Monthly Archives: February 2015

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The Vanishing Middle Class

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The Rape of Public Schools

The School Closure Playbook – How Billionaires Exploit Poor Children in Chicago

Posted on February 26, 2015 by

Rebecca Rojer, who directed this film essay about a public school version of the Shock Doctrine playbook called “corporate school reform” asked us to present her video after it first appeared on Jacobin. It is accessible yet presents a hard-hitting overview of who is behind this taxpayer looting program and the mechanics of how it operates. From Rojer’s overview:

The piece uses Chicago to explore the broader neoliberal campaign against public schools, focusing on how education “reformers” manufactured a budget crisis through a combination of creative accounting, secretive tax schemes (specifically TIF), and media cooperation. It also looks at some of the organizing that developed to regain local control of schools (and possibly just forced Rahm into a run-off election!).

What is stunning is the degree of out and out grifting that has taken place in Chicago, with millions diverted from public schools to create a false image of a budgetary crisis. And some of the money wound up in dubious-looking pockets, like a Hyatt Hotels franchise.

I hope you’ll watch this video. Be sure to circulate it to anyone you know who lives or votes in Chicago.

The School Closure Playbook from Jacobin on Vimeo.

If you have trouble viewing the embedded version above, you can also view it here.

Humor: The Borowitz Report

Republicans Unlearning Facts Learned in Third Grade to Compete in Primary

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Credit Photographs by (from left) Chip Somodevilla/Getty, Kevork Djansezian/Getty, Darren Hauck/Getty

WASHINGTON (The Borowitz Report)—In the hopes of appealing to Republican primary voters, candidates for the 2016 Presidential nomination are working around the clock to unlearn everything that they have learned since the third grade, aides to the candidates have confirmed.

With the Iowa caucuses less than a year away, the hopefuls are busy scrubbing their brains of basic facts of math, science, and geography in an attempt to resemble the semi-sentient beings that Republican primary voters prize.

An aide to Jeb Bush acknowledged that, for the former Florida governor, “The unlearning curve has been daunting.”

“The biggest strike against Jeb is that he graduated from college Phi Beta Kappa,” the aide said. “It’s going to take a lot of work to get his brain back to its factory settings.”

At the campaign of Wisconsin Governor Scott Walker, the mood was considerably more upbeat, as aides indicated that Walker’s ironclad façade of ignorance is being polished to a high sheen.

“The fact that Scott instinctively says that he doesn’t know the answers to even the easiest questions gives him an enormous leg up,” an aide said.

But while some G.O.P. candidates are pulling all-nighters to rid themselves of knowledge acquired when they were eight, the campaign of Rick Perry, the former governor of Texas, is exuding a quiet confidence.

“I don’t want to sound too cocky about Rick,” said one Perry aide. “But what little he knows, he’s shown he can forget.”

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Hiding Outrageous HSBC CEO Pay in Havens

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Bill Black: HSBC CEO – My Pay Was So Outrageous I Had to Use Tax Havens to Hide it from My Peers

Posted on February 24, 2015 by

Yves here. This tidbit from HSBC reveals a new low in the standards of banking, which given how low those already are, amounts to an accomplishment of sorts. Perhaps we should create a Stuart Gulliver Award for other instances of creative extreme seaminess. Nominees?

By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Originally published at New Economic Perspectives

Greetings from Quito, where I will be spending four months teaching at IAEN about effective regulation and building ties with UMKC.

The latest twists on the latest HSBC tax evasion and tax avoidance scandal is that it has come out that Stuart Gulliver, HSBC’s head, put his money where his mouth wasn’t. He personally used double tax havens – Panama plus Switzerland – to hide his income and wealth from view because his pay was so outrageous that even other HSBC executives would have been outraged by it. The New York Times’ account of this tale demonstrates that Gulliver needs to fire Gulliver as his spokesperson.

He said he set up a Swiss account to hide his bonus from his Hong Kong colleagues, and then another one in Panama to hide the amounts from the bank’s employees in Switzerland.

“Being in Switzerland protects me from Hong Kong, being in Panama helps protect me from the Swiss bank,” he said.

Yes, the HSBC CEO just said openly that he felt a desperate, personal need to be “protect[ed] “from the Swiss bank” – by which he means HSBC. He felt a similar need to be “protect[ed]” “from his Hong Kong colleagues” at HSBC. Any HSBC customer victimized by HSBC’s PPI and “swap” rip offs of customers and any UK taxpayer ripped off by the tax evasion emporium run for the powerful and wealthy out of that same HSBC “Swiss bank” can empathize with Gulliver. HSBC customers and non-elite UK taxpayers all feel a desperate need to be “protect[ed]” from HSBC – and Gulliver.

What Gulliver was so desperate to have “protect[ed]” from his “HSBC colleagues” was knowledge of his pay. He knew his pay was so excessive that it would outrage even HSBC’s senior managers. Remember this event when the next bank CEO rails against the “politics of envy.” The insanely jealous people that Gulliver feared were his peers, because even in the corrupt culture of HSBC he stood out for his greed.

Only a few things would need to be true to make this nearly perfect story the perfect story of the inevitable result of the City of London “winning” the regulatory “race to the bottom” and becoming the financial cesspool of the world – while being praised by the business press (even the Guardian).

First, the defense of Gulliver’s outrageous pay could actually blame criticisms of his pay on “the politics of envy” by little people rather than Gulliver’s wealthy peers. An article entitled “HSBC’s banking excess or banking excellence?” might read:

Some might say those who fret over Mr Gulliver’s pay are practising the politics of envy.

Second, after HSBC was fined for laundering over $1 billion for the Sinaloa drug cartel, a “think tank” might praise Gulliver’s outrageous pay as the just reward for exceptional performance in an article entitled “Our banks are a national treasure – Britain is good at financial services.” The think tank admitted to only one problem by banks – they have not yet found an effective way of triumphing over our stupidity. Indeed, we are not worthy of Gulliver and HSBC.

