Emporer’s Invisible Clothes Removed

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“the era of an ever-growing financial industry was also an era of ever-growing inequality of income and wealth. Wall Street made a large direct contribution to economic polarization, because soaring incomes in finance accounted for a significant fraction of the rising share of the top 1 percent (and the top 0.1 percent, which accounts for most of the top 1 percent’s gains) in the nation’s income. More broadly, the same political forces that promoted financial deregulation fostered overall inequality in a variety of ways, undermining organized labor, doing away with the “outrage constraint” that used to limit executive paychecks, and more.” Paul Krugman

FROM KLEPTOCRACY TO KVETCHOCRACY

FROM STEALING TO WHINING

EDITOR’S NOTE: Amazing how history repeats itself. The books, articles and comments from pundits who just weeks ago were dismissive of the complaints of consumers, taxpayers, homeowners, voters from every part of the political spectrum have suddenly turned to consider whether our government has been hijacked by a very small group of people whose net worth and annual earnings have soared as the direct and proximate result of stealing from the rest of us. Now they are complaining that people are talking about it and that government is taking action against them for their misdeeds.

The Occupy movement has struck a chord with almost everyone. The way I would put it, they have brought home the difference between appearance and reality. While the stock market soared and Wall Street reported ever growing gargantuan profits, the rest of the economy was being dismantled for lack of capital and lack of will to keep America great. I had a dream when I was young. It was that whatever I chose to do I would have a chance, an opportunity to make a difference in my life and the lives of others. In the sixties that dream was shared by many — enough to make fundamental changes in the governance our nation and the benefits of being one of its citizens.

When I was on Wall Street I recognized the value of what they were doing — providing ever increasing liquidity to what appeared to be a growing economy. But in real terms that growth was illusory for most people and the fact that people accepted debt as a substitute for wages rightfully puts blame on both sides of the deal. It didn’t need to go that way. Liquidity became an acceptable substitute for real wealth and real money, and the value of the dollar began its long descent.

The growth of GDP was largely attributed to the growth of Wall Street, where financial services rocketed from 16% of GDP to 48%. If you assume that the growth of Wall Street as a percentage of GDP reflected trading paper that was manufactured by Wall Street, the growth that Republicans and conservative democrats alike are fond of using as a reference point, is a complete illusion. Take 32% of GDP off the table and you have an anemic economy that is completely consistent with the meteoric rise in the need to have two incomes per household.

When we take that Wall Street 32% off the table, our dire circumstances become obvious and understandable. Our REAL GDP didn’t grow — it shrunk. Factor in the deferred maintenance and rebuilding of our infrastructure, and you can see that where GDP could have grown it actually decreased by a huge factor. And that is where we stand now — a REAL GDP that is probably worth half of what is reported. Many of our citizens have a sense that this is the case and are now insisting that it be changed. They are right, and either we will do what is necessary or we will wish we had.

The measurement of GDP is really a statement of values. It takes certain transactions and puts a value on them whereas it takes other transactions and ignores them as a valued part of our gross national product. We took wealth for wealth’s sake as a value and computed as part of our economic self-esteem. Now we have run out of steam. There is not enough money in the world to continue propping up the bubble that was created over the last 35 years. We have over $600 trillion in derivative debt, based upon only $50 trillion in actual money in circulation. A 5 year old can understand that this can’t work. Occupy Wall Street is inviting us to look at these inconsistencies in our values and in our policies. The debate is long overdue.

Globalization, like securitization, is not evil unto itself. But it was a new weapon that only a handful of people knew how to use. It wasn’t a level playing field and concurrently with the asymmetry of information and facts known to the few who were growing rich versus the majority who were seeing their real prospects dwindle, the lack of information and the drive for the ideological position that government is always the problem resulted in taking the referees off the field just when the game got really technically challenging.

Between knowing more than anyone else and not having anyone stop them, the perfect storm of moral hazard erupted, as we had one major scandal after another, each escalating the stakes until we put the entire world on the table as a bet that only Wall Street could win. Blaming Wall Street is like blaming a soldier on the battlefield for firing his gun — that’s what he is there to do. But the soldier is supposed to be functioning under a chain of command that tells him how to identify the enemy and who NOT to fire on.

And like that soldier, Wall Street is to blame for not using their innate sense of right and wrong when they took aim at the pension funds of workers, the wealth of the middle of class, and the prospects of the country that gave them the freedom to innovate and profit. Government is wrong for not stopping practices that were plainly leading to a catastrophic result. And the voters are to blame for letting themselves be lulled into voting for slogans and marketing ploys as a substitute for using their own intelligence and good sense.

