FedUpUSA

Archive for November 8th, 2011

November 8, 2011

PRESS RELEASE – FOR IMMEDIATE RELEASE

FedUpUSA Congratulates Janice Daniels, New Mayor of the City of Troy, Michigan

FedUpUSA is thrilled not just for Janice, but for the residents of Troy, who will finally have a government responsive to their voices.  The City of Troy will finally have a transparent, open and honest government.  There will be no more cronyism with our government servants padding their own pockets and pension shortfalls with taxpayer money while closing our library.  (Election Results)

We are confident that the City of Troy will return to being the City of Tomorrow, instead of the City of Yesterday.

FedUpUSA would also like to congratulate, Doug Tietz and Dave Henderson on their election to City Council.

FedUpUSA is a national organization, which is based in Michigan. Our mission since 2008 has been to educate the public about the economic crisis and the fraud, corruption and cronyism that exists between our financial system and our government.

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Our financial system is like a fast-mutating cancer that evades any control and is still perfecting its ability to game and loot.

Two frequent contributors provided fresh insights into why the current global financial system will implode: it is intrinsically fraudulent and acts as a financial cancer, evading the “immune system” of regulation and perfecting its ability to exploit and loot the last remaining pockets of low-risk capital.

We start with David P.’s excellent exploration of systemic fraud:

Your essay The Collapse of Our Corrupt, Predatory, Pathological Financial System Is Necessary and Positive  was entirely correct about risk.  But let me come at this from a different angle – namely fraud.Finance skims a percentage off the real economy.  Some part of the skim is legitimate reward for capital allocation – a necessary part of a capitalist system and part of what makes it more efficient than a command economy.  But some part of the skim is fraud.

Where are we now?  Let’s look at the sources of skim:

First there are the more legitimate skim sources – interest payments, management fees, IPO fees, M&A fees, trade commissions.

Then there are the less legitimate bank sources: penalty credit card interest rates, late fees, usage fees, over-the-limit fees, late payment fees, bounced check fees, low balance fees.    And the capital markets sources – front-running, insider trading, account churning, manipulation of the news cycle, the captive analyst “ratings game”, trading against your own client’s order book, forex trades which are marked at the day high or low irrespective of when the trade took place, market manipulations at options expiration, stuffing your managed client accounts full of dubious IPOs and new issues that your organization is earning fees from originating.

Bucket shops and ponzi schemes take it even a step further – no actual financial activity takes place.  Its simply robbery.

And now we add the new stuff: credit default swaps without margin, fraudulent loan origination, sliced & diced mortgages, mark to myth accounting, foreclosure halts to avoid realizing losses, extend & pretend, quote stuffing, HFT trading activity that boils down to denial of service attacks on exchange computers causing delays in pricing information, highly complex derivatives sold to unsuspecting but optimistic public servants, too big to fail status providing cheap backup in the event of trouble, and increased organizational size that facilitate cartel-like control over government and regulators.

But if that’s not enough, there is the structure itself:  they aren’t doing this with saved capital, but rather with freshly printed and/or borrowed capital.  Its all done with 12:1 leverage at a minimum.  So only 8.3% of the gambling (optimistically anyway) is actual capital – saved surplus.  And if Basel II says it’s risk-free, well there’s no need for reserves at all.  It is just manufactured money, which effectively mean each bet is diluting the actual savings of real people.  And if the bet goes bad, the Fed will ride to the rescue with low-cost money.  But usually the bet goes well, because ordinarily the number of sources of fraud today is so HUGE, its practically impossible not to succeed.

Unless of course they get too greedy.  Or the debt levels rise so high that large numbers of borrowers default.  And guess where we are.

The financial system is supposed to allocate capital and take a modest skim as reward for helping society to be efficient.  When they are doing this, they provide a net benefit to society because it’s a win-win proposition.  They are making society more efficient, and they thus earn their percentage.

However, and this is the key point: fraud provides no net benefit to society.   Fraud extraction is a zero sum game.  For every dollar extracted through fraud, someone in the productive society ends up losing – savings, salary, whatever.  This is why fraud is bad.

(I say that leverage is zero sum because constructing money from thin air for a leveraged  investment causes inflation and thus steals from savers.)

Currently, it is my opinion that the vast majority of today’s highly profitable financial activity is fraud.  They have gone way, way beyond their mandate of capital allocators.  Because most of its activities are based on fraud, the finance industry is acting as a parasite, sucking the life blood from the rest of society.  Its bad enough we have peak everything, a world population of 7 billion people, and globalization to deal with – but we also have to face these challenges while a leech is weakening us with every step we take!

