Archive for April 20th, 2011
The guilty are powerful and free, the innocent burdened and oppressed: that is injustice.
There is a fundamental injustice that is poisoning the soul of the nation, and if it is not openly addressed then the nation will face the explosive consequences of institutionalized injustice.
Simply put, it is this: those responsible for the nation’s financial crisis and its catastrophic after-effects are not paying for the consequences of their actions–it is the innocent, those who were not responsible, who are paying the price.
You can call it whatever you want: the Anarchy of the Super-Rich (as per Paul Farrell), the Financial Power Elite, the financial Oligarchy, Plutocracy or Corporatocracy, or the unprecedented concentration of financial wealth and political power in a financialized post-industrial economy. Whatever you call it, we all know this class of financiers and its minions got away with high financial crimes.
Do the crime, do the time–unless it’s “white-collar” financial crime on a vast scale. Then you might pay a wrist-slap fine (a few million dollars from your treasure of embezzled hundreds of millions) and then you’re free to go on your merry way.
The after-effects are not just the losses which can be totalled on a calculator: the really catastrophic losses are to the foundations of democracy and the economy. Democracy has been subverted–oh please, spare us the happy-story propaganda about “reform” and “the system worked”–and the economy has been incentivized to favor poisonously addictive financialization and the shadow institutions of corruption, fraud, embezzlement, favoritism, collusion and misrepresentation of risk. This might be summarized as the protection of vested interests, engineered and overseen by the partnership of the ever more intrusive Central State and the nation’s Financial Power Elite.
The Central State, designed to protect the citizenry from an oppressive monarchy or Elite, now protects this Elite from the citizenry. That is how thoroughly the injustice has been institutionalized.
There is a second part to this fundamental injustice: look who will pay for the bailouts, guarantees and the interest on the borrowed trillions. Not the banks and bankers, to be sure. Who will pay? Those who the Central State can easily tap: taxpayers who earn most of their income from wages, and those politically weak players dependent on government payments.
Now that the bills of the bailout are coming due, the State isn’t going after GE for more taxes. Heavens no–if you try that, the Panzer Division of GE’s tax avoidance army would overrun you. No, the politically easy thing to do is raise taxes on wage earners and trim entitlements, because all the government needs to do is send down the orders and it is done: the taxes are withheld and the bennies trimmed.
To go after the Power Elite is just too difficult. They have the tax attorneys, the lobbyists, the campaign fundraisers, and all the rest.
The U.S. is just a third world kleptocracy on an Imperial scale. I explored the parallels with the Roman Empire in Survival+: the Elites increasingly avoided military service and taxation, the bedrock of Roman power, while the taxes on the middle class rose to such heights that this productive class was basically driven into serfdom. The bottom layer of State dependents was placated and made complicit with bread and circuses–yes, Rome had a vast “welfare state” and much of Rome’s population received free bread to keep them quiet and pliant.
That is of course a road to ruin: let the Elite plunder at will, protected by the Imperial Central State, tax the productive class to fund the armed forces and free bread, and then buy off the lower class with bread and circuses.
The only successful model of reconciliation and justice we have is the “truth commissions” in other post-oppression autocratic kleptocracies. In countries that were deeply divided and poisoned by institutionalized injustice and exploitation, the healing process requires a public, transparent “truth commission” in which the guilty are brought forth to confess their sins against the innocent and face the consequences of their actions.
If a society cannot rouse itself to cleanse the fundamental injustice at the heart of its institutions, then it is effectively choosing self-destruction.
So far, the U.S. is pursuing the Roman Imperial model with an institutional zeal unmatched since Rome’s fall.
Embedded institutional injustice has a price, a price which rises with every passing day of propaganda and prevarication. Some day the bill will come due and a terrible price paid in full. For those in power, the only concern is that it not be today or tomorrow.
There’s no way out of the box that doesn’t result in a monstrous economic contraction folks:
Households received $2.3 trillion in some kind of government support in 2010. That includes expanded unemployment benefits, as well as payments for Social Security, Medicare, Medicaid, and stimulus spending, among other things.
