carapace – Not your father's america

Wall St. and the Media Are Trying to Make Us Forget Who Started the Financial Crash

By Les Leopold, AlterNet. Posted May 20, 2009.

We’re at the moment Wall Street has been waiting for: The time where we begin to forget who brought the economy down.

It’s fast approaching the time Wall Street has been waiting for: the time when the media and the public forget what got us into this economic mess. As massive doses of taxpayer Viagra lift the stock market ticker, we hold out hope that our 401k and pension plans will re-erect themselves along with our jobs. We feel stimulated by the stimulus package… and the morning after we forget. The crisis, whatever it was, is over, isn’t it? Surely, it’s time to move on.

Wall Street is praying that we forget how they broke open the Treasury vault to the tune of trillions in loan guarantees, subsidies and interest free money in addition to the more highly publicized TARP funds — the largest transfer of wealth since African-American slaves built the South. It would be nice if we forgot about proposed wage caps on bankers. It would be nice if we stopped talking about ridiculous reforms and regulations that might prevent banker and hedge funds operators from walking off with hundreds of millions in private booty. Better to turn our attention to the auto industry. And maybe, if it all breaks just right, most of us might start to believe that the real problem all along was Detroit, rather than the wildest Wall Street casino ever created. It would be much better for the wealthy if we returned to one of our favorite pastimes: blaming autoworkers’ health care and pension benefits, or blasting big government for interfering in the economy.

Are we really going to forget? That depends on the severity of the crisis and it depends on our ability to understand it. Some see green shoots all around. (I would like to sell them the Brooklyn Bridge) I’m no soothsayer so I can’t tell you how long this crisis will last, or how much carnage it will cause, or even if the green shoots will be killed by all the financial toxic waste still polluting our economy. But I can help us remember its key characteristics: This crisis was the result of a total failure of financial markets. It wasn’t caused by consumers taking on too much debt, or a housing bubble, or uncompetitive industries. It was caused by financial markets run wild. It wasn’t caused by Fannie Mae or Freddie Mac or big government. It was caused because our leaders believed free-markets could run on their own. Greenspan, Rubin, Bernanke and scores of others both on Wall Street and in government (or in the revolving doors between them) proclaimed that the free-market always knows best. It was ok if the elite gained riches once reserved for royalty. It was ok because their prowess and ingenuity drove our economy to new heights. They were the financial innovators of the world. It was far better for America to produce new financial instruments than to make solar energy or efficient cars.

They were dead wrong. Left to its own devices, the financial system crashed. We gave them every kind of deregulation they wanted and they drove the economy off a cliff.

Yet, it’s easier to blame average consumers who ran up too much debt on their credit cards or subprime borrowers who got in over their heads. In times of crisis, our complicit media likes to spread blame around. Columnist David Brooks suggests that the big unanswered question of the crash of 2008 is “how so many people could be so stupid, incompetent and self-destructive all at once.”
( www.nytimes.com/2009/01/16/opinion/16brooks.html.) But everyone is not to blame. Not this time. Financial free markets failed. Free-market ideology failed. Firms that are too big to fail, failed (while profiting all the way until they raided the Treasury.). Let’s hope our memories don’t fail as well.

PS. My editors tell me I should end on a more empowering, uplifting note. Here’s one: Turn the too-big-to-fail banks into publicly regulated utilities. That might prevent the next crash and might prove less taxing on our memories.

Les Leopold is the executive director of the Labor Institute and Public Health Institute in New York, and author of The Man Who Hated Work and Loved Labor: The Life and Times of Tony Mazzocchi (Chelsea Green Publishing, 2007).

From: http://tinyurl.com/ofuwmt (www.alternet.org)

(click here to view)

Mike Luckovich Atlanta Journal-Constitution Apr 15, 2009 EditorialCartoonists.com

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The Strange Death of American Capitalism

May 17, 2009
Book Review of Bailout Nation by Barry Ritholtz

In The Strange Death of Liberal England, George Dangerfield famously described how the British Liberal Party—and by extension, England’s once-unshakable faith in liberalism—suddenly and unexpectedly vanished. Despite its outward appearance of solidity, once liberalism was challenged, it crumbled to dust. How could a faith that was so dominant for so long, suddenly disappear; not only die quickly—indeed with a whimper—but do so without putting up any resistance?

