Archive for the ‘Secrecy’ Category
WASHINGTON (MarketWatch) — Treasury Secretary Timothy Geithner on Monday urged global regulators to cooperate and develop common standards to ensure banks trading in the derivatives market have sufficient collateral, or margin, to weather future economic crises.
All derivatives must be exchange-traded. NOT “clearinghoused”, exchange-traded, so that they are double-blinded and the buyers and sellers have no idea who the other party is.
All derivatives must be margined nightly against cash just like every other exchange-traded product.
End of problem. Trade ‘em all you want, but:
You can’t screw people.
You can’t claim to have a risk covered when the counterparty cannot pay.
That’s all that needs to be done, it’s what I’ve advocated for years and it is the only solution that will actually work and cannot be gamed.
As established readers know, we’ve been writing since mid 2010 about the widespread, possibly pervasive, failure of mortgage securitization originators to convey the notes (the borrower IOU) to securitization trusts as stipulated in the deal documents, well before the robo signing scandal broke. This abuse matters because the transaction procedures were designed carefully to satisfy certain legal requirements, among them rules contained in the 1986 Tax Reform Act regarding REMICs, or real estate mortgage investment conduits, which required that the securitization trust receive all its assets by 90 days after closing and that all assets conveyed to the trust have to be “performing”, as in not in default. Failure to comply with the rules is a prohibited act and subject to taxation at a rate of 100%, and additional penalties may apply.
Now, with the Federal government under enormous budget pressure, shouldn’t the authorities be keen to go after tax cheats? The headline of a Reuters article, “IRS weighs tax penalties on mortgage securities,” would suggest so. But don’t get your hopes up. The lesson is don’t jump to conclusions when big finance is involved.
An overview from the article:
Should the IRS find reason to take tough action, the financial impact could be enormous. REMIC investments are held by pension funds, in individual retirement plans such as 401(k)s and by state and local government entities.
As of the end of 2010, investments in REMICs totaled more than $3 trillion, according to data supplied by the Securities Industry and Financial Markets Association.
In a brief statement in response to questions from Reuters, the agency said: “The IRS is aware of questions in the market regarding REMICs and proper ownership of the underlying mortgages as set out in federal tax law, and is actively reviewing certain aspects of this issue.”
This matter was raised early last year by an attorney I know with IRS, to a senior officer, not in enforcement but familiar with REMIC rules. She immediately understood the importance and nature of the violations being alleged and was keen to proceed. Having had no follow up, the attorney rang again, and the IRS officer took the call, this time reluctantly. She indicated she was not supposed to be taking to him. She said the issue had gone to the White House, where word came back that the IRS was not going to be used as a tool of policy.
So demanding that tax law violators pay what they owe is somehow seen as an misuse of government authority? That appears to be the message.
Knowing of this background, in the blogger meeting with Treasury last August, when someone we will euphemistically call as senior official argued that the Treasury had little power over servicers, I objected, and said it depended on whether they construed of their power narrowly or broadly. I pointed out that a Pacer scrape on foreclosure filings would find thousands of violations of REMIC rules that were subject to punitive charges, and that that was an important leverage point to bring the industry to heel. (Yes, this is an example of using tax as a tool of policy, as opposed to merely enforcing the rules……that was by design). He sidestepped the reference to REMIC both in my initial question and follow up.
Steve Waldman, who was also at the session, was as skeptical of the exchange as I was. From a message last August:
Re REMICs: The reaction to your probing was very suspicious.
It’d have been one thing if he’d said they hadn’t looked into the issue. But that wasn’t how he responded. He started talking about how he’d had his staff “look for leverage”, against servicers I think, but found there was nothing there. In other words, he didn’t want to leave the issue open. He wanted to neutralize it.
One possibility is that the truth is face value, but I doubt it. After all, we’d just had staffers describe using the government’s leverage in creative ways to protect taxpayers or serve other public purposes as “extra legal”. Yet here was [the senior official] apparently on a fishing expedition for leverage, no doubt desperate to persuade servicers to facililitate mods to help homeowners. Yeah. Right.
If I’m not misunderstanding you, your core point is that the paperwork on many boomtown mortgages is invalid, and therefore various sorts of transactions, from foreclosures to bundling into REMICs, cannot be legally done, at least not without a lot of expensive research and recertification. In other words, your line of thinking would put a question mark beneath the value of a whole lot of bank assets. That would obviously not be in the national interest according to Treasury. So of course they’ve already looked onto the story and there’s nothing to it.
