J.M. Hamilton Publishing Free Economic and Political Thought!

Binary Party

By J.M. Hamilton (5-18-12)

"Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men."  - Baron Acton

Far too many years to count now, or maybe its just vanity that prohibits me from counting, a boss called me into his office.

He pointed his finger at me, and half serious, half in jest, said in a stentorian tone:

“Mr. Hamilton, are you and your job of any intrinsic or extrinsic value to society?”

It had the feel of a “Dickensonian” moment:  “I pay my taxes, sir.  I try.” 

And of course, I believe that my job adds value to society and I am fortunate enough to work for a company that provides a meaningful and valuable service, particularly in times of want and need.

Which is a lot more than I can say for your typical Wall Street Bank.

Wall Street Banks gamble, bet, and speculate (i.e. “make markets”) for the possible enrichment of a few and to the detriment of the many.  Sometimes there’s a crash, and at other times there’s merely a bailout, but the path always leads to what the one percent like to refer to as “creative destruction.”

For the ninety-nine “creative destruction” is code for another round of socialism and redistribution of wealth from the many to the few, a wrecked economy, unemployment, inflation, and our government – and at least one political party – becoming more binary and extreme to rationalize, justify and prop up a failed financial elite.

Their products are the products of any casino, binary bets:  derivatives, synthetic derivatives, repos, collateralized debt, and in most instances are highly illiquid.

One wonders if the financial elite that rule us will ever swear off boom and bust cycles, in favor of a more mundane glide path to economic harmony and prosperity?

It can be done, but at the expense of the wolves.

But is Mr. Dimon listening? 

That is to say, many of JP Morgan’s services and products are of no intrinsic or extrinsic worth to society.  And the only product banking does provide that is esteemed by society (the ninety-nine), JP Morgan largely abandoned sometime ago….  Ordinary lending at non-usurious rates, where the bank actually underwrites the prospect, and retains the loan on its books.  How quaint.   Or put another way, how did society function for the last two millennium without CDO’s, MBS, and derivatives and swaps, which are reinsured and underwritten by the American taxpayer? 

What will we ever do without financial products that lever up the riches, and entitlements, for the one percent, but enslave the ninety-nine in a never-ending stream of ruinous bank bailouts?

If Wall Street doesn’t get the message this time, perhaps it time to elect officials who will nationalize, smash, and sell off the leviathan: as non-threatening commercial banks (non-speculative - backed by the Fed and the Treasury); and investment houses (free to gamble with theirs and their clients money, and not reinsured by the American people).   These reconfigured institutions might be retained by the government, particularly staid commercial banking, or released back into the wilds of the free market.

As it stands, Wall Street is a threat to the American people and to our national security.

I know…  quite radical stuff, right?

I’m going to hazard a guess.   Everything is relative, even the extrinsic and intrinsic values of society and her politics.  And while JMH may sound left of center today, say in ten to twenty years, if the nation and her elite continue upon its present course, this blog may, possibly, read like the notes of a reactionary right winger, and a slave to the bourgeoisie.

Newton’s third law of motion is that for every action there’s a reaction.

The Republican Party and the Chicago School of Economics, and their laissez faire ideology (both owned and manipulated by the financial elite), have ruled this country for more than three decades, and their hegemony over political and economic discourse has – one would hope – reached its zenith.  Enter Baron Acton, above, and his famous quote.  And enter a few famous Republicans and their quotes:

“I would remind you, extremism in the defense of Liberty is no vice.” – Mr. Barry Goldwater.

“Either you are with us, or you are with the terrorist.”  - Mr. George W. Bush

“I fought against long odds in a deep blue state, but I was a severely conservative Republican governor.” – Mr. Romney

Nothing but the extreme here.  No room for polite discourse here?   No nuance or shades of grey here?   Ronald Reagan and Richard Nixon need not apply to today’s – shoot from the hip – kill you now, check the facts later  - Republican Party. 

Besides thinking requires energy, and darn it… thought and time.

It’s so much easier to keep doing what we are doing, except the speculative bubbles, crashes and financial hangovers are occurring with greater and greater frequency, and the public is beginning to wake up and take notice.  The crashes are no longer isolated but global in nature…. Indeed, the world is very small.

And finally the true right wing extremist in today’s Republican Party are unleashing, as Mr. Newton forecast, a virulent and no longer dormant response from the true Left.  A socialist head of state in France, resurgent communist and fascist political parties in Europe, and elected officials in Greece that are perhaps willing to tell both the IMF and the E.U. central bank to “go to hell.”  Potentially setting off contagion and the euro’s collapse, a veritable masochist’s party.

So please allow me to let you in on a little secret.  Come closer because I want to whisper this in your ear: 

“The Republican Party, with it’s severe economic and financial ideology, just might want to tone it down a little and rejoin the human race; because you’re a breeding ground for revolution, the poster child of anarchy, and your extremism is unleashing forces beyond your control.”  

The GOP would be terribly naïve to think their policies do not have global impact.

Check out the Arab Spring, and please – by all means - check out Europe.  It's not too late.

And above all, don’t shoot the messenger.  Please.

P.S.

A business model that is based upon unmitigated greed, rabid speculation, and offers no redeeming product or service to society, and in fact is detrimental and dangerous to society, must be relegated to the dustbin of history.  Just ask Mr. Jamie Dimon.  And so must politicians who support same.  Monolithic banking institutions, gambling and earning lousy returns on equity, are failed monuments to the egos that manage them.

Not so ironically, the Tea Bag movement has already been co-opted and absorbed by the Robber Barons --- moreover, the mainstream media has reported that the militants within the party have accepted large sums of money from the Cartel they were elected to end.

“If a free society cannot help the many who are poor, it cannot save the few who are rich.”  - President John F. Kennedy 1-20-1961

_______________________________________________________

"L" is for Leverage

By J.M. Hamilton (5-5-2012)

"Those who control the present, control the past and those who control the past, control the future."   -  George Orwell

Orwell wrote of it in his book 1984, and I clearly remember it actually being practiced by the former Soviet Union as described in the pages of National Review.  Revisionism, or the re-writing of history for political purposes, has traditionally been associated with totalitarian regimes; but to actually see it practiced by Western democracies is something entirely different.  One can tune into Bloomberg Surveillance hosted by Ken Prewitt and Tom Keene, quite possibly the most balanced and informative radio program ever produced, and hear any number of prominent Western economist blame the current economic crisis on euro-socialism and government profligacy.   These same economist won't mention laissez faire dogma or an altogether different brand of socialism, corporate welfare in the form of endless bank bailouts, as the reason so many European governments are now considering default and rebooting their pre-euro currencies.  

For many a struggling government hitting the fiscal and monetary reset button is a rational alternative to economic nuclear winter, besides there's the matter of an angry populace to contend with.

One might gather from some of my scribbling that JMH is a heartless fiscal hawk, but I'm no austerity freak.  If anything, JMH has argued that Keynesian policy, which has been driving modern economic thought and Western economies since the 1930's Great Depression, has hit the wall, and due to sustained political abuse has reached its limits.  Having reached the denouement of Keynesian fiscal and monetary policy, this leaves structural reform, default and reorganization, view our editorial, Thinking the Unthinkable (link below).  Unfortunately debt reorganization and kick starting old currencies can be just as nasty of a cure as fiscal austerity, except the people, and their democratically elected leaders, have some feelings of control over their destiny and sovereignty (as opposed to having the IMF or the E.U. Central Bank install a banker as head of state, as happened in Greece and Italy).   

So JMH has written about re-org but what might "government structural reform" look like?  What many economists refer to as "structural reform," often involves free market initiatives, such as deregulation, privatization, and other measures that allow businesses to compete and prosper. But the kind of structural reform to be described in today's editorial, involves reforming government spending and containing globalization's worst traits; and with approximately 40% of the U.S. economy driven by public spending, and globalization sucking the wind out of Western democracies (read: regulatory, labor and tax arbitrage) - these are very large issues.  But it is rarely if ever discussed.  Instead politicians like to talk and act upon the federal budget with macro increases and reductions in government spending, or supply side cuts or increases in taxation.   

Of course macro solutions mask one of the real issues, which is a colossal amount of government waste.

Government has grown so huge and so big that there is a tremendous amount of government mismanagement and fraud, stemming from the policies of both political parties.  

The Republicans like to, when they can, pay for their largesse to big business via tax breaks; this way their spending is sub rosa, and starves the beast (borrow and spend).  Democrats, authors of the New Deal and Great Society programs, traditionally believe in entitlement spending directed at the middle class and the poor or the 99% (and embrace tax and spend policies).  JMH has also argued both parties are engaged in the redistribution of resources for the benefit of their respective political base.

The crime then is not necessarily in the redistribution of resources, which Hayek and rocked ribbed conservatives often bemoan.  Both parties by now are neck deep into socialism.  Redistribution of resources is the central tenet of government.  It's what government does.  It's been with us since a Monarch's tax collectors rode up and demanded tribute from the peasants and serfs mucking about upon the King's land.

The problem is this: Every time the nation overspends on a V-22 Osprey (a classic DOD boon doggle), or the government hands too much money out to Big Pharma (because we are the only Western Democracy who doesn't negotiate a cap on drug costs) etc, etc..... We are shorting this generation and our children, and we are shorting the economy and American business.  Deficit spending, and eventually higher taxes to pay down same, takes money out the economy and all too often redistributes it to monopolies and cartels, which provide government goods and services, often at an extraordinary profit.  To grease the wheels some of this excess ends up in political action committees and re-election campaigns, which explains why politicians never get around to addressing the problem.

So how is this wrong corrected?  By running government to some degree like a business.  That is to say, by using the power of leverage.  Not the kind of financial leverage that drove this nation to her knees in 2008, which is responsible for our on-going financial crisis.  No, I'm talking about deploying the awesome leveraging power of the state to make sure vendors offer the most competitive deals to the taxpayer imaginable, squeezing profit margins, windfall profits taxes on government contracts leading to "unexpected" rich rewards, audits, cost overruns picked up by the government contractor - instead of the taxpayer, and an independent government bureau responsible for executing this cost savings, and rewarded for same.  

The savings for this venture could in turn be re-allocated back to government programs for those most in need, children, pairing down the costs of higher education, or paying down the national debt.

This means government vendors must be squeezed.  If you’re lucky enough to have a government contract be thankful and move along--- it's not a license to steal.  (Please excuse the generalization:  None of this is say that all government vendors are robbing the country blind.)

Politicians are great at redistributing money, what they are, clearly, not good at is demanding value for the nation and the taxpayer, once those resources have been deployed.  And unfortunately, this is why our democracy is in need of an autonomous government ministry, whose mandate is to insure efficiency, financial rectitude, and maximum economies of scale.  

Not unlike private equity coming into a private enterprise and chewing away at waste and mismanagement, federal and state government could utilize these same principles; but instead of the resulting savings going to a few private equity execs at the top, the returns accrue to the public, the taxpayer, and those most in need.  Bring back Quadrangle Executive and former "Car Czar," Mr. Steven Rattner to work out on government vendors, like Big Pharma, to ensure that res publica's interests are being represented and are receiving the best deal possible.  Lord knows Congress won't do it.

What follows are just a few examples of where leverage can be applied for the betterment of the American people, and assorted random thoughts:

Using the power of the state to demand a fair and equitable deal can also be applied to manufacturing multi-nationals.  These multi-nationals, in many instances, have become like sovereigns of old, that is to say free to extract wealth and resources from the land, and the masses; but also entirely free of any and all responsibility to societies they operate within (think of both Apple and Google sitting upon mountains of cash, while pulling out all the stops, via offshore tax dodges, to pay no taxes).  Whenever a manufacturer fails to pay their fair share, it leads to deficit spending and/or higher tax burden on those who cannot escape paying taxes, typically the already squeezed middle and upper income tax brackets.

Indeed, Multinationals stride across the globe seemingly acting as mini-kingdoms or demi-states.  Think of Mr. Rex Tillerson, chairmen and CEO of Exxon, and a head of state in his own right, very recently sitting down with Russian premiere to carve up the Arctic for drilling.  Interesting how Mr. Tillerson's first name is also latin for the word "King."  At least Mr. Tillerson is honest, as noted by Alan Abelson in Barron's recently, who acknowledged Mr. Tillerson's comment that speculation adds a 50% mark up to a barrel of oil.  Mr. Tillerson would know.  Speculation in oil results in a tax born by the public at the pump, and represents a serious gouge upon discretionary income for many citizens.  Perhaps someone should pass the word on to Mr. Duffy, head of CME Group, the commodities exchange responsible for $1.6 Billion in missing client money from the MF Global disaster.  Mr. Duffy has the nerve to chastise President Obama for his recent comments on speculation, and the drag/tax it places on the economy.  Mr. Duffy, like so many Republicans, apparently lives in a world of denial, just ask Mr. Tillerson.  But I digress.  

Perhaps government leverage of an entirely different sort can be brought to bear upon commodity speculators; speculators apparently aren't subject to many of the same insider trading laws that govern stock exchanges.  Now there's a start right there.

The Wall Street banking cartel is yet another global leviathan that is accountable to no one, not even themselves, as they are backed by the full faith and credit of the U.S. government.  So why are we discussing student loans?  And why is the U.S. government/taxpayer picking up the interest on same?  Why isn't the government's leverage or the quid pro quo as follows:  

Dear Banking Cartel... you want to run your operations as TBTF institutions, reinsured by the Fed and the Treasury, well some of the “quid” is you will offer student loans at a fixed rate of 3%.  Consider it a cost of doing business, and your contribution to the society you all too often prey upon, and depend upon as a financial backstop.

Since TBTF banking institutions are backed by the full faith and credit of the American people (in many instances their financial rating depends upon it), and therefore, Americans, at any one time, may be the defacto owners and creditors and reinsurers of these businesses... shouldn't the American public, unlike ordinary stockholders, have some say in the composition of management and the board of directors?  If the vox populi had state mandated voting rights within the Banking Cartel, how quickly would management, boards and stockholders break up these institutions, themselves, to a more prudent and financially rewarding size - to just below the TBTF threshold?  

The answer:  So fast that it would make your head spin.  

Or perhaps citizens should demand premium or a risk charge for providing financial insurance for the casino that has become Wall Street and CME Group?

Answer:  I think we tried that once but didn't Treasury or the Fed fold under the withering and blinding heat of bank lobbyist?

Moving along... NAFTA and assorted so-called "free trade" agreements sent millions of jobs offshore, along with it the U.S. tax base.  How about bringing some of those jobs back?  America's primacy as a global market it greatly diminished by the growth in emerging markets (yet another aspect of globalization), but the U.S. still amounts to roughly 25% of global GDP. There's a leverage opportunity right there.   Okay, going forward if you want to sell products and services in America shouldn't your corporation hire Americans proportionately?  That is to say, if America makes up 35% of global sales should not at least 35% of your labor force be American?  Ditto a proportionate minimum corporate tax, based upon U.S. sales.

These are just a hand full of examples where through the power of leverage the state can exact the best deals possible, just like any responsible business person would, on behalf of the U.S. economy, American business, and the American public.  The state, by abdicating responsibility to laissez faire ideology, got us into this mess and the state will have to get us out, or fail trying.  

What would it take to make some of these dreams a reality?   Just a few laws from a few civic-minded politicians.  Our ongoing fiscal and economic crisis, accompanied by a myriad of problems, would appear to demand many solutions, among them tried and true business practices, like the quid pro quo.  I've made the case before, just as it took a Republican president to embrace Communist China, and drive a wedge between Soviet-Sino relations; it took Democratic administration to roll back the welfare state.  (In short a Democrat could have never embraced Red China, just as a Republican could never get away with rolling back the welfare state; and in fact, Republican administrations have often extended and expanded Great Society and New Deal programs).

But with Congress and the Senate failing the American public by the second with internecine and guerrilla political warfare, what the nation needs now more than ever is a return to the imperial presidency and the presidential power of impoundment. 

Alas, if only the original “outside the box” thinker, and flaming liberal, Richard Nixon, was around to get us out of this jam.

The closest thing we have to Mr. Nixon on the political landscape at the moment is President Obama, and President Obama is far, far to the right of number Thirty-seven.

P.S.  

Which brings us back full circle to history.  And it appears that this weekend both the French and Greek citizens will be making some of their own history.  France appears to be on the verge of electing their first Socialist Head of State in 30 years.  And the Greeks - holding elections of their own - are inching ever closer to abandoning the euro, and the bankocracy which demands austerity.  The PIIGS, Central banks and world governments watch with bated breath.

Of course, in a couple of my editorials, some of them well over a year old, JMH predicted the rise of the 99% over the existing banking order.  JMH forecast that government's may fall, and banks may fail, but that the people would ultimately prevail.  Looks like a revolution against the global leviathan may be beginning around the Southern edges of Europe and France.  Perhaps its time to check your insurance policies for any exclusions against rebellion and revolution, at least for the summer home in the South of France.

But don't blame me... I just study and chronicle a little bit of history.  As I have said before, if this blog is too upsetting for you - nobody is forcing you to read it.  

Pull away and go play.  Besides the pending revolution will have corporate sponsors, and can be watched later on YouTube or Hulu.

 

http://blog.jmhamiltonpublishing.com/2010/07/05/thinking-the-unthinkable.aspx

http://blog.jmhamiltonpublishing.com/2010/12/25/a-posthumous-nobel-award-for-dr-suess-in-economics.aspx

http://blog.jmhamiltonpublishing.com/2011/10/23/the-good-the-bad-and-the-ugly.aspx

http://www.bloomberg.com/radio/

_______________________
Dumbed Down Madness

By J.M. Hamilton (4-20-12)

“We have now sunk to a depth at which restatement of the obvious is the first duty of intelligent men. “    - George Orwell

Question:    When did the Republican Party begin to advocate “dumbing down” and turning off on higher education?

Answer:   The GOP embraced this concept with the realization that those fortunate enough to enjoy a higher education were fleeing their Party, and migrating to the opposition by a considerable margin. 

We get the following from the April 1^st New York Times, in a story by Mr. Thomas Edsall, The Politics of Going to College:

“In 1984, those with college and advanced degrees made up 35.3 percent of the electorate. Reagan’s strongest margins were among the college educated, who backed him over Walter F. Mondale by a crushing 62.7-36.9 margin. Among all those with both college and advanced degrees, Reagan won 58.7 percent, a landslide margin.

Jump to 2008. Even though those with college degrees made up 27.9 percent of the population that year, they cast 45 percent of the presidential vote. These voters register and go to the polls in substantially higher numbers than the less well educated.

By 2008, the Republican advantage of the early 1980s among voters with a college degree or higher had disappeared. Barack Obama carried this demographic with 54.1 percent. He beat McCain 50-48 among those with bachelor’s degrees, and by a decisive 58-40 among the 17 percent of the 2008 electorate with post-graduate degrees.”

But the bad news for Republicans doesn’t stop there, women are amassing college degrees and embracing knowledge in greater numbers then men; and as we all know, per recent polls, women favor President Obama, over the presumed Republican nominee, by a double-digit margin.

The Republican Party is, of course, a two trick pony: But President Obama has shown the GOP how to conduct foreign policy and eliminate thugs and villains (with stealth and special forces; and not with Republican favored cost inefficient and amoral defense policies, such as: ready to use standing armies; invasion, occupation, nation building; and redundant budget breaking military departments and weapon systems).  As for the economy (the Republican Party’s second trick – and a really nasty one at that), it is possibly on the mend under a Democratic administration, despite enormous economic and fiscal head winds - see the “PS” below.  With a monopoly constrained economy possibly perking up, the GOP – via Rick Santorum – trotted out the only issues that still divide Americans, forty to fifty year old social issues.  And in the process this regressive may have fired up his base, but he ran off the majority of women voters and gave independents serious pause and second thoughts.  No wonder the GOP, in recent weeks, had done everything in its power to shelve Mr. Santorum’s campaign.

And what did the reactionary Mr. Santorum have up his sleeve next…  the disenfranchisement of women, or perhaps he wanted to bring back the poll tax?

Americans, the educated and uneducated, Republican and Democrat, actually agree on a great deal.  Americans, red and blue, all want a healthy economy, fiscally sound Federal and State governments, good roads and bridges, a responsible military defense, and last but certainly not least, an affordable and decent education for their children and grand children.  And of course, there is America’s love affair with entitlement spending.  To which the astute and wise Barney Frank recently commented in New York Magazine:  “Yeah, they want more from government, but they don’t want to pay for it.”

Today’s Republican leadership isn’t interested in what unites us, however.  No, the GOP, in its present incarnation, is only interested in their core constituency, the one percent; and of course, amassing and maintaining power at your expense, trashing government (via “borrow and spend” policies), taking away private and public benefits and democratic power from the ninety-nine - to be redistributed to the one percent, and maintaining a dysfunctional tax system that benefits their core constituency.  Key to their success is maintaining their base within the ninety-nine percent – you see, there’s that annoying thing for the GOP, and the plutocracy that pulls it strings, called democracy.

