Friday, November 19, 2010

BP Controlling University Research, and Professor Who Downplayed Oil Spill Called a "Shill" By Fellow Professor


LSU professor and oil spill expert Ed Overton has been all over the news saying that fears of the BP oil spill were overblown.

But as Raw Story reports, Overton has been a lead NOAA consultant for decades, and a fellow LSU professor calls him a "shill":

Overton’s prominent position as the chief chemist and principal architect of NOAA’s Hazardous Materials Response Division dating back to the early eighties, along with his tendency to provide rosier-than-average assessments of the effects of the Gulf oil spill since the catastrophe began –- opinions often in line with those of BP, NOAA and other federal officials –- have raised questions about the omission of his contracting work and the scientific objectivity of his public statements.

Additionally, as professor emeritus, Overton confirmed to Raw Story that he officially retired from LSU and no longer receives a salary from the university; all his income tied to his university association since May 2009 has come through grants and contracts, and mostly through his work for NOAA. The latest NOAA funding for his work was a $1.3 million five-year grant.

***

A fellow senior sciences professor at Overton’s own LSU, also noted that Overton “does not appear to be an unbiased source of information” and found it laughable that the head of NOAA’s chemical hazard assessment team is purporting to provide public comments as an “independent scientist.”

The LSU professor, who spoke with Raw Story on condition of anonymity for fear of retaliation by the university, explained, “The issue is that everybody who is involved in investigating this event and its effects needs to be upfront and honest about the sources of funding that they receive.”

***

“I think that Dr. Overton comes across as being an industry shill,” the professor offered bluntly. “He has never said anything that was not in favor of what the industry was saying and continued to minimize the effects from day one about how bad this spill and its effects would be.”

Raw Story also notes that BP is controlling what LSU researches:

Raw Story also found that, while all studies performed by the university will be scientifically peer-reviewed, BP decides what areas LSU will research.

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We Can Fix America If We Focus on What ALL Americans - Liberals AND Conservatives - Want


While there are some things that liberals and conservatives will never agree about, there are many things that we already all agree on.

Knowing the many things we agree to empowers us, because it helps get us away from the distractions so that we can realize that there is much common ground among all Americans, and that if we work together, we hold a very strong position. If we shelve our irreconcilable differences for a little while and join our voices together on the issues we agree on, the sound will be so loud that it will shake down the walls which are holding us back.

While the mainstream political parties try to sell us on their brand, the truth is that "poll after poll shows that both national parties are deeply unpopular with an electorate looking for something new and different". This essay focuses on what people want.

Break Up the Unholy Alliance Between Big Government and Big Banks

Conservatives tend to view big government with suspicion, and think that government should be held accountable and reined in.

Liberals tend to view big corporations with suspicion, and think that they should be held accountable and reined in.

Irreconcilable difference?

Not really.

Specifically, a Rassmussen poll conducted in February found:

70% [of all voters] believe that the government and big business typically work together in ways that hurt consumers and investors.

(and see this).

Remember that the government helped and encouraged the giant banks to get even bigger, and then has hidden their insolvency and shielded them from the free market, and helped them grow even during the severe downturn.

In return, the big banks and giant corporations have literally bought and paid for the politicians.

Conservatives might call it "socialism" and liberals might call it "fascism" - they are the same thing economically.

But all Americans - conservatives and liberals alike - can agree that it is not capitalism, and it is not American.

As just one example, the list of prominent economists and financial experts calling for the too big to fails to be broken up is wholly bipartisan:
  • Dean and professor of finance and economics at Columbia Business School, and chairman of the Council of Economic Advisers under President George W. Bush, R. Glenn Hubbard
  • The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz
  • Economics professor and senior regulator during the S & L crisis, William K. Black
  • Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales
Throw the Criminals In Jail

Liberals tend to believe that the public should be protected against harm, while conservatives tend to believe that people should be left free to buy what they want.

Too far apart to ever agree?

No. Conservatives believe that people must be held responsible for their actions and punished for their transgressions. Indeed, some 82% of the American public wants tougher regulation of Wall Street.

Moreover, even for those who don't like the government sticking its nose in our business, liberals and conservatives agree that if a company chooses to make a representation about something, it can be sued if it is a lie. In other words, all Americans agree that fraud laws should be enforced against everyone from the homeowner who fills out a mortgage application on a small house to the head of a giant bank who makes false statements about the bank's balance sheets and the quality of it's investments.

Everyone agrees that financial scammers must be tried and put in prison.

(And whether people believe in liberal Keynesianism or conservative Austrian economics, we should all be able to agree that a free market without bubbles is not possible without strong laws allowing prosecution of criminal fraud).

Audit the Fed

Both liberals and conservatives agree that the Federal Reserve should be audited. The bill to audit the Fed passed in a bipartisan landslide, and the overwhelming majority of Americans favor a full and complete audit. Given that the Fed has such a powerful influence on the economy, credit, unemployment, and which sectors and even which individual companies win or lose, the audit - and indeed whether or not the Fed should continue to exist - is a very important issue.

Safe and Healthy Food and Water

Americans want to be free to live our lives without being poisoned. We agree on safe food, clean water and a healthy environment.

For example, polls show:
Freedom and Fair Elections

All Americans agree that personal liberty and freedoms are vital.

We all agree that our own government should not murder us and then falsely blame others for it.

And we all agree that there should be free and fair elections. That is why - according to ABC News and the Washington Post - 80 percent of all Americans oppose the Supreme Court's recent decision allowing unlimited campaign contributions. Americans understand that - unless we take the flood of money out of elections - Washington will represent special interests, and not us.

And we all agree on publicly verifiable, automatically audited paper ballot elections with reasonable ID requirements, so that we assured that no party can manipulate electronic voting results.

Whether the above list of common positions seems modest or ambitious, the fact that we can all - liberals and conservatives - agree on them is very powerful.

Because once we realize that we agree on them, and decide to rally behind them to restore prosperity to America, we will have a much better chance of turning our country around.

You still might think that the people across the aisle are fanatics, nutjobs, flakes, sinners or scoundrels on some issues. But remember that - to the extent that they are working for the same goals you are on the issues mentioned above - they are your valuable allies.

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Thursday, November 18, 2010

"Resistance to Tyranny is Obedience to God"


I've previously written that real men stand up to fascists:

The fascists' view of masculinity is that -- to be a real American man -- you have to rally around the "strong leader", you have to talk tough about the "war on terror", you have to get pleasure out of watching "our team" (the sole superpower) beat the stuffing out of a bunch of third-rate armies like Iraq and Afghanistan.

Are they right? Well, psychologists tell us that rallying around the authoritarian leader is actually a very infantile way to affirm one's masculinity.

Okay, listen up guys. Real men don't bluster like George W. Bush or Bill O'Reilly. Real men stand up to fascists.

Our forefathers stood up to the British king and fought for our freedom. Our forefathers stood up to tyrants and won their liberty and freedom.

THAT's what masculinity really means. That's where the pedal hits the metal and the rubber meets the road. It is the dictators running our country who are the danger, who are stealing the future from us, and our kids, and our grandkids.

Come on, buddy . . . stop posing. And start acting like a real man.

"If you're really a patriot, you will defend the constitution. If you're a coward, you'll defend the elite who want to subvert it. Real men stand up to fascism. Cowardly men become boot lickers."
- Chris D

"Most Americans aren't the sort of citizens the Founding Fathers expected; they are contented serfs. Far from being active critics of government, they assume that its might makes it right."
- Joseph Sobran

***

Of course, real women stand up to fascists, also.

People of faith stand up to fascists as well.

Thomas Jefferson said:

Resistance to tyranny is obedience to God.