Admittedly, banks need to do a better job of explaining to the public what exactly they do. Economic literacy is exceptionally poor….

Third, HSBC’s defense to the Guardian of Gulliver’s use of opaque tax havens was that hiding his income and wealth and his outrageous pay (and minimizing taxes) was the epitome of “transparency.”

“There is absolutely no story here,” said [HSBC Chairman Douglas] Flint of the chief executive’s bank account. “There is nothing that Stuart has done that is not absolutely transparent, legal and appropriate.”

Thank you, Mr. Flint, for demonstrating why relying on a board of directors chosen by the CEO to supposedly keep bad CEOs on the right track results in recurrent, unintentional self-parody. Combining Panama and Swiss tax havens to ensure secrecy is the new “transparent” in banking.

Naked Capitalism: Drive Time Subprime

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Wolf Richter: Subprime Pump-and-Dump Frenzy Heats Up

Posted on February 23, 2015 by

Lambert here: A car is just a bundle, after all. Why not unbundle the hub caps, and securitize those? Make the cup-holders pay per use, and securitize the revenue stream!

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street

Investors, driven to near insanity by the Fed’s interest rate repression, have developed an insatiable lust for structured securities backed by subprime auto loans.

Mind you, these are not high-risk securities, as you might be misled to imagine from the name “subprime”; many of them are triple-A rated by none other than venerable Standard & Poor’s, which agreed in early February to pay $1.375 billion to settle with the Department of Justice and 19 state agencies the allegations that it “had engaged in a scheme to defraud investors in structured financial products,” namely slapping triple-A ratings on toxic Mortgage-Backed Securities and Collateralized Debt Obligations in the run-up to the Financial Crisis.

OK, today’s subprime securitization rage is in the auto-loan sector, not mortgages. About 31% of all outstanding auto loan balances are rated subprime. They’re the foundation of booming auto sales. There is a lot to securitize. It’s so hot that private-equity firms are all over it. And IPOs are flying off the shelf.

These auto lenders – from giants such as Ally and GM Financial to smaller ones – are under investigation by the DOJ and a laundry list of other federal and state agencies for the underwriting criteria they used on securitized subprime auto loans as well as the representations and warranties related to these securitizations.

But this isn’t curtailing investors’ insatiable lust for these highly-rated, seemingly low-risk products, and subprime lenders keep pushing them out the door.

Santander Consumer USA, one of the targets of the DOJ investigation, is planning a $1 billion securitization of subprime auto loans. It already issued two securitizations since the DOJ subpoenas last summer, no problem. A $434-million slice of the current deal is rated triple-A by S&P.

In 2011, private-equity firms Kohlberg Kravis Roberts, Centerbridge Partners, and Warburg Pincus bought a 25% stake in the unit from Banco Santander in Spain. In January, they all cashed out part of their investment by selling 75 million shares to the public at $24 a share, raising $1.8 billion in the IPO. Banco Santander sold a 4% stake for a net gain of $1 billion, Bloomberg reported. It still owns 61% of the unit. The PE firms pocketed a partly realized gain of at least 133% on their $1 billion equity investment, including $257 million in cash dividends.

The public wasn’t so lucky. The shares closed on Friday at $22.88, down 4.6% from their IPO price.

Also this week, DriveTime Automotive Group sold $265 million in structured securities based on subprime auto loans, according to Structured Finance News. In November, it had settled with the Consumer Financial Protection Bureau (CFPB) by agreeing to pay $8 million and changing its debt collection practices, such as not calling delinquent borrowers at work after being told not to.

DriveTime is a privately-held used-vehicle retailer with 126 dealerships across the US, focused on “deep subprime” – consumers with a FICO score of less than 550. About 20% of its customers don’t even have a FICO score. It finances its sales in house and then securitizes the loans.

In its securitization pool this week, 86.3% are loans with terms of 61 months or more, which are riskier than shorter-term loans. A $130-million slice was triple-A rated by S&P, another slice was double-A rated, and the third slice was single-A rated. Risks and investigations, no problem.

Also this week, subprime auto lender CarFinance sold $266 million in structured securities. The least risky slice carried S&P’s single-A rating. Other slices were rated as low as “BB-.” The underlying loans have an average FICO score of 603, pay an annual interest rate of 15%, have a term of 72 months, and sport an average loan-to-value ratio of a dizzying 118%.

These loans should give you the willies. But in the zero interest rate environment imposed by the Fed, investors go for anything that has a discernible yield.

PE firm Perella Weinberg Partners established CarFinance in 2011. Since then, its portfolio has ballooned to $716 million. Last month, Perella merged it with its other subprime auto-loan outfit, Flagship Credit Acceptance. Combined, they originate about $1.2 billion in subprime auto loans a year.

But it’s not easy to make money in this business. Subprime auto lender Exeter Finance, which PE firm Blackstone Group bought in 2011, exploded its portfolio from $150 million to $2.8 billion in three years. It has now become America’s third-largest issuer of subprime auto-loan structured securities. It too received subpoenas from the DOJ and other agencies. And it has been losing money for three years.

American Banker  took a look at a $500-million securitization the company sold last August and found a doozie:

The average APR on those loans was 18.59%. The original term length was 70 months. 75% of these loans had a loan-to-value ratio of over 105%. Eighty-one percent of the borrowers had a FICO score of below 600. And yet some of the securities that these loans are turned into are rated AAA.

Given the hoopla surrounding subprime, American Banker asked Exeter’s new CEO Thomas Anderson if he was thinking about an IPO (despite the losses). “I think it’s probably unlikely in ’15, but I wouldn’t rule it out,” he said.

