Saturday, July 31, 2010


It appears that the privatization of Social Security (essentially turning the funds over to Wall Street) is making a comeback. Anticipated shortfalls - made worse by Wall Street's national recession - are helping to drive the discussion. This Modern World  does a pretty good job of walking us through the other issues and absurdities that surround the issue (click to enlarge) ...

While I have no problem with bumping up the retirement age a bit (a discussion for another day), I can't tell you what a disaster the privatization of social security would be for the elderly -- and our nation. Have we learned nothing from the 2008 meltdown?

Keep in mind that the same guys who got us into this mess are still running the show on Wall Street. The new regulations aren't that impressive either. Besides, Wall Street worked around previous regulations, and don't seem deterred by the prospect of having to pay a few fines today.

If you want a few insights into the issue, and how we can "save" social security, click here.

- Mark

Friday, July 30, 2010


"The American Republic will endure until the day Congress
discovers that it can bribe the public with the public's money."
- Alexis de Tocqueville, in Democracy in America

Wall Street's biggest financial institutions deliberately lie and distort for one reason. Because it pays.

Today Bloomberg is reporting that Citibank left billions of dollars in toxic assets off of it's books, which helped mislead investors and regulators. Doing so allowed Citigroup - which received about $45 billion in taxpayer bailout funds - to continue selling their wares as if they were solid assets. They were not. They now have to pay a $75 million fine for misleading investors.

Count me a unimpressed by the punishment. To understand why let's play "What would you do?"

Let's say you need to dump sell billions of dollars in toxic assets on unsuspecting buyers (in this case pension funds, foreign institutions, etc.). This will help you earn billions over the long term. This will also net you and your other partners in crime hundreds of millions in bonuses (often done creatively to avoid public scrutiny). The only down side is that you have pay a $75 million as a penalty, if you get caught. What would you do?

Think hard about this one ...

I know, it's a tough one ... Do the right (and legal) thing, and tell everyone what you have is crap. Or "mistate" assets and let people buy the crap you have. Hmmm. What to do, what to do?

Well, on Wall Street, where ethics and morality get lost in some kind of giant Black Hole of corporate stupidity and greed, the answer is to deceive and mislead. Big time.

Check this out.

Earlier this month Goldman Sachs agreed to pay $550 million to settle charges that it sold "made-to-fail" assets in 2007. They did so without disclosing that they knew the company (Paulson & Co.) that helped create the asset did so with the idea that it would fail. In fact, they bet on it. They actually went out and purchased insurance on the made-to-fail assets, which netted them huge profits. Nice.

Then, in February, Bank of America said it would pay $150 million for failing to tell shareholders about anticipated losses, and the $5.8 billion in bonuses that was set aside, which were part of the Merrill Lynch purchase. Shall we score another one for doing the right thing, and corporate transparency?

(Note: While BofA paid $33 billion for Merrill Lynch - which was loaded up with toxic assets - Bank of America was given more than $100 billion in taxpayer bailout aid and other guarantees to help it stave off more than $118 billion in losses, and possible bankruptcy. This is the essence of corporate welfare.)

Anyways, back to my original question: What would you do if you could secure money that's virtually "penalty free" by deliberately lying? I know. It's a tough one. Think hard, again ...

The moral of this story is that it's business as usual in America. And that's a bad thing.

Not much to say here except that we're screwed, again.

- Mark

Wednesday, July 28, 2010


I like how Republicans point to President Obama's falling job approval ratings as evidence that the country is turning against him. What they need to do is take a look at President Reagan's numbers at a similar point in his presidency, and then compare him with President Obama.

The reality is that when America "turned" on Ronald Reagan the Republicans had no problem with it. In fact they believed Reagan needed to stay the course and deserved a second term ... even if that meant giving President Reagan more time to effectively triple our national debt.

Still, now that the public is giving President Obama the same approval numbers that they gave President Reagan at a similar point in his presidency, Republicans want everyone to believe that President Obama is losing America. I know it's beltway politics, but it shows that they want President Obama to fail, and will do anything to discredit him. Even if it means ignoring the political realities surrounding their hero, President Reagan.