Susan B. Anthony - one of the leading crusaders for women's rights - said at her sentencing hearing based on her conviction for illegally voting:

I shall earnestly and persistently continue to urge all women to the practical recognition of the old revolutionary maxim, that "Resistance to tyranny is obedience to God."

Nor is the idea strictly a Christian idea.

The Book of Maccabees - an ancient secular Jewish book purporting to document the events which Chanukah celebrates - is said to contain the same statement.

And see this.

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FDR Wasn't FDR ... Until His Hand Was Forced By Civil Disobedience


Progressives are disappointed that - contrary to the hype - Obama is no FDR.

But FDR himself wasn't who we think of as FDR until he was forced by protests, strikes and other forms of civil disobedience.

As historian Howard Zinn wrote in March 2008:

In 1934, early in the Roosevelt Presidency, strikes broke out all over the country, including a general strike in Minneapolis, a general strike in San Francisco, hundreds of thousands on strike in the textile mills of the South. Unemployed councils formed all over the country. Desperate people were taking action on their own, defying the police to put back the furniture of evicted tenants, and creating self-help organizations with hundreds of thousands of members.

Without a national crisis—economic destitution and rebellion—it is not likely the Roosevelt Administration would have instituted the bold reforms that it did.

Today, we can be sure that the Democratic Party, unless it faces a popular upsurge, will not move off center. The two leading Presidential candidates [i.e. Obama and McCain] have made it clear that if elected, they will not bring an immediate end to the Iraq War ....

They offer no radical change from the status quo.

They do not propose what the present desperation of people cries out for ....

They do not suggest the deep cuts in the military budget or the radical changes in the tax system that would free billions, even trillions, for social programs to transform the way we live.

None of this should surprise us. The Democratic Party has broken with its historic conservatism, its pandering to the rich, its predilection for war, only when it has encountered rebellion from below, as in the Thirties and the Sixties. We should not expect that a victory at the ballot box in November will even begin to budge the nation from its twin fundamental illnesses: capitalist greed and militarism.

***

For instance, the mortgage foreclosures that are driving millions from their homes—they should remind us of a similar situation after the Revolutionary War, when small farmers, many of them war veterans (like so many of our homeless today), could not afford to pay their taxes and were threatened with the loss of the land, their homes. They gathered by the thousands around courthouses and refused to allow the auctions to take place.

The evictions today of people who cannot pay their rents should remind us of what people did in the Thirties when they organized and put the belongings of the evicted families back in their apartments, in defiance of the authorities.

Historically, government, whether in the hands of Republicans or Democrats, conservatives or liberals, has failed its responsibilities, until forced to by direct action: sit-ins and Freedom Rides for the rights of black people, strikes and boycotts for the rights of workers, mutinies and desertions of soldiers in order to stop a war.
Voting ... is a poor substitute for democracy, which requires direct action by concerned citizens.

Similarly, Zinn said in 2008:

The obstacles are a kind of resignation that things will go on as before. That's always the obstacle to change. The obstacle to change is not that people don't want change. People want change. But most of the time, people feel impotent. However, at certain points in history, the energy level of people, the indignation level of people rises. And at that point it becomes possible for people to organize and to agitate and to educate one another, and to create an atmosphere in which the government must do something. I'm thinking of the 1930s; I'm thinking of Franklin D. Roosevelt coming into office not really a crusader.

Roosevelt came into office, you know, with a balance-the-budgets history. It was not clear what he was going to do, and I don't think he was clear about what he was going to do, except that he was going to be different from Hoover and the Republicans. But when he came into office, he faced a country that was on strike. He faced general strikes in San Francisco in Minneapolis. He faced strikes of hundreds of thousands of textile workers in the South. He faced a tenants movement and an unemployed council movement. And he faced a country in turmoil, and he reacted to it, he was sensitive to it, he moved. That's what we will need.

We will need to see some of the scenes that we saw in the '30s.

And Peter Dreier - professor of politics and director of the Urban & Environmental Policy program at Occidental College - wrote last year:

In his recent book Nothing to Fear: FDR's Inner Circle and the Hundred Days That Created Modern America, Adam Cohen [assistant editorial page editor of the New York Times] points out that when FDR was elected in November 1932, and even after he took office in March 1933, his ideas about what to do were very unclear.

He promised Americans a "New Deal," but he had very few specifics. In fact, FDR was in many ways a cautious, even conservative, politician. The one clear idea he had in mind when he took office was to cut the federal budget, and the person he hired to do that job was his budget director, a conservative Congressman from Arizona named Lewis Douglas. He was also initially reluctant to use the power of government to regulate business practices, create jobs or to support union organizing or struggling farmers. He was clear from the beginning, however, that core values were at stake--articulated in his first Inaugural Address. That is what created the ground--and support--for his pragmatic experimentation.

Cohen's book describes an ongoing battle for FDR's heart and mind that took place both inside and outside the White House.

***

As Cohen recounts, "Farmers who stayed on the land were responding to their bleak circumstances with extreme politics and lawlessness." Across the Farm Belt, hundreds of farmers would show up and stop a foreclosure sale by the force of numbers. Some farmers threatened to call a national strike if Congress didn't act. In Sioux City, Iowa, farmers put wooden planks with nails on the highways to block agricultural deliveries. Cohen writes that in Nebraska, a group of farmers "showed up at a foreclosure sale and saw to it that every item that had been seized from a farmer's widow sold for five cents, leaving the bank with a total settlement of just $5.35."

These protests by farmers, Cohen explains, "increased the sense of urgency in Washington." Henry Wallace and progressive Democrats in Congress kept FDR aware of these protests, which helped them outmaneuver their more moderate colleagues. This combination of outside protest and inside maneuvering led to passage of the Agricultural Adjustment Act and the Emergency Farm Mortgage Act, which, Cohen says, "radically changed the economics of American farming."

This same dynamic played out in the big cities among veterans, tenants, the unemployed, workers and the elderly.

In the spring and summer of 1932, protest erupted among veterans of World War I, many of whom were out of work and hungry. More than 20,000 of them from across the country joined a Bonus Army march on Washington. The veterans held government bonus certificates for their military service, which were due more than a dozen years in the future. They demanded that Congress pay their bonuses immediately. Most of them camped in makeshift huts on the Anacostia flats, across the Potomac River from the Capitol. President Hoover ordered the Army to evict the veterans, which led to a bloody scene with horses, tear gas and machine guns in which two veterans were killed.

After FDR took office, the veterans returned to Washington. In contrast to Hoover, FDR invited the Bonus Marchers to camp at a nearby Army fort and provided them with meals, medical care and entertainment by the Navy band. First Lady Eleanor Roosevelt visited the veterans and listened to their complaints. FDR didn't restore their bonuses, but he did issue an executive order setting aside 25,000 places for veterans in the Civilian Conservation Corps, the first of the New Deal public works programs.

In the 1930s, the United States was a nation of renters. As the Depression worsened, there were huge waves of evictions, because tenants didn't have the income to pay rent. Utility companies shut off electricity and heat. In many cities, when word spread that a family was being evicted, a crowd would gather--sometimes ten people, sometimes a few hundred. The police would remove the furniture from the house and put it out in the street, and the crowd would bring the furniture back. This happened so often that some police officers would refuse to evict or arrest people. These protests set the stage for the New Deal's housing programs, the first time that the government provided subsidies to create affordable housing.

In January 1933, several hundred jobless Americans surrounded a restaurant just off Union Square in New York City, demanding that they be fed without charge. In Seattle in February 1933, about 5,000 unemployed people occupied the County-City Building demanding jobs or relief. These and similar protests around the country set the stage for the nation's first cash assistance program for struggling families.

Through the 1930s, workers engaged in massive and illegal strikes and sit-down protests in factories and retail stores throughout the country. In 1934, 1.5 million workers--including longshoremen, teamsters, factory workers and retail clerks--went on strike. In San Francisco, 130,000 workers joined a general strike.

