Naked Capitalism on the Billion-Dollar Tax Ripoff

Senate Report: Hedge Funds Used Basket Options to Save Billions in Taxes

Posted on July 21, 2014 by 

Loan-Shark

The Senate Permanent Subcommittee on Investigations released a report today that found that hedge funds have been using basket options to save billion in taxes. And when we say “billions,” the report indicates it’s more like tens of billions, since the paper estimates that the tax reduction achieved at one hedge fund, Renaissance Technologies, operated by the famed James Simons, was $6.8 billion.

Basket options were sold by Wall Street firms, in particular Barclays and Deutsche Bank, as a way to convert what would otherwise have been labor income into capital gains income. The bone of contention is that the IRS wrote a memo in 2010 telling players involved to cut it out, and they didn’t. From the Wall Street Journal:

Hedge funds used a tax avoidance technique offered by Wall Street banks for years to skirt federal leverage trading limits…

Companies involved in the practice have pushed back against the Internal Revenue Service, which warned in a 2010 memo against claiming a tax break based on the use of financial products known as basket options. The companies said use of the products to claim lower long-term capital gains tax treatment for trading activity is legal and doesn’t violate tax rules or leverage limits under current law…

Investigators said two banks, Deutsche Bank AG DBK.XE -1.16% and Barclays Bank PLC, sold 199 basket options to more than a dozen hedge funds, which used them to conduct more than $100 billion in trades.

After the IRS released its 2010 memo, banks wound down the sale of basket options as a way for hedge funds to claim long-term capital gains tax treatment. But some still are selling the structures as a way around federal leverage limits, according to the report.

The Senate has a hearing on Tuesday and will grill two of the hedge funds, Renaissance and another large user identified in the report, George Weiss, along with Deutsche and Barclays. Spokesmen from the two banks piously claimed that everything they did was perfectly kosher. Normally, one would assume that that position would be correct, since the party filing the tax return is the one responsible for the tax positions taken in a tax return. However, the banks were making representations regarding ownership that were critical to the tax position that the hedge funds took:

Investigators believe the basket options maneuver amounts to a “series of fictions,” the biggest being that the banks own the account assets, said Sen. Carl Levin (D., Mich.), the subcommittee chairman. In reality, the account is basically a trading account, investigators say.

Oh, and notice the size of the losses. This $6.8 billion at one fund compares to the Joint Committee on Taxation’s estimate that $19.5 billion in tax revenues will be lost over the next ten years as a result of the pending tax inversion deals, in which companies like Walgreens move their headquarters overseas to lower their taxes. So this issue has the potential to become heated, assuming Congress is successful in creating public interest. Stay tuned.

Common Dreams on American Exceptionalism

The Curse of ‘American Exceptionalism’

(Image: flick/cc/August Kelm)Conservatives – and too often, what passes for liberals here in the USA – have been using the notion of ‘American exceptionalism’ to justify a wide range of criminal and near criminal activity.  We’re exceptional, alright, but not in the way we think.  Here’s 8 ways we’re exceptional – exceptionally bad.

Among the Most Expensive, Least Effective Health Care in the Developed World.  The US health care system is designed to create wealth, not provide health.  We have the most expensive system in the developed world, not the most effective.  When measured on five key criteria, the US measures last or next to last when compared to seven other developed nations:  Australia, Canada, Germany, the Netherlands, New Zealand, and the United Kingdom. These countries have single payer systems, with substantial government involvement.   So when the US tries to change its system, what does it do?  Why, bolster the role of a rapacious insurance industry, of course.  Yeah, that’s exceptional.

Highest Income Disparity: The US has the largest gap between rich and poor of any developed nation.  In fact, globally, we rank right near Uganda.  Yeah, that’s right, Uganda.  Since 1979, the top 1% increased its income by 275%,  while the bottom 90% has gone up slowly, if at all.  The middle class is shrinking, and the number of households in poverty is increasing.  And if one looks at wealth, not income, it’s even worse. Nearly 75% of all growth in wealth since 1979 has gone to the top 5% of households.

Least Mobility Between Generations: Oh, but the US is the land of Horatio Alger and the American Dream, right?  Not so much.  Horatio Alger is dead, and the US economy is one of the most rigid in the developed world.  In five recent studies the US ranks last or second to last in income mobility – a study of European nations found that only Great Britain had less intergenerational economic mobility than the US, and some analysts put us behind Britain.  Increasingly, if you’re born poor in the US, you die poor.  Once again, we are exceptional – but not in a good way.

Most Hours Worked:  We work more hours than other developed nations.  Heck, we work more hours than hunter gatherers did, several millennia ago.  Exceptional?  Sure, in the way the class dunce is.

Least Vacation Days: Within the Organization of Developed Nations (OECD) every nation but three requires companies to provide at least 20 days of leave a year.  The three are Canada, which requires 18 days off; Japan, which requires 10; and of course, the US, which requires exactly 0 … that’s zed, nada, zilch, nothin’.  Pretty exceptional, eh?

