FedUpUSA

Archive for July 14th, 2011

The U.S. is due for another cultural revolution, led by the younger generations, perhaps including a fifth Great Awakening.

There seems to be a 40-year cycle of cultural change in American society. The classic exploration of generational types and cycles,The Fourth Turning, identified a four-generational, 80-year cycle of profound crisis and transformation:

1781 – end of the Revolution and establishment of the nation
1861 – Civil War
1941 – Global war and end of the Depression
2021 – end of the Savior State and debt-based “prosperity,” Peak Everything and geopolitical conflict over resources

In terms of cultural revolutions, these seem to sweep through every 40 years or so, a two-generational cycle within the longer cycle. It’s not an exact cycle, but consider these dates and eras:

1740: The First Great Awakening: The Protestant evangelical movement of the 1740s played a key role in the development of democratic concepts in the period of the American Revolution and helped foster a demand for the separation of church and state.

1776-1781: Revolutionary War, cultural shift away from the British Empire and toward an American identity.

1820: Second Great Awakening: sparks the rise of the Abolitionist movement which sets the cultural, social and spiritual stage for the Civil War.

1860: the Civil War

1890s: The Gay 90s, a period of American expansion and new freedoms of expression, clouded by the Panic of 1893 which sent the economy into a 6-year depression.

This era was the culmination of the Gilded Age, the industrialization of the U.S. economy between 1865 and 1900. By the beginning of the 20th century, per capita income and industrial production in the United States led the world, with per capita incomes double that of Germany or France, and 50% higher than Britain. Not coincidentally, the birth of the modern industrial labor union occurred around 1890.

1925-30: The Roaring Twenties, an era “marked by a general feeling of discontinuity associated with modernity and a break with traditions. Everything seemed to be feasible through modern technology. Formal decorative frills were shed in favor of practicality in both daily life and architecture. At the same time, jazz and dancing rose in popularity, and as such the period is also known as the Jazz Age.”

1967-1970: The Counterculture, which included the culmination of the Civil Rights Movement and the birth/expansion of the feminist movement, Eastern spirituality in the U.S., back-to-the-land self-sufficiency, rock music as a cultural force, the nonviolent anti-war movement, the anti-nuclear movement, experimentation with communal living and drugs, Futurist concepts, and a widespread expansion of freedom of self-expression and experimentation. Many observers believe this ear also launched a Fourth Awakening as evangelical denominations expanded and “Jesus freaks” found religious inspiration outside mainline churches.

The book What the Dormouse Said: How the 60s Counterculture Shaped the Personal Computermakes a strong case that this era set the stage for the ultimate technological medium of experimentation and self-expression, the personal computer, which then led irresistably to the World Wide Web (all the foundational technologies of the Internet were in place by 1969–The first permanent ARPANET link was established on November 21, 1969, between UCLA and Stanford Research Institute.)

Which changed the world, of course. Those darn hippies!

1970 + 40 = 2010: That takes us to the present. Right now the nation is wallowing self-piteously in a fetid trough of denial and adolescent rage/magical thinking that the nation’s bogus, debt-based “prosperity” has crashed and cannot be restored, though Ben Bernanke and the clueless “leaders” the citizenry has fecklessly elected keep trying to glue Humpty Dumpty back back together again.

Unfortunately, all they’ve accomplished is to glue their own fingers together.

The “too big to fail” banks and Corporate Cartels effectively own the Federal machinery of governance, the Savior State’s fiefdoms are expanding their reach and power like uncontrollable cancers, and the “leadership”–mostly self-glorifying. grossly incompetent, self-absorbed, greedy Baby Boomers, but with a few equally clueless 40-somethings present just to prove that age is no protection against self-delusion and supreme greed– has resolved to surrender to the Financial Power Elites and State fiefdoms, and fiddle around with “extend and pretend” strategies until they can exit the stage with bulging bags of swag.

