David Dayen: How Congress Could Make Steve Bannon’s Wildest Dream Come True

A regulatory freeze on day one delayed every final rule awaiting its effective date. Many got pushed back further by federal agencies after the freeze lifted, including life-saving measures to prevent cancer-causing dust and toxic beryllium in workplaces. Lawmakers used a their power under the Congressional Review Act, which requires only a majority vote, to nullify 13 other rules. And now, the administration is venturing into rolling back regulations already in place, from new food product labeling to a ban on arbitration clauses in nursing home agreements to net neutrality, to name only a few.

But as Wayne Crews of the right-wing Competitive Enterprise Institute recently wrote, “Even with all these actions from the executive branch, there is still one large barrier to regulatory reform that remains: the U.S. Senate.” Only enough senators to break the 60-vote filibuster threshold would realize Steve Bannon’s dream of deconstructing the administrative state permanently.

Last week, that dream nudged closer to reality when Sens. Rob Portman (R-OH) and Heidi Heitkamp (D-ND) reached a bipartisan deal to introduce the Regulatory Accountability Act. Like a number of House bills passed this year, it attacks the agency rulemaking process, inserting additional hurdles to make it harder to get regulations done, and easier for industry to use courts to throw them out. Unlike the House bills, Portman-Heitkamp could actually pass the Senate. “The short version is it would shut down rulemaking,” said Rob Weissman, president of consumer advocacy group Public Citizen.

Before I explain what’s in the bill, you need to understand how enormously difficult it already is for federal agencies to complete a regulation. Take a look at this insane flowchart Public Citizen helpfully constructed, listing the hundreds of requirements facing any agency that wants to do its job. “To be legible it has to be blown up to 6 feet by 8 feet,” Weissman noted.

The Administrative Procedure Act of 1946 created the basic rulemaking structure, but since then, Congress and the executive branch have added tons of restrictions. The Paperwork Reduction Act, the Regulatory Flexibility Act, the Unfunded Mandates Reform Act, the Congressional Review Act, the National Environmental Policy Act, the Federal Advisory Committee Act, three executive orders and two court rulings all play a role. Costs to small businesses, cities, states and affected industries must be analyzed. Public comments must be solicited, read and considered. The centralized executive branch review at the Office of Information and Regulatory Affairs can clog a rulemaking for years. And even after that gauntlet, Congress can disapprove of the rule, or industry could argue in court that one of these endless steps was not followed correctly.

Put it this way: If a Last Man on Earth-style virus methodically began to kill U.S. citizens, and we knew the cause, we’d still have to wait a couple years for a formal rule to counteract it.

People assume that old whipping boy, government bureaucracy, is responsible for this mess. Actually, big business encouraged Congress to create these hurdles, solely to frustrate the regulatory process. At no point did policymakers ever streamline the old rules when they layered on new ones. Rulemaking just became this giant, unwieldy beast, entirely by design, so corporations could continue imperiling workers and consumers, and so agencies would shrink at the very thought of climbing the regulatory mountain. “We have stories of rules we’re worked on for 20 years,” said Weissman, of Public Citizen.

No honest observer could look at this and think that we need another set of cost-benefit analyses. But that’s what Portman-Heitkamp would do, for any rule costing over $100 million or with significant impact on the economy. These cost-benefit analyses, which in recent years have become “cost-cost” since benefits to the public are no longer really accounted for, would need to be completed at every stage of the process — before drafting a proposed rule, after determining its significance, before finishing the proposal and after public comment. After that tsunami of analysis, the agency must choose the “most cost-effective approach” that still accomplishes the goals of the rule (“most cost-effective” should read “least obtrusive on business”).

Incidentally, these cost studies end up mostly using industry data, since such cost detail doesn’t exist elsewhere. So Portman-Heitkamp would force the federal government to effectively let industries decide when it’s viable to regulate them.

In addition, agencies would have to reach out for public comment before a major rule gets proposed. The “best reasonably available” economic, scientific and technical information would need to be acquired, adding another vague but time-consuming legal step. “High-impact” rules would require an administrative hearing, where businesses could challenge the agency directly. And all rules would be automatically reviewed once every 10 years, in case corporations didn’t strike it down the first time.