***

In time, FDR recognized that his ability to push New Deal legislation through Congress depended on the pressure generated by these protesters. As the protests escalated, Roosevelt became more vocal, using his bully pulpit to lash out at Big Business for its greed and selfishness. He used his speeches and his fireside chats to explain his New Deal agenda and to encourage people to contact their representatives in Congress.

FDR was initially ambivalent about protest and about radicals. For example .... FDR wasn't enthusiastic about the mounting protests by farmers, workers, veterans, community groups and the advocates of the Townsend Plan (for old-age insurance), but he understood their utility.

***

FDR once met with a group of activists who sought his support for legislation. He listened to their arguments for some time and then said, "You've convinced me. Now go out and make me do it."

Liberal Harvard Law School professor Lawrence Lessig pointed out last week that - instead of mocking the Tea party - progressives should emulate it's energy:

Many of my friends have been puzzled that I have not been a strong critic of the Tea Party. Indeed, quite the opposite, I stand as a critical admirer.... I am a genuine admirer of the urge to reform that is at the heart of the grassroots part of this, perhaps the most important political movement in the current political context.

My admiration for this movement grew yesterday, as at least the Patriots flavor of the Tea Party movement announced its first fight with (at least some) Republicans. The Tea Party Patriots have called for a GOP moratorium on "earmarks."

***

This disagreement has thus set up the first major fight of principle for the Tea Party. As leaders in the Tea Party Patriots described in an email to supporters,

For two years we have told the media and the rest of the country that we are nonpartisan and that we intend to hold all lawmakers to a higher standard.

This, they insist, is their first chance for that stand with the new Republican Congress. And the Tea Party Patriots have now mobilized their list to pressure Republicans to support this first and critical reform in the new Congress.

***

Earmarks are ... an essential element in the corruption that is Congress today.... they have become the key to an incredible economy of influence that effectively enables lobbyists to auction too many policy decisions to the highest special interest bidder. That economy won't change simply by eliminating earmarks. But eliminating earmarks is an essential first step to starving this Republic-destroying beast.

***

We do face a common enemy. Special-interest-government is anathema to both the true Right and the limping Left. Progress would be to work together to end it.

Lessig is not alone.

As I've previously pointed out, progressives such as Dave Lindorff, economist Dean Baker, Daniel Ellsberg, Jonathan Capehart and many others say that we should be emulating the protest energy of the Tea Party, because we have to raise some hell before anything will change.

In fact, as I've repeatedly noted, the whole left-versus-right thing is just a distraction trick. It's really the American people versus the giant bankers, captains of the military-industrial complex, and handful of others who are benefiting by shafting the average American.

Remember that one of the founders of the Tea Party - Karl Denninger - has slammed the current Tea Party (which was quickly co-opted by the mainstream GOP) for serving the rich and the Republican party instead of fighting against the giant banks, and is calling for non-partisan, Gandhi-style nonviolent resistance to take on the banskters.

And remember that "liberal" George Soros is paying a top aide to "conservative" Sarah Palin.

Of course, some have argued that there are more effective methods of disobedience than protests and strikes such as this or this. I will leave strategy to those who have better tactical sense than I have.

But one thing is for sure: unless we make the lives of those in power a little more uncomfortable, nothing will change.

Note to conservatives who dislike FDR: Glass-Steagall and other regulations against fraud wouldn't have been passed unless the public had raised hell through protests and strikes.

Postscript: Yves Smith is having none of it, pointing me to an article by political science professor and Roosevelt Institute Senior Fellow Thomas Ferguson which saying that FDR never worked for the status quo, and concluding that "FDR was simply not willing to make the kind of arrangements with bankers that President Obama was".

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Wednesday, November 17, 2010

We Won! Bill to Retroactively Immunize Mortgage Fraud Defeated


A friend on the Hill just wrote me the following:

HR 3808 Veto Upheld

HR 3808 went down.

Most Democrats voted to uphold Obama’s veto. Nearly all Republicans voted to override Obama’s veto.

I’m somewhat surprised at the roll call, I hadn’t expected the Republicans to so overtly take this position.

Congratulations to everyone who called their congress members to demand that this blatant attempt to legalize mortgage fraud be defeated.

Here's the roll call on the vote (and see this).
8 comments

How to Persuade Stubborn People


As anyone who has tried to educate people with facts knows, it is very difficult to persuade stubborn people.

New research sheds some light on this frustrating dynamic.

As NPR noted in July:

New research suggests that misinformed people rarely change their minds when presented with the facts — and often become even more attached to their beliefs.

***

A new body of research out of the University of Michigan suggests that's not what happens, that we base our opinions on beliefs and when presented with contradictory facts, we adhere to our original belief even more strongly.

The phenomenon is called backfire, and it plays an especially important role in how we shape and solidify our beliefs on immigration, the president's place of birth, welfare and other highly partisan issues.

***

It's threatening to us to admit that things we believe are wrong. And all of us, liberals and conservatives, you know, have some beliefs that aren't true, and when we find that out, you know, it's threatening to our beliefs and ourselves.

***

This isn't a question of education, necessarily, or sophistication. It's really about, it's really about preserving that belief that we initially held.

As I pointed out in March:

Psychologists and sociologists show us that people will rationalize what their leaders are doing, even when it makes no sense ....

Sociologists from four major research institutions investigated why so many Americans believed that Saddam Hussein was behind 9/11, years after it became obvious that Iraq had nothing to do with 9/11.

The researchers found, as described in an article in the journal Sociological Inquiry (and re-printed by Newsweek):

  • Many Americans felt an urgent need to seek justification for a war already in progress
  • Rather than search rationally for information that either confirms or disconfirms a particular belief, people actually seek out information that confirms what they already believe.
  • "For the most part people completely ignore contrary information."
  • "The study demonstrates voters' ability to develop elaborate rationalizations based on faulty information"
  • People get deeply attached to their beliefs, and form emotional attachments that get wrapped up in their personal identity and sense of morality, irrespective of the facts of the matter.
  • "We refer to this as 'inferred justification, because for these voters, the sheer fact that we were engaged in war led to a post-hoc search for a justification for that war.
  • "People were basically making up justifications for the fact that we were at war"
  • "They wanted to believe in the link [between 9/11 and Iraq] because it helped them make sense of a current reality. So voters' ability to develop elaborate rationalizations based on faulty information, whether we think that is good or bad for democratic practice, does at least demonstrate an impressive form of creativity.
An article yesterday in Alternet discussing the Sociological Inquiry article helps us to understand that the key to people's active participation in searching for excuses for actions by the big boys is fear:
Subjects were presented during one-on-one interviews with a newspaper clip of this Bush quote: "This administration never said that the 9/11 attacks were orchestrated between Saddam and al-Qaeda."

The Sept. 11 Commission, too, found no such link, the subjects were told.

"Well, I bet they say that the commission didn't have any proof of it," one subject responded, "but I guess we still can have our opinions and feel that way even though they say that."

Reasoned another: "Saddam, I can't judge if he did what he's being accused of, but if Bush thinks he did it, then he did it."

Others declined to engage the information at all. Most curious to the researchers were the respondents who reasoned that Saddam must have been connected to Sept. 11, because why else would the Bush Administration have gone to war in Iraq?

The desire to believe this was more powerful, according to the researchers, than any active campaign to plant the idea.

Such a campaign did exist in the run-up to the war...

He won't credit [politicians spouting misinformation] alone for the phenomenon, though.

"That kind of puts the idea out there, but what people then do with the idea ... " he said. "Our argument is that people aren't just empty vessels. You don't just sort of open up their brains and dump false information in and they regurgitate it. They're actually active processing cognitive agents"...