Their only goal is to not be the one blamed when the whole corrupt contraption finally collapses under its own weight. If there was ever a more pathetic, corrupt, cowardly and incompetent set of “leaders” in the nation’s history, they must have done their skimming during periods of relative prosperity. Now we need real leaders, not TV-ready simulacra spouting bloated slogans that contain the magic word “change.”

Gen X and Gen Y, this is your “lights, camera, action!” call, if not for political power, then for a cultural revolution. I for one am ready for a Fifth Awakening, a Cultural Revolution, and a restoration of self-rule and the real, non-financialized economy.

Happy Bastille Day. It’s time we tore down the Bank Bastille that’s imprisoning us all.

Of Two Minds

I warned last year:

Anyone   who thinks that Congress will use the current financial regulation -    Dodd-Frank – to break up banks in the middle of an even bigger crisis  is  dreaming.   If the giant  banks aren’t broken up now – when they are threatening to take down the  world economy – they won’t be broken up next time they become insolvent either.   And see this.  In other words, there is no better time than today to break them up.

Standard and Poors is providing evidence for this assertion.

As the Financial Times notes today:

Officials fighting the next financial crisis may again bail out banks using the public purse, S&P has said, in an opinion that casts doubt on one of the fundamental tenets of US financial reform.

The rating agency said on Wednesday that the US Treasury, Federal  Reserve and Congress might rescue a large financial group rather than  allow it to fail like Lehman Brothers. Dodd-Frank, the legislation  signed into law a year ago next week, was supposed to prevent bail-outs  by allowing the government to seize and wind down safely an ailing “systemically important financial institution”, or Sifi.
 

But  in a research note, S&P said: “We believe the government may try to  avoid contagion and a domino effect if a Sifi finds itself in a  financially weakened position in a future crisis.”The agencies’ views are crucial to the fight over whether the  phenomenon of “too big to fail” has been ended. If not, the largest  banks will continue to enjoy a funding advantage over their smaller  rivals.

And see this (written after the passage of Dodd-Frank).

Why Break Up the Giant Banks?

Virtually all independent economists and financial experts say that the giant banks are too big, and that their very size is hurting the economy:

• Nobel prize-winning economist, Joseph Stiglitz

• Nobel prize-winning economist, Ed Prescott

• Nobel prize-winning economist, Paul Krugman

• Former chairman of the Federal Reserve, Alan Greenspan

• Former chairman of the Federal Reserve, Paul Volcker

• Former Secretary of Labor Robert Reich

• Dean     and professor of finance and economics at Columbia Business School,    and  chairman of the Council of Economic Advisers under President  George   W.  Bush, R. Glenn Hubbard

• Former Director of the National Economic Council Larry Summers

• Former chief IMF economist and economics professor Simon Johnson (and see this)

• President of the Federal Reserve Bank of Kansas City, Thomas Hoenig (and see this)

• President of the Federal Reserve Bank of Dallas, Richard Fisher (and see this)

• President of the Federal Reserve Bank of St. Louis,  Thomas Bullard

• Deputy Treasury Secretary, Neal S. Wolin

• The President of the Independent Community Bankers of America, a Washington-based trade group with about 5,000 members, Camden R. Fine

• The Congressional panel overseeing the bailout (and see this)

• The head of the FDIC, Sheila Bair

• Former Tarp overseer and creator of the Consumer Financial Protection Bureau, Elizabeth Warren

• The head of the Bank of England, Mervyn King

• The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz

• Economics professor and creator of the “efficient market hypothesis”, Eugene Fama

• Economics professor and senior regulator during the S & L crisis, William K. Black

• Economics professor, Nouriel Roubini

• Economics professor, James Galbraith

• Economist, Marc Faber

• Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales

• Economics professor, Thomas F. Cooley

• Economist Dean Baker

• Economist Arnold Kling

• Former investment banker, Philip Augar

• Chairman of the Commons Treasury, John McFall

• Leading bank analyst, Chris Whalen

Why do these experts say the giant banks need to be broken up?