But thats more than the $2.2 trillion households paid in taxes, an amount that has slumped largely due to the recession, according to an analysis by the Fiscal Times.
The last time the people got more handouts than taxes paid? The Depression.
And the handouts from the government have been growing. Government cash handouts account for a whopping 79% of household growth since 2007, even as household tax payments–for things like the income and payroll tax, among other taxes–have fallen by $312 billion.
Seventy-nine percent of household income growth?
In short, Americans have the government, not private enterprise, to thank for their wealth growth.
No they don’t, because government didn’t tax that money. They printed it.
Note that the delta starting in 2008 – that is, the change in deficits – was one trillion dollars.
That’s the distinction between private organizations and the federal government. Private organizations can borrow, but the borrowing has to be paid back.
There are many who claim that the government doesn’t have to pay back the loans. That it “can’t” go bankrupt, because it can always QE (or just “print”) out of the debt. This is factually true but horribly misleading, and those who run this meme, including the clowncar brigades from various so-called “new” theories of monetary operation, conveniently omit the central fact in all such debates:
The very people who are “helped” by all these government handouts are the same individuals and families who get screwed by the ramp in prices for various basic needs when you play “Quantitative Easing.”
In other words the handouts don’t do a damn bit of good. They’re a chimera. A popular chimera, but a chimera nonetheless.
Private industry can play a game with borrowing for quite some time, as is shown here:
But this game doesn’t work at all for the Federal Government, because as soon as the “borrow and spend” game begins the natural reaction is for the bond market to hike rates. This in turn makes the borrowing more expensive and chokes it off, as Clinton discovered.
When The Federal Reserve comes in and interferes with this process, as it is doing now, the excess liquidity supplied in order to tamper with rates has to go somewhere. Where does it go? Right into the things that those very same poor people you’re trying to “help” need to buy in order to survive - food and energy.
Why? Because these are global commodities and yet they’re priced in our currency.
There is no escaping the trap folks, except to admit to the truth and force the insoluble debt into the open, defaulting it and destroying those institutions that foolishly granted credit without any evidence that the people it was given to could pay.
This is the same mistake – identical in point of fact – that was made in the 1930s. By attempting to prevent people from being “hurt” by unemployment and economic contraction the government stretched what should have been a nasty 18 month depression into a decade-long economic disaster!
Yes, the dollar rallied and Treasuries bounced higher after the news that S&P had issued a negative outlook on the U.S. debt picture. Some argued that happened because eventual austerity would slow growth, which is deflationary and in turn good for bonds.
The dollar did what?
Uh, that would be “collapse”, not “rally.”
And in point of fact the dollar is now sitting within spitting distance of its all-time low. There is no floor beneath that level on a technical basis. While an “underthrow” excursion might well be tolerated, should there be any meaningful and sustained break below about 71.5 on the /DX you’re not going to have to worry about what comes next – you’re going to be treated to it immediately with $150/bbl+ oil, gas north of $5 and literal privation and hunger in the streets of America, as it becomes impossible for the government to hand out money faster than currency devaluation steals it. Shortly thereafter S&P will downgrade and then we’re find out if we’re Greece, Egypt, or (far worse) Libya.
Most people in the lower economic brackets are a few percentage points in the increase of their cost of living from literal starvation or inability to pay for other basic necessities such as the heat and water bill. There is no margin for these folks, and yet we’ve already effectively doubled the price of gasoline in the last year alone, not to mention the price of corn, cotton and more. While some of those agricultural commodities have come in on price over the last couple of weeks they remain at ridiculously-elevated levels – double or more where they were a year ago.
NEARLY ONE HALF OF AMERICA IS IN THIS POSITION TO SOME DEGREE, AND MORE THAN A QUARTER OF ALL AMERICANS ARE UTTERLY UNABLE TO ABSORB THE COMMODITY RAMPS THAT HAVE ALREADY TAKEN PLACE, SAY MUCH LESS THOSE THAT ARE TO COME IF THE GOVERNMENT AND FEDERAL RESERVE POLICIES CONTINUE.