As a result, when this bloated, fraud-based financial system dies, we’ll have a awesome, positive chance to rip off the parasite and replace it with something more beneficial.  Simply re-executing glass-steagall will do for a start.  Bring back 9-3 boring banking, where banks retain the mortgage and live with the risk, and capital markets once again do their job of capital allocation — but without the fraud so rampant today.

Same conclusion, different angle. Intrinsically, I believe that capitalism does actually allocate capital more efficiently  than competitive systems.  And yet, how the current system works is so wrong.  And I  figured out it was fraud.  Fraud was the bad guy.   Remove fraud, and things get a lot better.

But after re-reading your essay, fraud wasn’t the whole answer either.  Fraud might be the leech,  but leverage is the system killer.

One other comment.

If you apply statistics incorrectly to market behavior, you get into trouble.  It is possible to successfully hedge away risk if the failure of one investment is truly uncorrelated with another.  Joe defaulting on his mortgage is a unique event, and won’t affect Sam and the likelihood of him defaulting.  Then you can apply statistics and things should work out fine.  Of course, in a debt bubble or a recession, that’s no longer true.  The same factor that caused Joe to default will also affect the likelihood that Sam will default too.  Unemployment, being underwater, herd behavior, “its better to rent” – it all correlates, completely destroying the underlying assumption.  Real life trumps statistics.

This further supports your basic premise – in the real world, there are almost always hidden correlations that reveal themselves at the worst possible moment, typically at the point of maximum leverage.  Thus for practical purposes, it is impossible to hedge away risk; as a result, leverage still kills.

We’ve seen this most recently in sovereign debt.  Basel II lets banks lever to infinity on sovereign debt because it assumes sovereign debt has a zero default risk.  Hmm…

So – remove fraud, remove leverage, admit risk will always exist, and the capital markets can go back to fulfill their traditional role in society of capital allocation, making us all more efficient.

But of course removing fraud and leverage removes all of the easy zero-sum profit opportunities; all that remains is the job of capital allocation.   While its true that capital allocation materially contributes to society, it turns out it is also hard work.  Who wants to do that when there’s easy money to be made in fraud – with leverage!  And that’s why we have to have another crash so we can return finance to its proper – and necessary – role in society.

Contributor Michael M. explores the analogy that our financial system is in effect an aggressive cancer, and also explores the system’s inherent instability:

I think the risk “hedging” can be split into two parts, first using/inventing “hedging”  instruments who won’t live up to their name in a major event (CDS anyone?), and second  hiding risks in existing allegedly time-tested limited risk systems/instruments.You mostly covered the first part in your article.

Some more examples for the second variant, besides lowering the down payment on house mortgages, are: Gaming VaR models (so for a 1% VaR the risk in the 99 days remains the same, but the  blowup in the 1-out-of-100 event becomes much much larger), or lowering of Fractional Reserve  requirements, or Sweep accounts (deposits in checking accounts get sweeped into savings  accounts, i.e. are put into money market funds where the risk is a [little] bit higher,  but the owner of the capital [the depositor] doesn’t receive higher premiums), or student loans becoming non-dischargeable.

“So what happens when one counterparty (issuer of a hedge) somewhere in the chain runs into trouble? The entire chain collapses.”

Or the accounting rules are manipulated, so the entity next in line after the collapsed one is allowed to keep their risk valued at par on the books, even though their hedge just  vanished (and they are not able to get replacement hedges at an acceptable price in the  current market) and the ongoing collapse freezes in a state of suspended reality – but the trouble is not undone!

The system has not blown up yet because there are still some pockets of unimpaired, really  low-risk capital available to game and loot.

In effect the financial system is still perfecting its ability to game and loot, just  like a cancer which, due to non-self-restrained growth and fast mutation, continuously  improves its ability to elude or withstand the immune system. Until the host cannot bear  the strain anymore.

How could we ever get to this point?

Too much stability.Thereby lowering reserves and safety margins more and more, until one  day (maybe even without a large increase in volatility first!) a swing exceeds the safety  margin. Oops. Which is exactly what Nassim Taleb is saying, but almost no one fully understands him.

This leads to my quote, which I came up with myself:

Stability breeds stupidity.