The economic ruin created by three decades of Republican Party’s laissez faire ideology – if Japan is any example – will take decades to heal.  But as mentioned in our last editorial, the presumptive GOP nominee, “Mr. Severe,” wants to continue this failed doctrine, so that his buddies in Private Equity can continue to raid and loot businesses and short their tax payments, globally.  Again, at your expense.

To continue their failed policies the GOP will continue to push fear, specious declamation, and disinformation; but in order for this to work it must prey upon an under-educated electorate.  Ipso facto, with educated citizens fleeing the Party in droves, the Republican’s core has become, in some instances:  the cerebrally enfeebled, the frightened, and under educated Americans.  All of which might explain the dearth of fresh ideas, and the uniformity of opinions coming out of the Party.

Going back to the Greeks, the whole premise supporting democracy, as a form of government, is that an educated and informed public will make up the constituency.

No wonder Mr. Santorum, and Mr. Severe, do not want you to enjoy a higher education…. Because, gosh darn it, you just might begin to engage in some critical thinking and analysis on your own, instead of buying into the GOP’s failed fables and fear.

As noted in the aforementioned Times piece:

“President Obama once said he wants everybody in America to go to college. What a snob,” Santorum told a Tea Party meeting in Troy, Mich., on Feb. 25. “I understand why he wants you to go to college. He wants to remake you in his image.”

What both GOP candidates fail to mention at the same time they are trashing higher education is that they themselves, both Messrs. Romney and Santorum, are products of higher education and in possession of rather distinguished degrees.  My guess is neither of these men would have made it quite as far in life without their education; that is to say, neither appears overly gifted with natural talent, mental or physical.  Nor has either candidate mentioned the general but often direct correlation between a higher education and income.

And only somebody with fiscally and morally bankrupt economic and foreign policies would resort to sophistry, and equate education with snobbery.  Those affected by snobbery are everywhere these days, including demagogues, the religiously and socially intolerant, and the under-educated (call it reverse snobbery if you will, but it’s all the same, it stems from pride).

But that’s what today’s Republican Party has become, a toxic, bile filled bag, spewing anger, animosity, and discord (just observe the Senate minority leadership).  For the good of the nation, let’s hope this current brand of GOP leadership stays in the minority.

And the truly sad part in all this?  This nation needs a strong, rationale, and dare I say it - highly educated - Republican Party to keep the Democratic Party’s worst impulses in check.

But for the moment, if you happen to be highly educated – or just like to keep up on current events, engage in learning for your own betterment, or even perhaps like to think for one’s self (shucks, maybe your just curious) – then per the GOP, you are defective, obviously an elitist, and quite possibly a threat to the Republican Party’s hopes to retake the White House.  

We should heed well Mr. Santorum’s advice and continue to let him and the plutocracy call the shots, after all look what it has yielded: their enrichment and our enslavement. 

(What’s that?  Doubt you’re enslaved?  Look at the never ending rounds of bank bailouts at taxpayer expense - both front and back door; rising gas prices at the pump – when this nation has all but achieved energy independence under the Obama administration; and the declining purchasing power of the dollar.  These are all examples of taxes upon your wallet that you have little or no say over, but must contend with and navigate daily.  But unlike the President, the Congress or the Senate, you can’t vote for the CEO – or the CEO’s pay package – at Goldman Sachs, Exxon, or Citi…not even if you’re a stockholder.)

It is so much better to deny learning, keep your blinders on, and embrace ignorance and bliss, so that you can be more easily exploited by the plutocracy that has hijacked the GOP, and thanks to the Supreme Court, the democratic process itself.

P.S.

 “During times of universal deceit, telling the truth becomes a revolutionary act.”

–      George Orwell

Interesting how yesterday’s toxic assets, CDOs and MBS, have earned renewed cache from their creators the banks, as well as hedge funds, mutual funds, private equity, and wealthy investors.  The fix must be in… therefore, don’t count on seeing any universally restructured mortgages, debt forgiveness on same, or a spirited economic recovery anytime soon.  This same cadre - populated and managed as often as not by GOP heavy hitters – has done everything in its power to run President Obama out of power, via capital strike, commodity speculation and manipulation (read: inflation), and with a little help from Big Oil, sending gas prices at the pump ever higher. A President Romney would only encourage this group, and embrace the very policies that trashed this nation and Europe in 2008 to the present day.

A special nod to Mr. Blow in this week’s Times, who offered up the following observations:

http://blog.jmhamiltonpublishing.com/2012/04/19/barack-obama-and-mitt-romney-the-democrats-and-republicans-have-radically-divergent-views-about-the-direction-of-the-country-one-is-progressive-the-other-is-regressive.aspx

______________________________________________________________

More Cowbell

By J.M. Hamilton (4-7-12)

"Guess what? I got a fever, and the only prescription is more cowbell!"  - Christopher Walken (aka Bruce Dickenson) Saturday Night Live 4-8-2000

One of the funniest sketches on Saturday Night Live’ near forty year run was written and performed by Will Farrell, and starred Christopher Walken, as the music producer for the Blue Oyster Cult song Don’t Fear the Reaper.  Inexplicably, Mr. Walken continues to call for more cowbell during the recording of the song, and Mr. Farrell obliges with hilarious results. The skit was so popular that “cowbell” has become a popular culture metaphor for the often times crazed absurdity and futility of life.

As much as JMH enjoys watching Mr. Walken's artistic endeavors, I have greater admiration for Mr. Krugman at the New York Times.  After all Mr. Krugman – a Nobel Laureate and first rate economist - was warning the world about the excesses of untrammeled free enterprise, when many of us were still smoking the fantasy of self- regulating markets.  Laissez Faire capitalism is a pipedream the GOP, and Mr. Romney, just can’t let go of, despite the ruin it has caused the nation and global markets.

Mr. Krugman is often right, and his concern for the general welfare of our society and this country are never in doubt.  And if JMH disagrees with Mr. Krugman in any single area it is with his continual calls to wind up the printing presses at the Fed, yet again.

(And even here, if the debt to GDP ratio wasn't already so high as a result of excessive overspending and monetary profligacy brought about by successive Republican administrations, or if Mr. Bernanke was willing to dump money on the demand side of the curve, I believe Mr. Krugman’s proposed solution would be spot on.)

But given that the U.S. has already been through two rounds of quantitative easing (QE), an on-going Operation Twist, and that QE has now been exported and adopted in Europe, with the same effect – a short term economic rush followed by a hangover and the realization that more liquidity is not the solution - continued calls for more monetary stimulus by many economist sound a lot like calls for more cowbell. 

In fact, QE appears to be having a deleterious effect, in that:

A) It has provided cover for politicians (i.e. the Republican controlled Congress) to continue to do nothing (if the Fed lets interest rates rise naturally - the interest expense on the national debt would force politicians to deal with our fiscal nightmare and set spending and revenue priorities);
B) QE has run up headline inflation on commodities actually hurting the 99 percent, thus harming the very people it – supposedly – is intended to help; and 
C) QE allowed the banks not to address the mortgage crisis--- which has delayed restructuring and write downs, and most importantly, a healthy economic recovery.

And on this final point, Fed mandate aside, undoubtedly the true beneficiaries of QE and Twist have been the banks, and shadow banking, the very institutions that placed the world in economic crisis mode.

That said, Mr. Krugman at the Times might ultimately get his wish for additional QE, but possibly from a different corner of the world.  My guess is the next round of quantitative easing will come from Europe, where it is referred to as LTRO.  Spain has now moved to the forefront, as Europe’s financial basket case, the sugar high of LTRO 1 is wearing off, and the sharks are circling with interest rates rising.  

Troubled European banks are hoarding cash or buying more government debt, the economies are in the tank among the peripheral nations (often referred to by the acronym PIIGS); and my guess is the recent trend of European capital flight will continue, which should be good for short term holders of US Treasuries and holders of Treasury options to purchase same.

Goldman Sachs alum and EU bank president Mario Draghi is almost certainly talking with Mr. Bernanke, and assorted central bank heads, and deciding which central bank will stomp the printing press accelerator next.  What we very well may be witnessing, through a veil of secrecy, is coordination among central banks.  No surprise.

Since we live in one world with one global economy - whether the Fed punches the accelerator, or the ECB does first, is probably immaterial - the effect should be the same: temporary relief followed by more economic malaise (since the fundamental/structural problems remain).   Mr. Bernanke probably is not so much concerned about the criticism of the Republican Party (after all should Mr. Romney enter the White House – Lord save us – I can’t imagine a President Romney recommending a dramatically different tack in regards Fed policy); but rather, Mr. Bernanke is perhaps biding his time/ waiting for his turn to mash the accelerator yet again, Europe’s problems being far greater than our own at the moment.  

If the US economy stumbles (see Friday’s unemployment figures) look for the Fed to punch it- sooner rather than later.  After all this is an election year.

Denizens of the stock market take heart; another flood of liquidity is more than likely on the way.

Good for the asset class... Not so great for the 99 percent.

As with Mr. Krugman, I sincerely hope that President Obama returns for a second term; and some of the boldness, strength and courage that our President has shown as of late, in tackling special interests, is made even more manifest.  Private investors will eventually return to the stock market, when they see that it is cleaned up and running fairly for all participants.   A first term President Romney is likely to be less assertive in this regard, and a greater advocate for the policies and principles that placed this country in its present crisis.

Mr. Romney’s plea in Wisconsin this week was most telling, as reported in the NY Times:

“This time we’ll get it right.” 

Sounds like Mr. Romney is calling for more cowbell.

_______________________________________

Doctor Feelbad

By JM Hamilton (3-31-12)

"Of course I'm respectable, I'm old.  Politicians, ugly buildings, and whores all get respectable if they last long enough."  - John Huston (aka Noah Cross) from the movie Chinatown

It would appear that Mr. Huston left doctors off the list of items that become more respectable with time.  After all, the practice of medicine must be the second oldest profession (think about that - but only for a second).  As my readers know this blog is fond of taking on both the sacred and the profane; and this week we lance that most sacred of boils, the medical profession. Aside from the almighty herself - there is perhaps no group of individuals or body of professionals, we hold in higher regard than doctors and the industries that support same.  Perhaps it is because Americans place such a high value on life, and in particular our own, that we have a special fondness - call it near pagan idolatry - for the men and women wearing white coats.

How else can we explain why we would allow this industry/profession to run with double digit cost increases, perennially?  There's no other industry like it.  Medical inflation is destroying our Federal and State budgets, and my guess is probably the single biggest reason why corporations and business are reluctant to hire Americans.  

And as much as JMH is a fan of President Obama and his administration, replete with it's many successes, one of its two greatest failures was the Democratic Party's complete waste of 111th Congress, with the passage of the Patient Care and Affordable Protection Act, otherwise known as the healthcare reform.

Why my disdain for this legislation?   After all before it was derisively known as "Obamacare," it was called "Romneycare" and was originally thought up by a right-wing think tank, the Heritage Foundation.  No, the goal of healthcare reform was perfectly acceptable: universal care via the private sector coupled with REFORM (read: cost containment).  But the appalling outcome was the complete lack of reform.  That is to say, in order to get this dog passed the Democratic leadership had to "suck up" to nearly every medical special interest known to man - but primarily Big Pharma, major corporate hospitals chains, and of course, doctors.  Meanwhile, Rome burned, unemployment soared, and the banking industry (the architect of our destruction) grew bigger and more powerful.  

Had the 111th passed true health care cost containment, the Democratic Party very well might have addressed the unemployment issue, simultaneously; because employers would not then be confronted with this run away inflationary train.

Next time you look at your ever shrinking paycheck with it's every shrinking purchasing power, don't blame your employer -- blame ever escalating healthcare costs (and several other predatory monopolies and cartels I enjoy writing about).  That's where your annual pay raise has gone: to pay for double-digit medical care increases.  As we know real U.S. wages have been stagnant since the 90’s.

What might true reform have looked like then, so that you might actually enjoy a future payroll increase going forward, that is if both political parties weren't so slavishly devoted to special interests and had the guts to take on same?

First and foremost fee for service (FFS), the primary payment arrangement for doctors in the U.S., should be abolished.  Doctors should be placed on a salary - based upon what the market will afford, and incentivized based upon outcome, cost containment, and preventive care.  In exchange for going to a salary, and committing to providing care within the U.S., doctors might be made immune from medical malpractice litigation and some percentage of their medical education paid for; in exchange for foregoing medical malpractice insurance, professional lapses/problems might be reviewed by a board made up of professional peers, and patients.

By placing doctors on salary, and eliminating medical malpractice costs for same, America would take one large step forward in controlling double digit medical cost increases, since doctors would no longer be incentivized to order superfluous tests and exams.  And not to get nasty, but if doctors become like any other class of worker in America, we would expect their wages to "flat line."  For as we learned in the last couple of years some captains of industry collude to contain payroll expense, prevent the bidding up of worker income, and eliminate employee poaching  (witness the Justice Department settlement with Silicon Valley).  Hey if nearly every other industry or business class in America colludes, directly or indirectly, to set the wages of their labor- why should doctors be exempt?

But controlling FFS and doctor wages is just the first step.  America is probably the only Western Democracy that does not negotiate the price of medicine and drugs with major pharmaceutical companies (otherwise known as Big Pharma).  As a consequence, American labor is uncompetitive, and the drug cartel makes obscene profits.  The world, in turn, rides our coattails and benefits from the subsidy America pays Big Pharma.  The Washington Post estimates the mark up maybe as high as 20%; and we have all read about contrived shortages of key medicines daily, which further hike profit margins.  Right out of the monopoly play book.  Big Pharma – with its seemingly never ending patented medicines - is just another monopoly preying upon ordinary Americans and the system; as such it presents an enormous economic drag (i.e. tax).

Profits in America, in turn, finance Big Pharms' dividends, stock buy backs, mergers and acquisition, with only a small percentage of Big Pharma profits going to finance R&D.  As a result, America is going broke, and Big Pharma has grown larger, less efficient and more politically powerful.  

America then has one of two solutions:  either present a bill to the other Western democracies to pay their fair share of Big Pharma's mark up (not a likely scenario); or two, negotiate - annually - lower drug costs and margins, like every other country.  As this Cartel has shown less productivity in recent years (with a slow down in new medicines), and diseconomies of scale, strong consideration should also be given to breaking up these companies to make them more competitive and more attuned to the free market principles the executives of Big Pharma subscribe to.

Finally, it appears that an absurd and disproportionate amount of annual medical costs are spent prolonging terminal patients last few months of life.... this clearly needs to change.  That is, here's your morphine drip, go home, our prayers are with you, and we'll see you in heaven.  Sound cruel?  No, what's cruel is spending criminal amounts of money to keep Uncle Benny alive for the last three months of his existence, when that money could be spent on preventive care, or even education for our youth.  Perish the thought.

Perhaps the one positive that came out of healthcare reform was data collection, and the mandate for electronic records, which could ultimately lead to Artificial Intelligence within the medical field.  How many times in the last five years, have you logged onto Web MD and diagnosed your own health problem in advance of your doctor visit?  And how often were you, or rather WebMD, found to be correct?  Digital medical records, and the accumulation and analysis of medical data, may eventually solve escalating medical costs, w/out reform.  The advent of digital medical records and computer diagnostics and diagnosis ... may make doctors obsolete, if nothing else certainly general practitioners. 

Let's hope that arrival of medical AI appears before Big Pharma and our white coated friends bankrupt our country and make U.S. employment untenable.

P.S.

Until that day arrives... I just want to go on record as stating that I love my doctor.  She's a wonderful person.

As for politicians who sit in judgment on this law within the Supreme Court (as flawed as it maybe)... I can think of no greater reasons to re-elect our sitting President than to replace these conservative judges, as they retire or shuffle off their mortal coil.  Republican governor Rick Perry of Texas did have at least one great idea, while on the campaign trail this year and last.... and that is Americans should not be held hostage by the political beliefs of the judges on the bench in perpetuity.  As Noah Cross might have said, some of the older judges on the court have earned our respect, and like any good politician/"jurist," we wish them well in retirement.

http://blog.jmhamiltonpublishing.com/2012/03/12/the-price-of-medicine-.aspx

____________________________________________

Mr. Demagogue?

 By J.M. Hamilton (3-17-12)

"The State Department is infested with communists. I have here in my hand a list of 205—a list of names that were made known to the Secretary of State as being members of the Communist Party and who nevertheless are still working and shaping policy in the State Department."

-Senator Joseph McCarthy - Wheeling, Virginia speech (2-9-50)

"Until this moment, Senator, I think I never really gauged your cruelty or your recklessness ...   Let us not assassinate this lad further, Senator. You've done enough. Have you no sense of decency, sir, at long last? Have you left no sense of decency."

 - U.S. Army's chief legal representative, Joseph Nye Welch - Army\McCarthy Hearings  (June 9, 1954)

They seem to arrive during troubled times, be they economic or political.  A leader arrives on the scene, and offers up a seemingly simplistic reason for a nation's problems, and often a simpler solution.  They may be charismatic and, ultimately, enjoy a cult of personality following.  Demagogues play upon the public's fear, and often their ignorance.  The elementary, and often times extreme, positions they take offer solutions for a bewildered and frightened public, all too eager to put a bad situation behind it and looking for an earthly messiah.  Above all, what a demagogue offers is a short cut to thinking.  The fear and misery that propels these individuals into a nation's spot light can be so great that otherwise sane, rational and intelligent academic, business, political and spiritual leaders offer no rebuttal, for fear of being ostracized, castigated or worse.  

It reminds me of Mr. Burke's famous quote:  "All that is necessary for the triumph of evil is for good men to do nothing."

The spell is weaved, the die is cast, and the next thing one knows a nation has an even bigger problem on its hands; the fallacious and specious solution that was offered often delays the inevitable (the more arduous path to resolution), or serves only to aggravate and prolong the crisis.  Examples of U.S. demagogues in the 20th Century would include Huey P. Long of Louisiana.  Visualize Governor Long calling the shots in the Louisiana legislature, from the dais with a bottle of whiskey in his hand.  Or Wisconsin's Senator Joe McCarthy - who actually did more harm than good to the anti-communist movement.  Across the pond and beyond, Adolph Hitler - another demagogue - offered up a final solution and in the process, nearly killed off a race of men, destroyed a nation, and obliterated a generation’s collective soul.  Mr. Stalin was indiscriminate in the genocide he perpetrated within the USSR, but according to Andre Solzhenitsyn, Stalin's body count made Hitler look like a piker (that is not to diminish Hitler's crimes against humanity in any way).   Further east think of Pol Pot and the killing fields in Cambodia.  These men often possessed by messianic and revolutionary vision, lead their nations to destruction.

Fortunately, this country's demagogues - at least in the last century - have been less harsh in terms of generating body count, but potentially were just as dangerous.  Here and now in the 21st Century, we appear to have a demagogue presently in our midst; and like Senator Joe McCarthy before him, Mr. Norquist - who holds no elected office, and with no binding legal authority whatsoever - has a list.  The list, however, doesn't name communist but rather, a list of Republican congressmen, who have pledged to Mr. Norquist not to raise taxes. 

To which JMH responds:  When did the Republican Party become Mr. Norquist's sock puppet, or this weeks buzz word - "muppet?"  Ninety-five percent of all Republican congressman and, I believe all Republican Presidential candidates, have suspending rational thought, and have signed Mr. Norquist's pledge, maintaining that they will not increase taxes.  (I remember another highly respected Republican President, who your humble blogger voted for twice, who lost his re-election bid in '92 over a similar commitment, in which he stated "read my lips;" his own political party turned on him when he rationally bailed upon his pledge not to raise taxes.) 

Now nobody, including Democrats, likes paying taxes but as stated by Justice Oliver Wendell Holmes:  "Taxes are what we pay to live in a civilized society."  Besides, the only thing worse than taxes is government debt and deficit spending - and the U.S. has mountains of debt brought upon it by successive Republican administrations.  

Just how fiscally conservative is the Republican Party, and Mr. Norquist then, when they offer no concrete or realistic recommendations to reduce government spending, but are all for tax cuts for the wealthy, when we are running trillion dollar deficits per annum?

The answer is:  Not very!  Analysis from major news organizations reveals that Mr. Romney's budget plans for the nation, if elected, would lead to an even greater accumulation of debt than the present administration.  And lets not forget Republican Vice President Cheney's infamous quip that President Reagan proved deficits don't matter.  One only has to look to the PIIGS in Europe to see where this fiscal insanity will eventually lead; and but by the grace of the printing press and possession of the world's fiat currency, the U.S. doesn't find itself among the PIIGS already.

