Banks To Get a Tap on the Wrist

Here are some revealing figures: because of the housing boom and bust, created by the recklessness of the large banks and their associates: mortgage service companies, rating agencies, etc., there is $700 billion in negative equity in the housing market today. About 3.5 million Americans are homeless, 18.5 million homes sit vacant, and since 2007, more than 7.5 million homes have been foreclosed.

Here are some more revealing figures: last year, Wall Street lavished $147 billion on bonuses to its executives. Estimated assets of the six largest banks: $7.29-8.7 trillion (with a T) in 2010.

Meanwhile, Obama's US Attorney General Holder is pushing the 50 states' Attorneys General to sign on to a negotiated settlement with the banks, in which the banks will pay penalties to aid in restitution of the housing market they destroyed. The total penalties: $20 billion, a large figure, but compared to the amounts of money controlled by these banks, it's miniscule; compared to the damage they did, it's like swatting at a fly on a raging bull.

What makes this proposed settlement even more outrageous: the banks wouldn't pay that $20 billion out of their own pockets. "Paying" means they can raise the money by devaluing the Mortgage Backed Securities on their books (but owned by investors), not the mortgages owned by the banks. So, the banks would only pay a tiny fraction even of the bonuses they lavish on themselves, and they wouldn't even use their own money!

Besides the insignificant punishment: the important part for the banks is a guarantee against further investigations into the banks' wrongdoing. There are piles of evidence, and witnesses that crimes of fraud, theft and extortion were committed widely, against millions of homeowners and hundreds of thousands of investors. But with no more investigations, the banks can just keep on doing all the things they did before, like robosigning, fraudulent foreclosures, wrongful evictions and mis-allocation of funds.

Worse, the agreement pushed by Holder and probably supported by Obama, would grant the banks and their officers immunity from additional suits for damages: immunity for the corporations and people who drove this country into the ditch, and hugely enriched themselves in the process!

They might still be liable for criminal prosecution, but the terms haven't yet been agreed to.

No wonder New York's AG, Eric Schneiderman, and about nine other state AG's, refuse to sign on to the proposed settlement; more are considering joining them.

Why would Holder negotiate this? His former law firm works for five of the six banks. Why would Obama? Wall Street provided a large portion of his campaign funds in 2008. Super-pacs can raise unlimited amounts of money for his Republican opponent. If Obama blasts Wall Street rhetorically, but makes a deal with them, he could still raise enough to win.

So, our Roman Senators go scot-free, their dominance remains unchallenged and everyone else is impoverished--and has no recourse, just like fifth century Rome.

The Dirty Bargain

The Greeks didn't sign onto it: now their debt has been driven to junk bond status.

The closer you get to Wall Street, or the City of London, the more likely you are to see the bargain in action.

In 1933, FDR closed the banks. When they reopened, government had created rules that maintained financial stability until the 1970's. The result: financial crises were negligible and under control.

Beginning in the 70's, there was a sustained and successful attack against those rules, culminating in the repeal of Glass-Steagall, which had kept taxpayer-insured money separate from investment banking speculation. Since the 70's, we've had a series of financial crises, culminating in the 2007-8 collapse. That's no coincidence.

Unfortunately, neither W, nor Obama "took over" the banks. They revived the banks with trillions of government dollars. Now, banks are so strong they can weaken, or stymie any thoroughgoing financial reform: there will be no Glass-Steagall, and banks will be too big to fail. Governments will have to bail them out when risk-taking gets them in trouble.

In addition, the elites are able to control enough of the information people depend upon, that they have changed the conversation: it's no longer recovery, and jobs, but solvency and cutbacks. Deficit reductions and cutbacks don't come at the expense of the banksters who got us into this mess, but at the expense of the victims: the people thrown out of work, or working 60 hour weeks just to pay the bills.

And it isn't just the banksters. It's the elites generally. Health reform comes at the expense of the insured, who will see their premiums soar, even though the reform will hand providers a whole new government-subsidized market.

