Thursday, October 22, 2009

20 reasons America has lost its soul and collapse is inevitable

Fall of the Republic *VIDEO*

20 reasons America has lost its soul and collapse is inevitable...

.....http://www.bushstole04.com/newworld/editorial_secret.htm.

http://www.youtube.com/watch?v=Kpe--KKPt7k&feature=player_embedded. [ watch Paulson talk about an "ethics" office at the white house..... it will make your stomach turn.....]

.....http://www.zerohedge.com/article/overview-feds-intervention-equity-markets-primary-dealer-credit-facility.

Jack Bogle published "The Battle for the Soul of Capitalism" four years ago. The battle's over. The sequel should be titled: "Capitalism Died a Lost Soul." Worse, we've lost "America's Soul." And worldwide the consequences will be catastrophic.

That's why a man like Hong Kong's contrarian economist Marc Faber warns in his Doom, Boom & Gloom Report: "The future will be a total disaster, with a collapse of our capitalistic system as we know it today."

Insuring against economic calamity

Gold ETFs are so popular they now hold more of the shiny stuff than most central banks. What will it take to sustain the funds' big gains? Barron's Clare McKeen reports.

No, not just another meltdown, another bear market recession like the one recently triggered by Wall Street's "too-greedy-to-fail" banks. Faber is warning that the entire system of capitalism will collapse. Get it? The engine driving the great "American Economic Empire" for 233 years will collapse, a total disaster, a destiny we created.

OK, deny it. But I'll bet you have a nagging feeling maybe he's right, the end may be near. I have for a long time: I wrote a column back in 1997: "Battling for the Soul of Wall Street." My interest in "The Soul" -- what Jung called the "collective unconscious" -- dates back to my Ph.D. dissertation: "Modern Man in Search of His Soul," a title borrowed from Jung's 1933 book, "Modern Man in Search of a Soul." This battle has been on my mind since my days at Morgan Stanley 30 years ago, witnessing the decline.

Has capitalism lost its soul? Guys like Bogle and Faber sense it. Read more about the soul in physicist Gary Zukav's "The Seat of the Soul," Thomas Moore's "Care of the Soul" and sacred texts.

But for Wall Street and American capitalism, use your gut. You know something's very wrong: A year ago "too-greedy-to-fail" banks were insolvent, in a near-death experience. Now, magically they're back to business as usual, arrogant, pocketing outrageous bonuses while Main Street sacrifices, and unemployment and foreclosures continue rising as tight credit, inflation and skyrocketing Federal debt are killing taxpayers.

Yes, Wall Street has lost its moral compass. They created the mess, now, like vultures, they're capitalizing on the carcass. They have lost all sense of fiduciary duty, ethical responsibility and public obligation.

Here are the Top 20 reasons American capitalism has lost its soul:

1. Collapse is now inevitable

Capitalism has been the engine driving America and the global economies for over two centuries. Faber predicts its collapse will trigger global "wars, massive government-debt defaults, and the impoverishment of large segments of Western society." Faber knows that capitalism is not working, capitalism has peaked, and the collapse of capitalism is "inevitable."

When? He hesitates: "But what I don't know is whether this final collapse, which is inevitable, will occur tomorrow, or in five or 10 years, and whether it will occur with the Dow at 100,000 and gold at $50,000 per ounce or even confiscated, or with the Dow at 3,000 and gold at $1,000." But the end is inevitable, a historical imperative.

2. Nobody's planning for a 'Black Swan'

While the timing may be uncertain, the trigger is certain. Societies collapse because they fail to plan ahead, cannot act fast enough when a catastrophic crisis hits. Think "Black Swan" and read evolutionary biologist Jared Diamond's "Collapse: How Societies Choose to Fail or Succeed."

A crisis hits. We act surprised. Shouldn't. But it's too late: "Civilizations share a sharp curve of decline. Indeed, a society's demise may begin only a decade or two after it reaches its peak population, wealth and power."

Warnings are everywhere. Why not prepare? Why sabotage our power, our future? Why set up an entire nation to fail? Diamond says: Unfortunately "one of the choices has depended on the courage to practice long-term thinking, and to make bold, courageous, anticipatory decisions at a time when problems have become perceptible but before they reach crisis proportions."

Sound familiar? "This type of decision-making is the opposite of the short-term reactive decision-making that too often characterizes our elected politicians," thus setting up the "inevitable" collapse. Remember, Greenspan, Bernanke, Bush, Paulson all missed the 2007-8 meltdown: It will happen again, in a bigger crisis.

3. Wall Street sacked Washington

Bogle warned of a growing three-part threat -- a "happy conspiracy" -- in "The Battle for the Soul of Capitalism:" "The business and ethical standards of corporate America, of investment America, and of mutual fund America have been gravely compromised."

But since his book, "Wall Street America" went over to the dark side, got mega-greedy and took control of "Washington America." Their spoils of war included bailouts, bankruptcies, stimulus, nationalizations and $23.7 trillion new debt off-loaded to the Treasury, Fed and American people.

Who's in power? Irrelevant. The "happy conspiracy" controls both parties, writes the laws to suit its needs, with absolute control of America's fiscal and monetary policies. Sorry Jack, but the "Battle for the Soul of Capitalism" really was lost.

4. When greed was legalized

Go see Michael Moore's documentary, "Capitalism: A Love Story." "Disaster Capitalism" author Naomi Klein recently interviewed Moore in The Nation magazine: "Capitalism is the legalization of this greed. Greed has been with human beings forever. We have a number of things in our species that you would call the dark side, and greed is one of them. If you don't put certain structures in place or restrictions on those parts of our being that come from that dark place, then it gets out of control."

Greed's OK, within limits, like the 10 Commandments. Yes, the soul can thrive around greed, if there are structures and restrictions to keep it from going out of control. But Moore warns: "Capitalism does the opposite of that. It not only doesn't really put any structure or restrictions on it. It encourages it, it rewards" greed, creating bigger, more frequent bubble/bust cycles.

It happens because capitalism is now in "the hands of people whose only concern is their fiduciary responsibility to their shareholders or to their own pockets." Yes, greed was legalized in America, with Wall Street running Washington.

5. Triggering the end of our 'life cycle'

Like Diamond, Faber also sees the historical imperative: "Every successful society" grows "out of some kind of challenge." Today, the "life cycle" of capitalism is on the decline.

He asks himself: "How are you so sure about this final collapse?" The answer: "Of all the questions I have about the future, this is the easiest one to answer. Once a society becomes successful it becomes arrogant, righteous, overconfident, corrupt, and decadent ... overspends ... costly wars ... wealth inequity and social tensions increase; and society enters a secular decline." Success makes us our own worst enemy.

Quoting 18th century Scottish historian Alexander Fraser Tytler: "The average life span of the world's greatest civilizations has been 200 years" progressing from "bondage to spiritual faith ... to great courage ... to liberty ... to abundance ... to selfishness ... to complacency ... to apathy ... to dependence and ... back into bondage!"

Where is America in the cycle? "It is most unlikely that Western societies, and especially the U.S., will be an exception to this typical 'society cycle.' ... The U.S. is somewhere between the phase where it moves 'from complacency to apathy' and 'from apathy to dependence.'"

In short, America is a grumpy old man with hardening of the arteries. Our capitalism is near the tipping point, unprepared for a catastrophe, set up for collapse and rapid decline.

15 more clues capitalism lost its soul ... is a disaster waiting to happen

Much more evidence litters the battlefield:

  1. Wall Street wealth now calls the shots in Congress, the White House

  2. America's top 1% own more than 90% of America's wealth

  3. The average worker's income has declined in three decades while CEO compensation exploded over ten times

  4. The Fed is now the 'fourth branch of government' operating autonomously, secretly printing money at will

  5. Since Goldman and Morgan became bank holding companies, all banks are back gambling with taxpayer bailout money plus retail customer deposits

  6. Bill Gross warns of a "new normal" with slow growth, low earnings and stock prices

  7. While the White House's chief economist retorts with hype of a recovery unimpeded by the "new normal"

  8. Wall Street's high-frequency junkies make billions trading zombie stocks like AIG, FNMA, FMAC that have no fundamental value beyond a Treasury guarantee

  9. 401(k)s have lost 26.7% of their value in the past decade

  10. Oil and energy costs will skyrocket

  11. Foreign nations and sovereign funds have started dumping dollars, signaling the end of the dollar as the world's reserve currency

  12. In two years federal debt exploded from $11.2 to $23.7 trillion

  13. New financial reforms will do little to prevent the next meltdown

  14. The "forever war" between Western and Islamic fundamentalists will widen

  15. As will environmental threats and unfunded entitlements

"America Capitalism" is a "Lost Soul" ... we've lost our moral compass ... the coming collapse is the end of an "inevitable" historical cycle stalking all great empires to their graves. Downsize your lifestyle expectations, trust no one, not even media.

Faber is uncertain about timing, we are not. There is a high probability of a crisis and collapse by 2012. The "Great Depression 2" is dead ahead. Unfortunately, there's absolutely nothing you can do to hide from this unfolding reality or prevent the rush of the historical imperative....

...........

.



Thursday, October 15, 2009

The Ongoing Cover Up of the Truth Behind the Financial Crisis May Lead to Another Crash



William K. Black - professor of economics and the senior regulator during the S & L crisis - says that that the government's entire strategy now - as during the S&L crisis - is to cover up how bad things are ("the entire strategy is to keep people from getting the facts").

Indeed, as I have previously documented, 7 out of the 8 giant, money center banks went bankrupt in the 1980's during the "Latin American Crisis", and the government's response was to cover up their insolvency....

Black also says:

There has been no honest examination of the crisis because it would embarrass C.E.O.s and politicians . . .