Of course rarely mentioned, if ever, by Mr. Norquist, or his minions - the Republican Party, is that the wealthy, the rich, and any major corporation worth it's salt, often don't pay taxes, or pay taxes at exceptionally low rates versus the middle class.  Now, if your middle class, say within the ninety-nine percentile, you likely cannot afford lobbyist, or pay to hire former U.S. Treasury personnel to run your tax department, or spend exceptional amounts of money electing politicians - who will vote for and protect your favorite tax loophole(s) or dodge.   But for the elite, it's just another day in a tax paradise.  

Mr. Norquist is correct in that marginal tax rates are too high in this country, for the individual and the corporation; but where many part company with Mr. Norquist is in the belief that closing catalogue upon catalogue of tax loopholes, exploited by the powerful economic and political interests, is tantamount to a tax increase, and must be fought at every turn.

The middle class and future generations are being robbed by U.S. tax policy, as it presently stands.  The middle class, what remains of it, cannot escape paying taxes, and pay a higher rate to subsidize those entities, individuals and organizations, which often pay at half the tax rate we do, that is if they pay any taxes at all.  

Here's what Mr. David Brooks of the NY Times had to say on the matter.  Mr. Brooks isn't exactly known for his liberal views.  

The Organization for Economic Cooperation and Development recently calculated how much each affluent country spends on social programs. When you include both direct spending and tax expenditures, the U.S. has one of the biggest welfare states in the world. We rank behind Sweden and ahead of Italy, Austria, the Netherlands, Denmark, Finland and Canada. Social spending in the U.S. is far above the organization’s average.

You might say that a tax break isn’t the same as a spending program. You would be wrong.

David Bradford, a Princeton economist, has the best illustration of how the system works. Suppose the Pentagon wanted to buy a new fighter plane. But instead of writing a $10 billion check to the manufacturer, the government just issued a $10 billion “weapons supply tax credit.” The plane would still get made. The company would get its money through the tax credit. And politicians would get to brag that they had cut taxes and reduced the size of government!


And we are not talking about the usual list of suspects here when it comes to IRS avoidance, but rather, when we talk about those who make a sport of ducking payment into government's revenue stream (be it America's or Europe's), we are talking about a pantheon of venerable corporate entities and institutions, some of the finest America has to offer.

How do they do it?  

We know that private equity likes to front load profits by soaking balance sheets in debt, and via the tax deductibility of interest payments on same.  It's what makes private equity work.  Moreover, private equity dividends paid for with debt are not taxed until the debt is retired.  And a takeover target that is saddled with debt is likely to have diminished earnings, if any, to pay taxes on.  In fact, it might carry forward financial loss (brought on by excessive debt) to offset future earnings for purposes of cutting taxes.  Separately, payment of carried interest to the pirates of private equity is at the capital gains tax rate, presently set at 15%.  So in many instances, not only is private equity doing harm to the U.S. labor force by stripping away CAPEX and human capital (which actually does pay taxes), in order to service an artificially high debt load; but private equity loads take over targets up with debt so as to pay themselves and in turn, coincidentally, lower the effective tax rate paid on debt encumbered earnings.  In short, Americans get robbed both ways, when private equity runs a company, through the loss of jobs and the debt-ladened company's diminished tax receipts.

On a side note, private equity likes to say they only rehabilitate sick and dying businesses, but they also like to take up healthy organizations, or fully recovered entities, and load them up with debt, repeatedly.   Take HCA for example or private equity's greatest failure to date, TXU.  And to think of all those union and state employee retirement plans, which dump retirement money into private equity, which operates directly at cross-purposes with these same employees economic and political interests...?  One wonders if these unions and state employees, and their leadership, will ever wise up?

But wait it gets better, because the crème de la crème of Silicon Valley also has a deep disdain for paying taxes, take Apple and Google as yet another example.  Both companies exploit a tax scheme called a "double irish" or "dutch sandwich," whereby overseas earnings are sent to Ireland, then the Netherlands, and onto Bermuda.  As reported by Bloomberg in 2010, the result is from 2007 to the date the article was written, Google paid less than a three percent tax rate, per annum, on offshore earnings.  Tax arbitrage defined!  Google's actual payroll and revenue generated from Ireland, the Netherlands, and Bermuda maybe negligible or non-existent, but international revenues and earnings are repatriated around the horn.  All perfectly legal, and we wonder why the U.S., and assorted Western democracies - like Ireland, is running catastrophic and unsustainable fiscal deficits, and their respective citizens suffer fiscal austerity.  Last I read, Facebook, America's favorite on line toy, was about to join the ranks of Apple and Google, by deploying the double irish tax dodge.

Meanwhile, Apple, America's - indeed the world's - largest market cap, or stock valuation, has more cash on hand than the U.S. Treasury - most of it safe and secure offshore.

And there is where it will lie until such time as the Republican Party breaks the spell of Mr. Norquist, and decides to stop mortgaging America's future with debt and deficit spending.  Of course this blog has written extensively as to why the Republican Party favors deficit financing... all the better to allow the Wall Street Cartel to dictate fiscal and government policy.   And to think this is the party, or used to be, of rugged individualism and the "maverick" mentality.  Today's Republican Party looks more like a flock of woolly mammals than proud and iconic mustangs I once knew it to be.  It’s only a matter of time before Republicans wake up and see Mr. Norquist for who he is.

Could you imagine if the middle class rose up and demanded to be paid by their employers, through stock manipulation and debt turned to dividends, at the capital gains rate?  We'd all be a little richer, since our tax rate - like Candidate Romney's - would effectively be fifteen percent; but the government would come crashing down.  The elimination of government, ultimately, maybe the goal of certain elements within the Republican Party, like Mr. Norquist and the billionaire Koch Brothers!  Starve the beast of funds, and it will eventually parish, and along with it the social contract.  Alas, greed makes the world go around.

PS:

And speaking of unmitigated greed... the present administration knows that rising fuel prices at the pump are not due to any short fall in supply (America in fact has stockpiles of oil in Cushing Oklahoma and more natural gas coming on line than this country knows what to do with); but rather excessive speculation in oil - brought about by central banks flooding the world with paper currency - is driving fuel costs ever higher.  When zombie-banking institutions aren't hoarding the tsunami of central bank currency, they are speculating with it.  And hence, Americans are being bent over the hoods of their cars at the pump, which is a direct threat to Mr. Obama's second term.  To mitigate this greed and it's threat to the nascent economic recovery, either the state or federal government should purchase, or support the purchase of the Sunoco refinery in Philadelphia, presently up for sale, and operate it at maximum capacity.  All the better to keep both Cartels worst tendencies in check, the American consumer protected, and help insure President Obama's second term. Heh, if you're going to operate a Cartel - the public and the Cartel should expect government intervention to protect the consumer and the economy from monopoly's worst tendencies.  

Unleashing a flood of oil from the Strategic Reserve would also send a message to the speculators that it is no longer open season on the American consumer.

______________________________________________________________

Not aloof just disciplined...

"Santino, come here...Never tell anyone outside the Family what you are thinking again." - Marlon Brando (aka Don Corleone, from the Godfather)

By J.M. Hamilton (3-1-12)

 

This week we go where no man should go.  I'm talking the third rail of polite discourse, politics and religion.  But heh, blog site traffic should soar.  So lets boldly step forth.  

Being a political junkie, I have observed President Obama for some time, and have also watched with equal alacrity the Republican primaries unfold.  Of conspicuous interest as well, I have read the economic, financial, and political pundits comments on same.

One of the common threads of accusation/complaint against our current White House inhabitant is that he is, perhaps, aloof, possibly arrogant, proud, and not fully engaged in the right causes.  Some of this might, in fact, be true.  It's also been argued that our President does not fight, speak up, or lead properly:  if you're a Liberal, the President has fallen short on just about nearly every pet cause; if you are corporatist, Mr. Obama has failed to defend the Wall Street Cartel properly - per the Chamber of Commerce; and if you are a Tea Partier, perhaps you think the President is, well, aligned with...  sinister and other worldly forces.  

But having thought this through, and having watched the Republican primaries, I have concluded that our President is, in fact, extremely intelligent.  And here's why, the longer the Republican candidates speak, the more the American public (Republican, Democrat and most importantly, Independents) comes to realize that this is not the grand ol' party of our fathers. Surely, this isn't Ike's party, nor is it Reagan's, and had Mr. Buckley been alive to witness this disaster unfold, he would have packed up National Review and fled the country (e.g. Switzerland or if desperate enough maybe France).  The longer these gentlemen talk, the more many of us are coming to realize that silence is a virtue.  

Okay, so President Obama doesn't rise to the bait, he doesn't pander, and judging from his foreign policy he doesn't react, he acts.  But given the immolation of the Republican Party, and given the overwhelming challenges President Obama inherited, aren't we glad he's not monopolizing the media on a nightly basis?  

Lao Tzu said:  "Those who know don't speak; those who speak - don't' know."

And the Bible (James, Chapter Three) offers up the following:  "So also the tongue is a small member, but boasts of great things.  How great a forest is set ablaze by such a small fire.  And a tongue is a fire, a world of unrighteousness.  The tongue is set among our members, straining the whole body, setting on fire the whole course of life, and set on fire by hell... "

Proud, aloof, indifferent or otherwise (or maybe he's just very focused on doing his job), our President appears to know the limits of the tongue, and may have studied both the Bible and Zen Buddhism.  Who knows maybe he even studied the Godfather?  It's one of the reasons our President looks presidential and the Republican's look well, like they do.

In a world of 24/7 buzz (where infotainment trumps real news), celebrity worship, twitter and assorted social media, where nothing is too mundane to share with the planet and gossip rules... aren't we fortunate that we have a President who is disciplined enough not to share his every waking thought with us?  The President, in this regard, appears to be leading by example; perhaps it's an example we can all learn from?

And speaking of Christians, particularly the Religious Right.... I remember discussing Mr. Romney's prospects, back in 2008, with a friend from Massachusetts.  My friend was fairly upbeat about Mr. Romney's chances of obtaining the Republican nomination that year.   And I assured my friend that Mr. Romney didn't have a chance in well... hell. "Why," my friend questioned.

Because quite simply, I responded, Mr. Romney is a Mormon, and as far as the Christian Right is concerned he might as well as be the devil incarnate.  They just aren't going to nominate the man.  Of course, I called that one, correctly.  And my guess is Mr. Romney maybe out of luck, once again, here and now in 2012.  Mr. Romney is of course, a victim to some degree of religious bigotry, some subtle - some not so subtle.  And even if he gets the nomination, he may find Evangelical turnout to be a little lackluster on election-day.

The good news for Mr. Romney?  After he fails to get the nod this go around, or win the prize, I know of a party that I - and other Republicans - recently migrated to, that is a little more tolerant, a little more open minded, and has a wide and broad enough tent that will accept a former private equity CEO (even if they're Mormon and once governed the State of Massachusetts).   Imagine that! 

The Democratic Party can use a few good men and women, Mr. Romney.  Isn't it time you, and your clan, fled religious persecution?

Which brings me to the Religious Right itself, and a few more bible passages:

Mark 12:31  Thou shalt love the neighbor as thy self; there is none other commandment greater than this.

John 8:7 Let he is who is without sin among you cast the first stone.

Matthew 7:1  Judge not that you not be judged.

In examining these three passages Christians, myself included, would do well to remember that it is not our place to judge others.  And as for the golden rule, a common theme in many of the world's core religions, I have never seen Mark 12:31 amended to state:  Love your neighbor '.... as long as they are Catholic, Pentecostal or Baptist, look like you, and come from the right socio-economic background.' 

At the end of the day, based upon the little we know, Christ was if, anything, tolerant and extremely patient.  He wanted to give everybody an opportunity at salvation, again and again.  The Lord even extended the gift of eternal life to the gentiles, so much for being judgmental.  But today's Religious Right appears to have already judged everybody, and its leaders have for some time now sought to hijack the Republican Party to advance its goal of legislating morality.  Or, as I have argued to friends and family members, conversely, these militant Christians have allowed themselves to be used by a Republican Party, who only cares about them when it's time to vote; but once in power, the GOP places Evangelicals - and the Catholic extreme - in the back seat.   

“See ya in four years, fellas!” 

Either way, one gets the feeling that this is not what Christ had in mind, who discussed of all things, the separation between church and state when he said render under to Caesar the things that our Caesars.

Assuming his sincerity, Mr. Santorum appears to be the current poster-child for this group, and he is full of righteous indignation for the alleged persecution of his Catholic values, and the Evangelical base.  Mr. Santorum, seemingly, would gladly set up a religious police state to advance his values and views.  How sad that these "ambassadors" of Christ may actually be doing more harm than good in turning people away from God and his values.

Yup, I just re-read the commandments and there's nothing in there about launching jihad against "godless" Democrats, Mormons and Ecumenism.  

Some say there's not enough religion in the world to make people love one another, just enough religion to make people hate one another.

One of the core reasons I jumped the Republican ship about four years ago - and was more open to the Democratic party - was via an epiphany:  perhaps - just maybe - the Democratic party with its focus on tolerance, a more just and civil society, and a desire to help those less fortunate and in need.... was a little more closely aligned with the teachings of Christ, than the party of the one percent.   

But who's judging.

PS: 

SOLA FIDE!

And speaking of faith and prayer, perhaps we should all send one up for the ISDA, who will make a determination today as to whether or not the derivatives and swaps that insure Greek bonds will be triggered.   Quite a Faustian decision:  It seems as though bankers and those who give bankers succor (i.e. politicians and regulators) have finally painted themselves into a very dark corner.   Does the ISDA, and the Cartel that controls same, acknowledge Greek default and possibly set off financial Armageddon, or do they not acknowledge Greek default and make these highly profitable, and taxpayer subsidized, instruments useless and unsalable?  Either way, CDS and the like are about to come under a great deal of scrutiny once again, and hopefully, a great deal more financial regulation.

-----------------------------------------------------------------------------------------------------

Was Mr. Keynes a Victim of his Own Success?

By J.M. Hamilton (2-17-12)

"In the long run we are all dead." - Keynes

It's been nearly thirty years now. I sat in an elective economics class, kind of a low key introduction to Econ, taught by the Dean of the Business School.  I was still a child.  Economics was dazzling.  It was the mid-eighties.   Reagan was in charge, and had overwhelmingly won a second term.  It was morning in America.  Inflation and unemployment were fading, and the Neo-Classical school of economics was on the march.  Markets were impervious and self-correcting.  Keynes was, well, dead.   

He received about a chapter of attention in the course, and his ideas seemed to be on the wane.  Keynes primary idea being that government has a moral obligation to step into the breach during an economic downturn, and via fiscal and monetary policy, stimulate demand, until the private sector could get back up on its feet again.  Once the private sector is off the canvas, government then should retreat from its role of supporting demand, and let capitalism and free markets resume their prosperous march.   Keynes also argued that during the good times governments should raise taxes, so as to save up for the inevitable, the next economic down turn.  There was something else I was picking up about Mr. Keynes in the conservative journals of opinions I read at the time, something about his personal life.  And Republicans did not like it.  By inference, the personal attack then was sometimes used to discredit to some degree the man and his ideas.  It was the eighties, and as Dan Savage might say the equivalent to the dark ages in terms of gay rights.

The anti- Keynesian position, at the time, was government is evil.  The Private Sector rules!  Milton Friedman uber alles.... All hale Chicago School of Economics!

My hand timidly rose up in the lecture hall.

"Yes, Mr. Hamilton."

"Ummm.... Could President Reagan actually be using Keynesian policy to stimulate the economy, presently, with the record deficits he's been running?"

"Mr. Hamilton, see me after class."

Oh $H!T!  But there was nothing to worry about, the Dean was cool.  There were no protest movements on campus, and I certainly wasn't running with any fast or liberal crowds.  What was there to protest:  No War and Maximum Employment!   After class, the dean sized me up and said, "Now Jay, in regards your question...  you're a Republican right?"   

"Well, yes sir."

"Okay, then.... let’s move on."  The subject turned to post graduation, employment and grad school prospects, etc., and my question went unanswered.   I inferred from the Dean's evasion that one did not bring up Keynes in polite conversation.

Almost everything I have read, as of late,  indicates that Keynes ideas hit their apogee post-great depression, culminating with FDR and World War II, and enjoyed a glide path into the fifties and sixties; and then are seen as being discredited by the seventies (economic shock, high unemployment and higher inflation).  Then thirty years of indoctrination about infallible/self-correcting markets; Capitalism rules; and Keynes/Socialism was bad.  Just cut taxes, give the money back to the peeps (particularly the well to do), and all will be well.  And there were plenty of numbers that seemed to support Neo-Classical economics, like rising GDP and the Dow.  A rising tide did, indeed, seem to be raising all ships/boats/dinghies.

And I look back now over the last thirty years of economic history, and I believe I was right back in that lecture hall: Keynes ideas and thoughts had never left us.  Even in the 80's, 90's and 00's, he was in the driver's seat all along.  Oh sure, the jargon had changed, the ideology and mantras  were clearly different, but in the long run there was a permanence about Mr. Keynes and his ideas.  And in fact, I argue that the greatest Keynesian Presidents were not whom we would naturally think, FDR and Truman (for much of his presidency FDR was fixated on balancing the budget), but rather, Messrs. Reagan and Bush (W.).  These latter two Presidents may have talked a good Capitalist/Neo-Classical game, but in fact, both administrations were highly addicted to big government and government spending.  Their respective economies, and second terms, were dependent upon Keynes.

If we go back and look at the last thirty years we know the Federal debt to GDP ratio escalated significantly under Reagan, Bush (HW), flattened with Clinton (who actually ran budget surpluses), and continued to rise again under Bush (W).   The crisis thirty years of free market dogma and financial deregulation left on Obama's doorstep has caused the debt to GDP ratio to climb even higher, 80% to 100% of GDP - depending upon whose figures one believes (and obviously, these ratios do not include underfunded liabilities such as social security, Medicare and Medicaid).   Moreover, government spending as a percent of GDP has seen a similar trajectory over the last thirty years, so that it's now north of 40%.   

That's a lot of government redistribution for a nation of hardcore capitalist.

Republican administrations that pre-dated President Obama, starting with Reagan, actually, enjoyed a triple kick to the economy:  first there was growth in government spending (financed by foreign lenders) which helped demand; second tax cuts helped boost the economy on the supply side; and finally, the Maestro at the Fed basically placed a very large brick on the accelerator of monetary policy and the economy went into hyper-drive.   Many economists will tell you that government spending is a great boon to the economy, until such time as the debt to GDP ratio begins to hit 90% or greater.   It is at that point, which is now, that the debt burden can actually become a drag on the economy, due to interest payments on same, and expectations by the public and business community of higher taxes to bring the debt burden down.   In essence, at this debt level (90%) financing becomes a contractionary force (think of the crowding out effect alone).  Look at the major corporations and multi-nationals sitting on an estimated trillion in cash, due to fiscal uncertainty and the global banking crisis.

As a result, was Keynes a victim of his own success (?)... at the slightest hint of economic contraction in the last thirty years, Federal government spending went into overdrive; and even when the economy was on the mend, the spending still did not let up, and tax rates have been on a - relatively - steady decline, from Reagan through Bush - W (again with Clinton being the outlier). None of these Presidents seemed to want to raise taxes once the economy turned the corner, a key Keynesian prescription for fiscal sanity.

Keynes Blind Spot:  As of late, however, Keynesian policy seems to have hit the wall.   Trillion dollar deficit spending and ultra- loose monetary policy doesn't seem to be spurring the economy in the manner they once did.   I'm no expert but did and could Keynes foresee that a massive banking cartel, the world is presently faced with, could and would refuse to lend out monies generated by expansionary Fed and E.U. central bank policy?  The Cartel in essence refusing to lend out money to stimulate growth - instead largely engaged in speculation or hoarding, due to impaired balance sheets or simply out of political spite, via capital strike.  Did Keynes foresee that Republicans deploying Keynesian policy and supply side economics, coupled with three decades of untrammeled mergers and acquisitions, would create massive monopolies and oligopolies, which via regulatory and government capture, would siphon off a not insubstantial share of fiscal and tax policy benefits?  Here, Keynesian policy was not directed, as he intended, for the betterment of the working man and to achieve maximum employment; but rather, Keynesian policy - wearing Neo-Classical garb - appears in many instances to have been bastardized and government expansion, rules and regs, were utilized for the enrichment of the few, the proud, the elite!

