Will we bail MF Global out?

It looks like the firm will declare bankruptcy today. However, it does look like it has a buyer, Interactive Brokers Group. The Fed had somewhat of a surprise; it actually suspended MF from acting as a bond dealer. Jon Corzine, former Goldman Sachs head, former Senator, former NJ governor, is being blamed for his inability to turn the firm around.

October in Connecticut

Many are without power, heat and water.

A good choice for the FDIC

Tom Hoenig, the former head of the Kansas City Fed, has been nominated to be the Vice-Chair of the FDIC.  He has been a strong advocate of a sensible banking structure and has spoken out often and cogently against "Too Big to Fail". Would that Obama had nominated him to replace Mr. Geithner.

More Ideas to Lower Medical Costs

The Center for American Progress thinks we can lower medical costs about $10 billion a year by adopting four ideas:

• Instead of paying for the individual components of some procedures (e.g., a hip replacement) pay a lump sum that the hospital can distribute to the doctor, anesthesiologist, the hospital itself, etc. Medicare has been running a pilot program using this procedure for a few years and this strategy seems to be saving money.
• Invoke competition. "Medicare should immediately implement competitive bidding for durable medical equipment, prosthetics, orthotics, and supplies nationwide, and expand the program to include laboratory tests."
• Move more fully into an electronic administrative world.
• Pay for the less expensive procedure that produces the same result as more expensive procedures.

 Will any anything further be done here? For we certainly need to do something. Look at this chart of per capita spending on health care by various countries.

Is our health any better than that of the other countries in the chart? Almost all studies say "NO".

Not Enough Time

That's what the judge said about the eviction of the Occupy Nashville protesters at 3 o'clock in the morning, “Fourteen hours is woefully inadequate time within which to allow the group an opportunity to comply with the newly enacted rules, regulations, curfew and permit requirements.” So, he freed all of those arrested, although they may still be hit with a $50 fine.

Lower Manhattan Security Coordination Center

In this center you will find members of the Police Department and representatives of Wall Street firms looking at cameras spying on people walking around from lower Manhattan to the center of town; the Center is staffed 24 hours a day. We're not talking about a couple of cameras; there are over 3,000 cameras, 2,000 of which are owned by Wall Street firms.It operates round-the-clock.

The center is working on being able to track people in a variety of ways - the color of their clothes, eventually with facial recognition software. And, of course, they also get to see license plates via the center's equipment.

Who pays the bills? New York taxpayers and us, as the center has obtained DHS money as well.

1984, anyone?

Today she supports Occupy Oakland

Here's a statement Oakland's mayor, Jean Quan, issued after the Oakland police overreacted. My emphases.

We support the goals of the Occupy Wall Street movement: we have high levels of unemployment and we have high levels of foreclosure that makes Oakland part of the 99% too. We are a progressive city and tolerant of many opinions. We may not always agree, but we all have a right to be heard.

I want to thank everyone for the peaceful demonstration at Frank Ogawa Park tonight, and thank the city employees who worked hard to clean up the plaza so that all activities can continue including Occupy Wall Street. We have decided to have a minimal police presence at the plaza for the short term and build a community effort to improve communications and dialogue with the demonstrators.
99% of our officers stayed professional during difficult and dangerous circumstances as did some of the demonstrators who dissuaded other protestors from vandalizing downtown and for helping to keep the demonstrations peaceful. For the most part, demonstrations over the past two weeks have been peaceful. We hope they continue to be so.

I want to express our deepest concern for all of those who were injured last night, and we are committed to ensuring this does not happen again. Investigations of certain incidents are underway and I will personally monitor them.

We understand and recognize the impact this event has had on the community and acknowledge what has happened. We cannot change the past, but we are committed to doing better.
Most of us are part of the 99%, and understand the spirit of the Occupy Wall Street Movement. We are committed to honoring their free speech right.
 
Finally, we understand the demonstrators want to meet with me and Chief Jordan. We welcome open dialogue with representatives of Occupy Wall Street members, and we are willing to meet with them as soon as possible.

The City posts regular updates on the city website that you can view at www.oaklandnet.com.

Jon Stewart's View of Occupy Wall Street in Oakland

He finds the police reaction a little bit over the top.

Was it only yesterday...

...I wrote about Jim Miller's warning that is was possible that extremists would take over Occupy Wall Street? Today's Occupy news is about police cracking down on the protesters. Sure, part of the crackdown is just that the police are losing patience, part is violation of individual rights; but also we have different people turning up at the demonstrations. At least one was carrying an AK-47. A couple were selling dope. A "Kill Pigs" sign was prominent in Oakland. The combination of this type of individual and the lack of leaders makes it easy for the police to feel justified with their behavior and supports one of Miller's theses that participatory democracy is hard to realize once the polis reaches a certain size.

Volcker at 84

He has not stopped trying to get us out of our mess. Unfortunately, he seems to be a voice in the wilderness, particularly when it comes the Obama administration.

Gretchen Morgenson interviewed him recently. He hit the usual topics - bank capital, derivatives, auditors, too big to fail.