Portman and Heitkamp claim they’re just putting into statute a process already established through presidential executive orders, as a more moderate counterpoint to extreme efforts by House Republicans. But the purpose of codification is to expand judicial review. “In the off chance an agency decides to regulate despite the endless gauntlet, and if after that the industry is unhappy, they can sue and say the study was wrongly conducted,” said Weissman.

In fact, Portman-Heitkamp would increase the legal standard on federal agencies, subjecting regulations to a “substantial evidence review.” And since it’s mostly the industry’s evidence, they can almost always claim that it was used improperly. Courts have proved sympathetic to industry whining on cost-benefit analyses in the past. The extra volume of requirements here just makes it more likely that a court would find some pretense to throw out a rule.

The bottom line is that Portman-Heitkamp would eat up time and money to produce new rules, making the already onerous agency compliance almost impossible. The duo already has Sen. Joe Manchin (D-WV) as a co-sponsor, and would only need six more Democrats to pass the Senate. With the House extremely likely to follow suit, this would create a brick wall around rulemaking lasting long beyond Trump.

That’s why several liberal groups are pushing Democrats to not collaborate. But the U.S. Chamber of Commerce’s overwhelming support for Portman-Heitkamp will likely lead local business affiliates, whose regulatory concerns are largely about moves at the city and state level, to pressure senators. The local auto dealer or restaurant provides cover for the polluting and worker-harming behemoths that really want rulemaking crippled.

This effort by Portman to set the regulatory process in concrete has flown below the radar of Trump tweets or health care bumbling. But it would have a massive effect, which is why hundreds of lobbyists have pinned their hopes on it (and given big to Portman to make it reality). The goal is nothing less than to prevent the government from ensuring clean air and water, safe workplaces, consumer protection or a host of other aims. Citizens who like any one of those things need to engage on this before it’s too late.

Simon Johnson on Business Model of Lie More

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Editor’s Comment:  

Anyone who is curious why I named this blog LivingLies will have all their questions answered by this well-articulated article by Simon Johnson, Chief economist of the World Bank, author of 13 Bankers, and the main writer for http://www.baseline scenario.com. Johnson is first among the world of economists who instantly knew the severity of the culture of lying and deception at the TBTF banks. He is joined in these views by the Financial Times, normally rabidly pro-bank and no less than the Governor of the Bank of England who apparently coined the phrase “Lie More” to replace what was the only index that mattered in the world of finance and bond trading.

The consequences of this culture of lying will be laid bare in the weeks and months and years to come. But as Johnson points out, the days are over when anyone trusts a bank or bank statement. Representations of bank officials once considered as good as gold or what used to be called good as Libor, are now going to be subject of scrutiny and will no doubt reveal a pattern of deceit even deeper than thes we already know about the mortgage meltdown and the trading scam resulting from intentionally manipulating Libor — the gold standard of all indexes.

Lie-More As A Business Model

By Simon Johnson

On Monday, Bob Diamond – the CEO of Barclays, one of the largest banks in the world – was supposedly the indispensable man, with his supporters claiming he was the only person who could see that global megabank through a growing scandal.  On Tuesday morning Mr. Diamond resigned and the stock market barely blinked – in fact, Barclays’ stock was up 0.3 percent.  As Charles de Gaulle supposedly remarked, “the cemeteries are full of indispensable men.”

Mr. Diamond’s fall was spectacular and complete.  It was also entirely appropriate.

Dennis Kelleher of Better Markets – a financial reform advocacy group – summarized the situation nicely in an interview with the BBC World Service on Tuesday.  The controversy that brought down Mr. Diamond had to do with deliberate and now acknowledged deception by Barclays’ staff with regard to the data they reported for Libor – the London Interbank Offered Rate (with the abbreviation pronounced Lie-Bore).  Mr. Kelleher was blunt: the issue in question is “Lie More” not Libor.  (See also this post on his blog, making the point that this impacts credit transactions with a face value of at least $800 trillion.)

Mr. Kelleher’s words may seem harsh, but they are exactly in line with the recently articulated editorial position of the Financial Times (FT) – not a publication that is generally hostile to the banking sector.  In a scathing editorial last weekend (“Shaming the banks into better ways,” June 28th), the typically nuanced FT editorial writers blasted behavior at Barclays and nailed the broader issue in what it called “a long-running confidence trick”:

“The Barclays affair may lack the spice of some recent banking scandals, involving as it does the rather dry “crime” of misreporting interest rates.  But few have shone such an unsparing light on the rotten heart of the financial system.”

