Monthly Archives: September 2011

LUV Newsletter


Robert Reich tells us this morning that “More than one in three families with young children is now living in poverty (37 percent, to be exact) according to a recent analysis of Census data by Northeastern University’s Center for Labor Market Studies. That’s the highest percent on record. The Agriculture Department says nearly one in four young children (23.6) lives in a family that had difficulty affording sufficient food at some point last year.”

What is our government planning to do about this?  Well, the push is to cut programs to help feed these kids, or provide them with medical care.

Corporate media are responsible for confusing the public about all of this, with their inane excuse of “giving both sides” of issues.  As we often point out, in many areas, there are more than two sides, and often, as in whether we should feed hungry kids, there is only one valid side.  Transnational corporations and transnational investors that don’t give a damn about this country or its people should not get equal time to talk about their need for more access to the treasury coupled with further tax breaks.

Pertaining to war, Americans are allowed, for the “both sides of the issue,” the side of hawks who support the current wars, and, on the other side, hawks who want to attack more countries, such as Syria, Venezuela and Iran.  The side of the American people, who polling shows are opposed to the wars and want to shut them down, is not allowed.

And this small add-on by Jack:

When I was in Vietnam, ten years before the war ended, I could see we were going to lose the war.  We were surrounded by people who hated us, as they earlier hated the French, and insurgents we called “Viet Cong” could go to any village and be fed and provided shelter, just as is the case for the Taliban in Afghanistan, taken in by Afghanis who want, as did the Vietnamese people, the foreign occupiers gone.

Mario Piperni’s Illustrated Late-Night Humor

Via Kurtzman

“It’s the first day of fall, or as the Republicans call it, ‘the end of global warming.’” –Jay Leno

“We have a pumpkin shortage in the United States. Thanks a lot, Obama.” –David Letterman

“It was sweet to elect the first black president, but what would be even sweeter would be to see the first black president kicked out of office by the second black president. It could happen, he [Herman Cain] just kicked Rick Perry’s Caucasian ass up and down the state of Florida, proving that politics sometimes is like a porn movie. … You know, a pizza guy shows up out of nowhere and f**ks you.” –Daily Show Senior Black Correspondent Larry Wilmore

“President Obama is criticizing Rick Perry for denying global warming. Can understand why Rick Perry doesn’t take global warming seriously. As governor of Texas, he’s probably fried more people than global warming all put together.” –Jay Leno

David Letterman’s Top Ten Signs The Rick Perry Campaign Is In Trouble
10. Lost support from both whack jobs and nut jobs
9. At debates, he mostly goes with, ‘That’s what she said’
8. Downgraded from campaign bus to cheaper campaign Vespa scooter
7. He’s too mitty for Newt supporters, too newty for Mitt supporters
6. His new slogan: ‘C’mon!’
5. Advisers are thinking of replacing him with Luke Perry
4. Just went hiking on the border of Iraq and Iran
3. Even his wife is wearing a ‘Herman Cain’ button
2. Instead of ‘Freedom’ and ‘Liberty,’ his cowboy boots read ‘It’s’ and ‘Over’
1. Even Michele Bachmann thinks he’s nuts

“Obama was heckled by someone who said, ‘Don’t forget about medical marijuana.’ The Secret Service has narrowed the suspects down to everyone in L.A.” –Conan O’Brien

“Republicans are having trouble luring Gov. Chris Christie into the presidential race. They should try pie.” –David Letterman

“You want to add another candidate? It’s like the Republican primary is a season of ‘American Idol’ in reverse, where every week you just add some new idiot… Have you ever considered the possibility that your candidates aren’t the problem — it’s you?” –Jon Stewart to the GOP base

“It’s like your ideal candidate is a rare super-heavy element that could only exist in a particular particle accelerator. And even then, only for a fraction of a second, before you all remembered how much you hate science. You guys need to take a long hard look in the mirror, and not come away thinking, “You know, there’s something wrong with this mirror.” –Jon Stewart