He also spoke about money market funds. They do hold lots of money - almost $3 trillion. However, while some think of them as banks, depositors in these funds have little recourse should the fund fail or decline precipitously. Volcker's opinion: “It seems to me if you are a mutual fund, you should act like a mutual fund instead of a pseudobank.”

He devoted a fair amount of the interview to Fannie and Freddie. Volcker's opinion: “We simply should not countenance a residential mortgage market, the largest part of our capital market, dominated by so-called government-sponsored enterprises. The financial breakdown was in fact triggered by extremely lax, government-tolerated underwriting standards, an important ingredient in the housing bubble. it is important that planning proceed now on the assumption that government-sponsored enterprises will no longer be a part of the structure of the market".

One View of Obama's Latest Housing Plan

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Boosting Demand

Pavlina Tcherneva, who teaches at Franklin and Marshall, thinks we should be boosting the demand for labor specifically, rather than aggregate demand. She asserts that improvements in aggregate demand do not result in producing and maintaining full employment. As proof for her argument, she charts the increase in long-term unemployment since 1948. (Unfortunately, I can't copy the chart.) It is dispiriting.

Her recommendation is a return of WPA-style projects. It's not exactly a new idea; there has been a lot of clamor for fixing our infrastructure. Why don't our leaders get the point?

A Warning

James Miller may know something about protests like Occupy Wall Street. He is the author of a book entitled, "Democracy Is in the Streets: From Port Huron to the Siege of Chicago", as well as a professor at the New School. He's concerned that the push for consensus will enable extremists to take over and subvert the aims of the protesters. Moderates will be inclined to compromise; extremists will not. This is what happened with the 1960s protest which eventually led to the Weathermen. 

Miller does have a point. Life is not easy. It is certainly true that "the perfect is the enemy of the good". Good enough is a heck of a lot better than where we are now.

One Step for Mankind

That step is the elimination of what has been called our most destructive weapon, the B53. It's a thermonuclear bomb that is not exactly tiny; it weighs about 10,000 pounds and is roughly the size of a minivan. The B-53 was unbelievably powerful. It was built to produce earthquake-like shock waves that would destroy everything in its path, whether above or below ground. It was 600 times more powerful than the bomb we dropped on Hiroshima.

What are we becoming?

We kill children, either inadvertently through neglect or overtly through abuse. On a per capita basis we rank worse than almost every other so-called civilized nation. Our rate of child death by maltreatment is three times that of Canada and eleven times that of Italy. About 2,000 kids die from maltreatment every year in our country.

Could our social service programs perhaps be inadequate? Most developed nations provide better child services to those in need than we do, services such as child care, universal health insurance, pre-school, parental leave and visiting nurses. Are we more subject to conditions that lead to child abuse, such as teen pregnancy, high-school dropout, violent crime, imprisonment, and poverty?

Child abuse is not constant across this nation. It varies among states. For example, "children from Texas are twice as likely to drop out of high school as children from Vermont. They are four times more likely to be uninsured, four times more likely to be incarcerated, and nearly twice as likely to die from abuse and neglect". Should the federal government play a larger role in preventing child abuse?

Children dying does not end the moral and financial cost of child abuse to this nation. Those children who survive the abuse "are 74 times more likely to commit crimes against others and six times more likely to maltreat their own children, according to the Texas Association for the Protection of Children".

Something a little different

From a Duncaster correspondent

An Education Bubble?

From SavingsAccount.org

They don't say where their data comes from - and there is a lot of data here. For example, I really doubt it cost $800 to go to Harvard in 1957; I was paying more at BU. Also the 1957 family income seems low. It is clear, however, that - no matter how weak some of the data may be - college costs have gone through the roof and it is questionable how good an investment it really is for many people.

Higher Education Bubble by Savings Account.org

Wrong Again

October 21 came and went and I'm still here and it looks as though most of the rest of the world is (except for Gaddafi). This makes Harold Camping 0 for 4. I wonder what reason he will give for this error.

Figure this one out

From our Pembroke Correspondent.

What Occupy Wall Street Is About

A 'definition' by Frank Pasquale:

 In many chilling ways, old social contracts are being broken, with nothing provided in their place. Old models of cooperation between the state and the market are breaking down, as incidents ranging from prescription drug shortages to food safety failures show. The global financial system teeters on the brink of meltdown thanks to a potential “Lehman style event” that regulators still have not managed to adequately monitor, let alone circumvent. These are urgent problems that an entrenched business-government elite has addressed listlessly, if at all. (This is not meant to criticize many well-intentioned front-line personnel, just to note that revolving door dynamics for political appointees and woefully inadequate funding often render their work a mere pantomime of effective enforcement action.) Occupy Wall Street has moral authority because it is addressing these problems. Its critics ought to be joining that process.

Less Pay in 2010

David Cay Johnston looks at payroll tax data every year in an attempt to understand the labor market. He summarizes 2010 in an article in Reuters.  His conclusion? 2010 was awful. We can see from the following chart that in both jobs and median pay the numbers are very disturbing.

There are 5,200,000 fewer people with jobs than there were in 2007. That size drop brings back memories of the 1930s.