- Mark


As I noted last week, the rise of the militarists after 9/11 has created a new environment in Washington.

Today, military hawks manipulate military budgets in a way that's not financially prudent for our nation. Worse, they have a tendency to classify everything that crosses their desks as "top secret". Consider the following, which even the experts acknowledge creates redundancy and overkill.
* We have over 10,000 counterterrorism, homeland security and intelligence locations across the country.
* We have over 850,000 intelligence personnel with "top secret" access.
* We also produce over 50,000 intelligence reports (no doubt all "top secret") every year.
In a few words, Washington is in the process of developing a cloak and dagger culture that pretty much makes a mockery of top secret clearance.

Helping us understand this is Comedy Central's Stephen Colbert.

In one of his most incisive and lucid clips, Stephen Colbert makes it clear that the war crazies are starting to make a joke of security and what gets classified. Colbert uses the recent WikiLeaks release of 92,000 Afghan War related documents to help us understand that, in reality, "there's no new broad revelations" in the document dump, and that the government is pretty much classifying stuff that we already know about. More specifically ...
* Civilians have been killed by U.S. forces.
* Pakistan helps al Qaeda.
* Afghanistan is a tough place to wage war.
Watch the Colbert clip. It's pretty funny. His "ObviLeaks" reference is classic.

- Mark

Tuesday, July 27, 2010


Rep. Michele Bachmann (R-MN) thinks that the Republicans should spend all their time investigating the Obama administration if they win in November.

"Oh, I think that's all we should do ... I think that all we should do is issue subpoenas and have one hearing after another, and expose all the nonsense that has gone on. And it's very important when we come back that we have constitutional conservative leadership, because the American people's patience is about this big. So we have to make sure that we do what the people want us to do."

So when the Bush administration created massive deficits, ran our economy into the ground, and then ran roughshod over the Constitution, that was fine by Bachmann. Trying to clean up Bush's mess? That deserves to be investigated.

What an idiot.

- Mark

Keep in mind that Bachmann has a history of saying things that don't make sense. Here's a small snippet ...

Thursday, July 22, 2010


If you're wondering what to make of the race-baiting train wreck surrounding Fox News and serial distorter Andrew Breitbart - and their current pawn, Shirley Sherrod - you can start by reading Bob Cesca's piece here. I think he's correct when he says that Fox News and their fraud machine will do this again because:

... the traditional news media and, to a certain extent, the Democrats including the president, are too easily cowed by right-wing freakouts.

But it's actually worse. As Cenk Uygur of The Young Turks points out, the Obama administration has increasingly become a team of political cowards -- desparate not to be called names by the unethical media clowns at Fox News. When it comes to staring down Fox News, Cenk Uygur points to a disturbing trend:

Van Jones, ACORN, Dawn Johnsen, Shirley Sherrod. First sign of trouble, throw someone overboard ... Do you think the bully won't take your lunch money tomorrow if you give it to him today?

I don't want to dwell on the race issue here because it's really a distraction. And besides, doing so buys into the small-minded tactics used by Fox News and the far right (though Breitbart's still trying to keep the race issue alive). We should be concerned about how they are achieving their much larger big picture strategy: Fox News and the far right don't want President Obama to govern, let alone govern effectively. They want him to fail.

Keeping President Obama off balance by muddying the policy waters, and forcing him to concentrate on obnoxious media distractions, helps them achieve this goal. And they have plenty of help.

The Party of No - who provide useful political props for Fox News programming - has forced President Obama into meekly accepting a 60-vote, filibuster proof, environment in the Senate. This is a travesty of our democracy. But Team Obama accepts it in an effort to convince Independents to vote for and work with them. Then we have the Tea Party idiots. As I've pointed out before, they're not grass-root patriots. They're disgruntled Republicans who are pissed off that their team lost in 2008. They're recycled John Birchers ... old wine in a new bottle.