“If you’re keeping score at home, they have now applauded executions at the Republican debate, they have cheered letting an uninsured man die, and they booed an active duty U.S. serviceman for being gay. I don’t know how you get to the right with this crowd but Ron Paul’s new campaign ad is just the Rodney King beating to the sound of children laughing.” –Bill Maher

“Did you see the Republican debate last night? It was brought to you by FOX and Google. I think that makes sense that they were working together because Google is what people go to, to fact check the bullshit that comes out of FOX.” –Bill Maher

“You gotta love Sarah Palin. She is now on her website asking her idiot fan base for donations for her to help make a decision about whether or not to run. She wants money now for just thinking? What a grifter.” –Bill Maher

“Palin’s doppelganger, Michele Bachmann, they asked her at the debate about the HPV vaccine, which she said was potentially dangerous. She said, ‘I didn’t make that claim, nor did I make that statement. Which she obviously did, we have it. It’s one thing to say you don’t believe in evolution, you don’t believe in global warming. But videotape? You gotta believe in videotape.” –Bill Maher

Right-Wing Posters

Came across this interesting post on, showing that progressive aren’t the only ones milking old posters:


LUV Newsletter and Wall St.

The Revolution Begins at Home: An Open Letter to Join the Wall Street Occupation

by Arun Gupta

What is occurring on Wall Street right now is truly remarkable. For over 10 days, in the sanctum of the great cathedral of global capitalism, the dispossessed have liberated territory from the financial overlords and their police army.

They have created a unique opportunity to shift the tides of history in the tradition of other great peaceful occupations from the sit-down strikes of the 1930s to the lunch-counter sit-ins of the 1960s to the democratic uprisings across the Arab world and Europe today.

While the Wall Street occupation is growing, it needs an all-out commitment from everyone who cheered the Egyptians in Tahrir Square, said “We are all Wisconsin,” and stood in solidarity with the Greeks and Spaniards. This is a movement for anyone who lacks a job, housing or healthcare, or thinks they have no future.

Our system is broken at every level. More than 25 million Americans are unemployed. More than 50 million live without health insurance. And perhaps 100 million Americans are mired in poverty, using realistic measures. Yet the fat cats continue to get tax breaks and reap billions while politicians compete to turn the austerity screws on all of us.

At some point the number of people occupying Wall Street – whether that’s five thousand, ten thousand or fifty thousand – will force the powers that be to offer concessions. No one can say how many people it will take or even how things will change exactly, but there is a real potential for bypassing a corrupt political process and to begin realizing a society based on human needs not hedge fund profits.

After all, who would have imagined a year ago that Tunisians and Egyptians would oust their dictators?

At Liberty Park, the nerve center of the occupation, more than a thousand people gather every day to debate, discuss and organize what to do about our failed system that has allowed the 400 richest Americans at the top to amass more wealth than the 180 million Americans at the bottom.

It’s astonishing that this self-organized festival of democracy has sprouted on the turf of the masters of the universe, the men who play the tune that both political parties and the media dance to. The New York Police Department, which has deployed hundreds of officers at a time to surround and intimidate protesters, is capable of arresting everyone and clearing Liberty Plaza in minutes. But they haven’t, which is also astonishing.

That’s because assaulting peaceful crowds in a public square demanding real democracy – economic and not just political – would remind the world of the brittle autocrats who brutalized their people demanding justice before they were swept away by the Arab Spring. And the state violence has already backfired. After police attacked a Saturday afternoon march that started from Liberty Park the crowds only got bigger and media interest grew.

The Wall Street occupation has already succeeded in revealing the bankruptcy of the dominant powers – the economic, the political, media and security forces. They have nothing positive to offer humanity, not that they ever did for the Global South, but now their quest for endless profits means deepening the misery with a thousand austerity cuts.

Even their solutions are cruel jokes. They tell us that the “Buffett Rule” would spread the pain by asking the penthouse set to sacrifice a tin of caviar, which is what the proposed tax increase would amount to. Meanwhile, the rest of us will have to sacrifice healthcare, food, education, housing, jobs and perhaps our lives to sate the ferocious appetite of capital.