The alternate explanation raises queasy questions for the rest of society.

"I think we'd all like to believe that when people come across disconfirming evidence, what they tend to do is to update their opinions," said Andrew Perrin, an associate professor at UNC and another author of the study...

"The implications for how democracy works are quite profound, there's no question in my mind about that," Perrin said. "What it means is that we have to think about the emotional states in which citizens find themselves that then lead them to reason and deliberate in particular ways."

Evidence suggests people are more likely to pay attention to facts within certain emotional states and social situations. Some may never change their minds. For others, policy-makers could better identify those states, for example minimizing the fear that often clouds a person's ability to assess facts ...

The Alternet article links to a must-read interview with psychology professor Sheldon Solomon, who explains:

A large body of evidence shows that momentarily [raising fear of death], typically by asking people to think about themselves dying, intensifies people's strivings to protect and bolster aspects of their worldviews, and to bolster their self-esteem. The most common finding is that [fear of death] increases positive reactions to those who share cherished aspects of one's cultural worldview, and negative reactions toward those who violate cherished cultural values or are merely different.

Conservative Frank Luntz and liberal George Lakoff have used the principles of neuroscience to show that facts are less important in persuading many people than "framing". This is an important subject to learn about, to become a more effective communicator.

In the meantime, however, there may be an easier shortcut for persuading stubborn people.

Specifically, start by asking the following question:

Do you want to defend your feelings and beliefs or do you want to know the truth?

Most people will respond by saying "I want to know the truth, of course".

They will say that because they don't want to appear irrational, even if they usually are.

You can then start conveying facts, but repeatedly be sensitive to their feelings of resistance to the challenging facts you're presenting, by saying things like:

"I found this hard to believe when I heard it, too"

"It's hard for everyone to change our minds"

"I know this is contrary to what we've been taught"

"I know it would be [painful or scary or infuriating or other adjective conveying a negative emotion] to believe that [the thing they don't want to hear about]"

And if they are resisting hearing the facts, gently remind them that they said they wanted to know the truth.

If you don't use these techniques, then the stubborn person's automatic and unconscious processes will ensure that he or she will cling to old belief system no matter what you say. Remember, while you may be able to think logically, many people make most of their decisions based on emotions and faulty belief systems. Assuming that everyone uses the same decision-making process you do is the main impediment to going beyond preaching to the choir and persuading others.

There is some percentage of people who will never believe the facts, no matter how you say it. Sometimes it is best just to drop it. But the above-described techniques may work on a large percentage of stubborn people.

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TODAY Congress Will Try - By Secret Vote - to Retroactively Legalize Foreclosure Fraud and Forgery By the Big Banks ... Call Congress and Say NO


As I've previously noted, forgery of mortgage documents is systematic and widespread. See this, this, this, this and this.

Yves Smith pointed out last month that congressional bill H.R. 3808 is an attempt to paper over rampant criminality by the big banks regarding forged mortgage documents:

We are seeing more recognition of the consequences of this [widespread problem] , which in more polite company might be called, “My dog ate your mortgage.”

***

One sighting (hat tip 4ClosureFraud) is the effort by the Ohio Secretary of State to enlist support against a proposed measure to allow for electronic notarizations. The Secretary hints strongly that this measure being put forward is directly related to the revelation of affidavit improprieties, which further suggests that the banks might regard this as a remedy for this particular, um, lapse:

H.R. 3808 is known as the “Interstate Recognition of Notarizations Act.” It passed the House under a suspension of the rules in April 2010. It requires federal and state courts to recognize any notarization that is lawful in the state where the notary is licensed. Now, in one day, it passed in the Senate.

When I learned of it last Thursday, it sounded innocuous to me, but then I started looking at the timing of the bill. GMAC, owned by Ally, had just suspended its foreclosure actions in 23 states, including Ohio. I had already referred Chase Home Finance, LLC, on August 23, 2010, to the U.S. Department of Justice, asking it to review and investigate Chase’s document notarization practices in home foreclosures (18,000 documents per month were being notarized by 8 people, along with other irregularities). I license notaries in the State of Ohio. Even though I don’t have the power under state law to investigate or prosecute, I couldn’t stand idly by without acting. That’s why I’m asking you to email or call the President at 202-456-1111 to ask him not to sign the bill.

Last Wednesday, the day before I announced the DOJ referral, JPMorgan Chase announced it was having third party counsel review its document procedures for foreclosures. Just two days before, the U.S. Senate had rushed through H.R. 3808. Something didn’t seem right. Since then others agree with me.

Yves here. This development reveals how this battle is likely to play out. Now that judges in some states are starting to take these dubious, potentially fraudulent measures seriously, the next line of attack is to get the more bought and paid for Federal government to intercede on behalf of the banks. As the e-mail by the Ohio Secretary shows, this is a state versus Federal rights issue. And the problem is that these solutions will be depicted as “efficient,” just as securitizations and other “innovations” were.

And while efficiency in theory is a good thing, it must always be kept secondary to the overall integrity of the system, otherwise, you run the risk of breakdown. Using dubious arguments to overturn well settled law to get the banking industry out of a monster mess it created is a Faustian bargain. It makes it abundantly clear what is really at stake here, which is the rule of law. Banks that were quick to defend unjustifiable pay deals by invoking “sanctity of contract” have no inhibition about ignoring their own contracts to pad their bottom line, and ultimately, the wallets of top executives.

Rather than deal with the considerable consequences of these abuses, the banks are prepared to bulldoze well settled state laws to give them an easy way out. And I’m not basing my view on this story alone; I had a conversation yesterday with a Congressional staffer who matter-of-factly said (but with little understanding of the underlying issues) that Congress would intervene on behalf of the industry, via its authority over national banks.

The result is that we institutionalize kleptocracy while keeping largely gutted forms of due process as theater. The powers that be hope that the broad public will remain unaware of what is really at work.

Congress passed H.R. 3808 by a secret voice vote so that the names of the congress members voting for it wouldn't be recorded. For example, as shown by the official government webpage:

4/27/2010 Passed/agreed to in House: On motion to suspend the rules and pass the bill Agreed to by voice vote.

Using that unusual procedure, the Congress critters were hoping to avoid public shaming.

Obama vetoed H.R. 3808, but today, Congress will try - again by secret vote - to retroactively legalize foreclosure fraud and forgery by the big banks.

(You can watch the vote live here.)

Specifically, as 4ClosureFraud reports:

From the LEGISLATIVE DAY OF NOVEMBER 15, 2010 111TH CONGRESS – SECOND SESSION

***

H.R. 3808:
to require any Federal or State court to recognize any notarization made by a notary public licensed by a State other than the State where the court is located when such notarization occurs in or affects interstate commerce

2:14 P.M. -
VETO MESSAGE FROM THE PRESIDENT – The Chair laid before the House the veto message from the President on H.R. 3808.

***

2:13 P.M. -

Mr. Scott (VA) asked unanimous consent That, when a veto message on H.R. 3808 is laid before the House on the legislative day of today, then after the message is read and the objections of the President are spread at large upon the Journal, further consideration of the veto message and the bill shall be postponed until the legislative day of Wednesday, Nov. 17, 2010; and that on that legislative day, the House shall proceed to the constitutional question of reconsideration and dispose of such question without intervening motion. Agreed to without objection.

Looks like it is time for another crash course on how this works…

Veto Override Procedure in the House and Senate

Summary

A bill or joint resolution that has been vetoed by the President can become law if two-thirds of the Members voting in the House and the Senate each agree to pass it over the President’s objection. The chambers act sequentially on vetoed measures; the House acts first on House-originated measures (H.R. and H.J. Res.) and the Senate acts first on Senate-originated measures (S. and S.J. Res.). If the first-acting chamber fails to override the veto, the measure dies and the other chamber does not consider it. The House typically considers the question of overriding a presidential veto under the hour rule, with time customarily controlled and allocated by the chair and ranking member of the committee with jurisdiction over the bill. The Senate usually considers the question of overriding a veto under the terms of a unanimous consent agreement.

