The Reasoned Review

I know I’m somewhat late to the party on this one, but I wanted to point out to anyone who wasn’t aware that senior members of the Securities and Exchange Commission, our main regulatory body, watched hours of pornography per day, while on the job. This peak porn usage occurred during 2007-2008, at the height of our banks’ financial fraud.

From ComputerWorld, of all places:

Seventeen investigations involved senior SEC staffers earning between $100,000 and $222,000 annually. In many cases, the Kotz’s office obtained on-the-record admissions from the employees involved, though the report does not say how, or even whether, the employees were disciplined.

Kotz’s report lists several instances where SEC employees spent several hours daily on porn. One such case involved a senior attorney at the SEC’s Washington headquarters who sometimes spent eight hours a day surfing pornographic sites and downloading explicit images. The attorney apparently downloaded so much porn that he filled up all the available space on his government-issued computer. He then downloaded more images onto personal CDs and DVDs, which he stored in boxes in his office.

Enjoy the rest of your day.

Well, the big Goldman Sachs hearing just wrapped up 10 hours of grueling testimony, and I’m still reeling from the stupendous prevarications their executives offered. The financial bloggers were out in full form today with some great live-blogs here, here and here. I’m sure I’ll have more to say about this as the hearings progress, and I’d love to see how Goldman will justify its fraudulent deals with AIG once the Senate gets around to asking about them; but until then, a couple comments:

1) I really have to hand it to Sen. Carl Levin for his rigorous and adversarial line of questioning. Watching him tear these executives apart for knowingly engaging in outright fraud is gratifying, though of course some jail time for these executives would be even more so. Watch this video for the money shot (as it were).

2) I was really astounded by the total lack of contrition these executives showed. They defrauded investors to the tune of $500 million (at least) by selling them bonds which they knew were worthless and then betting against those bonds. The basic refrain from all these executives, particularly Mr. Sparks, was that “these bonds were traded on the open market and at market values” – but of course that’s an entirely spurious argument because Goldman was withholding valuable information from their clients (that the bonds were worthless). Amazingly, the Goldman executives don’t seem to think they were doing anything wrong! Fraud is totally acceptable in their world, just so long as it makes them money. Just don’t buy a used car from them – they’d probably sell you a death-trap and then take out car insurance and life insurance on you.

Before I get too gushy on Senator Levin, I should hasten to remind my readers that he voted for the Financial Services Modernization Act back in 1999 – the same act that allowed Goldman Sachs to trade unregulated (“over-the-counter”) derivatives. Without the FSMA, the sort of fraud Goldman engaged in would have been impossible, and any attempt to prevent this sort of behavior in the future is meaningless without repealing the FSMA. Needless to say such a repeal is not even being discussed.

Watching the hearings today gave me a strange, other-worldly feeling. Some of the same senators who took major campaign donations from Goldman Sachs were sitting there and grilling these executives.  A cynical observer might have gotten the impression that this was all a bit of political theater designed to soothe the public’s anger, which by all accounts is badly in need of catharsis. Certainly when one remembers that the very behavior for which Goldman is now being indicted was standard practice for nearly all of the major banks, it seems strange that the Senate should decide to focus all of its ire on Goldman. But then again, they are, after all, the most visible symbol of Wall Street insanity.

Hats off to ProPublica for their phenomenal follow-ups to the SEC case against Goldman Sachs, and for revealing that what might have been a genuine move against corruption now merely seems like a politically motivated slap on the wrist, a show-trial, essentially, where big bad Goldman Sachs gets forced to pay a pittance of a fine and the rest of their compatriots who indulged in the exact same practices go off scot-free. Let’s not forget that they paid only 1% of their 2009 profits in taxes, so whatever restitution the SEC squeezes out of them won’t begin to cover their debt to the US Government.

For those of you who haven’t been following the byzantine hearings regarding the Goldman case, with their alphabet soup of acronyms and stern avocations from our media that these are “complex financial instruments” we’re dealing with – well, who can blame you? But the gist of the case is relatively easy to follow, and while Goldman may have been a particularly egregious offender, almost every investment bank bigger than a mom-and-pop outfit traded in Collateralized Debt Obligations (CDOs), the “complex instruments” that lie at the center of this case. Earlier this month ProPublica ran an extensive look at Magnetar, a hedge fund that traded exclusively in CDOs, and just a few days ago it revealed that Merril Lynch engaged in identical practices to the ones that got Goldman Sachs sued by the Securities and Exchange Commission.

CDOs are basically a bet that a given asset will perform well or perform poorly. In the Goldman Sachs case, Goldman put together securities (assets) that it knew would fail (the SEC hopes to show that a Goldman trader specifically picked the components of the securities for their especial toxicity), sold those securities to gullible investors, then secretly took out a collateralized debt obligation against that same security, betting, in essence, that its value would go to zero, which of course they knew would happen because they picked it specifically to do so. When, sure enough, the security did become worthless, Goldman hit paydirt.

This is called fraud, and it’s a pretty grievous sin in the world of finance (at least it was, once upon a time). So on one hand, it’s absolutely just for Goldman Sachs to come under the SEC’s gun, get its reputation tarnished a bit, and, with luck, get a few of its executives fired, where they can live the rest of their days in their Park Avenue penthouses, counting their ill-gotten gains. But on the other hand, what is the use of this symbolic prosecution if it doesn’t engender a shift in practices from the financial community?

The case of John Paulson and Goldman Sachs identified in the SEC indictment was neither the biggest nor the most blatant case of securities fraud during the run-up to the crisis. For the SEC to suddenly regain its regulatory muscle, and for them to focus on this one case to the exclusion of all else stinks of politics. President Obama’s approval ratings are dropping fast, and prior to this there had been no prosecutions of financial fraud at all. I could easily see President Obama instructing the SEC to move forward on the Goldman case so he could have something to show by November, especially since Goldman is the most visible and most reviled of all the Wall Street slimeball firms.

Finally, this case brings to light just how important the financial reform being discussed in the Senate is to prevent future such fraud. Currently most of the discussion seems to center around the politically popular “consumer protection”, but while overdraft fees and adjustable rate mortgages were pernicious side effects of the crisis, the real engine behind the financial meltdown was the widespread sale of over-the-counter (unregulated) derivatives like the CDOs mentioned in this case.