Happiness Ranking not in the top 10:  According to the World Happiness Report, the most definitive look at happiness out there, the US, despite our great wealth, isn’t even in the top 10 countries.  How’s that for exceptional?

Biggest discrepancy between CEO pay and their workers  – CEOs in the US get about 475 times what the average worker makes.  Truly exceptional.  But we have to pay that much, right?  Plutocrats and politicians tell us it’s the only way we can get the best and most qualified business leaders. Well, no. Look at the rest of the developed world.  In Japan, CEOs earn about 11 times the average worker; in Germany, about 12 times as much; in Canada, about 20 times as much and so on, yet their corporations are doing just fine, thank you.

Biggest Defense Budget: The US spends six times as much on Defense as the next nation, China, and nearly as much as the rest of the world combined.  We have troops stationed in over 150 nations around the world.  We have become an Imperial Power, fighting wars of occupation.  Astoundingly, we recently negotiated with Afghanistan to keep troops there.  Why?  No one seems to be able to tell us, but it seems to have something to do with US exceptionalism.

When de Tocqueville coined the term in 1835, we might have had some small claim to actually being exceptional. The US was unique among western nations in that it was not founded on a theocratic or monarchistic system.  Ironically, the conservatives who blather the loudest about our “exceptionalism” are destroying whatever claim we might have had, by turning us into a two-bit imperialistic plutocracy.

So there you have it.  We have an economic system with the all the characteristics of a banana republic.  We work harder and longer than citizens of any other developed nation, and we’re not as happy.  We have more expensive, less effective health care.  We send our young men and women overseas in a bewildering and expensive quest for what?  Security?  Imperialism and corporate welfare for Defense contractors is more like it. And we are less happy than our “socialist” brethren.

And the result is a kind of exceptionalism that is destroying our economic, environmental and moral fabric.

Counterpunch on Fukushima Contamination

Global Physicians Issue Scathing Critique of UN Report on Fukushima

Fukushima: Bad and Getting Worse

by JOHN LaFORGE

There is broad disagreement over the amounts and effects of radiation exposure due to the triple reactor meltdowns after the 2011 Great East-Japan Earthquake and tsunami. The International Physicians for the Prevention of Nuclear War (IPPNW) joined the controversy June 4, with a 27-page “Critical Analysis of the UNSCEAR Report ‘Levels and effects of radiation exposures due to the nuclear accident after the 2011 Great East-Japan Earthquake and tsunami.’”

IPPNW is the Nobel Peace Prize winning global federation of doctors working for “a healthier, safer and more peaceful world.” The group has adopted a highly critical view of nuclear power because as it says, “A world without nuclear weapons will only be possible if we also phase out nuclear energy.”

UNSCEAR, the United Nations Scientific Committee on the Effects of Atomic Radiation, published its deeply flawed report April 2. Its accompanying press release summed up its findings this way: “No discernible changes in future cancer rates and hereditary diseases are expected due to exposure to radiation as a result of the Fukushima nuclear accident.” The word “discernable” is a crucial disclaimer here.

Cancer, and the inexorable increase in cancer cases in Japan and around the world, is mostly caused by toxic pollution, including radiation exposure according to the National Cancer Institute.[1] But distinguishing a particular cancer case as having been caused by Fukushima rather than by other toxins, or combination of them, may be impossible ¾ leading to UNSCEAR’s deceptive summation. As the IPPNW report says, “A cancer does not carry a label of origin…”

UNSCEAR’s use of the phrase “are expected” is also heavily nuanced. The increase in childhood leukemia cases near Germany’s operating nuclear reactors, compared to elsewhere, was not “expected,” but was proved in 1997. The findings, along with Chernobyl’s lingering consequences, led to the country’s federally mandated reactor phase-out. The plummeting of official childhood mortality rates around five US nuclear reactors after they were shut down was also “unexpected,” but shown by Joe Mangano and the Project on Radiation and Human Health.

The International Physicians’ analysis is severely critical of UNSCEAR’s current report which echoes its 2013 Fukushima review and press release that said, “It is unlikely to be able to attribute any health effects in the future among the general public and the vast majority of workers.”

“No justification for optimistic presumptions”

The IPPNW’s report says flatly, “Publications and current research give no justification for such apparently optimistic presumptions.” UNSCEAR, the physicians complain, “draws mainly on data from the nuclear industry’s publications rather than from independent sources and omits or misinterprets crucial aspects of radiation exposure”, and “does not reveal the true extent of the consequences” of the disaster. As a result, the doctors say the UN report is “over-optimistic and misleading.” The UN’s “systematic underestimations and questionable interpretations,” the physicians warn, “will be used by the nuclear industry to downplay the expected health effects of the catastrophe” and will likely but mistakenly be considered by public authorities as reliable and scientifically sound. Dozens of independent experts report that radiation attributable health effects are highly likely.