That’s why more and more people are joining the Wall Street occupation. They can tell you about their homes being foreclosed upon, months of grinding unemployment or minimum-wage dead-end jobs, staggering student debt loads, or trying to live without decent healthcare. It’s a whole generation of Americans with no prospects, but who are told to believe in a system that can only offer them Dancing With The Stars and pepper spray to the face.

Yet against every description of a generation derided as narcissistic, apathetic and hopeless they are staking a claim to a better future for all of us.

That’s why we all need to join in. Not just by liking it on Facebook, signing a petition at or retweeting protest photos, but by going down to the occupation itself.

There is great potential here. Sure, it’s a far cry from Tahrir Square or even Wisconsin. But there is the nucleus of a revolt that could shake America’s power structure as much as the Arab world has been upended.

Instead of one to two thousand people a day joining in the occupation there needs to be tens of thousands of people protesting the fat cats driving Bentleys and drinking thousand-dollar bottles of champagne with money they looted from the financial crisis and then from the bailouts while Americans literally die on the streets.

To be fair, the scene in Liberty Plaza seems messy and chaotic. But it’s also a laboratory of possibility, and that’s the beauty of democracy. As opposed to our monoculture world, where political life is flipping a lever every four years, social life is being a consumer and economic life is being a timid cog, the Wall Street occupation is creating a polyculture of ideas, expression and art.

Yet while many people support the occupation, they hesitate to fully join in and are quick to offer criticism. It’s clear that the biggest obstacles to building a powerful movement are not the police or capital – it’s our own cynicism and despair.

Perhaps their views were colored by the New York Times article deriding protestors for wishing to “pantomime progressivism” and “Gunning for Wall Street with faulty aim.” Many of the criticisms boil down to “a lack of clear messaging.”

But what’s wrong with that? A fully formed movement is not going to spring from the ground. It has to be created. And who can say what exactly needs to be done? We are not talking about ousting a dictator; though some say we want to oust the dictatorship of capital.

There are plenty of sophisticated ideas out there: end corporate personhood; institute a “Tobin Tax” on stock purchases and currency trading; nationalize banks; socialize medicine; fully fund government jobs and genuine Keynesian stimulus; lift restrictions on labor organizing; allow cities to turn foreclosed homes into public housing; build a green energy infrastructure.

But how can we get broad agreement on any of these? If the protesters came into the square with a pre-determined set of demands it would have only limited their potential. They would have either been dismissed as pie in the sky – such as socialized medicine or nationalize banks – or if they went for weak demands such as the Buffett Rule their efforts would immediately be absorbed by a failed political system, thus undermining the movement.

That’s why the building of the movement has to go hand in hand with common struggle, debate and radical democracy. It’s how we will create genuine solutions that have legitimacy. And that is what is occurring down at Wall Street.

Now, there are endless objections one can make. But if we focus on the possibilities, and shed our despair, our hesitancy and our cynicism, and collectively come to Wall Street with critical thinking, ideas and solidarity we can change the world.

How many times in your life do you get a chance to watch history unfold, to actively participate in building a better society, to come together with thousands of people where genuine democracy is the reality and not a fantasy?

For too long our minds have been chained by fear, by division, by impotence. The one thing the elite fear most is a great awakening. That day is here. Together we can seize it.

LUV Newsletter on the Post Office Pusch

There’s been a plan to destroy the US Postal Service (USPS) for many years.  The difficulty is that it’s authorized in the Constitution, so would take a Constitutional amendment to actually kill it, leaving our corrupt Congress unable to finish it off up to now.

The reason the ruling Forces of Greed(FOG) have wanted to kill it, is that it pays good wages and benefits to working class people, and they just can’t stand to see that, realizing they can make a profit from exploiting that. So they created UPS and Fedex to take away its lucrative package mailing in order to help undermine the USPS. These companies took the part they like, but ignored the “one price to deliver a letter anywhere” requirement — didn’t want to take that on, so left the hard stuff for the US Postal Service.