Worse, Fox News has a seemingly endless Mini Me team of Andrew Breitbarts, who are ready to follow Glen Beck's lead, doing what's necessary to bring the Republican Party - and their failed ideology - back into power in 2010. To date, this is what this mafia of mediocrity has achieved:

* President Obama caved in to fears of being called a socialist when he should have nationalized our failed financial institutions, and then fired the executives who ran their companies into the ground.

* President Obama caved in to fears of being called a communist when he allowed the banksters to walk away with billions in taxpayer funded bonus payouts, without even a threat of a retroactive (clawback) tax.

* President Obama caved in to fears of being called a Nazi when he failed to push for a genuine public option in the health care bill.

* President Obama caved in to being called weak when he sent thousands of more troops into President Bush's failed war in Afghanistan.

And what did President Obama get in return for doing the status quo "centrist" thing? The far right promptly started calling him a socialist, a communist, a Nazi, and a weakling. Oh, and for good measure, he's not their president because he's not a U.S. citizen. Way to go Team Obama. You just got your ass handed to you trying to appease a media clown show headed by Fox News (Shepard Smith excluded).

There's more, but the point is this. If there's no blowback from the real media or the White House against Fox News and Andrew Breitbart we can expect more of this in the future. The lies and innuendo will continue. And we all know what happens if you repeat a lie often enough ...

If there is a silver lining in any of this it's that the Supreme Court has held that you can't yell fire in a crowded theater. We saw how this legal principle could be applied (creatively) in a larger political setting with the backlash against Father Coughlin in the 1940s. Team Obama could learn much by reviewing this history.

I hope they do. Fox News and the far right have moved beyond yelling fire in our crowded political theater. They're now starting them.

- Mark

Wednesday, July 21, 2010


Robert Smith at points us to a rather strange development in the rating world. They're afraid to take responsibility for doing do their job.

It turns out that the new financial regulation legislation that's about to land on President Obama's desk has a new liability clause. It says investors can sue ratings agencies "for a knowing or reckless failure to conduct a reasonable investigation" of the market instruments that they grade.

In a few words, a ratings agency does research on bonds and other market securities (like ABSs, CDOs, etc.) to determine whether they're risky or solid investments. If they're solid investments they will get a Triple A rating. Market players like AAA ratings because it makes it easier to sell their products (bonds, securities, etc.). Undeserved favorable ratings are what allowed America's financial institutions to sell securities that were backed by toxic mortgages.

Under the proposed legislation the ratings agencies who blew it big time before the 2008 market collapse -  because they handed out AAA ratings on virtually anything the financial institutions threw out there - are now subject to “expert liability” claims if they jump into bed with their Wall Street patrons, again. They don't like it.

Here's my question. At what point does the concept of taking responsibility for doing your job return to the Wall Street? Diligence, integrity, and honesty should not be a one way street, traveled on only by the American taxpayer.

Seriously, the proposed legislation only mandates that companies in the ratings world - who make millions of dollars for being "experts" - not "knowingly" or "recklessly" do a poor job. It doesn't prevent them from doing a poor job. It just says don't do a poor job on purpose ... no more regulatory subsidies. Pretty simple if you ask me.

At the end of the day, if Wall Street's ratings agency can't find a degree of security, or a loophole, in a weak performance bar that says don't let us catch you becoming incompetent, or negligent, on purpose we're screwed.

- Mark

Tuesday, July 20, 2010


In an effort to win more congressional seats in November it looks like the Republican Party is going to argue that the country needs to re-embrace Bush Era policies in the coming months. That's not a typo. Here's what NRCC chairman Pete Sessions said on Meet the Press this past Sunday.

"We need to go back to the exact same agenda that is empowering the free enterprise system rather than diminishing it."

Got that? The Republicans think that re-embracing the market fairytopia mindset that brought us President Bush's failed policies, and our current economic debacle, is a winning strategy in November.

Responding to the effort to rehabilitate President Bush's image, Bruce Bartlett reminds us what happened when, in Bartlett's words, our "Screwup-in-Chief" was in office (be sure to read the comment section). It's useful to keep in mind that Bruce Bartlett is not only a columnist for, but was Deputy Assistant Secretary for economic policy at the U.S. Treasury Department during the George H.W. Bush Administration. He also served as a senior policy analyst in the White House for Ronald Reagan.