“Financial Reform” means nothing if not the outright ban of derivatives trading – or failing that, the erection of a structured derivatives exchange where fraudulent trades like the Goldman Sachs deal would be visible to the public and to investors. Without that, we’re literally back where we started.

I am pleased.

Via Bloomberg, it looks like the Treasury Secretary has backed off on his previous stance that the derivatives market (which got us into this mess) does not need to be regulated. Today he says:

Geithner said the over-the-counter derivatives market should be subject to “substantial supervision and regulation,” while omitting support for the provision that would force banks like JPMorgan Chase & Co. and Bank of America Corp. to wall off trading operations from their commercial banks.

The Obama administration requires that all over-the- counter derivatives dealers and “major market participants” be subject to “conservative capital requirements, conservative margin requirements and strong business conduct standards,” Geithner said.

There is some very tricky parsing of words here that will probably escape most peoples’ attention.

One of the major factors in the credit freeze of 2008 was the widespread proliferation of so-called “over-the-counter” derivatives, which are debt obligations that were traded secretly between banks. Unlike the mortgage industry or the credit card industry, derivatives were largely unregulated and are not traded on an exchange. Thus, banks can package and sell derivatives to one another “over the counter” – that is, without any public record of the transaction having taken place. This became a serious concern in 2008 when Lehman Bros. failed; because the derivatives market was undisclosed, no bank knew how many assets the other banks had, or if the assets they did have were worthless. As such, lending between banks froze overnight – no one knew who was solvent and who was underwater.

Many have taken this as evidence that OTC derivatives are inherently dangerous and should be banned. This could be done by outlawing all asset-backed derivatives (like the mortgage securities that got us into this mess to begin with), or by simply mandating that derivatives be traded on an open, transparent exchange. Thus, they would cease to be “over the counter”. Geithner’s recent comments, while they sound impressive, make a derivatives exchange highly unlikely, and actually point to an extension of the policies that caused the 2008 crisis.

“Substantial supervision and regulation” can fail. While the OTC derivatives had been the subject of a massive push for deregulation, the problem was that even if there were regulators to look at the books, the instruments had become too complex for them to decipher. Simply adding another layer of regulation won’t change the underlying problem, which is that these instruments are basically impervious to regulation unless traded on a transparent exchange, something Mr. Geithner apparently does not support.

Similarly, the “provision that would force banks to wall off trading operations from their commercial banks” refers to the infamous Glass-Stegall Act of 1934, the repeal of which in 1999  Nobel Laureate Joseph Stiglitz gives an “especial role” in causing the 2008 crisis. I’ve written on Glass-Stegall in the past, and I don’t wish to repeat myself, but I should stress that so long as Lawrence Summers, the architect of the bill that repealed Glass-Stegall (and thus, a major architect of the crisis) stays in place, there is little hope of reducing the size of our Too-Big-To-Fails. Needless to say, Mr. Geithner is not even considering reinstating Glass-Stegall.

So basically, Timothy Geithner’s big plan to rein-in derivatives trading gives only a minor face-lift to the status quo. He’ll slap on a few regulatory outfits and say he’s done the job. Meanwhile, our Too-Big-To-Fail banks are getting even bigger, over-the-counter derivatives are still legal, and there won’t be any meaningful punitive action towards the banks that caused this crisis. The severe risks to the system remain.

The New York Times has an excellent article on former finance legislators now lobbying their old congressional buddies to make favorable legislation for the financial sector, a practice known affectionately as the “revolving door”. They cite enough examples to show that this sort of thing is a pretty widespread, and they focus on the particularly egregious case of an aide to Rep. Bernie Sanders who drafted financial legislation last summer and is now lobbying for a major bank.

I highly recommend this article

The recent WaMU collapse hearings have brought out some juicy revelations, all of which detail practices widespread among all mortgage lenders. I highly recommend Zach Carter’s Huffington Post piece for its explanatory power:

There are two types of financial outrages: acts that are outrageously illegal, and acts that are, outrageously, legal. Yesterday’s Senate hearing on the rise and fall of Washington Mutual was a rare examination of the former outrage, documenting the pervasive practice of fraud at every level of the now-defunct bank’s business.

All of Washington Mutual’s sketchy practices can be traced back to rampant fraud in its mortgage lending offices. The company repeatedly performed internal audits of its lending practices, and discovered multiple times that enormous proportions of the loans it was issuing were based on fraudulent documents. At some offices, the fraud rate was on new mortgages over 70%, and at yesterday’s hearing, the company’s former Chief Risk Officer James Vanasek described its mortgage fraud as “systemic.”

When most people think of mortgage fraud, they think of a clever borrower conning an unwitting banker into extending him a loan he cannot afford. But this isn’t really how fraud usually works in the mortgage business. According to the FBI, 80% of mortgage fraud is committed by the lender, so it shouldn’t be surprising that WaMu’s internal audits concluded that its widespread fraud was being “willfully” perpetrated by its own employees. The company also engaged in textbook predatory lending across all of its mortgage lending activities–issuing loans based on the value of the property, while ignoring the borrower’s ability to repay the loan.

These findings alone are pretty bad stuff in the world of white-collar crime. For several years, WaMu was engaged in fraudulent lending, WaMu managers knew it was engaged in fraudulent lending, and didn’t stop it. The company was setting up thousands, if not millions of borrowers for foreclosure, while booking illusory short-term profits and paying out giant bonuses for its employees and executives. During the housing boom, WaMu Chairman and CEO Kerry Killinger took home between $11 million and $20 million every single year, much of it “earned” on outright fraud.

ProPublica with a fantastic investigation:

Phoenix allegedly had broken the law by tying recruiters’ pay to enrollment numbers [2], U.S. Department of Education investigators found, creating pressure to sign up unqualified students.

In the years since, Phoenix cemented its stature as the nation’s largest for-profit school and the single biggest recipient of federal student aid. But some of the school’s recruiters have continued to use high-pressure, deceptive tactics, according to a dozen current and former students and two former recruiters who spoke to ProPublica and Marketplace [3] as part of a joint investigation.

The students said Phoenix counselors misled them about whether credits would transfer to other schools, pretended to befriend them and lied about financial aid. The recruiters said they were told to rope students in with phony claims that classes were filling fast, or by suggesting that federal grants would cover costs, even if that was uncertain.