But at the same time one must remain humble of being able to overview all relevant parts  of the picture… it can go on for a LOT longer than oneself can come up with a functioning game plan for, no matter how far you stretch your imaginable reality.

Which makes me go back to my “(over-)complexity” meme. I nowadays also look at The Fourth Turning through my complexity goggles… and war is still the strongest simplifier -  quicker and more rigorous even than a systemic collapse!

Thank you, David and Michael, for your incisive analyses.  The system’s stability is superficial, and we might yet see that facade stripped away in the remaining months of 2011.

Charles Hugh Smith – Of Two Minds

Do you want to get rich? Just get elected to Congress. The U.S. Senate and the House of Representatives are absolutely packed with wealthy people that are very rapidly becoming even wealthier. The collective net worth of the members of Congress is now measured in the billions of dollars. The people that we have elected to the House and Senate are absolutely swimming in money. Unfortunately, it is not easy to get elected to Congress. In this day and age you generally have to be heavily connected to those that are very wealthy to get into Congress because it takes gigantic amounts of cash to win campaigns. But if you can get in to the club, you pretty much have it made. The numbers that you are about to read are very difficult to believe and they should deeply sadden you. They show that Congress has become all about money. Congressional races are mostly financed by wealthy people, most of the people that we elect to Congress are very wealthy, and they rapidly get wealthier after they are elected. All of this money has turned our republic into something far different than our founding fathers intended.

The following are 12 statistics about money and Congress that are so outrageous that it is hard to believe that they are actually true….

#1 The collective net worth of all of the members of Congress increased by 25 percent between 2008 and 2010.

#2 The collective net worth of all of the members of Congress is now slightly over 2 billion dollars. That is “billion” with a “b”.

#3 This happened during a time when the net worth of most American households was declining rapidly. According to the Federal Reserve, the collective net worth of all American households decreased by 23 percent between 2007 and 2009.

#4 The average net worth for a member of Congress is now approximately 3.8 million dollars.

#5 The net worth of House Minority Leader Nancy Pelosi increased by 62 percent from 2009 to 2010. In 2009 it was reported that she had a net worth of 21.7 million dollars, and in 2010 it was reported that she had a net worth of 35.2 million dollars.

#6 The top Republican in the Senate, Mitch McConnell, saw his wealth grow by 29 percent from 2009 to 2010. He is now worth approximately 9.8 million dollars.

#7 More than 50 percent of the members of the U.S. Congress are millionaires.

#8 In 2008, the average cost of winning a seat in the House of Representatives was $1.1 million and the average cost of winning a seat in the U.S. Senate was $6.5 million. Spending on political campaigns has gotten way out of control.

#9 Insider trading is perfectly legal for members of the U.S. Congress – and they refuse to pass a law that would change that.

#10 The percentage of millionaires in Congress is more than 50 times higher than the percentage of millionaires in the general population.

#11 U.S. Representative Darrell Issa is worth approximately 220 million dollars. His wealth grew by approximately 37 percent from 2009 to 2010.

#12 The wealthiest member of Congress, U.S. Representative Michael McCaul, is worth approximately 294 million dollars.

So how are members of Congress becoming so wealthy?

Well, there are lots of ways they are raking in the cash, but one especially alarming thing that goes on is that members of Congress often make investments in companies that will go up significantly if legislation that is being considered by Congress “goes the right way”.

This is called a “conflict of interest”, but it happens constantly in Congress and nobody seems to get into any trouble for it.

The following is video of Steve Kroft of 60 Minutes ambushing Nancy Pelosi about one particular conflict of interest involving credit card legislation. As you can see, she does not want to talk about it….

As noted above, insider trading is perfectly legal for members of Congress.

A law that would ban insider trading by members of Congress has been stalled for years on Capitol Hill.

So has this been a significant benefit to members of Congress?

Well, there has been at least one study that appears to indicate that members of Congress have been much more successful in the stock market than members of the general public have….

A 2004 study of the results of stock trading by United States Senators during the 1990s found that that senators on average beat the market by 12% a year. In sharp contrast, U.S. households on average underperformed the market by 1.4% a year and even corporate insiders on average beat the market by only about 6% a year during that period. A reasonable inference is that some Senators had access to – and were using – material nonpublic information about the companies in whose stock they trade.

Of course all of this could just be a coincidence, right?

Meanwhile, members of Congress keep telling the rest of us that we are just going to have to cut back because times are tough.