Points of agreement: Fukushima is worse than reported and worsening still

Before detailing the multiple inaccuracies in the UNSCEAR report, the doctors list four major points of agreement. First, UNSCEAR improved on the World Health Organization’s health assessment of the disaster’s on-going radioactive contamination. UNSCEAR also professionally “rejects the use of a threshold for radiation effects of 100 mSv [millisieverts], used by the International Atomic Energy Agency in the past.” Like most health physicists, both groups agree that there is no radiation dose so small that it can’t cause negative health effects. There are exposures allowed by governments, but none of them are safe.

Second, the UN and the physicians agree that  areas of Japan that were not evacuated were seriously contaminated with iodine-132, iodine-131 and tellurium-132, the worst reported instance being Iwaki City which had 52 times the annual absorbed dose to infants’ thyroid than from natural background radiation. UNSCEAR also admitted that “people all over Japan” were affected by radioactive fallout (not just in Fukushima Prefecture) through contact with airborne or ingested radioactive materials. And while the UNSCEAR acknowledged that “contaminated rice, beef, seafood, milk, milk powder, green tea, vegetables, fruits and tap water were found all over mainland Japan”, it neglected “estimating doses for Tokyo …  which also received a significant fallout both on March 15 and 21, 2011.”

Third, UNSCEAR agrees that the nuclear industry’s and the government’s estimates of the total radioactive contamination of the Pacific Ocean are “far too low.” Still, the IPPNW reports shows, UNSCEAR’s use of totally unreliable assumptions results in a grossly understated final estimate. For example, the UN report ignores all radioactive discharges to the ocean after April 30, 2011, even though roughly 300 tons of highly contaminated water has been pouring into the Pacific every day for 3-and-1/2 years, about 346,500 tons in the first 38 months.

Fourth, the Fukushima catastrophe is understood by both groups as an ongoing disaster, not the singular event portrayed by industry and commercial media. UNSCEAR even warns that ongoing radioactive pollution of the Pacific “may warrant further follow-up of exposures in the coming years,” and “further releases could not be excluded in the future,” from forests and fields during rainy and typhoon seasons ¾when winds spread long-lived radioactive particles ¾a and from waste management plans that now include incineration.

As the global doctors say, in their unhappy agreement with UNSCAR, “In the long run, this may lead to an increase in internal exposure in the general population through radioactive isotopes from ground water supplies and the food chain.”

Physicians find ten grave failures in UN report

The majority of the IPPNW’s report details 10 major errors, flaws or discrepancies in the UNSCEAR paper and explains study’s omissions, underestimates, inept comparisons, misinterpretations and unwarranted conclusions.

1. The total amount of radioactivity released by the disaster was underestimated by UNSCEAR and its estimate was based on disreputable sources of information. UNSCEAR ignored 3.5 years of nonstop emissions of radioactive materials “that continue unabated,” and only dealt with releases during the first weeks of the disaster. UNSCEAR relied on a study by the Japanese Atomic Energy Agency (JAEA) which, the IPPNW points out, “was severely criticized by the Fukushima Nuclear Accident Independent Investigation Commission … for its collusion with the nuclear industry.” The independent Norwegian Institute for Air Research’s estimate of cesium-137 released (available to UNSCEAR) was four times higher than the JAEA/UNSCEAR figure (37 PBq instead of 9 PBq). Even Tokyo Electric Power Co. itself estimated that iodine-131 releases were over four times higher than what JAEA/UNSCEAR) reported (500 PBq vs. 120 BPq). The UNSCEAR inexplicably chose to ignore large releases of strontium isotopes and 24 other radionuclides when estimating radiation doses to the public. (A PBq or petabecquerel is a quadrillion or 1015 Becquerels. Put another way, a PBq equals 27,000 curies, and one curie makes 37 billion atomic disintegrations per second.)

2. Internal radiation taken up with food and drink “significantly influences the total radiation dose an individual is exposed to,” the doctors note, and their critique warns pointedly, “UNSCEAR uses as its one and only source, the still unpublished database of the International Atomic Energy Association and the Food and Agriculture Organization. The IAEA was founded … to ‘accelerate and enlarge the contribution of atomic energy to peace, health and prosperity throughout the world.’ It therefore has a profound conflict of interest.” Food sample data from the IAEA should not be relied on, “as it discredits the assessment of internal radiation doses and makes the findings vulnerable to claims of manipulation.” As with its radiation release estimates, IAEA/UNSCEAR ignored the presence of strontium in food and water. Internal radiation dose estimates made by the Japanese Ministry for Science and Technology were 20, 40 and even 60 times higher than the highest numbers used in the IAEA/UNSCEAR reports.