Voting in the House

To override a veto, two-thirds of the Members voting, a quorum being present, must agree to repass the bill over the President’s objections. The Constitution requires that the vote be by the “yeas and nays,” which in the modern House means that Members’ votes will be recorded through the electronic voting system. The vote on the veto override is final because, in contrast to votes on most other questions in the House, a motion to reconsider the vote on the question of overriding a veto is not in order.

Full rules below…

Check back for updates…

UPDATE: JUST CONFIRMED WITH THE BILL’S SPONSOR STAFF IN WASHINGTON DC AND THERE WILL BE A VOTE TO OVERRIDE OR UPHOLD THE PRESIDENTS VETO WEDNESDAY NOVEMBER 17, 2010.

GET ON THE PHONES AND CALL YOUR REPRESENTATIVES NOW AND TELL THEM TO UPHOLD THE PRESIDENTS VETO!

H.R. 3808 Veto Override Procedure in the House and Senate
4 comments

Tuesday, November 16, 2010

Welcome to the Age of Permanent Bailouts for the Giant Banks


NY Fed president William Dudley said today, when asked when the Fed would stop quantitative easing:

This exit could be several years away.

Too bad that quantitative easing won't help Main Street or the average American. It will only help big banks, giant corporations, and big investors. See this and this.

Remember, the government has also left open the possibility of permanent bailouts for the big banks. See this, this, this, this and this.

As Ron Paul wrote in October 2009:

The Fed, by backing up fractional-reserve banking with a promise of endless bailouts and money creation, attempts to keep the illusion going.

And see this.

Welcome to the age of permanent bailouts for the giant banks.

Everyone else can eat cake ...
2 comments

Jeremy Grantham: "The Fed Has Spent Most of the Last 15, 20 Years Manipulating the Stock Market"


Legendary investor Jeremy Grantham - Chief Investment Strategist of Grantham, Mayo, Van Otterloo- told CNBC last week:

What I worry about most is the Fed's activity and — QE2 is just the latest demonstration of this. The Fed has spent most of the last 15, 20 years— manipulating the stock market whenever they feel the economy needs a bit of a kick. I think they know very well that what they do has no direct effect on the economy. The only weapon they have is the so-called wealth effect. If you can drive the market up 50 percent, people feel richer.

***

This is what the Fed wants by the way.

It wants us to go out there and buy stocks, which are overpriced because bonds they have manipulated into being even less attractive. So, we’re being forced to choose between two overpriced assets.

***

And what the Fed is trying to do is to make cash so ugly that it will force you to take it out and basically speculate. And in that, it's very successful, of course, with the hedge funds. They're out there speculating. Finally, the ordinary individuals are beginning to get so fed up with having no return on their cash that they're beginning to do a little bit more purchasing of equities. And that's what the Fed wants.

It wants to have the stocks go up, to make you feel a bit richer so that you'll spend a little more and give a short-term kick to the economy. But, it— it's a pretty circular argument. For every dollar of wealth effect you get here, as stocks go from overpriced to worse, you will give back in a year or two. And you'll give it back like it— like it happened in— in '08 at the very worse time.

All of the kicker that Greenspan had engineered for the '02, '03, '04 recovery and so on was all given back with interest. The market overcorrected through fair value. The housing market that was a huge driver of economic strength and a— actually masked structural unemployment with all those extra, unnecessary houses being built. All of that was given back similarly at the same time. It couldn't have been worse.
Grantham also slams the Fed for blowing bubbles and for encouraging moral hazard:
[Question:] So, what should the federal government be doing then? I mean, the housing industry, for example, missing in action. What is it going to take to get housing moving again? What is it gonna take to get businesses hiring again? If it's not the job of the Federal Reserve, what policy should we be seeing coming out of the government?

[Grantham:] I think the Federal Reserve has— is in a very strong position to move against bubbles. Bubbles are the most dangerous thing— asset-class bubbles that come along. They're the most dangerous to investors. They're also the most dangerous to the economies of— as we have seen in Japan and in 1929 and now here. You've got to stop them.

The Fed has enormous power to move markets. And it— not necessarily immediately, but give them a year and they could bury a bull market. They could have headed off the great tech bubble. They could have headed off the housing bubble. They have other responsibilities— powers. They— they could have interfered with the quantity and quality of the sub-prime event. They chose not to.

In fact, Greenspan led the charge to deregulate this, deregulate that, deregulate everything, which was most— ill advised, and for which we have paid an enormous price. So, they can— they can stop bubbles, and— and they should. It's easy. It's a huge service. What you do now is— is— I like to say it's a bit like the Irish problem.

I wouldn't start the journey from here if I were you when you ask— the way. You— you really shouldn't allow the— situation to get into this shape. You should not have allowed the bubbles to form and to break. Digging out from a great bubble that has broken is so much harder than preventing it in the first place.

***

And unless we're lucky, we will have yet another crisis without being able to lower the rates 'cause they'll still be low, without being able to issue too much moral hazard promises from the Fed because people will begin to find it pretty hollow. Cycle after cycle, the Fed is making basically— is flagging the same intention. Don't worry, guys. Speculate. We'll help you if something goes wrong. And each time something does go wrong and it gets more and more painful.
Finally, Grantham slams low interest rates and quantitative easing:
Let me point out that the Fed's actions are taking money away from retirees.

They're the guys, and near retirees, who want to part their money on something safe as they near retirement. And they're offered minus after-inflation adjustment. There's no return at all. And where does that money go? It goes to relate the banks so that they're well capitalized again. Even though they were the people who exacerbated our problems.

***

I— I think, therefore, under these conditions, low rates is actually hurting the economy. It's taking more money away from people who would have spent it —retirees — than are being spent by passing it on to financial enterprises and being distributed as bonuses to people who are rich and, therefore, save more.

So, I think it's a— a— bad idea at any time and a particularly bad idea now.

Here's the interview:













1 comments

Monday, November 15, 2010

Does the Justice System Actually Dispense Justice ... Or Does It Just Serve the Powers-That-Be, Like the Other Branches of Government?


In 2000, Supreme Court Justice Ruth Ginsburg did something unprecedented. In her dissenting opinion in the Bush v. Gore case (which threw the election to Bush), Ginsburg ended her opinion with the words "I dissent".

Believe it or not, this is a big deal. The standard etiquette for a judge - especially a supreme court justice - writing a dissenting opinion is to end with the phrase, "I respectfully dissent". By leaving out the word "respectfully", Ginsburg dropped normal judicial etiquette to protest an unconstitutional decision, more or less quietly declaring that a coup had occurred.

Supreme court justice Antonin Scalia said that he doesn't care what the legislature intended when it passes a law. This is contrary to hundreds of years of American law, as legislative intent is supposed to be examined whenever legislation is ambiguous, or does not appear to directly or adequately address a particular issue, or when there appears to have been a legislative drafting error.

Scalia also went duck-hunting with Dick Cheney, even though the judicial and executive branches are supposed to keep their distance as part of the separation of powers.

Scalia and fellow high court justice Clarence Thomas also went to a secretive Koch brothers political event, where high-level republican political operatives planned out their plan of attack.

Supreme court justice Samuel Alito is also fundraising for republicans, which appears to conflict with the Code of Conduct for United States Judges. (I'm not picking on Republicans, as I think both parties currently serve the powers-that-be. These were just the most readily available examples of political shenanigans by supreme court justices).