For example, during an interview with George Stephanopoulos of ABC News, Nancy Pelosi actually claimed that we should try to encourage poor people to have less children because it costs the government so much money to take care of them….

PELOSI: Well, the family planning services reduce cost. They reduce cost. The states are in terrible fiscal budget crises now and part of what we do for children’s health, education and some of those elements are to help the states meet their financial needs. One of those – one of the initiatives you mentioned, the contraception, will reduce costs to the states and to the federal government.

STEPHANOPOULOS: So no apologies for that?

PELOSI: No apologies. No. we have to deal with the consequences of the downturn in our economy.

This elitist attitude extends all the way into the White House as well. Earlier this year, Barack Obama made the following statement….

“If you’re a family trying to cut back, you might skip going out to dinner, or you might put off a vacation.”

Meanwhile, the Obamas are living the high life at taxpayer expense. In a previous article I mentioned one outrageously expensive vacation taken by the Obamas that was paid for by our taxes….

“Back in August, Michelle Obama took her daughter Sasha and 40 of her friends for a vacation in Spain.

So what was the bill to the taxpayers for that little jaunt across the pond?

It is estimated that vacation alone cost U.S. taxpayers $375,000.”

There is a massive disconnect between what our politicians say and what our politicians do.

The high life is good enough for them, but the rest of us have got to “cut back” and suffer becomes times are hard.

But when it comes to money and Congress, the most corrupting influence of all is probably all of the campaign money that gets thrown around.

In America today, it takes gigantic mountains of money to run a successful campaign.

Sadly, the candidate that raises the most money almost always wins. In federal elections the candidate that raises the most money wins about 90 percent of the time.

More than 5 billion dollars were spent on political campaigns back in 2008.

That represents a huge number of favors that need to be paid back.

In 2012, it is being projected that 8 billion dollars could be spent on political campaigns.

When big corporations and wealthy individuals shovel huge piles of money into political campaigns, it is generally because they expect something in return.

Most of those that get sent to Congress realize that they never would have won if wealthy donors had not showered cash on them. Most of them understand that they should not bite the hands that feed them if they want the cash to keep rolling in.

Politics in America has become a game that is played by the elite for the benefit of the elite.

Average Americans have the perception that they are involved in the process and that their opinions really matter, but mostly it is just an illusion.

It is so sad.

Meanwhile, members of Congress rapidly get wealthier and average American families continue to suffer. In fact, the standard of living in the United States has fallen farther over the past three years than at any other time that has ever been recorded in U.S. history.

But for members of Congress the good times just keep on rolling.

Just as it has been for most of human history, the rich rule over the poor.

Does anyone out there believe that we have any hope of changing this?

The Economic Collapse

The economic treadmill is throwing millions out of the middle class and into poverty.  In 2010 75 percent of unemployed received unemployment benefits while today it is down to 48 percent.  From unemployment to food stamps.

The economy is being pulled apart from the center as if two mighty horses on both sides were set to run in opposite directions of the financially strapped middle class.  This seems to be the current trajectory of our economic progress.  The ranks of the poor continue to grow while the financial sector continues to strive based on government favoritism and a strong form of corporatacracy.  Take this startling fact under consideration that last year 75 percent of the unemployed received some form of unemployment benefits. That figure is set to fall to 48 percent this year.  Part of the main reason has been the long-term structural unemployment in our economy.  The current economy resembles two different worlds and most Americans are still feeling the pangs of the recession that began in 2007.  The main question many are asking is where will this country be heading if the same financial sector that created rampant disorder in the last decade is still at the helm of the ship?  We can look at current trends and the results do not look promising.

The super long-term unemployed

It used to be the case that 99 weeks was the extreme end of the long-term unemployed.  But now we are seeing this lack of job growth continue even longer:

Over 30 percent of the currently unemployed have been out of work for one year or longer.  This stubborn unemployment is causing major problems in the fabric of our economy.  Many states have adjusted to provide 99 weeks of unemployment but the number of those not working is so large that 99 weeks is not enough and many fall off the benefit count.  Take for example the proportion of those that are unemployed and receive unemployment benefits:

What this chart highlights is the reality that many of the long-term unemployed are going to fall onto other safety nets like food stamps or other aid.  It is astounding how we can be seeing such structural problems yet the financial sector seems to be booming.  It is booming not because it has earned it in the typical capitalist sense but they have earned it by stealing it.  Unlike the unemployed person that runs out of benefits, the too big to fail simply rewrite laws and call up their Federal Reserve counterparts and draw on their unlimited credit lines.  Of course the burden is then largely place on the middle class that is simply struggling to stay in place without falling further and further behind.