Well, small banks have been lending much more than the big boys.  The giant banks which received taxpayer bailouts have been harming the economy by slashing lending, giving higher bonuses, and operating at higher costs than banks which didn’t get bailed out.

As Fortune pointed out, the only reason that smaller banks haven’t been able to expand and thrive is that the too-big-to-fails have decreased competition:

Growth    for the nation’s smaller banks represents a reversal of trends from   the  last twenty years, when the biggest banks got much bigger and many   of  the smallest players were gobbled up or driven under…

As  big   banks struggle to find a way forward and rising loan losses  threaten  to  punish poorly run banks of all sizes, smaller but well  capitalized   institutions have a long-awaited chance to expand.

So the very size of the giants squashes competition, and prevents the small and medium size banks to start lending to Main Street again.

And as I noted in December 2008, the big banks are the major reason why sovereign debt has become a crisis:

The   Bank for International Settlements (BIS) is often called the “central   banks’ central bank”, as it coordinates transactions between central   banks.

BIS points out in a new report that the bank rescue packages have transferred significant risks onto   government balance sheets, which is reflected in the corresponding   widening of sovereign credit default swaps:

The   scope and magnitude of the bank rescue packages also meant that   significant risks had been transferred onto government balance sheets.   This was particularly apparent in the market for CDS referencing   sovereigns involved either in large individual bank rescues or in   broad-based support packages for the financial sector, including the   United States. While such CDS were thinly traded prior to the announced   rescue packages, spreads widened suddenly on increased demand for  credit  protection, while corresponding financial sector spreads  tightened.

In  other words, by assuming huge portions of  the risk from banks trading  in toxic derivatives, and by spending  trillions that they don’t have,  central banks have put their countries  at risk from default.

A study of 124 banking crises by the International Monetary Fund found that propping banks which are only pretending to be solvent hurts the economy:

Existing  empirical research has shown that providing assistance to banks  and  their borrowers can be counterproductive, resulting in increased  losses  to banks, which often abuse forbearance to take unproductive  risks at government expense. The typical result of forbearance is a  deeper hole in the net worth of banks, crippling tax burdens to finance  bank bailouts, and even more severe credit supply contraction and  economic decline than would have occurred in the absence of forbearance.

Cross-country   analysis to date also shows that accommodative policy  measures (such   as substantial liquidity support, explicit government  guarantee on   financial institutions’ liabilities and forbearance from  prudential   regulations) tend to be fiscally costly and that these  particular policies do not necessarily accelerate the speed of economic  recovery.

***

All too often, central banks privilege stability over cost  in the heat of the containment phase: if so, they may too liberally  extend loans to an illiquid bank which is almost certain to prove  insolvent anyway.   Also, closure of a nonviable bank is often delayed for  too long, even   when there are clear signs of insolvency (Lindgren,  2003). Since bank   closures face many obstacles, there is a tendency to  rely instead on   blanket government guarantees which, if the government’s  fiscal and   political position makes them credible, can work albeit at  the cost of placing the burden on the budget, typically squeezing future  provision of needed public services.

Now,  Greece, Ireland, Portugal, Spain, Italy and many other European countries – as well as  the U.S. and Japan – are facing serious debt crises. We are no longer  wealthy enough to keep bailing out the bloated banks.

Indeed, the top independent experts say that the biggest banks are insolvent (see this, for example), as they have been many times before. By failing to break up the giant banks, the government will keep taking emergency measures (see this and this) to try to cover up their insolvency.  But those measures drain the life blood out of the real economy.

And by failing to break them up, the government is guaranteeing that they will take crazily risky bets again and again, and the government will wrack up more and more debt bailing them out in the future.

Moreover, Richard Alford – former New York Fed economist, trading floor economist and strategist – recently showed that banks that get too big benefit from “information asymmetry” which disrupts the free market.