Instead, the Treasury and the Fed are urging us not to examine the crisis and to believe that all will soon be well.
....Now I've lived to hear everything. Mr. Bubbles admits too big to fail has been a disaster. What next, a mea culpa on structured finance? A "sorry" from the Free Market crowd for deregulation? Let's not stop at too big to fail when these corps are also too big to prosecute. Any corporation in a public utility business like banking should have to agree that they will not be too lawyered up to be prosecuted. Instead of Corporate Integrity Agreements CIAs) we need Corporate Regulation Agreements for Prosecution (CRAPs).....

PhD economist Dean Baker made a similar point, lambasting the Federal Reserve for blowing the bubble, and pointing out that those who caused the disaster are trying to shift the focus as fast as they can:

The current craze in DC policy circles is to create a "systematic risk regulator" to make sure that the country never experiences another economic crisis like the current one. This push is part of a cover-up of what really went wrong and does absolutely nothing to address the underlying problem that led to this financial and economic collapse.
Baker also says:
"Instead of striving to uncover the truth, [Congress] may seek to conceal it" and tell banksters they're free to steal again.
Economist Thomas Palley says that Wall Street also has a vested interest in covering up how bad things are:
That rosy scenario thinking has returned to Wall Street should be no surprise. Wall Street profits from rising asset prices on which it charges a management fee, from deal-making on which it earns advisory fees, and from encouraging retail investors to buy stock, which boosts transaction fees. Such earnings are far larger when stock markets are rising, which explains Wall Street’s genetic propensity to pump the economy.
The media has largely parroted what the White House and Wall Street were saying. As a Pew Research Center study on the coverage of the crisis found:

The gravest economic crisis since the Great Depression has been covered in the media largely from the top down, told primarily from the perspective of the Obama Administration and big business, and reflected the voices and ideas of people in institutions more than those of everyday Americans…

Citizens may be the primary victims of the downturn, but they have not been not the primary actors in the media depiction of it.

A PEJ content analysis of media coverage of the economy during the first half of 2009 also found that the mainstream press focused on a relatively small number of major story lines, mostly generating from two cities, the country’s political and financial capitals.

A companion analysis of a broader array of media using new “meme tracker” technology developed at Cornell University finds that phrases and ideas that reverberated most in the coverage came early on, mostly from government, particularly from the president and the chairman of the Federal Reserve...

  • Three storylines have dominated: efforts to help revive the banking sector, the battle over the stimulus package and the struggles of the U.S. auto industry. Together they accounted for nearly 40% of the economic coverage from February 1 through August 31. Other topics related to the crisis have been covered much less. As an example, all the reporting of retail sales, food prices, the impact of the crisis on Social Security and Medicare, its effect on education and the implications for health care combined accounted for just over 2% of all the economic coverage.
  • Actions by government officials and business leaders drove much of the coverage. The White House and federal agencies alone initiated nearly a third (32%) of economic stories studied through July 3. Business triggered another 21%. About a quarter of the stories (23%) was initiated by the press itself and did not rely on an external news trigger. Ordinary citizens and union workers combined to act as the catalyst for only 2% of the stories about the economy.
  • Fully 76% of the datelines on economic stories studied during the first five months of the Obama presidency were New York (44%) or metro Washington D.C. (32%). Only about one-fifth (21%) of the stories originated in any other city in the U.S., and about a quarter of those emanated from two other major media centers: Atlanta and Los Angeles.
As I have previously reported, concentration in the mainstream media (along with a number of other dynamics) has severely undermined the credibility of the media.

Why Should We Care?

Why should we care if there has been a cover up?

Well, initially, if there has been activity which is harmful to the economy and may lead to another financial crisis, wouldn't we want to know about it, so that we prevent it from happening again?

The answer is obviously yes.

But if the government, Wall Street, and the media are all in cover-up mode, then independent auditors, financial analysts and economists cannot shine a light into financial practices to find out what really went wrong.

In addition, if we don't know what's really going on, we can't gauge whether the government's economic policies are working. For example, Time Magazine called Tim Geithner a "con man" and the stress tests a "confidence game" because those tests were so inaccurate.

William Black said:
How do you think we did the stress tests? Like doing a stress test on an airplane wing, but you don’t actually have airplane wing. And don’t know what airplane wing is made out of. It’s a farce.
I agree.

Without accurate information, we will not know if we're heading in the right or the wrong direction.

Fraud

One of the foremost experts on structured finance and derivatives - Janet Tavakoli - says that rampant fraud and Ponzi schemes caused the financial crisis.

University of Texas economics professor James K. Galbraith agrees:

You had fraud in the origination of the mortgages, fraud in the underwriting, fraud in the ratings agencies.
Congress woman Marcy Kaptur says that there was rampant fraud leading up to the crash (see this and this).

According to economist Max Wolff:

The securitization process worked by "packag(ing), sell(ing), repack(aging) and resell(ing) mortages making what was a small housing bubble, a gigantic (one) and making what became an American financial problem very much a global" one by selling mortgage bundles worldwide "without full disclosure of the lack of underlying assets or risks."


Buyers accepted them on good faith, failed in their due diligence, and rating agencies were negligent, even criminal, in overvaluing and endorsing junk assets that they knew were high-risk or toxic. "The whole process was corrupt at its core."

William Black says that massive fraud by is what caused the economic crisis. Specifically, he says that companies, auditors, rating agencies and regulators all committed fraud which helped blow the bubble and sowed the seeds of the inevitable crash. And see this.

Indeed, as I have previously noted, the giant ratings agencies have a culture of covering up improper ratings (and they essentially took bribes for giving higher ratings).

Black also notes:

  • Everyone involved knew that the CDOs which packaged subprime loans were not AAA credit-worthy (which means that they are completely risk-free). He also said that the exotic instruments (CDOs, CDS, etc.) which spun the mortgages into more and more abstract investments were intentionally created to defraud investors
  • The government knew about mortgage fraud a long time ago. For example, the FBI warned of an "epidemic" of mortgage fraud in 2004. However, the FBI, DOJ and other government agencies then stood down and did nothing. See this and this
  • "Accounting is the weapon of choice in the financial sphere", with the top executives involved in these fraudulent schemes vacuuming out huge profits for themselves and select insiders, and having auditors rubber stamp what's being done
  • In November 2007, one rating agency - Fitch's - dared to take a look at some loan files. Fitch concluded that there was the appearance of fraud in nearly every file reviewed
Black and economist Simon Johnson also state that the banks committed fraud by making loans to people that they knew would default, to make huge profits during the boom, knowing that the taxpayers would bail them out when things went bust.

See also this and this.

The Economy Won't Recover Until We Prosecute


So there was a little fraud, no big deal, right?

Wouldn't looking backwards at fraudulent conduct be distracting for the people, the government, and the economy? Shouldn't we look forward so we can recover?

No.

Specifically, t
he Wharton School of Business has written an essay stating that restoring trust is the key to recovery, and that trust cannot be restored until wrongdoers are held accountable.

The Wharton paper states:
The public will need to "hold the perpetrators of the economic disaster responsible and take what actions they can to prevent them from harming the economy again." In addition, the public will have to see proof that government and business leaders can behave responsibly before they will trust them again...
For more on the importance of trust in the economy, see this.

The stakes are high. As Pam Martens, who worked on Wall Street for 21 years, writes:
The massive losses by big Wall Street firms, now topping those of the Great Depression in relative terms, have yet to be adequately explained. Wall Street power players are obfuscating and Congress is too embarrassed or frightened to ask, preferring to just throw money at the problem and hope it goes away. But as job losses and foreclosures mount and pensions and 401(k)s shrink, public policy measures to address the economic stresses require a full set of unembellished facts...

It was four years after the crash of 1929 before the major titans of Wall Street were forced to give testimony under oath to Congress and the full magnitude of the fraud emerged. That delay may well have contributed to the depth and duration of the Great Depression. The modern-day Wall Street corruption hearings in Congress ... must now resume in earnest and with sworn testimony if we are to escape a similar fate....

......The Crime of Our Time: Was the Economic Collapse "Indeed, Criminal?"

As a form of economic terrorism, indeed so says Schechter and many others. Ellen Brown, author of Web of Debt, writes: Schechter "establishes the crime's elements, identifies the players, and exposes the weapons that have turned free markets into vehicles for mass manipulation and control."

More still, according to former high-level government and Wall Street insider Catherine Austin Fitts in describing a "financial coup d'etat" that includes inflating multiple market bubbles, pump and dump schemes, naked short selling, precious metals price suppression, and active market intervention by Washington and the Fed that lets powerful insiders game the system, commit massive fraud, and be able to transfer trillions of public wealth to themselves, then get open-ended bailouts when the inevitable crisis surfaces.

In his last book, Plunder, Schechter deconstructed one element of the economy's financialization - the outlandish amounts subprime lending, instrumental in inflating the housing bubble and the economic crisis that followed.

The Crime of Our Time is his latest attempt to explain "the financial collapse as a crime story (and) the high status white-collar crooks" who wreak havoc on "the lives of hundreds of millions worldwide." He quotes from author and labor activist Jonathan Tasini in his new book, The Audacity of Greed, saying:

"Over the past quarter century, we have lived through the greatest looting of wealth in human history." While an elite few profited hugely, "the vast majority of citizens have lived through a period of falling wages, disappearing pensions, and dwindling bank accounts, all of which led to the personal debt crisis that lies at the root of the current financial meltdown."

The fallout cost millions of Americans their jobs, homes, savings, and futures, the result of a Washington - Wall Street criminal cabal and their scandalous conspiracy against the US public. In the Crime of Our Time, Schechter, once again, does a superb job explaining it astutely, thoroughly, and clearly.

Introduction - Our Time and Financial Crime

(1) In Wall Street We Trust

Once again, the major media betrayed the public by cheerleading the inflating market bubbles, ignoring the cause and Wall Street/Washington's role, then downplaying the severity of the crisis that has a long way to run. Instead their reasoning goes: "we are all to blame, guilty of greed, over-spending and under-saving," so "when everyone's at fault, no one can be held responsible."