Is $285,000,000 Enough?

Or should Citibank pay higher fines? Should the SEC or other government agencies charge Citibank's executives with fraud?

These questions arise because Citi claims that it has settled all of the SEC claims against it by paying of fine of $285,000,000. But the fine is for only one CDO; Citi issued 18 more of these CDOs around the same time. The SEC seems to say that it may still come after Citi, but that's just window dressing. as now - really yesterday - was when the SEC should have hit Citi and its execs with more charges.

Is this Kadhafi?

Yes, answers a commander of the rebels. Whoever it is has been wounded severely.

Seeking Justice

The government has not been too eager to bring the fraudsters who caused the Great Recession to justice. Based on a study by the NY Times, there are very few prominent cases that have been filed in court. The Times study list a total of 16, 3 of which are criminal. Of the 13 civil cases, 9 have been settled. The government was able to obtain settlements very fast in six of these cases - the same day as a complaint was filed. The total amount of the settlements is about $1.4 billion. The total amount of the fraud is probably 100 times that.

Have you no sense of decency, sir?

That's a quote from Joseph Welch, a Boston lawyer and counsel to the Army in the Army-McCarthy hearings. The same question could be asked of some of the attendees at the debates of the Republican candidates. By the way, that quote went far to torpedo McCarthy.

These fine Americans are willing to let someone who does not buy health insurance die or to boo a gay soldier. In this clip they believe that the unemployed are solely responsible for their plight.

What kind of a country have we become?

Bill Black in more depth

Is Bank of America Transferring Its Losses to Us?

It certainly looks that way. Bloomberg reports that BofA has moved derivatives from Merrill Lynch to another subsidiary that just happens to have its deposits insured by us. It is unlikely that they have moved their very best derivatives (assuming such exist); the chances are very strong they have moved those that will go belly up quickest and with the biggest cost to us. Ben Bernanke and the Fed think this transfer is fine; Sheila Bair and the FDIC disagree strongly.

Bill Black and Yves Smith mince no words in condemning BofA's actions. Black, in particular, questions whether BofA did any real due diligence in acquiring Countrywide; he concludes they couldn't have based on their considerable experience in acquiring companies. And, BofA operated similarly in acquiring Merrill, which had a huge portfolio of CDOs. Black does not think highly of Kenneth Lewis or Brian Moynihan. He comes very close to calling them thieves.

As for the Fed, here's what Black has to say:

"BAC’s request to transfer the problem derivatives to B of A was a no brainer – unfortunately, it was apparently addressed to officials at the Fed who meet that description.  Any competent regulator would have said: “No, Hell NO!”  Indeed, any competent regulator would have developed two related, acute concerns immediately upon receiving the request.  First, the holding company’s controlling managers are a severe problem because they are seeking to exploit the insured institution.  Second, the senior managers of B of A acceded to the transfer, apparently without protest, even though the transfer poses a severe threat to B of A’s survival.  Their failure to act to prevent the transfer contravenes both their fiduciary duties of loyalty and care and should lead to their resignations."

 Black appeared on Tom Ashbrook's "On Point" today. You should listen to it. His comparisons of the government's action in the S&L scandal versus its actions today are particularly disturbing. Where the government indicted 1,000 S&L participants, it's indicted less than 100 of today's fraudsters - and the current situation is about 70 times more expensive than the S&L.

John Oliver on Wall Street

The Daily Show
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Subsidizing Brazil

Image via Wikipedia

Perhaps, our annual payment of $147,000,000 to Brazil's cotton industry should be called a bribe. In 2002 Brazil filed a claim with the WTO that its cotton farmers were being hurt by the U.S. subsidies to U.S. cotton farmers. The WTO agreed, we didn't and continued the subsidies. Brazil contacted American companies with a good export business to Brazil and threatened to impose duties on these products. Lobbyists for this group of companies contacted our leaders and the U.S. agreed to pay Brazilian cotton farmers to go away.

In 2010 we gave our cotton farmers $835,000,000, which was less than the $2 billion plus of 2009. In the past 15 years we've given them $31 billion. Three quarters of this subsidy went to only 10% of the cotton farmers.  Do you get the feeling that something is wrong here?

Hat tip to our Winsted correspondent.

"Fire Geithner, Fire Holder, Ask Bernanke to Resign"

William K. Black, of S&L fame, has a few words to say about our current situation. This is a two-for-one video as you'll also hear David DeGraw, an "Occupier", who is quite articulate.

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What's Good for the Goose

A bill has been introduced in the Ohio legislature calling for mandatory drug testing of welfare recipients. Similar bills have been enacted in Florida and Missouri. Robert Hagan, an Ohio State Senator, thinks that anyone who gets public money should be tested. He has introduced a bill calling for drug testing for "statewide elected officials, legislators, JobsOhio board members and recipients of federal corporate bailout money (Troubled Asset Relief Program)".  Hagan's bill calls for various penalties if the test shows drugs and/or alcohol in the body of the person being tested.

If such a bill were in effect nationwide, how many corporate bigwigs whose company has been the recipient of our money do you think would pass?