One can only speculate, but my guess is:  If he was here with us today, faced with the tremendous success of his own policies, and faced with the present limits of same, no matter how perverted and warped by successive Republican administrations, Mr. Keynes would have been a fan of the Volcker rule (which thwarts utilization of Fed monies for speculative purposes and deploys monetary policy to its traditional role of lending money); and he may have been positive about the breakup of the too big to fail banking cartel, which seems to be sucking the heart and soul out of expansionary monetary policy.  My guess is the humanistic Keynes, who had a vision of a harmonious world, would have wanted to shift the largess of government - both demand and supply-  away from the wealthy and the powerful, and back to those most in need, the ninety-nine percent - arbiters of top line growth, an expanding economy, and greater corporate profitability.   In the present, Keynes' policies may have not been limited to objecting to proposed cutbacks in the welfare state, but instead, Keynes probably would have been for positions that limited - at least ameliorated - the impact of globalization, and protected workers rights and wages.  

The old saw of a "rising tide lifts all ships," also works in reverse, if you catch my drift; that is, we've all heard of "trickle down," well perhaps a good term for the inverse is "flood up." Imagine if you will, banks and GSE's refinancing, or better yet, restructuring residential mortgages in this country, and we could all see "flood up" in action.

Mr.  Keynes' proscribed policies are said to have only begun to break through to FDR, later in his presidency.   Such irony that Keynes greatest ideological detractors should end up being his greatest practitioners, the Republican Party for the last thirty years. 
_____________________________________________________________________

London Calling

“The most effective way to destroy people is to deny and obliterate their own understanding of their history.”  - George Orwell

By J.M. Hamilton (2-3-11)

Let’s face it.  As much as central banks, and their bankers, like to say they’re looking out for the public, their core constituency and the masters they serve are the Banking Cartel.  The Feds mandate is stable prices and maximum employment; but a closer look at the Fed’s policies and its results reveals the opposite has in fact happened, since the crisis in 2008, to the benefit of Wall Street (the 1%) and to the detriment of the public (the 99%). 

And to show you what I mean, the Chancellor of the Exchequer, George Osborne, was making the rounds at Davos and lobbying on behalf of both his country’s interests and the Banking Cartel’s position:  namely, the Volcker Rule must be abolished or significantly watered down.  At issue the Volcker Rule requires that U.S. banks not gamble with public/taxpayer money, and the same rule also means that same should no longer hold foreign debt, at least not to gamble with.  (Sovereign debt is no longer what it once was, bulletproof, and in more than an uncomfortable number of European instances as of late, it has become highly speculative.)   Mr. Osborne, or perhaps it’s Sir Osborne, hails from the U.K. and more precisely London.

London, of course, is where all that is “whack” (please excuse the slang) goes down in world financial affairs. 

“But J.M.,” you reply, “you’re kidding…. Wall Street is the epicenter of all things financial, both catastrophic and magnificent.”  

Not any longer.  And here’s why.

As reported in Bloomberg this week in a piece entitled, Goldman Sachs among Banks Lobbying to Exempt Half the Swaps from Dodd-Frank, penned by Ms. Silla Brush, we learn that the majority of swaps are now transacted overseas, possibly in the hopes of skirting future swaps regulation under Dodd Frank.  And where exactly is “overseas?”  Per Ms. Brush, “New York-based Goldman Sachs’s largest counterparty for credit derivatives on the eve of the credit crisis in June 2008 was Deutsche Bank AG (DB)’s London branch; its third-largest interest-rate derivatives counterparty was JPMorgan’s London branch; and its largest counterparty for currency products was Royal Bank of Scotland Plc’s London branch, according to a 2010 report from the Financial Crisis Inquiry Commission, a U.S. panel that investigated the crisis.”

So London appears to be the prime destination for the derivatives trade, which are rogue insurance products that the American taxpayer reinsures, and the Banking Cartel profits from; that is to say, the banks keep the premiums, and you, Dear Ninety-Nine, pay for the losses when things go bust. 

To drive my point on “The City” a little further, please recall it was London that housed Mr. Joseph Cassano and the fabled AIG Financial Products Unit.  This was the unit that was taken down by Goldman Sachs in 2008, and demonstrated to the world what systematic risk truly was… a lesson that we are still learning to this very day. 

It has been rumored and speculated that some of the $1.2 billion in missing MF Global client money has vanished around London environs, quite possible pledged as collateral in Repo transactions.   Repos are the very same accounting transactions that are said to have fooled business partners, lenders, exchanges, and regulators, when both Lehman Brothers and MF Global went down. (Repos can be off balance sheet transactions.)  Repos involve transferring risky assets, for some period of time, off one’s financial statements and sending them quite often to London, where for a fee, the client is given cash or more warmly received/perceived assets. 

Sort of a duplicitous accounting bait and switch…. if you will. 

Depending upon the duration of the transaction, and the maturation date of the instrument, and with proper timing, a Repo may even be posted as sales revenue.

Repos are nasty enough, but what happens next to the collateral in London is altogether insane, because under British law, rules and regs, the collateral can be pledged and re-pledged, used and reused, in a process called Rehypothecation.   Reusing collateral, again and again, is risky enough in good times, but throw into the mix some volatility, add a dash of uncertainty, with equal measures panic and default, and poof, collateral/client money all gone.  Rehypothecation is, conveniently, an off balance sheet transaction.

Ultimately, where I’m going with this is…. U.S. bank regulation in today’s global economy is only as strong as its weakest link.  And the weakest link in the financial world today, the king daddy of systematic risk, and moral hazard, is London.  There’s a reason why so many banks set up shop there, and so many derivative/swaps counterparties operate in London.  It’s called regulatory capture and regulatory arbitrage, or London by any other name. 

If U.S. lawmakers and policymakers want to avoid a repeat of the mother of all financial crises, then pressure must be brought to bear, and applied directly to London’s financial district.  Perhaps the tables should be turned and Mr. Geithner should be lobbying Mr. Osbourne for U.K. banking regulatory reform?

On a historical note, the nickname for London at one time was “Old Smoke,” perhaps the new nickname should be “Old Smoke and Mirrors.”

And going full circle back to the topic of central banks, Mr. Randall Forsyth, of Barron’s Magazine, paraphrased Ms. Stephanie Pomboy this week as stating (he also detected a similar note from Mr. Bill Gross of PIMCO fame):  “…the ‘transmission’ for monetary policy is broken. Easy Fed policy lifts prices but, owing to consumers' reluctance or inability to borrow, doesn't translate into spending increases.” 

Which is a nice way of saying Fed policy is great at servicing the Cartel, but the Cartel no longer serves the American public, no, in fact, the Cartel serves, you guessed it, only themselves.  But what else would one expect from an oligopoly?  Ms. Pomboy goes on to note: “That suggests the counterintuitive conclusion: expansionary monetary policy could be restraining the economy.”

I believe what these three wise persons are driving at is that the paltry less than one percent interest the Fed pays out (the Fed can get away with this because the Euro is trashed, and the Fed is monetizing U.S. debt) is providing zero relief for consumers, savers, or the economy, because the banks are not lending the money out…. No Wall Street is either investing in commodities, the stock market, T-Bills, or the carry trade (or in the case of European banks, placing the money back into central banks or sovereign debt).  Meanwhile retirees and savers are not earning a dime in interest income, and are being squeezed hard by fiscal austerity, higher headline inflation, and declining property values.  

Nor are the Fed’s policies exactly good for corporations or multi-nationals, who would like to see: wealthier consumers, an increase in consumer spending, a resulting rise in top line growth, and an increase in profits.

It seems that Wall Street banks don’t want to soil themselves with untidy residential lending, and they have been off loading illiquid and impaired CDOs and MBS onto the Fed’s and the nation’s balance sheets ever since the 2008 crisis began.  The Fed into the breach, once again, to bail out the Cartel, but Mr. and Mrs. John Q. Public will just have to cope.  Of course the near zero percent interest rate the Fed charges banks, also enables the Leviathan to hold illiquid and damaged assets on their financial statements, such as CDOs and MBS.  That is until, the Fed can take it off their hands.

After all with essentially free money, courtesy of the Fed, the banks have no incentive to mark residential mortgages to market, which would spur refinancing, begin the residential housing recovery in earnest, and ignite the economy.

Why oh why would the Cartel want to refinance mortgages and kick start a U.S. economic recovery?  After all, Wall Street banks have a Democratic President they need to run out of office.

But wait, it gets darker, because, as we learned this week, there may be yet another reason why the Fed is keeping interest rates at zero percent.  Both ProPublica and NPR put out a joint piece this week, entitled Freddie Mac Bets Against Homeowners.  (Shucks, it might as well have been titled:  Taxpayer bailed out Institution $cr@ws Americans and the American Dream.) Per the article, it seems as if this GSE has taken out some sophisticated bets, which wager that much of the U.S. residential market will not be refinanced.  Of course, with the GSEs essentially controlling the nation’s residential market portfolio, it’s sort of a guaranteed win.  For Freddie that is.

And the wider the spread between the Fed’s interest rate, and the rates U.S. homeowners pay, the more money Freddie makes off its bet:  “The inverse floaters carry another risk. Freddie gets paid the difference between the high mortgages rates, such as the Silversteins are paying, and a key global interest rate that right now is very low. If that rate rises, Freddie's profits will fall.”  

Hmmm… sounds like the Fed has yet another reason to keep interest rates low, and that’s so Freddie (and possibly other institutional investors?) can make a killing off inverse floaters, while Americans – the 99% - pray the stuttering nascent economic recovery, this time, is for real.

Isn’t that special?

So just to get this straight, the U.S. economy is being held back – homes are not being refinanced - so that taxpayer funded/taxpayer bailed out/taxpayer owned institution, named Freddie, can make profit from CDOs and the MBS the banks off loaded on to the tax payer at list price; and this same publicly owned institution, Freddie, has wagered/doubled down - through highly leveraged and speculative instruments called reverse floaters - that homeowners and the economy won’t heal, so that they can make a mint. Moreover, this is a bet that Freddie controls, as one of the largest suppliers and reinsurers of U.S. residential mortgages.

And who sold Freddie these exotic products?  My educated guess is the Wall Street Cartel.

Meanwhile, the Fed pledged in late January to keep interests rates at their super low values for yet another year.  Seems that the FMOC is worried, terribly worried, about the economy.

Thank you FHFA Director Edward DeMarco!   Thank you Chairman Bernanke! 

Perhaps “Old Smoke and Mirrors” isn’t so slippery after all.

 

Interesting Reading:

http://blog.jmhamiltonpublishing.com/2012/01/31/dont-like-the-volcker-rule--become-investment-bank-and-drop-the-fed-back-stop.aspx

http://blog.jmhamiltonpublishing.com/2012/01/30/freddie-mac-the-taxpayer-owned-mortgage-giant-has-placed-multibillion-dollar-bets-that-pay-off-if-homeowners-stay-trapped-in-expensive-mortgages-with-interest-rates-well-above-current-rates.aspx

http://blog.jmhamiltonpublishing.com/2010/12/04/reap-the-wind.aspx

http://blog.jmhamiltonpublishing.com/2012/02/01/macromavens-pomboy-points-out-the-rising-tide-of-fed-liquidity-no-longer-is-lifting-all-so-called-risk-assets-together-.aspx

___________________________________________________________________________

Bubba and the Socialist in South Carolina

By J.M. Hamilton (1-21-12)

“We are all socialist now.” – King Edward VII

I rang up Bubba this week to get his take on the South Carolina primaries.  I very much respect Bubba’s opinion on political matters, after all – he called the 2010 midterms.

My readers may recall that Bubba is my red meat inhaling, beer guzzling, mescal snorting best friend from Tejas.   Yes, Bubba has proven that you can snort mescal, but the worm does tend to get stuck in the straw.  Bubba and I go back to younger days and simpler times, summers spent water skiing, drinking PBR, and chasing skirt (not necessarily in that order).  I spent many a summer night looking up at the stars of Texas through bullet holes in Bubba’s trailer ceiling…. Lying on his living room couch in the middle of the night (yes, we drank responsibly), and at the right kind of angle, you could sometimes see satellites pass by.

“The socialist dream is over.  ObamaCare is dead.  Just wait until the Roberts court rules,” he yelled into the receiver.  “You can’t force people to buy insurance.”

“But Bubba by that same logic,” I responded, “shouldn’t all entitlement spending be eliminated then?  After all, what is social security?  It’s an insurance program we all pay into.   Ditto Medicare.   Why I don’t think there’s a single Republican candidate, save Mr. Perry, who favors elimination of social security.  And look what happened to your governor!  And didn’t Bush (W) expand Medicare with Part D?”

“Look,” Bubba rejoined, “Americans despise Euro-Socialism, period.  Comprende?”

“Bubba, Americans should not fear Euro-Socialism, but rather, they should fear American-Socialism, which is far more expensive and dangerous to any country’s health."

“What you talking about Willis?”

I’m talking about the most insidious kind of socialism, the kind that is rarely discussed and all but ignored in the South Carolina Republican debates:

Like the bailout of Wall Street and European Banks.

• Bloomberg recently put the Fed’s bailout lending to the Wall Street Cartel at $7.7 trillion.

• A GAO report of 7-21-11 placed the Fed’s lending to the banking cartel at $16.0 trillion.  Conveniently, that lending is at near zero percent interest.  Free money!

• TARP and Quantative Easing (QE1) transferred hundreds of billions in toxic assets (CDO’s and MBS) from the Wall Street Cartel’s balance sheets and onto the public’s balance sheet, that would be the Fed’s and GSE’s - like Freddie and Fannie.

• And the Fed is rolling over and reinvesting its earning in yet more toxic assets, as reported by Mr. Randall Forsyth in Barron’s magazine (New Call for the Fed to Spur Housing, 10-21-11).  Just another form of bank bailout.

• Now this same practice, American-style Socialism, is all the rage Europe, after the Germans swore they would never go there, courtesy of Mr. Mario Draghi - Goldman Sachs alum and European Central Bank head.

• Mr. Draghi has lent out $640 billion dollars to bailout European banks, which suddenly have better bond ratings than many of the sovereign nations they operate in.

• As in America, the European bank bailout was designed to encourage lending to individuals and small and mid-sized businesses (primary drivers of the economy, employment, and top line growth); but instead, European banks either deposited the money with the central bank or re-invested the money in sovereign debt.

• Meanwhile the Cartel (presently lead by Mr. Josef Ackermann as head of the IIF) has fought all legislation, regulation, and planned transparency and collateralization, governing derivatives and swaps, which are the very same products that nearly brought the global economy down in 2008.

• After all, if America regulates derivates and swaps, Wall Street may lose business to insolvent European banks. 

• By way of comparison, social spending - or entitlement spending within the U.S. Federal budget - is running just north of two trillion dollars per annum, a fraction of what has been given to Cartel and IIF members over the last couple of years.

• The Cartel all but refuses to refinance mortgages – which would spur the economy, as do the GSE’s, because it would crimp CDO and MBS earnings.

• Banks are given trillions, in both America and Europe, and the public is told by Republican candidates to suck it up and get a job!  

• Banks are given trillions, and the public will have to pay for those trillions through higher taxes and higher headline inflation.  Inflation the Fed conveniently refuses to recognize within its CPI calculation.

Republican candidates have a keen dislike for social spending for the elderly, disenfranchised and the poor  (what they have dubbed “Euro-Socialism”), but these same Republican candidates have little to say about America’s biggest – and most recent - export to European shores… American Socialism (aka Crony Capitalism).

“I need a beer,” said Bubba.

P.S.

And to see why American-style Socialism is alive and well let’s surf over to Opensecrets.org, and review 2012 campaign financing by economic sector.

Sector Totals, 2011-2012

http://www.opensecrets.org/industries/index.php

http://www.opensecrets.org/industries/indus.php?Ind=F

http://blog.jmhamiltonpublishing.com/2010/08/15/bubba-called.aspx

____________________________________________________________________
The Ultimate GOP Candidate has yet to Step Forward.... 

By J.M. Hamilton (1-8-12)

"Today we have a similar debate over this... anyone know what this is... class?  Anyone, anyone, anyone seen this before?... the Laffer Curve.  Anyone know what this says?  It says at this point on the revenue curve you will get exactly the same amount of revenue as at this point.  This is very controversial.  Does anyone know what Vice President George Bush called this in 1980?  Anyone, Anyone?  Something D-O-O economics... voodoo economics." 

- Ben Stein from the movie, Ferris Bueller’s Day Off

Happy New Year!

I don't get it.  The GOP candidates are running around destroying each other, trying to figure out who will lead them out of diaspora and back to the White House.   Debate after Republican debate only shows which leper has the least spots (hopefully that's not politically incorrect?)

Have you ever seen such a fatally flawed crew?

The only one in the mix with real gravitas, who could pose a serious challenge to the incumbent, is the only one who hasn't bubbled up as the monthly Republican candidate du jour, that would be Mr. Huntsman.

Romney, who seems destined to get the nod, is going to become the "Bain" of private equity.   Seriously, if you are an executive officer for TPG Capital, Blackstone Group, KKR, Carlyle, or any number of private equity firms, you've got to be pouring money into the campaign coffers of anybody other than Romney. 

Why?  Because with a Romney nomination will come intense and withering scrutiny of what private equity is and does:  which is kill jobs; liquidate, flip and merge companies; and increase the concentration of political power and wealth in this country into fewer hands.   

And the real irony of a Romney nomination (?)... Evangelicals, who make up a substantial percentage of the core Republican base, fear a new world order and one world power.   Evangelicals believe a one world power cabal is a sign of the end times and the antichrist.... if I have that right.  If that's the case imagine evangelical dismay when they learn that private equity is probably one of the largest single contributors to globalization and the concentration of power on the planet, aside from the Wall Street Cartel.  Yep, the likely Republican nominee, Mr. Romney, is the poster boy for private equity and the concentration of economic, and hence, political power.  President Reagan was not a huge fan of concentrated power, by the way.

Separately, just imagine the scrutiny Mr. Romney is going to bring to the "carried interest tax?"   A tax benefit that is near and dear to every private equity exec's heart.

Moving right along... as much JMH finds the most interesting Republican candidate by far, to be Ron Paul, he unfortunately carries with him some baggage; baggage that afflicts many of his generation, and unfortunately successive generations, as well.   That people, and even political candidates, can grow, evolve, and shed intolerance over time appears lost on many who rabidly oppose Mr. Paul.   Nevertheless, racism of any kind is a very serious charge, rightfully so, and is likely to stick to his candidacy, even with earnest disavowals.  The real irony is that the twisted brother of racism, he goes by the name of Religious Bigotry, would appear to be on full display with another Republican candidate, Mr. Santorum; and yet, Religious Bigotry appears more widely tolerated in Republican circles.  J.M.H. is not the first to write it, but it bears repeating.... at least a President Ron Paul would not seek to legislate religious beliefs/morality from the White House (shucks, a President Paul just might close up shop and sell the White House), while a President Santorum would likely set up a theocracy, and a religious police force that would make the Taliban pale in comparison.

As this blog has suggested before Mr. Paul and his follower's single biggest contribution to this election cycle is to draw attention to just how similar both parties, Republican and Democrat actually are, and how both parties are addicted to big government.   J.M.H. actually believes in the importance of the U.S. government, but also acknowledges, as Mr. Paul does so well, that our government often overextends its reach into our personal lives, through incursions upon our civil rights, and globally, in the form of taxpayer funded foreign adventures, aiding and abetting war profiteering, and nation building.

Mr. Paul, personal failings aside, has a contribution to make to these upcoming elections, that of providing competition to the duopoly that runs our country; let's hope he stays in the race, and starts a third party.

Which brings me finally to the uber Republican candidate…  this man has out "republicaned" the Republican party, by stealing their foreign policy thunder.  On foreign policy, he is second to none in protecting America from her enemies.   He hunted down and killed Osama bin Laden, and made significant contributions to Dictator Gaddafi’s immolation (both were Republican targets).  He brought our troops home from that legacy catastrophe of a war in Iraq - handed down to him from the Bush administration; and this individual has plans to exit Afghanistan.

This gentlemen has shown international leadership and the path to how America can enlist allies, and not go it alone, in Libya, a preferred model for future martial efforts; and he has also shown us how 21st century military engagements can often be handled with technology, manless drones, and lightening quick raids.   He has almost made Al Qaeda leadership extinct.  And he is the process of stream lining the DOD to fit our national interest and budget.   On foreign policy, President Obama makes the prior Republican administration look like amateur hour, and I would suggest to my readers that no current Republican candidate could step into his shoes and do as well.

And like prior Republican administrations, President Obama has kept strong ties to our ally in the middle-east, Israel.  As quoted in the Washington Post, Chicago Mayor Rahm Emanuel had the following to say about the President’s commitment:  “As I listened to the president’s speech on the Middle East, I heard him reaffirm his strong commitment to Israel’s safety, security and prosperity.” 