Yet capitalism's internal contradictions make it crisis-prone, unstable, ungovernable, and self-destructive because of its repeated cycles of booms creating bubbles, creating busts, then depressions, and inevitably decay and demise.

Initially, The New Times deflected attention by focusing on human errors like "wild derivatives, sky-high leverage, (and) a subprime surge," but avoided the core issue of white collar crime and Washington's complicity in it. When it was too late to matter, columnists like Bob Herbert wrote about financial "malefactors" who walk away "with a suspended sentence, and can't wait to get back to their nefarious activities." Where were they when it mattered most?

Still today, the corporate media ignores the crime scene, instead calling criminal bankers "egotistical jerk(s) as trapped as anyone" in their own mess, as much victims as their prey.

(2) Former Bank Regulator William Black Speaks Out

Economics Professor William Black is a former senior bank regulator and Savings and Loan prosecutor. In April 2009 interviews in Barrons and with Bill Moyers on public television, he referred to "failed bankers (advising) failed regulators on how to deal with failed assets" they all conspired to create, proliferate, and use to defraud unwary buyers. He explained that many failed banks were deliberately brought down, and:

"The way that you do it is to make really bad loans, because they pay better. Then you grow extremely rapidly, in other words, you're a Ponzi-like scheme. And the third thing you do is" leverage up. It's hugely profitable and "inevitable that there's going to be a disaster down the road."

Black explained it in his book, The Best Way To Rob A Bank Is To Own One, especially in a lax regulatory environment under the privately owned Federal Reserve and powerful financial giants that run the government, not the other way around. They write the laws, make the rules, install their people in top Washington posts, and get open-ended bailouts and absolution when their scam implodes.

In the 1930s, the Pecora Commission's Chief Counsel Ferdinand Pecora noted how "Legal chicanery and pitch darkness were the banker's stoutest allies." So weren't complicit government officials as well as media commentators turning a blind eye to their crimes.

(3) The Crime Wave Is Still With Us

In an environment of lax regulation, a Wall Street owned and operated Fed, the Treasury as their private piggy bank, a bipartisan criminal culture in Washington, and corporate lobbyists taking full advantage to get the best democracy their money can buy, it's little wonder that the same dirty game persists because who cares enough to stop it.

At the same time, millions of jobs are being lost. Home foreclosures are at record highs. Next year's 2010 mortgage resets will unleash a greater number, and ahead is the full impact of nationwide commercial real estate defaults plus any number of new unpleasant surprises.

Even so, little relief is in sight for beleaguered households or for 48 of the 50 states under water from their budget crises. But according to Fed Chairman Ben Bernanke, "the recession is very likely over at this point (even though) it's still going to feel like a weak economy for some time."

(4) "The Biggest Crime In The World"

That's what former Wall Street banker Nomi Prins told Schechter when he interviewed her last December. "You're talking double-digit trillions of dollars - minimum - already in the beginning of 2009, and we are nowhere near done with finding out how much loss there really is."

One estimate was $197.4 trillion, including "monies lost, value depreciated, and money spent to try to stabilize the system....and that (figure) may be low," yet it's incomprehensible. And getting to the bottom of it through a modern-day Pecora Commission may duplicate the 9/11 whitewash. According to economist Dean Baker:

"Instead of striving to uncover the truth, (an investigation) may seek to conceal it" and tell banksters they're free to steal again.

(5) Insiders Wanted

According to Schechter: "We need investigations by insiders who know where the bodies are buried, and in many cases, not yet" interred. We need more State Attorneys like Eliot Spitzer and enough honest politicians to embrace them. We need proof of who's on the take followed by "a jailout, not (another) bailout. We need to remember Balzac's insight (that) 'Behind every great fortune lies a great crime,' " in a culture where the only one is getting caught.

The Madoff Moment

In business since 1960, Bernard L. Madoff Investment Securities LLC provided executions for broker-dealers, banks, and financial institutions, and was one of the world's largest hedge fund managers, handling billions of dollars for a select clientele that included banks, insurance companies, other hedge funds, universities, charities, and numerous prominent wealthy individuals.

Madoff served as vice-chairman of the NASD, was a member of its board of governors, and chairman of its New York region. He also chaired the Nasdaq's board of governors, served on its executive committee, and was chairman of its trading committee.

In addition, he was chief of the Securities Industry Association's trading committee in the 1990s and earlier this decade in the same capacity when he represented brokerage firms in discussions with regulators about new stock market trading rules. He was highly respected and a pillar among his peers until the scam he created imploded.

On December 11, 2008, he was revealed as a world class swindler when federal agents arrested him for running a giant Ponzi scheme. According to the FBI's Theodore Cacioppi:

Madoff "deceived investors by operating a securities business in which he traded and lost investor money, and then paid certain investors purported returns on investment with the principal received from other, different investors, which resulted in losses of billions of dollars."

He was tried in federal court on charges of criminal securities fraud, convicted, and, on June 29, 2009, sentenced to 150 years in prison, the maximum under the law. In fact, his real crime was getting caught, and for ripping off the rich and famous, his own kind, who welcomed the steady high returns until what seemed too good to be true turned out to be a scam.

Section 4 of the Securities Exchange Act of 1934 established the SEC to prevent them. It's mandated to enforce the Securities Act of 1933, the Trust Indenture Act of 1939, the 1940 Investment Company Act and Investment Advisers Act, Sarbanes-Oxley of 2002, and the Credit Rating Agency Reform Act of 2006. Overall, it's responsible for enforcing federal securities laws, the securities industry, the nation's stock and options exchanges, and other electronic securities markets. It's charged with uncovering wrongdoing, assuring investors aren't swindled, and keeping the nation's financial markets free from fraud.

For years, there were suspicions about Madoff because no one understood how his strategy produced annual double-digit returns. The SEC was alerted but didn't act. Derivatives expert Harry Markopolos wrote a report for internal SEC use listing 29 Red Flags and accused Madoff of running a giant Ponzi scheme, to no avail.

Wall Street takes care of its own, and even internal SEC documents suggest that the agency is notorious for being lax, preferring wrist-slaps alone, and nearly always against lesser players, not prominent ones like Madoff or major Wall Street banks and investment firms.

As a result, the agency doesn't regulate. Investigations aren't conducted or are whitewashed. Criminal fraud goes undetected or is swept under the rug. Little is done to prevent it, and only rarely are figures like Madoff caught. Wall Street's criminal culture is in safe hands under its new head, Mary Schapiro, a consummate insider with close ties to the Street's rich and powerful, which is why she was chosen in the first place.

The White-Collar Prison Gang

Even though felons like Enron's Jeffrey Skilling, Worldcom's Bernie Ebbers, and Tyco's Dennis Kozlowski are in prison, corporate America's criminal class is thriving, untouched, and mindful that very few of their kind get caught.

So far during the current economic crisis, not only are most banksters unscathed, but they've been rewarded with trillions of taxpayer dollars, interest-free Federal Reserve money, and an open-ended checkbook for as much more as they want. Who said crime doesn't pay?

The Crimes of Wall Street

Schechter names many, including:

-- "Fraud and control frauds;

-- Insider trading;

-- Theft and conspiracy;

-- Misrepresentation;

-- Ponzi schemes;

-- False accounting;

-- Embezzling;

-- Diverting funds into obscenely high salaries and obscene bonuses;

-- Bilking investors, customers and homeowners;

-- Conflicts of interest;

-- Mesmerizing regulators;

-- Manipulating markets;

-- Tax frauds;

-- Making loans and then arranging that they fail;

-- Engineering phony financial products; (and)

-- Misleading the public."

Add to these:

-- buying a controlling stake in Washington;

-- assuring their own officials run the Treasury, Fed, and all functions related to the economy and finance, including the regulatory bodies; and

-- writing laws and regulations that govern their industry and activities.

In Washington, what Wall Street wants, it gets. As a result, financial fraud and other scams are thriving. According to the Treasury Department's Financial Crimes Enforcement Network, over 730,000 instances of suspected wrongdoing, or 13% more than in 2007, including a 23% rise in mortgage fraud to almost 65,000
incidents.

By the numbers, they amount to:

-- $994 billion in 2008 losses or a median loss of $175,000;

-- financial institutions or government agencies accounting for 27% of the total; and

-- an estimated 17 - 30 months elapse before a typical scheme is detected.

Examples include "shady lending practices....deepening debt, exploiting customers, overcharging borrowers with arbitrary late fees, and imposing other hidden costs that bilk consumers."

Most getting caught get off with mere wrist slaps or occasional fines amounting to a tiny fraction of the crimes, so it pays to keep committing them. According to Law Professor and corporate crime specialist John Coffee:

"Any criminal prosecution....must show either a specific intent to defraud or, what federal law calls, willfulness which means a real intent to deliberately defraud someone and engage in misconduct that you realize was causing injury."

So if fraud is committed with good intentions, criminal prosecutions won't follow, only civil ones can to redeem losses, and during the Bush administration, the Justice Department sought cash settlements most often to keep plaintiffs out of court. And over 60% of the relatively few tried and convicted served only about two years on average in country club prisons, and over one-fourth of them were never incarcerated.

It's why year after year, "The beat goes on (as) new scandals seem to surface daily....(yet) no sooner does one scandal erupt (when) another threatens to push it out of the public eye," or another unrelated issue is manufactured like the phony Swine Flu crisis tries to sweep them under the rug altogether. Sadly, it works because the public is none the wiser and never catches on to what investigative journalist IF Stone once explained:

"All governments are run by liars, and nothing they say should be believed." Or he simply said: "All governments lie," usually about the most important issues affecting everyone.