And has the regulatory scrutiny led to changes inside the company? Well, “probably the only real meaningful, tangible difference is it’s led us to have kind of more people in, I’ll call it the legal department….”

But it has not had any impact on investor enthusiasm, at least not “to date,” Anderson said.

Subprime loans allow the over-indebted, under-paid middle class, the new American proletariat, to buy a car without which they couldn’t go to work, go to the grocery store, or take their kids to the doctor. But these folks are sitting ducks for the industry. Thinking they have no options, they get pushed into overpriced vehicles and – what makes investors’ mouth water – expensive loans.

In face of this boundless investor enthusiasm and blindness to risks, Equifax, which makes its money selling the data it collects on consumers, came out swinging in defense of subprime.

Consumers with deep-subprime FICO scores on average improve their scores after they buy a car and make payments regularly, it said. It didn’t mention the other consumers who default on their usurious subprime loans; they get whacked.

Equifax complained that subprime auto loans were “an all too easy target these days,” though the industry “deserves some recognition for … ultimately helping to pave the way for our recent economic recovery.” A subprime-based economic recovery.

And then it said point-blank, “The Subprime Auto Bubble is Fiction, Not Fact.”

Not a word about the securitization boom and that is stuffing these sliced and diced and repackaged triple-A rated subprime loans into bond funds of unsuspecting conservative investors – because that’s where most of these things end up, and that’s where they can quietly decompose.

New vehicle sales in the US could hit 17 million in 2015, everyone believes. The glory days are back, thanks to subprime. The industry is drunk with its own enthusiasm. Read… Subprime Spikes Auto Sales, Delinquencies Soar, Industry in Total Denial, Fallout to Hit Main Street

Naked Capitalism: Wall Street Sucks Life Out of Main Street

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Two New Papers Say Big Finance Sectors Hurt Growth and Innovation

Posted on February 19, 2015 by

In a bit of synchronicity, two new papers confirm the long-held suspicion that Wall Street is sucking the life out of Main Street.

The BIS has released an important paper, embedded at the end of this post, which has created quite a stir, even leading the orthodoxy-touting Economist to take note. Titled, Why does financial sector growth crowd out real economic growth?, its analysis of why too much finance is a bad thing is robust and compelling. This article is a follow up to a 2012 paper by the same authors, Stephen Cecchetti and Enisse Kharroubi, which found that when finance sectors exceeded a certain size, specifically when private sector debt topped 100% of GDP or when financial services industry professions were more than 3.9% of the work force, it became a drag on growth. Notice that this finding alone is damning as far as policy in the US is concerned, where cheaper debt, deregulation, more access to financial markets, and “financial deepening” are all seen as virtuous.

The paper is short and accessible, so I strongly encourage you to read it in full.

The paper starts by looking empirically at the fact that larger financial sectors are correlated with lower growth rates:

BIS-graph-1

And the big reason is one that is no surprise to anyone in the US, that finance has been sucking “talent,” as in the best and brightest from a large range of disciplines, ranging from mathematicians, physicists, the best MBAs (which remember could be running manufacturing operations or in high-growth real economy businesses) and lawyers. The banking sector’s gain is Main Street’s loss. From the abstract:

In this paper we examine the negative relationship between the rate of growth of the financial sector and the rate of growth of total factor productivity. We begin by showing that by disproportionately benefiting high collateral/low productivity projects, an exogenous increase in finance reduces total factor productivity growth. Then, in a model with skilled workers and endogenous financial sector growth, we establish the possibility of multiple equilibria. In the equilibrium where skilled labour works in finance, the financial sector grows more quickly at the expense of the real economy. We go on to show that consistent with this theory, financial growth disproportionately harms financially dependent and R&D-intensive industries.

And how does this come about? One big reason is that financial firms like to lend, and to lend against collateral rather than business earnings. That drives lending to collateral-intensive activities, most of all real estate, which is not all that productive from a societal perspective:

In our model, we first show how an exogenous increase in financial sector growth can reduce
total factor productivity growth.2 This is a consequence of the fact that financial sector growth benefits disproportionately high collateral/low productivity projects. This mechanism reflects the fact that periods of high financial sector growth often coincide with the strong development in sectors like construction, where returns on projects are relatively easy to pledge as collateral but productivity (growth) is relatively low.

And the access to funding then drives where resources go:

Next, we introduce skilled workers who can be hired either by financiers to improve their ability to lend, increasing financial sector growth, or by entrepreneurs to improve their returns (albeit at the cost of lower pledgeability).3,4 We then show that when skilled workers work in one sector it generates a negative externality on the other sector. The externality works as follows: financiers who hire skilled workers can lend more to entrepreneurs than those who do not. With more abundant and cheaper funding, entrepreneurs have an incentive to invest in projects with higher pledgeability but lower productivity, reducing their demand for skilled labour. Conversely, entrepreneurs who hire skilled workers invest in high return/low pledgeability projects. As a result, financiers have no incentive to hire skilled workers because the benefit in terms of increased ability to lend is limited since entrepreneurs’ projects feature low pledgeability.5 This negative externality can lead to multiple equilibria. In the equilibrium where financiers employ the skilled workers, so that the financial sector grows more rapidly, total factor productivity growth is lower than it would be had agents coordinated on the equilibrium where entrepreneurs attract the skilled labour.6 Looking at welfare, we are able to show that, relative to the social optimum, financial booms in which skilled labour work for the financial sector, are sub-optimal when the bargaining power of financiers is sufficiently large.

And remember, even though the authors blandly mention “the bargaining power of financiers” the model does not include the further distortion seen in many advanced economies, of laundering subsidies to the housing sector through housing finance or tax breaks.