The ruling FOG have taken over the board that runs the USPS in order to do it in. Since 1973 wages have dropped for average workers in terms of constant dollars, across the nation, as wealth is transferred to the wealthiest transnational investors. That is not possible to do as long as good jobs remain — they don’t want the working class to see that it is possible to have a decent wage, and at their current rate of success, good jobs will all be snuffed out in another decade or two without working class blowback.  —Jack

Board Dominated by Corporate Execs, Lawyers, Lobbyist

Corporatizing the Post Office


The United States Postal Service Board of Governors is dominated by corporate executives, lawyers, and lobbyists. And according to consumer advocate Ralph Nader, that’s a key reason why the Postal Service is in trouble.

“Historically, ever since it was transformed from a cabinet level department to a government corporation, it’s been controlled by corporate executives, lawyers or lobbyists,” Nader said. “And that’s the case today. That explains the desire to keep the Postal service under restrictions that reduce its revenues and limit its expansion into other areas of service that would generate more revenue and more fully utilize the post offices. This strategy has benefitted UPS and Federal Express.”

Five out of the nine members of the board are currently corporate executives, lawyers or lobbyists. There are currently two vacancies.

  • Louis Giuliano, the chairman or the board, is currently a senior advisor to The Carlyle Group and is a former president and CEO of ITT and former execute at Allied Signal.
  • Thurgood Marshall Jr is a corporate lawyer at Bingham McCutchen in Washington, D.C.
  • James Bilbray is a corporate lawyer at Kaempfer Crowell in Las Vegas, Nevada.
  • James Miller III is a corporate lawyer at Husch Blackwell.
  • And Ellen Williams is a corporate lobbyist at Capital Network.

“For three decades we have been proposing a postal residential users action group with hundreds of thousands of dues paying members responding to delivery of invitation cards by postal carriers three times a year at over 100 million residences,” Nader said. “All postmasters and their boards of governors turned this voluntarily joined self-funded idea down. They don’t want the residential users to be organized with a seat at the table.”

Nader says that the current crisis at the Postal Service is “manufactured.”
“The deep hole of debt that is currently facing the U.S. Postal Service is entirely due to the burdensome prepayments for future retiree health care benefits imposed by Congress in the Postal Accountability and Enhancement Act of 2006,” Nader wrote last week in a letter to Senator Joseph Lieberman (D-Connecticut) and Congressman Darrell Issa (R-California.)

“By June 2011, the USPS saw a total net deficit of $19.5 billion … [this] deficit almost exactly matches the $20.95 billion the USPS made in prepayments to the fund for future retiree health care benefits by June 2011. If the prepayments required under PAEA were never enacted into law, the USPS would not have a net deficiency of nearly $20 billion, but instead be in the black by at least $1.5 billion.”

Nader said that in terms of retirees’ health benefits, the Postal Service is required to do things that “no other government or private corporation is required to do and is an incredibly unreasonable burden.”

Mario Piperni on Herman Cain

Herman Cain’s Half-Baked Pizza

Unless Herman Cain is a bit more delusional than he appears to be, there is no way he believes he’s got a chance of winning the GOP primary no matter how many meaningless straw polls he wins. The man is more likely positioning himself for a place on a Romney or Perry ticket.

Here’s Mister 999 on Fox.

“Now, the African-American vote, I am confident, based upon black people that I run into, black people that used to call my radio show, black people that have signed up on my Web site to support me — I believe, quite frankly, that my campaign, I will garner a minimum of a third of the black vote in this country, and possibly more…”


“The fact that my plan resonates — the fact that if we boost this national economy, we’re gonna help the state economy — that’s gonna help the local economy, and that’s gonna help the household economy. And because the unemployment rate for black people is nearly 17 percent, instead of the 9 percent, they’re looking for something that’s gonna boost this economy, and they see that possibility in my 9-9-9 plan.

“That’s what’s going to peel off the black vote, results, not rhetoric.”

Actually, it’ll take a hell of a lot more than a Herman Cain to “peel off” the black vote. Obama picked up 95% of that vote in 2008 and Kerry had 88% of it in 2004. I doubt that African-Americans could ever be convinced to change political affiliation and vote for a man, regardless of color, who talks of privatizing Social Security. Nor do I imagine they’d be too enthralled with casting a vote for a man who promotes a tax plan (9-9-9) which shifts a greater portion of the tax burden on to the poor while at the same time decreasing the tax rate for the rich. PolitiFact breaks down 999 for you.