 

3. To gauge radiation doses endured by over 24,000 workers on site at Fukushima, UNSCEAR relied solely on figures from Tokyo Electric Power Co., the severely compromised owners of the destroyed reactors. The IPPNW report dismisses all the conclusions drawn from Tepco, saying, “There is no meaningful control or oversight of the nuclear industry in Japan and data from Tepco has in the past frequently been found to be tampered with and falsified.”

4. The UNSCEAR report disregards current scientific fieldwork on actual radiation effects on plant and animal populations. Peer reviewed ecological and genetic studies from Chernobyl and Fukushima find evidence that low dose radiation exposures cause, the doctors point out, “genetic damage such as increased mutation rates, as well as developmental abnormalities, cataracts, tumors, smaller brain sizes in birds and mammals and further injuries to populations, biological communities and ecosystems.” Ignoring these studies, IPPNW says “gives [UNSCEAR] the appearance of bias or lack of rigor.”

5. The special vulnerability of the embryo and fetus to radiation was completely discounted by the UNSCEAR, the physicians note. UNSCEAR shockingly said that doses to the fetus or breast-fed infants “would have been similar to those of other age groups,” a claim that, the IPPNW says, “goes against basic principles of neonatal physiology and radiobiology.”  By dismissing the differences between an unborn and an infant, the UNSCEAR “underestimates the health risks of this particularly vulnerable population.” The doctors quote a 2010 report from American Family Physician that, “in utero exposure can be teratogenic, carcinogenic or mutagenic.”

6. Non-cancerous diseases associated with radiation doses — such as cardiovascular diseases, endocrinological and gastrointestinal disorders, infertility, genetic mutations in offspring and miscarriages — have been documented in medical journals, but ate totally dismissed by the UNSCEAR. The physicians remind us that large epidemiological studies have shown undeniable associations of low dose ionizing radiation to non-cancer health effects and “have not been scientifically challenged.”

7. The UNSCEAR report downplays the health impact of low-doses of radiation by misleadingly comparing radioactive fallout to “annual background exposure.” The IPPNW scolds the UNSCEAR saying it is, “not scientific to argue that natural background radiation is safe or that excess radiation from nuclear fallout that stays within the dose range of natural background radiation is harmless.” In particular, ingested or inhaled radioactive materials, “deliver their radioactive dose directly and continuously to the surrounding tissue” — in the thyroid, bone or muscles, etc. — “and therefore pose a much larger danger to internal organs than external background radiation.”

8. Although UNSCEAR’s April 2 Press Release and Executive Summary give the direct and mistaken impression that there will be no radiation health effects from Fukushima, the report itself states that the Committee “does not rule out the possibility of future excess cases or disregard the suffering associated…” Indeed, UNSCEAR admits to “incomplete knowledge about the release rates of radionuclides over time and the weather conditions during the releases.” UNSCEAR concedes that “there were insufficient measurements of gamma dose rate…” and that, “relatively few measurements of foodstuff were made in the first months.” IPPNW warns that these glaring uncertainties completely negate the level of certainty implied in UNSCEAR’s Exec. Summary.

9. UNSCEAR often praises the protective measures taken by Japanese authorities, but the IPPNW finds it “odd that a scientific body like UNSCEAR would turn a blind eye to the many grave mistakes of the Japanese disaster management…” The central government was slow to inform local governments and “failed to convey the severity of the accident,” according to the Fukushima Nuclear Accident Independent Investigation Commission. “Crisis management ‘did not function correctly,’ the Commission said, and its failure to distribute stable iodine, “caused thousands of children to become irradiated with iodine-131,” IPPNW reports.

10. The UNSCEAR report lists “collective” radiation doses “but does not explain the expected cancer cases that would result from these doses.” This long chapter of IPPNW’s report can’t be summarized easily. The doctors offer conservative estimates, “keeping in mind that these most probably represent underestimations for the reasons listed above.” The IPPNW estimates that 4,300 to 16,800 excess cases of cancer due to the Fukushima catastrophe in Japan in the coming decades. Cancer deaths will range between 2,400 and 9,100. UNSCEAR may call these numbers insignificant, the doctors archly point out, but individual cancers are debilitating and terrifying and they “represent preventable and man-made diseases” and fatalities.

IPPNW concludes that Fukushima’s radiation disaster is “far from over”: the destroyed reactors are still unstable; radioactive liquids and gases continuously leak from the complex wreckage; melted fuel and used fuel in quake-damaged cooling pools hold enormous quantities of radioactivity “and are highly vulnerable to further earthquakes, tsunamis, typhoons and human error.” Catastrophic releases of radioactivity “could occur at any time and eliminating this risk will take many decades.”