Read the rest at My Budget 360

Pension plans are based on 8% annual growth forever. What happens to these plans in a zero-interest rate world as the global economy and stock markets contract?

I’m afraid it’s time for an intervention.  I don’t enjoy being the bearer of difficult news, but now that Europe has stumbled drunkenly into the pool and been “rescued,” it’s once again tearfully blubbering that this time it’s all going to change, and a new prime minister in each dysfunctional, insolvent EU nation is  going to make the pain and the addiction all go away.

It’s time we face the reality that Europe and the U.S. are full-blown financial alcoholics, addicted to illusion and debt. And what do they turn to as “solutions”?  The very sources of their pain:  illusory “fixes” and more debt.Have you ever seen a  global market as dependent on rumors of “magical fixes” for its “resilience” as this one?

What’s truly remarkable is the psychotic distance between the facts–Europe’s debts are impossible to service, its economy is free-falling into recession, the U.S. is already in recession, China’s real estate bubble has popped and cannot be reinflated– and the heady leap of global markets on every trivial rumor of a magic fix.

Since it runs in our family, I do not use the word “alcoholic” lightly. Those of you who have to deal with alcoholics know the drill: the liquor stashed behind the fridge, as if everyone doesn’t know it’s there; the stumbling into the pool, the humiliating rescue, the tearful promise of change which goes  nowhere, and all the rest.

I seriously suspect the entire global economy is alcoholic–not about liquor, but about debt and the impossibility of paying entitlements which expand by 8% a year in an economy which grows by 2% a year at best.In all the millions of words printed about the subprime meltdown,  the gutting of the U.S. financial and housing markets and  now about Europe’s impossible burden of debt, how often have we seen anyone in the MSM or mainstream financial press confess that “borrowing our way of out  of trouble” is not just financially bankrupt but morally bankrupt as well?

Like a full-blown alcoholic, the people and governments of the U.S. and Europe stagger from  debt source to debt source, weaving drunkenly between “stashes” of new debt in the Fed, Treasury and private sector markets.Despite the abject failure of the magical-thinking “fix” of becoming solvent by exponentially expanding debt, we see the same pathetic pattern repeating in Europe, where the apologists for the alcoholic debt-binge continue to claim the risk of systemic failure and collapse of asset values is low.

While everyone is focused on the drunk being pulled from the pool–Europe’s sovereign debt–another drunk is teetering on the edge: public and private pension plans.Here’s the reality in a nutshell: pension plans only work if they earn average returns of around 8% per year, basically forever.

Gripped by the mono-maniacal desperation of an addict who sees no other path but another hit, central banks have lowered interest rates to near-zero to “spark growth.” Unfortunately the only thing being goosed is the future cost of servicing the additional  debt.

How do you earn 8% on money which yields at best 3%? You can’t. How do you reap a gain on bonds when interest rates have already hit bottom and can’t fall any lower? You can’t.

Which leaves the stock market as the only hope for pension plans.  Since the bottom in March 2009, central banks engineered a “magic solution” that generated fantastic stock market returns: by constantly lowering interest rates and increasing liquidity, central banks force-fed stock markets with demand (there was no other place to get a fat return) and the see-saw of interest rates and “risk-on” equity markets: as rates decline, equities floated ever higher.

Now that rates are near-zero, then the central banks are pushing on a string: there is no “magic” left to juice equity markets.

The equity markets are in effect living on vitamin C and cocaine:rumors of new “magic fixes” and the hit of central bank infusions.

Once rumor is no longer enough to float markets higher, then the consequences of depending on stock market returns will hit pensions with a terminal case of the DTs.

The “magic” of ramping up debt to create the illusion of a healthy economy only works  once.The “fix” “worked” from 2009 to 2011, but now the high is wearing off. The next round of rumor and debt expansion won’t even create the illusion of growth, as the global economy is already careening back into the contraction that trillions in new debt staved off for three years.