Herman Cain, Chilean model, 999 . . . not in this lifetime.

LUV Newsletter on the World’s Economic Chaos

Saving the Rich, Losing the Economy


Economic policy in the United States and Europe has failed, and people are suffering.

Economic policy failed for three reasons: (1) policymakers focused on enabling offshoring corporations to move middle class jobs, and the consumer demand, tax base, GDP, and careers associated with the jobs, to foreign countries, such as China and India, where labor is inexpensive; (2) policymakers permitted financial deregulation that unleashed fraud and debt leverage on a scale previously unimaginable; (3) policymakers responded to the resulting financial crisis by imposing austerity on the population and running the printing press in order to bail out banks and prevent any losses to the banks regardless of the cost to national economies and innocent parties.

Jobs offshoring was made possible because the collapse of the Soviet Union resulted in China and India opening their vast excess supplies of labor to Western exploitation. Pressed by Wall Street for higher profits, US corporations relocated their factories abroad. Foreign labor working with Western capital, technology, and business know-how is just as productive as US labor. However, the excess supplies of labor (and lower living standards) mean that Indian and Chinese labor can be hired for less than labor’s contribution to the value of output. The difference flows into profits, resulting in capital gains for shareholders and performance bonuses for executives.

As reported by Manufacturing and Technology News (September 20, 2011) the Quarterly Census of Employment and Wages reports that in the last 10 years, the US lost 54,621 factories, and manufacturing employment fell by 5 million employees. Over the decade, the number of larger factories (those employing 1,000 or more employees) declined by 40 percent. US factories employing 500-1,000 workers declined by 44 percent; those employing between 250-500 workers declined by 37 percent, and those employing between 100-250 workers shrunk by 30 percent.

These losses are net of new start-ups. Not all the losses are due to offshoring. Some are the result of business failures.

US politicians, such as Buddy Roemer, blame the collapse of US manufacturing on Chinese competition and “unfair trade practices.” However, it is US corporations that move their factories abroad, thus replacing domestic production with imports. Half of US imports from China consist of the offshored production of US corporations.

The wage differential is substantial. According to the Bureau of Labor Statistics, as of 2009 average hourly take-home pay for US workers was $23.03. Social insurance expenditures add $7.90 to hourly compensation and benefits paid by employers add $2.60 per hour for a total labor compensation cost of $33.53.

In China, as of 2008 total hourly labor cost was $1.36, and India’s is within a few cents of this amount. Thus, a corporation that moves 1,000 jobs to China saves $32,000 every hour in labor cost. These savings translate into higher stock prices and executive compensation, not in lower prices for consumers who are left unemployed by the labor arbitrage.

Republican economists blame “high” US wages for the current high rate of unemployment. However, US wages are about the lowest in the developed world. They are far below hourly labor cost in Norway ($53.89), Denmark ($49.56), Belgium ($49.40), Austria ($48.04), and Germany ($46.52). The US might have the world’s largest economy, but its hourly workers rank 14th on the list of the best paid. Americans also have a higher unemployment rate. The “headline” rate that the media hypes is 9.1 percent, but this rate does not include any discouraged workers or workers forced into part-time jobs because no full-time jobs are available.

The US government has another unemployment rate (U6) that includes workers who have been too discouraged to seek a job for six months or less. This unemployment rate is over 16 percent. Statistician John Williams ( estimates the unemployment rate when long-term discouraged workers (more than six months) are included. This rate is over 22 percent.

Most emphasis is on the lost manufacturing jobs. However, the high speed Internet has made it possible to offshore many professional service jobs, such as software engineering, Information Technology, research and design. Jobs that comprised ladders of upward mobility for US college graduates have been moved offshore, thus reducing the value to Americans of many university degrees. Unlike former times, today an increasing number of graduates return home to live with their parents as there are insufficient jobs to support their independent existence.

