UNICAMERAL

UNICAMERAL

“Government by organized money is just as dangerous as government by organized mob.”  - FDR

“Sadly, the arrogance of the imperial executive has too often been reinforced by the cowardice of the Congress.”  - Katrina vanden Heuvel

“Our nation is facing a crisis of liberty if we do not control campaign expenditures. We must prove that elective office is not for sale. We must convince the public that elected officials are what James Madison intended us to be, agents of the sovereign people, not the hired hands of rich givers….”  - Senator Barry Goldwater

By J.M. Hamilton  9-21-2014

Bellevue, Nebraska - Circa 1970s.  Time flies.  Spending some of my formative years in Bellevue, just south of Omaha, was instructional to say the least.  Four key things I learned my fourth grade year, were:  1) Don’t mess with Mrs. Struckman, my fourth grade teacher.  I once saw Mrs. Struckman wrap half a roll of masking tape around the class cut-up’s head, just to get the kid to shut up in class.  The class clown had shoulder length hair, as was the norm in the seventies.  Remember this was Pre-Ritalin/Pre-Aderall.  Mrs. Struckman, ever the humanitarian, left the tape off Jerome’s nostrils so that he could still breath.  Two hours later when Mrs. Struckman asked the class a question, Jerome timidly raised his hand.  Mrs. Struckman moved in closer to hear his muffled response, through about a quarter inch of tape.   “I can still hear you,” she said, and proceeded to finish off the rest of the roll of tape, wrapping it around Jerome’s head.  So never, and I mean never, mess with the fiery red head, The Struckman.  2) Nebraska winters, and summers, are incredibly harsh.  Blizzards with eight foot snowdrifts… been there, seen that.  Summer days blending into weeks, with extreme humidity and temps running into the century mark.  Not uncommon.  3) Bellevue was home to the Strategic Air Command, where a general was said to be flying  overhead at all times with his finger on The Button, in case command and control failed on the ground, and the Ruskies attacked.  The general in the sky was just playing his part in the MAD doctrine (or Mutual Assured Destruction).  The cold war was very much in play.  4) Nebraska was the only state in the country that had a unicameral government, that is one legislative house (instead of two houses). 

Some of the benefits of a unicameral government are obvious:  fewer gangsters running for higher office; less government expense for the taxpayer to shoulder; greater productivity, less gridlock, and less internecine conflict; and Nebraska’s legislature is said to be “non-partisan.”

Now compare the “pros” of a unicameral legislative body to the mess we currently have presiding in Washington, with a House and a Senate.  Congress’ approval rating is in the single digits.  For the first time, polls show that not only are the American people upset with Congress, but a majority of Americans feel that their own Congress-person is a part of the problem (usually Americans think everyone elses Congress-person is the problem).  And it’s not hard to figure out why. 

These jerks campaign 24/7, thanks to SCOTUS’ Citizens United and McCutcheon decisions, and obviously, they care only about themselves and their careers.  All too often, it takes a complete narcissist, and an opportunist, to run for higher office at the Federal and State level; but as the American people have come to realize, the attributes that make a great candidate for public office, often make for terrible leaders and worse public servants.  Many members simply use Congress as a steppingstone, or a rung on the ladder, to far more lucrative careers in the private sector (the revolving door in action).  To be sure, there are a very small minority of Reps and Senators who do a great job, but they are all too few.  Through gross mismanagement, lack of imagination and intelligence, fiscal and monetary incompetence, and negligence and apathy, these malefactors have run this country into the ground.  But don’t take my word for it.  Let’s examine the facts:

1)  Government spending as a percent of GDP is at or near 35 to 40% per annum…. So much for the land of capitalism;

2)  Our national debt to GDP ratio, has penetrated the century mark.  And the scary part, this figure doesn’t even begin to cover the underfunded future liabilities, from Medicare and social security, and the hangover from two decade long wars in Iraq and Afghanistan.