So the question is: What government policies will bring the U.S. labor back to robust health, enough to drive economic growth, consumer spending — and higher tax revenues?
None. We are unwilling to stop the rape of our labor force by Mexico, China and India. Until we do, there is no solution to this problem. You cannot have “free trade” with a nation that has a per-capita income that is a tiny fraction of your own. Such is nothing other than exporting your labor and wealth to that nation, and it never comes back so long as those policies remain.
The same holds true so long as you allow illegal immigrants to come into the country and undercut the wage base of Americans here. These policies must end.
When will the U.S. government pull back from its intervention into the U.S. economy, so the economy can try to stand on its own?
That’s easy: I am becoming increasingly convinced that there will be no change in this regard until the nation collapses into a smoldering heap after the half of America that is being intentionally and systematically impoverished and destroyed by the banksters and Congress riots, burning it all to the ground.
Our government has demonstrated through multiple decades that it lacks both the intelligence and honesty required to address these problems. Our so-called leaders will stand before a podium and lie outright to their constituents in this regard, irrespective of the party they allegedly adhere to and caucus with.
There is no way out of this mess other than through acceptance of both what we’ve done and the consequences that must flow from those acts.
This isn’t complex mathematics or so-called “economist wonk talk.”
It’s arithmetic, and the longer we try to pretend it doesn’t apply the worse the outcome.
The pain stops accumulating when we choose to accept it – and not before.
William Black discusses how we will never have a recovery until those guilty for causing the crisis are prosecuted.
Casino economics and tax myths – media forgets that people pay sales, property, Social Security, and Medicare taxes. How the financial class robs from the American people legally.
As tax day passes us by, many in the public are realizing that the extremely wealthy especially in the financial industry know something they don’t. What they are finding is that the financial industry has access to massive government bailouts and in many cases does not pay their fair share of taxes. Like Atlas holding the world up some are carrying a heavier burden and it doesn’t appear to be the financial sector. Reports out from the secretive Federal Reserve show for example a $220 million loan to the wives of Wall Street executives merely for speculative purposes. A win-win gift from our central bank as a thank you for leading the nation into this economic ditch. Do you have access to cheap and plentiful loans? There is also this absurd notion that people don’t pay taxes and much of the ire has been on the poor. When you hear this in the media, they mean federal income tax. People need to take account of their lives and figure that they pay for Social Security tax, Medicare tax, sales tax, property tax, and automotive registration fees so this idea that average Americans don’t pay tax is a complete misnomer. In fact, it seems like the extremely wealthy in this country have designed a tax system that has shifted the burden to the majority. The media narrative revolves around the fact that you should shoulder the brunt of the economic problems caused by the financial industry while bailouts and handouts increase the bottom line at the top. The income inequality in our nation has never been so high.
Redistributing wealth to the top
Source: Center on Budget and Policy Priorities
As the nation struggles with financial challenges not faced in generations the share of the burden is not being evenly distributed. I think Americans at their core vale success and hard work. This goes back to the roots of Benjamin Franklin and the inherent frugality and ingenuity of our country. Yet there is nothing genius about having a financial industry that simply exists to rob the wallets of the American people and adds absolutely no value to the bottom line of our economy. Take for example the housing market. Wall Street in the late 1990s threw aside the Glass-Steagall act with the aid of key politicians and managed to turn housing into one giant casino. Over this time, the argument was, with more liquidity Americans would have more options for housing making it more affordable and accessible. The opposite occurred. Instead, we are actually now behind the curve from when this snake oil pitch was sold. Homeownership has erased all those gains and millions more will lose their home in foreclosure as income has gone stagnant for over a decade for most American households. While the narrative is that everyone is feeling the pain the too big to fail banks have actually grown thanks to government handouts:
In the midst of the deepest banking recession since the Great Depression the too big to fail banks got even bigger. This is how lopsided our current system has gotten. It does seem however, that the public is now waking up to this. Our nation is as wealthy as it has ever been and income inequality continues to grow because that is how the system is setup. For small businesses and hardworking Americans there are no Cayman Island accounts or creative tax loopholes in Ireland for sheltering taxes. The common person does not have the ability to setup tax shelters that understate income or even have access to the Federal Reserve’s easy money window. This is where things have gotten:
“(Rolling Stone) But if you want to get a true sense of what the “shadow budget” is all about, all you have to do is look closely at the taxpayer money handed over to a single company that goes by a seemingly innocuous name: Waterfall TALF Opportunity. At first glance, Waterfall’s haul doesn’t seem all that huge — just nine loans totaling some $220 million, made through a Fed bailout program. That doesn’t seem like a whole lot, considering that Goldman Sachs alone received roughly $800 billion in loans from the Fed. But upon closer inspection, Waterfall TALF Opportunity boasts a couple of interesting names among its chief investors: Christy Mack and Susan Karches.