I have covered the disconnect between the promises of 8% yields forever built into public pension plans and a slow-growth/no-growth economy many times:

Yes, There Will Be Armageddon: Government Goes Bankrupt  (July 24, 2008)

How the Fed Pushed the Nation’s Pension Plans–and Local Government–into Insolvency   (May 24, 2010)

Public Pension and Healthcare Costs and Financial Common Sense   (February 28, 2011)

Every once in a while an MSM outlet addresses the issue directly, for example:

Pension issue balloons with soaring costs(S.F. Chronicle):

Pension costs  are soaring to $800 million, tripling during the last decade, as Los Angeles faces  years of projected budget deficits even with deep cuts in services and staff.The main driver of higher pension costs is the stock market crash. CalPERS (California’s primary public pension plan) gets  about 75 percent of its revenue from investment earnings. Its portfolio peaked  at $260 billion in 2007, fell to $160 billion last year and now is about $204 billion.

Why economic growth isn’t enough to fix budgets:

But under the laws now dominating government budgets, many expenditures essentially are or will be growing faster than both revenues and the rest of the economy. In fact, in many areas of the budget, automatic expenditure growth matches or outstrips revenue growth under almost any conceivable rate of economic growth.Now, so much spending growth is built into permanent or mandatory programs that they essentially absorb much or all revenue growth. Meanwhile, we’ve also cut taxes, widening the gap between available revenues and growing spending levels.

Consider government retirement programs. Most are effectively “wage-indexed” insofar as a 10 percent higher growth rate of wages doesn’t just raise taxes on those wages, it also raises the annual benefits of all future retirees by 10 percent. Meanwhile, in most retirement systems, employees stop working at fixed ages, even though for decades Americans have been living longer.

Today, so much of government spending is devoted to health and retirement programs that their growing costs tend to swamp gains we might achieve in holding down the ever-smaller portion of the budget devoted to discretionary spending. Still other programs add to the problem, such as tax subsidies for employee benefits, the cost of which grows automatically without any new legislation.

In other words, the entire system of state and local government is now based on the same 8% “permanent high growth” of the 1990s speculative market.Funding increases are wired in, regardless of how much tax revenues fall.  That is a recipe for insolvency.

Now we get to the heart of the matter. Which institution engineered  the heady stock market bubble of the 1990s that created the illusion of “permanent high returns” and growth of tax receipts?  The Federal Reserve.Which institution has made the stock market the proxy for the economy?  The Federal Reserve.  Which institution has engineered a three-year stock market rally to put off the inevitable implosion of pension plans, entitlements and tax revenues that must grow by 8% annually while the real economy is flat-lined? The Federal Reserve.

We can ask the same questions of Europe and get the same answer there, too: the European Central Bank (ECB).

Addiction is a terrible disease, founded on the illusion that the pain of facing reality can be put off forever by dulling the pain of addiction itself with ever-higher doses of self-destruction. We are witnessing the self-destruction of economies and machines of governance that have chosen denial, illusion, rumor and magical thinking over facing reality. The drunk has been pulled from the pool once again, slobbering self-piteously and promising to really, really  change tomorrow, and we believe the lie, at least until morning, because  hope is so much easier than reality.

Charles Hugh Smith – Of Two Minds

I can go ahead and attach the tag “Socialist” to Bernie Sanders without fear or favor, seeing as he’s a self-proclaimed socialist.  None of this does or should change the narrative though when someone pops up with an idea: It should be judged on the merits.

Bernie gets a number of things right when it comes to the analysis part of the job, but then like so many politicians he is incapable of resolving the problem because doing so means putting an end to the games in DC — and that would mean ending his own personal power.

In that he’s exactly identical to the far-right Republican wing.

Let’s analyze.

As a result of the greed, recklessness, and illegal behavior on Wall Street, the American people have experienced the worst economic crisis since the Great Depression. Millions of Americans, through no fault of their own, have lost their jobs, homes, life savings, and ability to send their kids to college. Small businesses have been unable to get the credit they need to expand their businesses, and credit is still extremely tight. Wages as a share of national income are now at the lowest level since the Great Depression, and the number of Americans living in poverty is at an all-time high.

Here I agree, but in some cases those Americans lost everything through fault of their own.  Being a starry-eyed speculator with your house counts — and unlike most in the commentary space I’m not afraid to say it, even though I know it will piss off a substantial number of readers.

Meanwhile, when small-business owners were being turned down for loans at private banks and millions of Americans were being kicked out of their homes, the Federal Reserve provided the largest taxpayer-financed bailout in the history of the world to Wall Street and too-big-to-fail institutions, with virtually no strings attached.