Scrotal Lymphedema

You know what the title of this post means. Don't you? It is, as I'm sure you figured out, a disease. The first word might give you a clue as to what is affected by the disease. It's the scrotum. The disease causes it to swell because of an excess of watery fluid that collects in the tissues. Sometimes the disease is known as elephantiasis.

Wesley Warren, Jr., has the disease in spades. His scrotum weighs 100 pounds! Since he has always been big, he now weighs 450 pounds. This makes life quite difficult for him, without considering his high blood pressure and asthma.

This disease is not unknown in tropical climates. There, it is attributed to mosquitoes. Here, no one knows what caused Warren's problem. He says it started after his leg hit his testicles as he was awaking one morning in late 2008. "I never felt such pain," he said. "It was like a shooting pain through my entire body. When it stopped, it was like a huge tractor trailer went off the top of me. I think it ruined my lymph nodes down there." The next morning he was carrying  a soccer ball down there. And the soccer ball kept growing to its now 100 pounds.

Doctors think that an operation may help. But, the operation costs $1,000,000 and Warren is on welfare. So, he has started a fund and wants you to donate to that fund He appeared on the Howard Stern Show and raised some money there but he needs a lot more.

I hope you can run the clip below. I had problems with it. But anyway you can see a photo of him.
Courtesy of our NYC correspondent.

We're Paying for Their Education

They being students of on-line 'colleges'. The vast majority of these students obtain loans from the federal government and the government pays each year's tuition upfront. That is our money being paid upfront. If the student fails to pay the loan (and for on-line students the default rate is double that of regular college students), we are stuck with it. The 'college' still gets its money.

The Huffington Post has a lengthy article about one of these on-line 'colleges', Education Management Corp. The article recounts the company's performance after Goldman became a 41% owner. The company hired former University of Phoenix management and really changed into a very, high-powered selling machine. It didn't matter whether the customer had a computer to access the courses, was poor, had a checkered past, was not desperate to go to college. The customer was seen as a prospect who had to become a customer or the salesperson would be punished in some fashion.

Now, the federal government and that of five states have decided that the behavior of the company violates the law and have instituted suit.

Another Reason for 'Occupy Wall Street

From The Atlantic

Should Keystone XL Be Approved?

Image by shannonpatrick17 via FlickrKeystone XL is the name for the project to bring oil from the tar sands of Alberta to the gulf ports of Texas. Supposedly, it would be an economic bonanza for the country; others believe it will be an environmental disaster with little financial benefits. ProPublica summarizes the pros and cons. It looks to me as though the cons win, but it's doubtful that they will. Look here and here for some of the reasons why I think so.

Radioactive Material in Tokyo

Image via WikipediaThe effects of Fukushima are still being felt in Japan, this time in Tokyo, which seemed to be far enough away (160 miles) from the nuclear plants. Now, they've discovered pockets of radioactive material in a variety of locations in Tokyo proper: near ball fields, churches, schools, apartment buildings. They've found highly radioactive material in 22 of 132 locations tested. The material was brought there by rain and wind. As with much of what has happened at Fukuyama, the government is not being as transparent as one would like.

Another Great Sondheim Show

Although it's been 40 years since its debut, Follies, as performed now on Broadway, is truly a great play. While only a few of the songs have achieved hit status, most of the songs are truly great. They not only fit the show but they do say some things about life.

The cast was truly fantastic. I have never seen a supporting cast so perfectly matched to their roles. Yes, Bernadette Peters is listed as the star billing, but, really, the entire cast are stars.

The only glitch to the show was where it was staged, the Marquis Theater, which happens to be in the Marriott Marquis. The theater, itself, was okay. Getting there once you were inside the hotel almost required a map. It would take another Follies to get me to go there again.

This is just one song from the show. I doubt that you've heard a better version of it.

Moving Around The World

It hasn't hit Africa, South America or Antarctica yet but Occupy Wall Street has hit the other four continents. There seems to be more resistance from the police, some of which is probably justified, most of which is not.

I was a simple visitor in New York City on Saturday, in Times Square, in fact. There were lots and lots of police, some on horseback, some driving the wrong way on one way streets, a fair number of police sirens blaring, streets blocked off. Traffic was tough for most of the day, but was back to normal when we left the city around 11 p.m.

I wonder how much the police department will go over its budget.

The First Crackdown

Denver has moved against Occupy Wall Street and banned the protesters from staying in the park. The governor cited state and city laws but he did not say what these laws prohibit. They did put up a sign saying that access to the park is by permit only. Does this mean that parents would need a permit to take their kids to the park?

And now Uganda

The president is sending 100 military 'advisers' to Uganda to help capture the leader of the Lord's Resistance Army. Joseph Kony, the leader, is truly a bad guy and you know that our nation's purpose is to rid the earth of all bad guys. Of course, they "will only be providing information, advice and assistance to partner nation forces, and they will not themselves engage LRA forces unless necessary for self-defense." What did Eisenhower call the people he sent to Vietnam in 1955? I think it was advisers.

It looks like Obama will soon be setting a record for the number of countries to which he has sent military personnel. Change has been good for this country, right?