And they test their model against real economy outcomes:

Here we focus on manufacturing industries and find that industries that are in competition for resources with finance are particularly damaged by financial booms. Specifically, we find that manufacturing sectors that are either R&D-intensive or dependent on external finance suffer
disproportionate reductions in productivity growth when finance booms. That is, we confirm the results
in the model: by draining resources from the real economy, financial sector growth becomes a drag on
real growth.

The impact is large:

We find unambiguous evidence for very large effects of financial booms on industries that either have significant external financing needs or are R&D-intensive. We report estimates that imply that a highly R&D-intensive industry located in a country with a rapidly growing financial system will experience productivity growth of something like 2 percentage points per year less than an industry that is not very R&D-intensive located in a country with a slow-growing financial system.

Brad DeLong, earlier this week, flagged another important article on why finance has become a productivity drain by Thomas Philippon, titled Finance vs. Wal-Mart: Why are Financial Services so Expensive?

Despite the financial services industry having so much bigger and supposedly more efficient firms, the cost of financial intermediation is higher than in 1910. How is that possible? Is it all the new and improved looting? It’s even simpler. It’s Keynes’ capital markets as a casino problem:

…the current financial system does not seem better at transferring funds from savers to borrowers than the financial system of 1910. The role of the finance industry is to produce, trade and settle financial contracts that can be used to pool funds, share risks, transfer resources, produce information and provide incentives. Financial intermediaries are compensated for providing these services. Total compensation of financial intermediaries (profits, wages, salary and bonuses) as a fraction of GDP is at an all-time high, around 9% of GDP. What does society get in return? Or, in other words, what does the finance industry produce? I measure the output of the finance industry by looking at all issuances of bonds, loans, stocks (IPOs, SEOs), as well as liquidity services to firms and households. Measured output of the financial sector is indeed higher than it has been in much of the past. But, unlike the income earned by the sector, it is not unprecedentedly high. Historically, the unit cost of intermediation has been somewhere between 1.3% and 2.3% of assets. However, this unit cost has been trending upward since 1970 and is now significantly higher than in the past. In other words, the finance industry of 1900 was just as able as the finance industry of 2010 to produce loans, bonds and stocks, and it was certainly doing it more cheaply. This is counter-intuitive, to say the least. How is it possible for today’s finance industry not to be significantly more efficient than the finance industry of John Pierpont Morgan?… Technological improvements in finance have mostly been used to increase secondary market activities, i.e., trading. Trading activities are many times larger than at any time in previous history. Trading costs have decreased, but I find no evidence that increased liquidity has led to better (i.e., more informative) prices or to more insurance

This is another damning finding from a policy perspective, in that the bias of regulations has been strongly toward promoting more market liquidity. Readers may recall that we’ve been skeptical of that premise for years, noting that in the stone ages of our youth, investors were not terribly bothered by limited liquidity in large and important markets like corporate bonds. Yet the SEC and the Fed have been all in with the “more liquidity is better” program, with the SEC pushing for lower and lower transaction charges (which has the perverse effect of leading financial services firms as trading counterparties to be fleeced rather than good customers to be nutured) and promoting high frequency trading, and the Fed allowing derivatives to grow like kudzu, out of the belief (among other things) that they would facilitate price discovery in cash markets.

And of course, an overly costly financial services sector on a raw transaction level again drains resources from other sectors.

As the Tax Justice Network noted,

…an oversized large financial sector is not the Golden Goose providing benefits for all, but a cuckoo in the nest, crowding out and harming other sectors and society. Winston Churchill summarised:

“I would rather see finance less proud and industry more content.”

Indeed.

Naked Capitalism: HSBC and Tax Fraud

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Where Are the “Progressive” Democrats on Loretta Lynch’s HSBC Money Laundering Wrist Slap?

Posted on February 18, 2015 by

Some Republican Senators are having a field day, and rightly so, over the fact that Obama’s attorney general nominee, Loretta Lynch, looks to have allowed bank giant HSBC, and more important, its executives and officers, off vastly too easy in a massive money-laundering and tax evasion scheme.

The background is that Lynch, as attorney for the Eastern District of New York, led the investigation of HSBC’s money laundering for drug dealers and other unsavory types that led to a $1.9 billion settlement in 2012. That deal was pilloried by both the right and left as being too lenient given the scale of HSBC’s misdeeds.

And now it turns out the great unwashed public was kept in the dark about another set of misdeeds, that of large-scale tax evasion for the wealthy, which Lynch was aware of when she was negotiating the money-laundering deal. From the Guardian:

Lynch negotiated a controversial settlement with HSBC in 2012, after the bank admitted to facilitating money-laundering by Mexican drug cartels and helping clients evade US sanctions.

Now there are questions over why she did not also pursue HSBC over evidence that its Swiss arm helped US taxpayers hide their assets.

The secret bank files – obtained and examined in detail this week in a series of reports by the Guardian, CBS 60 Minutes and other media outlets – reveal that HSBC’s Swiss arm colluded with some high net-worth individuals to hide their assets from tax authorities across the world.

The new data, leaked by a whistleblower, was obtained by French tax authorities and shared with the US government in 2010, raising questions over why the Department of Justice has yet to take action against HSBC in the US.

US government officials have told the Guardian that investigations by the DoJ’s tax division have been continuing for five years and criminal charges against HSBC or its bankers remain a possibility..

British, French and Spanish tax authorities have publicly disclosed the number of HSBC Swiss clients investigated as a result of the leak and the total sums recovered. In total, the three countries have recovered more than $825m from taxpayers who had not declared their assets in Geneva. However, in Washington, the IRS is refusing to disclose any information about investigations or recovered assets stemming from the leak.

If you think the DoJ was entertaining filing criminal charges, I have a bridge I’d like to sell you. The only reason there actually might be some prosecutions is solely as a result of the leak and the resultant media firestorm.