The incredible thing for me is that America even needs to be reminded about the Bush Debacalypse. What a complete and utter disaster for our nation, and for our friends around the world.

Fortunately for us there are people who have spent a good deal of time documenting - and linking us with the evidence that chronicles - President Bush's failed presidency. You can read about our Screwup-in-Chief's 400 biggest failed decisions and policies here.

- Mark

Monday, July 19, 2010


In a series of books that began with Blowback: The Costs and Consequences of American Empire, Chalmers Johnson warns us about the political and military challenges that would face America at the beginning of the 21st century.

Writing before 9/11, Johnson argued that the United States needed to begin the process of disengaging from many of its global commitments, or we would begin to face serious repercussions around the world - both militarily and financially.

Then 9/11 happened.

After 9/11 Johnson came out with The Sorrows of Empire: Militarism, Secrecy, and the End of the Republic, where he describes the full entrenchment of the militarists throughout the U.S. government.

The real problem is not that these militarists are military hawks, pushing for more weapon programs. They have always been around. Instead, Johnson argues, the problem is their hyped up post-9/11 influence, and their new found ability to manipulate military budgets, while classifying everything that crosses their desks as "top secret". At the end of the day, American democracy - and the promises of transparency - suffer.

Finally, Johnson came out with Nemesis: The Last Days of the American Republic (2006).

In it Johnson writes about militarism, imperial hubris, national security secrecy, secret armies, and executive arrogance that have worked to undermine the promises of the Constitution. He compares the U.S. to ancient Rome and asks why we don't (or haven't yet) learned the lessons of history.

I bring the Johnson Trilogy up because of this Washington Post article.

Drawing on information provided by Washington insiders, including a few "Super Users" who have access to the most sensitive security briefings, the Washington Post's initial report provides a stunning look at how out of control our America's militarism has become. According to the Post article, one Super User recounted how, for his initial briefing, he was escorted into a tiny, dark room, seated at a small table and told he couldn't take notes. Program after program began flashing on a screen, until he finally yelled ''Stop!" in frustration.

He simply couldn't take it all in. "I wasn't remembering any of it," he said. Among the findings include:

* Some 1,271 government organizations and 1,931 private companies work on programs related to counter terrorism, homeland security and intelligence in about 10,000 locations across the U.S.

* Nearly 1 1/2 times the number of people who live in Washington, D.C., hold top-secret security clearances.

* In the D.C. metropolitan area, 33 building complexes for top-secret intelligence work are under construction or have been built since 9/11. They occupy the equivalent of three Pentagons.

* Many security and intelligence agencies do the exact same work, creating redundancy and waste.

* 50,000 intelligence reports are issued each year--amongst 1,000 a week--that even senior officials admit cannot possibly be digested.

Whether we're facing, as Chalmers Johnson argued, the last days of the Republic, is yet to be determined. But one thing is clear. Rather than streamlining our defense priorities 9/11 has only served to privatize security, put it's users on steroids, while vastly expanding our military budgets.

How bad has it gotten? According to CIA Director Leon Panetta, the levels of spending since 9/11 are not sustainable. "Particularly with these deficits, we're going to hit the wall ..." Yet, no one can say that we're safer today than we were before 9/11. Still, the national security crazies say we need to spend more. Great.

Chalmers Johnson's discussions on blowback, secrecy & militarism, and the last days of the American Republic all seem to be wrapped up in the Post's series this week. Be sure to read it. The Washington Post will be running these articles throughout the week.

Stay tuned.

- Mark

UPDATE: Click here for additional figures, and discussion.

Friday, July 16, 2010


So Tim Geithner opposes nominating Elizabeth Warren for the new consumer protection agency? Well, at least he's consistent ... about protecting the interests of Wall Street over Main Street. 

As I've suggested before, Elizabeth Warren is precisely the type of person we need to head an agency like the new consumer protection agency. While there's no evidence to indicate that he will, President Obama would do well to ignore Geithner's advice.

If he doesn't, well ...