And there are many judicial decisions which have sided with the powers-that-be at the expense of the little guy.

The Supreme Court's ruling in Citizens United means that - under the guise of "free speech" - big corporations and wealthy individuals can basically buy politicians as well as judges. Similarly, the Florida Court of Appeals agreed with an assertion by FOX News that there is no rule against distorting or falsifying the news in the United States. And political candidates are largely free to lie during their campaigns. See this and this.

(Indeed, according to Thom Hartmann and Jim Hightower, the whole concept of "corporations as people" - which is the opposite of what the Founding Fathers intended - was based on a clerical mistake in the summary of a court opinion, which was then seized on by corporate lawyers and their allies on the bench).

And "rocket docket" judges are trampling on homeowners' legal rights:


And see this, this this, this, this, this, this, this and this.

And as I pointed out last December, the American system of justice is in real trouble:

The New York Times is providing important coverage of the U.S. Supreme Court's May 18, 2009 decision in the case known as Ashcroft v. Iqbal:

The lower courts have certainly understood the significance of the decision, Ashcroft v. Iqbal, which makes it much easier for judges to dismiss civil lawsuits right after they are filed. They have cited it more than 500 times in just the last two months.

“Iqbal is the most significant Supreme Court decision in a decade for day-to-day litigation in the federal courts,” said Thomas C. Goldstein, an appellate lawyer with Akin Gump Strauss Hauer & Feld in Washington.

Why is Iqbal such an important case?

As the Times notes:

For more than half a century, it has been clear that all a plaintiff had to do to start a lawsuit was to file what the rules call “a short and plain statement of the claim” in a document called a complaint. Having filed such a bare-bones complaint, plaintiffs were entitled to force defendants to open their files and submit to questioning under oath.

This approach, particularly when coupled with the American requirement that each side pay its own lawyers no matter who wins, gave plaintiffs settlement leverage. Just by filing a lawsuit, a plaintiff could subject a defendant to great cost and inconvenience in the pre-trial fact-finding process called discovery...

Information about wrongdoing is often secret. Plaintiffs claiming they were the victims of employment discrimination, a defective product, an antitrust conspiracy or a policy of harsh treatment in detention may not know exactly who harmed them and how before filing suit. But plaintiffs can learn valuable information during discovery.

The Iqbal decision now requires plaintiffs to come forward with concrete facts at the outset, and it instructs lower court judges to dismiss lawsuits that strike them as implausible.

“Determining whether a complaint states a plausible claim for relief,” Justice Anthony M. Kennedy wrote for the five-justice majority, “requires the reviewing court to draw on its judicial experience and common sense.”

Note those words: Plausible. Common sense.

So what is the real world effect of the Supreme Court's decision?

The Times provides some hints:

“It obviously licenses highly subjective judgments,” said Stephen B. Burbank, an authority on civil procedure at the University of Pennsylvania Law School. “This is a blank check for federal judges to get rid of cases they disfavor.”

Courts applying Iqbal have been busy. A federal judge in Connecticut dismissed a disability discrimination suit this month, saying that Iqbal required her to treat the plaintiff’s assertions as implausible. A few days later, the federal appeals court in New York dismissed a breach of contract and securities fraud suit after concluding that its account of the defendants’ asserted wrongdoing was too speculative.

Indeed, the Plaintiff in Iqbal himself, was a Pakistani Muslim working and living in Long Island, who claims he was arrested 2 months after 9/11 and then beaten and tortured. But the court didn't want to hear about it:

Justice Kennedy said Mr. Iqbal’s suit against two officials had not cleared the plausibility bar. All Mr. Iqbal’s complaint plausibly suggested, Justice Kennedy wrote, “is that the nation’s top law enforcement officers, in the aftermath of a devastating terrorist attack, sought to keep suspected terrorists in the most secure conditions available.”

In other words, the Court found the allegation that an innocent person was tortured as "implausible". It has become apparent to everyone, however, that many innocent people were tortured.

The Iqbal decision is - literally - an assault by the Supreme Court on the American system of justice. For it prevents plaintiffs from having their day in court if either:
  1. The judge doesn't want to hear the case; or

  2. The defendant has hidden the evidence of wrongdoing, so that the plaintiff cannot provide the details of defendant's wrongdoing without the use of the formal discovery process which only starts once litigation has commenced
People may ask "the Supreme Court interprets and enforces the American justice system, so how can it gut that system?

Well, Congress members and the President are supposed to represent the interests of the American people. Have they always done so?

Judges - like people in the White House and Congress - are human beings with political and personal viewpoints. Some stick to the case precedent while others - no matter how high and mighty - abandon it for political or personal reasons. That is the dirty little secret that those who work inside the justice system know.

In rendering the Iqbal decision, the Supreme Court abandoned some of the fundamental principals of justice, leaving a system which only pays lip service to that word.

Several Supreme Court justices dissented with the majority's opinion in Iqbal. As Raw Story writes:
Departing Justice David H. Souter sided with the minority in this case, expressing dismay in his dissent and suggesting the decision could “upend,” said the Times, the federal civil litigation system. He argued that complaints should be accepted “no matter how skeptical the court may be,” so long as the accusations are not “sufficiently fantastic to defy reality as we know it.”

“[Claims] about little green men, or the plaintiff’s recent trip to Pluto, or experiences in time travel,” he said, should be the bar for disqualification.

Justice Ruth Bader Ginsburg agreed, suggesting the court had “messed up the federal rules” for civil suits.

Now, Chris Floyd and Yves Smith point out another worrisome Supreme Court decision:

If the president or one of his subordinates declares someone to be an “enemy combatant” (the 21st century version of “enemy of the state”) he is denied any protection of the law. So any trouble-maker (which means anyone) can be whisked away, incarcerated, tortured, “disappeared,” you name it. Floyd’s commentary:

After hearing passionate arguments from the Obama Administration, the Supreme Court acquiesced to the president’s fervent request and, in a one-line ruling, let stand a lower court decision that declared torture an ordinary, expected consequence of military detention, while introducing a shocking new precedent for all future courts to follow: anyone who is arbitrarily declared a “suspected enemy combatant” by the president or his designated minions is no longer a “person.” They will simply cease to exist as a legal entity. They will have no inherent rights, no human rights, no legal standing whatsoever — save whatever modicum of process the government arbitrarily deigns to grant them from time to time, with its ever-shifting tribunals and show trials.

It is hard to overstate the significance of this horrid decision. The fact that the Supreme Court authorized this land grab says we no longer have an independent judiciary, that the Supreme Court itself is gutting the protections supposedly provided by the legal system. Per Floyd:

In fact, our most august defenders of the Constitution did not have to exert themselves in the slightest to eviscerate not merely 220 years of Constitutional jurisprudence but also centuries of agonizing effort to lift civilization a few inches out of the blood-soaked mire that is our common human legacy. They just had to write a single sentence.

Now Floyd saw this mainly as an issue of the treatment of enemy combatants and Obama hypocrisy about torture, which is bad enough:

The Constitution is clear: no person can be held without due process; no person can be subjected to cruel and unusual punishment. And the U.S. law on torture of any kind is crystal clear: it is forbidden, categorically, even in time of “national emergency.” And the instigation of torture is, under U.S. law, a capital crime. No person can be tortured, at any time, for any reason, and there are no immunities whatsoever for torture offered anywhere in the law.

And yet this is what Barack Obama — who, we are told incessantly, is a super-brilliant Constitutional lawyer — has been arguing in case after case since becoming president: Torturers are immune from prosecution; those who ordered torture are immune from prosecution….let’s be absolutely clear: Barack Obama has taken the freely chosen, public, formal stand — in court — that there is nothing wrong with any of these activities.