Small businesses should not, in the general sense, be taking loans.  This does not mean there isn’t legitimate purpose for borrowing money in business; there is.  But the real problem we face as a nation when it comes to the economy is entirely-centered around the replacement of capital formation with leverage (that is, debt) — two fungible things that despite the screaming from the finance industry and popular culture are not identical.

The American people are finally getting answers to these questions thanks to an amendment I included in the Dodd-Frank financial reform bill which required the Government Accountability Office (GAO) to audit and investigate conflicts of interest at the Fed. Those answers raise grave questions about the Federal Reserve and how it operates — and whose interests it serves.

Grave questions?  Oh hell Bernie, you got a copy of the document I published in the form of an expose’ during the 2008 time frame when despite telling Congress he was providing “unprecedented liquidity” to the financial markets Bernanke in fact pulled systemic liquidity.  Now I cannot tell you why he did that, because that requires getting inside someone’s head.  But the result of that act was clear to everyone — the stock market collapsed.

So where were your questions to Ben at that time?  I do seem to remember several appearances on The Hill and your opportunity to grill him with this fact (from the NY Fed’s own SOMA information) but neither you or any other Senator (or House Member, including the “illustrious” Ron Paul) has taken this on.

Why not Bernie?

Oh, I know why: You want to push an agenda just like the people on the right, and none of you are honest.  We’ll continue.

1. How can we structurally reform the Fed to make our nation’s central bank a more democratic institution responsive to the needs of ordinary Americans, end conflicts of interest, and increase transparency? What are the best practices that central banks in other countries have developed that we can learn from? Compared with central banks in Europe, Canada, and Australia, the GAO found that the Federal Reserve does not do a good job in disclosing potential conflicts of interest and other essential elements of transparency.

You make people at The Fed (and in Congress!) subject to the same insider-trading laws that everyone else is.  Then you start indicting people when they break the law.  That was easy.

2. At a time when 16.5 percent of our people are unemployed or under-employed, how can we strengthen the Federal Reserve’s full-employment mandate and ensure that the Fed conducts monetary policy to achieve maximum employment? When Wall Street was on the verge of collapse, the Federal Reserve acted with a fierce sense of urgency to save the financial system. We need the Fed to act with the same boldness to combat the unemployment crisis.

The Fed cannot “fix” unemployment.  The so-called “Dual Mandate” is a scam.  The reason we have a misaligned economy is because of the so-called “dual mandate” and the blatant lawlessness within both Congress and The Fed — the latter through its refusal to honor the actual mandate of price stability over more than 100 years and by Congress through its refusal to insert an “or else” into the law and then enforce it.

These failures are willful and intentional.  They belong to you and to every other person in Congress going back to 1913.  You’re a fraud Sanders, and so are the rest of the clowns in DC who bleat about this issue, because the solution is simple — but implementing it instantaneously cuts off the charade that government can spend more than it takes in via taxes without the market immediately punishing the government with higher interest rates.

But that’s an unsustainable ponzi scheme.  You know it and the rest of Congress knows it.  You have to know it, because I refuse to believe you are too mentally challenged to use Excel for 2 minutes and prove it to yourself.  You’ve also received enough faxes from me that you cannot duck the fact that you’ve had the truth laid in front of you — it’s obvious, however, that you routed said truth straight into the shredder so you can parade around saying “la la la la la la” while lying through your teeth about what you and the rest in Washington have done and intend to continue to attempt with your raw refusal to face fundamental mathematical facts.

In short the issue isn’t as you claim — it’s that all 535 of you are busy under the desk servicing The Fed so you can pursue unsustainable fiscal policies.  This is as it has been since the founding of The Fed and proof is found in the fact that over 100 years there has been no law introduced by anyone to insert an “or else” into The Fed’s charter mandating actual stable prices and real honest-to-god punishment if they don’t comply.

3. The Federal Reserve has a responsibility to ensure the safety and soundness of financial institutions and to contain systemic risks in financial markets. Given that the top six financial institutions in the country now have assets equivalent to 65 percent of our GDP, more than $9 trillion, is there any reason why this extraordinary concentration of ownership should not be broken up? Should a bank that is “too big to fail” be allowed to exist?

No, it should not.  I seem to remember that Congress is the one with the authority to do something about that though.  Isn’t extortion a crime?  Well, what do you call it when The Fed and Treasury come to Capital Hill in the wee hours of the evening and demand $700 billion via a blank check from Congress or the entire economy will collapse by 8:00 AM in the morning?