The editorial was exactly right with regard to the cultural problem – within that Barclays it had become acceptable or perhaps even encouraged to provide false information.  It underemphasized, however, the importance of incentives in creating that culture.  The employees of Barclays were doing what they were paid to do – and the latest indications from the company are that none of their bonuses will now be “clawed back”.

Martin Wolf, senior economics columnist at the FT and formerly a member of the UK’s Independent Banking Commission, sees to the core issue:

“banks, as presently constituted and managed, cannot be trusted to perform any publicly important function, against the perceived interests of their staff. Today’s banks represent the incarnation of profit-seeking behaviour taken to its logical limits, in which the only question asked by senior staff is not what is their duty or their responsibility, but what can they get away with.”

This matters because, “Trust is not an optional extra in banking, it is, as the salience of the word “credit” to this industry implies, of the essence.”

As the FT editorial put it, “The bankers involved have betrayed an important public trust – that of keeping an accurate public record of the key market rates that are used to value contracts worth trillions of dollars”.

In the words of Mervyn King, governor of the Bank of England, “the idea that my word is my Libor is dead.”  Translation: No one will believe large banks again when their executives claim they could have borrowed at a particular interest rate – we will need to see actual transaction data, i.e., what they actually paid.  Presumably there should be similar skepticism about other claims made by global megabanks, including whenever they plead that this or that financial reform – limiting their ability to take excessive risk and impose inordinate costs on society – will bring the economy to its knees.  It is all special pleading of one or another, mostly intended to rip off customers or taxpayers or, ideally perhaps, both.

Mr. Kelleher has the economics exactly right.  Global megabanks have an incentive to deceive customers, including both individuals and nonfinancial corporations.  Their size confers both market power and the political power needed to conceal the extent to which they are engage in economic fraud.  The lack of transparency in derivatives markets provides them with an opportunity to cheat, but the abuses are much wider – as the Libor scandal demonstrates.

The rip-off is not just for retail investors; chief financial officers of major corporations who should be up in arms.  Boards of directors and shareholders of companies that buy services from big banks should be asking much harder questions about all kinds of derivatives transactions – and who exactly is served by the terms of such agreements.

As Mr. Kelleher puts it on his blog,

“They like to call themselves “banks,” but they aren’t banks in any traditional sense. They are global behemoths that are not just too-big-to-fail, but also too-big-to-regulate and too-big-to-manage. Take JP Morgan Chase for example. It has a $2.35 trillion balance sheet, more than 270,000 employees worldwide, thousands of legal entities, 554 subsidiaries and, as proved by the recent trading losses in London, a CEO, CFO and management team that has no idea what is going on in their own bank.”

“Let’s hope for the sake of the global financial system, the global economy and taxpayers worldwide that Mr. Diamond’s resignation is the first of many. What is needed is a clean sweep of the executive offices of these too-big-to-fail banks, which are still being governed by the same business model as before the crisis: do whatever they can get away with to get the biggest paychecks as possible. (Remember, CEO Diamond paid himself 20 million pounds last year and was the UK banking leader insisting that everyone stop picking on the banks.)

Lie-more is just the latest example of why that all has to change and the sooner the better”





Virtual Finance: Turning Things Right Side Up

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Editor’s Comment:  

The article below by Lisa Pollack in the Financial Times shows an amazing understanding of securitization, derivatives and the actual path of money.  It also introduces a new term–“credit support annex (CSA).  CSAs were discussed in this blog back in 2007 and 2008 which merely made the already incomprehensible financial structure even less understandable.  But they are important because that is where actual assets, actual money and actual financial transactions are taking place. 

The article below deserves several readings.  Those that master it will understand completely the untenable position of the United States’ financial condition.  The governments of each country are constantly engaged in trading and creating derivatives, insurance, credit default swaps and other credit enhancements as they hedge all perceived risks.  The problem is that the dealer keeps on dealing whereas the original transaction remains unchanged.  In our case the US government used taxpayer dollars and private companies used shareholder dollars to pay off the original transaction—the loan from the investor lenders to the homeowner borrowers. 

The reason for the stream of fake securitization documents was to enable the dealers to keep on dealing, which they did.  In some cases they leveraged the same loan or group of loans as many as 42 times that has been documented.  Since most of these deals are undocumented we can comfortably assume that the actual figure is a multiple of 42 times given the current state of credibility of the 18 banks that dominated the mortgage securitization market. 