Yves here. The implications are FAR worse. Anyone can be stripped, with NO RECOURSE, of all their legal rights on a Presidential say so. Readers in the US no longer have any security under the law.

Roman citizens enjoyed a right to a trial, a right of appeal, and could not be tortured, whipped, or executed except if found guilty of treason, and anyone charged with treason could demand a trial in Rome. We have regressed more than 2000 years with this appalling ruling.

Is America still a nation of laws? Or is it a nation in which judges get to throw out cases soon after filing because the plaintiffs claims go against the judge's belief system or world view and the President can decide that someone is entitled to no legal protection whatsoever?

You know that Congress and the White House are acting like lapdogs to the powers-that-be. The question is whether the judiciary is really that different.

Indeed, professor John Hasnas argues that Americans are allowing themselves to be subjected to tyranny because they naively believe that the justice system is following the rule of law:

I believe that, much as Orwell suggested, it is the public's ability to engage in this type of doublethink, to be aware that the law is inherently political in character and yet believe it to be an objective embodiment of justice, that accounts for the amazing degree to which the federal government is able to exert its control over a supposedly free people. I would argue that this ability to maintain the belief that the law is a body of consistent, politically neutral rules that can be objectively applied by judges in the face of overwhelming evidence to the contrary, goes a long way toward explaining citizens' acquiescence in the steady erosion of their fundamental freedoms.

***

As a myth ... the concept of the rule of law is both powerful and dangerous. Its power derives from its great emotive appeal. The rule of law suggests an absence of arbitrariness, an absence of the worst abuses of tyranny. The image presented by the slogan "America is a government of laws and not people" is one of fair and impartial rule rather than subjugation to human whim. This is an image that can command both the allegiance and affection of the citizenry.

***

The belief that there is [an impartial rule of law in America] serves to maintain public support for society's power structure ....

Note: I am not saying that all judges are servants to those in power. There are quite a few courageous judges who follow principle and the rule of law, and who rule for the little guy. Unfortunately, the fact that we all cheer for such judges when we read about their decisions shows that they are exception which prove the rule.

2 comments

Sunday, November 14, 2010

Is Gold In a Bubble ... And If So, How Much Further Can It Rise Before It Pops?


When everyone from Jim Cramer to Mr. T is hawking gold - and when the price has risen to all-time highs - it sure feels like a bubble.

On the other hand, the super rich - who presumably know a thing or two about investing - are buying gold by the ton.

Deutsche Bank's head commodities researcher Michael Lewis said last week that gold and agriculture are the safest long-term investments.

Lewis wrote in September:

Gold prices would need to surpass USD 1,455/oz to be considered extreme in real terms and hit USD 2,000/oz to represent a bubble.
Lewis lists as factors driving gold higher:
* A collapse in the US dollar
* Low or negative real interest rates
* Skitish global equity markets
* Coordinated [as opposed to disorderly] central bank gold sales
* Producer dehedging
* New gold investment vehicles
* Falling mine production and rising costs
* Terrorism & rising geopolitical risk
Bloomberg notes:

Myles Zyblock, chief institutional strategist at RBC Capital Markets, said last month gold may soar to $3,800 within three years as it follows the pattern of previous “investment manias.”

Barron's points out:

Louise Yamada, the eminent technical analyst who for many years worked at the various firms that have coalesced into Citigroup and now presides over LY Advisors, last week remarked in a client note that gold—based on its current trajectory—most likely wouldn't represent a true bubble unless and until it gets to $5,200 an ounce (from its $1,317.80 December-contract close on Friday) within a couple of years.

University of Michigan economics professor Mark J. Perry noted in July that inflation-adjusted gold prices are lower now than in 1980:

Adjusted for inflation, the price of gold today is 41.5% below the January 1980 peak of more than $2,000 per ounce (in 2010 dollars).

Frank Holmes, the CEO of US Global Investors said recently:

“If you take a look at previous cycles, super cycles, we're far from it,” he said.

“If gold were to go to 1980 prices like most commodities have gone to, gold would be over $2 300/oz,” Holmes commented.

WJB Capital Group's John Roque pointed out in May that the current gold bubble is still much smaller than the bubble in the 1970s when priced against the S&P.

MSN's Money Central noted last month:
Brett Arends, a columnist for The Wall Street Journal and MarketWatch, estimated that "individuals bought $5.4 billion worth of gold, and sold about $2.7 billion, (so) their total net investment comes to $2.7 billion" in 2010, through early summer.

Arends contrasted that with the $155 billion they shoveled into bond funds through July. That may be the real bubble.

Arends also concluded that "if it continues along the same trajectory (of past bull markets) -- a big if -- gold today is only where the Nasdaq was in 1998 and housing in 2003."

In May, Arends wrote in the Wall Street Journal:
Before we assume the gold bubble has hit its peak, let's see how it compares with the last two bubbles—the tech mania of the 1990s and the housing bubble that peaked in 2005-06.

The chart is below, and it's both an eye-opener and a spine-tingler.

[ROI_100524]

It compares the rise in gold today with the rise of the Nasdaq in the 1990s and the Dow Jones index of home-building stocks in the 10 years leading up to 2005-06.

They look uncannily similar to me.

So far gold has followed the same path as the previous two bubbles. And if it continues along the same trajectory—a big if—gold today is only where the Nasdaq was in 1998 and housing in 2003.

In other words, just before those markets went into orbit.

Tyler Durden notes:
[JP Morgan's] Michael Cembalest indicat[es] that ownership of gold in dilutable terms (aka dollars), as a portion of global financial assets has declined from 17% in 1982 to just 4% in 2009. And even though the price of gold has double in the time period, as has the amount of investible gold, the massive expansion in all other dollar-denominated assets has drowned out the true worth of gold. Were gold to have kept a constant proportion-to-financial asset ratio over the years, the price of gold would have to be well over $5,000/ounce.
(Durden points out that when derivatives are factored in, the percentages are even more dramatic).

Aden Forecast argues in its November 12th forecast:
Debt is in a mega trend. Eventually, the magnitude of the situation and its repercussions will become more obvious. That’s also why the U.S. dollar will continue to fall because more spending and money creation makes the dollar worth less, and gold will keep rising because it is real money. This is one main reason why they’re in mega trends too.

***

We clearly believe that gold and silver are far from being in a bubble.... The value of the whole monetary system is under question and until this very issue is resolved, gold and silver will prevail.
Many people think that the Federal Reserve's QE2 will boost gold prices. And since QE2 will continue for many months, that augers well for gold.

With all of the money printing worldwide, it is not surprising that gold has continued to rally against all currencies.

For extensive background information regarding gold, see this.

Note: I am not an investment advisor and this should not be taken as investment advice.

Even if the gold bull market has further to run, gold prices might correct sharply downward in the short-run, and you shouldn't buy gold unless you're willing to lose your investment.

In addition, if the government decides to confiscate gold like it did in the 1930s - or to heavily tax gold - this could considerably change the cost-benefit analysis.

Remember also that if the Fed raises interest rates, gold could fall rapidly.
6 comments

Saturday, November 13, 2010

The Economy Will Not Recover Until the Economic Criminals are Prosecuted, and There Are Real Investigations Into 9/11 and Other Government Failures


This essay will demonstrate that:
  1. Trust is essential for a stable economy;

  2. Trust is currently at an all-time low;

  3. Launching criminal prosecutions and real investigations is one of the main prerequisites for an economic recovery.
Trust in Government is Necessary for a Stable Economy

A 2005 letter in premier scientific journal Nature reviewed the research on trust and economics:

Trust ... plays a key role in economic exchange and politics. In the absence of trust among trading partners, market transactions break down. In the absence of trust in a country's institutions and leaders, political legitimacy breaks down. Much recent evidence indicates that trust contributes to economic, political and social success.

