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Selling Out America to Wall Street - Selling Out America to Wall Street

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Selling Out America to Wall Street
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Obama exacerbated the worst bad practices. Wall gets a free ride. Foxes guard the hen house. Inmates run the asylum. Regulators don't regulate. Investigations aren't conducted. Criminal fraud is ignored. Nothing is done to curb it, and except for Madoff, only small fries need worry. Washington protects the big ones, Obama assigning Mary Schapiro the task as his SEC chief.

She's a consummate insider, spent years promoting Wall Street self-regulation, headed the Financial Industry Regulatory Authority (FINRA), was the National Association of Securities Dealers' (NASD) chairman, president, and CEO, ran the Commodity Futures Trading Commission, and is expert at quashing fraud investigations. Except for high profile cases too big to hide (like Countrywide's Angelo Mozilo and Texas financier Robert Allen Sanford), she's treaded lightly on the rich and powerful, is doing nothing to curb insider trading, front-running, market manipulation, and other abuses.

Even the Wall Street Journal, commenting on her appointment, said her regulatory record "shows she has infrequently pursued tough action against big Wall Street firms." A year later, her job performance proves it, made easier by decades of deregulation.

In 2003, the Controller of the Currency, John Hawke, Jr.  preempted state predatory lending laws (in violation of the 10th Amendment), meaning nationally chartered banks (including the nation's biggest) would come under federal standards, not more stringent state ones. According to former New York Attorney General and Governor, Eliot Spitzer:

"Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye."

In 2004, Basel II replaced Basel I with more comprehensive guidelines, ostensibly to ensure banks hold capital reserves appropriate to their lending and investment practices. In other words, the more risk, the greater the reserves, but given lax regulatory oversight, banks pretty much do what they want, and Obama gives them free reign, all the easier with trillions in bailout dollars.

In 2007, the Fed's Term Auction Facility extended loans to depository institutions with no public disclosure, unlike its discount window operations. In addition, global regulators let commercial banks set their own capital requirements, based on internal "risk-assessment models."

Regulators ignored predatory lending practices. They:

  • overrode state consumer protection laws to curb exploitive lending and other abuses;
  • prevented victims from suing predatory loan issuing firms;
  • freed Fannie, Freddie and giant Wall Street players to operate recklessly;
  • let them hide toxic assets by off-balance sheet accounting; Financial Accounting Standards Board rules allow it, and the Security Industry and Financial Markets Association and the American Securitization Forum have lobbied furiously to keep them unchanged; in other words, to deceive the public by letting insolvent institutions look healthy;
  • let them eliminate some of their own (Bear Stearns, Lehman Bros. and Merrill Lynch) to remove competition;
  • abandoned antitrust and other regulatory principles;
  • created too-big-to-fail institutions; and
  • let them do anything they wished, free from meaningful oversight.

Credit rating agencies played their part as well because of their relationship with issuers. They ignored high-risk financial instruments, rated them highly, and duped investors to believe they were safe. The SEC could have intervened but didn't. The 2006 Credit Rating Agencies Reform Act requires regulators to establish clear guidelines to determine which ones qualify as NRSROs (Nationally Recognized Statistical Rating Organizations).

The SEC is supposed to monitor their internal record-keeping and prevent conflicts of interest, but can't regulate their methodology and must approve their standards even knowing they're flawed.

One hand thus feeds the other. Conspiratorially, the regulator and credit agencies turn a blind eye to abuses, cry foul when it's too late, then promise greater diligence next time. Change, of course, never comes, so next time is like last time until so extreme the whole system collapses, harming ordinary people the most.

After the 2008 Bear Stearns collapse, special lending facilities opened the discount window to investment banks, accepting a broad range of asset-backed securities, principally toxic ones, as collateral - what economist Michael Hudson called "cash for trash." Numerous other programs followed, including:

  • the 2008 Emergency Economic Stabilization Act (ESSA) establishing the Troubled Asset Relief Program (TARP) to trade bad assets for good ones;
  • the 2008 New York Fed administered Term Asset-Backed Securities Loan Facility (TALF) to lend up to $1 trillion on a non-recourse basis to holders of certain AAA-rated asset-backed securities (ABS) backed by newly and recently originated consumer and small business loans;
  • Fed purchases of money market instruments;
  • the Public-Private Investment Program (PPIP) to subsidize toxic asset purchases with government guarantees; and
  • trillions of dollars in bank bailouts; according to Neil Barofsky, the Special Treasury Department's TARP Inspector General, banks got or were pledged up to $23.7 trillion, or the equivalent of an $80,000 liability for every American; in March 2009, Bloomberg reported that the Treasury and Fed "spent, lent, or committed $12.8 trillion" up to that point, and more was available for the asking, besides other free money at near zero percent rates plus interest on reserves held by the Fed.