It’s the old trifecta of deception: under-estimate the cost of tuition, over-estimate the size of available grants, and promise the credits will be transferable (even when they’re not). These poor kids are getting taken for a ride!

Chris Hedges in Alternet with one of the most well-written dissections of our modern politics I’ve ever read:

Democracy, a system ideally designed to challenge the status quo, has been corrupted and tamed to slavishly serve the status quo. We have undergone, as John Ralston Saul writes, a coup d’état in slow motion. And the coup is over. They won. We lost. The abject failure of activists to push corporate, industrialized states toward serious environmental reform, to thwart imperial adventurism or to build a humane policy toward the masses of the world’s poor stems from an inability to recognize the new realities of power. The paradigm of power has irrevocably altered and so must the paradigm of resistance alter.

Too many resistance movements continue to buy into the facade of electoral politics, parliaments, constitutions, bills of rights, lobbying and the appearance of a rational economy. The levers of power have become so contaminated that the needs and voices of citizens have become irrelevant. The election of Barack Obama was yet another triumph of propaganda over substance and a skillful manipulation and betrayal of the public by the mass media. We mistook style and ethnicity – an advertising tactic pioneered by the United Colors of Benetton and Calvin Klein – for progressive politics and genuine change. We confused how we were made to feel with knowledge. But the goal, as with all brands, was to make passive consumers mistake a brand for an experience. Obama, now a global celebrity, is a brand. He had almost no experience besides two years in the senate, lacked any moral core and was sold as all things to all people. The Obama campaign was named Advertising Age’s marketer of the year for 2008 and edged out runners-up Apple and Zappos.com. Take it from the professionals. Brand Obama is a marketer’s dream. President Obama does one thing and Brand Obama gets you to believe another. This is the essence of successful advertising. You buy or do what the advertisers want because of how they can make you feel.

…
We can march in Copenhagen. We can join Bill McKibben’s worldwide day of climate protests. We can compost in our backyards and hang our laundry out to dry. We can write letters to our elected officials and vote for Barack Obama, but the power elite is impervious to the charade of democratic participation. Power is in the hands of moral and intellectual trolls who are ruthlessly creating a system of neo-feudalism and killing the ecosystem that sustains the human species. And appealing to their better nature, or seeking to influence the internal levers of power, will no longer work.

…

The absurd idea that the marketplace alone should determine economic and political constructs led industrial nations to sacrifice other areas of human importance – from working conditions, to taxation, to child labor, to hunger, to health and pollution – on the altar of free trade. It left the world’s poor worse off and the United States with the largest deficits – which can never be repaid – in human history. The massive bailouts, stimulus packages, giveaways and short-term debt, along with imperial wars we can no longer afford, will leave the United States struggling to finance nearly $5 trillion in debt this year. This will require Washington to auction off about $96 billion in debt a week. Once China and the oil-rich states walk away from our debt, which one day has to happen, the Federal Reserve will become the buyer of last resort. The Fed has printed perhaps as much as two trillion new dollars in the last two years, and buying this much new debt will see it, in effect, print trillions more. This is when inflation, and most likely hyperinflation, will turn the dollar into junk. And at that point the entire system breaks down.

…

All traditional standards and beliefs are shattered in a severe economic crisis. The moral order is turned upside down. The honest and industrious are wiped out while the gangsters, profiteers and speculators walk away with millions. The elite will retreat, as Naomi Klein has written in The Shock Doctrine, into gated communities where they will have access to services, food, amenities and security denied to the rest of us. We will begin a period in human history when there will be only masters and serfs. The corporate forces, which will seek to make an alliance with the radical Christian right and other extremists, will use fear, chaos, the rage at the ruling elites and the specter of left-wing dissent and terrorism to impose draconian controls to ruthlessly extinguish opposition movements. And while they do it, they will be waving the American flag, chanting patriotic slogans, promising law and order and clutching the Christian cross. Totalitarianism, George Orwell pointed out, is not so much an age of faith but an age of schizophrenia. “A society becomes totalitarian when its structure becomes flagrantly artificial,” Orwell wrote. “That is when its ruling class has lost its function but succeeds in clinging to power by force or fraud.” Our elites have used fraud. Force is all they have left.

You may remember the so-called anthrax attacks in 2001, which were widely cited as a reason to attack Iraq. The lasting image in the run-up to the war is of Colin Powell sitting in front of the UN, shaking a vial of anthrax and saying “We know this came from Saddam”. Of course it didn’t. And for years afterward, no one quite knew who the mysterious “anthrax attacker” was.

Then, in 2008, the FBI came out with its decision that the anthrax attacker was one Bruce Ivins, an apparently disgruntled Army biodefense expert who committed suicide just days before the justice department planned to formally charge him. Since Mr. Ivins was dead, the FBI saw no need to gather any additional evidence or reveal what evidence they had already gathered. Case Closed!

Not quite. Glenn Greenwald and several other bloggers have cast deep aspersions on the FBI’s investigation, stopping just short of calling it a fraud. In his sublime article, Greenwald noted several unresolved questions in the FBI’s investigation – questions which, it would now seem, will never be solved. Also see this, this, and this.

Greenwald isn’t the only one with questions. Last Thursday, Rep. Steve Holt called on Congress to begin a new investigation. As he wrote in a letter to Congress:

To date, there has been no comprehensive examination of the FBI’s conduct in this investigation, and a number of important questions remain unanswered.

We don’t know why the FBI jumped so quickly to the conclusion that the source of the material used in the attacks could only have come from a domestic lab, in this case, Ft. Dietrick. We don’t know why they focused for so long, so intently, and so mistakenly on Dr. Hatfill.

We don’t know whether the FBI’s assertions about Dr. Ivins’ activities and behavior are accurate. We don’t know if the FBI’s explanation for the presence of silica in the anthrax spores is truly scientifically valid. We don’t know whether scientists at other government and private labs who assisted the FBI in the investigation actually concur with the FBI’s investigative findings and conclusions.

We don’t know whether the FBI, the Department of Homeland Security, the Department of Health and Human Services, and the U.S. Postal Service have learned the right lessons from these attacks and have implemented measures to prevent or mitigate future such bioterror attacks.

You can read the full letter here. Rep. Holt joins Senator Pat Leahy, Sen. Chuck Grassley, Sen. Arlen Specter, and several others in expressing deep skepticism on the FBI’s narrative. What would cause all these senators and representatives, from both sides of the aisle, to question the FBI’s findings?