What are some of the elements of this "bargain?" When decision-makers propose raising a stock-transfer tax, their government's bonds will be besieged. When politicians suggest raising taxes on the wealthy to pay for the needed recovery, capital flees the country.

Have you noticed that huge amounts of capital have washed up in the US? Despite Obama's stimulus, with a deficit and debt rivaling that of Greece in GDP terms, US Treasury rates are still extremely low. There has been no need to raise rates to find buyers. That's because formerly liberal leaders like Obama and Cuomo have bowed to the bargain: no new taxes on the wealthy. Republicans would never raise those taxes in the first place.

The "tea party movement" is a political expression of the media power of capital. People who are hurting--the financial system robbed them blind--are persuaded that big Government did it.

The Tea Party is Wall Street's insurance, but if a genuinely progressive movement gained power, we'd face a capital strike like the one that brought down Greece.

The financial/corporate elites, the selfish class I've written about on this site, now rule most of the world: through extortion.

Politics, Economy: Does Anything Work?

The bank bailout and stimulus package worked--up to a point. While the former did rescue the banks, and the latter spared us the depths of the Great Depression, neither has "fixed" the economy.

The big banks made money, but mostly on speculation with the cheap (almost free) bailout money, but they haven't been lending enough to genuinely rescue the economy. In fact, there is a real danger that bank speculation could trigger a worse financial collapse, unless Congress passes laws empowering government to regulate the whole financial industry. Because of widespread American distrust of government, however, and because of intense bank lobbying, re-regulation of the finance industry is difficult to get through Congress (banks were much more regulated before the wave of deregulation that began with Carter and Reagan, and continued through Clinton and Bush administrations).

Further, the stimulus was too little. While some millions of jobs were saved, and something less than that were created, the number of jobs lost, and the number of jobs needed is far larger, so the stimulus limited the damage, but didn't go far enough. The stimulus also saved the housing market from collapse: it is slowly recovering, but many are still losing their homes to foreclosure, many of those due to job losses, many others because house values plummeted and mortgage holders were left "underwater," owing more than their houses were worth.

No wonder people are unhappy and grasp for "solutions," like the Tea Party movement. Ironically, the solutions offered: abolishing the Fed, going back to the gold standard, free marketeering, abolishing regulations already in place, would make things worse.

The gold standard would drastically reduce the money supply, which would destroy more jobs; further deregulation would permit more speculation by the banks, which may be why the tea party is so well-funded, but it would further reduce the money available for job creation. And budget-balancing would subtract still more.

The real problem (Dollars and Sense: May-June, 2010), is that the whole global trading and financial system is seriously out of whack: the dollar no longer works as the world's reserve currency, which requires the US as importer of last resort, a high dollar, imports of goods, exports of dollars and the destruction of US manufacturing. This creates huge trade deficits, consumer debt, high finance and high unemployment.

What is needed: regulate finance and reduce its importance, revive manufacturing (especially to combat climate change), an active government in the economy, a low dollar, not a high one, and a new international reserve unit to replace the dollar.

This might end America's imperial hegemony, but we've already gotten to the point where we can't afford it; it has destroyed the US economy. The jobs we most succeed in creating, wreak destruction world-wide. We'd be much better off as "just another country." Otherwise, we might end like the Assyrian Empire: brilliant, brutal and short.

Predator Banksters

Predator Banksters

There has been outsized brouhaha about Goldman's and other bankster bonuses--made possible by Fed and bailout (taxpayer) money. There has also been some attention paid to the kind of "investments" that have bloated Goldman and JP Morgan profits: huge bets using the Fed's free money.

Now, it turns out that those same kinds of bets are behind a lot of the continuing instability in international financial markets. Greece is an especially egregious example.