As Waldman indicates, there is a blindingly obvious reason why the IRS inquiry is a coverup. If the IRS were to find any of the questionable practices to be violations, they’d lead to widespread and large assessments against mortgage investors. That in turn would spawn the mother of all litigations by investors against the originators and trustees. That would blow up the mortgage industrial complex and put us back in a financial crisis. That is the last thing the officialdom wants to happen.
Now in fact there are ways the IRS can make this problem go away. The article quotes Jim Peaslee, who is one of the top experts on REMICS and was i one of the major influences on the original REMIC regulation. Note how he avoids discussing whether there might be violations; his point is the IRS will take a “see no evil” stance:
James Peaslee, a partner at law firm Cleary Gottlieb who is an expert on taxation of securitized investments, said that even if the IRS finds wrongdoing, it might be loath to act because of the wide financial damage the penalties would cause. He notes that the REMIC investors, who he called “innocent parties,” would have to pay rather than the banks that were responsible for any wrongdoing in transferring mortgage ownership.
I had a few above-my-pay grade e-mail discussions with one of Peaslee’s colleagues, another REMIC expert, last year, and the issues are vastly more complex than mere mortals would appreciate. For instance (and this is one of the simple examples), arguably, if the securitization vehicle wasn’t really created with the assets it claimed, so arguably, at least technically speaking, it was disqualified from the outset. However, legal structures and issues don’t map cleanly on to tax issues. We’ve argued that if the notes were not properly conveyed to the trusts (assuming they are New York trusts, which is the governing law in the vast majority of cases) then the trusts will have a big problem with foreclosing, since New York trusts don’t have any discretion and there is no mechanism for getting the notes into the trust other than shortly after it was formed.
But that particular concern isn’t germane from a tax perspective. State law doesn’t determine characterization of an entity for federal tax purposes. So, for example, even if a taxpayer said he a partnership and planned to set up a state law LLC as the partnership vehicle but failed to take all the legal steps, but did have a contract with a partner, and both has acted according to the partnership tax rules and reported income them on their tax returns accordingly, it would most likely still be treated as a partnership in spite of the lack of a state law legal vehicle.
The net result, as the expert indicated, is “that the rules about REMIC (or other securitization) qualification become very bendable” which in turn gives the IRS a great deal of latitude in what it can deem to be acceptable. He felt that was a bad posture to take, since that would give the servicers considerable leeway to manipulate tax liabilities directly.
The Reuters article points out the more obvious concern: foregone revenues by letting tax violations go unpunished:
Adam Levitin, a Georgetown University Law School professor and expert on taxation, said that if the IRS fails to act, “it would be a backdoor bailout of the financial system.”
If the IRS did impose penalties, the REMICs could turn around and sue the banks for causing the problems and not living up to the terms of the agreements establishing each REMIC, thus transferring the costs to the banks. If the IRS finds wrongdoing but fails to act, the IRS would forego “potentially enormous tax revenue that would be passed on to the federal government,” Levitin said. “Given the federal budget deficit that’s not something to sniff at,” he added.
So why is the IRS looking into this issue at all? Wouldn’t one expect them to let sleeping dogs lie? I can think of reasons. First, the issue has gotten enough profile that the IRS (really Treasury) may feel it’s better to go into “put the matter behind us” mode. Second is that it isn’t just the Federal government who would be able to charge taxes against RMBS if they found they had violated the rules, but also states. It’s not hard to imagine that some states have realized that going after the RMBS could be a significant source of badly-needed income. The IRS may thus feel it needs to get in front of this potential source of that investor bugaboo “uncertainty” as well as discourage state action. Mind you, state rules necessarily track the Federal REMIC rules precisely, nor are they required to interpret them the same way, but an IRS “nothing to see here” finding would deter action by all but the most bloodyminded state treasuries).
So we have yet again another example of two tier justice in America. Do you think the IRS would cut you any slack if you had engaged in as many violations of the tax rules as mortgage originators and trusts have? But the point of having a kleptocracy is to avoid inconveniencing the people with money at all costs.