The Criminal Mind

The new Con Artist Hall of Infamy web site explains the art of the con, has a con watch, and lists current inductees, including many prominent past and more recent figures like Bernie Madoff, Jeff Skilling, Bernie Ebbers, and Conrad Black. But for everyone exposed, dozens more get away with cooking the books, manipulating markets, profiting from insider deals, selling toxic junk to unwary investors, and pocketing multi-millions as their legitimate right. Why not, when regulators and law enforcement are complicit in letting them.

They use "every angle to persuade people to believe" that their integrity is impeccable, their financial skills unmatched, and their strengths include:

-- "power & influence" because of friends in high places;

-- "charisma" to attract broad appeal; and

-- "strong cover" for being a respected financial community member.

They flourish best free from regulatory oversight during periods of economic prosperity and bull markets, or at least the illusion that these conditions exist. Former convicted felon Sam Antar explained:

"White-collar criminals are economic predators. We consider you, humanity, as a weakness to be exploited in the execution of our crimes. In order to commit (them), we have to increase your comfort level (by) build(ing) walls of false integrity around us....We have no respect for the laws. We consider your codes of ethics, your laws, weaknesses to be exploited in the execution of our crimes."

"You can't be prosecuted for being stupid. So all white-collar criminals always try to play stupid. They don't want to show intent. It's easier to say that this was a result of a mistake or an error of judgment, than to say that I intended to, to victimize or defraud somebody. It's relatively easy (and) the criminal element today is figuring out a way to exploit it" because of so much easy money around for the taking.

The Crime at the Heart of the Crime

Embracing fraud is simple when so many people in high places commit it, get away with it, and the few caught keep most of their gains and pay a small price for them. Further, "The line between legal and illegal can be a thin one or no line at all. It can also be complicated, even hard for government to investigate and prosecute."

Also, no widely accepted definition of economic crime exists because intent is so hard to prove, and in a lax regulatory environment no incentive to either, especially since unelected officials come from sectors they administer, then recycle themselves back to high-paying jobs.

Who Should Be Prosecuted?

Considering the extensive amount of fraud and harm caused, tough RICO prosecutions should be used the same as against organized crime that call for harsh sentencing penalties for the guilty.

More than ever today, the problem is endemic, the way William Black explains about the pressures on CEOs to keep up with their peers and generate impressive profits even if getting them means cooking the books and committing fraud.

He presented this paradigm in a public lecture:

-- "Corporate governance fails. Power is delegated to CEOs and collaborating members of management;

-- External controls fail through the manipulation of outside auditors and accounting firms as happened in the Enron and WorldCom frauds;

-- Rating agencies are co-opted and suborned through conflicts of interest; (and)

-- Regulation fails or is defanged with rules softened or changed (through)

(a) Deregulation

(b) No regulation

(c) Desupervision

(d) Lobbying by Companies to undercut regulators which is justified on ideological grounds as support for free markets (and)

(e) Capture - What regulators there are (are) drawn from the industry and share its outlook."

The result has been the greatest ever transfer of wealth from the many to an elite few that continues without missing a beat, and why not. No one stops them. In fact, the current environment under Democrats or Republicans lets them flourish.

Whenever a systemic collapse occurs, old scams continue and new ones emerge, always aimed at fleecing as much as possible from the unwary.

Investigating Financial Criminals

Given the unprecedented amount of financial fraud, a new independent Pecora Commission with teeth more than ever is needed to root it out and hold the guilty accountable. But getting one is another matter at a time Washington and Wall Street are co-conspirators with every incentive to facilitate criminality and whitewash attempts to expose it.

Nonetheless, economist Dean Baker lists questions needing answers:

-- asking financial executives under oath how they missed the inflating housing bubble; and

-- how they justify millions in compensation given the crisis they were complicit in creating.

However, getting straight answers will prove daunting at best, and what government authority will demand them. Perhaps a "People's Inquiry" can do better even with no teeth and no coverage by the dominant media.

Progressive web sites and online radio and television can feature the results and get them to growing audiences. Not millions but enough to spread the word and hope others pass it on.

If economic deterioration deepens over an extended period with millions more out of jobs, homes, savings and hope, then a public outcry for prosecutions might be unstoppable. Even then, it's a long shot but something worth watching.

Predatory Subprime Lending

According to Schechter, "subcrime over the years got millions of families into mortgages they couldn't afford, and that the lenders knew they couldn't sustain." Low teaser rates and financial institutions' collusion facilitated it to cash in on the enormous profits, then hang fleeced homeowners out to dry by unaffordable mortgage resets and eventual foreclosures.

According to the Center for Public Integrity, the largest Wall Street banks backed 25 of "the sleaziest subprime lenders," including CitiGroup, Wells Fargo, JP Morgan Chase, and Bank of America. Combined, they originated $1 trillion in toxic mortgages from 2005 - 2007, nearly three-fourths of the total.

Even worse, warnings a decade ago went unheeded, and former insider Catherine Austin Fitts saw an earlier scam unfolding, brought it to the attention of her GHW Bush administration superiors, and was told to shut up and mind her own business.

The idea was to pump as much money into the housing market to scam buyers with fraudulent mortgages designed to fail. It was predatory lending across the board with corporate CEOs of the top Wall Street firms involved. In 2004, the FBI first warned of a "fraud epidemic," then later launched "Operation Malicious Mortgage" that charged over 400 defendants, convicted 173 of crimes, but only accounted for around $1 billion in losses, a tiny fraction of the total fraud, none committed by major players, and that's the problem.

A Financial Crimes Enforcement Network (FinCEN) April 2008 study mortgage fraud study found that "the total for mortgage fraud SARs (suspicious activity report) filed reached nearly 53,000, an increase of 42 percent" over 2007. The February 2009 report is even worse at over 62,000 SARs, and filings increased 44% from the previous year.

Suspected crimes included:

-- falsifying financial information, including fake accounting entries, bogus trades to inflate profits or hide losses, and false transactions to evade regulatory oversight;

-- "self-dealing" through insider trading, kickbacks, backdating executive stock options, misusing corporate property for personal gain, and violating tax laws relating to "self-dealing" that amounts to illegally taking advantage of insider positions; and

-- obstruction of justice to conceal criminal conduct.

According to the Center for Public Integrity (based on the FBI's Mortgage Fraud Report), the same parties allegedly involved in fraud also created the housing crisis. On July 30, the Wall Street Journal reported that the Senate launched an investigation and subpoenaed leading financial institutions believed to be involved. But given how these investigations go, it's unlikely to expect much, let alone top executives publicly exposed and later prosecuted.

The Victims Are Everywhere

Besides millions of defrauded homeowners, the big money, according to former insider Nomi Prins, came from leveraging. She explained:

"The (big) money was made because several layers up a pyramid, Wall Street investment firms and commercial bank investment groups decided to repackage these mortgages, create layers of them, that they then resold to investors." They leveraged up 30 times or more "against those (toxic) layers, which is the real crime" and sold the junk to unwary buyers knowing that most of it would default. Adding layers of high-risk credit default swaps greatly compounded the problem that ballooned into many trillions of dollars of bad assets.

Witnesses for the Prosecution

Schechter interviewed many homeowners who explained how they were conned and the devastating effect on their lives. According to one:

"I'm a person (who's) trying to save my house. I'm in foreclosure right now. I feel like someone's hand is in my pocket, and I just want a fair break, a fair shake at the American dream."

Millions had it stolen by willful fraud and deception, capitalizing on their "low level of financial literacy" to pull off the most egregious mortgage abuses, and most often get away with them.

Wall Street Complicity

The big players are the smartest, most devious, and best able to reap the greatest profits knowing that regulators and prosecutors won't touch them, so why worry.

According to economist Max Wolff:

The securitization process worked by "packag(ing), sell(ing), repack(aging) and resell(ing) mortages making what was a small housing bubble, a gigantic (one) and making what became an American financial problem very much a global" one by selling mortgage bundles worldwide "without full disclosure of the lack of underlying assets or risks."

Buyers accepted them on good faith, failed in their due diligence, and rating agencies were negligent, even criminal, in overvaluing and endorsing junk assets that they knew were high-risk or toxic. "The whole process was corrupt at its core."

According to political scientist Ben Barber:

"Capitalism has sort of gone off the rails. It ceased to be capitalism - it's financialization. The fact that it's now all about speculation, the fact that it's about Ponzi schemes, the fact that it's about selling and buying paper," not producing real products with real worth for a real purpose, the essence of industrial capitalism.

The Insurers

AIG was the most prominent, but the industry was complicit overall, including through "credit default swaps to protect themselves against defaults" they knew were most likely would happen because the assets they insured were junk. In addition, hedge funds were "also a pit of fraud," and according to William Black:

Toxic junk "was created out of things like liars' loans, which were known to be extraordinarily bad. And now it was getting triple-A ratings....mean(ing) there is zero risk. So you take something that not only has significant risk, it has crushing risk. That's why it's toxic. And you create this fiction that is has zero risk. That itself, of course, is a fraudulent exercise. Again, there was nobody looking during the Bush years."

The result was "a 50-state-Katrina blast(ing) through America" causing millions of homeowner defaults, while criminal financiers prospered through massive securities fraud and racketeering.

According to economist Michael Hudson, it let the top 1% of the population raise their wealth level from 30% 10 years ago to 57% five years ago to almost 70% today. "It's unprecedented," he said (and) makes America look like a third world banana republic."

The Conspiratorial Role of the Media

They profit mainly through advertising revenue, and much of it comes from the FIRE industry (finance, insurance, and real estate). Newspapers especially depend heavily on real estate ads in weekend supplements and daily classified sections. In some communities, local broadsheets are the virtual "marketing arm of the real estate industry" so they have every incentive to ignore practices easily identified as fraudulent.