It is likely that the Greek government has been feckless, and its public employee unions have been unreasonable. It is also true that Greece is in the exact same position as California, New York, and many other American states: it can't create its own money, so it can't do what the US Federal government can do: issue money to cover shortfalls (and more). Its currency, the Euro, is controlled by the limited government in Brussels, itself steered economically by its two largest players: Germany and France. Both major countries are understandably reluctant to follow even easier money policy than they already have: in Germany's case, its Mark meltdown in the 1920's and '30's makes it doubly wary.

However, there is something else going on, and it has to do with the banks, or rather the banksters. An article from the New York Times, 2/25/10 pinpoints the problem: Credit Default Swaps (CDS).

"As banks and others rush into these swaps, the cost of insuring Greece’s debt rises. Alarmed by that bearish signal, bond investors then shun Greek bonds, making it harder for the country to borrow. That, in turn, adds to the anxiety — and the whole thing starts over again."

That is, CDS's raise interest rates that Greece (and Portugal, Spain, Ireland, etc.) will have to pay to fund their obligations. That will make their budget-balancing task harder, and the misery of the ordinary man/woman in the street that much greater: governments will have to lay off millions in order to pay off their debts, and will have to curtail the public services that have raised their nations' standards of living.

But Wall Street doesn't mind. Why? Because, its traders can make outsized profits on the backs of Greek (and other nations') misery.

Wall Street did the same thing to Lehman and to AIG, and its traders are probably sharpening their knives for Portugal, Spain and so on.

This is only one more reason why financial regulation is imperative: banks will only return to the civilized world, and abandon their rapacity, when deposits and Fed/FDIC guarantees are stripped from their speculative arms, when the wall between depository and speculative institutions set up by Glass-Steagall is re-established and when CDS's (and other "exotic" financial instruments) are regulated.

If the banksters succeed in defeating reform, they will eventually succeed in bringing down the whole financial system, something they almost succeeded in doing in 2007-8.

And then?

We Don't Want Yer Money!

My wife, Elizabeth Cunningham, is trying to sell books (The Passion of Mary Magdalen etc.) and her CD (MaevenSong) across borders as well as nationally. But her local bank, Rhinebeck Savings, can't even handle a Canadian postal money-order in US dollars ! Canada is only 5-hours drive from there.

We go to Canada often, both on business and to visit our daughter. Have you tried to change Canadian Dollars into US in this country? In Canada, you can change either way at the border, and in many banks; in the US, I found one gas station, where they took Canadian, because they had enough Canadian customers from 5 miles across the border. But no banks will change Canadian (Pound Sterling, Euros, whatever), unless you go to a major city, and often only if they have a foreign currency department.

Guess we don't want their money. We spend enough abroad; you'd think we'd welcome imports of foreign cash: foreigners buying American, even if only $l2 dollars at a time.

Ever have trouble changing dollars abroad? I haven't, except 40 years ago in India, when I had to make a special arrangement between an American bank in Delhi and Bank of India in the small city where I was doing research. Back then, BoI still used huge leather ledgers to record each transaction; each had to be cosigned by the clerk, his manager, and the bank president--carried from one to the other by the "peon." It feels as if American banks haven't progressed much further, despite all their computerization.

Other countries want to receive foreign currency; from selling their goods, or services, to a foreign country, bringing in foreign reserves. It seems as if American banks do their level best to discourage money from coming in--unless a huge corporation, like Amazon, controls it.

We are also the surliest nation when it comes to foreign tourists crossing our borders. Everyone from abroad is suspect.

No wonder we have such huge trade deficits! Other countries support exporters, their banks bend over backwards to welcome foreign exchange and tourists; US banks do their best to discourage transactions such as charging $50 for routing a $12 money-order back to Canada to an American bank, then back. Why $50? Why only American banks?

My wife had to forego payments from Canada. At very least it would have been money entering this country: she tore up the money-order in front of the incompetent bankers.

Why are they like this? Imperial hubris makes Americans hidebound: only American banks can transfer dollars? It will turn us into dinosaurs. Or a poor, Third World country.