Posted by Karl Denninger
So today Goldman will come before the Senate Permanent Committee on Investigations – with Lloyd himself, along with “Fabulous Fab” on the witness panel.
Blankfein’s prepared testimony makes some interesting claims:
“We didn’t have a massive short against the housing market, and we certainly did not bet against our clients,” Blankfein says in prepared remarks released by the company. “Rather, we believe that we managed our risk as our shareholders and our regulators would expect.”
Carl Levin, a Michigan Democrat who leads the Senate’s Permanent Subcommittee on Investigations, released documents that he said showed the company “put its own interest and profit ahead of the interests of its clients,” a conflict he called on Congress to end. Lloyd Blankfein, Goldman Sachs’s chairman and chief executive officer, will dispute that assertion and argue the firm was merely managing its own risk.
It’s amusing how Goldman claims it “lost money” on some of these deals.
The question is not whether there were residual pieces of trash that Goldman wound up (unwillingly) eating when they couldn’t sell them. The question is whether or not Goldman (and everyone else) should have had the ability to put these deals together in the first place, and how it came to be that trillions of dollars of alleged “AAA” paper was better suited for use in the men’s bathroom stalls!
“This market is not free until it is free of self-dealing and until it is free of conflict of interest,” Levin, 75, said at a press briefing yesterday. “It is not free until it ends the gambling operation that results in gambling debts that the public ends up paying.”
That can’t happen until we see handcuffs Senator.
“The SEC and the courts will resolve the legal question of whether Goldman’s actions broke the law,” Levin said. “The question for us is whether Goldman’s actions in 2007 were appropriate and whether we should act, legislatively, to bar similar actions in the future.”
17 pages Senator. They’re called “Glass Steagall”, and that law absolutely barred the conduct that led to and caused this crisis.
Let’s be frank: Creating these sorts of toxic deals is, for these institutions, simply a reach for fees. They don’t care if they perform so long as they don’t get stuck with the trash. A particular transaction was even referenced as “one shi&&y deal” by Goldman employees, according to some internal emails:
“Boy that timberwo[l]f was one shi**y deal,” Montag, who is now Bank of America Corp.’s president of global banking and markets, said in a June 22, 2007, e-mail to Daniel Sparks, who ran Goldman Sachs’s mortgage business at the time, according to the panel’s statement. Within five months of Timberwolf’s debut, the CDO had lost 80 percent of its value, and it was liquidated in 2008, according to the panel.
The CDO was among securities that Goldman Sachs sold to clients after deciding the New York-based firm needed to reduce its mortgage holdings, Carl Levin, a Michigan Democrat who leads the panel, said in the statement. Chief Executive Officer Lloyd Blankfein and six other current and former executives will testify tomorrow in front of the panel about practices in mortgage securities markets before they collapsed.
And of course such conduct, and the people who commit it, aren’t fired. Mr. Montag is now Bank of America’s president of Global Banking and Markets. “Market discipline” doesn’t, it appears, extend to forcing people to eat their own cooking and when they sell things they know smell like dead fish to clients, it’s all ok.
Perhaps it is under the law, but whether it should be is another matter.
It is often argued that if we don’t permit this sort of “innovation” that our economy and businesses will suffer. Really? Who suffers? Wall Street? Can we reasonably have an economy where 1/3rd of all profits made in the nation are “earned” by asset-stripping other people? That’s what even the good deals do – they turn over a part of the transactional flow of some business to the wall street banks, which then keep it for themselves.
The bad deals, like this one referenced, are even worse in that they siphon off fees from someone who later loses all their money!
This is not restricted to Goldman, by the way. Indeed, let’s examine another deal that the government was intimately involved in, this first reported by Zerohedge in the form of the Fannie Mae Preferred offering that was foisted on the market just weeks before the firm blew up.
The underwriters, who coincidentally received 3.15% of $2 billion, or $63 million bucks, include Merrill Lynch (now absorbed), Citibank (rescued), Morgan Stanley, UBS (who has a running spat with the IRS about assisting Americans in illegally evading taxes) and Wachovia (which collapsed in a ball of fire that was contained only by forced marriage to Wells Fargo.)
Why was this deal so insanely toxic? It was issued on May 19th of 2008, and paid exactly one coupon before Fannie was absorbed into conservatorship.
