate Banking Committee, led by Chris Dodd, D-Conn., poised to unveil its financial regulatory reform proposal sometime in the next week, the report calls on Congress to enact reforms strong enough to prevent another meltdown.

"Sen. Dick Durbin once said the banks 'owned' the Senate," says Johnson. "The next few weeks will determine whether or not that statement is true."

(Here is the Roosevelt Institute report.)

Heck of a job, guys.


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5 comments

Monday, February 9, 2009

Leading Economist Says True Purpose of Bank Rescue Plans is "A Massive Redistribution of Wealth to the Bank Shareholders and Their Top Executives"


Leading PhD economist Dean Baker minces no words in slamming the bailouts, the "bad bank" proposal, and the mainstream media's dishonest reporting on the financial crisis.

As Baker says in a new article:

Mr. Geithner wants to use taxpayer dollars to keep bankrupt banks in business. In effect, he wants to tax teachers, fire fighters, and Joe the Plumber to protect the wealth of the banks' shareholders and to pay high salaries to their top executives.***

The point of buying the bad assets is to pay too much, so that the banks can get enough money to stay solvent. ***

It would be nice if the [Washington] Post and the rest of the media would report honestly on the bank bailout and stop trying to conceal plans for a massive redistribution of wealth to the bank shareholders and their top executives.
Is this how government is supposed to work?
6 comments

Monday, November 8, 2010

How to Save America In One Week


Many people think we just have to sit here and take it.

Many others are starting to call for revolution. See this, this, this, this, this and this:

(For those who are calling for revolution, please read the postscript).

But there may be a third way.

As I wrote a year ago:

As MSNBC news correspondent Jonathan Capehart tells Dylan Ratigan, the main problem is that people aren't making enough noise. Capehart says that the people not only have to "burn up the phone lines to Congress", but also to hit the streets and protest in D.C.

Even though most politicians are totally corrupt, if many millions of Americans poured into the streets of D.C., a critical mass would be reached, and the politicians would start changing things in a hurry.

As [liberal] PhD economist Dean Baker points out:

The elites hate to acknowledge it, but when large numbers of ordinary people are moved to action, it changes the narrow political world where the elites call the shots. Inside accounts reveal the extent to which Johnson and Nixon’s conduct of the Vietnam War was constrained by the huge anti-war movement. It was the civil rights movement, not compelling arguments, that convinced members of Congress to end legal racial discrimination. More recently, the townhall meetings, dominated by people opposed to health care reform, have been a serious roadblock for those pushing reform….

A big turnout ... can make a real difference.

Baker is right about Vietnam.

Specifically - according to Daniel Ellsberg and many others - Richard Nixon actually planned on dropping a nuclear bomb on Vietnam Nixon also said he didn't care what the American people thought. He said that -- no matter what the public did or said -- he was going to escalate the war in Vietnam.

However, a well-known biographer says that Nixon backed off when hundreds of thousands of people turned out in Washington, D.C. to protest an escalation of the war.

Similarly, no matter how completely sold-out to the Wall Street giants D.C. politicians are, they would start paying attention to their real employers - the American people - if we make enough noise.

If 3 million Americans all peacefully surrounded the White House and Capitol Hill, holding signs saying "We're Not Leaving Until the Too Big to Fails which Caused the Economic Crisis are Reined In", things would change pretty fast.

3 million might sound like a lot of people. But many millions of people read popular alternative financial and economic news sites. You are probably one of millions of people who will read this essay (by the time it is published by some of the larger sites).

In other words, it's not even a question of convincing other people to go. We - those who read alternative financial websites - could do it ourselves.

If millions of us don't go protest in D.C., it's because we are choosing not to sacrifice a tiny bit in order to change things.

The bad guys are only winning because we - the American people - aren't making enough noise.

Not Now . . .

It is human nature to try to put things off until tomorrow. Tomorrow, when things are easier, we'll do it...