All the while, the US government allows in each year one million legal immigrants, an unknown number of illegal immigrants, and a large number of foreign workers on H-1B and L-1 work visas. In other words, the policies of the US government maximize the unemployment rate of American citizens.

Republican economists and politicians pretend that this is not the case and that unemployed Americans consist of people too lazy to work who game the welfare system. Republicans pretend that cutting unemployment benefits and social assistance will force “lazy people who are living off the taxpayers” to go to work.

To deal with the adverse impact on the economy from the loss of jobs and consumer demand from offshoring, Federal Reserve chairman Alan Greenspan lowered interest rates in order to create a real estate boom. Lower interest rates pushed up real estate prices. People refinanced their houses and spent the equity. Construction, furniture and appliance sales boomed. But unlike previous expansions based on rising real income, this one was based on an increase in consumer indebtedness.

There is a limit to how much debt can increase in relation to income, and when this limit was reached, the bubble popped.

When consumer debt could rise no further, the large fraudulent component in mortgage-backed derivatives and the unreserved swaps (AIG, for example) threatened financial institutions with insolvency and froze the banking system. Banks no longer trusted one another. Cash was hoarded. Treasury Secretary Paulson, browbeat Congress into massive taxpayer loans to financial institutions that functioned as casinos. The Paulson Bailout (TARP) was large but insignificant compared to the $16.1 trillion (a sum larger than US GDP or national debt) that the Federal Reserve lent to private financial institutions in the US and Europe.

In making these loans, the Federal Reserve violated its own rules. At this point, capitalism ceased to function. The financial institutions were “too big to fail,” and thus taxpayer subsidies took the place of bankruptcy and reorganization. In a word, the US financial system was socialized as the losses of the American financial institutions were transferred to taxpayers.

European banks were swept up into the financial crisis by their unwitting purchase of the junk financial instruments marketed by Wall Street. The financial junk had been given investment grade rating by the same incompetent agency that recently downgraded US Treasury bonds.

The Europeans had their own bailouts, often with American money (Federal Reserve loans). All the while Europe was brewing an additional crisis of its own. By joining the European Union and (except for the UK) accepting a common European currency, the individual member countries lost the services of their own central banks as creditors.

In the US and UK the two countries’ central banks can print money with which to purchase US and UK debt. This is not possible for member countries in the EU.

When financial crisis from excessive debt hit the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) their central banks could not print euros in order to buy up their bonds, as the Federal Reserve did with “quantitative easing.” Only the European Central Bank (ECB) can create euros, and it is prevented by charter and treaty from printing euros in order to bail out sovereign debt.

In Europe, as in the US, the driver of economic policy quickly became saving the private banks from losses on their portfolios. A deal was struck with the socialist government of Greece, which represented the banks and not the Greek people. The ECB would violate its charter and together with the IMF, which would also violate its charter, would lend enough money to the Greek government to avoid default on its sovereign bonds to the private banks that had purchased the bonds. In return for the ECB and IMF loans and in order to raise the money to repay them, the Greek government had to agree to sell to private investors the national lottery, Greece’s ports and municipal water systems, a string of islands that are a national preserve, and in addition to impose a brutal austerity on the Greek people by lowering wages, cutting social benefits and pensions, raising taxes, and laying off or firing government workers.

In other words, the Greek population is to be sacrificed to a small handful of foreign banks in Germany, France and the Netherlands.

The Greek people, unlike “their” socialist government, did not regard this as a good deal. They have been in the streets ever since.

Jean-Claude Trichet, head of the ECB, said that the austerity imposed on Greece was a first step. If Greece did not deliver on the deal, the next step was for the EU to take over Greece’s political sovereignty, make its budget, decide its taxation, decide its expenditures and from this process squeeze out enough from Greeks to repay the ECB and IMF for lending Greece the money to pay the private banks.

In other words, Europe under the EU and Jean-Claude Trichet is a return to the most extreme form of feudalism in which a handful of rich are pampered at the expense of everyone else.

This is what economic policy in the West has become–a tool of the wealthy used to enrich themselves by spreading poverty among the rest of the population.