These are similar questions future historians will have when they look back at the first decade of twenty-first century America. At the dawn of the new millennium, America’s faith in capitalism was also unshakable. Yet, within a few short weeks in 2008, the entire edifice came crashing down. Even voting didn’t seem to matter. First under a Republican administration and then under a Democratic one, large sectors of the economy received unprecedented amounts of government support. A staggering $15 trillion of taxpayer money has been put on the line.

The American economy reached its humiliating nadir at Davos earlier this year when our fiscal profligacy was criticized by the Wen Jiabao, the premier of what was once-called Red China. Worst of all, he was right.

What Happened?

In Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy, Barry Ritholtz takes on that question with gusto and the result is a wonderfully engaging book. Bailout Nation describes not only what happened and what went wrong, but also why. Don’t worry, you don’t need an advanced degree in economics to follow the story. Bailout Nation manages to be both comprehensive and easy to read.

Ritholtz is already known to countless investors through his invaluable blog, The Big Picture. (Full disclose: He’s been a supporter of CWS from its earliest days.) I have to confess to having some initial reservations about Ritholtz’s book. What makes him a great blogger, I feared, might not transfer well to a 300-page sustained argument. Let’s just say that Ritholtz isn’t exactly a “shades of gray” kind of guy. When a rapier is needed, Ritholtz is fully willing to use a cluster bomb. If you don’t think it’s possible to get a true sense of moral outrage over, say, the latest BLS report, well…you haven’t read The Big Picture.

Fortunately, my fears were unfounded. Ritholtz does very well in book form. His editor, Aaron Task, served him well; the prose is compact and well-organized, though I’m fairly certain of the sentences where Ritholtz shook off all editorial changes. Where Ritholtz truly shines is in drawing connections between seemingly disparate events; the fall of Bear Stearns, oleaginous mortgage brokers, the repeal of Glass-Steagall, the growth of credit default swaps, even the effects of reforming the Consumer Price Index, all play a role in this complex mess of unintended consequences, vicious cycles, ideological blindness and abject stupidity. I can’t remember the last time I had so much fun reading about the Apocalypse

There are, however, a few minor errors. The Jefferson quote, “Banking establishments are more dangerous than standing armies” (page 15) is probably bogus. Also, on page 96, Ritholtz writes, “the psychological impact that feeling financially flush has on spending cannot be underestimated.” He surely means overestimated. These errors are minor of course, and it may be a reflection of covering events in real time.

Even before its release, Bailout Nation itself became a news story. In February, McGraw-Hill, the originally publisher, announced that it was ditching the project. Ritholtz claimed it was due to his criticisms of the Wall Street ratings agencies (McGraw-Hill owns Standard & Poor’s). McGraw-Hill denied this although curiously, the editor Ritholtz had been working with, resigned one week later. Fortunately, John Willey & Sons picked up the project and brought it to life (or, if you prefer, bailed it out).

Lockheed Was the Original Sin

So how did we end up were we are? Ritholtz persuasively makes the case that we didn’t suddenly abandon our capitalist faith. Instead, he argues that our fondness for bailouts isn’t new. Ritholtz pinpoints our original sin in the 1971 bailout of Lockheed. By today’s standard, that bailout was laughably small—just $250 million.

The important point is that a new standard had been established, and the government and Corporate America responded accordingly. Soon, bailouts became like a narcotic. Our fixes could only be satiated by steadily larger rescues. Soon Penn Central received a bailout, followed by Chrysler a few years later, then Continental Illinois (which ironically found itself in the hands of Bank of America).

Ritholtz agues that the bailouts, even when successful in the short-term, do considerable long-term damage. After the Chrysler bailout, for example, the already somnolent auto industry grew even more complacent. Ritholtz considers an alternative history: What if Chrysler had been allowed to fail? Might Detroit have reformed itself? We’ll never know because as the public became slowly inured to these bailouts, they were free to grow larger.