It is easy to despair that it is already too late. Should we whine and give up hope?

Well, about a month before the American Revolutionary War, Patrick Henry said:
They tell us, sir, that we are weak; unable to cope with so formidable an adversary. But when shall we be stronger? Will it be the next week, or the next year?
If not now, when? Like Patrick Henry asked, when will we be stronger? When will the robber barons be weaker?

If we're going to save America through non-violent protests, now is the time.

To hell with circumstances; I create opportunities.
- Bruce Lee

There is no act too small, no act too bold. The history of social change is the history of millions of actions, small and large, coming together at points in history and creating a power that governments cannot suppress.
- Howard Zinn, historian

The power of an aroused public is unbeatable.
- Dr. Helen Caldicott

The most powerful weapon on earth is the human soul on fire.
-Ferdinand Foch

In times of danger large groups rise to the highest pitch of enthusiasm, courage and sacrifice . . . Mankind will be refashioned and history rewritten when this law is understood and obeyed.
-Helen Keller

Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it's the only thing that ever has.
- Margaret Mead

We must remember that one determined person can make a significant difference, and that a small group of determined people can change the course of history.
-Sonia Johnson

You let one ant stand up to us - then they all might stand up. Those puny little ants outnumber us a 100 to one. And if they ever figure that out, there goes our way of life.
- Hopper (a grasshopper who is the leader of the gang of thugs who are stealing money from the other bugs, speaking to fellow grasshoppers in the Disney/Pixar movie A Bug's Life)

If you don't like the news, go out and make some news of your own.
- Scoop Nisker

Similarly, conservative financial writer Karl Denninger writes today:

You - America - You - can fix this tomorrow. Put 500,000 people around The Treasury and The Fed in Washington DC and refuse to leave until Geithner and Bernanke both resign and depart and the FDIC goes through all four of the largest banks, marks their "stuff" to market, and resolves all that are insolvent. Lay peaceful siege, MLK-style.

Denninger wrote last week:

Everyone wants a way to save them - an investment strategy, a place to hide their assets, etc.

Let me give you the answer folks, and you're not going to like it:

There is only one way, and that is to save everyone. That is, to force this crap to stop - by whatever means are necessary - and possible.

Yeah, that's a strong statement. It's also true.

Let's presume that we don't do this. That Bernanke does his QE2 thing as threatened and announced. It won't work - it can't, because the commodity price ramps will cause margin compression and destruction of those in the middle and lower classes. That in turn means people buy less, which means employers fire, not hire.

That in turn will cause him to believe he has to do more. This is his thesis. So he will.

And that will in turn impose even more effective tax on America.

At some point one of two things happens: Either the world blows the dollar off and it literally collapses in value by half in the space of a few days, or we get into a printing spiral that debases the currency so fast that prices change between the time you go to work and get home. But your wages won't go up because of exporting our labor to China, so you will slowly - or not-so-slowly - be unable to buy necessities - food and energy, along with medical care.

Either way the end point is the same. The government becomes unable to issue Social Security, Medicare and Medicaid checks, along with paying people like the Military. At the same time you're literally being starved to death. In desperation the government will then attempt to seize everything through some form - whether it be through massive fines and forfeiture, or whether it is through simple tax increases. That of course will simply make it worse.

You can try to hide in something like Gold, but it won't do you a bit of good. The government is not that dumb. They already have in the law provisions requiring reporting of transactions over $600. They'll go to a fully-electronic currency (we're damn close to being there now) and force clearing of all transactions through The Fed. This will effectively create a 100% reportable - and taxable - data stream.

If you try to barter around it, and you will, they'll fix that too. Treasury will simply expand the already existing IRS program for "rats." Your neighbor and everyone else will be "enticed" with a 20% reward for all "off-grid" transactions that they report. And civil forfeiture will be used to literally steal everything you own when - not if - you get caught.