On domestic policy, corporations have never been richer, profit margins are high, and balance sheets - in many instances - are rich with cash.   Fed policy under the President's watch has been very generous to: the wealthy, Wall Street Banks, and multi-national corporations.   As for the Wall Street bail-out, again, this was a legacy project - initiated - by the Bush administration and Mr. Henry Paulson.   How this President handles the next, and inevitable, financial crisis remains to be seen; Mr. Obama’s administration will own the next crisis.

And while jobs are scarce - how much of this present economic environment is created by the plutocracy, via capital strikes, globalization, and unfair trade agreements?   These are issues that could be addressed, if the nation had a fully functioning Republican Congress that was interested in helping out the American economy, instead of holding same hostage for prospective political gain.  Unlike a President Romney, whose economic policies call for “borrowing and spending” as reported by Bloomberg last week, President Obama is more fiscally conservative and would prefer to pay as we go through a combination of spending cuts and tax increases.  

President Obama does not appear to believe in what former President H.W.  Bush referred to as "voodoo economics." He’s a pragmatic man and probably understands that politicians/congress doesn't have the self- discipline to increase taxes in good economic times, which is the Keynesian paradigm’s shortcoming.

The argument I'm clumsily attempting to make is that, in essence, a moderate Republican already occupies the White House, and that by the standards of a H.W. Bush, or say, either an Eisenhower or Nixon, Obama should be the Republican nominee.   It is because the zealots within the Republican Party have moved the political center of this nation so far right, as to be rendered unrecognizable to many establishment Republicans from yester-year, that we have such a conservative and pro-business Democratic administration.

What this says for the economic and political aspirations of Democrats and Liberals is another story.  If I didn’t know better, it’s almost as if the plutocracy installed into the White House a Trojan Republican President, wrapped in the Democratic Party’s mantle.  It is because President Obama is the calmest, most rational, and most presidential choice, versus the Republican field of candidates, that J.M.H. supports him for a return to the White House.   Besides, the nation hasn’t had a foreign policy guru in the White House this gifted, since Nixon/Kissinger teamed up to conquer the world.
___________________________________________________________________________

Dien Bien Phu & the Last Empire

by J.M. Hamilton (12-25-11)

"Colonial policy is the daughter of industrial policy." - French P.M. Jules Ferry

Lost in the fog of war and the mists of time is a long forgotten battle. A battle fought on the other side of the world, between the French and a proud and indigenous people, who wanted nothing more than their freedom from colonial rule. The U.S., at that time, pumped what would be considered an exceptional amount of money into the French military. Fought in the decade following WWII, and with the Korean War very much on the minds of U.S. policy makers, surely the French could defeat this revolutionary tribe. But it was not meant to be, the French decided to roll the dice within Indochina's isolated hill country, near the enemy's Laotian supply line. The French opposition knew the importance of this battle, as international negotiations were underway in Geneva over the regions future. The French, who had brought with them into battle mobile bordellos, were caught off guard when they found themselves surrounded by captured artillery pieces and anti-aircraft guns, strategically placed on higher ground. The subsequent battle of Dien Bien Phu ended French colonial rule in Southeast Asia, and became a rallying cry globally for nationalist movements seeking independence from occupying western powers. The country was subsequently divided in two at Geneva, and Ho Chi Minh was given a foothold in North Vietnam and international legitimacy, with which to launch a civil war that would eventually end in American defeat two decades later.

The New York Times reported on 5-9-54 the following: "The fall of Dien Bien Phu marks the end of an era. The ultimate military, political and psychological reactions may either make or break the anti-Communist front in the Far East and France as a great power... A lost battle has tipped the scales of history in the past; Dien Bien Phu may prove, in future accountings, to be the balance point in contemporary history." - After Dien Bien Phu, What?

Could the Iraq war be America's Dien Bien Phu?

Before answering that question, let's take a look at the similarities and differences between America's wars in Iraq and Indochina. And then let's examine the cost allocation of war.

History repeats. Both wars, Vietnam and Iraq, were started at a time when the American public was hyper vigilant about a perceived and real menace in the world: Communism and Radical Islam. In both wars, political authorization for U.S. involvement was obtained under dubious and questionable circumstances: In Vietnam it was the Gulf of Tonkin incident that provided a catalyst, and in Iraq it was concern over weapons of mass destruction. In both wars the political goals and objectives were nebulous over time, and finally denigrated into "nation building;" and in both wars, America was either forced to leave the battlefield or requested to leave... no longer wanted, and leaving under less than auspicious circumstances. Time would also show that the twin threats of Communism and Arab Radicalism would dissolve considerably with the collapse of the Soviet Union and the rise of the Arab Spring/pro-democracy movements.

And as Vietnam proved, and as pointed out by Alan Abelson in last weeks Barron's, Americans will not know the true cost of the Iraq war for many decades. The Iraq war will more than likely exceed a trillion is net cost, but that doesn't begin to account for the tremendous forgone opportunity costs incurred by the nation, when we consider that Iraq war debt could have been allocated to helping Americans achieve a higher education, or if said funds were allocated to paying down the national debt, or not expanding same. Even by today's standards, a trillion dollars is still real money. Nor does this begin to factor in the additional economic burden placed upon ordinary Americans, and returning soldiers, post war, when monetary policy inevitably swings towards war debt monetization - resulting in inflation and lower living standards.

That the real political achievement of the Iraq war was the permanent removal of Saddam Hussein calls into question the efficacy of Executive Order 12333, which supposedly forbids the assassination of foreign heads of state. The reality is there are plenty of exemptions to Executive Order 12333, and so if we compare the cost of the Iraq war to say, the cost of the mission to eliminate Osama bin Laden, well there really is no comparison. What's the nominal cost of a bullet or a drone, versus the extraordinary cost of Iraq War.... all to remove one man? To push the point a step further, compare the cost, in blood and treasure, to remove Col. Gaddafi versus Saddam Hussein?

Separately, "nation building" (code for we no longer know what the freak we are doing here, so we have turned this mission into a philanthropic enterprise) was a failure in Vietnam, and only time will tell if it will prove successful in Iraq. Recent actions by the Iraqi prime minister, like issuing an arrest warrant for the Iraqi Vice President and further consolidating his hold on power, already call into question whether or not a nascent Iraqi democracy will flower and grow. What nation building really has come to symbolize is a run up of conflict costs and expenditures, and a financial "pig-out" by private contractors and commercial interests within a war zone, all at U.S. tax payer expense.

Despite many similarities, a key difference between both wars was the utilization of conscription by U.S. forces fighting in Vietnam, versus an all volunteer military fighting force in the Iraq War, and the resulting passive objection to the Iraq war by U.S. society, versus the near public rebellion over the Vietnam war. Some how it makes it more acceptable to some Americans if the poor and the down trodden are voluntarily sacrificed upon the altar of war, instead of the sons and daughters of the wealthy and the middle class, via the draft. And the military industrial complex (MIC) knows this. Former Defense Secretary Robert Gates warned of a separation in society between an elite warrior class and ordinary Americans.

Also of critical importance, we can see a tremendous disconnect in the way the costs of war are passed onto society as whole, in lieu of armed conflict's true beneficiaries. J.M.H. argues that because of this, wars have a tendency to drag on indefinitely. In other words if the true costs of the war were allocated correctly, than wars would become more efficient, cost effective, produce swifter results with less loss of human life, and pull out and withdrawal would become more rapid. More thought might also be given to entering into war in the first place.

So who or what truly benefited then from the removal of Saddam Hussein, aside from the Shia majority inside Iraq? Well as clearly alluded to by French Prime Minister Jules Ferry, commercial interests clearly benefit from war without end, colonization, and/or nation building. Big Oil was clearly chomping at the bit to return to Iraq. And of course the U.S. military industrial complex expanded and grew, significantly, over the last decade, more than doubling in budgetary outlays. Not surprisingly banks benefit with the issuance of martial debt and financing. The fact that the U.S. government spends more on defense than the G-20 combined says it all.

As with all wars, there are often unintended consequences. An unintended beneficiary of Mr. Hussein's removal was Iran; and Iran has been working to obtain a foothold inside Iraq, with success, ever since the U.S. lead invasion.

America has to figure out a way to be less subservient to what President Eisenhower referred to in his farewell address to the nation as the military industrial complex; failure to do so may mean that Iraq could become America's Dien Bien Phu. How then might America control the costs of war, and prevent taxpayer money, sometimes with good intentions, from being wasted on nation building? If the cost of Iraq war was amortized over the costs of the products and services produced by the MIC, and passed onto foreign consumers (America being the largest arms dealer on the planet), the price of a prolonged and protracted war would become too great for the MIC to endure and would make MIC products and services considerably less competitive. Likewise, if the price of the Iraq war were presented as a cost of doing business to Big Oil or mining interests, they would balk at the cost; and maybe the Iraq war truly would have ended when Mr. George Bush landed on the deck of the aircraft carrier, USS Abraham Lincoln, with the now infamous sign, "Mission Accomplished." Thanks to the manner in which American wars are presently billed, there is no financial incentive to rein in the cost, since the U.S. has been living on a credit card economy for decades, and the MIC, via its all volunteer military, has all but eliminated serious protest.

Ultimately, if America is unsuccessful in reining in MIC costs, it could result in a threat to national security, the loss of international prestige, as well as, possibly cause unmitigated hardship here at home, as defense spending takes away government services from the 99% and ultimately leads to an increase in taxation upon all Americans, the 100%. (By way of example, take a look at the financial situation of the so-called PIIGS in Europe... and ask yourself, are these nations in any kind of financial condition to fight a war on terror or handle any other sovereign threat?  The PIIG's fiscal policy, and deficit spending, is a threat to their very own national security.)  Equally tragic, back in America, nation building exercises may leave the MIC winded and the public less likely to support the use of force in the future, when the U.S. may actually have very good reasons for going to war.

“Of all the enemies to public liberty war is, perhaps, the most to be dreaded because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes … known instruments for bringing the many under the domination of the few.… No nation could preserve its freedom in the midst of continual warfare.”

— James Madison, Fourth President of the U.S.


There is some reason for optimism however. Not everyone who enters the White House is an opportunist or a poor war strategist. Look at George H.W. Bush and his management of the first Gulf War; this was a war that was fought with great precision, finite goals and objectives, and clearly big oil and the House of Saud were among the beneficiaries of that war, not to mention the Government of Kuwait. Arguably, the U.S. should have submitted a substantive portion of the bill for that war to the various governments in the Middle East and to commercial oil concerns operating in the region.

Better yet, observe President Obama and his deft and expert management of the overthrow of the Libyan dictator, Colonel Gaddafi. These are excellent examples of where the U.S. military was utilized for its intended use, as opposed to an unending nation building exercise that only served to enrich the private contractors of war, and the commercial interests that sweep in post-war - all at the expense of the American people and the men and women who serve. Are we naive enough to believe that these same commercial interests, in our present form of democracy, do not have a considerable say in how and when America goes to war? Do foreign governments and the MIC lobby the congress? Assuredly and big time!

To be sure, there are many reasons to go to war, and American leaders may in fact have the best of intentions and the highest of ideals ( humanitarian, the spread of democracy, and otherwise), but our leaders nor the American people should never lose sight of the fact that there are tremendous profits to be made in war, as well as, many interested parties and unintended consequences and expense.

J.M.H. is a fan of President Obama's foreign policy, and the world owes him a debt for his substantial contribution towards the Libyan dictators removal; and America owes the President another debt for finally extricating our service men and women from the Iraq war.

That said, it appears that we plan on colonizing Afghanistan for years to come, in yet another nation building exercise. Witness last Wednesday's NY Times story, which quotes a U.S. general as stating that America may be in Afghanistan beyond 2014. How ironic that Afghanistan, under Americas watch, has been and remains the worlds foremost opium purveyor. Americans, fiscal conservatives, and liberals, who find endless war objectionable, or too damn corrupt and expensive, may find that Republican Presidential Candidate Ron Paul provides sharp and welcome contrast to mainstream political pandering to the MIC. Perhaps Mr. Paul can help drag the mainstream towards his line of thinking?

J.M.H. is grateful for the men and women who serve their country. And Americans, as responsible participants in our democracy, owe it to our armed forces to make sure that when our elected officials send these men and women into harms way - it truly is for the advancement and protection of the national interest, and not just another nation building exercise. These men and women would also be better served if the true costs of U.S. involvement in armed conflict were allocated to commercial entities and foreign governments, with vested economic and political interests, when and where possible.

After all, blood and nation building are a huge expense.

P.S. 

"The most powerful weapon on earth is the human soul on fire."

-Ferdinand Foch

Americans should not confuse a quick willingness to go to war with patriotism, or subservience to the MIC as a rational political agenda.  Ronald Reagan, who never started a hot war in his two terms in office, is model for current political leadership to emmulate, in this regard.

A very happy holidays!

________________________________________________________________________

A Pending U.S. Workout?

By J.M. Hamilton (11-24-11)

“I know who exactly who I’m talking to, Mr. Croker.” Croker’s voice was low and strong, but Harry’s high grinding whine cut through it. “I’m talking to an individual who owes this bank half a billion dollars and six other banks and two insurance companies two-hundred and eighty-five million more, that’s who I am talking to. And you know, there’s an old saying here in Atlanta, too, and that saying is ‘Money talks, and bullshit walks,’ and the time has come to talk with money, Mr. Croker. All I’m telling you is what’s already obvious. All I’m telling you are some home truths in the privacy of this room. You wanna throw this thing open to all seven banks and the two insurance companies and have a real workout session? We can do that! Happens all the time. It’ll have to be in an auditorium. Nine different lenders? We’re talking about more than a hundred people sitting in an auditorium with an audio system and microphones, and it’ll be incumbent upon every one of those lenders to pick up a microphone and tell you something over the wall speakers that I’m gonna tell you right now, very quietly, in the this little room, across the table, on behalf of only one lender, PlannersBanc, and it’s this Mr. Croker…. “ Seeing that Croker was suitably stunned by his belligerence, the Artiste paused for maximum effect and then said in a menacingly calm voice, “This is one of the worse cases of corporate mismanagement… one of the grosses violations of fiduciary obligations…. I’ve ever seen… And in my job I look down the gullet of mismanagement and malfeasance every day. You and your corporation have taken five hundred million dollars from the bank, Mr. Croker….”

From the book A Man in Full, by Tom Wolfe (Writer of the Right Stuff and the Bonfire of the Vanities)

Can you see it on the horizon? I can.

The workout that is taking place in Greece and in Italy, where popular democracy has been suspended and new heads of state have been installed by the banks, could eventually arrive in the U.S.

Granted European parliamentary democracy makes the pretense of keeping up democratic appearances so much easier.

Mr. Papademos, Greece’s new Prime Minister, was formerly employed by the E.U. central bank, and Mr. Monti, Italy’s new Prime Minister, does have strong ties to Goldman Sachs (neither were popularly elected); and both bankers/technocrats/prime ministers received the blessing of the E.U.’ central banker, former Goldman alum, Mario Draghi.

So how did Europe get here and what does it bode for the U.S.? Greece and Italy are mired in debt, and in both countries the “bond vigilantes” (read: banks, hedge funds, private equity, mutual funds and wealthy individual investors) have driven swaps spreads and state bond yields to the breaking point. The “breaking point” is where interest on the national debt takes up such a large portion of the government budget that states must engage in either fiscal austerity or default. Fiscal austerity is paid for by the 99%. And default threatens the 1%. Default also triggers credit default swaps, and the equivalent to economic Hiroshima or Nagasaki in Athens or Rome. The contagion then spreads to Northern Europe/Deutsche Bank, and across the pond to the corner of Wall and Broad.

To buy more time, and to postpone economic Armageddon, the banks and Germany are presently engaged in something called a workout in Greece and Italy. Now for the uninitiated, a “workout” is a “come to Jesus/Yahweh/Muhammad moment,” where bank(s) and creditor meet and all kinds of nastiness ensues. In the private sector, assets might be sold off to repay bank loans, labor cut, new management installed, and the bank may install "friends" on the board of directors. Debt might even be “voluntarily” restructured. That’s if things go nicely. An alternative to the aforementioned is bankruptcy, Chapters Seven or Eleven. And although the popular press hasn’t picked up on it yet, a workout is exactly what is happening in Greece and Italy right now…. The banks have effectively installed their own men in the key positions in government to workout on state finances.

And as with the private sector, the workout solutions in government are not dissimilar: raise taxes (preferably upon the middle class), cut spending and social services, sell off state assets to the connected bidder (privatize), and stack government with bankers or banker friendly politicians.

So as to avoid a write down or a default, the banks want to squeeze every last drop out of fiscal policy. Think of private equity/shadow banking buying out a company on Friday, popping champagne corks on Saturday night, and handing out pink slips to employees on Monday morning. Choose your analogy.

At the end of the day, the debt must be serviced.

And the banks will do everything in their power to insure that they win, and that the creditor, in this case the public sector – the government/democracy/taxpayer – takes the hit before they do. It’s the banker’s code! After all, the creditor borrowed the money, and no matter how many financial artifices of war were deployed against said creditor/government/taxpayer, or no matter how usurious the terms, the creditor must pay.

The fact that many of these troubled governments presently under fire for their profligate ways, the U.S. included, bailed out the banks and continue to do so, repeatedly, is an entirely separate matter, as far as the banks are concerned.

In the eyes of the bank, whether it be John Q. Public maxing out his credit card, a major corporation who borrowed one too many hundreds of millions in the face of an economic downturn, or the Sovereign Government of Greece, who hid its fiscal intemperance via advisors from Goldman Sachs and the use of CDS and swaps… they are viewed all the same. They are all freaking dead beats!

Again, how does the public and private sector get here? The parallels are not dissimilar for the private and public sector. It is usually financial mismanagement, combined with rotten timing. The quote from Mr. Wolfe’s banker -the man with the Death’s Head suspenders – the workout artiste - says it best: “This is one of the worse cases of corporate mismanagement… one of the grosses violations of fiduciary obligations…. I’ve ever seen… And in my job I look down the gullet of mismanagement and malfeasance every day.”

For the public sector this means, simply: Politicians have over promised on public services and social programs (or failed to reign in the costs of those programs by conducting fair and honorable negotiations with the vendors for government programs, say Big-Pharma), underfunded their liabilities, low balled taxes to appease the rich (or in the case of Greece haven’t even bothered to collect taxes), and presto… you have massive amounts of government debt, that the bankers assume is bullet proof and/or are all too happy to fund. Besides, aside from interest payments, the bankers clean up on the issuance of government debt with fees and commissions, arbitrage generates more fees, and so does CDS, swaps and hedges, which insures government debt or allows gambling against same. The bankers also assume, when it’s convenient, that world governments will not default, and can always raise revenue or print additional monies. Always.

Yes, having a little debt or venture capital is all good, when the economy is rocking, the birds are singing, and demographic trends favor your government. But when the advanced economies budgets are shredded by bank bailouts and the resulting chaos, central banks who pushed the pedal to the metal on printing presses, the birds are dying, and demographic trends are sucking the state dry…. Well, it’s no time to be beholden to the banker, because bankers don’t do sob stories.

If you are a winter enthusiast, don’t worry about climate change and it’s impact upon ice and snow… why just stop by any Wall Street bank branch, and look into that banker’s heart and soul and find a veritable winter wonderland. ‘Tis the Season!

But I digress, because as flinty and as cold as a banker might be as an enabler, there’s always the enabled. And in the case of the United States of America, the Republican Party “pimped” the nation out to Wall Street, through mismanagement of state finances for the last thirty years. The GOP, or certainly their laissez faire ideology, did it to us. Starting with Reagan, the Republicans gave us the credit card economy, they took the governors off the economic engine of capitalism (by stripping away bank regulation), they floored the printing presses at the Fed (courtesy of the Maestro), and they removed all fiscal sanity with monolithic tax cuts for those who could most afford to pay, the rich. A neo-gilded age was born, complete with excesses that F. Scott Fitzgerald never dreamed of. Western governments were overrun with newly minted plutocrats, bankers, and plutocratic wannabes, complete with Bunga-Bunga parties. Of course, the bankers were there all along, right by the side of the GOP - dispensing campaign contributions and whispering sweet nothings, like ‘the economy will roll forever, the good times will last forever, the U.S. is strong - it can always pay down its debt at some future date.’ Shortly after the 2008 crash…the mother of all fiscal hangovers kicked in, and now the mirror that reflects the state of the union is fractured… not that many heads of state from that era want to look into the mirror.

When’s the last time this country heard profound wisdom from former President Bush (W)? Surely, Mr. Bush has ideas on how to cure the nation‘s ills. No? Or how about the former VP, the man without a pulse, who said deficits don’t matter?