Keep in mind that the Republican opponents, Judiciary Committee chairman Chuck Grassley and David Vitter, both have a history of being tough on banking issues, so they have legitimate grounds for consternation. Grassley has put a hold on Loretta Lynch’s nomination. He and Vitter, who is in contact with the whistleblower, are planning to grill Lynch over what she knew about the tax evasion charges and when she became aware of it. Democratic senator and ranking Judiciary committee member Sherrod Brown has also said he is going to push the DoJ and the IRS for answers.

But what about Democratic Senators who were so upset about the wrist slap settlement in 2012? What of this supposed bold progressive wing that we are led to believe will rescue the Democratic party from its corporate sellout ways? Even with a safe target like HSBC, party tribalism apparently takes precedence over principle when a major Presidential nomination is in play. But mind you, no one expects this contretemps to derail Lynch getting voted in, since most Republicans deem her to be acceptable. But given a chance to move the Overton window in the direction of demanding something the American public overwhelmingly wants, prosecutions of bankers, key Democrats are trying to finesse being tough on HSBC without being tough on Lynch. Again from the Guardian:

Until now, Senate Democrats have been most outspoken over the revelations. The Republican chair of the Senate banking committee, Richard Shelby, from Alabama, declined to comment when pressed by the Guardian this week….

Elizabeth Warren, the Democratic senator who was most vocal in her opposition to the 2012 settlement with HSBC, also called on prosecutors to “come down hard” on the bank if the leaked data shows it colluded with US tax evaders. However, neither senator mentioned Lynch, amid concern on the Democratic side that the HSBC revelations could derail Lynch’s confirmation.

Jeff Merkley, a Democratic senator from Oregon, also called for tough action against HSBC over tax evasion, while steering clear of any reference to Lynch. “It is time to hold HSBC fully accountable under the law for its disturbing conduct,” Merkley said. “While criminal charges are obviously a matter to be settled in the judicial system, I strongly encourage prosecutors to mount the strongest possible charges rather than going for another slap on the wrist.”

What gives? The same logic of targeting bank executives, not banks, applies with administrative action in government agencies. It was on Lynch’s watch that the critical decision of how far to take the HSBC decision was made. Once she had made the deal, it was almost certain that staff were pulled off the case and tasked to other matters. It’s not realistic to hold the current DoJ accountable for a decision made by Lynch years ago.

If the Democrats want to regain the trust and ground they lost in the 2014 midterm debacle, they need to recognize the problem is how Obama has governed and start demanding higher standards from the party. That means going into opposition when the situation warrants it. Elizabeth Warren gained stature by fighting the Administration on the so-called Cromnibus bill and on Antonio Weiss. The way to move the party is to be willing to stand against it when its position is demonstrably wrong, which sadly is way too often, and inflict costs. The objective is not to win in every case but to exert influence and make the leadership think twice before taking expedient actions.

But so far, the much-touted progressive wing seems willing to buck the Administration only on comparatively narrow issues and mid-level appointments. Most important, both parties are still in the dark as to where the facts lie with Lynch and HSBC. Perhaps she has a cogent defense, but a head in the sand approach is no way to deal with a position this important. The Democratic bank critics should grill Lynch and be prepared to withhold support if her answers are evasive or confirm the worst suspicions about her being willing to go easy on powerful corporate miscreants.

Counter Punch: Stomping Out Social Democracy

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A Slow-Motion Coup

Venezuela vs. a “Common Enemy”

by JOHN PILGER and MICHAEL ALBERT

Albert: Why would the U.S. want Venezuela’s government overthrown?

Pilger: There are straightforward principles and dynamics at work here. Washington wants to get rid of the Venezuelan government because it is independent of US designs for the region and because Venezuela has the greatest proven oil reserves in the world and uses its oil revenue to improve the quality of ordinary lives. Venezuela remains a source of inspiration for social reform in a continent ravaged by an historically rapacious US. An Oxfam report once famously described the Sandinista revolution in Nicaragua as ‘the threat of a good example’. That has been true in Venezuela since Hugo Chavez won his first election. The ‘threat’ of Venezuela is greater, of course, because it is not tiny and weak; it is rich and influential and regarded as such by China. The remarkable change in fortunes for millions of people in Latin America is at the heart of US hostility. The US has been the undeclared enemy of social progress in Latin America for two centuries. It doesn’t matter who has been in the White House: Barack Obama or Teddy Roosevelt; the US will not tolerate countries with governments and cultures that put the needs of their own people first and refuse to promote or succumb to US demands and pressures. A reformist social democracy with a capitalist base – such as Venezuela – is not excused by the rulers of the world. What is inexcusable is Venezuela’s political independence; only complete deference is acceptable. The ‘survival’ of Chavista Venezuela is a testament to the support of ordinary Venezuelans for their elected government – that was clear to me when I was last there.  Venezuela’s weakness is that the political ‘opposition’ — those I would call the ‘East Caracas Mob’ – represent powerful interests who have been allowed to retain critical economic power. Only when that power is diminished will Venezuela shake off the constant menace of foreign-backed, often criminal subversion. No society should have to deal with that, year in, year out.

Albert: What methods has the U.S. already used and would you anticipate their using to unseat the Bolivarians?