And unlike the “sophisticated investors” who bought CDOs and other similar trash from the big banks, this deal was bought by literal widows and orphans, along with community banks.
I would argue that it should have never been brought to the market in the first place, as before it was offered I had opined (in public in fact) that Fannie and Freddie were both insolvent.
Indeed, on March 8th of 2008 I called out the games in a letter written to President Bush and others in which I said (among other things):
Mr. Bernanke and The Fed have lowered the Fed Funds Target from 5.25% to 3% over the last few months and the “slosh”, or free funds available in the Fed Banking System, has nearly doubled over that time. Yet this additional liquidity has done nothing to address the problem and won’t because the issue is not one of inadequate liquidity; rather it is a desperate move to hide the fact that a significant number of financial institutions in our nation are, if forced to mark all their paper to the market and recognize their exposure to off balance sheet vehicles, insolvent.
At the root of the matter, Mr. President, is a lack of trust caused by the intentional acts of these institutions, and lack of regulatory enforcement by both the Federal Reserve and other agencies such as the OTS and OCC.
We have fixed exactly nothing since then. We have only papered over the insolvencies with government fiat currency, claiming they’re “loans” – and they are in a sense – they’re forced purchases of bankrupt companies by the taxpayer which we are now liable for.
Wall Street created this monster with the full knowledge and permission of the government.
Despite laws prohibiting executives from signing off on fraudulent financial statements – that is, any financial statement that does not make a full and fair exposition of the firm’s financial position (Sarbanes-Oxley) these executives have not been prosecuted. “I didn’t know” is not a defense under Sarbox – if you’re in the executive suite of a public firm you have an affirmative duty to know.
So why have not the former CEOs of Bear Stearns and Lehman been indicted? Why have not the CEOs of the other big banks that failed, all of whom proclaimed that everything was fine right up until they blew sky high?
As for all these hinky deals that the big banks did, if this crisis has taught us one thing it is that if there’s a way to game a rule or regulation it will be gamed. So long as these firms can find a way to play “heads we win, tails taxpayers lose” they will do so. So long as they can effectively force companies to forfeit 30% of every dollar of GDP produced in this nation to them, they will do so.
So long as firms with access to federal assistance of any sort, whether it be The Fed window, overnight repo loans from or by firms with Fed Clearing access, or the privilege of deposit-taking and fractional loan-making exists, these firms will leverage government-provided backstops to their own benefit for the purpose of fee extraction.
These fees do not benefit society as a whole. They are in fact a tax on top of all other taxes that firms and thus individuals pay. This burden is, today, roughly 30% of GDP, and our nation and its economy simply cannot afford to redirect this vast amount of wealth to a handful of rich and powerful people on Wall Street, whether their acts are founded in illegal conduct or not.
17 pages Senator. That’s all it takes.
Reinstate Glass-Steagall and force all these banks to spin off the parts of their organizations that are in conflict. All institutions that want access to any sort of public safety net, whether it be Fed Discount loans or FDIC insurance may not trade in or on the securities and insurance markets – OTC or otherwise – period.
Force all instruments onto a public exchange, including all CDS, without exception. This immediately forces nightly margin supervision which prevents the sort of detonations that happened with AIG and others, and absolutely bars contagion, as no firm can maintain a position that it cannot back with capital.
It is often said that if we do this firms will “flee” to other nations that don’t have such restrictions. No they won’t – not if we refuse to grant them access to our securities markets and the firms in them unless they comport with these rules worldwide no matter where they are headquartered.
America is a vast economy. Yes, China is growing, but we’re still a plurality of world GDP.
Firms will threaten Senator, but if the law is crafted such that if they want access to our markets in any form or fashion they must comply worldwide with separation of function and exchange clearing, they will comply.
Yes, they’ll make “less money”, and that’s their argument against such changes.
But let’s be frank – every dollar Wall Street “makes” it in fact extracts. That is, Wall Street creates nothing. It siphons off capital from other production – that’s all it can do, since it creates not one car, television, or cellular phone. Indeed, every dollar of fees extracted by Wall Street and every dollar of interest paid to those firms is one dollar that cannot be returned to the economy in the form of innovation for the production of goods and services.