On September 21 the Federal Reserve announced a modified QE 3. The Federal Reserve announced that the bank would purchase $400 billion of long-term Treasury bonds over the next nine months in an effort to drive long-term US interest rates even further below the rate of inflation, thus maximizing the negative rate of return on the purchase of long-term Treasury bonds. The Federal Reserve officials say that this will lower mortgage rates by a few basis points and renew the housing market.

The officials say that QE 3, unlike its predecessors, will not result in the Federal Reserve printing more dollars in order to monetize US debt. Instead, the central bank will raise money for the bond purchases by selling holdings of short-term debt. Apparently, the Federal Reserve believes it can do this without raising short-term interest rates, because back during the recent debt-ceiling-government-shutdown-crisis, the Federal Reserve promised banks that it would keep the short-term interest rate (essentially zero) constant for two years.

The Fed’s new policy will do far more harm than good. Interest rates are already negative. To make them more so will have no positive effect. People aren’t buying houses because interest rates are too high, but because they are either unemployed or worried about their jobs and do not see a recovering economy.

Already insurance companies can make no money on their investments. Consequently, they are unable to build their reserves against claims. Their only alternative is to raise their premiums. The cost of a homeowner’s policy will go up by more than the cost of a mortgage will decline. The cost of health insurance will go up. The cost of car insurance will rise. The Federal Reserve’s newly announced policy will impose more costs on the economy than it will reduce.
In addition, in America today savings earn nothing. Indeed, they produce an ongoing loss as the interest rate is below the inflation rate. The Federal Reserve has interest rates so low that only professionals who are playing arbitrage with algorithm-programmed computer models can make money. The typical saver and investor can get nothing on bank CDs, money market funds, municipal and government bonds. Only high risk debt, such as Greek and Spanish bonds, pay an interest rate that is higher than inflation.

For four years interest rates, when properly measured, have been negative. Americans are getting by, maintaining living standards, by consuming their capital. Even those with a cushion are eating their seed corn. The path that the US economy is on means that the number of Americans without resources to sustain them will be rising. Considering the extraordinary political incompetence of the Democratic Party, the right wing of the Republican Party, which is committed to eliminating income support programs, could find itself in power. If the right-wing Republicans implement their program, the US will be beset with political and social instability. As Gerald Celente says, “when people have nothing left to lose, they lose it.”


“Wall Street has given $41 million in campaign contributions to the members of the Congressional “supercommittee” charged with finding $1.5 trillion worth of deficit reduction measures, according to a report released today by two watchdog groups,” begins a piece at Truthout this morning.

One trick ponies, throw them money and they perform on cue in selling out the public interest.

Naked Capitalism

Is the SEC Finally Taking Serious Aim at the Ratings Agencies?

If the grumblings in the comments section are any guide, quite a few citizens are perplexed and frustrated that the ratings agencies have suffered virtually no pain despite being one of the major points of failure that helped precipitate the global financial crisis. If there were no such thing as ratings agencies (i.e., investors had to make their own judgments) or the ratings agencies had managed not to be so recklessly incompetent, it’s pretty unlikely that highly leveraged financial institutions would have loaded up on manufactured AAA CDOs for bonus gaming purposes.

But the assumption has been that the ratings agencies are bullet proof. Their role is enshrined in numerous regulations and products that make ratings part of an investment decision. And they get a free pass on mistakes, no matter how egregious. (Note that there have been rulings that have taken issue with the ratings agencies reliance on the invocation of the First Amendment defense, but to date they have been on procedural matters. To my knowledge, no party has been awarded damages against a ratings agency based on a judge deciding that a First Amendment defense was inapplicable)

So why, pray tell, has the SEC sent a Wells notice to Standard and Poors, which is a heads up that the regulator may file civil charges, which could result in penalties and disgorgement of fees, on a 2007 Magnetar CDO called Delphinius? The history is that suing ratings agencies over their opinions has not been a terribly successful exercise. And the SEC tends to be conservative in the cases it files; it likes to have a high certainty of a win, whether that means a courtroom victory or a reasonably fast settlement.