- Mark

Thursday, July 15, 2010


Incredible. Senator John Kyl (R-AZ) asserts that we can afford George W. Bush's tax cuts for the rich, which will cost at least $1.3 trillion from 2012 through 2021. But we can't afford unemployment insurance that will cost $33 billion because it's too expensive. Proving that stupidity likes company, we got this from Oklahama Sen. Tom Coburn yesterday. He apparently agrees with the Senator from Fantasia ...  

Suggesting that tax cuts don't cost anything, after almost 30 years of evidence that tell us otherwise, is the essence of crazy stupid. Indeed, new data shows that legislation under President Bush not only increased the deficit by $539 billion in 2005 but that - as Ezra Klein points out - in the absence of Bush era policies, our nation would be running a surplus this year.

Let me repeat that. In the absence of Bush era policies, our nation would be running a surplus this year

How do we know this? Because instead of blindly staring at some mystical crystal ball that's clouded in a failed ideology ...

... some people actually look at the numbers. What happens when we do this? We find that if we continue the Bush era tax cuts for the rich they might not cost us just $1.3 trillion by 2021, as noted above. Instead they're more likely to cost us $3.28 trillion by 2018. Nice.

The Republican response to all of this? They stare harder at the crystal ball and say in their best, spooky, Vincent Price voice, "Don't tax the rich. Our failed ideology of tax cuts for the rich - followed by budget surpluses - has been blessed with our new super secret magic potion ... all you need to do is just need to give us another chance. The elixir will work this time ... ha, ha, ha, ha, ha ..." (click on the laugh, it's good).

The causes behind today's budget shortfalls are clear. And it has little to do with President Obama, the Democrats, or any of the other nonsense coming from the political right. Check out the numbers.

Failed wars in Iraq and Afghanistan? Bush's fault. Check ...

Bush era tax cuts? Bush's fault. Check ...

Recovery measures made necessary by Bush's failed policies? Bush. Check ...

TARP, Fannie and Freddie. Bi-partisan stupidity over many years. OK, we'll call it a draw ...

Economic downturn? Made possible by reckless deregulation. Accelerated under Bush. Check.

In a few words, because of the Bush train wreck our nation has been sunk into an economic and financial hole that ... and this is the incredible part ... republicans and conservatives want to blame on President Obama. Worse, they want to do it all over again by continuing President Bush's tax cuts for the rich.

This is not just insane. This is the essence of doubling down on the stupid, Republican style.

- Mark

Wednesday, July 14, 2010


“The definition of insanity is doing the
same thing over and over again and
expecting different results.”
Want to see logic taken into a back alley and get mugged by a crazy ideology? Check this out.

Senator Kyl (Lunatic-AZ) belongs in a political straight jacket. Seriously.

As I've pointed out over and over again, the Republican ritualistic-like chant that tax cuts for the rich will cure what ails the economy, and create budget surpluses, began in 1980 during Ronald Reagan's run for the presidency. With over 20 years of evidence I say we take a look at the record.

Under Ronald Reagan's tax cuts for the rich program ...

1980 National Debt: $ 930 billion

1988 National Debt: $2.68 Trillion

In 1988 George H.W. Bush said we had to continue Reaganomics

1989 National Debt: $2.69 Trillion

1992 National Debt: $4.17 Trillion

This means that after 12 years of Reagan-Bush, Republicans had effectively quadrupled our national debt by 1992. Still, in 2000 George W. Bush said we had to cut taxes on the rich, again. What did we get in return?

2000 National Debt: $5.66 Trillion

2008 National Debt: $10.6 Trillion

So, let's recap ... after adding more than $5 Trillion to the national debt, and creating a recession-drenched economy with jihad-like tax cut policies under President Bush (where's the outrage Tea Bag People?), and we get Senator Kyl saying that the country needs to maintain the Bush tax cuts for the rich ...

There's no other way to put this. When it comes to tax policy, Republicans are simply crazy stupid.

- Mark


From ... Why is former Governor Eliot Spitzer (D-NY) described as "disgraced" when GOP johns and adulterers aren't?