Overall, the media "politicized the problem....rarely acknowledging their laziness and superficial coverage." When it was too late to matter, they admitted irresponsibility but only asked questions like why didn't we see this coming. They did but failed to report it. As long as the economy appeared prosperous and big profits continued, why rock the boat? Why ask tough questions when it's easier saying nothing? Why risk offending bosses and jeopardizing careers? Why practice real journalism when the fake kind is demanded and rewards for it much greater?

Warnings Ignored

According to Washington Post columnist Robert Samuelson and others, most economists as well as journalists got it wrong, or more accurately didn't try to get it right.

Law Professor Linda Beale was unsympathetic in saying professional economists helped cause the crisis, didn't see it coming, and don't know how to fix it. Too few even try because they're paid by the industry, (or related ones), that engineered the fraud, profited hugely from it, and need professionals to trumpet successes and hide scams.

As a result, dissenting voices were silenced. Denial was the order of the day, and as long an emerging crisis wasn't evident, why sound the alarm when it's much easier and safer playing along.

Yet "One didn't have to be an expert to see the warning signs (that) led to a massive market meltdown, a collapse of the subprime mortgage market, bankruptcies by the leading financial lenders, billions of dollars in losses by top banks and financial lenders, and prediction of more pain to come for millions of Americans facing foreclosures" plus more job losses than at any time since the 1930s.

But you'd never know it from the public media discourse that cheerlead the scam until it imploded. Or as former activist and academic Alex Carey might have said - corporate propaganda protected Wall Street predators from the truth.

The Bear Stearns "Bleed Out"

The 85-year old Wall Street firm was the first major one to fail, and "Its stockholders would eventually be wiped out in what was described as the first government bailout." Many others, of course, followed with perhaps more to come once the next leg of the crisis begins.

Writing in Vanity Fair about Bear Stearns, Bryan Burroughs said there was never "anything on Wall Street to compare to it: a 'run' on a major investment bank, caused in large part not by a criminal indictment or some mammoth quarterly loss but by rumor and innuendo (that) had little basis in fact."

The questions are why, cui bono, and did the firm fall or was it pushed, even though like others on the Street it took huge risks that could backfire in hard times. But there was more going on than reported. "There were forces at work here that suggest illegal activities on a number of levels."

The firm was also independent enough to rile competitors, perhaps some arranging for it to fail, and if it did, they'd profit hugely through greater consolidation for larger market shares. So by some accounts, it was targeted by naked short selling, rumors of a liquidity problem at a time it was adequately capitalized, and heavy put option buying to sink its stock price and drive the company to the wall in a matter of days. It gave JP Morgan Chase a chance to buy it at a tiny fraction of its peak valuation, or in other words, profit hugely from a vulture purchase arranged by the Fed.

In short order, Lehman Bros., Merrill Lynch, and other noted firms failed, giving Wall Street survivors like Goldman Sachs, JP Morgan Chase, Citigroup, and Bank of America more power than ever.

The Lehman Liquidation

In asking "Did Lehman Brothers Fall or Was It Pushed," Ellen Brown quoted author Lawrence MacDonald saying the company was in no worse shape than other major Wall Street banks, so he concluded that Lehman was "put to sleep. They put the pillow over (its) face and they put her to sleep." But why is key.

Schechter quoted economist Michael Hudson blaming CEO Dick Fuld saying:

"Lehman Brothers essentially committed suicide. Its head, Mr. Fuld, had many offers from Korea and from investment banks in the US to take it over. He tried to bluff them. He tried to say, "Crisis? What crisis? Our loans are perfectly good. We haven't lost a penny. We want you to pay at the book value of what we say our loans are worth."

But no one believed it, and why should they. "These are guys who like to wipe out their partners, like to wipe out people they are doing business with. He (f'd) the whole firm and wiped out the shareholders (saying) 'We're too big to fail.' " Was Fuld complicit in a deliberate scheme to bring down Lehman, and if so why?

Apparently, he profited hugely, and so did the Street by removing a key competitor. First Bear Stearns, then Lehman. According to Brown:

"Although Lehman Brothers filed for bankruptcy on Monday, September 15, 2008, it was actually 'bombed' on September 11" when it was hit by the "biggest one-day drop in its stock" the result of manipulative naked short-selling and apparent sabotage to prevent the company from negotiating a deal to be bought. The UK-based Barclays Bank was interested and was willing to underwrite Lehman's debt.

But as Brown explained:

It "needed a waiver from British regulators of a rule requiring shareholder approval. (However,) UK Chancellor of the Exchequer Alistair Darling" stonewalled long enough to prevent it. He did the same thing with Britain's Northern Rock and "changed the rules of the game" by opening the spigot in both countries for open-ended bailouts for banks too big to fail.

Again, why so and cui bono? It "suggests that Lehman Brothers (Northern Rock and others) did not just fall over the brink but (were) pushed." The likely reasons were to engineer the financial crisis, create an emergency, pressure Congress (and the UK government) to provide billions in rescue funding, give selected major banks in both countries more power to consolidate, then use bailout proceeds to buy choice assets on the cheap plus reward themselves handsomely for their cleverness.

It's not new with numerous past examples of predatory bankers, including JP Morgan, engineering financial crises for profit. The difference is that today the stakes far higher and global with US giants Goldman Sachs, JP Morgan Chase, Citigroup, Bank of America, Wells Fargo, and Morgan Stanley the major survivors - bigger and more powerful than ever, and so far thriving with open-ended bailouts.

Ellen Brown adds:

"The international bankers who caused the financial crisis are indeed capitalizing on it, consolidating their power in 'a new global financial order' that gives them (more) top-down global control" than ever with the public exploited and stuck with the bill.

Are Our Markets Manipulated?

Forget about "animal spirits," random movements, and asset prices reflecting true values, and understand that all markets are manipulated up and down for profit with insiders profiting hugely both ways.

Catherine Austin Fitts calls it a "pump and dump" scheme to artificially inflate valuations, then profit more on the downside by short-selling. "The practice is illegal under securities law, yet it is particularly common" because the gains are enormous, in good and bad times. When carried to extremes, Fitts calls it "pump(ing) and dump(ing) of the entire American economy," duping the public, fleecing trillions, and it's more than just "a process designed to wipe out the middle class. This is genocide (by other means) - a much more subtle and lethal version than ever before perpetrated by the scoundrels of our history texts."

The so-called Plunge Protection Team is one of the tools, authorized on March 18, 1989 under Ronald Reagan's Executive Order 12631 creating the Working Group on Financial Markets (WGFM) with top government officials, including the President, Treasury Secretary and Fed chairman in charge.

It subverts market forces by theoretically intervening to avoid crises. In fact, it works both ways to drive valuations up or down along with active insider participation for huge profits with the public none the wiser.

Schechter explains that "this secret branch of government has a sophisticated war room, using every state of the art technology to monitor markets worldwide. It has emergency powers. It doesn't keep minutes. There is no freedom of information access to its deliberations." Google has 147,000 entries about it, but only 10 can be accessed, so the most secretive shenanigans are hidden along with the role of the Fed, the Treasury, and the White House.

Established by the 1934 Gold Reserve Act, the Treasury-run Exchange Stabilization Fund (ESF) originally operated free from congressional oversight "to keep sharp swings in the dollar's exchange rate from (disrupting) financial markets" through manipulation. Its operations now include stabilizing foreign currencies, extending credit lines to foreign governments, and more recently guaranteeing money market funds against losses of up to $50 billion. Overall, the ESF is a slush fund for Treasury officials to use as they wish and manipulate markets freely.

Established in 1999 after the Long Term Capital Management (LTCM) crisis, the Counterparty Risk Management Policy Group (CRMPG) manipulates markets to benefit giant Wall Street firms and their high-level insiders. It lets financial giants collude through large-scale program trading to move markets up or down. It bails out members in financial trouble, and manipulates markets short or longer-term with government complicity and approval to go either way for huge profits on stocks, bonds, commodities, currencies, futures, options, and an array of speculative vehicles like structured assets and derivatives. Market manipulation enriches insiders at the expense of the unwary, often fleeced by their chicanery.

The Testosterone Factor

Schechter wonders how different things might have been if "the Sheriff of the Street," Eliot Spitzer, hadn't been caught in a sex scandal and forced to resign as Governor. Two days before being outed in testimony before Congress and in a Washington Post op-ed, he accused the Bush administration of being a "partner in crime" with predatory lenders. He wrote:

"Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders."

"Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye."

However, his comments were quickly buried, then forgotten after his sex scandal erupted, even though it's widely known that well-healed Wall Street and other corporate types have "kept a vibrant, upscale sex industry" thriving. What Schechter calls the "testosterone factor" is brought on by what experts call a sense of exuberance, a feeling of infallibility, and a sense of entitlement to engage in risky behavior, including with high-paid prostitutes. It's the same euphoria gamblers feel when winning. They get addicted to the action and can't stop.

The Role of Regulators and Politicians

Wall Street predators profited hugely with complicit help from regulators, politicians, and prosecutors. Further, "The financialization (of the economy) did not just happen; it was engineered, projected as socially beneficial 'modernization' and innovation" at the same time industrial capitalism was eroding because operations were offshored to cheap labor markets.

Financialization is ripe for plunder and fraud under a system favoring bigness, lax regulations, prosecutorial weakness, and FIRE sector companies and high-powered lobbyists' influence buying from criminally complicit politicians.

They got:

-- Glass-Steagall repealed;

-- the Commodity Futures Modernization Act that licensed high-risk derivatives speculation;

-- off-balance sheet accounting chicanery to hide financial liabilities;

-- the SEC letting investment banks be self-regulating;

-- an overall regulatory climate conducive to widespread fraud and abuse;

-- new rules to let commercial banks determine their own capital reserve requirements;

-- federal bank regulators empowered to supersede state consumer protection laws, thus facilitating predatory lending;

-- new federal rules preventing victims of abusive loans from suing firms that bought them from issuing banks;

-- antitrust laws weakened or abandoned and the door opened to "too-big-to-fail megabanks," and

-- much more, creating opportunities for the worst kinds of fraud and abuse with virtually no government oversight to stop it.