The essential functions of clearing payments and matching those who wish to loan capital with those who wish to borrow it is ministerial. All the hinky deals alleged to “spread risk” have now been proved to do no such thing, but instead are complex simply so as to be difficult to understand and thus easy to intentionally misprice.
That mispricing is fraud Senator, whether it can be legally labeled as such or not, and until we put a stop to it we will continue to have these bouts of crisis, each worse than the last.
Our government and society cannot withstand another banking system attack run, and it is imperative that The Senate, along with prosecutors, put a stop to it both through legislation and prosecution.
We have one last chance to stop it. If we do not at this time do so, and another ”market failure” occurs, our economy and even our political system – that is, our society and republican form of government – will fall.
Those are the stakes, and the question before you now is whether the bribery that is rampant in Washington (although we call it “lobbying”) will win, or whether you will rise to the occasion and uphold the oath of office that you, along with every other member of Congress, took before being seated.
Supporters of an escalation of the Afghanistan war often ask that we give military options a chance. They also respond to criticism of the surge by asking “okay smart guy, what would YOU do to fight Al Qaeda in Afghanistan?” Several pro-war posters also asked that pro-military arguments be given a chance.
Well, initially, the U.S. admits there are only a small handful of Al Qaeda in Afghanistan. As ABC notes:
U.S. intelligence officials have concluded there are only about 100 al Qaeda fighters in the entire country.
100,000 troops in Afghanistan at an estimated yearly cost of $30
billion, it means that for every one al Qaeda fighter, the U.S. will
commit 1,000 troops and $300 million a year.
probably more than 100 homicidal maniacs in any large American city.
But we wouldn’t send soldiers into the city to get those bad guys.
Indeed, a leading advisor to the U.S. military – the very hawkish Rand Corporation – released a study
in 2008 called “How Terrorist Groups End: Lessons for Countering al
Qa’ida”. The report confirms what experts have been saying for years:
the war on terror is actually weakening national security.
As a press release about the study states:
should be perceived and described as criminals, not holy warriors, and
our analysis suggests that there is no battlefield solution to
There are additional reasons why prolonging the Afghan war may reduce our national security, such as weakening our economy.
But if you want a military solution anyway, Andrew J. Bacevich has an answer.
is no dove. Graduating from West Point in 1969, he served in the United
States Army during the Vietnam War. He then held posts in Germany,
including the 11th Armored Cavalry Regiment, the United States, and the
Persian Gulf up to his retirement from the service with the rank of
Colonel in the early 1990s. Bacevich holds a Ph.D. in American
Diplomatic History from Princeton University, and taught at West Point
and Johns Hopkins University prior to joining the faculty at Boston
University in 1998. Bacevich’s is a military family. On May 13, 2007,
Bacevich’s son, was killed in action while serving in Iraq.
Last year, Bacevich wrote in an article in Newsweek:
the chief effect of allied military operations there so far has been
not to defeat the radical Islamists but to push them across the
Pakistani border. As a result, efforts to stabilize Afghanistan are
contributing to the destabilization of Pakistan, with potentially
devastating implications. September’s bombing of the Marriott hotel in
Islamabad suggests that the extremists are growing emboldened. Today
and for the foreseeable future, no country poses a greater potential
threat to U.S. national security than does Pakistan. To risk the
stability of that nuclear-armed state in the vain hope of salvaging
Afghanistan would be a terrible mistake.
All this means that the
proper U.S. priority for Afghanistan should be not to try harder but to
change course. The war in Afghanistan (like the Iraq War) won’t be won
militarily. It can be settled—however imperfectly—only through politics.
new U.S. president needs to realize that America’s real political
objective in Afghanistan is actually quite modest: to ensure that
terrorist groups like Al Qaeda can’t use it as a safe haven for
launching attacks against the West. Accomplishing that won’t require
creating a modern, cohesive nation-state. U.S. officials tend to assume
that power in Afghanistan ought to be exercised from Kabul. Yet the
real influence in Afghanistan has traditionally rested with tribal
leaders and warlords. Rather than challenge that tradition, Washington
should work with it. Offered the right incentives, warlords can
accomplish U.S. objectives more effectively and more cheaply than
Western combat battalions. The basis of U.S. strategy in Afghanistan
should therefore become decentralization and outsourcing, offering cash
and other emoluments to local leaders who will collaborate with the
United States in excluding terrorists from their territory.
doesn’t mean Washington should blindly trust that warlords will become
America’s loyal partners. U.S. intelligence agencies should continue to
watch Afghanistan closely, and the Pentagon should crush any jihadist
activities that local powers fail to stop themselves. As with the
Israelis in Gaza, periodic airstrikes may well be required to pre-empt
brewing plots before they mature.