Democracies perish when special interests learn they can vote themselves public largess, and many advanced economies/democracies have often become nations of special interests. This is why strong democratic government with strong government leadership is so important, and the word “NO” is the most powerful word in the English language. Ultimately, to rein this fiscal mess in and remove the bankers from the seats of government, there needs to be real reform on taxation, but just as importantly, on the supply side of the government equation. That is to say, if America wants to get its fiscal house in order, we need leadership who is willing to offend very wealthy and powerful special interests, who provide government services: that would be doctors, hospitals, big pharma, defense contractors, and bankers, just for starters.

Failure to do so may just mean that we see a President Blankfein in our lifetimes. Ah, his hair is not right, make it Prime Minister Dimon.

As this blog has stated previously, J.M.H. will take a tax and spend Liberal, over a borrow and spend Republican any day. Both parties favor big government… the difference between the two parties lies in whom the respective parties believe should be the beneficiary of government largess: the Democrats favor the people, the Republicans favor the Three Bs: banks, big oil, and billionaires. At least with the Democrats, you get fiscal responsibility and you pay as you go. With Republicans you get massive debt and the Wall Street cartel's frosty embrace.  I call it a death grip.

Finally, there are some who say that the solution is to turn on the printing presses. But we have already seen this movie. Piling debt on top of more debt, w/out real fiscal reform just buys a little more time and a lot more agony. Ultimately, this global train wreck we are all witnessing has a date with destiny.

And Destiny, she’s been stood up and she’s pissed!

P.S. We would all do well to remember the last thirty years the next time Republicans and Wall Street propose to privatize Medicare and Social Security.

We’d also do well to remember where Presidential Candidate Romney made his money, with Wall Street’s co-evil twin, shadow banking’ Private Equity.

And speaking of workouts, how about the workout purchasers of derivatives and swaps are receiving over Greek sovereign debt, presently. The International Swaps and Derivatives Association (ISDA), run by you guessed it, the Wall Street Cartel, appears to be putting pressure on the holders of credit default swaps to “voluntarily” accept a haircut on Greek debt of up to 50%, w/out seeking the insurance protection afforded by same. Seems that the banks, many of whom probably reside on the other side of the transaction, or put another way may in fact be the swaps counterparty, surprise, don’t want to pay out. Hence, investors who haven’t figured it out already are learning the obvious once again: the banks, who control governments and politicians, write their own rules. Contracts and the rule of law be damned!

What does this bode for the future of the swaps and derivatives market? The impact could be immeasurable. If purchasers of these swaps and derivatives feel that the game is rigged and banks, or counterparties, don’t intend to pay out on these insurance products in the event of default - governments, business and individuals will stop purchasing them, and so follows the purchase of debt and other obligations derivatives and swaps are designed to insure.

Happy Thanksgiving!

_____________________________________________________________

Democracy in Flames and Sovereignty under Fire!

By J.M. Hamilton  (11-11-11)

“Thus was parliamentary democracy finally interred in Germany.  Parliament had turned over its constitutional authority to Hitler and thereby committed suicide…”  - William  L. Shirer, The Rise and Fall of the Third Reich

It doesn’t take much to overturn a democracy or democratic institutions:  economic chaos, unchecked fear, a couple of gallons of gasoline, and a few matches.   That’s all it took in Germany in the 1930’s, when the Nazis burned down the Reichstag (Germany’s emblem of democracy and the equivalent to the U.S. Congress).  Communist were of course blamed and used as scapegoats.  In the resulting fear and turmoil, civil rights were suspended by Germany’s President Hindenburg, allowing Hitler to round up and exterminate any and all political opposition without due process.  A short time later the aptly named “Enabling Act” was passed and a dictatorship was born - all perfectly legal and sanctioned by the state.  Hitler said the suspension of both German civil liberties and democracy itself, was all for the German peoples protection.  It was through fear and uncertainty that Hitler seized that which the Nazis could not obtain democratically, hegemonic and absolute power over the German state.

Today in Europe and America we see the erosion of democratic institutions at every turn.   And what global banking oligarchs cannot accomplish by a flood of money into the political process, or by the purchase of politicians, is won through the coercive power of the state, as former bank executives cruise through the revolving door and operate key government positions – again, all perfectly legal and sanctioned by the state.  (e.g. Witness the recent coronation of Goldman Sachs alum, Mario Draghi, as head of the E.U.’ central bank, who is said to have wrote the book on hiding government debt via the use of swaps and derivative products; or check out another Goldman alum who runs the Commodities Futures Trading Commission (CFTC), Mr. Gensler… and some people wonder why the CFTC has delayed implementation of new derivative/swaps rules and regulations?) 

Per the New York Times’ Thomas Friedman, there’s a reason why 61 house members sit on the congressional Financial Services Committee.

In the cradle of democracy last week, Greek Prime Minister, George Papandreou, dared defy the established order of things, that of banking uber alles, and actually sought a referendum by the people on the proposed E.U. Greek bailout package.   Now this bailout package promises a write down on Greek debt of 50%, when the market values the haircut to bond holders at no less than 80% (what a deal for the bank or institution who picks up this debt at the fireside sale price, because if the bailout holds, they will more than double their money, all at the expense and suffering of the taxpayer – both U.S. and European); moreover, the proposed bailout would in all probability consign Greece to austerity and economic decline for at least a decade or more.  Not that the alternative, default, hyper-inflation, capital flight magnified, and a return to the drachma, would have been much better.  But the resulting outcry from the European and U.S. political elites was so stunning and sharp in response to the referendum, it merely proves the point that the J.M. Hamilton blog made in an editorial a couple of weeks ago (entitled, Fear and Loathing – Globally), namely, that the elites fear democracy.   Mr. Papandreou retreated and cancelled democracy/the referendum, which would have finally given Greek citizens an opportunity to weigh in on their nation’s financial crisis.

Meanwhile, in Italy, a media mogul and a septuagenarian playboy, also known at the Italian Prime Minister, has “voluntarily” submitted his government and its budget to International Monetary Fund (IMF) oversight and scrutiny.   Now, submitting your government budget for IMF review is very much like the indignity, and an infringement upon sovereignty, that the Greeks have already endured and continue to suffer, that of sovereign budgetary oversight by interested third parties. 

Moreover, it is an indignity and threat to sovereignty that the United States Congress would never tolerate, at least not yet.  You’ve got to hand it to the bankers, however, they would never tarnish and soil their bespoke suits with gasoline and matches.   That’s entirely unnecessary, especially when the banks can burn down democracy with threats of a “Lehman event,” a capital strike, dumping sovereign debt, or by making financial bets against the very nations that have repeatedly bailed them out.  (Note: In yet another assault on pesky democracy, both the democratically elected Italian and Greek prime ministers, Berlusconi and Papandreaou, are being replaced by “technocrats,” which is a fancy word for saying that Messrs. Monti and Papademos are more than likely BBF or Banker Buddies Forever.  Messrs Monti and Papademos have not been popularly elected, but will most likely run both Italy and Greece, presumably, for Wall Street’s and E.U. Bank benefit.)

Three years after the last financial crisis, politicians are desperate to avoid another “Lehman event,” which is code for the global systematic risk posed by international banking, derivatives, and credit default swaps.  Aside from the economic damage such an event would  cause the global economy, already strained state budgets, and the havoc it would reek upon global currencies, the political elite are worried that the European and U.S. electorate might begin asking very pointed questions.  Namely, what have these same politicians done over the last three years to prevent the banking crisis that is unfolding before our eyes, here and now in real time?

And that’s a question no politician, who wants to be elected or re-elected, appears to want to answer.  Why?  Because in the U.S. both political parties share blame for catering to Wall Street, and the lack of rules, regulation, and oversight since the 2008 financial crisis.

At the end of the day, international banking is the tail that has been wagging world governments, democracy, and the global economy with ever more frequent and deleterious effects.  Multi-national corporations wised up to the games these Wall Street sharks play a while ago, and have hoarded colossal amounts of cash, in essence becoming their own banks, so as to avoid dealings with same. 

But the public isn’t quite as fortunate.

Ultimately, the only thing that will rein the banks in, and the threat to global security and stability they represent, is to allow them to fail and subsequently nationalize them.  If the global banking model the world is headed towards, willingly or unwillingly, is that of utility banking (i.e. elementary/pedestrian lending without the proprietary trading), then why not nationalize the cartel, install new management, and preserve as many banking jobs as possible, when these institutions inevitably fail again?  As it stands, the banks often prey upon anybody or any institution, private or public, they come into contact with; and as often as not operate to the detriment of legitimate business, the world economy, and world governments.  World governments are tapped out after bailing out international banking, repeatedly, and now the banks are demanding fiscal austerity, so that governments have the means to bailout the banks, yet again.  

And to insure that the global political system continues to favor banks, these same institutions now appear to be installing their own heads of state.  Democracy be damned.

Outlawing and unwinding existing naked shorts (e.g. speculative derivatives instruments) is also a must, if we are avoid repeating the same mistakes ad nauseum.  In the last bubble, the speculative instrument of choice was mortgages, and in the coming crisis, as predicted by J.M. Hamilton, it is sovereign debt.  In both instances, the banks have suspended all business prudence in exchange for the fast buck, with the full knowledge that governments will bail them out again, since they are too big to fail.  Isn’t it time to stop this cycle?  The failed banking institutions can always be returned to the private sector, post re-org.

As this blog has alluded to before, global democracies, as a general rule, don’t allow megalomaniacs to hold and operate standing armies or to possess nuclear weapons (or they do a great deal to suppress, contain, and avoid the reoccurrence of such individuals as Herr Hitler). 

Containing these rogues is a matter of global security for world markets and the consumers within those markets. 

If that’s the case, then why would business leaders and global governments allow something possibly more insidious than nukes, say international banking in its present incarnation, to be left in the hands of private sector dictatorships?

PS:  For those who think that our banks, shadow banking, and exchanges are over-regulated… please explain it to the fine investors of MF Global, who relied upon CME -the self- regulating futures trading exchange - to protect their interests.   A lot of farmers and investors are missing millions of dollars, because of this unregulated market and exchange, and some could face financial ruin.

http://blog.jmhamiltonpublishing.com/2011/11/10/with-the-eurozone-crisis-ravaging-markets-and-regulator-concerns-growing-mf-global-moved-quickly-to-increase-its-net-capital-coverage-of-its-repos-a-fact-it-duly-disclosed-to-the-markets-.aspx

http://blog.jmhamiltonpublishing.com/2011/11/10/the-commission-and-other-federal-regulators-are-continuing-to-search-for-the-600-million-missing-from-mf-global.aspx

http://blog.jmhamiltonpublishing.com/2011/11/10/futures-trading-but-a-light-regulatory-hand-is-now-being-called-into-question-after-the-collapse-of-mf-global-the-brokerage-firm-run-by-jon-s-corzine-until-last-week.aspx

____________________________________________________________________

The Good, The Bad and The Ugly

By J.M. Hamilton (10-23-11)

“Such ingratitude after all the times I have saved your life.” – Clint Eastwood (aka The Good)

Perhaps I’m dating myself, but I still think The Good, The Bad and The Ugly (GBU) is one of the greatest movies ever filmed.  Shot by Mr. Sergio Leone, GBU is the final act of the Dollars Trilogy, starring Clint Eastwood (as Blondie, the Good), Lee Van Cleef (as Angel Eyes or the Bad), and Eli Wallach (as Tuco, the Ugly).  Together these three seek their fortune in a Civil War landscape, with all the mayhem and moral ambiguity that often surrounds war.  For even “the Good” in this movie doesn’t exactly have a heart of gold.  Mr. Eastwood was no Gene Autry, or even Gary Cooper, and the story would be disfigured if he was.  The menace coming out of Mr. Eastwood’s eyes is only matched by pure evil pouring forth from Mr. Cleef’s fearsome visage; and Tuco, Mr. Wallach, looks throughout the movie like a rat that has been cornered and can’t decide to fight or flee but either way, you know better than to turn your back.  Tuco is always trying to figure out his next three moves.

This story of course is a love story, although the love interest is gold.

Without giving away the ending, the movie concludes at the center of Sad Hill Cemetery in what is referred to by some as a Mexican Standoff; that is a three-way  gunfighter face off, in which almost assuredly someone is going down.  Only one of the three knows in which grave a cache of gold is buried and a ticket to a much easier life.

Today’s global financial crisis is not dissimilar to a Mexican Standoff, with the three principle actors in our play being the public, the banks, and the politicians.   Politicians are being held accountable by the public, who are beginning to reassert themselves after a long period of bank bailouts, and wealth transfer from governments/public to the banks (whether it be through the inter-generational wealth larceny that is the Fed’s quantitative easing, or via an alphabet soup of government programs designed to give the banks billions at every turn, or through a stream of favorable court ruling that are pro-bank).  The American and European public has never really had say in any of these government programs, Fed policy or judicial rulings, and has not been the beneficiary of trillions in government largess.  No that degree of love and financial assistance appears only destined for the one percent, the banks.   And now, res publica, the 99%, is beginning to reassert itself with violence in the streets, protests, and the power of the ballot box (its weapons in our story).  

Of course, the banks too, perhaps presently best personified by Deutsche Bank’s Mr. Ackerman, play their part, literally holding a financial and economic gun to the heads of the politicians and the public as well.  And the bank’s preferred financial weapon of choice is a global web of credit default swaps and derivatives contracts with hundreds of trillions in notional value.   That and the banks, if they are made unhappy, just might go on a capital strike, the equivalent to a nuclear first strike upon the global economy.  The politicians caught in the middle realize the solutions to the sovereign debt crisis, which have been peddled to date, are no longer working: monetary easing, fiscal stimulus, and sovereign debt piled upon more sovereign debt.  In short the political game of Russian Roulette many pols have been playing has nearly run its course.

The politicians have increasingly found themselves corned, faced with choices and solutions that may cost them their careers, outright public revolt at election time, or cut off from future bank contributions to their re-election campaigns.  Clearly Greece and many sovereign nations need debt restructuring, and the banks – prolific holders of sovereign debt - don’t want to take the hit (i.e. “haircuts” and write downs).  Nor does bank management want their stock holdings and options watered down with public money and yet another government capital infusion (such a buzz-kill to any bank CEO’s stock portfolio).  

The public, and in particular within Europe, the German community , are tired of carrying the freight for the excesses of others. 

The “excesses” being:  nations and politicians, who have lived beyond their means, and who refuse to hold the banks accountable; and of course, banks, who thrive upon the incompetence and moral depravity of some elected officials, and insist upon (and obtain through regulatory and government capture) the continuance of an unregulated and an opaque CDS/Swaps market …. all the better to hold the public, world governments, and economies hostage, guarantee future bank bailouts, and insist upon fiscal austerity - born by the middle and lower classes - as the solution to the debt crisis.

Politicians and banks are staring back at the public, who has learned too to vote themselves largess, via social spending.  Ah the pitfalls of democracy.

I don’t’ have to tell you who the Good, the Bad or the Ugly is in our current picture… you can figure it out, but let’s just say that no one actor is entirely pure, but some of the players in this drama, clearly, are less evil.

Either way, this movie too, will have a denouement, and just like in The Good, The Bad and The Ugly, there will be winners and losers, and someone will ride away with the gold. 

Mexican standoffs are never pretty.

 

P.S.  For those who didn’t like last week’s editorial, Fear and Loathing – Globally, and its central message against free trade/arbitrage…. Please take a look at China with all its barriers to trade, and its tremendous economic success, and tell me once again why free trade is beneficial to America?

________________________________________________________________________
Fear and Loathing – Globally

By J.M. Hamilton (10-16-11)

“Politics is the art of controlling your environment.”  - Hunter S. Thompson

“Strange memories on this nervous night in Las Vegas. Five years later? Six? It seems like a lifetime, or at least a Main Era—the kind of peak that never comes again. San Francisco in the middle sixties was a very special time and place to be a part of. Maybe it meant something. Maybe not, in the long run . . . but no explanation, no mix of words or music or memories can touch that sense of knowing that you were there and alive in that corner of time and the world. Whatever it meant. . . .

History is hard to know, because of all the hired bullshit, but even without being sure of “history” it seems entirely reasonable to think that every now and then the energy of a whole generation comes to a head in a long fine flash, for reasons that nobody really understands at the time—and which never explain, in retrospect, what actually happened.

There was madness in any direction, at any hour. If not across the Bay, then up the Golden Gate or down 101 to Los Altos or La Honda. . . . You could strike sparks anywhere. There was a fantastic universal sense that whatever we were doing was right, that we were winning. . . .

And that, I think, was the handle—that sense of inevitable victory over the forces of Old and Evil. Not in any mean or military sense; we didn’t need that. Our energy would simply prevail. There was no point in fighting—on our side or theirs. We had all the momentum; we were riding the crest of a high and beautiful wave. . . .

So now, less than five years later, you can go up on a steep hill in Las Vegas and look West, and with the right kind of eyes you can almost see the high-water mark—that place where the wave finally broke and rolled back.”

-          Hunter S. Thompson, Fear and Loathing in Las Vegas, Circa 1971

Could a tide of sixties idealism, a tide- also - of pure economic and political survival, be rolling back in?  As I explained to my Texas friend, Bubba, this week, while the caricature of the sixties is one of free love, drugs, and tie dye, the reality is the sixties were a time of political rebellion against the establishment and the economic-political elite.   The military industrial complex and the politicians, who fed same, LBJ/Nixon, put the fear of god into all classes of society with the Draft and Vietnam War.   Americans felt excluded from the decision making process that significantly impacted their lives, with their son’s and daughter’s – of all classes of society - drafted into a badly managed war that few appreciated or wanted, except for the power elite, the corporations, and stockholders, who profit from war. 

Separately, the social fabric was torn further when Post WWII black servicemen and GIs, treated as equals in Europe, returned to America’s Jim Crow, and decided they had enough.  These black men and women, who had risked their lives for America to help defeat Nazism, and would later help stop the tide of Communism, were not going to allow themselves any longer to be marginalized and excluded from the American dream.   And a mass movement was born.

The resulting rebellion, the sixties, was born out of desperation and a feeling that the political elite, and the corporations who rule same, had ignored, or worse, abandoned them.   In short, this was a rebellion born of fear, a struggle over life and death, and the realignment of economic and political responsibilities and sensitivities.  Once the goals were realized (the end of the Vietnam War, and much later the end of the Draft, and the birth of civil rights), the better part of sixties rebellion was eventually co-opted into the mainstream, while the excesses of the movement were used by the establishment to tar and vilify it, as run by dilettantes and undesirables.  Might history repeat itself once again?

Today’s budding struggles in both Europe and the U.S., indeed globally, are also driven by fear and instincts for survival, and the feeling of societal abandonment by the plutocracy, who are catering to banks and major corporations, at the expense of the politically disenfranchised.  People may laugh at the naiveté and the innocence of the Occupy Wall Street crowd, but they are possibly the vanguard of economic and political rebellion that will be with the U.S. and Europe for as long as the financial crisis continues; and as the liabilities and excesses of Wall Street, and European banks, are transferred from the private sector onto the backs of those who can afford it the least, the poor and the middle class, this crisis is likely to be with us for awhile.  With Japan pointing the way to America’s and Europe’s foreseeable future, one of endless bank bailouts, wealth destruction, and an economic fugue of recession and depression, Occupy Wall Street is a possible prelude to much darker forces that could, eventually, rip the lid off social stability.  This nascent movement will likely metastasize into what remains of the middle class, as the real unemployment and underemployment rate continues to rise, economic opportunity and the safety net is rent and shredded by cries for fiscal austerity, and reactionary forces continue to advocate for and insist upon living with the fantasy/delusion of a free market economic system (when the reality is we are all living under quasi- free market/socialist regimes, globally).

If we examine how America and Europe got here, it appears that the worst excesses of both capitalism and socialism have collided, and reanimated into crony capitalism and crony democracy, the worst of all worlds.  Let’s then examine some of the recent political and economic events and trends for a snap shot in how we got here and what might be done.

As Mr. Thompson said, “Politics is the art of controlling your environment,” and the plutocracy manages the 99% of us, politically, like a virtuoso violinist plays a Stradivarius.  The plutocracy actually fears democracy and the law of large numbers, because it is something that they cannot control; but where there is a will there is often a way, for what the the one percent lack for in votes, they more than make up for it in money, and money is how the one percent control “democracy,” their political environment, and 99% of us.  With the Roberts Court’s Citizen’s United decision, the plutocracy can control the public through a flood of unlimited political campaign contributions, and hence control party nominees, the political parties themselves, and who gets elected in the vast majority of instances.  Money then is the river that feeds the political sea, and controls and reigns in populist impulses, at the expense of the majority.  Money controls the politicians, the political message, and the issues that are debated and discussed (e.g. during the recent Republican presidential debates, the issue of unemployment, bank bailouts, and possible solutions for the housing market are rarely if ever mentioned or discussed in any kind of detail).  These same power brokers to a very large degree also control the media and its output, and hence the questions posed to candidates.  Those politicians, who are elected, are so beholden to monied interests that they might as well be remote controlled robots, operated via remote feed; these politicians, in turn, vote for and maintain the lower tax rates that allow for the massive accumulation of wealth into the hands of a few, who in turn use this font to perpetuate their power (i.e. through the subversion of democracy).

