Freethought Nation

Congress: Trading stock on inside information?

"(CBS News) Washington, D.C. is a town that runs on inside information - but should our elected officials be able to use that information to pad their own pockets? As Steve Kroft reports, members of Congress and their aides have regular access to powerful political intelligence, and many have made well-timed stock market trades in the very industries they regulate. For now, the practice is perfectly legal, but some say it's time for the law to change."

"Martha Stewart went to jail for it. Hedge fund honcho Raj Rajaratnam was fined $92 million and will go to jail for years for it. But members of Congress can do the same thing -use non-public information to make stock trades — and there’s no law against it..."
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- CBS News Report: Are Congressional Insiders Above the Law?

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Washington has failed us again!

"The Congressional “Supercommittee” was supposed to come up with recommendations to help reduce our projected deficits but it failed miserably. (If you don’t know what the “Supercommittee” is, don’t feel bad – most Americans weren’t aware of its existence.)

America is now heading toward a fiscal meltdown that will make our current economic and employment challenges look like the good old days. And we could get there within two years, if we continue to do nothing. We must change course soon.

Once American voters understand, we’ll be able to pressure Congress to finally act. Please take 5 minutes to complete the Fiscal IQ Quiz, and encourage your friends, family and others to do the same (Facebook | Twitter). Together, we can fix our country’s finances and keep America great."

Researchers predict ‘global economic collapse’ by 2030

Next Great Depression? MIT researchers predict ‘global economic collapse’ by 2030

"A new study from researchers at Jay W. Forrester's institute at MIT says that the world could suffer from "global economic collapse" and "precipitous population decline" if people continue to consume the world's resources at the current pace.

Smithsonian Magazine writes that Australian physicist Graham Turner says "the world is on track for disaster" and that current evidence coincides with a famous, and in some quarters, infamous, academic report from 1972 entitled, "The Limits to Growth."

Produced for a group called The Club of Rome, the study's researchers created a computing model to forecast different scenarios based on the current models of population growth and global resource consumption. The study also took into account different levels of agricultural productivity, birth control and environmental protection efforts. Twelve million copies of the report were produced and distributed in 37 different languages.

Most of the computer scenarios found population and economic growth continuing at a steady rate until about 2030. But without "drastic measures for environmental protection," the scenarios predict the likelihood of a population and economic crash.

However, the study said "unlimited economic growth" is still possible if world governments enact policies and invest in green technologies that help limit the expansion of our ecological footprint.

The Smithsonian notes that several experts strongly objected to "The Limit of Growth's" findings, including the late Yale economist Henry Wallich, who for 12 years served as a governor of the Federal Research Board and was its chief international economics expert. At the time, Wallich said attempting to regulate economic growth would be equal to "consigning billions to permanent poverty."

Turner says that perhaps the most startling find from the study is that the results of the computer scenarios were nearly identical to those predicted in similar computer scenarios used as the basis for "The Limits to Growth."

"There is a very clear warning bell being rung here," Turner said. "We are not on a sustainable trajectory."

Plutocracy, Paralysis, Perplexity by Paul Krugman

"Before the Great Recession, I would sometimes give public lectures in which I would talk about rising inequality, making the point that the concentration of income at the top had reached levels not seen since 1929. Often, someone in the audience would ask whether this meant that another depression was imminent.

Well, whaddya know?

Did the rise of the 1 percent (or, better yet, the 0.01 percent) cause the Lesser Depression we’re now living through? It probably contributed. But the more important point is that inequality is a major reason the economy is still so depressed and unemployment so high. For we have responded to crisis with a mix of paralysis and confusion — both of which have a lot to do with the distorting effects of great wealth on our society.

Put it this way: If something like the financial crisis of 2008 had occurred in, say, 1971 — the year Richard Nixon declared that “I am now a Keynesian in economic policy” — Washington would probably have responded fairly effectively. There would have been a broad bipartisan consensus in favor of strong action, and there would also have been wide agreement about what kind of action was needed.

But that was then. Today, Washington is marked by a combination of bitter partisanship and intellectual confusion — and both are, I would argue, largely the result of extreme income inequality.

On partisanship: The Congressional scholars Thomas Mann and Norman Ornstein have been making waves with a new book acknowledging a truth that, until now, was unmentionable in polite circles. They say our political dysfunction is largely because of the transformation of the Republican Party into an extremist force that is “dismissive of the legitimacy of its political opposition.” You can’t get cooperation to serve the national interest when one side of the divide sees no distinction between the national interest and its own partisan triumph.

So how did that happen? For the past century, political polarization has closely tracked income inequality, and there’s every reason to believe that the relationship is causal. Specifically, money buys power, and the increasing wealth of a tiny minority has effectively bought the allegiance of one of our two major political parties, in the process destroying any prospect for cooperation.