Maybe it's old age

But certainly the Rupert Murdoch newspaper empire has become a cause celebre. This summer we saw the hacking scandal which led to the closing down of the News of the World. Now, we're being told that the European edition of the Wall Street Journal has not exactly been a shining example of how a newspaper should be run.

They boosted their circulation numbers, on which advertising rates are based, by buying their own paper. No, they did not buy their papers directly; they gave the money to another company, which bought the papers; sometimes they were able to buy a copy of the European WSJ for the princely sum of one cent. The buyer would give the papers to students and others who attended conferences. We're not talking a few copies; last year the number sold in this way came to 41% of the total daily circulation and 16% of the total European circulation. 

The company, Executive Learning Partnership (ELP), that bought the newspapers was paid off by favorable stories in the European WSJ. Interestingly, one of the partners of ELP is a former publisher of the newspaper.

The publisher of the European WSJ has resigned. The reason for his resignation was revealed the next day. And who revealed it? The Wall Street Journal, USA edition. While the publisher resignation was expected, a low-level employee was fired for being a "whistle blower" about this matter.

Is it significant that the 2011 Murdoch sagas occurred in England and the US Murdoch branch reported on at least one of the sagas?

October 21 is near

Image via Wikipedia

That is the day when this world will end. You may remember that Harold Camping on May 21 told us that May 21 was the spiritual end of the world; the physical end would happen on October 21. Do not let the fact that this is the fourth time Mr. Camping has predicted the end of the world distract you from the truth. For, Reverend Camping's recent studies of the Bible have shown him that, “There will be no pain suffered by anyone because of their rebellion against God… We can become more and more sure that they will quietly die and that will be the end of their story. Whereas, the true believers will quietly receive the new heaven and the new Earth."

Don't you feel a lot better now?

This is crazy

Since 1978 California has spent $4 billion dollars on something that has happened only thirteen times in that period; each time the event has occurred one could say it cost $308,000,000. Does the fact that the event occurs almost every five years justify the $308,000,000 cost? Well, we'd have to look at the benefits. 

What are the benefits of executing a convict? Perhaps, the victim's relatives and friends receive some consolation or relief. But does the possibility of the death penalty really stop anyone from committing a very serious crime? That's highly unlikely. So, why does a state on the verge of bankruptcy continue to spend over $100,000,000 a year maintaining death row? To the costs of maintaining death row, which, by the way, now holds 714 inmates, one must add the costs of prosecuting the cases; studies show that in 2009 it cost $184,000,000 more to prosecute a death penalty case than a life without parole case.

Couldn't California find a better use for the money?

Logistics for the Military

As you know, I am against a volunteer army, largely because I think it makes us more likely to go to war. One aspect of the volunteer army is a greater reliance on private military contractors, about whom I've written several times.  In this article Dina Rasor looks at the effect these private contractors have had on the logistics involved in fighting wars. The effect has not been positive. Costs have escalated; we've paid KBR alone over $40 billion so far.  More importantly, the job of supplying our troops what they need, when they need it and where they need it does not get done as often as it should (which is always).

Rasor gives a couple of examples of this failure to properly supply our troops in Iraq:

One unit that was parked at the border between Iraq and Iran was so isolated because KBR would not go out and supply them that they didn't even know that President George W. Bush had landed on an aircraft carrier and declared, "mission accomplished" until three months after the event. They were living on scarce food and water, and part of their daily routine was to try to keep their trucks working so they could go out and scrounge food from the local villages while many of their general officers were being treated by KBR to desserts made by expensive pastry chiefs at the major bases, including former palaces of Saddam Hussein.

The supplies piled up on the Kuwaiti border to such an extent that even the Coalition Provisional Authority (CPA) that was set up by the US to try to govern chaotic Iraq were forced to ration their food in Baghdad, while the Army desperately tried to find troops who had driven trucks in civilian life to replace the missing KBR drivers. 

It's clear that civilians are less likely to work in risky situations than soldiers are. If a civilian wants to leave, he can. A soldier does not have such a choice. And delivering food and other supplies to soldiers on the front lines is a risky situation.

Image by Getty Images via @daylife

Rasor attributes the rise of the private contractors to Rumsfeld. The understaffing of our troops in Iraq led to the need for someone to do the necessary logistics. You may recall that the army wanted 200,000 more troops than they got. With regard to logistics, the army had always operated on a "just in case", which sometimes resulted in having supplies on hand that were not needed. Rumsfeld changed the principle to "just in time", which usually works in business. However, wartime conditions can make it very difficult to meet deadlines.

The truly sad - and very costly - result of all this is that these private contractors have become a permanent part of our defense.

More Fear Mongering

This time by our Attorney General, Eric Holder. Coincidentally, this plot was sponsored by the FBI, via its informants. It does sound truly farfetched; Iran is smarter than to conceive of this very weird plot for so little gain, yet running the great risk that we would bomb than in retaliation. This article by Stephen Walt has some sound arguments why this plot seems nonsensical. The article also has links to rather complete demolitions of Holder's claim.

This is another indication that very smart people do not often make very good leaders.