And on top of it all, President Obama has threatened to veto an intelligence budget bill (a move which I would normally be all for), because it carries a provision to investigate the FBI’s handling of the anthrax case. Why would he do this?

Well, according to him, an investigation “would undermine public confidence in a Federal Bureau of Investigation probe of the attacks and unfairly cast doubt on its conclusions,”. To tell you the truth, that statement did far more to undermine my confidence in the FBI than any investigation would have.

This whole thing stinks of a cover-up. At this point I think it extremely likely that the anthrax scare was deliberately put on by the Bush Administration (at the cost of five lives) in order to drum up support for the Iraq War. It was just too convenient! Think of how many speeches in which President Bush or one of his flunkies accused Saddam of manufacturing anthrax. The only thing that made those threats credible was the anthrax attack that already happened in the US.

So the FBI, under immense public pressure to find someone responsible decides upon Bruce Ivins. But they know if the case went to court, their fraud would be exposed. So they “arrange” for him to commit suicide, thus precluding the possibility of a trial but still closing the case once and for all.

Then President Obama uses his muscle to make sure the case stays closed, by threatening his first veto over the matter. It’s all too easy.

Also, see this. Dr. Meryl Nass is an expert in the subject, and was intimately involved with Bruce Ivins’s research. She rounds up 16 major holes in the FBI’s case against Bruce Ivins, including the fact that no autopsy was performed on Ivin’s body (so we’re supposed to just take their word that it was a suicide).

Remember, without these anthrax attacks, President Bush would have had a far more difficult time convincing the country to go to war with Iraq, and many think he could not have done it. The FBI’s case is full of holes and begs for a more thorough investigation. Ask yourself: why is President Obama so intent on letting sleeping dogs lie? What does he think this investigation will reveal? Why is he willing to veto a major intelligence bill to make sure that Bruce Ivins remains the sole anthrax perpetrator?

The Times with a startling report:

Some of the cases involve people who are suspected of having mailed tens of thousands of dollars to themselves from Iraq, or of having stuffed the money into duffel bags and suitcases when leaving the country, the federal investigators said. In other cases, millions of dollars were moved through wire transfers. Suspects then used cash to buy BMWs, Humvees and expensive jewelry, or to pay off enormous casino debts.

Some suspects also tried to conceal foreign bank accounts in Ghana, Switzerland, the Netherlands and Britain, the investigators said, while in other cases, cash was simply found stacked in home safes.

So the taxpayer paid to invade Iraq, then the taxpayer paid to rebuild Iraq. But really what the taxpayer was doing was paying corrupt “contractors” to shove money into duffel bags and make off into the sunset. Hooray for “deregulation!”

The Times reminds us of an unsavory after-effect of the Supreme Court’s recent Citizens United v. FEC case. Under the decision, corporations no longer have to disclose to whom they donate or how much, effectively destroying organizations like Opensecrets.org that attempt to track the influence of money in politics. This is terrible news.

Experts say the ruling, along with a pair of earlier Supreme Court cases, makes it possible for corporations and unions to donate anonymously to nonprofit civic leagues and trade associations. The groups can then use the money to finance the types of political advertisements that were at the heart of last month’s ruling.

Democratic Congressional leaders called the loophole dangerous, and they have proposed legislation that would require nonprofit groups to identify publicly the sources of financing for their political advertisements.

A little part of me dies when I read stories like this. I mean, I know Wall Street “owns” Congress, as Rep. Dick Durbin was kind enough to inform us, and so the chances of any meaningful punitive action towards them are virtually nil, but still these developments never fail to outrage.

And through it all, one cannot help but wonder: What exactly do these bankers do to deserve their multi-million dollar salaries? People tell me they “work hard”, sure, but then so does a ditch-digger outside Kuala Lumpur, and no one pays him a million dollars. It isn’t even as though their work helps anyone, or at least not objectively. I’ve heard all manner of explanations that “the economy stops without Wall Street” – as though it hadn’t done that with Wall Street’s help.

The part most perplexing to me is how these bankers seem immune to shame for their theft. Surely they read the newspapers, every one of which carries countless stories of everyday citizens who had their lives turned upside-down by this crisis of their making. The Times had a particularly good one the other day about how millions face years of unemployment because of the crisis. The article is entitled “The New Poor“. Several of the people they interviewed had their savings wiped out and are now on the verge of homelessness. I mean, don’t they read articles like that and feel bad?

Apparently not. I recently spoke with a high-school buddy of mine (well, maybe buddy is the wrong word) who, after an economics degree at Duke, found a comfortable position at a prominent Wall Street firm.

“Yeah, I’m a fat cat”, he said, with an unmistakable note of pride.

I wanted to know how he felt about the new poor, particularly as the company to which he attached himself had a direct hand in causing the financial crisis.

He shrugged. “Those people deserved it. They should have been smarter with their money.”

I was appalled. “But your company sold them predatory loans! I mean, you guys willfully misled them.”

“Look”, he countered, “No one put a gun to their heads and forced them to trust us. They’re idiots. If they were smarter, they would have gone to school, gotten business degrees, and been in a position to know what they’re talking about. You play with fire, you get burned.”

“But then what’s the point of your business? Aren’t you in the business of handling the money of people who lack the knowledge to handle it themselves?”

He laughed mirthlessly. A cold look crept into his eyes. “Are you stupid or something? We’re in the business of making money. That’s it. Sometimes we make money by making other people money – sometimes we make money when other people lose money. That’s the bottom line.”

I was at a loss for words. “How can you be so callous?” I managed to stammer.

“Stop it with this gay shit. Like its my responsibility to worry about every poor loser who comes through my door. I’m only responsible for myself. Period. I don’t go around telling people to watch my back – I watch my own. They should do the same. I’m fucking sick of you assholes coming up to me and whining about all these idiots who lost money during the crash. Those retards deserved it. I looked out for myself – my company looked out for itself – and we’re making money. Those idiots didn’t look out for themselves. They expected someone else to do it. And look what happened.”

Nearly defeated, I asked, “So the banks have no responsibility for all these people who are now financially ruined?”