And the takeover of half our political spectrum by the 0.01 percent is, I’d argue, also responsible for the degradation of our economic discourse, which has made any sensible discussion of what we should be doing impossible.

Disputes in economics used to be bounded by a shared understanding of the evidence, creating a broad range of agreement about economic policy. To take the most prominent example, Milton Friedman may have opposed fiscal activism, but he very much supported monetary activism to fight deep economic slumps, to an extent that would have put him well to the left of center in many current debates.

Now, however, the Republican Party is dominated by doctrines formerly on the political fringe. Friedman called for monetary flexibility; today, much of the G.O.P. is fanatically devoted to the gold standard. N. Gregory Mankiw of Harvard University, a Romney economic adviser, once dismissed those claiming that tax cuts pay for themselves as “charlatans and cranks”; today, that notion is very close to being official Republican doctrine.

As it happens, these doctrines have overwhelmingly failed in practice. For example, conservative goldbugs have been predicting vast inflation and soaring interest rates for three years, and have been wrong every step of the way. But this failure has done nothing to dent their influence on a party that, as Mr. Mann and Mr. Ornstein note, is “unpersuaded by conventional understanding of facts, evidence, and science.”

And why is the G.O.P. so devoted to these doctrines regardless of facts and evidence? It surely has a lot to do with the fact that billionaires have always loved the doctrines in question, which offer a rationale for policies that serve their interests. Indeed, support from billionaires has always been the main thing keeping those charlatans and cranks in business. And now the same people effectively own a whole political party.

Which brings us to the question of what it will take to end this depression we’re in.

Many pundits assert that the U.S. economy has big structural problems that will prevent any quick recovery. All the evidence, however, points to a simple lack of demand, which could and should be cured very quickly through a combination of fiscal and monetary stimulus.

No, the real structural problem is in our political system, which has been warped and paralyzed by the power of a small, wealthy minority. And the key to economic recovery lies in finding a way to get past that minority’s malign influence."

Wall Street's Arrogance Led To Financial Collapse, Docs Show

Lehman Docs Show Wall Street Arrogance Led To Financial Collapse

"If one wants to understand the full complicity of Wall Street in the Great Recession, look no further than the voluminous package of pre-collapse Lehman Brothers documents that have been made available by the law firm Jenner & Block LLP, which has acted as the coroner in the Lehman post-mortem.

Most important, the cache dispels the myth that Dick Fuld, chief executive officer of Lehman Brothers Holdings Inc., and his close associates were unaware of the risks their business faced in 2007 and 2008. That would be bad enough, but the more devastating reality is that Fuld and his sycophants were warned repeatedly but were blinded by their hubris.

The records confirm, yet again, that the “forces-out-of- our-control” argument we hear from Wall Street leaders is bunk. It is the ill-advised behavior of one banker after another, day in and day out, that leads to the sort of devastating financial crisis we are only now emerging from.

For instance, at a Lehman board meeting in September 2007, according to a copy of the presentation in the data cache, Lehman executives presented a clear summary of the brewing crisis. “The initial tremors were felt at the end of 2006,” the board was told, “when the poor loan performance of sub- prime borrowers began to be a cause for concern in the marketplace. This was evidenced by a gradual spread widening in the asset backed index.” The presentation continued: “The market continued to widen as it became apparent that the performance problems in mortgage loans was not going to abate and was no longer limited to the sub-prime market but also affecting the Alt-A product.”

Read About How Wall Street’s Legal Magic Ends an American Right

Dumping Assets

Then the board heard about the problems at two Bear Stearns Asset Management hedge funds that “ran out of liquidity” in June and July 2007 and were forced to shut down, leading to other hedge funds dumping assets into the market “adding additional stress to the market.” By August 2007, the commercial paper market was “facing challenging conditions, with very little liquidity” and “funding for almost any type of mortgage or ABS” -- asset-backed security -- “product dried up.” You can’t say the top Lehman management didn’t understand what was happening in the market.

So did other firms: At Goldman Sachs Group Inc. (GS), these “initial tremors” in December 2006 were sufficient to get the firm to make a huge proprietary bet -- referred internally at Goldman as the “Big Short” -- that paid off big-time in 2007 and helped to put the firm in a position to weather the financial crisis a year later.

At Lehman, though, it was business as usual. Management chose to ignore the rising concerns. By Labor Day weekend 2007, Lehman, like Bear Stearns and Citigroup, had been in talks with Citic Group, the leading Chinese investment bank, which wanted to make an investment in a Wall Street firm, a potential lifeline in a crisis. Lehman’s top executives -- Fuld and David Goldfarb, the firm’s chief financial officer -- weren’t interested, at least on the terms that Citic was proposing. If Lehman were to do a deal with Citic, Goldfarb wrote Fuld and others in an e-mail, “This will signal a major sign (which obviously isn’t true and will feed into rimors, etc) and put us in a category of those who needed an infusion to help them out of this market mess.”