IPPNW finally recommends urgent actions that governments should take, because the UNSCEAR report, “does not adhere to scientific standards of neutrality,” “represents a systematic underestimation,” “conjures up an illusion of scientific certainty that obscures the true impact of the nuclear catastrophe on health and the environment,” and its conclusion is phrased “in such a way that would most likely be misunderstood by most people…”

John LaForge works for Nukewatch, a nuclear watchdog and anti-war group in Wisconsin, and edits its Quarterly.

Notes.


[1] Nancy Wilson, National Cancer Institute, “The Majority of Cancers Are Linked to the Environment, NCI Benchmarks, Vol. 4, Issue 3, June 17, 2004

Jim Hightower on Dirty Money

Looping Big Money Around Democracy’s Neck

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Friday, July 11, 2014   |   Posted by Jim Hightower

The beauty of our country’s present system of government is that anyone is perfectly free to buy a member of Congress. And isn’t that what democracy is all about?

Take the Koch brothers. Of course, these multibillionaire industrialists prefer to buy everything in bulk, and they’ve spent millions of dollars to purchase controlling shares of a whole flock of Republican congress critters. In fact, they have spent so much on so many elections (from Congress all the way down to small-town school board races) that they’ve made themselves the poster boys of Big Money corruption. By huge margins, the public is demanding that Congress terminate the plutocratic infestation of our democratic system by Kochites.

How have the brothers responded? By buying another senator – this time a former-senator-turned-lobbyists. Don Nickles, an Oklahoma Republican, became a powerhouse Washington lobbyist shortly after he left the Senate in 2005. His lobby shop pulls in some $8 million a year to run favor-seeking chores for the likes of AT&T, Exxon Mobil, FED EX, General Motors, and Walmart. Now, Nickles is pulling the Koch’s plow, using his Capitol Hill contacts to try to defeat reforms that would shut-off the funnels of secret, unlimited amounts of corporate cash that the Koch network puts into our elections.

What we have here is a perfect example of Big Money looping full circle to strangle The People’s right to be self-governing. The Koch boys write huge checks to candidates and front groups to elect lawmakers who serve their interests. Some of those lawmakers, like Nickles, later slide into lucrative lobbying slots, getting paid a bundle by Koch & Company to fend off democratic, anti-corruption reforms. Thus, the Kochs can keep making bulk purchases of lawmakers… and the circle is drawn ever-tighter around democracy’s neck. To help pass a Constitutional amendment to ban this corrupt money, go to www.united4thepeople.org.

“The Koch Cycle of Endless Cash,” The New York Times, June 14, 2014.

“Nickles Group,” www.opensecrets.org, 2014.

“Koch group, unions battle over Colorado schools race,” www.politico.com, November 2, 2013.

 

Naked Capitalism on the Citibank Sellout

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Latest Citi “Let Bank Off Easy” Mortgage Settlement Shows Administration Disconnect

Posted on July 16, 2014 by

It hasn’t been hard to notice that the Administration has been engaged in a series of bank settlements with multibillion dollar numbers attached. As we’ve argued, the sudden show of a smidge more seriousness is undoubtedly meant to impress voters in the runup to the Congressional midterms as to the Democratic party’s bona fides in the “tough on banks” category.

The latest pact, a nominally $7 billion mortgage settlement over misrepresented residential mortgage backed securities, falls into the predictable pattern of first, there being much less there than meets they eye, and two, as a result, the agreement being a gimmie for the bank and its executives. We’ll go over that briefly in a bit.

But the Citi mortgage settlement was so obviously defective in other respects that Litigation Daily roused itself to shellack it. As Susan Beck wrote, the deal had some particularly unsavory features. One was that it was structured so as to avoid court review. Clearly, no one wanted to risk Judge Rakoff-styple probings, particularly of the factual basis for the settlement. And as Beck notes, there was clearly pointed effort to say squat about what exactly Citi had done:

If you read the government’s statement of facts, evidence of Citi’s actions, strong or otherwise, is hard to find. This document, which should contain the meat of the case, is all of nine pages long. It’s shockingly thin on details, largely relying on boilerplate to describe what most people who follow these cases already know: Citi sold RMBS that it knew were backed by subpar loans. And it doesn’t contain a single word about Citi’s massive CDO operation.

It’s important to remember that Monday’s statement of facts was jointly negotiated by the U.S. Department of Justice and Citi’s lawyers at Paul, Weiss, Rifkind, Wharton & Garrison. This raises the question of whether the government agreed to keep quiet about some of the most damaging evidence against Citi and its officers in exchange for $7 billion. Or perhaps the government had a weak case, but Citi still felt it was too risky to fight.

If you read the statement of facts, the only evidence mentioned is one e-mail from an unnamed trader. Beck states, incredulous: “That’s it—one email. Did Citi really agree to pay $7 billion because it was afraid of one email?”

Apparently the DoJ assumed the public would simply read its press release, which cheekily claims, “And under the terms of this settlement, the bank has admitted to its misdeeds in great detail.”