Pilger: There are the usual crop of quislings and spies; they come and go with their media theatre of fake revelations, but the principal enemy is the media. You may recall the Venezuelan admiral who was one of the coup-plotters against Chavez in 2002, boasting during his brief tenure in power, ‘Our secret weapon was the media’. The Venezuelan media, especially television, were active participants in that coup, lying that supporters of the government were firing into a crowd of protestors from a bridge. False images and headlines went around the world. The New York Times joined in, welcoming the overthrow of a democratic ‘anti-American’ government; it usually does. Something similar happened in Caracas last year when vicious right-wing mobs were lauded as ‘peaceful protestors’ who were being ‘repressed’. This was undoubtedly the start of a Washington-backed ‘colour revolution’ openly backed by the likes of the National Endowment for Democracy – a user-friendly CIA clone. It was uncannily like the coup that Washington successfully staged in Ukraine last year.  As in Kiev, in Venezuela the ‘peaceful protestors’ set fire to government buildings and deployed snipers and were lauded by western politicians and the western media. The strategy is almost certainly to push the Maduro government to the right and so alienate its popular base. Depicting the government as dictatorial and incompetent has long been an article of bad faith among journalists and broadcasters in Venezuela and in the US, the UK and Europe. One recent US ‘story’ was that of a ‘US scientist jailed for trying to help Venezuela build bombs’. The implication was that Venezuela was harbouring ‘nuclear terrorists’. In fact, the disgruntled nuclear physicist had no connection whatsoever with Venezuela.

All this is reminiscent of the unrelenting attacks on Chávez, each with that peculiar malice reserved for dissenters from the west’s ‘one true way’. In 2006, Britain’s Channel 4 News effectively accused the Venezuelan president of plotting to make nuclear weapons with Iran, an absurd fantasy. The  Washington correspondent, Jonathan Rugman, sneered at policies to eradicate poverty and presented Chávez as a sinister buffoon, while allowing Donald Rumsfeld, a war criminal, to liken Chavez to Hitler, unchallenged. The BBC is no different. Researchers at the University of the West of England in the UK studied the BBC’s systematic bias in reporting Venezuela over a ten-year period. They looked at 304 BBC reports and found that only three of these referred to any of the positive policies of the government. For the BBC, Venezuela’s democratic initiatives, human rights legislation, food programmes, healthcare initiatives and poverty reduction programmes did not exist. Mission Robinson, the greatest literacy programme in human history, received barely a passing mention. This virulent censorship by omission complements outright fabrications such as accusations that the Venezuelan government are a bunch of drug-dealers.  None of this is new; look at the way Cuba has been misrepresented – and assaulted – over the years. Reporters Without Borders has just issued its worldwide ranking of nations based on their claims to a free press. The US is ranked 49th, behind Malta, Niger, Burkino Faso and El Salvador.

Albert: Why might now be a prime time, internationally, for pushing toward a coup? If the primary problem is Venezuela being an example that could spread, is the emergence of a receptive audience for that example in Europe adding to the u.s. response?

Pilger: It’s important to understand that Washington is ruled by true extremists, once known inside the Beltway as ‘the crazies’. This has been true since before 9/11. A few are outright fascists. Asserting US dominance is their undisguised game and, as the events in Ukraine demonstrate, they are prepared to risk a nuclear war with Russia. These people should be the common enemy of all sane human beings. In Venezuela, they want a coup so that they can roll-back of some of the world’s most important social reforms – such as in Bolivia and Ecuador. They’ve already crushed the hopes of ordinary people in Honduras. The current conspiracy between the US and Saudi Arabia to lower the price of oil is meant to achieve something more spectacular in Venezuela, and Russia.

Albert: What do you think the best approach might be to warding off U.S. machinations, and those of domestic Venezuelan elites as well, for the Bolivarians?

Pilger: The majority people of Venezuela, and their government, need to tell the world the truth about the attacks on their country. There is a stirring across the world, and many people are listening. They don’t want perpetual instability, perpetual poverty, perpetual war, perpetual rule by the few. And they identify the principal enemy; look at the international polling surveys that ask which country presents the greatest danger to humanity. The majority of people overwhelmingly point to the US, and to its numerous campaigns of terror and subversion.

Albert: What do you think is the immediate responsibility of leftists outside Venezuela, and particularly in the U.S.

Pilger: That begs a question: who are these ‘leftists’? Are they the millions of liberal North Americans seduced by the specious rise of Obama and silenced by his criminalising of freedom of information and dissent? Are they those who believe what they are told by the New York Times, the Washington Post, the Guardian, the BBC? It’s an important question. ‘Leftist’ has never been a more disputed and misappropriated term. My sense is that people who live on the edge and struggle against US-backed forces in Latin America understood the true meaning of the word, just as they identify a common enemy.  If we share their principles, and a modicum of their courage, we should take direct action in our own countries, starting, I would suggest, with the propagandists in the media. Yes, it’s our responsibility, and it has never been more urgent.

Michael Albert interviewed John Pilger for the Latin American TV Network TeleSur.

 

Naked Capitalism on HSBC and Endemic Fraud

banksters

Bill Black: Criminal Tax Evader HSBC’s CEO Resorts to Bank Apologist Fable of the Virgin Crisis

Posted on February 12, 2015 by

Yves here. In the US, Sarbanes Oxley as supposed to put paid to the “I’m the CEO and I know nothing” defense, although it still rears its ugly head all too often here. But as Bill Black demonstrates with HSBC, it’s deployed shamelessly in the City.

By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly published with New Economic Perspectives

HSBC’s most recent scandal is the perfect holiday gift. Whatever genre of entertainment one favors – from blood diamonds to drug cartels to rollicking royals to sport stars HSBC was happy to aid the wealthiest stars of your genre to illegally evade their taxes. Taxes were once termed the price we paid for civilization, but they now represent the price the wealthy brag to each other about refusing to pay as they pillage civilization. Because the City of London “won” the “regulatory race to the bottom” it is the worst “vector” for the epidemic of sleaze led by our most elite bankers. Oh, sorry, I let reality intrude in that last sentence.