Ritholtz expands his argument by adding the machinations of the Federal Reserve to the growing bailout trend. This is a crucial point because too few observers see the motives behind the central bank. Any good story needs a top-notch villain and in Bailout Nation, it’s a certain Randian jazz musician named Alan Greenspan.

The Mess That Greenspan Made

Ritholtz doesn’t suffer fools gladly and Greenspan gets a well-deserved skewering.

Ritholtz tracks how Greenspan purposely and quite clearly altered the Fed’s mandate to include supporting asset prices. The facts Ritholtz presents are strong. The Fed-orchestrated bailout of LTCM had a profound effect on Wall Street’s risk-taking mentality. Whenever the market tumbled, Greenspan jumped in to cut rates. Bubbles, however, in tech stocks and later in housing were allowed to grow unchecked.

According to Ritholtz, it was Dr. Greenpan’s tonic of absurdly low interest rates that led to an historic housing bubble and all the unpleasantness that followed. The effect was far more damaging than easy money.

Ritholtz stresses that the Fed’s policies changed the rules of the game. For example, the bond market was now forced into a reckless “scramble for yields.” This in turn fed the practice of securitization which, in turned, fueled the disgraceful behavior of the ratings agencies. When yields were low, mischievous behavior flourished. At each juncture, the dots connect back to Greenspan who even disregarded his fellow members of the Federal Open Market Committee.

Incidentally, the section on ratings agencies (pages 111 to 113) is hardly controversial. Ritholtz simply states what’s widely known, that the ratings practiced a form of payola. There’s no other way to say it—the agencies abandoned their professional and moral obligations.
Real Capitalists Nationalize

As for the debt crisis, Ritholtz writes, “From 1 million B.C. up until the present day, the ability to repay the debt has always been the dominant factor—except, however, for a brief five-year period starting around 2002.” It’s sadly true. One strawberry picker in California got a $720,000 loan despite his annual income of $14,000. The system morphed into capitalism without capital.

Technically, the bubble wasn’t in housing, it was in credit. The numbers are staggering. At one point, close to half of all the new jobs created were tied to real estate. Between 2003 and 2006, 75% of GDP growth was solely due to mortgage equity withdrawals. From December 2006 to December 2007, the notional amounts outstanding of credit fault swaps more than quadrupled from $14 trillion to $58 trillion.

Bailout Nation is quick-paced and Ritholtz sprinkles the test with illuminating charts and eye-catching statistics (i.e., Bear Stearns’ liquidity pool dropped by 90% in three days). He wryly notes that it you want to play the bailout game, make sure you do it first and do it big. Ritholtz also has a novel theory for the explosion in executive compensation on Wall Street, but I won’t spoil it for you here.

Characteristicly, Ritholtz isn’t shy about naming names. In Chapter 19, he lists the folks most at fault for the credit mess. It won’t surprise you that Greenspan tops the list. Personally, I think the “savings glut” deserves more attention. Chapter 20 is an interesting take-down of the phony causes of our troubles, like naked shorting and the Community Reinvestment Act.

I should add that Ritholtz is an equal opportunity critic. Many liberals won’t be pleased by his criticisms of bailouts and his dismal of systemic risk (or more accurately, the threat of systemic risk). Parts of the book could have been written by Milton Friedman. Ritholtz even repeats Friedman’s famous mantra, “there is no free lunch.” Plus, any book with a chapter titled, “The Virtues of Foreclosure,” isn’t about to win a Bleeding Heart of the Year award.

Conservative will certainly take issue with Ritholtz’s criticisms of financial deregulation and his call for therapeutic nationalization. What I find most disturbing is how much of the government’s behavior was simply arbitrary. Ritholtz makes it clear: They were just making it up as they went along.

Ritholtz favors temporarily nationalizing insolvent banks. Mind you, this ain’t exactly Pol Pot. Ritholtz merely wants bad banks taken out, cleaned up and restored to health. He believes it’s the solution that will cause the least damage (“real capitalists nationalize”). I think he’s on sound footing here. It’s odd that we can watch Citigroup fall from $57 to 97 cents, yet bringing it that last bit to $0 is somehow unacceptable. Ritholtz concludes, “Real capitalists nationalize; faux capitalists look for the free lunch.”