If you think I’m just some crank with too much time on his hands, let’s hear what the King-Daddy of all plutocrats has to say on the matter, Mr. Warren Buffett (the living embodiment of F.D.R.): 

“There has been class warfare going on,” Buffett, 81, said in a Sept. 30 interview with Charlie Rose on PBS. “It’s just that my class is winning. And my class isn’t just winning, I mean we’re killing them.”

The global power elite also use their money to subvert populist uprisings, internationally.  Witness the Royal House of Saud’ deft and expert management of the Arab Spring (recently written about in Foreign Affairs), with the removal of the Egyptian Dictator, which was replaced by the far more oppressive Egyptian military and intelligence apparatus.  The Egyptian military, of course, dominates the Egyptian economy and politics.  The prosecution of Egyptian President Mubarak is nothing more than a side show, a distraction, red meat for the masses, while the popular uprising is subverted and controlled from within, by the money and power of the oil rich Saudis and the rise of the Saudi supported Muslim Brotherhood.   This example reminds us of how another popular uprising in America, the Tea Party movement, was co-opted and harnessed by the billionaire Koch Brothers, ultimately to serve their own ends (i.e. the continuation of their privileged tax status, and to insure the rules and regulations that govern their industries remain pro-Koch  – all under the guise of perpetuating free market principles).

Of course the plutocracy is all for the “free market,” as long as it serves their ends, but the free market also has a nasty downside, which is bankruptcy and putting corporate management teams on the street when they fail.  Hence, the plutocracy is not in favor of the free market when it threatens their own interests, and this is when they go running to the government tit for bailout monies (e.g. Wall Street during the 2008 financial crisis, up to the present day).  Hence, the plutocracy also favors socialism, when it favors them, although you’ll never hear them endorse it.

What this all adds up to is crony capitalism and crony democracy.  As predicted by J.M. Hamilton, the masses it seems, the 99%, are beginning to wake up, and they don’t like what they see: the instability the massive concentration of wealth creates, and the subversion of democratic institutions that results from same.

The ninety-nine percent are controlled politically and economically, like a puppet on a string.  Economically, globalism, free market ideology, and free trade dogma also insure that the masses and the message are controlled, via the number of jobs that are made available, and the opportunity that is created, when, where, and in what country, by the oligarchs and interlocking boards.

“Free trade” is nothing more than regulatory, tax and labor arbitrage by any other name.  Large multi-national manufacturers scour the globe, looking for the most advantageous trade laws, regulatory regimes, labor costs, and tax laws and rates.  Factor in the logistical costs of transporting foreign manufactured goods and services to their ultimate destination/market, plus the exchange rate, and you have “free trade.”   There’s just one problem, practiced in the extreme, arbitrage leaves advanced economies, and its citizens and labor, in a state of economic and political paralysis, as production, jobs, and tax revenue are shifted to emerging markets.   And while advanced economies and consumers maybe the beneficiaries of cheaper imported goods, from arbitrage and emerging markets (i.e. BRIC nations), those inexpensive goods and services don’t do the consumer a damn bit of good, if said consumer is unemployed.  At the end of the day, one can't dine on iPad.

To combat “free trade” dogma, and encourage emerging markets to develop their own self –sustaining middle class and economies, America needs to embrace the actions of President Reagan and focus on fair trade agreements that benefit American labor and the U.S. tax base.  The best way to do that is via trade policy reciprocity, that is to say, with the imposition of taxes and tariffs upon imported products that neutralizes to the manufacturer the benefits that accrue from arbitrage.   Until there is global parity in tax laws, labor markets, and rules and regulation governing industry and business, there is no other way than import taxes, tariffs and trade barriers, unless Americans are satisfied with high unemployment, declining economic opportunity, deficit spending, a shrinking tax base, and the resulting social upheaval.   In short, if you like one in five Americans being on the government dole (and a 25% childhood poverty rate), with those numbers likely to rise, then continue to embrace free trade.  This is why the Obama administrations support and passage of three Bush-era free trade agreements last week was so disappointing to many Democrats and labor.

Reciprocity should also be the U.S. tax policy in regards corporate profit repatriation.

By managing the economy, the plutocracy also manages our elected officials and their prospects for re-election.  By inflating prices at the pump, or inflating the price of basic consumer goods and services (or by decreasing the number of jobs, as a result of same), through financial speculation, or simply by controlling supply, and the deployment of capital, the monied interests can also expand and contract the economy, and the political fortunes of our elected officials.   President Obama and some of the “manufactured economic conditions” he has had to contend with, some possibly of his own making, immediately come to mind.

What can be done then to prevent the resulting societal unrest?  These proposals are neither novel nor new; they are basically, just common sense.

Push for higher tax rates on the rich, who are better organized and smarter than we are, or certainly have the resources to accentuate their god given talents, in the furtherance of their goal of global economic domination.  By raising the tax rates upon the rich, we effectively de-fang them and preserve democracy.  It also pushes the plutocracy to focus and work harder on sustaining and preserving their own wealth and status - this means they have less time to "screw over" the 99%.  Republicans like to wax nostalgic about the 50's and the Eisenhower Presidency, when the upper income tax rate was 90%... why not return there?

Advocate and push elected officials for caps on campaign contributions, the amounts of money that can be spent on campaigns, and push for limits on the amount of time our politicians can campaign.  The year around campaign cycle, with unlimited flow of money, has lead to an abdication of responsibility, and a vacuum that the elite exploit.  The Supreme Court might not like it, and view such restrictions as a violation of free speech, but in its present incarnation, the Roberts Court is just another plutocratic tool.  Besides, our system of checks and balances allows our legislative body to create new laws to counteract the worst tendencies/rulings of this judicial body, and vice versa.  The judicial smoke screen about money and free speech aside, what makes a democracy, ultimately, is the citizenry’s ability to vote (not the amount of money spent on a campaign, or the duration of the election cycle).

Encourage your elected officials to adopt fair trade agreements that protect America, American labor, and the U.S. tax base.  America has been exploited long enough by multi-national manufacturing interests to maximize their profit margin, and developing nations, as a dumping ground for their social problems (i.e. poverty and unemployment).  It’s time for emerging markets to create their own advanced economies and their own middle class, all the better to create greater opportunity for all, globally, and as a countervailing force against the downward economic spiral advanced economies present to the world today.  At the end of the day is the world better off with more advanced economies or fewer?

Advocate against excessive corporate combinations, oligopoly and monopoly.  We have seen time and time again, where these combinations are risk management nightmares, lead to greater inefficiency, and ultimately failure (e.g. UBS just lost a couple billion and saw their CEO dismissed).   The failure of these institutions often leads to great economic stress, and bailouts at the public’s expense (take for instance, the Wall Street cartel). What these excessive combinations do achieve, however, is the greater enrichment of the elite at the expense of their clients, consumers, and the general public.

Communism doesn’t work, which is the ultimate combination of the means of production under a single entity…. Why would the free market’s equivalent to communism, monopolies and oligopolies, work any better?

It’s time for an honest conversation with the American public, and the citizens of the world, about the right mix of free market principles and socialism, as a matter of economic policy.  I call it the big girl/big boy conversation.  The free market demagoguery that reactionary forces have foisted upon us all for so long has lead to some of the greatest economic and political abuses in the 20^th and early 21^st centuries, often with the 99% paying the price.   Socialism, and free markets in there purest forms, presently, do not exist, and would lead to the worst of all worlds:  it’s time that the public was educated accordingly.  Therefore, what should be open to debate and discussion, among the electorate and candidates for office, is the appropriate capitalistic and socialistic mix within the economy and society?

The plutocracy is at a cross roads… ultimately, they can rein themselves in via reform, or allow events to continue to spin out of control, and watch in dismay at the rising tide of economic instability and social unrest.  The current picture is none too bright for anybody: the 99% or 1%.   Ultimately, the political wave that broke in the sixties and receded, so well described by Mr. Thompson, did so because the plutocracy yielded to public demands for a more politically just and civil society.   However, this victory did not come easily or quickly, and was paid for at tremendous cost.

Now the question, some forty to fifty years later, is will the plutocracy yield and allow for a more economically just society?  There’s only one way to contain the fear and loathing unleashed, globally, and that is to contain the worst excesses of the ruling class.  Flexibility is key.

 

P.S.  On this date in history, the NY Times reports:  “October 16, 1793- Marie Antoinette was beheaded during the French Revolution,” seems that the Parisian 99% were not content with their cake.

______________________________________________________________

Coming Soon to the Street….  A Nixon Moment?

“How strange is the illusion by which men sustain themselves!”  - Doctor Henry Kissinger

By J.M. Hamilton  (10-9-11)

“He stopped at the door of the Lincoln bedroom.  And he suggested that he and I pray there together.  There was no good way to end that evening or to put a period to such a tempestuous career.  And I am not sure that this was not as meaningful as any other and more appropriate than most.  Nixon’s recollection is that he invited me to kneel with him, and that I did so.  My own recollection is less clear on whether I actually knelt.  It is a trivial distinction.  In whatever posture, I was filled with a deep sense of awe which seemed its own meaning so that I did not know exactly what to pray for.  A passage of Aeschylus kept running through my mind – the verse that, as it happened, was a favorite of one of Nixon’s obsessions, Robert Kennedy: 

Pain that cannot forget

Falls drop by drop

Upon the heart

Until in our despair

There comes wisdom

Though the awful

Grace of God

Shortly after midnight --- after about a half hour in the Lincoln Bedroom --- I returned to my White House office.  Within a few moments Nixon called.  I must not remember our encounter that evening as a sign of weakness, he said.  He hoped that I would keep in mind the times when he had been strong.  How strange is the illusion by which men sustain themselves!  There were many occasions that Nixon identified with strength that made me uncomfortable.  This evening when he barred his soul I saw a man of tenacity and resilience.   And so I told the stricken President that if I ever spoke of that evening, it would be with respect.  He had honored me by permitting me to share with him his last free night in the White House where so many memories had united us.”

August 7, 1974 – Henry Kissinger, Secretary of State – from the book, Years of Upheaval 

Hardcore!  And if you saw the speech two days later, Nixon’s farewell address to his staff, you knew it was an iconic event in American politics, if not the key political event in the last hundred years: where a man of humble origins had climbed to the pinnacle of success, culminating in his 1972 landslide victory, only to see it all come crashing down.   Nixon said it best:  “It’s not the crime that kills you, it’s the cover up.”   The creator of the EPA, the author of wage and price controls, and the underwriter of double digit inflation (as America left the gold standard and monetary supply was goosed to aid Nixon’s ’72 re-election bid), would appear to be some whacked out liberal freak by today’s Republican Party standards.  But he was one of the brightest individuals to ever enter the White House, and on foreign policy he was a genius, witness the ultimate cold warrior’s embrace of Red China, all the better to drive a wedge between Soviet - Sino relations.  At the end of the day, Nixon was hoisted upon his own petard, and America sat paralyzed for over a year, glued to the televised Watergate hearings.  The resulting “Nixon Moment,” so well described by Doctor Kissinger, is forever branded upon the American psyche.   And indeed that is what ultimately makes this country great. 

No one is above the law, at least not in the long run.  

Could a similar moment of truth be coming to Wall Street?  All the signs point to yes.  After three years of economic decay and misery, a continuation of the financial crisis from 2008 to this present day, and watered down financial regulation and rules…. The Nixon Moment may soon be visited upon the Street.  Fate appears to demand it.  After all, Wall Street and European banks, and our elected officials governing same, appear to have learned little from the events that transpired in the fall of 2008, events that appear to be overtaking us all, here and now in real time.

$$$  Many economist and insiders agree that the primary reason the U.S. economy has not regained its footing is a stagnant housing market.  And the root cause of this stagnation is the banks.  Not only can they not foreclose upon a property, but for the very same reasons, I suspect these same banks are reluctant to refinance and write down mortgages.  To back up for a second, allowing consumers to refinance at record low interest rates would give consumers (aka ordinary Americans) more dollars in their pockets, that is to say discretionary income, the spark that could drive this economy forward, and transform an illiquid housing market back into recovery.  Writing down these same loans to market value would send the U.S. economy into overdrive: recession over!

The banks, and the governments, unwillingness to allow refinancing all goes back to debt securitization and the MERS system or the electronic registry of mortgages.  As we know and have widely read, mortgage foreclosure has fallen apart because of shoddy paper work, an inability to find out what bank or institutions actually possesses the mortgage, and an apparent failure of the MERS system, etc.  Plus banks also benefit, to some degree, from a seized up mortgage foreclosure process, since they no longer have to write down impaired assets on their balance sheets.   These very same reasons may also account for why banks are reluctant to refinance mortgages, which has been painfully slow.  The short answer?  During the housing boom, banks securitized mortgages and sold them to wealthy individuals and large institutional investors (Freddie and Fannie, et al.), who have come to expect a certain rate of return; however, if these same mortgages were suddenly refinanced at lower rates than the financial returns to the owners of CDOs would suddenly drop below expectations.   And there’s already an entire industry built upon litigating against the banks, which created collateralized debt obligations (CDOs), with billions in prospective legal fees and settlements on the line.   With the banks already under attack for securities fraud, lousy mortgage underwriting, and client double-dealing, the last headache they need is to lower the returns on CDO products, or to write down assets through debt forgiveness.

How big is this problem?  The New York Times reports that half the mortgages holders in the state of Arizona are underwater.  And nationwide one in five mortgage holders are a couple of fathoms below the surface, carrying debt above the value of their homes at approximately 700 to 800 billion dollars.   That’s almost a trillion dollars that could be funneled back into the economy, not to mention interest on same, instead of into the hands of banks, wealthy institutional and sovereign investors.  This same article goes on to report that even the Federal Housing Finance Authority is against debt refinancing, in direct contrast to the Obama administration’s stated refinancing goals.  And the oft given reason the tax payer supported banks, and the tax payer owned Freddie and Fannie won’t forgive debt or refinance…. Well, these fine upstanding tax payer funded organizations are all very concerned about… wait for it….. here’s the punch line…. consumer “moral hazard.”  

$$$  Meanwhile, the sovereign debt crisis threatens to implode in Europe, quite possibly pushing a troubled world economy over the brink.   Despite assurances from Treasury Secretary Geithner, in last week’s congressional testimony, that the fiscal and monetary crisis in Europe doesn’t threaten the U.S. directly, J.M. Hamilton, and many of our readers, understand the opposite to be true.

“Our direct financial exposure to those governments and their financial institutions is quite small, but Europe is so large and so closely integrated with the U.S. and world economies that a severe crisis in Europe could cause significant damage by undermining confidence and weakening demand.” – Treasury Secretary Geithner.

The “closely integrated” that the Treasury Secretary is referring to would be the systematic risk posed by the six hundred trillion dollar derivative/swaps market, underwritten by Wall Street banks.  Derivatives/Swaps, legitimately, provide insurance against bank and sovereign default; derivatives/swaps, illegitimately, fuel gambling, speculation, and unprecedented economic risk to the citizens of the world.  Of course it is derivatives, hybrids, and swaps that nearly brought down the world economy in 2008, a la AIG.  Wall Street has and continues to lobby for an unfettered and unregulated derivative/swaps market place (i.e. a continuation of the financial Wild West show, which is ultimately financed by the U.S. taxpayer).   The banks get the profits from this unregulated - black -market, and the tax payer enjoys the privilege of cleaning up the mess.  There’s just one problem.   Nobody on the planet, individually or collectively, has several trillion, or even tens of trillions, to put up if European defaults trigger these swaps.  Simultaneously, the U.S. Commodity Futures Trading Commission keeps putting off rule making on these financial weapons of mass destruction; and likewise in Europe, the regulation of these products continues to be delayed and watered down.    

No wonder Mr. Geithner likes to travel across the pond, and tell his European brothers to continue to bailout insolvent governments and insolvent banks.   Default, after all, just might trigger financial Armageddon.

$$$ Election season, and the Republican Party is trotting out the same old failed fables, only the message has grown more radical and shrill.  Ayn Rand has become the Party’s goddess, and the problem with our economy, per the leading candidates, is excessive government regulation; such irony when Wall Street proves, again and again, that the economic problems staring the nation down are the lack of government rules and regulation.  Meanwhile the only viable candidate, Mitt Romney, visits Jamie Dimon on Wall Street and makes pledges to boost military spending beyond the obscene amounts already spent (all the better to take the nation to war in the future, so as to distract our citizens from the economic Hiroshima that three decades of free market ideology have visited upon us all).  So much for fiscal sanity.  Meanwhile the only rational GOP candidate, John Huntsmen, isn’t even in consideration or a serious contender for nomination.  Mr. Huntsmen is too establishment, too Herbert Walker Bush, too, well, uh…  sane, cultivated and erudite, when all the Molotov throwers within the Tea-Party movement want is to do the plutocracy’s bidding and dismantle government once and for all.   The smartest GOP candidate would appear to be New Jersey Governor, Chris Christie, who decided not to run.  Brilliant!

And the ultimate bellwether of the times we live in…. my mother recently came to me and asked if she should pull her retirement money out of stock and bond mutual funds, and place said funds into FDIC insured accounts?

“Yes, mom, and while you are at it, buy some gold on the next dip.  It’s all about capital preservation now, thanks to the Fed.”

They say there are no atheist in fox holes, and that on the weekend after 9-11 normally empty churches and synagogues were filled to the rafters.  My guess is that a Nixon Moment is not too far around the bend for our elected officials and the Wall Street plutocracy.  I pray not, but the writing appears to be on the Street.  Could the next boom market be in Bible, Torah, and journals of faith publishing? 

And, possibly, coming to the Street soon, the sound of rampaging bulls, albeit not the kind of “bulls” we normally associate with the Street - signifying a rallying market.  No the bulls I have in mind maybe covered in Kevlar and armed with mace, rubber tipped bullets, and riot shields, all the better to protect the denizens on the corner of Wall and Broad from angry U.S. citizens.

 

P.S.   “Alas, how terrible is wisdom, when it brings no profit to the wise.” - Sophocles

http://blog.jmhamiltonpublishing.com/2010/12/25/a-posthumous-nobel-award-for-dr-suess-in-economics.aspx

http://blog.jmhamiltonpublishing.com/categories/Editorial.aspx

_____________________________

Power is never dearer as when it is fleeting or under threat…

“The Department of Justice law suit against the AT&T/T-Mobile combination, hopefully, sends a message to the nation's monopolies and oligopolies that it is no longer open season on the American consumer, the economic engine that drives demand and top line growth.”

By J.M. Hamilton (9-11-11)

It is the political season, which means for some of us the synapses will be burning red hot, and the serotonin, the lubricant for the brain, will be evaporating off the cranial engine.  It's not easy being a political junkie, but as far as blood sports go nothing else quite compares.  That said, why the political season must start just a couple of months after the last election is beyond reason.   Don't these guys and gals ever work?   Apparently not.  As noted by Arthur Levitt (former SEC Chair and Policy Advisor to Goldman Sachs) on a recent Bloomberg podcast hosted by Tom Keene and Ken Prewitt, Congress has passed only 28 pieces of legislation this year, much of which was not germane to our economic nightmare.

Nice.  The country is staring into the abyss, and the 112th Congress takes a two year holiday to campaign.  Of course, the only thing more unpopular than President Obama is the Republican lead congress, with their approval ratings at half the Presidents.

It seems that the Republican lead congress is more interested in scoring points with its political base than in helping this President tackle the really tough issues; the thought being, come November 2012,the nastier the economy is the greater the chances of an Obama defeat.   However, with Obama willing to meet the Republicans half way on most issues (and in some instances actually co-opting the GOP), the public, and maybe even the Chamber of Commerce, may end up supporting the President in 2012, as the sane and rational choice.  Stranger things have happened.  Comparatively, Obama is looking good, as opposed to radicals on the right who sent the nascent economic recovery careening into the ditch, over the debt ceiling increase.

As noted in last week’s editorial, Heart of Darkness, the President on the foreign policy is batting near a thousand, showing great moxie and courage.  So much so that even the most ardent Neo-Con should be applauding:  President Reagan wanted Kaddafi, and President Bush wanted OBL.... President Obama took them both out.

On domestic policy however, it has been a different story, and the shame of it is the President didn't hit the ground running harder on the banking crisis, or the jobs situation, at the very beginning of his term.   But perhaps the President, under the advice and direction of Messrs. Geithner and Summers, wasn't told just how bad things were or how bad they were going to get.   What is clear is the tremendous focus and political capital spent on "Healthcare Reform" appears to have been wasted energy and time, given our pressing economic state.   President Obama probably felt that if so much money was going to Wall Street, how come a pet Democratic project, like universal healthcare, could not be addressed.  After all, President Bush (W) expanded big government with Medicare, Part D (or as we like to call it, the Big Pharma entitlement act).