A second issue that comes out of the review is that the successful effort to say almost nothing clearly protects individuals. The statement of facts does acknowledge a managing director was involved in a vague way. Nice to know the inmates aren’t entirely in charge of the Citi asylum. The entire CDO operation gets a waiver, but they aren’t even mentioned in the factual discussion (ahem, but CDOs were separate from RMBS, so that means at least one other managing director person had to be responsible).

Beck also points out that what on the surface looks like no real investigation was done, or that Citi paid up to have whatever was found out fully obscured, is particularly striking since the residential mortgage backed securities task force has 200 people tasked to it. 25 million documents were collected on the Cit case. Yes, but one might as, what exactly was done with them?

Now to the more standard problems with this mortgage settlement, plus some other warts. It’s not $7 billion. It’s $4.5 billion in cash and the rest is in various credits for borrower relief, which typically means a gimmmie for things Citi would have done anyhow.

And of that $4.5 billion, the DoJ gets the lion’s share, $4 billion. $500 million is divided among various state attorneys general and the FDIC. California gets $102.7 million and New York, $92 million. As Dave Dayen pointed out by e-mail, Citi originally offered $7 billion, which clearly shows they would have paid more. The DoJ rejected that offer. Then Citi came back and made another $7 billion offer, but with the DoJ getting more of the total. That’s the deal that got done. So the DoJ couldn’t be bothered to work up a sweat to wring more out of Citi on this mortgage settlement. It was happy to take a slight sweetener for itself and call it a day.

What is revealing here is that the Administration seems to think that the public buys this sort of enforcement theater. The public has lost interest in these deals. They know the banks got away with murder and pacts that are cost-of-doing business level fines don’t get their attention. They want to see managers and executives prosecuted, or at least pay hefty fines (enough to inflict financial pain) and they’d like to see the bad acts exposed too. Of course, the reason this can never be allowed to happen is that that course of action would facilitate private litigation, and that might lead to uncontrolled outcomes, like exposure of really bad conduct (embarrassing the Administration for not going after it themselves) and hefty damages. As we wrote in 2010:

Early in 2009, the banking industry was on the ropes. Both the stock and the credit default swaps markets said that many of the big players were at serious risk of failure. Commentators debated whether to nationalize Citibank, Bank of America, and other large, floundering institutions.

The case for bold action was sound. The history of financial crises showed that the least costly approach is to resolve mortally wounded organizations, install new management, set strict guidelines, and separate out the bad loans and investments in order to restructure and sell them….

But incoming president Obama failed to act. Whether he failed to see the opportunity, didn’t understand it, or was simply not interested is moot. Rather than bring vested banking interests to heel, the Obama administration instead chose to reconstitute, as much as possible, the very same industry whose reckless pursuit of profit had thrown the world economy off the cliff. There would be no Nixon goes to China moment from the architects of the policies that created the crisis, namely Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, and Director of the National Economic Council Larry Summers…

Obama’s repudiation of his campaign promise of change, by turning his back on meaningful reform of the financial services industry, in turn locked his Administration into a course of action. The new administration would have no choice other that working fist in glove with the banksters, supporting and amplifying their own, well established, propaganda efforts.

Thus Obama’s incentives are to come up with “solutions” that paper over problems, avoid meaningful conflict with the industry, minimize complaints, and restore the old practice of using leverage and investment gains to cover up stagnation in worker incomes. Potemkin reforms dovetail with the financial service industry’s goal of forestalling any measures that would interfere with its looting. So the only problem with this picture was how to fool the now-impoverished public into thinking a program of Mussolini-style corporatism represented progress.

But five years of the same tired propaganda is now staring to wear thin. The only people who will buy the talking points that Team Obama will trot out to try to bolster Democratic party prospects are those who are already in the can. But Administration officials seem to believe that this sort of con job still works. While Obama may not be a lame duck quite yet, the quacking is getting awfully loud.

Counterpunch and the Honduran Disappeared

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Honduras and the US Border

Bleedback of a US Imperial Wound

by JOHN GRANT

In Spanish, the word hondura means “depth; profundity.” The related word hondo means “deep, low; bottom.” Hondon means “dell, glen, deep hole.” An example given in my dictionary is meterse en honduras, “to go beyond one’s depth.”

I imagine some gold-seeking Spanish conquistador in the 16th century passing through the isthmus and, with a bit of cruel wit, calling the place where he stood The Hole. Sort of like when I was in the Army, Fort Hood, Texas, was known as “the asshole of the world.” In Honduras, my imaginary conquistador no doubt left a lieutenant with troops enough to turn the residents into slaves before he moved his entourage on to the more appealing Costa Rica.

Honduras is the saddest basket case in the Western Hemisphere, and the behemoth to the north has done everything in its power to keep poor Honduras in the basket case category. Technically, Honduras is a sovereign nation; but in reality it is a vassal state of the United States. Maybe more like a flea-ridden junkyard dog resigned to being kicked.