Indeed, Nobel prize-winning economist Joseph Stiglitz has noted that giants like Goldman are using their size to manipulate the market:

“The    main problem that Goldman raises is a question of size: ‘too big to    fail.’ In some markets, they have a significant fraction of trades. Why    is that important? They trade both on their proprietary desk and on    behalf of customers. When you do that and you have a significant    fraction of all trades, you have a lot of information.”

Further,    he says, “That raises the potential of conflicts of interest, problems    of front-running, using that inside information for your proprietary    desk. And that’s why the Volcker report came out and said that we need    to restrict the kinds of activity that these large institutions have.  If   you’re going to trade on behalf of others, if you’re going to be a    commercial bank, you can’t engage in certain kinds of risk-taking    behavior.”

The giants (especially Goldman Sachs) have also used high-frequency program trading  which not only distorts the markets – making up more than 70% of stock trades – but which also lets the    program trading giants take a sneak peak at what the real (that is,    human)  traders are buying and selling, and then trade on the insider    information. See this, this, this, this and this. (This is  frontrunning,    which is illegal; but it is a lot bigger than garden variety    frontrunning, because the program traders are not only trading based on    inside knowledge of what their own clients are doing, they are also trading based on knowledge of what all other traders are doing).  Goldman also admitted that its proprietary trading program can “manipulate the markets in  unfair ways”.

Moreover, JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley together hold 80% of the country’s derivatives risk, and 96% of the exposure to credit derivatives. Experts say that derivatives will never be reined in until the mega-banks are broken up – and see this – even though the lack of transparency in derivatives is one of the main risks to the economy.

The giant banks have also allegedly used  their Counterparty Risk Management Policy Group (CRMPG) to exchange secret information and formulate coordinated  mutually beneficial actions, all with the government’s blessings.

Again, size matters.  If a bunch of small banks did this,  manipulation   by numerous small players would tend to cancel each other  out.  But  with  a handful of giants doing it, it can manipulate the  entire economy  in  ways which are not good for the American citizen.

Further, fraud was one of the main causes of the Great Depression and the current financial crisis.  The banks are so big that they are buying off politicians so that it has become official policy not to prosecute fraud.   Indeed, everyone from Paul Krugman to Simon Johnson has said that the banks are so big and politically powerful that they have bought the politicians and captured the regulators. So their very size is allowing economy-killing corruption to flourish.

Moreover, the banks’ enormous size means that the executives make orders of magnitude more in bonuses and salary than the executives of small banks.  They are so big that their executives are living like kings.  This is making inequality worse … and rampant inequality was another primary cause of the Great Depression and the current financial crisis.

Indeed, failing to break up the big banks will result in the sale of national assets and the looting of national treasuries in order to pay off debts to the giant banks.  This, in turn, will destroy the national sovereignty of virtually every country.

Leading independent bank analyst Christopher  Whalen argues:

The  fraud and obfuscation now  underway in  Washington to protect the    TBTF  [i.e. giant or "too big  to fail"] banks … totals into the   trillions of dollars and rises to     the level of treason.

Just look at Greece.  That is our future – and see this – unless we break up the “too big to fails”.

These concepts have been known for hundreds of years:

“When a government is dependent upon bankers for money, they and not   the leaders of the government control the situation, since the hand that   gives is above the hand that takes… Money has no motherland;   financiers are without patriotism and without decency; their sole object   is gain.”
- Napoleon Bonaparte

“There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.”
- John Adams

“If   the American people ever allow the banks to control issuance of their   currency, first by inflation and then by deflation, the banks and   corporations that grow up around them will deprive the people of all   property until their children will wake up homeless on the continent   their fathers occupied”.
— Thomas Jefferson

“I  believe that   banking institutions are more dangerous to our liberties  than standing   armies…The issuing power should be taken from the banks  and restored   to the Government, to whom it properly belongs.”
- Thomas Jefferson