A cynic might say that this action is politically motivated, a punishment for the S&P having crossed Uncle Sam by downgrading US debt. Maybe, but a Wells notice is not a suit, and a Wells notice that does not lead to a court filing may raise questions about what the SEC is up to.

My guess is that the SEC thinks it has a shot at a new legal argument that might fly given the particularly rancid conduct of S&P in the Delphinius deal. Per Bloomberg:

Delphinus was highlighted in a U.S. Senate panel’s report as a “striking example” of how banks and ratings firms branded mortgage-linked products safe even as the housing market worsened in 2007. S&P rated six tranches of Delphinus AAA in August 2007 and began downgrading the securities by the end of the year, according to the Permanent Subcommittee on Investigations report released in April. By the end of 2008, they were rated as junk, according to the report….

In e-mails released by the Senate investigations panel led by Michigan Democrat Carl Levin, some S&P analysts questioned whether the Delphinus bonds deserved top grades. The analysts said the securities backing the deal were different from what bankers had described, according to the report.

“Um … looks like the remaining portion is actually all sub-prime,” one analyst wrote.

“Do you want to address this with them, or let it go?” another replied

The Wall Street Journal clarifies this issue a tad: the deal structure provided for “dummy assets” that were assumed to be of a certain quality. The final transaction has assets that were markedly worse. And the S&P knew about it.

The reason this might make a difference is First Amendment defenses are based on the notion that the journalist acted in a good faith manner with a concern for accuracy. If a media outlet publishes an article that is recklessly inaccurate or with the intent to harm, the First Amendment shield is inoperative.

The question here thus is whether making a rating that was obviously inaccurate, given what S&P knew about the deal, is sufficient grounds for arguing that the rating agency acted in bad faith. Other actions around that time could bolster that argument. This CDO was one of the very last ones issued, right as the bottom was dropping out of the subprime market.

The next most unusual thing about the deal is that it was issued in late July, in 2007. On July 10th of that year, S&P downgraded over 600 subordinated subprime MBS bonds from deals issued between 2005 and the end of 2006, which shook the markets that summer. As we have noted before, it was not credible to have downgraded subprime bonds and not have simultaneously downdgraded CDOs made substantially of exposures to the very same bonds. To put it politely, S&P had to engage in some meaningful denial to analyze the deal in a way that ignored the downgrades of so many earlier vintage subprime MBS.

Even our assessment is right and the SEC has a decent shot at making a case, S&P is sure to fight a scorched-earth battle, since maintaining the First Amendment defense (particularly with regard to subprime-related deals) is a life-or-death issue. But some open questions remain:

It is likely Moody’s rated this deal as well. So why is S&P being singled out? It may be that the Levin report uncovered suspect conduct from S&P on this deal and not Moodys, but the two firms would presumably have taken the same position on the dummy assets if they issued similar ratings.

In October, 2007, S&P downgraded hundreds of subprime bonds backed by deals issued from January 1st to June 30th of 2007 Given the late closing date of this deal, and the big impact of the S&P MBS downgrades (followed a few days later by Moody’s downgrades of several billion of MBS), this deal is unlikely to have had any outside investors, since the market froze pretty quickly (IKB is possible, since they blew up roughly three weeks later). It thus may be if the originators wound up holding the bag, the damage to third parties was limited, and therefore there would not be a basis for arguing damages.

S&P is certain not to settle were a suit to be filed. They can’t afford to lose, but they also can’t afford to make an admission of vulnerability. They would fight it just as vigorously as rating agencies have past legal actions.

Even though this would be an uphill battle for the SEC, I’d like to see this Wells notice lead to a lawsuit. Too many people have gotten away with way too much in the crisis. It’s time to start meting out some justice.

Update 4:00 AM: I just saw the New York Times story on the Wells notice. This part is funny:

There was so much demand for the Delphinus 2007-1 deal in July 2007 that Mizuho Securities increased its size from $1.2 billion to $1.6 billion, according to a Mizuho news release. The bank’s head of structured credit for the Americas said in that release that investors wanted “better quality collateral.”

Translation: “We knew the window was closing fast, so we shoved as much crap into this puppy as we could and tried to pretend that investors made us do it.”