3)  Since the 1960s, U.S. citizens have been scared into three major wars – with dubious information and lies  - that metastasized into nation building exercises, costing the American taxpayer trillions.  And just this week, the degenerates passed approval for yet another war in Iraq/Syria, that is guaranteed once again to be lengthy, prolonged, and produce a questionable outcome (that’s right, no clear cut goals or mission, no exit strategy, just endless war).  Moreover, this latest war effort will manufacture – almost assuredly – hundreds of thousands of future terrorists and jihadists.  One of the key reasons the U.S. is going back to Iraq, besides defending Big Oil’s interests: The U.S. will likely spend billions blowing up billions of dollars of U.S. military equipment to keep it out of the hands of ISIS.  Blowback on top of blowback!  And the true problems in the Middle-East, the oil rich monarchies, who spread fundamentalist religion and finance terror, get a free pass.

4)  Meanwhile, America’s infrastructure is crumbling, and one in four U.S. children are born into poverty.  Seemingly the U.S. has money to protect Big Oil and multinational interests in Iraq; but when it come to our own citizens, Congress continually sells this country short.

5)  Due to Congress’s failure to take responsibility for revenue and expenditures, The Federal Reserve is the only thing keeping this house of cards afloat.  The Fed has printed several trillion dollars, since the financial crisis, to keep the banks from failing, and the mirage of limitless government entitlements and unsustainable national debt perpetuated.

6)  The biggest welfare class, of course, are the Wall Street banks, the plutocracy, cartels, monopolies, the MIC, and multinational interests.  Whether it’s government contracts handed out with little or no competition, a bloated MIC ever ready to defend corporate interests overseas, or tax breaks and a tax code that resembles Swiss cheese, the biggest winners are those who least need welfare, the uber wealthy; the biggest losers are the poor and the little that remains of the middle class.

7)  Of course, the Congress has their hands out, and takes in seemingly limitless sums of money and perks from any member of the plutocracy, foreign governments, and multinationals willing to pay or play.  That many U.S. based multinationals and foreign governments, who pay off our Congress, work at cross-purposes with the interests of the American people is not in dispute.  Take Exxon, by way of example.  Many Americans will tell you that Exxon is a great American company.  But Exxon’s own executive, when asked why not build more refineries in America to keep the price of fuel lower – hence stimulating our economy - will confirm the opposite.  Exxon Mobil chairman Lee Raymond replied to the request of more refineries with, “Why would I do that? I’m not a U.S. company, and I don’t make decisions based on what’s good for the U.S.”  And recently, Exxon has become so big that like any nation state, it now has its own foreign policy.  Exxon provides technological prowess and services to Russian dictator Putin, despite orders from the U.S. government to cease and desist.  It’s not even a remote stretch to make the case that Exxon has aided and abetted Russia’s criminal moves in the Ukraine and Crimea. 

8)  Simultaneously, many in Congress pander to the voters by decrying the amount of money in politics but then promptly vote against campaign finance reform, a measure that would undue Citizens United and McCutcheon.  While others in Congress are so bold as to suggest that corporations, even those with sociopathic and anti-social tendencies, are people too, are above the law, and should be allowed to spend unlimited sums of money buying off the Congress.  Which goes to show money isn’t the root of all evil, Congress is.

9)  Congress in the last several decades has presided over the near elimination of the middle-class, the off shoring of labor, record leveraged buyout and M&A activity - metastasized into cartels and monopolies, and now corporate inversions, where corporations – who exploit the tax code, often paying little or no taxes – relocate offshore (in effect, renouncing American citizenship).  Meanwhile, the national debt climbs ever higher, America crumbles, and the rich grow ever richer, while the poor and the middle-class are eviscerated.  And the Congress…. Well calling these individuals prostitutes, would be an insult to the world’s oldest profession.  Congress ducks, hides, plays politics, obstructs, and generally, can be counted on to make matters continually, worse.

And it’s not just in America…. Throughout Europe and wherever Western democracy is “practiced,” nationalist movements are on the march, politics is becoming more polarized, fascism and communism have returned, and the distribution of wealth and income has become more bipolar.  It seems that when the Soviet Union collapsed, Western democracies lost all source of competition, as did capitalism.   So democracy, capitalism and our elites, like all unchallenged monopolies, grew complacent, entitled, and privileged.  Who dares question democracy and capitalism?  Right?

Apparently, millions of citizens around the globe aren’t questioning democracy and capitalism so much, as their worst bastard progeny: crony capitalism, crony democracy sold to the highest bidder, and monopolies, cartels, and multinational institutions.  