Think about it. Senator David Vitter (R-LA) confessed to patronizing prostitutes, while others like Newt Gingrich had an affair with his now third wife, WHILE pursuing impeachment charges against President Clinton for lying about an affair. Yet, Vitter is referred to simply as Senator Vitter, while Newt is contemplating a run for president. Should he run, will we refer to Newt as Serial Alduterer Presidential Candidate Gingrich?

Just asking.

- Mark

Tuesday, July 13, 2010


Of all the issues surrounding Arizona's anti-immigration law perhaps the greatest source of frustration for me is watching the irrefutable stupidity emerging from the "What-part-of-illegal-don't-you-understand?" crowd. Dominated by xenophobia from the far right and by political conservatives (both Democratic and Republican), it's clear that this group is not only intellectually clueless about the forces that drive immigration, but they have no moral compass.

Put more simply, they're a bunch of idiots. Here's just one reason why.

Market Driven Immigration
Back in the late 1980s President George H.W. Bush got together with Mexico's president, Carlos Salinas de Gortari, and Canada's Prime Minister, Brian Mulroney, to propose what would become the North American Free Trade Agreement (NAFTA). Based on the assumption that markets work best when government is pushed out of the way the United States, Mexico, and Canada proceeded to create NAFTA (signed 1992, ratified 1993, implemented 1994).

In the process they also happened to craft one of the most heavily regulated and rule based treaties in diplomatic history.

The important point here is how NAFTA and it's "market-based" rules would work to help push millions of Mexicans into the United States after it was signed into law. Yeah, that's right, NAFTA - which was sold to America as an immigration reducing treaty - actually increases Mexico's migrants into the United States.

Of course, while the negotiations and regulations surrounding the treaty were industry driven, it would also be government enforced. Adam Smith's invisible hand, it would appear, isn't as strong as free marketeers would have you believe.

The important point here is how NAFTA and it's "market-based" rules would work to help push millions of Mexicans into the United States after it was signed into law. 

In an attempt to apply market rules to Mexico President Salinas de Gortari initiated a market-based program that would "privatize" Mexico's publicly held (ejido) land, where more than 20 million poverty-stricken Mexicans reside. But there was a hitch. This could only be accomplished by pushing Mexico's smaller, inefficient farmers off the land. But where would they go? 

Market Fairytopians Get It Wrong (again)
Incredibly enough, none of the free market geniuses negotiating NAFTA gave this much thought. In their world the magic of market would take Mexico's new landless peasants, and turn them into productive capitalists -- in Mexico, of course. Like much of the rhetoric and ignorance coming out of the current immigration-bashing crowd, our NAFTA free marketeers simply didn't understand how the real world works.

Instead of magical market fairies endowing millions of Mexico's landless peasants with education, skills, and a pocket full of money (from the sale of public land that suddenly became theirs) they became free market losers because of Mexico's embrace of market capitalism (to the extent that you can call NAFTA market-based). Like America's failed Homesteaders in the 19th century, and the crushed Dust Bowlers of the 20th century, Mexico's landless peasants would do what they needed to do under dire circumstances.

Migration in the face of daunting circumstances - however you label it - is an historical and human constant.

But wait, it gets worse.

Small Mexican farmers, who decided to stick it out and try to make a living competing in NAFTA's make believe market world, would come to feel the back side of Adam Smith's invisible hand too. In addition to failing to provide any kind of assistance or training to Mexico's rural poor, NAFTA's Founding Fathers didn't do anything of significance about the billions of dollars in market supports in the U.S. and Canada. Under NAFTA America's farmers would continue to receive water subsidies, infrastructure supports, tax write-offs, price supports, and other farm subsidies that have helped make them the most productive farmers in the world.

Mexico, which doesn't have the resources to play the subsidy game, would accept these conditions during NAFTA negotiations. President Carlos Salinas de Gortari simply caved in to U.S. demands in the area of agriculture subsidies. Desperate to get a treaty that would elevate him in the eyes of the world, he accepted verbal assurances (genuine, no doubt) to do something about subsidies later.