What do you call it when that plan is subsequently changed to “give ‘em money” prior to Congress passing it and Congress is not informed before it votes?  That happened, incidentally, as Kashkari testified to under oath before Congress.

4. The Federal Reserve has the responsibility to protect the credit rights of consumers. At a time when credit card issuers are charging millions of Americans interest rates of 25 percent or more, should policy options be established to ensure that the Federal Reserve and the Consumer Financial Protection Bureau protect consumers against predatory lending, usury, and exorbitant fees in the financial services industry?

Oh, yeah, let’s not forget who was doing the suing to block enforcement of state anti-predatory lending laws during the 2000s.  That would be the OCC, a Federal agency.  Let’s also not forget who passed the Branch Banking Act that voided state usury laws.  And let’s not forget who hasn’t exercised any oversight or its prerogative to legislate to reverse either of these acts — that would you Bernie, along with the rest of Congress.  Never mind the Commodity Futures Modernization Act and Gramm-Leach-Bliley.

5. At a time when the dream of homeownership has turned into the nightmare of foreclosure for too many Americans, what role should the Federal Reserve be playing in providing relief to homeowners who are underwater on their mortgages, combating the foreclosure crisis, and making housing more affordable?

None.  The problem is that prices are too high.  First you have industries that in “cooperation” with cities, states and towns make the old style of constructing and adding to homes a criminal offense (that is, you build a couple of rooms, then as time goes on you add to them) through various zoning, permitting and other restrictive laws, making such an impossible task.  This in turn makes houses nearly impossible to buy as they turn into “financial assets”; oh, but we’ll “loan you the money” and you just have to pay “a little interest.”  It doesn’t hurt that you stoke the idea that the average middle-class family “should” have a 3,500 square foot granite-laced palace, never mind that I and millions of others grew up in a middle-class home that measured about 1,000 square feet in the 1960s and 70s and was bereft of all of these allegedly “deserved” amenities.

If you would quit performing indecent acts on the banks in Congress and instead demand that they mark their bloated balance sheets to the market they would collapse and borrowing money would get damned expensive.  That’s good, not bad.  It would force a collapse in prices of a lot of things, including houses.  Yes, I personally would get reamed by this, as I “own” my house without a mortgage, but it’s good for the economy, not bad, when someone can save a year’s salary and buy a house.

Incidentally this is not impossible if you quit trying to do the wrong thing.  That is, if there is no inflation (because The FOMC goes to prison if they allow it to happen) and borrowing is expensive (as it should be) then house prices will collapse to about 1x incomes.  This means that the average person can save 10% of their income for ten years and then buy a house for cash!

So by the time that “average person or couple” is 30 they own – actually own in fee simple – their house.

Nobody with a mortgage owns their house.  The bank owns the house.

We all know why Congress won’t do this: It would also force a cessation of deficit spending by Congress!  We’d have to actually pay for that which we demand in Government services. 

But that’s good, not bad.

QUIT DOING INDECENT THINGS FOR BANKERS UNDER THE TABLE BERNIE – YOU’RE NO BETTER (AND IN FACT NO DIFFERENT IN THIS REGARD) THAN THE FAR RIGHT WING!

6. At a time when the United States has the most inequitable distribution of wealth and income of any major country, and the greatest gap between the very rich and everyone else since 1928, what policies can be established at the Federal Reserve which reduces income and wealth inequality in the U.S?

“One Dollar of Capital.”  Read about it here or in Leverage, implement it, return borrowing to what it should be — expensive, compared to capital formation — and the skimming operations go away to be replaced by industry.

Real industry.

And wealth is redefined as what it really is — economic surplus, not leverage.

Given the growth of the Occupy Wall Street movement and given the concerns of millions of Americans about Wall Street, we now have a unique opportunity to make significant changes to one of the most powerful and secretive agencies of the federal government. One thing is abundantly clear: Americans deserve a Federal Reserve that works for them, not just the CEOs on Wall Street.

They won’t get it with your so-called “solutions” as they’re just more dishonest knob-polishing.

Cut it out Bernie.  The truth is what it is, and the truth is that cloaking “reform” in a Socialist banner is no more correct than cloaking it in the banner of theft, which is what we’ve been doing.

There are many who call this “Crony Capitalism.”  That’s nonsense and the people need to start calling this what it actually is: It’s theft — otherwise known as stealing — and Congress is the chief ringleader and promoter of same.