Were U.S. resources unlimited
and U.S. interests in Afghanistan more important, upping the ante with
additional combat forces might make sense. But U.S. power — especially
military power — is quite limited these days, and U.S. priorities lie
Rather than committing more troops, therefore, the
new president should withdraw them while devising a more realistic —
and more affordable — strategy for Afghanistan
words, America’s war strategy is increasing instability in Pakistan.
Pakistan has nuclear weapons. So the surge could very well decrease not
only American national security but the security of the entire world.
I think that diplomatic rather than military means should be used to
kill or contain the 100 bad guys in Afghanistan. But if we are going to
remain engaged militarily, Bacevich’s approach is a lot smarter than a
surge of boots on the ground.
Moreover, it would save hundreds of billions or trillions of dollars…
War hawks also ask “what would YOU have done after 9/11?” Gee, I don’t know . . . maybe gotten the Taliban to turn over Bin Laden?
BONUS UPDATE 2-FOR-1 AFTER THANKSGIVING PACKAGE DEAL SPECIAL: If you don’t hear about alternative plans such as Bacevich’s from the corporate media, here is why …
There are five reasons that the mainstream media is worthless.
1. Self-Censorship by Journalists
Initially, there is tremendous self-censorship by journalists.
For example, several months after 9/11, famed news anchor Dan Rather told the BBC that American reporters were practicing “a form of self-censorship”:
was a time in South Africa that people would put flaming tires around
peoples’ necks if they dissented. And in some ways the fear is that you
will be necklaced here, you will have a flaming tire of lack of
patriotism put around your neck. Now it is that fear that keeps
journalists from asking the toughest of the tough questions…. And
again, I am humbled to say, I do not except myself from this criticism.
What we are talking about here – whether one wants to recognise it
or not, or call it by its proper name or not – is a form of
Keith Olbermann agreed that there is self-censorship in the American media, and that:
can rock the boat, but you can never say that the entire ocean is in
trouble …. You cannot say: By the way, there’s something wrong with
our …. system.
As former Washington Post columnist Dan Froomkin wrote in 2006:
political journalism is in danger of becoming increasingly irrelevant,
but not because of the Internet, or even Comedy Central. The threat
comes from inside. It comes from journalists being afraid to do what
journalists were put on this green earth to do. . . .
the intense pressure to maintain access to insider sources, even as
those sources become ridiculously unrevealing and oversensitive.
There’s the fear of being labeled partisan if one’s bullshit-calling
isn’t meted out in precisely equal increments along the political
If mainstream-media political journalists don’t start
calling bullshit more often, then we do risk losing our primacy — if
not to the comedians then to the bloggers.
I still believe that
no one is fundamentally more capable of first-rate bullshit-calling
than a well-informed beat reporter – whatever their beat. We just need
to get the editors, or the corporate culture, or the self-censorship –
or whatever it is – out of the way.
2. Censorship by Higher-Ups
journalists do want to speak out about an issue, they also are subject
to tremendous pressure by their editors or producers to kill the story.
Pulitzer prize-winning reporter who uncovered the Iraq prison torture
scandal and the Mai Lai massacre in Vietnam, Seymour Hersh, said:
of the institutions we thought would protect us — particularly the
press, but also the military, the bureaucracy, the Congress — they
have failed. The courts . . . the jury’s not in yet on the courts. So
all the things that we expect would normally carry us through didn’t.
The biggest failure, I would argue, is the press, because that’s the
Q: What can be done to fix the (media) situation?
pause] You’d have to fire or execute ninety percent of the editors and
executives. You’d actually have to start promoting people from the
newsrooms to be editors who you didn’t think you could control. And
they’re not going to do that.”
And a series of interviews with award-winning journalists also documents censorship of certain stories by media editors and owners (and see these samples).
There are many reasons for censorship by media higher-ups.
One is money.
The media has a strong monetary interest to avoid controversial topics in general. It has always been true that advertisers discourage stories which challenge corporate power.