Christy is the wife of John Mack, the chairman of Morgan Stanley. Susan is the widow of Peter Karches, a close friend of the Macks who served as president of Morgan Stanley’s investment-banking division. Neither woman appears to have any serious history in business, apart from a few philanthropic experiences. Yet the Federal Reserve handed them both low-interest loans of nearly a quarter of a billion dollars through a complicated bailout program that virtually guaranteed them millions in risk-free income.
The technical name of the program that Mack and Karches took advantage of is TALF, short for Term Asset-Backed Securities Loan Facility. But the federal aid they received actually falls under a broader category of bailout initiatives, designed and perfected by Federal Reserve chief Ben Bernanke and Treasury Secretary Timothy Geithner, called “giving already stinking rich people gobs of money for no fucking reason at all.” If you want to learn how the shadow budget works, follow along. This is what welfare for the rich looks like.”
And that is the core of the problem. The notion that these people “earned” this money is like saying a bank robber “earned” money by stealing it from the bank. Just because you can get your hands on money through a convoluted system doesn’t mean you are nothing more than stealing the wealth of average Americans. It just isn’t so obvious. The pain occurs through inflation (i.e., college, food, energy, etc) because your dollar gets worth less by this kind of rewards to bad players. Capital is not being allocated to the best sources for economic growth and is arbitrarily disbursed by which lobbyist screamed the loudest and paid off a politician. Not only are profits made on the scam, they are then sheltered through archaic tax breaks not available to most Americans.
The above scenario shows this clearly where low interest rate loans are made to those in the financial industry (or associated with it). You have connected oligarchs placing win-win bets so if they win, they make out like bandits and if they lose, it is the taxpayer that will shoulder the pain (sound familiar?). By the way, 75 percent of the $220 million loan hasn’t been paid back because parts of it is invested in commercial real estate and student loan debt. Not exactly prime markets to be in right now.
The top marginal tax rate has been falling for the top 1 percent:
Source: Visual Economics
The problem still remains that the financial industry has gotten too big not because the market demands it, but because money buys political power. In fact, in 2008 as the too big to fail banks neared extinction the actual free market was purging these bad players. The free market was working because rewarding suited up bank robbers is not exactly healthy for the economy. The biggest bank robbery occurred outside of the bank. You would think that the biggest crisis since the Great Depression would cause some serious reform. It didn’t. In fact, it pushed these same banks to become even bigger and more powerful. It has gotten so upside down that in the recent debate regarding our deficit, some are pushing for a lowering of taxes for the most wealthy yet again! In other words, we need to get our debt down and you are telling your richest family member that he needs to pay even less after all their tax shelters and gimmicks. At times you feel like you are living in the novel Brave New World as people simply ignore the obvious truth.
And the distribution is getting even more skewed:
Keep in mind that many of the CEOs of the banks that led us to this financial mess are doing very well:
“The CEO of JP Morgan, one of the big beneficiaries of the bailouts, received in his total compensation 843 times the median household income of the United States. This is where things stand. And how many people is JP Morgan kicking out of homes this year? How about the WaMu portfolio with all those toxic loans. What about the service fees now charged to customers in onerous ways? This is what we reward in America. There is nothing wrong with rewarding say Apple for providing iPods or iPhones that people choose to buy without governmental coercion. But here we have a bank that is largely benefitting simply by its connections to Washington D.C. and their service is gouging average Americans even further. Where is the benefit of the too big to fail for the public?”