Fuld responded with his usual misguided bravado: “Sounds to me like another non-starter. If it’s just about price [and] who is the right partner then tell them NFI.” Goldfarb couldn’t resist piling on. “Agreed 1000 percent,” he wrote back to Fuld. “How do you spell stupidity in Chinese!!!”

Read About How Rules For Bank Capital Are Still Broken After Four Years

Will and Skill

Then the conversation descended into a pathetic display of macho arrogance. “What happened,” Fuld asked Goldfarb, “u didn’t like my sumdum spelling?” Responded Goldfarb, “I love it, better said then I could have. I think Mizuho is the best option for strategic partner. Any potential investor that would consider BS” -- Bear Stearns -- “in the same breath as LB should go fungoo themselves!!!” Fuld replied, “I agree we need some help -- but the Bros always wins!!” Goldfarb agreed. “Absolutely, will and skill always win, and that be us!!!!” Concluded Fuld: “Got it so do u.”

Fuld was well-paid for these insights. Between 2000 and 2007, according to various documents released as part of Fuld’s testimony before Congress, he took out of Lehman some $500 million in cash.

The Jenner & Block trove shows that instead of seeking the capital they so desperately needed, Fuld and Goldfarb believed Lehman was an impenetrable fortress. “During the last downturn” -- 2001-02 -- “the firm outperformed its competitors and established a platform for further growth,” Lehman management told the board in January 2008. “The firm pursued a counter-cyclical strategy, investing in talent while its competitors were in retrenchment mode” and then outperformed the peer group.

The clear message: Lehman would use a similar approach through the 2008 downturn. At the board meeting in January, Lehman management explained that while other Wall Street firms were raising “significant capital” in the “past three months,” for Lehman “aggressive capital raising is not necessary” because the firm “remains strongly capitalized” thanks to capital “generated by earnings.”

Knowing that Lehman would be belly up by the end of September 2008, reading these e-mails and documents is cringe- inducing. Unfortunately, given the lack of leadership we still see on much of Wall Street, they will hardly be the last of their kind."

(William D. Cohan, a former investment banker and the author of “Money and Power: How Goldman Sachs Came to Rule the World,” is a Bloomberg View columnist. The opinions expressed are his own.)

http://www.bloomberg.com/news/2012-05-0 ... -fall.html

How Wall Street Killed Financial Reform By Matt Taibbi

It's bad enough that the banks strangled the Dodd-Frank law. Even worse is the way they did it - with a big assist Congress and the White House.

"Two years ago, when he signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, President Barack Obama bragged that he'd dealt a crushing blow to the extravagant financial corruption that had caused the global economic crash in 2008. "These reforms represent the strongest consumer financial protections in history," the president told an adoring crowd in downtown D.C. on July 21st, 2010. "In history."

This was supposed to be the big one. At 2,300 pages, the new law ostensibly rewrote the rules for Wall Street. It was going to put an end to predatory lending in the mortgage markets, crack down on hidden fees and penalties in credit contracts, and create a powerful new Consumer Financial Protection Bureau to safeguard ordinary consumers. Big banks would be banned from gambling with taxpayer money, and a new set of rules would limit speculators from making the kind of crazy-ass bets that cause wild spikes in the price of food and energy. There would be no more AIGs, and the world would never again face a financial apocalypse when a bank like Lehman Brothers went bankrupt.

Most importantly, even if any of that fiendish crap ever did happen again, Dodd-Frank guaranteed we wouldn't be expected to pay for it. "The American people will never again be asked to foot the bill for Wall Street's mistakes," Obama promised. "There will be no more taxpayer-funded bailouts. Period."

Two years later, Dodd-Frank is groaning on its deathbed. The giant reform bill turned out to be like the fish reeled in by Hemingway's Old Man – no sooner caught than set upon by sharks that strip it to nothing long before it ever reaches the shore. In a furious below-the-radar effort at gutting the law – roundly despised by Washington's Wall Street paymasters – a troop of water-carrying Eric Cantor Republicans are speeding nine separate bills through the House, all designed to roll back the few genuinely toothy portions left in Dodd-Frank. With the Quislingian covert assistance of Democrats, both in Congress and in the White House, those bills could pass through the House and the Senate with little or no debate, with simple floor votes – by a process usually reserved for things like the renaming of post offices or a nonbinding resolution celebrating Amelia Earhart's birthday......"