As should be expected, those assurances didn't count for much.

Moctezuma's Revenge, Neutered by Price Supports
In 2002 - the 10th Anniversary of NAFTA's signing - the U.S. Congress passed, and free marketeer President George W. Bush signed, a farm bill that would increase U.S. farm subsidies by $180 billion over a ten year period. Because Mexico doesn't have the resources to play the subsidy game they could do little but stand on the side of the road, barking at NAFTA's moving wheels.

To be sure, efforts have been made to make small producers market competitive (see NAFTA and the Campesinos). But with hundreds of billions of dollars in subsidies, and other market supports, in the U.S. Mexico's producers simply can't compete.

For example, America's heavily subsidized corn producers under price Mexico's corn farmers on a regular basis. Today Mexico is a net importer of corn, a commodity that is native to Mexico's heartland. Moctezuma's Revenge, if there ever was such a thing, has effectively been neutered by the God of Profit and price supports.

In practical terms, with similar patterns emerging in other commodity products, this means that Mexico's market-based initiatives in the countryside have had only a marginal impact on creating market entrepreneurs. Without the subsidies, infrastructure supports, lack of credit, tax write-offs, etc. it's impossible to expect the tens of millions of impoverished farmers who live in Mexico's countryside to prosper under NAFTA. Who could have expected more?

Oh, yeah. The same anti-immigrant zealots who push for punitive measures against Mexico's "illegal" immigrants are cut from the same clothe that gave us NAFTA's free market fairytopians. They're mostly republican, conservative democrats (it was Bill Clinton who signed NAFTA into law), and profoundly ignorant when it comes to understanding how modern markets really work.

More simply, you can't craft an industry driven, subsidy-friendly trade agreement - which leaves tens of millions of impoverished Mexicans exposed - and then expect the "magic of the market" to make things whole.

These are the dynamics that the anti-immigration zealots in the U.S. ignore.

Final Comments
The issues surrounding immigration in America are far deeper than being "illegal" in the eyes of the law. We have law breakers around us every day - jaywalkers, speeders, crossing a double yellow line, etc.  Yet, we don't demand draconian-like punishment from the authorities. Intuitively we understand that there is a difference between those who prey on society and every day law breakers trying to make their way through life.

Those who support Arizona's anti-immigration laws need to think these things through, and at another level. Unfortunately, they don't.

I take great pride in pointing to an academic piece I wrote 16 years ago (it's in Spanish). I wrote that NAFTA would not work as promised. In fact, I warned that we would be faced with the grim prospects of increased border tensions when NAFTA failed if we didn't rethink NAFTA. We didn't rethink NAFTA, and NAFTA hasn't worked as promised (which I wrote about here). The results were not only predictable, but are being played out before us now.

Today, just 20 years after celebrating the fall of the Berlin Wall, many Americans are prepared to support repressive border programs that are destined to become national monuments to ignorance, race-baiting, and political cowardice. Today's anti-immigrant zealots, who sing the praises of Arizona's border laws, need to quit acting like history's fools, and take a broader approach to understanding why "illegal" immigration from Mexico occurs.

Ignorance drenched in political cowardice is a hard thing to beat. But, as Forrest Gump might say, "Stupid is as stupid does."

Those who support Arizona's draconian approach to immigration need to think these things through a little better. Sadly, history tells us this will not be the case.

- Mark

Saturday, July 10, 2010


Following World War I and the punitive Treaty of Versailles Germany found itself in quite a predicament. It was forced to pay for the war, but was stripped of it's capacity to produce and earn income at the levels necessary to pay. When Germany defaulted on its obligations in 1923 French and Belgian troops occupied the center of Germany's coal and steel country (the Ruhr River Valley), which incited German resistance and led to hyperinflation in Germany as they attempted to print the money needed to meet their obligations.

To deal with the problem the U.S. led an effort that would help Germany meet it's obligations. Under a proposal put together by American banker Charles G. Dawes, arrangements were made to restructure the reparations agreement. But perhaps the most important element of the Dawes Plan was how it funneled money from U.S. investors into Germany in the form of U.S. bank loans. Money put together by U.S. banks would be used to pay off European states who would then use the money to pay off their creditors. In a circular-like flow, money would eventually flow back into the United States.