In 1935, two-time Medal of Honor winner and retired Marine General Smedley Butler famously wrote the following in an essay for the socialist magazine Common Sense:

I spent 33 years and four months in active military service, and during that period I spent most of my time as a high class muscle man for Big Business, for Wall Street and the bankers. In short, I was a racketeer, a gangster for capitalism. … I helped in the raping of half a dozen Central American republics for the benefit of Wall Street. I helped purify Nicaragua for the International Banking House of Brown Brothers in 1902-1912. I brought light to the Dominican Republic for the American sugar interests in 1916. I helped make Honduras right for the American fruit companies in 1903. … Looking back on it, I might have given Al Capone a few hints. The best he could do was to operate his racket in three districts. I operated on three continents.

It’s an old story and a well-known one in Latin America. One of the highlights was the infamous 1954 CIA-led coup in Guatemala that overthrew an elected reform movement and institutionalized what became one of the most bloody, nefarious military regimes in western hemisphere history. Of course, there’s Chile 1973. A decade later, Ronald Reagan used poor Honduras to mount an illegal war against its neighbor, Nicaragua. During this period, Honduras was ruled by a US proconsul, Ambassador John Negroponte, a man I’m sure has a forked tongue. The little nation was jokingly referred to as Aircraft Carrier Honduras.

The poor, members of trade unions and anyone opposed to US military occupation of Honduras were treated as hostile, subversive forces. Groups not aligned with the US-occupation were closed down; leaders were disappeared and murdered. In 1984, with five other Americans, I visited Honduras to speak with labor leaders about state violence. We were quickly put on the subversive list, arrested and deported.

After the US Contra War, the aircraft carrier reverted again to its basket case status. By 2009, it had elected a left-of-center president who spoke of reform. In the early morning hours of June 28, 2009, President Manuel Zelaya was arrested by military troops and flown to Costa Rica. The Obama administration used an updated forked tongue approach and first declared the coup illegal, then did everything in its power to facilitate the newly established government, which, naturally, was good for certain industries. Since any protection they might have had under a reform regime had been lifted, the left and the poor were now even more at the mercy of corrupt military and police violence.

As far as most comfortable North Americans were concerned the story out of Honduras was just a case of politics in a place described as a hole, where people are sadly doomed to suffer. We musn’t forget either, the Zelaya government had cozied up to Hugo Chavez in Venezuela. Honduras had joined ALBA, the leftist Bolivarian Alliance for the Americas. The coup broke these links completely, and the United States took the opportunity to immediately establish a host of small special-ops military bases in Honduras to prosecute its Drug War. No doubt the plan was outlined in one of thousands of State Department and Pentagon contingency files. It’s true, Honduras was more and more being used by the drug cartels as a transshipment point. The coup meant Honduras was a war zone again. Not exactly an aircraft carrier this time; maybe just a pack of trained junkyard dogs.

It was the same old story for the poor of Honduras. Feeble efforts at reform were crushed by unaccountable strongmen with guns, and a US-friendly, pro-business smiling face was installed as the new president. As might be expected in such a dark predatorial swampland, existing violent gangs flourished even better after the coup. Any fool could see that top-down violence was an acceptable arbiter of societal order, so it followed by natural logic that gang violence was the way to respond from the bottom-up. Unregulated, profit-making, capitalistic enterprise was facilitated at the top, while free enterprise was deemed illegal at the bottom when the product to be marketed was marijuana and cocaine. In a moral sinkhole like this, the poor and those seeking to work hard to rise into a middle class are caught between police violence and gang violence.

PLUTOCRATS AND CRIMINALS

Nils Gilman, a social scientist at the University of California and co-editor of the academic journal Humanity, wrote an essay in the May issue of The American Interest called “The Twin Insurgency.” He nicely explains the sort of sovereignty train wreck that is Honduras. These twin insurgencies began in the 1970s, he suggests, when ”social modernists states were increasingly failing to deliver on their promises.” Into the 1980s, with the growth of globalism, economic inequality grew as an empowered plutocratic class was on the rise and the political right was in its ascendancy.

“By the turn of the millennium, even elements of the Left had come to doubt whether states could be relied on to effectively and disinterestedly promote the public interest,” Gilman writes.

Here, he introduces his idea of twin insurgencies that both feed off the declining modernist state. At the top, there’s the plutocratic insurgency, made up of capitalists and financial manipulators who “see themselves as ‘the deserving winners of a tough worldwide competition’ and regard efforts to make them pay for public goods as little more than organized theft.” As they distance themselves from the public-oriented functions of the state, these plutocrats take full advantage of the state’s tax-based legal system, courts and the police to secure their rights and properties.