With each deal, the margins kept spreading in virtual dollars, while the real money remained unchanged.  When the real money was repaid to the creditor or the creditors agents (the dealers) the trunk of the tree disappeared.  The acceptance of payment by a creditor from any obligor or co-obligor extinguishes the debt.  This is black letter law in all 50 states and all federal decisions as well.  But the dealer keeps on dealing as though the trunk of the tree was still there.  In a 2-dimensional sense the dealers are drawing out branches and sub-branches of various “trades” based upon a nonexistent base (the original loan). 

The reason the banks are so scared of discovery in litigation and why they settle any case in which a judge enters an order for them to open their books is that it would be obvious to a first year accounting student that there is no substance to the subsequent trades of the dealers and no substance to their current trades since the base transaction was no longer present. 

The moment all was paid by the creditor, directly or indirectly through the investors creditors agents trading should have stopped.  Any future trades after that point were pure fraud since they pretended that the loan still existed.  All prior trades should have been required to settle immediately.  Thus eliminating the appearance of branches on a tree with an invisible trunk. 

Had the bankers been operating honestly (perhaps an oxymoron) the ground would have been clear, the paperwork exchanged, and the accounting complete, leaving some dealers “in the money” and some dealers “out of the money”.  If they were dealing honestly the amount of money “in the money” would have been equal to the amount of money “out of the money”.  The result would have been no loss, no federal bailout, no mortgages, no liens, no foreclosures, no notes, and no obligations on the original transaction. 

What arises is the possibility of a case in which a party has paid money to satisfy the creditor, directly or indirectly (through the investor creditors agents) against the homeowner for money that they actually lost.  But unless they actually purchased the loan which they did not (according to any of the paperwork I have seen or heard reported), there could be no foreclosure on any part of the debt.  In fact, while the debt or obligation might continue to exist under the law, the absence of an actual creditor seeking payment might result in the homeowner receiving a windfall.  This windfall is but a small percentage of the windfall made by the dealers who kept on dealing and were bailed out in an amount far exceeding the total of all money loaned during this 10 year period.   Thus the dealers used investor lender money to fund 13 trillion dollars in loans, experiencing no more than 2.5 trillion in defaults, while claiming and receiving no less than 16.6 trillion dollars from the federal government plus settlements on insurance, credit default swaps and credit enhancements. 

Somehow the windfall of the bankers has been made to appear more politically acceptable than the windfall to homeowners whose tax dollars paid for the windfall received by the dealers.  What a country!!

The reason for the opportunity of a windfall to homeowners is that the dealers created a false chain of documents to enable them to achieve windfalls.  The only way they could prevent homeowners from sharing in that windfall of multiple payments on the same debt was through the process of foreclosure.  In foreclosure, the debt was made to appear as properly documented and owned by the investor lenders.  In fact, the debt was made to appear as though it still existed when in fact it did not exist at all.  Most judges, attorneys, and homeowners, cannot conceive of a scenario in which the mere application of law would provide an opportunity to homeowners to share in the windfalls of dealers who continued to make deals with the full intent of depriving both the investor lenders and the homeowner borrowers of any right to participate in this windfall.  The rubber stamped order of the usual foreclosure judge seals one more deal.  It pitches the bad loan over the fence and forces an investor to accept the bad loan even though he was expressly assured of receiving good loans that were properly underwritten.  These judges do not realize that they are underwriting a windfall to the dealers of virtual money while the participants in the real money transaction both got screwed. 

The Bank of England gets economical with its derivatives

by Lisa Pollack

Isn’t it annoying when particular clients insist on being treated differently to everyone else? Like, just because your client is well, England, or Italy, or some other sovereign nation, doesn’t make them ‘special’. It’s also kind of annoying when they make regulations that make business tougher for banks and then still expect to be treated differently.

Interestingly though, the Bank of England just stopped asking for one such special exception when it comes to certain derivatives that it enters into on behalf of the nation in order to best manage its balance sheet and the Treasury’s foreign exchange reserves.

With any such derivatives contract, it’s a zero sum game. When marking the transactions to market, if one party is up £1m (“in-the-money”), that means the other party is down £1m (“out-of-the-money”).