We all bought into a fairy tale, and whether it is fair or not, the result is unacceptable and must be changed. That change must start with application of law as it is written and not making exceptions on an ad hoc basis for banks who claim they are danger of collapse and taking the system with them when they go down. If they can’t foreclose homes, collect on credit cards, collect student debt, and other consumer loans without breaking or ignoring the law, then they shouldn’t be allowed to do so, just because we think that our sense of morality is offended. We are a nation of laws and due process, not a nation of men and ideological preferences.

Regardless of blame, the facts are that we are in a situation that is unworkable. The middle class is rapidly disintegrating into a lower economic class whose abilities to climb the ladder are being blocked by barriers that they cannot breach. The poor are descending into abject poverty, and the normal governmental functions like police, fire, social services, and maintenance of infrastructure of roads, tunnels bridges, electricity, water and sources of power have all crumbled under the sheer weight of neglect. The super rich can always work around these shortcomings by building their own power plants and building their own fleet of transport vehicles that don’t rely on our disintegrating roads, bridges and tunnels. They can hire their own army of guards and their own army of fireman, and provide their own services.

The anger out there is not that we are out of range of the super-rich, it is that the basic services and protections we always thought were a natural part of the American political and economic landscape have vanished. We want it back.

Losing Their Immunity

By

As the Occupy Wall Street movement continues to grow, the response from the movement’s targets has gradually changed: contemptuous dismissal has been replaced by whining. (A reader of my blog suggests that we start calling our ruling class the “kvetchocracy.”) The modern lords of finance look at the protesters and ask, Don’t they understand what we’ve done for the U.S. economy?

The answer is: yes, many of the protesters do understand what Wall Street and more generally the nation’s economic elite have done for us. And that’s why they’re protesting.

On Saturday The Times reported what people in the financial industry are saying privately about the protests. My favorite quote came from an unnamed money manager who declared, “Financial services are one of the last things we do in this country and do it well. Let’s embrace it.”

This is deeply unfair to American workers, who are good at lots of things, and could be even better if we made adequate investments in education and infrastructure. But to the extent that America has lagged in everything except financial services, shouldn’t the question be why, and whether it’s a trend we want to continue?

For the financialization of America wasn’t dictated by the invisible hand of the market. What caused the financial industry to grow much faster than the rest of the economy starting around 1980 was a series of deliberate policy choices, in particular a process of deregulation that continued right up to the eve of the 2008 crisis.

Not coincidentally, the era of an ever-growing financial industry was also an era of ever-growing inequality of income and wealth. Wall Street made a large direct contribution to economic polarization, because soaring incomes in finance accounted for a significant fraction of the rising share of the top 1 percent (and the top 0.1 percent, which accounts for most of the top 1 percent’s gains) in the nation’s income. More broadly, the same political forces that promoted financial deregulation fostered overall inequality in a variety of ways, undermining organized labor, doing away with the “outrage constraint” that used to limit executive paychecks, and more.

Oh, and taxes on the wealthy were, of course, sharply reduced.

All of this was supposed to be justified by results: the paychecks of the wizards of Wall Street were appropriate, we were told, because of the wonderful things they did. Somehow, however, that wonderfulness failed to trickle down to the rest of the nation — and that was true even before the crisis. Median family income, adjusted for inflation, grew only about a fifth as much between 1980 and 2007 as it did in the generation following World War II, even though the postwar economy was marked both by strict financial regulation and by much higher tax rates on the wealthy than anything currently under political discussion.

Then came the crisis, which proved that all those claims about how modern finance had reduced risk and made the system more stable were utter nonsense. Government bailouts were all that saved us from a financial meltdown as bad as or worse than the one that caused the Great Depression.

And what about the current situation? Wall Street pay has rebounded even as ordinary workers continue to suffer from high unemployment and falling real wages. Yet it’s harder than ever to see what, if anything, financiers are doing to earn that money.

Why, then, does Wall Street expect anyone to take its whining seriously? That money manager claiming that finance is the only thing America does well also complained that New York’s two Democratic senators aren’t on his side, declaring that “They need to understand who their constituency is.” Actually, they surely know very well who their constituency is — and even in New York, 16 out of 17 workers are employed by nonfinancial industries.

But he wasn’t really talking about voters, of course. He was talking about the one thing Wall Street still has plenty of thanks to those bailouts, despite its total loss of credibility: money.

Money talks in American politics, and what the financial industry’s money has been saying lately is that it will punish any politician who dares to criticize that industry’s behavior, no matter how gently — as evidenced by the way Wall Street money has now abandoned President Obama in favor of Mitt Romney. And this explains the industry’s shock over recent events.