“If they want to blame someone, they should take a long, hard look in the mirror. These dickheads were happy enough with us when we were making them 15% per year, but now that things go sour they look for someone to blame. It’s their own damn fault. What, they think we’re in business just to help them out? Fucking retards.”

Conscious that I was beginning to sound like a broken record, I persisted. I just couldn’t believe what I was hearing.

“Well, you guys were ready enough to take the government bailouts. I mean, how can you justify that?”

He scowled. “Look, you have no idea what the fuck you’re talking about. What did you study in undergrad? Engineering? Leave this shit to the experts, troll. If the government allowed the banks to fail, the economy would have crashed. Done. The world would have been over. And all those bullshit sob stories you’re trying to sell me, they would have been 100 times worse. Anyway, we’re paying you assholes back, so I don’t see what you’re crying about.”

He left me with a bit of advice. “You really need to pull your head out of your ass. All this crying over others isn’t gonna get you anywhere. You’re what – 22? How much money do you make?”

I told him. He burst into laughter.

“See, that’s what I’m talking about! You’re gonna grow up to be one of these losers we take advantage of, if you aren’t careful. Here, what you should do – read some Ayn Rand. She’ll tell you all you need to know.”

And that, ladies and gentlemen, is the mentality of Wall Street, that collection of companies without whom we cannot survive.

Hope Yen from The Associated Press with a nice bit of muckraking:

The Census Bureau, a month away from its 2010 population count, has wasted millions of dollars paying temporary employees who never did the work and others who overbilled for travel, according to excerpts of an audit obtained by the Associated Press.

On a positive note, federal investigators said it was appropriate for the Census Bureau to spend $133 million on its advertising campaign, including $2.5 million for Super Bowl spots that some Republicans derided as wasteful.

But the report by Commerce Department inspector general Todd Zinser makes it clear the government is at risk of wasting millions of additional dollars without tighter spending controls by the Census Bureau on its 1 million temporary workers.

“The costs were substantial,’’ he wrote, imploring the agency to improve cost estimates so the national head count does not exceed its $15 billion price tag.

Columbia Journalism Review has a great roundup of various media responses to the Citizens United case and what it means for the media. I guess I don’t have too much more to add, except that with the floodgates open to corporate “donations” for various campaigns, our corporations will have a much greater incentive to pony up the cash to keep the media’s mouth shut. And we all know our major newspapers are just immune to bribery, right?

“A lot of corporations right now are probably having frank and interesting discussions around how they want to use this,“ says Levinthal, a former politics reporter for the Dallas Morning News. “One great story might be trying to get ahead of the decisions they are going to make, and asking local companies how they anticipate using this before they do.”

…

“I think it’s going to be essential, to put it in old fashioned terms, to follow the money here,” says Wertheimer. “Public disclosure only works if someone discloses the information to the public, and I believe that the media has a very big responsibly to help fill that role.”

“It’s my hope that we’re going to get comprehensive disclosure requirements for corporations and labor unions, and from intermediate groups that are used as pass throughs, and from the people that are spending the money. But on top of all of that, investigative reporting above and beyond the disclosure information has an important role to play. These are very hard stories to do, and in the past there hasn’t been a lot of appetite among editors for taking the time to do investigative stories that may be very time consuming, but they’re essential now,” says Wertheimer. “It’s straightforward, and basic, and extremely important.”

Well, it’s that time of year again: the snow has fallen, the air bitter cold, and AIG decides to award its criminal executives hundreds of millions of dollars in “bonuses”. But wait, haven’t we seen this before? I seem to remember a huge uproar about this sometime last year… hang on – let me check the interwebs…

Okay I found it! It’s a March 15, 2009 Times article entitled “AIG Planning Huge Bonuses after $170 Billion Bailout.” Yeah, now I remember. It was really a big deal back then – there were hearings, emotional speeches, widely publicized resignations – it even came out that AIG owed Goldman Sachs a lot of money, and that much of the AIG bailout really went to GS.  In the end, AIG said it was sorry and it would never do it again.

Well, I guess they must think we’re stupid or something, because it’s a year later and they’re doing the exact same thing again. Okay well, maybe not the exact same thing – last years’ bonuses added up to $170 million – this year they’re cutting back and only handing out a paltry $100 million.

But lets look at some of the similarities:

March, 2009:

The senior government official, who was not authorized to speak on the record, said the administration was outraged. “It is unacceptable for Wall Street firms receiving government assistance to hand out million-dollar bonuses, while hard-working Americans bear the burden of this economic crisis,” the official said.

February, 2010:

“A.I.G. has taxpayers over a barrel,” said Senator Charles E. Grassley, an Iowa Republican, in a statement on Tuesday night. “The Obama administration has been outmaneuvered. And the closed-door negotiations just add to the skepticism that the taxpayers will ever get the upper hand.”

March, 2009:

The second group of bonuses covers some 2008 retention payments from contracts entered into before government involvement in A.I.G. Indeed, in his letter to Mr. Geithner, Mr. Liddy wrote that he had shown the details of the $450 million bonus pool to outside lawyers and been told that A.I.G. had no choice but to follow through with the payment schedule.

February, 2010:

The holdouts seem determined to make A.I.G. pay the full contractual amounts, knowing they can make a reasonably good case under law, because A.I.G.’s own lawyers have previously issued an opinion that the contracts are binding. If they succeed, A.I.G. would have to pay them more money at some point in the future, and might even have to pay penalties for breaking its employment contracts.

Huh.  Well, at least they’ve paid back some of the taxpayer money, right?

March, 2009:

The American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve…

February, 2010:

The government has extended roughly $182 billion in total to A.I.G. It is selling some of its units to help repay the debt.

D’oh!

CNN with a wince-inducing, yet on the whole, unsurprising report:

A CNN/Opinion Research Corporation survey released Monday morning also indicates that 63 percent of the public thinks that projects in the plan were included for purely political reasons and will have no economic benefit, with 36 percent saying those projects will benefit the economy.

Twenty-one percent of people questioned in the poll say nearly all the money in the stimulus has been wasted, with 24 percent feeling that most money has been wasted and an additional 29 percent saying that about half has been wasted. Twenty-one percent say only a little has been wasted and 4 percent think that no stimulus dollars have been wasted.