In the normal course of things, the out-of-the-money counterparty would post collateral with the in-the-money-counterparty. This keeps everyone happy because it guarantees performance under the contract. The exact rules around posting collateralare determined by an agreement between them called a “credit support annex” (CSA). The majority of CSAs are “two-way”, meaning that both parties have to post collateral as and when they are out-of-the-money.

But, sovereigns never really went for that. Instead, they have “one-way” CSAs. They expect their counterparties to post collateral with them, but they don’t expect to have to post collateral themselves. Banks were, more-or-less, willing to put up with this when counterparty risk was less of a concern and things were going a lot better for them generally. Before, say, the latest wave of regulation that takes an especially dim view of uncollateralised exposures.

Regulations aside though, there has always been something of a funding problem with trades like these (with sovereigns) since banks tend to hedge their trades.

In the above, we show that the Bank of England has entered into a swap with a dealer, e.g. an interest rate swap to hedge rates exposure. The dealer does another trade, or series of trades, with the dealer on the far left of the diagram to hedge the swap with the Bank of England.

Some time later, the dealer is in-the-money on the trade with the Bank of England, and out-of-the-money on the trade with the other dealer. This puts the dealer in a really uncomfortable position — collateral has to be posted with the other dealer, but the Bank of England doesn’t post any collateral.

The news release from the Bank of England on Thursday indicates that it will start to post such collateral in the future.

Up until now, the only other examples of sovereign nations we know of that do something similar are Ireland and Portugal.

So why did the central bank decide on this change?

It seems they primarily did it to get better pricing on the derivatives contracts. It’s quite simple — the costs to the banks of putting the swaps together for sovereigns rose. It’s more expensive for banks to fund themselves, i.e. to get that collateral to post to their counterparties. It’s also more expensive to have uncollateralised exposure in terms of regulatory capital. The banks have been passing on these costs to their sovereign clients.

The Bank of England therefore concluded that it was cheaper to start posting collateral, as it should make the prices they are offered come down.

In Risk’s coverage of the announcement, they had this rough estimate of the price differential:

The UK bank’s swaps trader says the funding charge associated with one-way CSAs could add as much as 10 basis points to a longer-dated trade. The head of the sovereign, supranational and agency (SSA) desk at one large European bank says it could reach 20bp.

And well, seeing as the central bank has a lot of bonds sitting in its reserves anyway, hell, why not?

The best part of the Risk article, in FT Alphaville’s opinion, is that they asked Alan Sheppard, the Bank of England’s head of risk management, about what he thought of the likely interpretation that the move is a kind of “back-door state support”. In response:

The BoE’s Sheppard doesn’t see it that way. “That would be a very strange interpretation. There is some value in the funding option implicit in a one-way CSA, but the way the market has developed, the price has gone beyond the value it has for us. What we’re actually doing is stopping paying the banks for an option that we don’t value as highly as it costs them to provide, so we’re giving them less money rather than more,” he says.

In other words: this works for the Bank of England cause they’re thinking it’ll save them money.

Good for them, then… right?

The likely point of contention will be that there are central banks out there that are way more into their derivatives use than the Bank of England is, and they have made no such indication that they will post collateral in the future, despite a lot of lobbying by banks on the matter.

Italy, for example, has a huge swap portfolio. This is a big issue not just because of the funding issue we mentioned above, but also because banks usually hedge their uncollateralised exposure by buying credit default swaps on the sovereign, which causes the spreads to widen further (with all that protection buying pressure), and then can feedback to the price the sovereign pays to fund itself in the bond market.

Or, at least, that’s one of the rallying cries of banks… who may well have a point, unfortunately. Arguably, some not-so-well thought out regulation drives quite a lot of this.

In any case, the last time FT Alphaville took a thorough look at this, we produced this table using data from the European Banking Authority’s 2011 stress test (with end-2010 data, click to expand):

This shows the “direct sovereign exposures in derivatives” measured in fair values (millions). When the number is positive, the bank (listed on the left) is in-the-money and would like to get some collateral from the sovereign (in the columns). As can be seen, Italy is seriously out-of-the-money to the banks and yet the banks are in the painful position of not receiving collateral.

Now look at the UK exposures. There isn’t much, is there?

These figures aren’t current (end-2010) and they don’t include non-European banks. But the general point that we wish to make is this: the Bank of England doesn’t have too much riding on this, the reserves are just sitting there, and it is likely to bring down the cost of transactions. In other words, it might not be as big a deal as it may be made out to be.