The “respectable” government people in the UK and the U.S. (and Ireland) insist that we are experiencing the first virgin crisis – consisting of hundreds of thousands of fraudulent transactions by bankers – in which not a single CEO of the largest banks knew that his bank was a massive criminal enterprise. The long-running (anti) morality play with an extended run in each of these three nations claims that we are experiencing the first “Virgin Crisis” conceived without sin in these bank C-Suites. In every case, the bank CEOs – paid like Croesus because they are financial geniuses and managerial wizards – has been bamboozled by the tiny folks in the banks’ “org charts.” Such a betrayal of the trust that the elite bank CEOs reposed in these unworthy junior officers and employees! The pain of the elite bank CEOs is palpable – having their reputation besmirched by their ungrateful and immoral lesser. We’ll put aside who it is that crafts the perverse incentives that created the City of London’s (and Wall Street’s) corrupt financial cultures for the same reason that the CEOs’ apologists put aside that unsettling question.

The latest installment from the UK comes in the testimony of Martin Wheatley, the chief executive of the Financial Conduct Authority (FCA) about HSBC’s latest scandal. Wheatley decried the “staggering” number of scandals the City of London’s banks have committed. Of course, “banks” can only commit scandals through “bankers,” so we all eagerly await which bank CEO will finally be prosecuted. As with the Rebbe’s response at the end of Fiddler on the Roof, we will all have to “wait somewhere else” for a real prosecutor to appear and redeem the promises to protect us from the unjust no matter how great their wealth and power.

Wheatley’s testimony began digging his own political grave.

He told MPs: “I think it’s quite clear that the number of scandals that we’ve seen in financial services, particularly in banks, has been staggering, and the latest allegations I think are equally scandalous.”

Mr Wheatley said he had not known about the specific latest claims about HSBC until they emerged in recent days, though the wider issue of its alleged misconduct had already been made public following leaks in 2007.

Wheatley’s shovel promptly dug deeper.

He said the FCA had not been handed details of the latest HSBC scandal by HM Revenue and Customs (HMRC).

‘I am not aware of a direct channel of information on this particular case,’ said Mr Wheatley, adding that he did not know whether HMRC had any obligation to do so.

To review the bidding, Wheatley says he doesn’t know anything beyond what he read in the newspapers, has no “channel” (as in English “channel”?), to the UK tax authorities even though any banking regulator has to work closely with the tax authorities, and doesn’t know whether his agency and the UK tax authorities even have a system of informing each other of vital information about bank frauds.
Run that last bit past us again … please. It’s 2015, and information documenting “scandalous” misconduct at what is generally called the world’s second largest bank that entered the public sphere in 2007 (over seven years ago) didn’t make it to the attention of the UK’s prudential banking regulator until yesterday. When it did make it to his attention, and knowing he was about to testify to members of parliament he did not find out the “details” of the latest scandal, call his counterpart leader of the UK tax authorities, or even discover whether there was a system for alerting each other to massive tax fraud.

Oh, and HSBC was beyond notorious for its “staggering” number (and magnitude) of frauds – several of which had to be called to the UK (non) regulators attention by the somnolent U.S. (non) regulators. In all those years of sickening HSBC scandals – and the publicity about the leak of the list of likely tax frauds – neither Wheatley nor his predecessors ever suffered from an attack of curiosity (or competence) and decided to find out HSBC’s role in aiding and abetting massive tax fraud by British elites. Indeed, when the Tories came to power they made the ex-HSBC leader a peer and put him in control of a ministry. Lest my readers think this a partisan statement, let me also emphasize that much (probably most) of the frauds occurred under Labor’s (neo-liberal) rule when Tony Blair and Gordon Brown made common cause with the City of London’s bankers against the peoples of the UK.
But wait, Wheatley is simply warming to the inevitable apologia for elite City of London bank CEOs by their (non) regulators.

He was asked whether the FCA has told the chief executives of the major banks to get all of their skeletons out of the cupboard now.

Mr Wheatley replied: “Yes. And we encourage the banks, and they have an obligation to come to us … and talk to us about skeletons early on. And we do have that conversation with the banks.”

But asked if he was confident that the FCA is at least peeking at banks’ skeletons that are not fully out of the cupboard, Mr Wheatley replied: “No, I’m not. Because, frankly, the CEOs don’t know about these skeletons in their organisations.”

Yes, you read that correctly. He doesn’t know the facts about the latest HSBC scandal, but “frankly” he knows already without benefit of facts or investigation that “the CEOs don’t know about these skeletons in their organisations.” If the CEOs never know about any of the “staggering” number of frauds and scandals – and in the case of HSBC we are talking about hundreds of thousands of felonious acts – then (1) might they be creating the system of “plausible deniability” by making sure they create the perverse incentive systems that will produce endemic fraud, (2) shouldn’t they have been fired years ago for incompetence, and (3) haven’t they proved that HSBC is too big not simply “to manage,” but too big for the CEO to prevent from becoming the world’s largest criminal enterprise?

Wheatley has said in the past that it was the compensation systems created by the top managers that created the perverse incentives that produced widespread fraud and abuse.

Martin Wheatley, the Managing Director of FSA described how “most of the incentive schemes we looked at were likely to drive people to mis-sell to meet targets and receive a bonus, and these risks were not being properly managed”.

Honest, competent bankers do not “manage” the “risks” of perverse incentives that lead to endemic fraud and abuse by bankers – they end the perverse “incentive schemes.” Indeed, they make sure they are never created.

Why does HSBC still exist? There is no more “creative destruction” possible than destroying HSBC as a criminal enterprise – ala Schumpeter. Instead, the lesson demonstrated every day by the UK and the City of London is that their financial “champion” is the sleaze of the global financial system – and they are proud to be home to the modern incarnation of BCCI (the Bank of Crooks and Criminals International). It’s what we call “revealed preferences” in the “econ” “business.” What level of depravity does HSBC have to commit before it is too much for Boris Johnson? Like an old drinker who scratches a line on his bottle of whiskey and says “so far, and no further” does Boris have any limit to the criminal conduct by banks and bankers he is willing to champion? Robert Bolt’s screenplay of A Man for All Seasons” contains a famous denunciation of Lord Norfolk’s ambition by his friend Thomas More that Boris and Wheatley should take to heart.