Pretty harsh. But then people are understandably upset – underemployment has been over 15% for almost a year and is now inching toward 20%; we’ve seen a year-long debate on “healthcare” which looks like it’s going down the toilet; we’ve seen the major financial institutions award their rascals of executives more money than a common man can expect to earn in three lifetimes; and we’ve seen utter complacency and disregard from our so-called “elected representatives”. Good news is hard to come by.

But at the same time, is the public right about this? Has the stimulus been a waste? Really, it’s quite hard to tell – the whole idea behind the bill was to create jobs and put a “bottom” on the economy, and this has only dubiously been achieved.

Joe Klein has a typically abusive response entitled “Too Dumb to Thrive” wherein he upbraids the bovine public for being too stupid to understand what’s going on; after all they all got $60 extra dollars in their paychecks! Why are they complaining?

Klein’s response lacks any real analysis – for that, I recommend ProPublica’s coverage of the stimulus, which would indicate that while the money hasn’t exactly been “wasted” per se, it has certainly been mis-allocated, and at times, completely mis-handled.

See, for instance this report on schools unable to access their stimulus funds:

After the federal stimulus passed in February, North Carolina school officials thought they had found a way to repair the 58-year-old gym and other crumbling school structures. The stimulus provided money for Qualified School Construction Bonds, which is intended to let school districts raise capital through interest-free bonds to fund construction.

The program also was expected to boost North Carolina’s construction industry. Ben Matthews, director of school support for North Carolina’s Department of Public Instruction, estimated it would create 11,000 jobs.

But the bond program has become entangled in financial and bureaucratic red tape. Only $2.3 billion of the $11 billion in bonds available this year have been sold as of last week, data compiled by Bloomberg show.

Well, that’s not good. Or again, take this report about stimulus funds going to contractors under federal criminal investigation:

The Department of Defense awarded nearly $30 million in stimulus contracts to six companies while they were under federal criminal investigation on suspicion of defrauding the government.

According to Air Force documents, the companies claimed to be small, minority-owned businesses, which allowed them to gain special preference in bidding for government contracts. But investigators found that they were all part of a larger minority-owned enterprise in Southern California, making them ineligible for the contracts.

Kickbacks, anyone? The point here is not that the stimulus was “totally wasted” as many Americans seem to think – only that there exists ample reason for them to feel that way. Maybe Joe Klein could keep that in mind next time he writes an abuse letter to America’s body politic.

Mortgage Calculator has an excellent interview with financial blogger Steve Waldman which I suggest you all read.

Waldman:

I think that the moral thing for most borrowers to do, under present circumstances, is to default on loans when it is in their financial interest to do so.

But it’s crucial to remember that “what is moral” is something we collectively decide, and not without constraints. A social order that routinely demands heroic sacrifice of people in the name of virtue will fail. Clever hypocrites will be rewarded while naive saints pay, and the overall tenor of society will not be virtuous. The most we can demand of fuzzy constructs like morality and social norms is what Arnold Kling calls “soft rule utilitarianism”, under which people accept modest personal costs on the theory that if everybody does so, we’ll all better off. But emphasis on the word “modest”, and expectations of reciprocity. Economic and legal scaffolding has to sit beneath informal social constraints so that in general it makes sense to be good. It is like the relationship between flesh and bone: You could not build anything as beautiful as a smile out of bone, but the smile will not survive if the jaw beneath is fractured and misshapen. We regulate the “bone structure” of our society explicitly via legal arrangements, and more subtly, via social and reputational incentives. There’s a kind of hygiene we have to attend to, in order to ensure that doing well and being good are not terribly inconsistent. Over the past few decades we’ve failed to attend to that hygiene, in large part I think because we let simplistic economic ideas persuade us that we didn’t have to, and that the pursuit of wealth yields virtue automatically and dirty is the new clean.

Much of my thinking on economic and social issues comes back to T.S. Elliot’s proposition, “It is impossible to design a system so perfect that no one needs to be good.” Once upon a time, I chose to disagree. I thought it was the challenge of our day, and the grand project of modern economics, to build a system in which people pursuing their own self-interest would provide all social goods, in which the benevolent invisible hand would rule all and we’d have no need to rely upon ideas as shifty and manipulable as “virtue”. I have done a full 180 on this question. Economic self-interest and formal legal frameworks are simply insufficient to regulate a decent society. Elliot was right.

You may remember a couple months ago the New York Times reported some fishy business going on in Iraq. The US apparently sold thousands of “bomb sniffing wands” to the Iraqi government, promising that the device could reliably detect all explosives. We got them to spend millions on them altogether. Later it turned out the devices were “completely fraudulent”, work on the “principle of Ouija board”, what James Randi called a “totally worthless product”. The device was a scam.

It really wouldn’t have been a big deal, except for a little incident that occurred last October, when the deadliest explosion since 2007 rocked Baghdad. The suicide bombers had to pass through at least one checkpoint where the bomb sniffer failed to go off. Oops.

I guess it shouldn’t surprise that the bomb sniffer’s promotional material makes no sense at all – it claims the sniffer can detect “any drug or explosive”, without contact, through “concrete, lead, other metals, etc.” Oh, and it uses no batteries. How the hell is that supposed to work?

After defrauding the US and Iraqi governments for years and amassing millions of dollars besides, the “bomb detector” has finally been banned. The BBC has a pretty in-depth article.

Some highlights:

The Iraqi government has spent $85m on the ADE-651 and there are concerns that they have failed to stop bomb attacks that have killed hundreds of people.

The ban on the ADE-651 and other similar devices starts next week.

There is nothing to program in these cards. There is no memory. There is no microcontroller. There is no way any form of information can be stored Dr Markus Kuhn

Sidney Alford, a leading explosives expert who advises all branches of the military, told Newsnight the sale of the ADE-651 was “absolutely immoral”.

“It could result in people being killed in the dozens, if not hundreds,” he said.

…

“These are the cheapest bit of electronics that you can get that look vaguely electronic and are sufficiently flat to fit inside a card,” Dr Kuhn told Newsnight.

The ADE-651 has been sold to a range of Middle Eastern countries and as far afield as Bangkok for eye-watering prices.

Iraq paid around $40,000 for each device.

No Western government uses them.

How cynical was this company? “Oh those stupid brown people are so uneducated they’ll buy anything!” Doesn’t the US have laws against war profiteering?