Sorry if the lack of drama disappoints you…





Everyone Else Knows: Why Do We Continue To Ignore It?

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Editor’s Comment:

In a short article by Patrick Jenkins in the Financial Times (Doubts Over Lending Push), it seems that everyone in Europe understands the problem well, and that the the consequences are dire but are unsure about what to do about it. Here in the United States housing is the elephant in the living room that nobody really wants to talk about. European leaders don’t like talking about it either but they are doing it anyway. Maybe they actually care what happens next unlike American politicians who seem to enjoy creating catastrophes, then handing power over to the other party and blaming them for the results.

Mitt Romney and Barack Obama are battling it out over economic policies and whether lower taxes and fiscal stimulus will benefit the economy. Mitt wants to cut what is left of federal and state spending thus deepening the depression or recession or whatever it is. Barack wants to stimulate economic growth with more money. How about this: they are both wrong. And the Europeans, for all their chaotic political intrigues, are zooming in on the cure a lot faster than we are because we won’t even talk about it.

Both candidates seem to think that cheaper money and more of it delivered to the banks and large corporations will stimulate borrowing and commerce. But Graeme Leach, chief economist at the Institute of Directors boiled it down to one simple sentence: “Companies alarmed by the euro crisis will not be eager to borrow, regardless of the cost.” It is obviously obvious to anyone with a brain that companies are not going to borrow unless they think they need the money.

And they are not going to think they need the money unless demand is going up. With unemployment topping out near Great Depression levels, why would anyone think that commerce can be revived? Add in the fact that real wages have declined over the last 30 years and you can easily see why companies won’t borrow unless they think they can make money increasing their debt burden. Who does the buying — fairies? It’s consumers, stupid, and they are broke, tapped out on credit, and have very little confidence in their prospects.

The Europeans actually understand that there is a difference between the real economy and the one reported in the newspapers. The real one is where a strong middle class has savings and resources and they buy things. The one in the newspapers is all about paper and trades with companies buying and selling each other and “bets” being made on who is right about bonds, stocks and other crazy financial “innovations.”

Virtually half of the GDP published by Washington is made up of paper trades where the typical citizen is left out of the equation altogether. So here is a repeat of my prediction regarding the stock market: either it will “crash” in a correction that is congruent with actual commerce levels or the financial institutions and rating agencies will continue to rate and recommend securities of companies whose substance is gone —- called zombies in the FI article.

BOA is one such Zombie institution. It’s broke. Everyone knows it’s broke and yet they persist on pretending that it is just fine. Then they want consumers to express confidence in the economy or government. Why should they?

Everyone understands that the problem is housing and the fraudulent printing of “money” by private banks dwarfing any real money supply that is supplied by world governments. $700 TRILLION is traded as cash equivalents while world governments, even with quantitative easing have issued less than $70 TRILLION in real currency. Why would anyone think that taxes or stimulus or quantitative easing (printing money) could even nick the side of this barn. We are being forced to sustain a false tree of money on which thousands of branches are hanging onto a trunk that is not there and never was. Fear is now the dominant word that describes the behavior of world leaders and the leaders of central banks.

Here is the solution and it is the application of justice at the same time: since the mortgage papers contained lies and did not disclose the identity of the lender nor the actual terms of repayment, there is no law in existence that would allow such a transaction to become  an encumbrance on the land.

Add to that the fact that the transaction recited never took place because the borrower was actually doing business with a stranger where money DID exchange hands but was never documented, and you have the answer: the mortgages are invalid, the notes are invalid and the the banks having been already paid several times over for a loss they never incurred but instead foisted upon pension funds and sovereign wealth funds from other nations, let’s call it a day.

I don’t care if people get an unfair advantage or perk for being a victim in this scheme. I don’t care if this interferes with the ideology of personal responsibility (which is being ignorantly applied to this situation). I care about the country, our society and what will happen if our economy can’t come up off the ground. I care that too many people are underemployed or unemployed. I care that average savings are zero and that most Americans have suffered a grievous loss of wealth.

I care that there are not enough people to buy things because they don’t have any money. Rescind the so-called mortgage transactions, let the branches of derivatives and credit default swaps and other bets and enhancements fall to the ground. It’s not as bad as you think. Most of the bets settle out to zero exchanges because with certain exceptions the bets are balanced.