Wall Street never had it so good. For the public, hard times are worsening as America sinks deeper into depression, a protracted one according to some experts  hitting the needy and disadvantaged hardest. The land of the free is now the most callous, the result of what former Wall Street and government insider Catherine Austin Fitts calls a "financial coup d'etat."

She explains the "pump(ing) and dump(ing) of the entire American economy," duping the public, fleecing trillions of dollars, and it's more than just "a process (to destroy) the middle class. (It's) genocide (by other means) - a much more subtle and lethal version than ever before perpetrated by the scoundrels of our history texts."

The scheme includes abusive market manipulation, "fraudulent housing (and other bubbles), pump and dump schemes, naked short selling, precious metals price suppression, and active intervention in the markets by the government and central bank" along with insiders trading on privileged information unavailable to the public. It's part of a government - business partnership for enormous profits through "legislation, contracts, regulat(ory laxness), financing, (and) subsidies" - a conspiratorial plot to transfer household wealth to powerful special interests.

Here's a taste of the consequences, courtesy of economist David Rosenberg on February 16.

He reported that "credit contraction continues unabated," and the numbers are staggering:

  • $30 billion in the past week;
  • $100 billion in the first six weeks of 2010, "a historic 16% annualized decline;"
  • since the crisis erupted in fall 2007, $740 billion, "a record 10% decline;" and
  • "The fact that credit has dropped at a 16% annual rate since the turn of the year is testament to how the credit contraction is actually accelerating."

And it's broad-based:

  • consumer loans down at a 12% annual rate year to date;
  • real estate down 13.5% annualized;
  • commercial and industrial loans down at a 19.3% annual rate; and
  • short-term business credit down $14 billion year to date.

Rosenberg calls it "alarming," especially "since the bulk of the fiscal and US dollar stimulus is behind us, not ahead of us....The era of the 'green shoots' is officially dead."

Europe is mired in recession. Britain faces a possible 2010 sovereign debt crisis, spiking yields and raising borrowing costs, according to Morgan Stanley. Eastern European nations teeter on the brink of debt default. So do Greece, Spain, Portugal, Italy, and Ireland. A January 14 George Magnus Financial Times article titled, "Sovereign default risks loom" said:

"There is no peacetime precedent for the current speed and scale of public debt accumulation....The spectre of sovereign default, therefore, has returned to the rich world," sparking fears of nonpayment, paying less than face amount, inflation, capital controls, special taxes that break private contracts, and/or currency devaluations, measures also threatening America given its crushing debt burden.

Yet according to Rosenberg, "the consensus community has no clue as to what the future holds," forecasting rosy scenarios while Rome burns.

In fact, "the depression is ongoing even if the most recent recession has faded; and in our view, the next one is not too far away especially now that the stimulus is soon to subside." The contagion will be global, the fallout catastrophic because the worst is yet to come, what economist Michael Hudson foresaw in early 2009 saying:

"The (US) economy has reached its debt limit and is entering its insolvency phase. We are not in a cycle but (at) the end of an era. The old world of debt pyramiding to a fraudulent degree cannot be restored," only delayed for a more painful day of reckoning. It's coming according to Austrian economist Ludwig von Mises (1881 - 1973) because:

"There is no means of avoiding a final collapse of a boom brought about by credit expansion." It's only a matter of sooner "or later as a final and total catastrophe of the currency system involved."

Expect a deepening global depression; protracted economic, political, social, and institutional upheaval; mass unemployment, poverty, homelessless, and hunger; and severe repression to curb public anger. Blame it on decades of political influence buying yielding unprecedented returns for the privileged, but economic wreckage and catastrophic life changes for the rest. The price of excess is pain, lots of it for the world's disadvantaged, the ones who always pay for rich peoples' sins.


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