Indeed, a 2003 survey reveals that 35% of reporters and news executives
themselves admitted that journalists avoid newsworthy stories if “the story would be embarrassing or damaging to the financial interests of a news organization’s owners or parent company.”
In addition, the government has allowed tremendous consolidation in ownership of the airwaves during the past decade.
Dan Rather has slammed media consolidation:
media consolidation to that of the banking industry, Rather claimed
that “roughly 80 percent” of the media is controlled by no more than
six, and possibly as few as four, corporations.
This is documented by the following must-see charts prepared by:
And check out this list of interlocking directorates of big media companies from Fairness and Accuracy in Media, and this resource from the Columbia Journalism Review to research a particular company.
This image gives a sense of the decline in diversity in media ownership over the last couple of decades:
large media players stand to gain billions of dollars in profits if the
Obama administration continues to allow monopoly ownership of the
airwaves by a handful of players. The media giants know who butters
their bread. So there is a spoken or tacit agreement: if the media
cover the administration in a favorable light, the MSM will continue to
be the receiver of the government’s goodies.
3. Drumming Up Support for War
In addition, the owners of American media companies have long actively played a part in drumming up support for war.
is painfully obvious that the large news outlets studiously avoided any
real criticism of the government’s claims in the run up to the Iraq
war. It is painfully obvious that the large American media companies
acted as lapdogs and stenographers for the government’s war agenda.
Veteran reporter Bill Moyers criticized
the corporate media for parroting the obviously false link between 9/11
and Iraq (and the false claims that Iraq possessed WMDs) which the
administration made in the run up to the Iraq war, and concluded that
the false information was not challenged because:
[mainstream] media had been cheerleaders for the White House from the
beginning and were simply continuing to rally the public behind the
President — no questions asked.”
And as NBC News’ David Gregory (later promoted to host Meet the Press) said:
think there are a lot of critics who think that . . . . if we did not
stand up [in the run-up to the war] and say ‘this is bogus, and you’re
a liar, and why are you doing this,’ that we didn’t do our job. I
respectfully disagree. It’s not our role”
But this is nothing new. In fact, the large media companies have drummed up support for all previous wars.
And an official summary of America’s overthrow of the democratically-elected president of Iran in the 1950′s states, “In
cooperation with the Department of State, CIA had several articles
planted in major American newspapers and magazines which, when
reproduced in Iran, had the desired psychological effect in Iran and
contributed to the war of nerves against Mossadeq.” (page x)
The mainstream media also may have played footsie with the U.S. government right before Pearl Harbor. Specifically, a highly-praised historian (Bob Stineet) argues
that the Army’s Chief of Staff informed the Washington bureau chiefs of
the major newspapers and magazines of the impending Pearl Harbor attack
BEFORE IT OCCURRED, and swore them to an oath of secrecy, which the
media honored (page 361) .
And the military-media alliance has continued without a break (as a highly-respected journalist says,
“viewers may be taken aback to see the grotesque extent to which US
presidents and American news media have jointly shouldered key
propaganda chores for war launches during the last five decades.”)
As the mainstream British paper, the Independent, writes:
is a concerted strategy to manipulate global perception. And the mass
media are operating as its compliant assistants, failing both to resist
it and to expose it. The sheer ease with which this machinery has been
able to do its work reflects a creeping structural weakness which now
afflicts the production of our news.
The article in the
Independent discusses the use of “black propaganda” by the U.S.
government, which is then parroted by the media without analysis; for
example, the government forged
a letter from al Zarqawi to the “inner circle” of al-Qa’ida’s
leadership, urging them to accept that the best way to beat US forces
in Iraq was effectively to start a civil war, which was then publicized
without question by the media..
So why has the American press has consistenly served the elites in disseminating their false justifications for war?
One of of the reasons is because the large media companies are owned by those who support the militarist agenda or even directly profit from war and terror (for example, NBC – which is being sold to Comcast – was owned by General Electric, one of the largest defense contractors in the world — which directly profits from war, terrorism and chaos).