Forbes wrote an article in 2006 entitled "The Economics of Trust". The article summarizes the importance of trust in creating a healthy economy:

Imagine going to the corner store to buy a carton of milk, only to find that the refrigerator is locked. When you've persuaded the shopkeeper to retrieve the milk, you then end up arguing over whether you're going to hand the money over first, or whether he is going to hand over the milk. Finally you manage to arrange an elaborate simultaneous exchange. A little taste of life in a world without trust--now imagine trying to arrange a mortgage.

Being able to trust people might seem like a pleasant luxury, but economists are starting to believe that it's rather more important than that. Trust is about more than whether you can leave your house unlocked; it is responsible for the difference between the richest countries and the poorest.

"If you take a broad enough definition of trust, then it would explain basically all the difference between the per capita income of the United States and Somalia," ventures Steve Knack, a senior economist at the World Bank who has been studying the economics of trust for over a decade. That suggests that trust is worth $12.4 trillion dollars a year to the U.S., which, in case you are wondering, is 99.5% of this country's income. ***

Above all, trust enables people to do business with each other. Doing business is what creates wealth. ***

Economists distinguish between the personal, informal trust that comes from being friendly with your neighbors and the impersonal, institutionalized trust that lets you give your credit card number out over the Internet.

Similarly, market psychologists Richard L. Peterson M.D. and Frank Murtha, PhD noted:
Trust is the oil in the engine of capitalism, without it, the engine seizes up.

Confidence is like the gasoline, without it the machine won't move.

Trust is gone: there is no longer trust between counterparties in the financial system. Furthermore, confidence is at a low. Investors have lost their confidence in the ability of shares to provide decent returns (since they haven't).
Two professors of finance pointed out:

The drop in trust, we believe, is a major factor behind the deteriorating economic conditions. To demonstrate its importance, we launched the Chicago Booth/Kellogg School Financial Trust Index. Our first set of data—based on interviews conducted at the end of December 2008—shows that between September and December, 52 percent of Americans lost trust in the banks. Similarly, 65 percent lost trust in the stock market. A BBB/Gallup poll that surveyed a similar sample of Americans last April confirms this dramatic drop. At that time, 42 percent of Americans trusted financial institutions, versus 34 percent in our survey today, while 53 percent said they trusted U.S. companies, versus just 12 percent today.

As trust declines, so does Americans’ willingness to invest their money in the financial system. Our data show that trust in the stock market affects people’s intention to buy stocks, even after accounting for expectations of future stock-market performance. Similarly, a person’s trust in banks predicts the likelihood that he will make a run on his bank in a moment of crisis: 25 percent of those who don’t trust banks withdrew their deposits and stored them as cash last fall, compared with only 3 percent of those who said they still trusted the banks. Thus, trust in financial institutions is a key factor for the smooth functioning of capital markets and, by extension, the economy. Changes in trust matter.

They quote a Nobel laureate economist on the subject:
“Virtually every commercial transaction has within itself an element of trust,” writes economist Kenneth Arrow, a Nobel laureate. When we deposit money in a bank, we trust that it’s safe. When a company orders goods, it trusts its counterpart to deliver them in good faith. Trust facilitates transactions because it saves the costs of monitoring and screening; it is an essential lubricant that greases the wheels of the economic system.
And a distinguished international group of economists (Giancarlo Corsetti, Michael P. Devereux, Luigi Guiso, John Hassler, Gilles Saint-Paul, Hans-Werner Sinn, Jan-Egbert Sturm and Xavier Vives) wrote:
Public distrust of bankers and financial markets has risen dramatically with the financial crisis. This column argues that this loss of trust in the financial system played a critical role in the collapse of economic activity that followed. To undo the damage, financial regulation needs to focus on restoring that trust.
They noted:
Trust is crucial in many transactions and certainly in those involving financial exchanges. The massive drop in trust associated with this crisis will therefore have important implications for the future of financial markets. Data show that in the late 1970s, the percentage of people who reported having full trust in banks, brokers, mutual funds or the stock market was around 40%; it had sunk to around 30% just before the crisis hit, and collapsed to barely 5% afterwards. It is now even lower than the trust people have in other people (randomly selected of course).

Time Magazine pointed out:

Traditionally, gold has been a store of value when citizens do not trust their government politically or economically.
In other words, the government's political actions affect investments, such as gold, and thus the broader economy.

Trust Is At An All-Time Low

Unfortunately, the public's trust in government as a whole (and see this and this), the justice system, bankers, and the corporate media are at all-time lows.

Why?

Partly because the government has been repeatedly caught lying.

The government repeatedly said about the subprime crisis, banking crisis, debt crisis, mortgage crisis, and other economic crises:
  • "It's contained"
  • "We've got it under control"
and
  • "We're going to fix it"
It wasn't, and they didn't ... and so people have lost trust in the government.

But it's not just the economy. The government also got caught making false claims that:
  • That the government doesn't spy on Americans (it did even before 9/11), Americans don't torture, etc.
It is basic human nature that - if you catch someone lying about one topic - you will tend to doubt the truth of what he is saying in other areas as well.

So Americans' loss of trust in the government's political actions have also undermined their trust in the government's statements and actions in the economic field.

But there's another important reason for Americans' lack of trust in our government and our economy: the failure to prosecute the criminals.

Prosecuting the Criminals and Launching REAL Investigations Is Necessary to Restore Trust

One of the leading business schools in America - the Wharton School of Business - has written an essay on the psychological causes and solutions to the economic crisis. Wharton points out that restoring trust is the key to recovery, and that trust cannot be restored until wrongdoers are held accountable:

According to David M. Sachs, a training and supervision analyst at the Psychoanalytic Center of Philadelphia, the crisis today is not one of confidence, but one of trust. "Abusive financial practices were unchecked by personal moral controls that prohibit individual criminal behavior, as in the case of [Bernard] Madoff, and by complex financial manipulations, as in the case of AIG." The public, expecting to be protected from such abuse, has suffered a trauma of loss similar to that after 9/11. "Normal expectations of what is safe and dependable were abruptly shattered," Sachs noted. "As is typical of post-traumatic states, planning for the future could not be based on old assumptions about what is safe and what is dangerous. A radical reversal of how to be gratified occurred."

People now feel more gratified saving money than spending it, Sachs suggested. They have trouble trusting promises from the government because they feel the government has let them down.

He framed his argument with a fictional patient named Betty Q. Public, a librarian with two teenage children and a husband, John, who had recently lost his job. "She felt betrayed because she and her husband had invested conservatively and were double-crossed by dishonest, greedy businessmen, and now she distrusted the government that had failed to protect them from corporate dishonesty. Not only that, but she had little trust in things turning around soon enough to enable her and her husband to accomplish their previous goals.

"By no means a sophisticated economist, she knew ... that some people had become fantastically wealthy by misusing other people's money -- hers included," Sachs said. "In short, John and Betty had done everything right and were being punished, while the dishonest people were going unpunished."

Helping an individual recover from a traumatic experience provides a useful analogy for understanding how to help the economy recover from its own traumatic experience, Sachs pointed out. 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, he argued.

Note that Sachs urges "hold[ing] the perpetrators of the economic disaster responsible." In other words, just "looking forward" and promising to do things differently isn't enough.

Economists such as William Black and James Galbraith and Nobel prize winning economists Joseph Stiglitz and George Akerlof agree.

Indeed, polls show that:

  • Americans want those who committed financial fraud to be prosecuted

Remember, distrust in the political actions of government officials undermines the economy as well. Therefore, the economy will not recover until the economic criminals are prosecuted, and there are real investigations into 9/11 (even the 9/11 Commissioners themselves think there should be more investigation: see this and this), the Iraq war, torture, spying on Americans and other government failures.

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