Worse still, it persists under Obama in more extreme forms with plans for greater global reach and dominance creating new opportunities for plunder. According to Michael Hudson, "It looks as if as little will be done to (curb) financial fraud as will be done to the Guantanamo torturers and the high-ups who condoned their actions."

Or as Schechter explains:

"Is economic justice even possible under circumstances riddled with so many banksters still in charge and tangled up in so many conflicts of interest? In this environment, can we look forward to any serious fraud or prevention effort, much less a mass prosecution?"

That said, can reckless speculation be halted or will it continue unabated, followed by greater boom and bust cycles until the entire system implodes in an inevitable collapse after which no recovery is possible and most people are left impoverished and on their own because government did nothing to stop it.

Judgment Day

On September 15, Bloomberg News quoted Fed chairman Ben Bernanke saying "....from a technical perspective the recession is very likely over at this point...." The dominant media agree, with commentators like CNN's Lou Dobbs stating months ago that the economy was improving and the recession would soon end. Others disagree, including former insider Nomi Prins saying:

"This economic cycle is not finished going downward. We are in the beginning of 2009. We've seen a decimated 2008. It's not getting better anytime soon."

According to economist Max Wolff:

"Sadly there is evidence that we're going to flush our tax dollars and our opportunity down the toilet to rebuild an unfair system that rewarded only the top at the expense of everybody and was fundamentally unsound."

Longtime market analyst Bob Chapman sees no recovery ahead "even with an official $23.7 trillion committed by the Treasury and the Fed....(Yet) we hear fairy tales of recovery in the US, Europe and Asia." Chapman sees the worst of times ahead and many dark years before returning to normality.

Leading monetary analyst Professor Tim Congdon explains that money and credit in America have been contracting at a pace comparable to the Great Depression. "There has been nothing like this in the USA since the 1930s. The rapid destruction of money balances is madness."

Economist David Rosenberg is also worried because "For the first time in the post-WW2 era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew."

Worse still, Wall Street is more powerful and rapacious than ever. Speculation remains unabated. New bubbles are being inflated with a "whole new wave of criminal" fraud, according to investigative journalist Gary Weiss. Even so, top financial officials have escaped prosecution. Instead, beleaguered households have been hung out to dry, while meaningful reforms aren't coming because "financial sector lobbies appear stronger than ever." As a result, business as usual continues accompanied by the kind of Washington and media cheerleading we've grown accustomed to hearing.

Absent is any concern for the common good when more than ever the business of America is big business with a strategic long-term plan for co-opting world governments, waging permanent wars for profit, dominating everywhere militarily, ending social safety net protections, crushing civil liberties and freedom, tolerating no concern for human rights, controlling global markets and resources, turning workers everywhere into serfs, and extracting, unimpeded, as much public wealth as possible.

That's America's future with no simple solutions in sight. Yet more than ever the old order must be stopped or a far greater calamity is coming than The Crime of Our Time....

Wednesday, October 14, 2009

Fed Intentionally Devalued U.S. Dollar

http://www.economist.com/opinion/displaystory.cfm?story_id=14699754

The following is an excerpt from Why Did U.S. SDR Holdings Increase Five Fold In The Last Week Of August? by Tyler Durden, Zero Hedge

With everyone lately focused on China's foreign reserve position, analysts have forgotten that America also has an International Reserve account consisting of foreign currency positions, as well as gold reserves and equivalents. And while the total combined holdings as of the most recently reported period are a joke compared to China's $2+ trillion, the most recent number of $133.6 billion does raise red flags, particularly when one traces this number's level throughout the year.

We present a graphic representation of the US International Reserve Position over the past year:

Click graph to enlarge.

The big question mark at the end of August is when the U.S. International Reserve Position increased by almost 50%. The reason for this: a near quintupling of S.D.R. holdings on the U.S. balance sheet in the span of one week - from August 21 to August 28.

The SDR balance increased by 500% practically overnight and has stayed that way ever since.

By purchasing $40 billion in SDRs virtually overnight, what the Fed has done is to increase the value of the entire basket pro-rata, while in the process reducing the actual value of the dollar (which is a weighted constituent of the SDR basket). This was an operation to reduce the dollar's value: pure and simple. In many ways it explains why the DXY has continued its straight one way decline since the beginning of September, when many pundits assumed the market was finally going to tank on profit taking after Labor day. By performing this dollar adverse transaction, the Fed sent a loud and clear signal what the Fed was going to do going forward vis-a-vis the i) dollar and ii) its derivative, the stock market.

Chart of the Trade Weighted US dollar from 1973-2009. Click to enlarge.

And what is worse, this is not a roundabout or circuitous way of devaluing the dollar: this is head on intervention. It is one thing to print trillions of MBS and Agencies and to monetize Treasuries, where one could say Tim Geithner's claim that the U.S. is for a strong dollar, and the dollar is only weak as a function of supporting housing prices. That could potentially fly as an explanation. However, when the Fed is actively and purposefully destroying the dollar's worth via transactions such as material SDR purchases, then it truly demonstrates Geithner's statement as a bold faced lie to the American public. When will Mr. Geithner be finally taken to task for his repeated fabrications of reality and intent?

For Those About to Rock We Salute You

Last but not least, the US was of course expected to bear the brunt of this reallocation, responsible for purchasing three times as much (SDR30 billion) as the second largest quota allocated country: Japan (SDR11 billion). China is far in the distance at SDR 6 billion. In essence: the monetary community increased its global liquidity position, by assuming that the U.S. is still the defacto reserve currency, and forcing it to take the majority of the devaluation hit relative to all other IMF constituents.

Well done, Ben.

~ ~ ~

Update via The Market Ticker:

Now I may be missing something here but Treasury doesn't appear to have that power without an explicit act of Congress. To wit, The US Constitution Article I, Section 7 provides:

To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

CONGRESS has sole authority to approve (or not) the acquisition and disposal of SDRs, which are nothing more or less than a foreign currency - in this case, one comprised of a basket of other currencies. The Executive has no power to engage in this sort of transaction on its own initiative.

But it did, and thought it wouldn't be noticed.

Well, it was.

The dollar continues to rattle around at key support. If it breaks then our import-based economy will be decimated. Oil will skyrocket and so will input costs to American business. Bye-bye profits - and businesses.

Congress, Treasury and The Fed are all counting on not only you being stupid but everyone in the International Markets being stupid. That's a bad bet, and I believe the time to buckle up is close at hand. While the "can kicking" of the last six months might seem to have been a good thing at the time, and might even look good now, I suspect that when we look back on it in a year or two we will recognize it as the disaster that it in fact was.

Monday, October 12, 2009

The Case for Deflation, Stagflation and Implosion


"When once a republic is corrupted, there is no possibility of remedying any of the growing evils but by removing the corruption and restoring its lost principles; every other correction is either useless or a new evil." Thomas Jefferson


As part of their program of 'quantitative easing' which is another name for currency devaluation through extraordinary expansion of the monetary base, the Fed has very obviously created an inflationary bubble in the US equity market.



Why has this happened? Because with a monetary expansion intended to help cure an credit bubble crisis that is not accompanied by significant financial market reform, systemic rebalancing, and government programs to cure and correct past abuses of the productive economy through financial engineering, the hot money given by the Fed and Treasury to the banking system will NOT flow into the real economy, but instead will seek high beta returns in financial assets.



Why lend to the real economy when one can achieve guaranteed returns from the Fed, and much greater returns in the speculative markets if one has the right 'connections?'



The monetary stimulus of the Fed and the Treasury to help the economy is similar to relief aid sent to a suffering Third World country. It is intercepted and seized by a despotic regime and allocated to its local warlords, with very little going to help the people.



Deflation

By far this presents the most compelling case for a deflationary episode. As the money that is created flows into financial assets, it is 'taxed' by Wall Street which takes a disproportionately large share in the form of fees and bonuses, and what are likely to be extra-legal trading profits.

If the monetary stimulus is subsequently dissipated as the asset bubble collapses, except that which remains in the hands of the few, it leaves the real economy in a relatively poorer condition to produce real savings and wealth than it had been before. This is because the outsized financial sector continues to sap the vitality from the productive economy, to drag it down, to drain it of needed attention and policy focus.

At the heart of it, quantitative easing that is not part of an overall program to reform, regulate, and renew the system to change and correct the elements that caused the crisis in the first place, is nothing more than a Ponzi scheme. The optimal time to reform the system was with the collapse of LTCM, and prior to
the final repeal of Glass-Steagall, and the raging FIRE sector creating serial bubbles.

Stagflation

These injections of monetary stimulus to maintain a false equilibrium is in reality creating an increasingly unsustainable and unstable monetary disequilibrium within the productive economy. As the real economy contracts, the amount of money supply that the economy can sustain without triggering a monetary inflation decreases, and in a nonlinear manner. This is because the money multiplier does not 'work' the same in reverse, owing to the ability of private individuals and corporations to default on debt.

Ironically, with each iteration of this stimulus and seizure of wealth, the dollar becomes progressively weaker because there is a smaller productive economy to support it, even if there are less dollars, despite the nominal gains in GDP which are an accounting illusion. This has been further enabled by the dollar's status as reserve currency backed by nothing since 1971, which has created an enormous overhang of dollars in the hands of other nations.

One cannot have a sustained economy recovery in which the real median wage and domestic employment are stagnant or declining, and Personal Income is declining, as wealth is being increasingly concentrated in corporations and the upper 2% of the population.



This is why stagflation, rather than hyperinflation or a sustained monetary deflation with a stronger dollar, is most likely. There will be a mix of falling and rising prices, depending on the elasticity and source (imported content) of the products, with a wildly staggering dollar that could destabilize other parts of the world, and pernicious underemployment and growing civil unrest domestically.