America, Fall 2011

Yes, it is somewhat overblown but not much.

A Different Recession

The New America Foundation has published what I believe will go down as one of the most important papers published about our current economic problems.

They argue that the current Great Recession is not an ordinary business cycle downturn. It is actually more similar to the Great Depression than has been thought. And, it has been coming for the past twenty years or so. The basic issue is that we live in a finite world, but a world which really had been divided into two parts - the haves and have-nots, developed and undeveloped nations. Over the past 20 or so years many countries, especially China, have been moving from the undeveloped to the developing state, while the developed world has been becoming more efficient, particularly with regard to productivity. From the report:

In consequence, the world economy now is beset by excess supplies of labor, capital, and productive capacity relative to global demand. This not only profoundly dims the prospects for business investment and greater net exports in the developed world — the only other two drivers of recovery when debt-deflation slackens domestic consumer demand. It also puts the entire global economy at risk, owing to the central role that the U.S. economy still is relied on to play as the world’s consumer and borrower of last resort.

The global economy has brought about more competitive labor forces with the result that power has shifted away from labor and towards capital. The result: "stagnant wages in the United States, but also in levels of income and wealth inequality not seen since the immediate pre-Great-Depression1920s".

The report analyzes the attempts made to turn the economy around and concludes that those tried have either gone as far as they can go or have not worked. They are especially dismissive of the fiscal austerity road.

They propose that we proceed in three areas if we are to defeat this severe economic illness:

First, as Pillar 1, a substantial five-to-seven year public investment program that repairs the nation’s crumbling public infrastructure and, in so doing, (a) puts people back to work and (b) lays the foundation for a more efficient and cost-effective national economy. We also emphasize the substantial element of “self-financing” that such a program would enjoy, by virtue of (a) massive currently idle and hence low-priced capacity, (b) significant multiplier effects and (c) historically low government-borrowing costs.

Second, as Pillar 2, a debt restructuring program that is truly national in scope, addressing the (intimately related) banking and real estate sectors in particular – by far the most hard-hit by the recent bubble and bust and hence by far the heaviest drags on recovery now. We note that the worst debt-overhangs and attendant debt-deflations in history6 always have followed on combined real estate and financial asset price bubbles like that we have just experienced. Accordingly, we put forward comprehensive debt-restructuring proposals that we believe will unclog the real estate and financial arteries and restore healthy circulation – with neither overly high nor overly low blood pressure – to our financial and real estate markets as well as to the economy at large.

Third, as Pillar 3, global reforms that can begin the process of restoring balance to the world economy and can facilitate the process of debt de-levering in Europe and the United States. Key over the next five to seven years will be growth of domestic demand in China and other emerging market economies to (a) offset diminished demand in the developed world as it retrenches and trims back its debt overhang, and (b) correct the current imbalance in global supply relative to global demand. Also key will be the establishment of an emergency global demand-stabilization fund to recycle foreign exchange reserves, now held by surplus nations, in a manner that boosts employment in deficit nations. Over the longer term, we note, reforms to the IMF, World Bank Group, and other institutions are apt to prove necessary in order to lend a degree of automaticity to currency adjustments, surplus-recycling, and global liquidity-provision.

The report is fairly complex. For a summary, read Joe Nocera's column.

Calling Obama's Bluff

A Different Painter

A friend of mine - let's call him our Pembroke correspondent - sent me these photos. I don't know who the painter is, but the work he does is certainly amazing. The 'movie' consists of before and after pictures of mundane things, such as the walls of buildings.

A Better Republican Candidate?

Courtesy of our Pembroke correspondent, a somewhat conservative voter.

Creating a False Reality

That's what it looks like the FBI is doing with the terrorism plots it has foiled. The plots were the result of the FBI using its 'informants' to initiate many of these plots. Every so often the media reveals the FBI's arrest of some very bad people who were planning a vicious act of terrorism. A study by UCal and Mother Jones has determined that almost all of these high profile plots were actually FBI stings.

A few other conclusions of the report:

• Nearly half the prosecutions involved the use of informants, many of them incentivized by money (operatives can be paid as much as $100,000 per assignment) or the need to work off criminal or immigration violations. (For more on the details of those 508 cases, see our charts page and searchable database.)
• Sting operations resulted in prosecutions against 158 defendants. Of that total, 49 defendants participated in plots led by an agent provocateur—an FBI operative instigating terrorist action.
• In many sting cases, key encounters between the informant and the target were not recorded—making it hard for defendants claiming entrapment to prove their case.
• Terrorism-related charges are so difficult to beat in court, even when the evidence is thin, that defendants often don't risk a trial.

We know that the FBI has counterterrorism as one of its main tasks. I didn't realize that, measured by its share (about 55%) of the FBI budget, counterterrorism is now its main task. To make it happen, The number of informants used by the FBI has grown from 1,500 in 1975 to 15,000 today. However, this number is the one that is officially acknowledged; some think that there are 2-3 times that many of unofficial informants.

What year is this? 1984?