You see, until a few weeks ago it seemed as if Wall Street had effectively bribed and bullied our political system into forgetting about that whole drawing lavish paychecks while destroying the world economy thing. Then, all of a sudden, some people insisted on bringing the subject up again.

And their outrage has found resonance with millions of Americans. No wonder Wall Street is whining.

14 Responses

  1. —–Original Message—–
    From: The White House – Presidential Correspondence
    To: Enraged
    Sent: Tue, Oct 18, 2011 11:35 am
    Subject: Thank You for Your Message

    October 18, 2011

    Dear Friend:

    Thank you for taking the time to share your thoughts with me. I value your comments and inquiries.

    I greatly appreciate the outpouring of messages from Americans across the country and around the world. Some comments are supportive, others are critical, but all reflect the desire of Americans to participate in a dialogue about our common concerns and challenges.

    To learn more about my Administration or to contact me in the future, please visit: http://www.WhiteHouse.gov. Thank you, again, for writing.

    Sincerely,

    Barack Obama

    Alright. So, my friend Obama has received my “Get rid of Geitner and hire Reich and Krugman” letter. 2 problems, though: whenever you write to him, you can’t keep a copy. And, of course, it is sooooo lame, it’s useless.

    Secondly, and I just realize that, you don’t need to click on “send”. The mere fact that you go into their website sends automatically your address to their data and triggers a “thank you” letter. I know: I never did send it because I goofed while trying to save/print my message. I honestly thought I had lost it. A bit spooky…

  2. What kind of “moral epidemic (hazard)” has this administration — and prior administration — and Congress — and government — created????

    No excuse for what has happened to the American people. NONE.

  3. @angry: I don’t think the Wall Street wizards have any inate knowledge of “right” or “wrong” Sociopaths lack those particular traits.

    Here’s are a couple of more articles on entitled whiners. Read with caution: May cause blood pressure to increase to unhealthy levels – it may cause also cause you to emit derisive laughter. I suggest going the laughter route, much healthier.

    http://4closurefraud.org/2011/10/17/academic-shill-goes-all-shrill-for-the-banksters-in-forbes-magazine-oped-its-time-to-finalize-the-robo-signing-settlement/

    http://www.zerohedge.com/news/socgen-asia-strategist-has-near-fit-bloomberg-tv-after-making-it-clear-its-all-blogospheres-fau

  4. And like that soldier, Wall Street is to blame for not using their innate sense of right and wrong when they took aim at the pension funds of workers, the wealth of the middle of class, and the prospects of the country that gave them the freedom to innovate and profit. Government is wrong for not stopping practices that were plainly leading to a catastrophic result. And the voters are to blame for letting themselves be lulled into voting for slogans and marketing ploys as a substitute for using their own intelligence and good sense.

    the soldier was a ruse, and wall street a tool, used to further lure the mark to the sting. The Illusion has been propagated for decades by the money interests to corner the entire American class of people, those that were willing to work for a living in a system designed to simply allow enough prosperity to propel the illusion until all the players & pieces were in-place to move to checkmate . The evil practice of psyop manipulation has been honed to a science by OUR GOV & the money changers as a collaboration , now think about that!
    There can be NOOOOOOOO claim of non-conclusory activity between those that developed the ponzi and those that seemingly allowed it to be executed . THE MORTON’S FORK.
    THEY MUST BE REMOVED & SENTENCED FOR TREASON!!!

  5. Only collection rights assigned/transferred at closing.

    Trusts are/were empty.

    “Mortgage-backed securities” were NEVER “mortgage-backed”.

    Only receivables securitized.

    Unsecured debt sold and re-sold…(and insurance and bailouts collected.)

    You are paying a “servicer” of unsecured debt…with NO MORTGAGE.

    The proof? Ask them for the LEDGERS showing your payments going to an actual “mortgage”.

    They don’t have any.

    TARP inspector general:

    “…Without the mortgage, a note is simply an unsecured debt obligation…no different from credit card debt.”

    WHEN ARE YOU GOING TO WRITE ABOUT THAT, NEIL???

    Moral hazard, my a**!!! Bring it ON.

  6. Lawsuit Claims Banks Bilked Veterans During Refinancing Transactions
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    Monday, October 17, 2011
    By Evan Nemeroff
    A whistleblower lawsuit filed by two mortgage brokers has been unsealed in Federal District Court in Atlanta claiming that 13 banks and mortgage companies have cheated veterans out of hundreds of millions of dollars.

    According to the lawsuit, lenders allegedly hid illegal fees in veterans’ home mortgage refinancing transactions related to the Interest Rate Reduction Refinancing Loans program. This program was created to allow veterans to take advantage of low interest rates and protect them from paying excessive fees and charges in the refinancing transaction.