At the bottom, there’s the criminal insurgency,” which includes drug cartels and other “de facto political actors.” The insurgency at the top is noted for its gated communities attitude, while the insurgency at the bottom assumes a leadership role in “feral ‘no-go zones.’”

“What both plutocratic and criminal insurgents desire,” Gilman writes, “is for the social modernist state to remain intact except insofar as it impinges on them.” (Italics in the original.)

This idea of insurgencies from the top and the bottom certainly applies to the political world of 2014 in the United States. Think the Koch Brothers and war profiteers on one side and gangs and a huge criminal underclass in and out of prison on the other. In a place like Honduras where there is no middle class and no working modern state, it’s nothing but the struggle between th two insurgencies. Society becomes divided between gated communities and feral no-go zones — with nothing in between. “The ultimate losers in all this,” Gilman writes, “[are] the people who play by the rules.” For a Honduran, it’s either accept loser status “or join one of the two insurgences.”

Many Honduran parents accept the risks in order to save their kids; they scrounge together money to send them to the US border. Three years ago, 6,800 children were detained at the border; today the figure is 90,000. Twenty-five percent of them are from Honduras. The UN High Commission for Refugees interviewed 104 of these children, and 58% said they left due to violence.

DE-MILITARIZE THE US/MEXICAN BORDER

In a recent New York Times essay called “The Children of the Drug Wars,” [1] Sonia Nazario, author of Enriques Journey: The Story of a Boy’s Dangerous Odyssey to Reunite With His Mother, describes the case of 90,000 Central American kids fleeing over the US/Mexico border as a “refugee crisis,” not an immigration crisis. It’s critical how the story is framed. For example, plutocrat-friendly Republicans love to represent it as a military problem and an Obama problem. But it’s not even a Bush problem. It’s a problem rooted in history, and it’s a history in which the US has played such an instrumental role that it owes a degree of attention to the problem. Sending down more guns and troops or building more, bigger fences is not the answer.

Honduras is ground zero when it comes to the ascendancy of Gilman’s dueling armed insurgencies preying especially on children.

Fourteen-year-old Carlos Baquedano Sanchez tells Narzario he knows how dangerous a trip to the US border can be; but he’s also aware of the dangers of staying in his village. He knows a man who lost both legs falling off a Mexican train on the way to the US border. He also knows eight people who have been murdered; He witnessed three of those murders.

“I want to avoid drugs and death,” he told Nazario. “The government can’t pull up its pants and help people. My country has lost its way.”

Henry Carias Aguilar, a pastor in a poor village, put it this way: “You never call the cops. The cops themselves will retaliate and kill you.”

The right wants the US government to increase the militarization of the border. “Secure the border” and “Send in the National Guard” have become their mantra. It’s not to catch terrorists, but to snatch up refugee children before anyone in El Norte can be moved by their stories.

Instead of more weapons and more prison cells, for a change US policy should help bolster the citizen-protecting features of the Honduran state. We could look at it as an experiment. The right-wing president of Colombia asked President Obama to close down the US Drug War in Latin America and begin to deal with the demand problem here at home. A reasonable legalization program is not far-fetched; it would be a great start. It would help weaken the criminal insurgency Nils Gilman talks about.

But that leaves the plutocrats, and the Obama spine is not as stiff as that of the wheelchair-bound FDR. It may take a woman with a spine like Elizabeth Warren.

The point is to really help Honduras get out of its hole, and in the process make the border more human. If left to the forces of US militarism, the border crisis can only get much worse and much more dangerous.

JOHN GRANT is a member of ThisCantBeHappening!, the new independent three-time Project Censored Award-winning online alternative newspaper. His work, and that of colleagues DAVE LINDORFF, GARY LINDORFF, ALFREDO LOPEZ, LORI SPENCER, LINN WASHINGTON, JR. and CHARLES M. YOUNG, can be found at www.thiscantbehappening.net

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Inequality Since Reagan

 

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Humor: The Borowitz Report

Sight of Rick Perry at Border Convinces Immigrants That Anyone Can Succeed in America

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RIO GRANDE (The Borowitz Report)—A recent tour of the United States-Mexico border by Texas Governor Rick Perry has had the unintended consequence of convincing thousands of immigrants that anyone can succeed in America.

After Gov. Perry and the Fox News host Sean Hannity toured the Rio Grande on Thursday, news quickly spread that the two men were actually among the most powerful in America, fueling the immigrants’ impression that the U.S. is a place where anyone can make it.

“When we learned that these two men were the governor of a large state and a top broadcaster from a major news network, it seemed too incredible to be true,” said an immigrant from Honduras, speaking on the condition of anonymity. “We all said to ourselves, if those two can succeed in America, imagine the wondrous things we might achieve.”

According to a border official, immigration at the border shot up eighty per cent since the appearance by the two men, and the situation could get even worse. “There’s a rumor that Rand Paul plans to visit,” the official said.

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Corporate Taxes

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