Books I Didn't Like

I just finished reading "Confidence Men" by Ron Suskind. I'd read some of his articles in the NY Review and was looking forward to reading his latest book. I was disappointed; in fact, I simply skimmed the last chapter. The writing is simply ok. The book is really an indictment of Larry Summers and Tim Geithner; Suskind may have written more about them than about Obama. There were a fair number of words about very minor characters; it seemed he wanted to produce a 500-page tome. Also, I was surprised to find a few typos, which probably arose because of the desire to get the book out as fast as possible.

I wonder if my love of reading is fading. When I was younger, I finished just about every book I started. Now, I don't feel that need. I joined a book club here at Duncaster and couldn't get beyond page 100 of "Before You Know Kindness" by Chris Bohjalian. He's reputed to be quite a good writer and I'm sure my fellow book club members will enthuse about him. I found the book very boring. Perhaps, this is another sign of old age.

Flowers as you've never seen them

Life of flowers from VOROBYOFF PRODUCTION on Vimeo.

Courtesy of our Duncaster correspondent.

A Transition Dividend in Iraq

Deputy Secretary of State, Tom Nides, says that we'll be getting a transition dividend when the State Department takes over for the military in Iraq. Annual costs will decrease from $50 billion to less than $6. Not bad, huh? Hmm, what could we buy with less than $6 billion a year in the U.S.?

Of course, we shouldn't expect the diplomatic costs of staying in Baghdad to be small. After all, it is our largest embassy in the world and cost almost $1 billion to build. So, we'll need about 16,000 people to keep it hopping. Don't worry that 80% of them will be contractors. The 1,750 diplomats and their aides will need to be protected; 5,000 protectors will be necessary. They will need to get to and leave Iraq; hence,  a 46 plane air force will be at their disposal. They will get sick; don't worry they will go to State Dept. hospitals. They will have the benefit of servants to make meals and clean up.

All these tasks are new to the State Dept., which, in the eyes of the Commission on Wartime Contracting, has squandered "billions of U.S. taxpayer dollars in Iraq and Afghanistan". The Commission has raised doubts that State is ready for this.

Photos from Occupy Wall Street

From The Atlantic

More Than Money

Earlier this year I raised the issue of the costs of our maintaining army bases overseas. I believe it to be a waste of money. But perhaps there are other wrongs associated with our foreign bases.  Foreign Policy in Focus discusses the non-financial costs of occupation. Basically, these costs engender hatred of our troops and this country due to crimes committed by some of these troops; it's very likely that only a small number of troops are involved, but enough havoc and commotion has been wrought to create major problems.

A member of the Korean Assembly claims that 377 U.S. soldiers have been arrested so far this year. In Okinawa a women's group claims that, from 1972 to 2005, U.S. soldiers committed over 5,500 crimes against civilians, but only 700 U.S. soldiers have been arrested. Farmers in Korea protested the loss of their homes and farms so that the U.S. base could be expanded; the base was expanded. Now, a similar battle is being waged to prevent the expansion of a naval base. 6.5% of the population in Guam sent letters of concern to the Pentagon asking that expansion of a base on Guam be rescinded. Law suits have been filed to stop the expansion.

This is not the way to win friends and influence people.

Why the HAMP Program Has Had Little Effect

Our leaders made a lot of noise when the Housing Assistance Modification Program (HAMP) was announced.  HAMP was going to help 3-4 million homeowners; it has a $50 billion budget to encourage mortgage servicers to modify loans. The results so far have been pretty bad. Less than 800,000 homeowners have had their loans modified. Only $1.6 billion of the $50 billion has been paid out. And HAMP was launched more than two years ago.

Not only have many homeowners not been helped, but there has been very little concern as to whether the mortgage servicers were following HAMP's rules. It took more than eight months to conduct the first audit of a servicer. The audit found that the servicer, GMAC, had miscalculated homeowner income in 80% of the audited cases. The penalty to GMAC - nada. This miscalculation of income seems to have been fairly common among the servicers.

Apparently, the auditors were quite naive or too friendly with GMAC as they approved cases where HAMP's rules were violated by GMAC. Probably inadequate auditing should have been expected as Freddie Mac was the auditor. Clearly, the Treasury has something to hide about this program since they are making it very difficult for ProPublica to get access to the audits of other servicers.

Here's what Neil Barofsky,  the former special inspector general for the Troubled Asset Relief Program, better known as TARP or the bank bailout, which provided the money for HAMP, said, “For two years, they’ve known how abysmal servicers were performing, and decided to do nothing. It demonstrates that if you have a set of rules for which compliance is completely voluntary and no meaningful consequences for those who violate them, having all the audits and reviews in the world are not going to make a bit of difference. It’s why the program has been a colossal failure.”