So when you pay sales taxes for purchasing that toy for your kid, remember that you pay no taxes. When you send in your annual property tax bill, remember that you pay no taxes. When you see your paycheck yank out funds for Social Security and Medicare, remember that you pay no taxes. I think people are waking up to the reality that we have two financial systems going on; one that is supposedly broke for the average and working class and one that has abundant money and hands out cash like candy to the financial class.
The FSA (Free #$#t Army) on both the left and right have pretty-much guaranteed the outcome at this point in time, absent someone in Washington DC standing up and putting a stop to the destruction.
The problem with “the outcome” is that it is going to destroy the FSA folks – the brunt of this damage is going to go directly up the chute of the lower income American. Those in the middle class or below, especially those over 50 including retirees, are finished unless the idiocy stops here and now.
That’s the dollar and assuming it closes here or below it will have decisively taken out of the 2009 lows.
Below here lies just one more level – the last one. The all-time lows from 2008, just before it all went to hell in the markets.
They knew what was coming in 2008 and decided to pull liquidity. I’ve documented that; it was visible in the overnight liquidity markets and the NY Fed’s own published data.
Bernanke is now boxed in and so is Congress and Obama. If they do not pull system liquidity back and force the dollar higher commodities will continue to ramp. You saw what happened to gasoline last time in 2008, right? It’s happening again:
The problem with fuel doing this is that oil is in everything. It’s in food, it’s in plastics, it’s in everything you buy and use. Tires, car dashboards, packaging and of course transport. It’s an unavoidable cost and is insanely regressive, hurting the poor and working middle class the most.
Or how about corn? You don’t need to eat, do you?
In 2007 and early 2008 I counseled forcing the banks to eat their cooking, even if it destroyed them. That would have both permanently stopped the ramp and at the same time cleared the debt. This was deemed politically impossible and so instead we did bailouts. The stock market fell apart but found its footing when the Congress gave permission to the banks to lie about asset valuations via getting rid of mark-to-market accounting.
But we didn’t solve anything. Instead, we shifted that credit guarantee to the United States government and away from the banks themselves. The damage was given to all of us in the form of roughly $4 trillion in additional debt over the last three years – debt that we will now have to either pay off or default upon. What’s worse is that the $4 trillion didn’t actually buy toxic assets or remove them – instead it papered over the damage by handing out “free money’ to people but the rotting dead fish in the form of those assets remains on the books.
So now we furiously continue to spend more than we make at the government level, since the Federal Government is the only entity left that can do so; everyone else’s credit has been cut off since they can’t pay. The consumer has stopped being stupid, except for our youth who are being goaded into student loans they will never be able to pay back.
S&P has correctly come to the conclusion that if we don’t stop this right now – with full implementation before 2013 – we will not be able to pay at all. We will reach the tipping point, in their calculations, where interest is paid upon interest and the total debt grows even if you stop the deficit spending before that time.
Plans to stop in 30 or 40 years are not credible. That’s what S&P said, if you read their release. They also noted that both student loans and the Fannie and Freddie hidden liabilities remain in the system and remain toxic. S&P hit on exactly the points I’ve been making now in The Ticker for four years.
So what are we to do? We sit in the same place we sat in the early part of 2008. Having come off a crazy market rally in 2007, we had a nasty drop. Then, we saw a huge rally and people, including Bernanke, said it was all going to be ok.
Where is The Fed going to get its bullets from this time? Where’s the government going to find more ways to spend even more money? Sure, they can “print” or “borrow” (really QE) more, but doing so simply drives down the dollar further and starves all the people under the median household income, which incidentally is about half the population.
We’re not headed for Greece folks – we’re headed for Egypt.
Enjoy the “rally” today, such as it is and for however long it lasts. The entire move today is simple currency devaluation and is the expected outcome. But while you’re trading in and out and making money on the ramp, consider this: How much is a burned-to-the-ground company’s headquarters – or government - worth?
If you think it can’t happen here, you’re wrong. It not only can, it has in the past – and if we don’t cut the crap pretty much right now, it will again.