Those who have taken a huge share of the last three bubbles would like to stop the bubble now, keep their gains, and return to a system of fiscal restraint with light taxation on their windfall of assets.



So why does this not just simply happen? Because the political risks become enormous. It is difficult to reduce a population of free men into debt slaves, without risking a significant reaction. Therefore, it seems most likely that the government and the Fed will try to 'muddle through' for the time being, and look for an exogenous event to break the stalemate.



The traditional solution has been a military conflict, which stifles dissent against the government while generating artificial demand sufficient to energize the productive economy. It is a means of exporting your social misery, official corruption, and fiscal irresponsibility to another, weaker people.

Implosion

One only has to look at the "German miracle" of the 1930's to see this progression from artificial stimulus, to domestic seizure of assets, to scapegoating and aggressive wars of acquisition, as described above. But this progress out of economic depression had made Hitler and Mussolini the darlings of Wall Street and the international financiers. Indeed, Time Magazine had even named Hitler their "Man of the Year" for this economic miracle, even though it was a fraudulent house of cards.



If the Fed continues to apply monetary stimulus and subsidy into this system, without a significant reform, the dollar will eventually "break" and the real economy will temporarily collapse. This will result in the mother of all stagflation, with a hyperinflationary edge to it, and a breakdown in the electoral process, the rise of demagogues, and soaring interest rates.

At this point the cure will not be a monetary stimulus, but more like a surgery to remove a life-threatening cancer, fraught with risk and a significant challenge to the continuing governance of the US not seen since the 1860's.

Conclusion

As you know, our own judgement on this is that we will go through a cycle of demand deflation, which we are in now, and then most likely a pernicious stagflation which may see some episodes that will be remniscent of the inflation of the 1970's. A persistent deflation with a stronger dollar, as well as hyperinflation, seem to be outliers that are dependent on exogenous factors.

If the world dumped its dollars tomorrow, we would see a US hyperinflation. If the Fed raised short term rates to 20 percent tomorrow under duress we would see a true monetary deflation. As a reminder, in a purely fiat currency regime with an absence of external standards, the question of inflation and deflation is a policy decision. The limiting factor is the latitude with which that policy decision can be made.

The most probable path is a lingering death for the dollar over the next ten years, with a produtive economy that continues to stagger forward under the rule of the financial oligarchs.

Friday, October 9, 2009

Hubris, Hegemons and the Currency of Fascism



Hubris, Hegemons and the Currency of Fascism

"The extensive wars wherewith Louis XIV was burdened during his reign, while draining the State's treasury and exhausting the substance of the people, nonetheless contained the secret that led to the prosperity of a swarm of those bloodsuckers who are always on the watch for public calamities, which, instead of appeasing, they promote or invent so as, precisely, to be able to profit from them the more advantageously. The end of this so very sublime reign was perhaps one of the periods in the history of the French Empire when one saw the emergence of the greatest number for these mysterious fortunes whose origins are as obscure as the lust and debauchery that accompany them." - Marquis de Sade, 120 Days of Sodom

With the announcement in the autumn of 2008 of government plans for equity ownership in banks came obituaries on the death of capitalism and claims, invariably expressed as insults, that the United States has become a socialist regime. Karl Marx is cited with reference to the fifth proposal in the Communist Manifesto calling for a state monopoly on banks and credit. Looking past the mock funerals, however, one sees fasces-fasces being the Latin root of fascism-deeply etched into the granite and marble banks and government buildings, not the peeling remnants of posters bearing the hammer and cycle.

This is the conclusion of someone who lived in the Soviet Union for several years, where there was no equivalent to the extravagant wealth and consumption of the western financial elite-the private jets, villas and art collections, or the mistresses dripping with world-class jewelry and other luxuries that scarcely existed behind the Iron Curtain. The Communist Party's First Class didn't own gold-plated helicopters, much less sports teams or palatial homes and hideaways, as was the case with Allen Stanford, who pleaded ignorance as to how his allegedly fraudulent Caribbean financial operation was run and refused to comment on the accuracy of reports that he worked for the CIA. He would never be reduced, as was the case with Mikhail Gorbachev, to appearing in advertisements for Louis Vuitton and Pizza Hut to earn money for his foundation.

If Marquis de Sade were alive today, he would heap scorn on the notion that party functionaries and financial bureaucrats at their run-down resorts in the Black and Baltic seas would be compared to the oligarchs exemplified by the snake-loving skinhead Henry Paulson. After moving from Goldman Sachs, where he earned the nickname of The Hammer, to the Treasury Department, Paulson would execute the demise of his former rival, Lehman Brothers, force Bank of America to complete its acquisition of Merrill Lynch despite better judgment from the bank's chief executive officer, and orchestrate the greatest theft in world history with the Troubled Assets Relief Program (TARP) to bail out the financial sector-most notably his former firm-resorting even to the threat of martial law with recalcitrant legislators who were backed by an unprecedented constituent outcry.

While recognizing the necessary split entailed with giving fixed meaning to an ongoing crisis and the pitfalls of historical prognostication, recent and current snapshots allow for a fairly clear view of the horizon to be pieced together. The empire emanating from Red Square didn't unravel because of its financial sector's ability to purloin state funds, as eventually could be the case with the empire ostensibly centered in Washington but commandeered from New York and London. The Soviet Union, by the most reliable accounts, imploded in large part because of its Afghan war. While the United States and its allies now have their crippling campaign in that unforgiving country, the weakest links to the empire controlled by Wall Street and The Square Mile are formed by a quadrillion dollars in derivatives and a hundred trillion dollars of securitized debt. It is in these debt instruments that one finds the contemporary equivalent of Sade's allusion to the obscure origins of the mysterious fortunes enjoyed by the bankster elite.

Before going further, I should make it clear that this is not an apology for the Soviet Union; the Marxist authors closest to me hold that the Bolsheviks were the first fascists. Although I understand their point about the totalitarian nature of the Soviet regime, I disagree. While fascists make populist, even revolutionary propaganda, on questions of class, they differ from socialists and are more inclined to work with and for the financial elite. In the case of Mussolini, he rewarded the financiers and industrialists who brought him to power and rescued their firms when they failed during the Depression, privatizing profits and socializing losses.

The response of party bureaucrats in Beijing to the crisis has been telling in this regard; they have instituted policies more in the interest of small businesses and the average citizen than the politicians and central bankers in Washington, who have been intent on protecting the financial elite by socializing losses after years of private profit from outsized risk. The elite that owns the government hails mostly, but not entirely, from the six banks that hold nearly all U.S. bank derivative positions: the Golden Circle formed by JPMorgan Chase, Bank of America, Citi, Goldman Sachs, Wells Fargo and HSBC USA.

If the assertions of well-informed protesters are not enough to make this point, we have former International Monetary Fund rescue expert Simon Johnson contending that "the finance industry has effectively captured our government" and comparing the situation with emerging-market crises in this regard. Illinois Democratic Senator Dick Durban concurs, saying, "And the banks-hard to believe in a time when we're facing a banking crisis that many of the banks created-are still the most powerful lobby on Capitol Hill. And they frankly own the place."

Goldman Sachs and AIG

Goldman Sachs (GS) sets the most lurid example. Paulson was recruited by Bush's chief of staff, who was a former GS executive; and another former GS chief executive officer, Robert Rubin, had the top slot at Treasury under Clinton. The chief of staff of the present treasury secretary is a former GS lobbyist, who is being replaced at Goldman by a top staffer from the House Financial Services Committee. Currently, GS alumni have landed at the head of the New York Federal Reserve, the Commodity Futures Trading Commission, the presidency of the World Bank, the governorship of the Bank of Canada and chief of the influential Financial Stability Forum associated with the Bank of International Settlements.

Lawrence Summers-the Clinton administration official who championed the repeal of the Glass-Steagall Act, which separated commercial and investment banking activity, and the official who did the most to prevent regulation of credit default swaps with his support of the Commodity Futures Modernization Act of 2000-is now an Obama presidential economic adviser. In April 2008 he took time off from peddling collateralized debt obligations for hedge fund D.E. Shaw to receive $135,000 for a one-day speaking visit at Goldman.

Another former GS executive, in addition to Paulson, was involved with the government takeover of the government-sponsored enterprises Fannie Mae and Freddie Mac; and the TARP funds were managed, if that is the right word for what amounted to theft, by yet another GS man, despite the fact that the firm was a recipient of those funds.

When Paulson bailed out insurance giant American International Group (AIG), with whom GS and other money-center banks had written credit default swap contracts, invisibly traded pseudo-insurance on bond defaults, a former member of the GS board was chosen as the new chief executive. "During Paulson's reign at Goldman Sachs, his traders arranged risky bets with AIG's financial products unit in credit default swaps, and yet, it was Paulson, a few years later, acting as U.S. Treasury chief, who wound up protecting GS's $12.9 billion CDS trade with AIG from default," notes financial analyst and former commodities trader Gary Dorsch. "This colossal conflict of interest, plus $165 billion paid to Merrill Lynch traders, with U.S. taxpayer money, have all been quietly swept under the rug by the ruling elite."

At last count, the government has given $180 billion to AIG, which used its insurance policyholders' capital to make highly leveraged, over-the-counter trades against credit defaults with money center banks in the United States and abroad. One has to ask whether AIG and its counterparties didn't know better and, as a well-established U.S. intelligence operation for the Central Intelligence Agency, recognize in advance that it would be protected and its counterparties paid in full.

Investigative journalist Wayne Madsen and his Asian sources have written extensively on these intelligence connections, which include data collection on foreign nationals using former Tiananmen dissidents, and leasing aircraft to known fronts such as Evergreen International and World Airways. None of this should come as a surprise to Obama, whose first job out of college was as a researcher and writer for Business International Corporation, a firm with deep ties to the CIA that eventually merged with the Economist Intelligence Unit, which is said to work closely with Britain's MI-6.