As we witnessed in Merry Ol’ England this week, the elite are growing increasingly nervous (look no further than the global spy network, the NSA).  Promising Scotland greater autonomy and greater self-government, if they’ll only stay in the U.K.  Cowed by the fear card, all too often exploited by the political elite, the majority of Scots decided to stay.  Scotland however, very well may be a wake up call to crony democracy and the U.S. political elite.  Clean up your act Congress, or your likely see calls for secession in these United States.  Certainly some U.S. corporations are voting with their feet, and fleeing offshore.

There is, of course, a less dramatic and drastic way to take care of the Gordian Knot Congress represents, called political reform (because simply throwing the bums out, just means they’ll be replaced by more bums).  Ideally, a political reform wish list might look like the following:

1)  Term limits for all public servants (State and Federal), especially judges, capped at eight years of service, period;

2)  Stop the revolving door…  if you serve on the House Financial Services committee, than you’ve precluded yourself from joining a financial firm for a decade;

3)  Congress must adhere to all the laws that they pass;

4)  A cap on political spending per campaign of a million dollars, with any money taken on in excess of that figure given to legitimate charities, immediately.

5)  All public officials are subject to annual audit by the IRS without exception, a complete financial exam of proctological proportions.

6)  Regardless of office, limits on the time spent campaigning and raising money, capped at three months.

7)  Abolish the gerrymandered House of Representatives and go to a unicameral Senate body, with the 150 Senators being apportioned by U.S. population, and subject to state wide or regional elections (this means some states maybe too small to have a Senator, and some Senators may end up representing more than one state, while more populated states might have more than two Senators.)  A unicameral legislative body would be a favorite for fiscal conservatives and libertarians, who favor government cost controls and limited government; and liberals should like unicameral government, since it eliminates the House of Representatives that in its present incarnation, exists via rigged districts.

8)  Adopt a flat tax that is adjustable according to federal and state expenditures.  As for business, if you sell in America (whether your address is domestic or foreign), you pay taxes in America, as a percentage of gross receipts, period.

9)  End the spoils system of government.  A non-partisan group, should award all government contracts and apolitical government positions, based upon merit, ability, and with a nod to some cultural and socio-economic factors.

10)               Send F-16s and drones in to strafe K-Street, all lobbying effectively ended.

11)                 No wars - unless the sacrifice is shared by all citizens, through an immediate tax increase (wars should not be financed), and with a national draft.  That’ll put a stop to the nonsense and foreign adventures, posthaste.

Ah, and last but not least…. where’s Mrs. Struckman when you need her, to apply to tape to the mouths of the rabble that make up our current Congress?

Don't count on any reforms, or Amendments to the Constitution happening any time soon.  Congress and the plutocracy know they have a good thing going, and it will take something very serious in this country for Congress to change its course and embrace reform.

Copyright JM Hamilton Publishing 2014

Moral Hazard Revisited: Too Big to Hack

Moral Hazard Revisited: Too Big to Hack

"And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."

- Jefferson

By J.M. Hamilton (9-7-14)

September 15 will mark the sixth anniversary of the Lehman Brothers collapse, which also marks the beginning of the global financial pandemic.  And as much as the Wall Street banking cartel would like to place this event in their rear-view mirror, the Obama administration, via the Justice Department and the SEC, along with various state A.G.s, have kept this problematic episode front and center.

Seemingly, not a month goes by without another record payout for bank malfeasance.  The latest being BOA’s record payout of $16 billion, some of which is tax deductible, so you get to pick up a portion of the tab, yet again, dear taxpayers.  Americans, depending upon one’s point of view, may or may not be thankful for the Obama Administration's efforts to keep the catastrophe, and the banking cartel’s roll in financial Armageddon, in plain site.  However, rest assured, under a Romney Administration, or a future Clinton Administration, the entire debacle would have, likely, been swept under the rug. 

Magically, disappeared.