All Presidents, however, deserve time to learn on the job, and Obama inherited a complete economic nightmare scenario from former President Bush (W); the inverse of what President Bush inherited from President Clinton.  In fact, J.M. Hamilton would argue that the President was set up and robbed of his "F.D.R. moment" by Messrs. Henry Paulson, Fed Chair Bernanke, and Tim Geithner, who bailed out the banks rather than letting them collapse into bankruptcy and reorganization (hence setting up this administration for the drawn out economic catastrophe the U.S. and Europe finds itself in).   Of course with this President picking Mr. Geithner as his Treasury Secretary, and Larry Summers on the President's Council of Economic Advisers, the continuation of the Bush Presidency - Wall Street bailout policies was all but guaranteed.  

What we now know, based upon the G.M. example, is that the country most likely would have been much better off had we let the banks collapse into an expedited re-org, nationalized, haircuts delivered to bond holders, mortgages and commercial loans written down (providing immediate relief to American business and the consumer), and when the smoke cleared release the financial institutions back into the wilds of the private sector, albeit broken up - so as to prevent future moral hazard - and under the scrutiny of a much deeper regulatory regime.   

If this had been done, the country would already be on the mend, Europe would have had a road map, and Japan might have had some regret, instead of looking upon the American economic scene knowingly. 

Instead we crawl along, Japanese style, in global economic malaise.  

The great thing, however, about the predicament the U.S. finds itself in is the President and the Congress have a tremendous opportunity; that is to say, the nation's economic situation is so dire that they have a golden moment to address real problems, rather than use the Fed and monetary policy as a crutch, or throwing more money at a problem, which is the standard fiscal audible in Washington.   The Fed has used up all its monetary policy ammunition, and is gambling with intermediate and long term health of the dollar with each new round of quantitative easing (not to mention severe inflation).   Moreover, this blog argues that as long as the Fed continues to throw money at the banks, instead putting caveats and conditions on QE3 and its use, expect more of the same: in short the Fed is just enabling the banks.  The Federal budget is in shambles, so that each new round of fiscal stimulus actually creates greater debt or taxation (both of which are, ultimately, contractionary).   In short, the fiscal policy shell game we have been privy to for the last couple of decades is played out.

This means that the President and the Congress must address real problems head on, if they are to pull the nation out of this mess.  And since we all agree jobs is priority one, this means the government must address impediments to job creation.  Some of the largest hindrances to job creation are: the insipid taxation monopolies impose upon the American public, a house marketing that is illiquid and still in decline, and banks that do not function in their traditional role, that of lending money to the private sector (but rather, gamble with bailout money in the stock market, commodities, or in offshore investments, a la BRIC nations).

And we are already seeing signs that the President is making an effort to confront some of these issues: namely, by taking on the AT&T/T-Mobile combination, and in filing suit, via Freddie and Fannie, against the Wall Street Cartel that defrauded and took down this nation's economy.

This blog has made the argument over many editorials that the nation's monopolies, like Big Oil, Big Pharma, and the Wall Street banking cartel, create a huge drag on the U.S. and global economy and in fact, are a detriment to the many U.S. businesses that operate, legitimately, in competitive environments.  

Why?  Because when you’re a monopoly, if demand is inelastic enough, you can charge pretty much whatever you damn well please, and the resulting tax on society (read: usurious profits) kills discretionary spending, kills jobs, and saps economic opportunity.   

It's the Republican supply side argument applied to private sector monopolistic taxation; it's the mirror of the Laffer curve held up to opprobrious monopolistic profits.

The Department of Justice law suit against the AT&T/T-Mobile combination, hopefully, sends a message to the nation's monopolies and oligopolies that it is no longer open season on the American consumer, the economic engine that drives demand and top line growth.   If the DOJ was properly funded not only could it take a harder line on future M & A activity, where appropriate; but it might begin to revisit some of the past combinations that occurred over the last couple of decades, and take on industries that prey upon Americans, such as big oil.

Besides with stock prices trending down, the breakup value of some of these too big to fail institutions is greater than their present market cap.   In shorthand, stockholders, too, would benefit from knocking some of these Goliaths down to size.

The Federal Housing Finance Agency law suit against the Wall Street cartel is, possibly, another effort by this administration to tackle a becalmed U.S. economy.   An effort that could potentially force Wall Street banks into reorg.  And what is the problem?   Many bailouts later, many uber banks are still financial basket cases, loaded up with impaired assets, illiquid assets, and much of it erroneously valued on their balance sheets.   Tack on billions of liabilities in prospective litigation costs and outcomes, over underwriting fraud, securities fraud, and robo-signing from the 2008 debacle, and if these firms were audited under legitimate "mark to market" accounting guidelines, many banks would have to be restructured, immediately (which means write downs, and relief for the American consumer that could turn this economic ship around).

As it stands however, the banks are in denial, management teams are intransigent with siege mentality, and bank investment is focused not upon American business, but upon on playing the stock market, as noted recently by Alan Abelson in Barron's Magazine:  "... banks have gone whole hog into high frequency trading, which accounts for seventy percent of the turnover on the exchanges."    

And we wonder why American small business is shut down, crippled and can't find a banker to lend them a dime....it's because the banks are gambling on Wall Street with U.S. bailout money, or choking on sovereign debt.

If this administration finally forces Wall Street to restructure, directly or indirectly, through any number of means (litigation or regulatory), it could unlock the key to economic recovery by unfreezing credit markets, and clearing out  residential and commercial real estate markets; in short the President appears to be rolling up his sleeves and tackling some of the key road blocks to economic recovery (albeit not as aggressively as we would like): bank restructuring, consumer debt restructuring, and reining in job killing monopolies, like the Wall Street cartel.

The administration appears to be on the right path, the question is can and will Obama seize the moment, or is it too late to have a real impact on the economy and the 2012 Election results?  With his presidency under threat by unemployment and underemployment, President Obama maybe pressed into taking bold action.

 Power is never dearer as when it is fleeting or under threat.

Undoubtedly, taking on banks could take awhile, with opaque accounting rules being what they are, the banks can hide their insolvency for years, and the DOJ, SEC, FTC, CFTC, Et Al., are all being held back, budgetarily, by the Republican lead congress.   As such the Republican Party, who proudly withholds money from these regulatory bodies, would appear to be in favor of job killing monopolies, and the credit and housing market's worst nightmare, the Wall Street cartel.

 

P.S.  

And the other shoe that must drop if the jobs issue is to be addressed is globalization and unfair trade practices; that is to say, the fallacy of “free trade” must be tackled.   Ronald Reagan, as reported by the Cato Institute, was one of the greatest protectionist Presidents of the 20th Century, despite his rhetoric.  And after decades of Republican and Democratic administrations exporting U.S. jobs offshore, it's time for both parties to emulate Reagan and start negotiating fair trade agreements that benefit U.S. labor and the U.S. tax base.   But that is for another editorial and another day.

http://blog.jmhamiltonpublishing.com/2010/07/05/thinking-the-unthinkable.aspx

_________________________

Heart of Darkness

By J.M. Hamilton (9-5-11)

"Mistah Kurtz -- he dead."

For thrills and chills, I have never been much into fiction.  The cold hard realities of this world provide all the excitement, drama, and surreal energy I’ll ever need.  Why just open up your New York Times, and be prepared for shock and awe.  However, on occasion I have come across a piece of fiction that hits home.  The story puts the hook into me because of the core truth it exposes about the human condition.  Such a work is Heart of Darkness by Joseph Conrad, which I believe is the greatest story ever told.   This story has everything: empire, anthropolatry, mass murder, and capitalist excess.  Oh, did I mention cannibals?

And of course, ultimately, it’s a love story! 

Heart of Darkness is a study in what Carl Jung would refer to as the “duality of man,” unchecked power, and the megalomania that often follows.   Having studied power for decades, the story rings true on many levels.   A wunderkind goes into the jungle to seek his fortune so that he can marry above his caste.  Driven by this love and his passions, Mr. Kurtz loses himself, and with his tribe of warriors in deepest dark Africa begins cutting off heads, so as to gather more ivory.  As more ivory accumulates and is sent back to Mr. Kurtz’s corporate masters, his fame and reputation grows, often to his business colleague’s dismay. The more Mr. Kurtz enriches others the greater the license he is given.  Sound familiar? 

Heart of Darkness was published in 1899, and the story is set in the colonialism of the period, but examples of Mr. Kurtz and his behavior can be seen everywhere at the genesis of the twenty-first century.  The troubled times we find ourselves in amplify and magnify these figures as they stride across the business and political landscape, indeed across the globe.   Many of these figures exhibit myopia that excludes nearly all social conscience, an all consuming goal, great economic or political power, and in some instances enjoy a cult following.  Often some or all ethical and moral restraint is abandoned so as to achieve “the dream,” even at the expense of the destruction of others, and ultimately, themselves.  That pretty much defines what I like to call Heart of Darkness syndrome or HDS.   Please read on, as the blog offers up examples of HDS here in 2011.

$$$  Mr. Lloyd – Doing God’s Work – Blankfein exhibits many of the characteristics of HDS.  His problems are legendary, but to sum up include selling short the American Dream and the American economy, and of course, client double-dealing.   His singleness of purpose is manifest to all; his ethical bypass complete, as he continues to fight and lobby for the very rules and regulations (or the lack thereof) that brought this nation’s economy to its knees.  Not content to having enriched his company, Goldman Sachs, and his management team many times over, he has insured his and Goldman’s success by purchasing all the politicians Goldman’s money can buy, and placing his employees in the highest chambers of global government.  And he probably believes he is doing “God’s work,” after all Mr. Blankfein does his best to operate within the confines of the rules Goldman’s attorneys lobbied for, created, and helped to legislate.   Mr. Blankfein and his cadres seem oblivious to the human toll and suffering he and his banking peers on Wall Street have created.  And my favorite thought from Goldman, recently released, was the assurance that the hiring of Reid Winegarten, criminal defense attorney, was “routine.”

$$$Secretary of the Treasury, Tim Geithner -  Mr. Geithner, as the former head of the New York Fed, we are often told helped save this nation from ruin and another great depression, with a little help from his friends Messrs. Henry Paulson, Fed Chairmen Bernanke, and Larry Summers.   But three years into the economic quagmire many Americans and businesses find themselves in, Mr. Geithner and his colleagues appear not to have saved the American economy so much, as have bailed out the banks, repeatedly.    And the trickle down from these banks just hasn’t happened, just ask Shadow Government Statistic, who show true unemployment and underemployment creeping north of 22%.   By not restructuring the Wall Street banks and not writing down home loans, when America had a chance, Mr. Geithner and his colleagues have consigned the U.S. housing market, and indeed the Western economies, to years and years of economic turmoil and malaise.  Trust me, the fun is just beginning. However, the ultimate cost will not even be borne by this generation, but rather, it will fall upon our children and future generations.  It is they, and ourselves, who will have to deal with a devalued currency and debt piling ever higher, as good money is thrown after bad - all for the enrichment and aggrandizement of a few, and at the expense of virtually all.

If President Obama loses his bid for re-election in 2012, he will have to thank Tim Geithner for the outcome.   By the way, the transparent assurances of Mr. Buffet aside, it’s never too late to nationalize and restructure the banks, starting with Bank of America.  Why look at GM, who was nationalized and restructured, and just reported record sales figures, up eighteen percent! 

$$$The Republican Party and the Politics of the Heart of Darkness – The Republican party’s disdain and visceral objection to the President taps right into the Heart of Darkness.   What does it say when the Senate Republican Leader’s primary goal is not the betterment of his home state of Kentucky or the country, the job for which he was presumably elected, but rather unseating the President of the United States.   This party of which I was once a proud member, has completely run off the rails, and now is run by megalomaniacal billionaires, the intolerant, and those who politically exploit the evangelicals and Christian community.   Ironically, the party of Christ, as the Republican Party would have you believe, worships money and is the lap dog of corporate interests, often at the expense of all other considerations.   If the GOP was really adhering to the teachings of Christ they would be providing aid and assistance to the poor and the elderly, not shutting down government assistance or attempting to privatize same.  Governor Rick Perry’s connections to the plutocracy and fund raising capabilities are legendary, and yet, he wants to kill social security.

There’s just one problem, the Republican Party and the Chamber of Commerce are rapidly finding themselves turned inside out, by the alleged extremes within the party tent, many of whom are anti- multinational, anti-Wall Street, and anti-Fed.   Seems that some of the elements within the party can appreciate, greatly, American business and capitalism, but don’t share a similar fondness for cartels and monopolies who exploit government largess, tax loopholes, and the legislative process.   This party claims the mantle of fiscal responsibility while often presiding, from the White House, over the greatest Keynesian raid heretofore known to man, from Reagan through Bush (W).  Hypocrisy defined.

$$$Steve Jobs and Apple Computer.   Talk about singular focus, look no further than Mr. Jobs.  The man truly is great, and has changed America and the world in so many different ways, often for our betterment.  But could Mr. Jobs be greater?   By hiring U.S. labor, instead of exploiting labor on foreign shores, one economist estimates Apple’s profit margin on the iPhone would drop from 60% to 50%.   Not a terrible price to pay for helping out your home country, right?  Or by insisting that Apple’s vendors in China pay a fair living wage, with a normalized work week, Mr. Job’s would set a standard for multi-nationals, and bring the differences between U.S. labor and China’s labor market one more step closer to parity or equilibrium.   Mr. Jobs could also insist that vendors in the Pacific Rim not hire child labor, or pollute.   Mr. Jobs will go down in history as a tremendous talent and inventor, but might he have been greater?  Instead of employing more American’s we have a company that exploits U.S. tax law and is sitting on more cash than the U.S. Treasury presently has on hand. 

With great power comes great responsibility; U.S. corporations want to be treated like royalty, but often eschew a great deal of the social responsibility that comes with that privilege.  That is to say, corporations often enjoy greater privilege and deference under the law, than any single citizen would ever be accorded; and yet, often get away with crimes that no citizen could ever escape, individually.  If corporations want to be accorded great privilege should they not be held to a commensurate standard?

The annual drive for the United Way is great, but could Corporate America do more?   Apple computer, and the cult of personality that follows Mr. Jobs, could change the corporate/social responsibility dynamic if they so choose, and with a minimal hit to their bottom line.  In fact, this blog argues that any short term reduction in income – as a result of a renewed commitment to the United States and its citizens - could be made up for, in terms of profits, many times over in the intermediate and longer term. 

Speaking of great works of fiction, probably the greatest lie told over the last three years has been that the Obama administration is anti-business.   Take a look at the productivity gains of the American corporation, the increases in net income, and the mountains of cash many of these entities lay upon, and convince me that this administration is anti- business.  Meanwhile, American labor has not seen a real increase in income over the last two decades.

$$$  Exxon Mobil:   This story is priceless, but first a little history.   On August 23, 1939, Adolph Hitler signed a deal with the devil, Joseph Stalin.  Also known as the Molotov – Ribbentrop Pact, the deal basically carved up Poland and Northern and Eastern Europe between the two ambitious men.  The “deal with the devil” eventually disintegrated with Hitler’s Operation Barbarossa, and the Russian winter.   (Hitler apparently learned nothing from another person exhibiting HDS, Napoleon Bonaparte, who made the same mistake in attacking Russia too late in the summer, and was also fighting wars on too many fronts.  We can all be thankful that Hitler was apparently not a student of history.)  

Fast forward to this week, when Rex Tillerson’s Exxon Mobil signed, perhaps, another deal with the devil, Ex- KGB and now Russian Prime Minister, Vladimir Putin.   For a look into what Exxon stockholders can come to expect from a deal with Vlad, examine the tough love dished out to a present Russian partner, British Petroleum, from this week’s N.Y. Times:

MOSCOW — Police officers armed with assault rifles Wednesday raided the Moscow offices of the British oil giant BP, carrying out a type of ritual armed search of white-collar premises that is common enough here to have a nickname, “masky show.”

The timing of the raid, however, highlighted this peculiar type of Russian risk for another company — ExxonMobil, which just a day earlier agreed to take over the very Arctic exploration deal that fell through for BP.

BP is still involved in a dispute with its Russian partners over that oil-exploration deal; the police search was related to a lawsuit pending in a Siberian court.

Russia is as important for BP’s oil production as the United States, so even though the company has had such problems here for years, its share price often nudges up or down in response to police raids or the arrests of employees.

The police raids on Moscow’s glassy high-rises where foreign banks and oil companies have offices unnerve employees and disrupt business. They are called “masky shows” for the balaclavas often worn by the black-clad police.

What makes Tillerson’s deal so unique is not that he is getting into bed with a reformed commie, after all President –“ I can do business with this man” - Bush was snookered by Mr. Putin, too; but Exxon must know that the prospects for any longevity to this partnership cannot be good.   Many multi-nationals have sought to do business in the former Soviet Republic, only to find themselves shaken down by corruption, subjected to police state tactics, and with little recourse in a country where the rule of law often does not exist.

Of course, the allure of drilling in the Arctic Sea has to be a huge draw for Exxon, what with the U.S. still concerned about the Alaskan coast and its environment, why not do an “end around” U.S. energy policy and hook up with the Ruskies?  Selah!  If there’s a catastrophe, who’s likely to know if a few million barrels of the sticky black stuff dumps into the Arctic Ocean during a period of endless polar nights?   (Polar bear au chocolat?  Exxon appears down with that.)  Since this deal will have to be ratified by the congress and involves giving Mr. Putin’s Russia a share of Exxon’s U.S. assets, how much of this “dance” by Exxon is sincere, and how much of it is a way to put pressure on the U.S. government to open up the Alaskan coast to Exxon? 

Only time will tell, however, one thing is clear:  If you thought the banking crisis threw a wrench in the global economy take a look at the economic and foreign policy ramifications of the largest U.S. corporation, and a key energy provider, doing business with the Russian Prime Minister.   Does the U.S. really want a Russian Premier (who often exhibits HDS) holding U.S. policy hostage via his arrangement with Exxon?   Mr. Putin, said of the deal: “The scale of the investment is very large.   It’s scary to utter such huge figures.”   Scary, indeed.

 

The Heart of Darkness syndrome is everywhere these days, and you don’t even have turn on the news to see it first hand, why look right next door.  One might see HDS exhibited in local judges, politicians, school superintendants, and even teachers, anywhere where near absolute power has the potential to corrupt, absolutely.  Men and women will often make mistakes, and become entranced by a goal, mission or dream.   And it’s this passion that can also, if channeled correctly, drive men and women to achieve great things.  The question is can the person with HDS pull up before it’s too late, or like Kurtz will the situation end in personal destruction and substantial collateral damage?

Mr. Kurtz died before reaching his goal of being reunited with his lover, his “intended.”

She never came to know his final words, which were:  “The horror!  The horror!” 

At the end, Mr. Kurtz came to rest where all the indispensable men and women of the world ultimately come to lay, in a dark grave, and possibly answering to a much higher power.

 

P.S.  I know the economy sucks, but is President Obama kicking some serious tail or what?  I mean if these were normal times, this guy would be coasting to victory in 2012.   Let’s look at his foreign policy score card, shall we? 

Osama bin Laden:  Check.

Colonel Gaddafi, check.

Wind up Mission in Iraq, check.

Start and conclude a war in Libya with multinational political, economic, and military support to prevent genocide by a ruthless dictator, setting a new benchmark for U.S. foreign policy:  Check again.

Ushering in a new – hopefully less costly - age in the U.S. military, that of covert operations, drones, cyber-ops, and less dependence on standing armies:  CHECK!

Pulling the hell out of Afghanistan… Under Review/Pending.

Foreign Policy grade for the Commander in Chief, and showing the Republican Party how to actually hunt down scum bags and win:   A

Note: If Obama was a Republican, the GOP would be singing his praises right now.

Note, if the U.S. can exit Afghanistan, possibly as the election nears, we predict that the President’s poll numbers will enjoy a boost.  Then America can say, definitively, “mission accomplished.”   Coming soon, the Presidents score card on U.S. domestic policy.   This blog has seen some promise from this administration on domestic matters, like having the Justice Department take on the AT&T monopoly, and combination with T-Mobile. The government’s law suit against the banks, initiated this week, over the fraud associated with mortgage debacle is another great start.  Potential here is limitless, as an agent of real change.  Obviously, jobs is priority one!

Finally, see the film adaptation of Heart of Darkness with Mr. Francis Coppola’s Apocalypse Now.  I highly recommend it.

View our Blog at:  blog.jmhamiltonpublishing.com