Was the Crisis Engineered?

With the lesson of 9/11 in mind-what was purported to be an intelligence failure was in fact a brilliant success-one must ask whether the same is the case for the current financial crisis. So far the central bank and U.S. government have committed $12.8 trillion dollars to the financial rescue effort, a sum that nears last year's gross domestic product of $14.2 trillion. The bailout will likely surpass the GDP once Treasury Secretary Geithner's Public-Private Investment Program goes into full swing, providing hedge funds 14/1 leverage with taxpayer money and no downside risk to buying toxic assets. Would this vast sum have been spent, lent or otherwise extended to financial institutions in the absence of a crisis? No. Was the crisis engineered? Quite possibly.

We know that on May 5, 2006, the same day that Porter Goss resigned as the director of the CIA, President Bush gave his intelligence czar, John Negroponte, the authority to excuse publicly traded companies from their accounting and securities disclosure obligations. This was the first time this authority has been delegated to someone outside of the Oval Office, giving Negroponte "the function of President" under the law in question. It was also in early 2006 that Wall Street's major firms agreed to standardize credit default swaps on collateralized debt obligations, enabling speculators to pay relatively small fees for what would prove to be huge rewards when these bonds began defaulting.

Greed motivated the general sequence of financial maneuvers at the epicenter of the crisis. Banks and the shadow banking system, including hedge funds, would issue commercial paper-short-term loans often provided by money market funds. Instead of investing directly in real estate or other assets, firms would invest in securities based on pools of those assets, commonly mortgages, in the form of collateralized mortgage obligations or CMOs. The financial engineers on Wall Street, notably Goldman Sachs, created these structured products with their many tranches, including the notorious super-senior tranches that would supposedly never default, not just out of mortgages but virtually any form of debt-student loans, car loans, credit card debt-packaging them into collateralized loan obligations or collateralized debt obligations.

So the bank or other firm that borrows via commercial paper for six weeks at 4 percent can invest for twenty years and capture a yield of 7.5 percent, making a profit on the net positive interest rate margin. It may not seem like much, but in finance circles this yield spread is highly profitable as the sums involved are quite large. Moreover, the risk involved could be explained away. If a money market fund refused to roll over the commercial paper, the bank could borrow from other banks as the first bank would have hedged this risk by opening lines of credit when it issued the paper. It was thought that the structured products would not default as they drew on mortgages or other forms of credit that were either highly rated or geographically dispersed.

In the summer of 2007, borrowers began to default on the debt behind these structured products and the products became virtually worthless. Officials such as Paulson and Federal Reserve Chairman Ben Bernanke discovered that these products based on debt had been treated as assets and were themselves the collateral for more structured products-CDOs squared and cubed. They also discovered that vast sums of commercial paper were issued off firm's books in the form of Enron-style structured investment vehicles, hiding the extent of a given firm's liabilities and the risks it, in turn, posed to the system as a whole.

In the worldwide system of fiat-issued money, money is debt. The firms holding CDOs accounted for these debts as assets, and firms such as AIG that wrote credit default swap contracts on these CDOs created obligations for their counterparties to pay premiums every year, usually for five years, creating money out of thin air. These CDS contracts were written without holding reserves or collateral backing the underlining debt. "So what backed them?" asks blogger Hellasious on suddendebt. "Faith, pure and simple. That's as close as we have ever come to creating the absolute faith-based financial instrument."

As faith is vanishing for these under-collateralized wagers created with unlimited leverage, the CDS market is crumbling, exposing the insolvency of the CDS dealer banks and their counterparties. According to Chris Whalen of Institutional Risk Analytics, Paulson and Geithner are using tax dollars to conceal the insolvency of not just AIG but of Citi and JPMorgan Chase as well as others. "The real issue," Whalen states, is "the bankrupt intellectual basis for the CDS contracts themselves."

He estimates that at least $15 trillion and likely more in CDS payouts will be required from governments worldwide as default rates rise. The problem is that because these contracts are made over the counter, they are invisible and no one knows the true size of the outstanding issues. Award winning documentary filmmaker Gary Null, commenting on interviews he has conducted with Wall Street insiders, says the net CDS liabilities of U.S. financial institutions could reach $100 trillion.

Much of this market comprises naked swaps in which the buyer has no material interest in the underling asset, unlike covered swaps, which are beginning to see some regulation and institutional clearing. So far, the plan has been for the U.S. government to make good on these gambling bets at par, indirectly bailing out the banks in the Golden Circle via AIG.

According to Weiss Research, the CDS market represents only 7.8 percent of the notional value of derivatives held by U.S. banks, with the interest-rate sector comprising 82 percent. "Especially alarming," writes Dr. Weiss, "is the fourth quarter OCC data demonstrating that record bank losses are spreading to interest-rate derivatives." Weiss named eight large banks at the risk of failure, including three of the nation's four largest, adding that the rescue of failing institutions would entail "unacceptable damage" to the borrowing power of the United States.

"There is not any playbook," Paulson famously said in characterizing how the administration responded to the crisis, which is hard to believe when one considers how, once the TARP funds were obtained, Paulson switched their allocation from the proposed acquisition of toxic assets to directly purchasing bank shares. This assertion by the former secretary also lacks credibility on the grounds that the premises of the credit crunch were more mythical than real.

In October 2008, researchers at the Minnesota Fed found interbank lending to be healthy, lending to nonfinancial institutions was unaffected by the crisis, and commercial paper issued to nonfinancial institutions was unchanged. It was, however, the reluctance of money market funds to roll over asset-backed commercial paper following the default of CDOs held by two Bear Stearns hedge funds that severely deepened the crisis in 2007. The researchers requested that lawmakers show the data upon which the lawmakers made their rescue decisions.

What if the real problem were a fraudulently engineered housing and debt bubble in which the debt was packaged into asset-backed securities such as collateralized debt obligations and sold around the world? These securities were then either insured or shorted by legitimate hedges or punters, as speculators are called in England and Australia, using the credit default swaps issued by the likes of AIG, Ambac and MBIA that had no reserves to cover them in the event of a default. This pseudo-insurance allowed banks to meet their capital requirements and increase leverage to buy still more CDOs, which, absurdly, could be CDOs squared and cubed and synthetic CDOs, i.e., CDOs of CDSs.

The financial industry was printing its own money with these hedge instruments on a scale that far exceeded that of the nation's central bank and its Federal Reserve Notes. Bernanke was reportedly furious when he learned that AIG's financial products unit had created so much debt with its credit default swap contracts. But how safe and sound are the other, much larger derivative markets? The U.S. banking system's total notional derivative exposure (comprising interest rate, currency and CDS derivatives) is estimated to be $200 trillion.

The worldwide notional value of outstanding derivatives is now estimated to be $1.405 quadrillion, up 22 percent from the 2008 level. DK Matai of the Asymmetric Threats Contingency Alliance notes that a conservative 10 percent default or decline could result in $100 trillion of payouts. Financial institutions, nation states, even blocs such as the European Union will be unable to fund these obligations, often owed to speculators by bankers that grossly mispriced risk.

These same bankers are grumbling at restrictions put on their salaries and bonuses by government rescue covenants. "Never trust someone with a bonus system to handle risk," Nassim Nicholas Taleb, a New York University professor of risk management, told this reporter, adding, they cannot do it because of the "free option" on their performance whereby they benefit from profits but do not suffer from losses. "The system as it is, is broken," he said, signaling out former Fed Chairman Alan Greenspan for blame. The system is "surviving on novocaine," he said of the rescue, but it "needs a root canal."

Whereas it was once only obscure graffiti artists who would call for the public to "drain bankers' blood in the Potomac," the anger has spread as the crisis exposes the excesses of the financial elite: the French-made luxury jets and use of corporate credit cards for $2,000 per hour prostitutes; the use of methamphetamine while processing mortgage applications at Washington Mutual and cocaine at Goldman's corporate finance department; and the $10,000 bottles of wine, chauffeurs and country club memberships. Goldman's CEO made $54 million in 2008, for example, and the firm's top five executives received a total of $242 million, with the cost of leased cars and drivers running as high as $233,000 per executive, according to figures compiled by Associated Press.

One Chicago-based bank that was given bailout funds created a scandal by sponsoring a professional golf event during the course of which it rented a private hangar at the Santa Monica Airport for dinner and threw a private party in the entire House of Blues with a performance by Sheryl Crow. Wells Fargo canceled a Vegas junket for its top employees "in light of the current environment" and Morgan Stanley cancelled company trips to Monte Carlo and the Bahamas.

When meeting with top bank executives, Obama reportedly told them to be careful in their public statements, adding, "My administration is the only thing between you and the pitchforks." With the president running interference for the financial elite, it will likely extend its empire by increasing taxpayer indebtedness until the derivative time blows up or history otherwise reasserts itself.

While it's very likely that workers and consumers will dig their own graves, as their skeletons are thrown into plastic caskets and buried without ceremony, or incinerated after being piled up for months at overwhelmed morgues, this is potentially a transformational period of time. The powers that be have acknowledged as much in a secret document that has circulated on Capitol Hill and several agencies. It cautions on the possibility for conflict with other nations should the U.S. default on its debt, or for revolution should taxes be raised to pay for the financial bailout.

Marquis de Sade was writing the work cited in the epigraph about private profit from public calamities when he yelled from Bastille drainpipe that prisoners were being killed, causing a riot. The storming of the prison twelve days later marked the beginning of the French Revolution.

Workers and consumers enslaved by the semi-autonomous system of production and consumption are learning how CEOs representing corporations engaged in financial speculation cashed out prior to the crisis to the tunes of tens if not hundreds of millions of dollars. Even the president has acknowledged that the anger is real. It remains to be seen whether the flames ignited by this financial crisis will leap out of control.