Given that the U.S. congress is legally paid off by the banking cartel to look the other way, and regulators and pols often use the revolving door to land lucrative positions in banking and shadow banking, it appears that the Obama Administration is deliberately keeping the pressure on the banking cartel, via law suits, record fines, Dodd/Frank rules and regs, and higher capital/lending requirements.  One can speculate…  that by keeping the heat on, and eroding TBTF (too big to fail) monstrosities’ ability to mint profits (their returns on equity often have been spotty to lousy over the last six years), the Obama Administration appears to be hoping that the free market will do, what our feckless congress failed to do. 

That is, break up the TBTF cartel.  

The “free market” being personified, in this instance, by stockholders.  Yes, stockholders, who should rightly insist upon the break up of these banking institutions, for the very reasons that: the constituent parts are often worth more than the combined institution; that record fines, penalties, and legal fees would likely cease; dividends – in turn – would climb higher; and the reconfigured institutions would be easier to manage, without the on-going hangover of “unforeseen” risk management events.  Needless to say, the taxpayer would also be a huge beneficiary of a Wall Street break up as well, since Americans would no longer, implicitly, be on the hook for future bailouts, and financing and insuring so-called business practices that are inimical to America.

The banking crisis was eye opening to the public:  client double-dealing was exposed, as was a market for highly illiquid, and grossly under-collateralized, derivatives and hybrid derivative products (such as CDOs and MBS); the rabid speculation surrounding these instruments had come into view (this market now has a notional value of $700 trillion, plus); and the fact that the taxpayer reinsures this market was made manifest, with zero participation in the profit taking (quite the opposite, in 2008 and after: Americans took the Street’s losses, re-collateralized the Street, and in nearly all instances - paid for banker bonuses).

Since then, as noted in my piece, The Leviathan is Vertically Integrated, the list of Wall Street crimes, and its further consolidation and reach into nearly ever facet of ordinary Americans lives, has only grown, exponentially.  And these are the crimes that we know about:  cornering and hoarding commodities to gouge consumers and businesses; colluding on private equity deals to cheat stockholders, entrepreneurs and business owners; FOREX fraud; LIBOR fraud; illegally foreclosing on the American dream of home ownership, with fraudulent paper work (the Robo-Signing scandal, albeit often through proxies); and a rigged swaps and derivatives market, cheating the elderly and pensioners.  Then there’s Wall Streets’ involvement with ubiquitous payday loan operators, who define the words: “usury,” and “predatory.”  Shenanigans with high frequency trade burns investors, and guarantee profits for the banks/HFT crowd. 

And if it can get more outrageous, Wall Street banks advise corporate clients (making hundreds of millions in the process) to engage in that most Un-American of activities, effectively renouncing American citizenship to dodge paying taxes, known as inversions. 

Arguably complicit in all this is the Federal Reserve, and the ECB, both of which continue to bailout these institutions with QE, and interest rate suppression.  In direct causation to these bailouts, the “banksters” often make millions in bonuses, wealth/income distribution is increasingly polarized, and the poor and the middle class continue to bear the brunt of this six-year Depression.  It’s no surprise that the rise of the Mega-Bank, or Mr. Sandy Weill’s folly, coincides with the decline of the American middle-class.  Now six years in, Europe is grasping at straws, and the American economy plods along, seemingly with sub-par growth and low employment prospects.

Think of all the CEOs and CFOs in America and Europe, who rightly hedged that interest rates would rise, post 2008 crisis – utilizing swaps and derivatives, only to have central banks wade into the market place and artificially, suppress interest rates.  Once again, Wall Street and London banks made a killing on the sale of these same swaps products, at the expense of multinationals, corporations, and American and Europeans businesses.   The Leviathan is, indeed, vertically integrated.  There is not a facet of your life that the banks don’t have their hands in, demanding profits and tribute, which adds up to a tax on your very existence, a drag on the global economy, and a gross misallocation of capital and resources.  Witness consolidation and combination in industry after industry (sponsored by Wall Street M&A), leading to monopoly and cartel.

And the congress wonders why the airlines are making record profits, and job creation is stifled.

None other than Mr. Warren Buffett called the Fed, the greatest hedge fund ever; and the FED serves its master, the Wall Street cartel, and they in turn, when they are not being sued, operate as enormous hedge funds that you, Dear Americans, fund and reinsure.  The banks are vertical integrated throughout the economy, and their size and scope, insures that U.S. taxpayers will be bailing them out for generations to come.