Courtesy of Mint.com

budget planner – Mint.com

I mentioned this before, but I really want to stress that “financial reform” is completely meaningless without reinstating the Glass-Stegall Act. Enacted in 1933 and foolishly repealed in 1999, Glass-Stegall drew a firm line between commercial and investment banks and prohibited the “securitization” that lay at the heart of this crisis. Previously, “commercial” banks – ones in which you deposit your paycheck and which might later loan you money for a house or car – were completely separate entities from “investment” banks – ones that invest your money in whatever way they see fit. Commercial banks were low risk, low rate-of-return, while investment banks carried a higher risk, but with more earning potential. When current Economic Council Director Larry Summers chose to repeal Glass-Stegall back in 1999, he abolished the distinction between commercial and investment banks, allowing erstwhile “safe” organizations to make wildly irresponsible bets and grow so intertwined that they eventually brought the whole system down. Repealing Glass-Stegall created the “Too Big to Fail” banks.

The famous Elizabeth Warren, Paul Vlocker, and even John McCain (whose chief adviser’s name is on the G-S repeal) have come out in favor of reinstating Glass-Stegall. All the “too big to fail” banks are now even bigger, and this is largely because legislation which was traditionally used to keep them from conglomerating was idiotically repealed. This is the biggest one thing Congress can do right now to prevent the need of a future bailout. It would be so easy – they could do it tomorrow! The legislation is already written; all they have to do is sign it.

Sens. John McCain and Maria Cantwell have done a great service by recently proposing a Glass-Stegall reinstatement in the senate last month, but the bill doesn’t seem to have much support. This is totally baffling to me. The only reason I can think why the Senate wouldn’t do this right now is the massive donations they would have to sacrifice. Predictably, all the financial institutions, from Bank of America to Goldman Sachs, are vehemently against Glass-Stegall, as it would require them to break up, and likely diminish their ludicrous profits. Hence in the Bloomberg article you can hear Senators conceding that the bill “makes a lot of sense”, but “[they] don’t know if it’ll ever happen.” Uh…

The toll-free numbers for the Congressional switchboard are: 1-877-851-6437, 1-800-828-0498, or 1-800-614-2803. I think this is one issue where calling your congressman could conceivably sway them. Congress bows to the financial industry only insofar as its money can help them get elected. Public outcry can influence our legislators on legislation as specific as this. Remember, the TARP bailout originally failed in the House because their switchboards lit up with calls from angry voters.

The policy blogs are abuzz with the recent news that the Federal Reserve System might finally undergo an audit. The bill, sponsored by Ron Paul and endorsed by nearly everyone else, passed with a lopsided 43-26 victory in the House and would be the first comprehensive inquiry into what the Fed does with the trillions of dollars it commands. Glenn Greenwald has the best dissection of what went down.

Some highlights:

Our leading media outlets are capable of understanding political debates only by stuffing them into melodramatic, trite and often distracting ”right v. left” storylines.  While some debates fit comfortably into that framework, many do not.  Anger over the Wall Street bailouts, the control by the banking industry of Congress, and the impenetrable secrecy with which the Fed conducts itself resonates across the political spectrum, as the truly bipartisan and trans-ideological vote yesterday reflects.  Populist anger over elite-favoring economic policies has long been brewing on both the Right and Left (and in between), but neither political party can capitalize on it because they’re both dependent upon and subservient to the same elite interests which benefit from those policies.

Beyond the specifics, a genuine audit of the Fed would be a major blow to the way Washington typically works.  The Fed is one of those permanent power centers in this country that exert great power with very little accountability and almost no transparency (like much of the intelligence and defense community).  The power they exert has exploded within the last year as a result of the financial crisis, yet they continue to operate in a completely opaque manner and with virtually no limits.  Its officials have been trained to view their unfettered power as an innate entitlement, and they express contempt for any efforts to limit or even monitor what they do.

Corrupt Afghan President Hamid Karzai recently agreed to a run-off election, in an all but open admission that more than one-third of his votes were fraudulent. Allegations of fraud have hounded Karzai since he “won” the August Afghan election, and a UN official was fired for breaking the news that more than a third of Karzai’s votes came from non-existent persons. Since then, international pressure has steadily mounted for Karzai (who was described by one of his former subordinates as a “US Stooge”) to accede to a runoff election, or, more preferably, step down with some dignity intact.

But at the time of Karzai’s original announcement of victory, a second election appeared highly unlikely. Even after an independent election commission had voided tens of thousands of his votes, Karzai seemed poised to unilaterally declare victory, fraud be damned. As he claimed only one week ago, the election in August was both “good” and “fair”. Then, three days later, Karzai woke up, examined himself in the mirror, and decided a runoff election maybe isn’t such a bad idea after all. It would be interesting to see what changed over the course of those few days.

The answer almost certainly has to do with America. Since 2004, Hamid Karzai has been “our man in Afghanistan”. US policy planners repeatedly overlooked his blatant, widespread corruption, his open ties to militants, his family members who happen to be in the opium business, and numerous other transgressions we have not the privilege of knowing. They did so because Karzai was (and is) seemingly the one person in Afghanistan who will support a US invasion of his country under any and all circumstances. Indeed, even at the height of the fraud accusations, the Obama Administration expressed little doubt that Karzai would end up serving a second term.

But how did we convince Karzai to buckle down and accept a runoff? Ahmad Rashid over at The New York Review appears to have an answer: the Obama Administration announced on October 18th (mere days before Karzi acceded to the runoff) that no more US troops would be forthcoming unless there was a “legitimate” government in Kabul. Now, as Karzai well knows, the only thing standing between himself and assassination are US troops. So, with his life on the line, the choice for a runoff election was not a difficult one to make.

Particularly in light of the Obama’s Administration’s comments via The New York Times:

“At a meeting of NATO foreign ministers in New York on Friday that included Secretary of State Hillary Clinton and Afghanistan foreign minister Rangin Dadfar Spanta, the ministers agreed that Karzai would likely prevail, either by his current victory margin of more than 50 per cent, or by winning a runoff against his main competitor Abdullah Abdullah,”

It should be pretty clear that Karzai is still the US favorite, warts and all, and only needs to forge another election to gain legitimacy. Which is what will likely happen.

The Afghan runoff election will occur November 7th. I don’t think there should be any doubt as to who the victor will be. If, by some miracle, Karzai does not prevail, I will give up any pretense to knowledge of international affairs.