The world will not end if we give homeowners their homes free and clear of any encumbrance. The governments could even prosper if they took an interest in those mortgages they already purchased (or think they purchased) and imposed a fair mortgage with fair terms based upon realistic current market conditions in housing and finance. Then people would be returned to their former status in far less time, the rate of commerce would improve, the real economy would recover and the fake economy and the people who go with it can take a hike or go to jail, if we dare to put them there.





Even the Chinese Know It

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Editor’s Comment:


The Financial Times ran an article 2 days ago about the Chinese being encouraged to spend more aand save less. I’m no fan of China’s political system, or even its economic policies (which come to think of it are the same thing, as Von Mises points out). As we look around the world and see Iceland prospering, China’s growth slowing to a mere 8% while our REAL GDP is still negative or by the reckoning of most economists, headed into downward territory. These propering countries who have concentrated on stmulating the rate of commerce (i.e. the economy) are the countries that are reducing debt (Iceland is now at the point where more than 25% of household debt has been eliminated not with spending fiscal stimullus money but with pressure on the idiots that got us into this messs- the banks.

Then look at the countries who are effectively governed by the banks, directly or indirectly— like US and Europe. They stand in stark contrast to Iceland and China. We are headed into what is called a “double dip” recession as though we would have hands up with ice cream cones in them, but the truth is that these recessions is literally taking food, medicine, and clothes off the table while they send their children into schools that are no longer able to teach and are located in neighborhoods that are less safe from criminal activity and the occoasional warehouse fire all because of “austerity.” Such neighborhoods are also less familiar and less appealing than the ones they got thrown out of after being tricked into using a home in which generations of their family grew up as the source of cheap capial encouraging, cajoling and pushing them with literally midnight visits to get them to sign on the dotted line to purchase a defective, fraudulent loan products whose purpose was to fail.

As we look at those countries who have adpted the politics and economics of austerity (“less spending” or “spending cuts” as it is known in the U.S.) the consequences could not be more clear — austerity, spending cuts, less spending, get the government out of the way are all slogans  that are leading us into disaster. And they are all spoken by people who are owned and controlled by the banks. And at the risk of offending my readers with political statements, Obama was exactly right when he said that the purpose of government was not to turn a business profit like Romney said he did (my sources tell me that Mitt was a figurehead running for president and they were making him look good, not that he was actually of any value). Obama correctly points out that government’s purpose is to maintain a society in which everyone gets a fair shake and a fair shot at the brass ring. Thus government is not for the rich who already got wealthy but for those who have not yet  achieved wealth. And this is because history teaches that no society has ever endured without a strong middle class.

This country needs to revive its economy by having more people spend more money. The obstacles to that are that too many people have no money, no  credit and no jobs. This is the time to divert the corporate welfare of farm subsididies and oil subsidies and the like to those programs that will give all our citizens a fair shake and a fair shot at success.

Like Iceland, the way to increasing the value of our currency, the way to prosperity is to reduce household debt. And the biggest item here that not only decreases household debt but increases household wealth is to return the homes that were wrongfully foreclosed and not to give a pittance of money to the victims with a slap on the wrist to those who stole the home with a credit bid when they were not only not the creditor, but they had never invested a dime in purchasing the loan. That used to be illegal. Wait a minute, it still is illegal. So why are we allowing the banks to continue this charade and why does the government, including Obama’s administration, drag its feet in taking apart these monsters that destroyed our economy? Why is the administration assume that the 7,000 OTHER banks and credit union wolld not prosper and enter into tacit agreements to keep the government afloat while we wait for the stimulus to take effect?

There is no expert or pundit that says we are wrong. All the banks have been able to do is to roll out doomsday sayers who say that if we follow the law we will be headed for disaster. Well take a look.  Disaster is here. And the Dow Jones Industrial Average is not a proper indicator or substitutute for people who can’t put food on a table that is now located in a dwelling that the rest of us would not even consider — their car.

We choose instead to protect the banks at all costs and we call that austerity because where else is the money going to come from except the banks who siphoned it out illegally? That is our policy, our politics and our economics. And while our soldiers risk life and limb because their country called them to duty, their families were being foreclosed, some at the precise moment they were taking a shot in the leg or heart for us. Is this the society we sent them to fight for?

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