Another seems to be an unspoken rule that the media will not criticize the government’s imperial war agenda.
the media support isn’t just for war: it is also for various other
shenanigans by the powerful. For example, a BBC documentary proves:
was “a planned coup in the USA in 1933 by a group of right-wing
American businessmen . . . . The coup was aimed at toppling President
Franklin D Roosevelt with the help of half-a-million war veterans. The
plotters, who were alleged to involve some of the most famous families
in America, (owners of Heinz, Birds Eye, Goodtea, Maxwell Hse &
George Bush’s Grandfather, Prescott) believed that their country should
adopt the policies of Hitler and Mussolini to beat the great
See also this book.
Have you ever heard of this scheme before? It was certainly a very large one. And if the conspirators controlled the newspapers then, how much worse is it today with media consolidation?
$25,000 to $250,000, The Washington Post has offered lobbyists and
association executives off-the-record, nonconfrontational access to
“those powerful few”: Obama administration officials, members of
Congress, and — at first — even the paper’s own reporters and editors…
offer — which essentially turns a news organization into a facilitator
for private lobbyist-official encounters — was a new sign of the
lengths to which news organizations will go to find revenue at a time
when most newspapers are struggling for survival.
be one reason that the mainstream news commentators hate bloggers so
much. The more people who get their news from blogs instead of
mainstream news sources, the smaller their audience, and the less the
MSM can charge for the kind of “nonconfrontational access” which leads
to puff pieces for the big boys.
5. Censorship by the Government
as if the media’s own interest in promoting war is not strong enough,
the government has exerted tremendous pressure on the media to report
things a certain way. Indeed, at times the government has thrown media owners and reporters in jail
if they’ve been too critical. The media companies have felt great
pressure from the government to kill any real questioning of the
For example, Dan Rather said, regarding American media, “What you have is a miniature version of what you have in totalitarian states”.
Tom Brokaw said “all wars are based on propaganda.
And the head of CNN said:
was ‘almost a patriotism police’ after 9/11 and when the network showed
[things critical of the administration's policies] it would get phone
calls from advertisers and the administration and “big people in
corporations were calling up and saying, ‘You’re being anti-American
Indeed, former military analyst and famed Pentagon Papers whistleblower Daniel Ellsberg said that the government has ordered the media not to cover 9/11:
Ellsberg seemed hardly surprised
that today’s American mainstream broadcast media has so far failed to
take [former FBI translator and 9/11 whistleblower Sibel] Edmonds up on
her offer, despite the blockbuster nature of her allegations [which
Ellsberg calls "far more explosive than the Pentagon Papers"].
Edmonds has also alluded, Ellsberg pointed to the New York Times, who
“sat on the NSA spying story for over a year” when they “could have put
it out before the 2004 election, which might have changed the outcome.”
will be phone calls going out to the media saying ‘don’t even think of
touching it, you will be prosecuted for violating national security,’” he told us.
* * *
“I am confident that there is conversation inside the Government as to ‘How do we deal with Sibel?’” contends Ellsberg. “The
first line of defense is to ensure that she doesn’t get into the media.
I think any outlet that thought of using her materials would go to to
the government and they would be told ‘don’t touch this . . . .‘”
Of course, if the stick approach doesn’t work, the government can always just pay off reporters to spread disinformation.
Famed Watergate reporter Carl Bernstein says the CIA has already bought and paid for many successful journalists. See also this New York Times piece, this essay by the Independent, this speech by one of the premier writers on journalism, and this and this roundup.
in the final analysis, the main reason today that the media giants will
not cover the real stories or question the government’s actions or
policies in any meaningful way is that the American government and
mainstream media been somewhat blended together.
Can We Win the Battle Against Censorship?
cannot just leave governance to our “leaders”, as “The price of freedom
is eternal vigilance” (Jefferson). Similarly, we cannot leave news to
the corporate media. We need to “be the media” ourselves.
“To stand in silence when they should be protesting makes cowards out of men.”
- Abraham Lincoln
“Our lives begin to end the day we become silent about things that matter.”
- Dr. Martin Luther King Jr.
and silence go together. We…should use our privileged positions not
as a shelter from the world’s reality, but as a platform from which to
speak. A voice is a gift. It should be cherished and used.”
– Margaret Atwood
is no act too small, no act too bold. The history of social change is
the history of millions of actions, small and large, coming together at
points in history and creating a power that [nothing] cannot suppress.”
- Howard Zinn (historian)
“All tyranny needs to gain a foothold is for people of good conscience to remain silent”
- Thomas Jefferson