In a Rose Garden speech responding to his Nobel win, President Obama stated that:

“To be honest, I do not feel that I deserve to be in the company of so many of the transformative figures who have been honored by this prize, men and women who’ve inspired me and inspired the entire world through their courageous pursuit of peace.

Well, I’m sure many would agree with the “I do not feel that I deserve” part, but in a very narrow sense President Obama does deserve to be in the company of some previous laureates – specifically Henry Kissinger: the progenitor of the politically-motivated Nobel Peace Prize.

Mr. Obama, as everyone knows, is currently weighing a large-scale escalation of our war in Afghanistan. Nobody is sure exactly how many more troops he should commit, but it is at least certain that none of the 68,000 there already will be withdrawn. The announcement of Obama’s award comes on the heels of several suicide bombings in Afghanistan, all in response to an illegal US occupation, along with the continuous US bombardment of Afghan and Pakistani villages, which have killed thousands of defenseless and blameless villagers, and which Mr. Obama has publicly supported on numerous occasions. In May a US air-strike killed 100 Afghan civilians, and only eight days ago a NATO bombing killed 9 civilians.

Nobel Laureate Obama also presides over the manufacture and sale of nearly all the world’s killing machines. The US National Security apparatus, of which Obama sits at the head, currently accounts for 70% of all arms sales in the world.

Strictly speaking, none of this is new. Indeed, the Nobel Committee has a rich history of giving the Peace Prize to war criminals, including the leader of the dreaded Viet Cong, Lê Ðức Thọ in 1972. But the interesting aspect here is that Henry Kissinger also won the prize that year.

Christoper Hitchens has written an excellent series of articles which he later turned into a book: The Trial of Henry Kissinger. To read them is to see what the Nobel Committee truly values, and surely puts the Obama prize into proper context.

Very simply put, Henry Kissinger, during his term as Secretary of State, personally ordered the deaths of nearly a million people in areas as far-flung as Cambodia, Bangladesh, Chile,  and Cyprus.

In Cambodia he ordered a secret bombing campaign which decimated their countryside and greatly intensified their civil war, eventually setting the stage for a coup d’etat by the murderous Khmer Rouge. Tens of thousands died from the bombing, millions died in the political aftermath.

In Bangladesh, in 1971, Mr. Kissinger armed West Pakistani death squads and, after hearing numerous reports that those arms were being used for massacres, flatly refused to do anything. As Hitchens reports:

In late April 1971, at the very height of the mass murder, Kissinger sent a message to General Yahya Khan [President of West Pakistan], thanking him for his “delicacy and tact.”

In Chile, the year after he won his prize, Mr. Kissinger enacted a diabolical plan of political and economic warfare, first by giving the CIA a go-ahead to overthrow Chile’s democratically-elected government, then by installing military dictator Augusto Pinochet, and finally by recommending so-called “market reforms” which in his words were designed to “make the economy scream”. Tens of thousands died in political violence under Pinochet; hundreds of thousands found themselves flung into the depths of poverty.

And so on, and so forth. The crimes of Nobel Laurate Kissinger are perhaps too numerous to discuss in a so short an entry. Entire books have, after all, been written on the subject. In the aftermath of such a truly monstrous Peace Prize recipient, Obama’s sins look positively tame by comparison.

But I think it is a sign of our political culture’s degeneration that a man presiding over a massive expansion of our torture-centers in Afghanistan, who openly claims the right to kidnap people and transport them where he likes, and who reserves the “right” to bomb Iran (or whomever he pleases), could be mistaken for a man of peace.

Dissident economist Joseph Stiglitz writes a fantastic op-ed in a recent issue of The Guardian about the number-twisting that goes into our GDP figures. The article is well worth reading, as it challenges many of our basic assumptions regarding such concepts as “economic health”, “vitality”, and “well-being”.

Stiglitz argues persuasively that “GDP maximization” is often at odds with what most would consider a basic standard of living. Clean air laws, water purity acts,  food safety guidelines and a host of other legislation technically reduce our GDP, but they also make our lives incomparably better. By taking GDP as a paramount indicator of economic health, Stiglitz contends, many economists neglect their citizens’ standard of living.

Stiglitz also mentions a lack of any measure of income inequality in GDP statistics – an important point, as our income disparity is now the greatest it has been since the gilded gilt of the 1920s.

And we cannot forget the massive role of government in our recent GDP figures. The value of government spending is inherently unmeasurable – we must simply take their word that the money they spent was on items of value (and not, say, financial executive compensation). As Stiglitz mentions:

In the last 60 years, the share of government output in GDP has increased from 21.4% to 38.6% in the US, from 27.6% to 52.7% in France, from 34.2% to 47.6% in the UK, and from 30.4% to 44.0% in Germany. So what was a relatively minor problem has now become a major one.

Stiglitz’s weakness, however, stems from his inability or unwillingness to mention some of the more unsavory methods of boosting reported GDP. The faults he recognizes, while nefarious, are generally well known. But our government engages in many, many other artifices in order to make our GDP numbers look better.  Here I refer specifically to the practice of “product substitution” and “income imputation”.

Harper’s ran a superior article about this phenomena in its May 2008 issue. In short, the doctrine of “product substitution” states that if flank steak becomes too expensive, consumers are expected to move down to ground beef – the same product is being consumed, but in less expensive a form. In this instance, for GDP calculators, the numbers for ground beef sales are adjusted upward to correspond to what flank steak would have cost (since the two products are made of the same cow). The GDP remains the same, but standard of living obviously goes down.

Also mentioned by Harper’s, but curiously neglected by Stiglitz, is the idea of “income imputation”. Put shortly, the Bureau of Economic Analysis, unbeknown to its subjects, will impute (or add) to household incomes at its discretion. From Harper’s:

The Bureau of Economic Analysis “imputes” to nationwide personal income data (known as phantom income boosters; for example, the imputed income from living in one’s own home, or the benefit one receives from a free checking account, or the value of employer-paid health- and life-insurance premiums). During 2007, believe it or not, imputed income accounted for some 15 percent of GDP.

I would strongly suggest reading the above Harper’s article in full – it gives a deep and terrifying account of the extent to which our government engages in daily statistical fraud. Joseph Stiglitz, valiant though his attempt may have been, unfortunately cannot give a full picture of our government’s manipulation.