At the beginning of The Strange Death of Liberal England, Dangerfield wrote of the Liberal’s final triumph, “From that victory they never recovered.” Let’s hope American capitalism doesn’t share their fate.

From:

http://www.crossingwallstreet.com/archives/2009/05/the_strange_dea_1.html

Posted by edelfenbein at May 17, 2009 2:54 PM

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Signe Wilkinson Philadelphia Daily News Mar 12, 2009 EditorialCartoonists.com

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Plant closings …

Dennis Kucinich demands that Chrysler explain plant-closing confusion

The Plain Dealer – cleveland.com – Cleveland,OH,USA

His letter mentions “a conference call on April 30, 2009″ in which “members of Congress were assured that there would be no permanent Chrysler plant
…

http://www.cleveland.com/plaindealer/index.ssf/2009/05/kucinich_demands_that_chrysler.html

Rockwood factory closing in June

Knoxville News Sentinel – Knoxville,TN,USA

… is experiencing a slowdown in business due to changing business conditions and the overall downturn in the economy, said plant manager Carey Richardson. …

http://www.knoxnews.com/news/2009/may/18/rockwood-factory-closing-june/

Chrysler expands buyout, early retirement packages

The Associated Press

The new offers apply to the Conner Avenue plant in Detroit; the St. Louis North and South assembly plants; the Kenosha, Wis., engine factory; the Twinsburg, …

http://www.google.com/hostednews/ap/article/ALeqM5gvbF2PoXHfnt3JuyfcQ0uerSbe8AD988NV7O0

Kenosha Workers Protest Plant Closing – Milwaukee News Story …

KENOSHA, Wis. — Auto company to close Wisconsin plant. Monday, May 18, 2009.

Closing of York County Harley-Davidson plant would impact entire …

By TW BURGER, Of The Patriot-News

Businesses that depend on its remaining 2650 workers said closing the plant would be a disaster. “It would be the worst thing,” said Liviu Hotea, 41, manager of the Round the Clock Diner, just down the road from the Harley plant in Springettsbury Township. … Senators Arlen Specter and Bob Casey sent a letter to Harley Chief Executive Keith Wandell, saying the facility is important to the local economy and urging the company to protect the factory’s jobs. …

http://www.pennlive.com/midstate/index.ssf/2009/05/shutting_down_york_harleydavid.html

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Dwane Powell News and Observer May 8, 2009 EditorialCartoonists.com

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Bait and Switch

The (Futile) Pursuit of the American Dream

by Barbara Ehrenreich

The bestselling author of Nickel and Dimed goes back undercover to do for America’s ailing middle class what she did for the working poor.

Barbara Ehrenreich’s Nickel and Dimed explored the lives of low-wage workers. Now, in Bait and Switch, she enters another hidden realm of the economy: the shadowy world of the white-collar unemployed. Armed with a plausible résumé of a professional “in transition,” she attempts to land a middle-class job — undergoing career coaching and personality testing, then trawling a series of EST-like boot camps, job fairs, networking events, and evangelical job-search ministries. She gets an image makeover, works to project a winning attitude, yet is proselytized, scammed, lectured, and — again and again — rejected.

Bait and Switch highlights the people who’ve done everything right — gotten college degrees, developed marketable skills, and built up impressive résumés — yet have become repeatedly vulnerable to financial disaster, and not simply due to the vagaries of the business cycle. Today’s ultra-lean corporations take pride in shedding their “surplus” employees — plunging them, for months or years at a stretch, into the twilight zone of white-collar unemployment, where job searching becomes a full-time job in itself. As Ehrenreich discovers, there are few social supports for these newly disposable workers — and little security even for those who have jobs.

Like the now classic Nickel and Dimed, Bait and Switch is alternately hilarious and tragic, a searing exposé of economic cruelty where we least expect it.

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Bank for International Settlements. – OTC derivatives market activity in the second half of 2008

Basel : Monetary and Economic Dept., Bank for International Settlements, May 2009. 24 p.

http://www.bis.org/publ/otc_hy0905.pdf?noframes=1

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Former U.S. Ambassador to be CEO of Afghanistan?