Forget it folks, unless you're planning on going Rambo. And if you're going to do that, you may as well get started now. You'll go to prison or die - but over time people dying for what they believe is nothing new. We call them terrorists when they lose - and freedom fighters when they win. In 1776 a bunch of men decided they had enough, and they pledged their lives, their fortunes and their sacred honors. They, in aggregate, won and thus are "freedom fighters" - but some of them also died.

All the noise I hear - all words and bluster behind keyboards but no gunshots - tell me that nobody's prepared to do that. So quit babbling about it. All that does is get you on the No-Fly list and a visit from the guys in the black (and armored) Escalades. Don't bother with "sound and fury" nonsense. You're not only wasting your breath you'll get arrested - for nothing.

No, the only solution is for the people to get ****ed off enough to rise up peacefully but in a form and fashion that makes clear that we're not talking, we're demanding. We're putting in front of Congress and other officials positions that are not "polite requests" - they're instructions, as all citizens are entitled to put forward to their elected officials.

The people en-masse must come to the conclusion that this will not be allowed to stand.

Enforcement of that mandate does not require unlawful acts. There may be some people who decide to embark on them, but that's not the message that is being sent or intended.

No, instead the message to send is that we have choices that are lawful and peaceful, and we will exercise them in full.

  • We will not do business with banksters who caused this or any merchant who does.

  • We will not work overtime or even work hard; we will instead engage in consumer withdrawal, making as little as possible and drawing as much from the government as we can. That is, we will try to suck the government teat dry and lawfully minimize what we give both to big corporations and government.

  • We will NOT cooperate with law enforcement. "You have the right to remain silent" is an absolute. This already takes place in parts of America - go try to investigate a crime in some gang-ridden place. Nobody will talk. Well, we can make that the rule everywhere - we can make the decision that the government is a bunch of gangsters, and we will not help them. Our eyes are closed when it comes to Government. All we will respond with is a polite "Have a nice day."

  • We WILL picket, protest, and show up in front of banksters and politicians homes - not just offices. We have a right of free speech in The Constitution and we will use it. You don't have to listen, but the streets are PUBLIC PLACES. Peaceful protests - but lots of them, in your face, every single day. Public shaming is very effective. If you want to be in a public role - running a big publicly-traded bank or in a political office you're fair game to have signs waved in your face no matter where you are. Sure, they'll withdraw from the public - that's fine. Guess what? Barricading themselves inside a fort hurts them - and their families - more than it hurts us.

  • We WILL intentionally ostracize both banksters and politicians. We will NOT cut their hair, sell them gas or groceries, or fix their air conditioners. A Bankster comes into church, they sit in an empty pew - nobody will get within 10' of them. Communion? Surely you jest. You want 20% of our income as a tax due to QE2? Fine. You can have it, but you're cutting your own hair, your own grass, and fixing your own damn car. We won't rent you an apartment, we won't quote your new windows or a new roof. In short, we're going to say "screw you", and every time we see you on the street, we're going to say it literally and loudly, just to make sure you understand. If that drives them into isolation, that's good, not bad. The Amish call it "shunning." It's part of your civil rights - you have a right to freedom of association, which includes the right not to associate. Guess what - being a bankster or politician isn't a protected class.

Look, at this point folks we have a former Chief Underwriter for Citibank who has testified under oath, in written form, that they were knowingly making bad loans to people. It wasn't an accident, and it wasn't carelessness - certainly not when they took these knowingly-bad loans and sold them to investors.

Yet people still [do business with the too big to fail banks who have committed massive fraud on America].

Its your dollar.

This nation is yours.

Its currency is yours.

And the actions of these people - Bernanke, Congress and the rest - ultimately only happen because you consent.

Are you going to continue to consent?

Once more, can I ask why? Do you like being screwed? Do you like high taxes - especially illegally-imposed back-door taxes used to fill in the holes in the fraudsters' balance sheets - the very holes that were created through the process that caused you, or your neighbor, to wind up with a bubble house and an un-affordable mortgage - one that was or will be foreclosed upon?