“[It was] the poverty caused by the bad influence of the English     bankers on the Parliament which has caused in the colonies hatred of the     English and . . . the Revolutionary War.”
- Benjamin Franklin

“The   Founding Fathers of this great land had no difficulty whatsoever    understanding the agenda of bankers, and they frequently referred to    them and their kind as, quote, ‘friends of paper money. They hated the    Bank of England, in particular, and felt that even were we successful  in   winning our independence from England and King George, we could  never   truly be a nation of freemen, unless we had an honest money  system. ”
-Peter Kershaw, author of the 1994 booklet “Economic Solutions”

“[T]he   creation and circulation of bills of credit by revolutionary    assemblies…coming as they did upon the heels of the strenuous efforts    made by the Crown to suppress paper money in America [were] acts of    defiance so contemptuous and insulting to the Crown that forgiveness was    thereafter impossible . . . [T]here was but one course for the crown   to  pursue and that was to suppress and punish these acts of    rebellion…Thus the Bills of Credit of this era, which ignorance and    prejudice have attempted to belittle into the mere instruments of a    reckless financial policy were really the standards of the Revolution.     they were more than this: they were the Revolution itself!”
- Historian Alexander Del Mar

“The   British Parliament took away from America its  representative money,   forbade any further issue of bills of credit,  these bills ceasing to be   legal tender, and ordered that all taxes  should be paid in coins …   Ruin took place in these once flourishing  Colonies . . . discontent   became desperation, and reached a point . . .  when human nature rises  up  and asserts itself.”
- British historian John Twells

To the peanut gallery that don’t “get it”: There is zero risk of Social Security and Medicare checks not going out if the debt ceiling is not raised for the next three years.

Got it?  Zero.

How?   Here’s how:

That total debt number is the amount subject to the limit, more or less.

But the “Intragovernmental Holdings” is the amount that the Social Security and Medicare trust funds are “owed” by the general fund.

The Treasury can redeem those by selling new bonds into the market in a 1:1 ratio and if they do so they now have dollars in an exactly equal amount.

That’s $4.6 trillion dollars.

How much is Social Security and Medicare every year?   That’s easy – we can look at the Trustee report, which says that in 2010 the total expenditures were $1.235 trillion.

Note that these funds also receive tax monies and in 2010 they took in $1.267 trillion.

Wait a second…… they took in more than they spent?  Indeed, which means that the only reason the Treasury has a problem in the present tense is that they have been stealing the tax revenues and replacing them with yet more IOUs.

(Note that due to the boomers retiring and medicare cost advances, which are relentless, both of these funds are bankrupt in the intermediate term.  We’re talking about whether the money exists to pay benefits here and now, not in the future.)

But since those IOUs are counted in the total debt outstanding there is no reason whatsoever to state that Social Security “might” or “would” not be paid, other than as an intentional act of screwing Senior Citizens by Treasury and President Obama, for which they would both be personally responsible.

Let’s make sure you understand this:

THERE IS NO SHORTAGE OF FUNDS TO PAY SOCIAL SECURITY AND MEDICARE UNDER THE EXISTING DEBT CEILING.  IN FACT, TREASURY COULD PAY THOSE BENEFITS EVEN IF THERE WAS ZERO TAX COLLECTED FROM ANYONE IN THIS COUNTRY FOR SOCIAL SECURITY AND MEDICARE – SUCH AS IF UNEMPLOYMENT WAS 100% – FOR A PERIOD OF MORE THAN THREE YEARS, AND NOT VIOLATE THE DEBT CEILING.

President Obama and Tim Geithner are lying and their own data, from their own web sites and the Trustees proves it beyond a shadow of a doubt.

Do not allow the fraudmasters of Washington DC to run their “tanks in the streets” lie once again.

This is simple: Raise the debt ceiling by as little as one dollar, lose your f%$#ing job.