Not Very Specific and Too Many Demands

Well, they - Occupy Wall Street -  are taking an important step: trying to specify their goals. Of course, being a true grass roots organization and, thus, not having leaders, this list is unofficial. Here it is:

• Restoration of the living wage.
• Institute a universal single payer healthcare system.  
• Guaranteed living wage income regardless of employment.
• Free college education.
• Begin a fast track process to bring the fossil fuel economy to an end while at the same bringing the alternative energy economy up to energy demand.
• One trillion dollars in infrastructure (Water, Sewer, Rail, Roads and Bridges and Electrical Grid) spending now.
• One trillion dollars in ecological restoration planting forests, reestablishing wetlands and the natural flow of river systems and decommissioning of all of America's nuclear power plants.
• Racial and gender equal rights amendment.
• Open borders migration. anyone can travel anywhere to work and live.
• Bring American elections up to international standards of a paper ballot precinct counted and recounted in front of an independent and party observers system.
• Immediate across the board debt forgiveness for all.
• Outlaw all credit reporting agencies.
• Allow all workers to sign a ballot at any time during a union organizing campaign or at any time that represents their yeah or nay to having a union represent them in collective bargaining or to form a union.

It's not exactly a laser-like focus on a few concrete, easily understood goals, but it is a start.

Wasting our money

The Federal Housing Finance Agency (FHFA) has the job of conservator for Fannie Mae and Freddie Mac. FHFA's Inspector General (IG) does not think FHFA did a good job when dealing with BofA, which, like other mortgage holders, was allowed to sell some of its mortgages to the agencies. However, the mortgages had to meet certain criteria; those that did not meet the criteria had to be re-bought by the mortgagor. 

Well, the IG asserts that there was little review of BofA's mortgages and we lost billions of dollars when the agencies settled with BofA. Furthermore, it looks like many more billions will be lost unless the agencies change their loan review process. It should be noted "that over 93% of the year-to-date [loan] foreclosures from the 2005 and 2006 [loan] vintages have been excluded from [loan repurchase] review.” 

So, one could easily see that there was probably a problem here and FHFA was not doing its job of conservator. The question is will the agencies and FHFA do the job for which they are being paid and ensure that we don't lose any more money.

Jon Stewart on Occupy Wall Street

A Surprise

David Frum is a conservative. He was a speechwriter for George W. and an adviser to Rudy. Yet this is his view on the Republican consensus as to what should be done to restore the economy.

It is wrong in its call for monetary tightening.

It is wrong to demand immediate debt reduction rather than wait until after the economy recovers.

It is wrong to deny that “we have a revenue problem.”

It is wrong in worrying too much about (non-existent) inflation and disregarding the (very real) threat of a second slump into recession and deflation.

It is wrong to blame government regulation and (as yet unimposed) tax increases for the severity of the recession.

It is wrong to oppose job-creating infrastructure programs.

It is wrong to hesitate to provide unemployment insurance, food stamps, and other forms of income maintenance to the unemployed.

It is wrong to fetishize the exchange value of the dollar against other currencies.

It is wrong to believe that cuts in marginal tax rates will suffice to generate job growth in today’s circumstance.

It is wrong to blame minor and marginal government policies like the Community Reinvestment Act for the financial crisis while ignoring the much more important role of government inaction to police overall levels of leverage within the financial system.

It is wrong to dismiss the Euro crisis as something remote from American concerns.

It is wrong to resist US cooperation with European authorities in organizing a work-out of the debt problems of the Eurozone countries.

It is wrong above all in its dangerous combination of apocalyptic pessimism about the long-term future of the country with aloof indifference to unemployment.

Barack is following Occupy Wall Street

He says it's not his fault that the economy sucks and the banks are not helping things. Perhaps, if, back in 2009, he didn't listen to Summers and Geithner and instead listened to Volcker, we would not be where we are now - in a quagmire and sinking fast. Obama yearns for the old time prudent banker who tends to the old time knitting. Then he should try to restore Glass-Steagal. I wonder why he did not back Warren to head CFPB. By any chance did the banks not like her?

Barack is concerned that "not everybody is following the rules". Then, why isn't the AG going after these people?

Following the Trail

I look at a fair number of web sites each day looking for something intriguing. One of these sites is the Columbia Journalism Review. 

An article about a Town Hall in Nebraska seemed interesting. But the title was not really related to the subject matter, which was Obama's inability to connect with the average person. The author interviewed a number of people in Lincoln, Nebraska. I doubt that each interview was planned. He simply talked to people he met walking down the street.Some interesting quotes:

         He’s nothing but campaigning for himself. 

         I don’t think they can completely understand how hard it is. 

         He's saying a lot of stuff he hasn’t really done. 

The article took me to the Washington Post's Richard Cohen. His article was entitled "Mr. Cool Turns Cold". The 'money quote' for me:

Obama has always been the man he is today. He is the very personification of cognitive dissonance — the gap between what we (especially liberals) expected of the first serious African American presidential candidate and the man he in fact is. He has next to none of the rhetorical qualities of the old-time black politicians. He would eschew the cliche, but he feels little of their pain. In this sense, he has been patronized by liberals who looked at a man and saw black and has been reviled by those who looked at a black man and saw “other.”

Cohen's article referenced Ann Gerhart, another Post writer. She pointed out a distortion by Obama with regard to his mother's health insurance. And she raised doubts as to how close Obama was to his mother, as he did not see her for months in her last year.

An interesting, but once more dispiriting, trail.

One Reason for 'Occupy Wall Street'

From the Census Bureau via Jared Bernstein:

Bernie has some ideas about economic royalists