So where’s the news, you ask.

Well, we are getting there.  Seems that J.P. Morgan has been hacked by shadowy actors, possibly the Russian government or its criminal proxies.   And as Bloomberg recently wrote, it appears that Americans may be on the hook for another form of bank bailout, that of economic damages, as a result of a future and pending cyber attacks.  That is to say, in the event of a terrorist, criminal, corporate, or state sponsored cyber event – one that can easily be foreseen:  The American taxpayer will likely ride to the rescue, once again, to bailout banks, who have had funds stolen or data, accounts and financial records erased.   Instead of breaking up these institutions into manageable entities that can be closed down in a crisis… once again, politicians, plutocrats, bankers, and the FED will calmly and solemnly assure us all, that the almost guaranteed future cyber-bailout event is completely necessary, for the good of the global economy, and Main Street health.

The implicit bailout of banks, at the expense of the taxpayer, creates moral hazard in banking and shadow banking institutions.  As we saw with the London Whale event, J.P. Morgan, allegedly, made illegal under-reported/un-reported bets (to regulators/bank board), counter bets, and outsized trades, with losses running into the billions; because, at the end of the day, if J.P. Morgan blows up the global economy, the FED will be right there to bailout the bank, yet again, as will the taxpayer.

The implicit cyber bailout, noted by Bloomberg, just creates another layer moral hazard, since Wall Street operates as a giant casino/hedge fund, where “banksters” gamble with taxpayer money, provided by the FED and congress (here’s the moral hazard).  Therefore, it is not at all hard to imagine a future event or occurrence, where the banks themselves have an incentive to hack into their own systems to erase problematic trades, or to juggle or eliminate accounts and records.  A bank CEO with a multi-billion dollar problem on their hands, such as the London Whale event, knowing full well that the taxpayer will provide insurance for economic loss in the event of a cyber attack, just might have every incentive to call upon a foreign government, a criminal enterprise, or a bank’s own offshore squad of hackers (outsourced, of course).  And said banker might request that files and data covering the problematic trade or transaction be eliminated, from bank computers as well as the counterparties' computers (makes one reconsider the idea of going paperless?).  If a trade, or a deal, is big enough and bad enough, involving numerous financial players and actors, what’s to prevent a banker, via proxies, from eliminating the entire enterprise’s files and records, or all of Wall Street’s and London’s records from being erased?

All the while, said banker, is pointing the finger at shadowy players, and geo-political events, such as the War in the Ukraine.

After all, and once again, the dupe, the rube, the taxpayer, you and I, will be left holding the bag.

Too far fetched you say?  The scenario I have painted is paranoid?

Consider the case of former MF Global CEO, and former NJ governor, John Corzine, and his actions, as his commodity and sovereign bond trades went south?  Mr. Corzine, last I checked, allegedly, gave orders to dip into client monies, in effect doubling down on the futures, commodities, and bond bets that brought MF Global down. Afterwards, client money went missing for a lengthy period of time.

How about the moral hazard we see everyday on the corner of Wall and Broad? 

Too Big to Fail is very real but passé…. In the 21^st Century, U.S. citizens also need to begin to worry about Too Big to Hack.

If we have learned anything since the 2008 financial crisis, it is this:  Given our exponential leaps in technology, with money and power added in, man’s capacity to do great good and unfathomable evil is only limited by his imagination.

I have nothing against banks.  My credit union serves me well.  What I, and many Americans, are against are institutions that have rigged our democracy, our government, our courts, our regulatory bodies, and the Federal Reserve, in their favor, and to the detriment of this great nation.  These institutions and their list of crimes is ever growing; their business model appears to based upon adding a speculative tax, or charge, on nearly ever transaction engaged in by Americans, with Americans financing and insuring these highly egregious acts.  

What a business model!

This piece doesn't even begin to touch on the crippling amounts of debt banks and private equity institutions load legitimate businesses up with daily, as yet another means to dodge paying taxes.  These dodged taxes, in turn, are paid for by ordinary Americans, in the form of higher tax rates.

One possible solution is to break up these institutions, before another catastrophe occurs.

Copyright JM Hamilton Publishing 2014