    The lawsuit claims that the lenders repeatedly violated the rules of the IRRRL program by charging veterans unallowable fees and then deliberately concealing this information from the VA to obtain taxpayer-backed guarantees for the loans. The lenders also allegedly falsely certified to the VA, in writing, that they were not charging unallowable fees.

    In the lawsuit, the brokers are claiming that the lenders have been fraudulently reporting on HUD-1 statement forms undisclosed attorneys fees and other unallowable fees on the line for the actual cost of title examination and title search. The lawsuit says that lenders are reportedly charging $525 to $1,200 for title examination and title search fees, when the total cost should only amount to $125 to $200.

    Lenders are permitted to charge veterans for recording fees and taxes, fees for a credit report and other “reasonable and customary amounts,” according to VA rules, but cannot charge attorneys’ fees or settlement closing fees in refinancing transactions involving VA loans.

    “The false statements and fraudulent conduct are blatant,” said Marlan Wilbanks, co-lead counsel in this whistleblower case. “The banks simply reduced the charges for unallowable fees to zero, and then added those fees in the spaces where allowable fees were to be shown. Veterans don’t know what the usual and customary charges for those allowable fees are, and the VA understandably relied upon the banks to comply with VA regulations, rather than digging into every loan transaction. The banks took advantage of that reliance to cheat veterans and taxpayers.”

    Since 2001, the VA has guaranteed over 1.1 million IRRRL loans. According to the Office of Inspector General for the Department of Veterans Affairs, the nationwide default rate for IRRRLs is 18% or more, with approximately more than 100,000 loans going into default every year. Nearly half of the VA loans that default result in foreclosure proceedings, costing the VA about $22,000 for each loan and also massive damages for American taxpayers and veterans.

    Under the False Claims Act, the lenders would be liable for all damages resulting from those fraudulently induced guarantees of IRRRL loans, as well as penalties of up to $11,000 for each violation of the act.

    The defendants in this case include Wells Fargo, Countrywide Home Loans, Bank of America, JPMorgan Chase, Mortgage Investors Corp., PNC Bank, First Tennessee Bank National Association, Irwin Mortgage Corp., SunTrust Mortgage, New Freedom Mortgage Corp., GMAC Mortgage and Citimortgage,

    “This is a massive fraud on the American taxpayers and American veterans,” said James Butler Jr., co-lead counsel of the Atlanta law firm Butler, Wooten and Fryhofer. “Knowing they weren’t allowed to charge the fees, the banks and mortgage companies inflated allowable charges to hide these illegal without telling the veterans who were the borrowers or the VA they were doing so.”

  7. Enraged

    Excellant Post…We shall back you 100 %. Per the A-man, soon it will be over 15 million illegal foreclsoures and over 20 million home owners who are upside down on the Amercian dream. This is evil and allowed by the satan who lives in the white house.

    We shall not forget !
    Never give up…Remove the wrecking crew from the White House.

  8. [youtube=http://www.youtube.com/watch?v=YnG8op_ua-k&w=640&h=360]

  9. “Qu’ils mangent de la brioche”

    Oh let them eat cake!

  10. I was rereading a Krugman column from a year ago in which he quoted Obama as saying that he didn’t “begrudge” bankers’ salaries anymore than he begrudged basketball players salaries. Rightfully so, Krugman reminded us that never in history has a baskertball player ever brought an entire country to its knees.

    At the time, Obama was questioned on Dimon’s bonus of $17M (it became 20M in 2010) and the implication that the banks had done a “good job”). We elected a guy who didn’t have anymore of a clue than Bush father with his “silver foot”. We put him there. We can take him down.

    Now it’s up to us to demand immediate change. Obama had 3 years to prove how incompetent and remote from the issues he is. Let’s not wait for elections: time is running. Obama needs to show what he is made of today by firing Geitner, hiring Krugman and Reich and tackling foreclosures and bank fraud. Let’s demand action now.

    Write to the White House. I’ve done it time and time again and I will keep on doing it until they get so tired of me that they send me back from where I came from (or I simply “vanish” in thin air… It’s been known to happen to dissenters).

  11. I saw Paul Krugman yesterday debate Steve Forbes and some Schmuck from the Wall Street Journal. I have alot of respect for Steve Forbes even though he represents the old guard.

    But the noble economic prize winner is a master debater. He deserves his Prize. Unlike President Sadam Hussein oops Barak Hussein Obama. Let me make myself clear it has nothing with being a Muslim. It has all to do with evil.

    7 million illegal foreclosures under the President Obama’s watch. That is of HybridHolocaust proportions.

    NEVER AGAIN

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