Let's assume you refuse to continue to consent.

If you choose to protest, to withdraw consent, and to engage in every lawful act available to you to stop it, when do you consider the job "done" and stop?

That's up to the politicians, but I'll put forward my standards for what would be "sufficient" for me to call my job done and stop writing Tickers.

The politicians can choose tomorrow to initiate forensic audits, mark everything to the market, force the bogus loans out into the open and, likely, take these firms into receivership. Detonate the bad debt, renegotiate the loans that are viable and have a lower loss in doing so rather than foreclosing, clear the balance sheets. Break the big banks up, bar the executives from any financial or publicly-traded firm for life. Refer anything crooked found to prosecutors with instructions to not only prosecute but seek forfeiture of all the ill-gotten gains. Impeach Bernanke and make clear, through changes to law if necessary, that "price stability" means just that - we all go to the store seeking mild deflation every day, and we insist that The Fed both stop trying to prevent it and leave those with savings able to earn a decent low-risk return by ceasing their tampering with interest rates and protection of scammers and frauds.

If and when they make that decision, we the people stop, because we will no longer have anything to be ****ed off about.

Until then, we don't - and if that means that the banksters and politicians wind up with hair down to their ankles, a leaky roof, a broken car and a hundred people waving signs in their faces every time they open their door?

So be it.

Will you step up, or are you going to continue to consent to being assaulted?

And see this.

How can both liberals and conservatives be calling for the same thing - massive protests against the banking elites and their water-carriers in D.C.?

Because that's what all Americans want.

While the elites have tried to divide and conquer America into a false left-versus-right dichotomy, all Americans want the rule of law to be enforced.

All Americans want the big boys to be held accountable to the same laws that we have to follow.

All Americans want there to be a level playing field so that the little guy has a chance to compete fairly.

For liberals, remember Martin Luther King Jr. and Gandhi.

For conservatives, this is what Jesus would do: kick the moneychangers out of the temple.

You know it ... now act.

We can save America in a week if we follow the call ...

Postscript: George Orwell - author of 1984 - pointed out in the Tribune (October 19, 1945), the effectiveness of arms in preventing tyranny partly depends on whether the average citizen can afford the current weapon of choice possessed by the government:

The connection between the discovery of gunpowder and the overthrow of feudalism by the bourgeoisie has been pointed out over and over again. And though I have no doubt exceptions can be brought forward, I think the following rule would be found generally true: that ages in which the dominant weapon is expensive or difficult to make will tend to be ages of despotism, whereas when the dominant weapon is cheap and simple, the common people have a chance. Thus, for example, tanks, battleships and bombing planes are inherently tyrannical weapons, while rifles, muskets, long-bows and hand-grenades are inherently democratic weapons. A complex weapon makes the strong stronger, while a simple weapon--so long as there is no answer to it--gives claws to the weak.

The great age of democracy and of national self-determination was the age of the musket and the rifle. After the invention of the flintlock, and before the invention of the percussion cap, the musket was a fairly efficient weapon, and at the same time so simple that it could be produced almost anywhere. Its combination of qualities made possible the success of the American and French revolutions, and made a popular insurrection a more serious business than it could be in our own day. After the musket came the breech-loading rifle. This was a comparatively complex thing, but it could still be produced in scores of countries, and it was cheap, easily smuggled and economical of ammunition. Even the most backward nation could always get hold of rifles from one source or another, so that Boers, Bulgars, Abyssinians, Moroccans--even Tibetans--could put up a fight for their independence, sometimes with success. But thereafter every development in military technique has favoured the State as against the individual, and the industrialised country as against the backward one ...The one thing that might reverse it is the discovery of a weapon--or, to put it more broadly, of a method of fighting--not dependent on huge concentrations of industrial plant.

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