Tuesday, May 19, 2009

The New York Times reports today: “Zalmay Khalilzad, who was President George W. Bush’s ambassador to Afghanistan, could assume a powerful, unelected position inside the Afghan government under a plan he is discussing with Hamid Karzai, the Afghan president, according to senior American and Afghan officials.” The Times adds that, according to U.S. and Afghan officials, the two have described the position “as the chief executive officer of Afghanistan.”

JIM INGALLS, Ingalls@ipac.caltech.edu
SONALI KOLHATKAR, info@afghanwomensmission.org, http://www.afghanwomensmission.org

Ingalls and Kolhatkar are co-authors of “Bleeding Afghanistan: Washington, Warlords, and the Propaganda of Silence.” Kolhatkar said today: “Khalilzad, a U.S. citizen, is the most overt symbol of U.S. domination of Afghanistan. A close look at his post-9/11 role in Afghanistan reveals his responsibility for directing many of Karzai’s worst mistakes. … Not only does it show an utter lack of respect for Afghan democracy, but presupposes a Karzai win as though there were no other alternative.”

From: Institute for Public Accuracy

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Who cares what Newt Gingrich thinks?

Newt Gingrich made headlines late last week during an interview with ABC News when he unloaded on House Speaker Nancy Pelosi regarding the unfolding Beltway process gotcha story about what she knew about the use of torture seven years ago. Gingrich made a news splash with his red-hot rhetoric, condemning Pelosi as a “trivial politician” who is either “incompetent or dishonest,” and accusing her of having “lied to the House.” He demanded a congressional investigation and noted that, as “an Army brat,” he was appalled by the Democrats’ disinterest in defending America.

Read More

http://mediamatters.org/items/200905190003?lid=1036877&rid=27900865

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100 awesome blogs by some of the world’s smartest people from Online Univerities.

http://www.onlineuniversities.com/blog/2009/05/100-awesome-blogs-by-some-of-the-worlds-smartest-people/

From: http://angrybear.blogspot.com

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Borowitz Report – I Can’t Believe NBC

May 19, 2009

NBC to Produce Just One Episode of Jay Leno Show; Will Rerun It Until Someone Notices
Latest Cost-cutting Move From Peacock Network

In its boldest move yet to cut costs, NBC announced today that it would produce only one episode of its new “Jay Leno Show” and rerun it until someone notices.

The new Leno program, whose scheduling every weeknight at 10 was heralded as a way for NBC to reduce programming expenses, had originally been conceived as a series that would have an original episode every night.

But after looking at the network’s ailing balance sheet, NBC chairman Jeff Zucker decided to greenlight what some within the network have called “the nuclear option”: producing only one episode and rerunning it ad infinitum.

“To many Americans, Jay Leno is their favorite comfort food,” Mr. Zucker said. “We can think of nothing more comforting than offering them the opportunity to watch the same episode of Jay’s show over and over and over again.”

Mr. Zucker confirmed that the network downsized the order of the new Leno show after conducting focus groups revealing that viewers were equally satisfied after watching the same episode of “Law & Order” ten times in a row as they were after watching ten different episodes.

“In retrospect, we could have just ordered one episode of ‘Law and Order’ all those years,” Mr. Zucker said. “That means we bought 4,000 episodes we really didn’t need.”

Elsewhere, in its last official mission, the Hubble telescope took amazing pictures of Brad and Angelina.

Read a great interview about how to be happier here.

http://www.slate.com/blogs/blogs/happinessproject/

Andy’s Upcoming Events

Upcoming Events

May 23, 2009 at 2:00PM
Cleveland – Free Show!

Andy performs a free stand-up show in his hometown. Meet Andy and his wife Olivia Gentile; Olivia will read from her new book, LIFE LIST, and both will sign their books afterward.

Location:
Joseph-Beth Bookstore, 24519 Cedar Road, Lyndhurst

http://www.borowitzreport.com/

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three thousand words

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Matt Davies Journal News May 20, 2009 EditorialCartoonists.com

Cartoon du Jour – By Khalil: beware of dick
(www.bendib.com)

Mike Keefe: Retirement Village
(www.intoon.com)

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