Is there no single sinew in the midst of this that serves no appetite of Norfolk’s but is just Norfolk? There is! Give that some exercise, my lord!

Aspiring to rule over the modern cesspool that is the City of London suggests a variant on Bolt’s most biting dismissal of those who let their ambition trump their integrity.

Why, Richard, it profits a man nothing to give his soul for the whole world . . . But for Wales!

Much of Wales is at least beautiful. “But for the City of London!” is waiting to inscribed on Boris’ tomb.

Banksters-get-away-with-murder

Common Dreams: Profiting from Poverty

The False Assumption: Everyone Wants to End Poverty

(Photo: κύριαsity/flickr/cc)

The debate about income inequality and poverty in America is generally carried out with the underlying assumption that everyone wants to end poverty, and there are well-meaning though different approaches to doing so.

But what if that’s not true? What if the assumption is false? Should we continue carrying on this corrupted debate?   Or should we look for other means to address the scourge of poverty in America?

Even before we examine the issue more deeply, it seems obvious on the surface that there should not be rampant poverty and homelessness in the wealthiest country in the history of the world that has the ingenuity to put a man on the moon, and computers in peoples’ laps.

Two recent reports – one by The New York Times and the other by the Economic Policy Institute – provide convincing evidence that, in fact, if income distribution trends would have remained as they were prior to 1979, the poverty rate in America would have fallen to 0 percent some 10 to 20 years ago.

So why didn’t that happen?

In a recent post on Common Dreams, writer Paul Buchheit argues that the nearly 1 in 2 Americans living in or near poverty are now being treated like expendable and disposable commodities. These are the people whom former presidential candidate Mitch Romney and other financial elites refer to as “the takers” not “the makers.”

If you are a member of the ruling financial elite in this country – and have very little or no contact with people outside of your class and believe that if they are living so poorly it must be their fault – why would you not advocate for disposing of these dregs and drags on your free-market, Machiavellian capitalist aspirations?

That’s not a rhetorical question; it actually seems to be happening.

New York Times columnist David Brooks provided the intellectual rational, such as it is, for the belief that poverty is caused by the poor and not by income inequality when he wrote that we should be focusing on the “interrelated social problems of the poor” rather than the well-documented, siphoning off of the nation’s wealth by the financial elite.

But Buchheit points out some of the ways that the wealthy not only scapegoat the poor in America, but carry out an intentional strategy to exploit them.

These strategies include depleting the wealth of the middle class and working poor. The economic data supports the notion that since the Great Recession in 2008 the amount of wealth owned by the top 1% of Americans has grown exponentially, while the rest of us have gotten less. According to a recent report by the Levy Economics Institute, it’s even worse than that: the richest 10% took 116 percent of the income gains between 2009-2012, with the top 1 percent taking 95 percent. Median wealth, on the other hand, dropped about 40 percent from 2007 to 2013.

Another tactic used to exploit people living on the brink is stripping away their income. According to the National Employment Law Project (NELP), nearly three-fifths of the jobs regained during the recovery (2009 to the present) have been low-wage jobs ($7.69 to $13.83 per hour) – the kind that made up just one-fifth of the jobs before the recession.

Real estate owners are also making housing of any kind unaffordable to most people. As the National Low Income Housing Coalition reports, “In no state can a full-time minimum wage worker afford a one-bedroom or a two-bedroom rental unit at Fair Market Rent.” They also point out that more than one-eighth of the nation’s supply of low-income housing has been permanently lost since 2001. A chilling result of this: more than 600,000 Americans were homeless on any given night in 2013.

What little disposable income a “taker” may have gets fleeced (ironically, taken away) by predatory pay day lenders, rental centers, and assorted fines and fees such as those that bolstered the local economy in Ferguson.

Next, of course, comes criminalization and imprisonment. While no one involved in creating and profiting from the financial crisis – that led to millions of lost jobs and foreclosed homes, and trillions of dollars in lost wealth – went to jail, more low-income Americans are being imprisoned than ever before. And with the privatization of prisons, inmates now often have to pay for their stays (even while awaiting trial).

Even when you ‘play by the rules’ and manage to get into affordable housing, as I did last year, they find ways to make it more difficult for you to maintain the secure foothold you need to work your way up.

A legislative provision in last year’s Farm Bill excludes people from receiving a portion of their SNAP assistance if they do not pay their own utilities separate from their rent. (I found this out when I demanded a fair hearing with Social Services regarding my SNAP benefits.) When you are in affordable housing—or receive Emergency Housing Assistance—you pay one-third of your income for rent, which helps cover the cost of utilities. But you are not billed directly for those utilities, so this new provision allows the government to cut off or significantly reduce your SNAP benefits.

Well, I could go on and on painting this picture of what it’s really like to be stuck in poverty in America, but here’s the main point: Do we go on debating this problem with good faith that both sides are determined to end this gruesome reality, or do we call people out for not only perpetuating the problem, but doing so in order to exploit and profit from it?

In previous articles for Talk Poverty, I’ve called for a paradigm shift—an intellectually violent revolution in which one conceptual world view is replaced by another. I don’t think we can have that intellectually violent revolution until we realize that all sides of the debate are not equally determined or committed to solving the problem of poverty in America. We have to admit this before we can possibly fix the problem.

What exactly do you want, 1%ers? How many more pounds of flesh will it take before you allow the rest of us in America to exist with a modicum of ease and dignity?

James Abro is the author of An Odyssey in the Great American Safety Net, a personal memoir of homelessness and recovery. He is the founder of Advocate for Economic Fairness and 32 Beach Productions.  He works locally with faith-based Homeless Outreach groups, and nationally as an advocate for Homeless Rights.  He is a regular contributor to Rebelle Society and TalkPoverty.