While the plan was somewhat successful in staving off Germany's creditors, and defusing the effects of the French and Belgian invasion, it didn't address the primary reality: The Treaty of Versailles was so punitive and unrealistic that it presented Germany with few options.

Worse, the remedy - the Dawes Plan - was based on the blind assumption that new loans from could fix Germany's problems. They couldn't. Germany owed too much. Worse, the source of new loans was tied to an environment created by the Roaring Twenties and Wall Street's nascent bubble mentality. Investor fever, which allowed U.S. bankers to secure money from ordinary Americans, blew up within 5 years. Wall Street's incompetence and greed would take the aspirations and hopes of Germany and, later, Europe down in flames in 1929 (the Young Plan would follow).

When the loans and the circular flow of money dried up - which had been based on Wall Street's bubble - the shortsightedness and stupidity of Versailles was revealed. Worse, it starved Germany and set the conditions for the serpents of Nazism to make their way through Germany.

I bring all of this up because it appears that, following another financial hit from Wall Street, the world is entering another period where trade partners are poised to become increasingly vicious trade competitors.

Rather than learn the lessons of history, world leaders seem to think they're immune to history's lessons. In this piece, from former Labor Secretary Robert Reich, we learn that the world is once again betting the house on another circular flow of market stupidity. Only this time national leaders, who understand that their nation's consumers are broke or tapped out, are betting that they can solve their country's economic problems by exporting to other countries, whose consumers also happen to be broke or tapped out. Seriously.

Reich's article is important for what it tells us about our current predicament, and how simple-minded our leaders have become (yeah, it looks like President Obama might be in this group too). They simply don't understand (or refuse to recognize) how currency wars, the blind alley of debt, and trying to appease Wall Street at the expense of Main Street have ended historically.

Today, in an effort to appease Wall Street's financial institutions world leaders are demonstrating once again that they prepared to drive their own citizens, and each other, into a blind alley with austerity programs and beggar-thy-neighbor policies that inflame national passions. You can't do this and expect the players involved to act rationally over the long term.

For those of you inclined to disagree with me, keep this in mind. This is not me talking about a theory I use in class. This is history whispering in our ear.

- Mark

Thursday, July 8, 2010


Another excellent chart from Chicago mortgage broker Michael David White. In a few words, monthly delinquencies on home loans are 16 times larger than average monthly sales.

What this means is that, with 4.63% homes currently in foreclosure, we could see another 5 million homes added to our nation's housing inventories over the next two years. This is especially the case because while housing prices have collapsed homeowner mortgage debt remains relatively the same ...

As the chart shows, while housing values fell from $20 trillion to $13 trillion (34%), total mortgage debt has barely nudged from $11.95 trillion to $11.68 (about 2%). With President Obama's Making Homes Affordable Program in shambles, and with banks foreclosing on homes with positive equity, it's clear that the banks - rather than homeowners - are the only ones benefitting from the banking/mortgage market crisis and the subsequent bailout.

No wonder the market conspiracies are starting to pop up again. Because Wall Street and the banks didn't have to take a hit from the market collapse, it's easy for some to believe the kooks and tin foil hat crowd who think some evil Dr. Doom is behind all of this. In fact, it's tied to political and regulatory capture in Washington, and a lack of political will. President Obama needs to find his FDR moment ...

- Mark


It looks like British Petroleum is still calling the shots in the Gulf region ...

This suggests that President Obama is falling behind the curve on the clean-up. If you want to tell President Obama that he needs to get on BP, and demand that BP stop blocking clean-up workers from using life-saving respirators click here.

- Mark

Wednesday, July 7, 2010


Wow. Check this out. Banks around the world will have to roll over (refinance) debt amounts between $5 trillion and $15 trillion over the next two years. That's a chunk of change. The primary problem is that banks could find it harder and harder to find the money to roll over debt as asset prices continue to slide downward. The banks will need some real magic. This is where friends from my youth, Rocky & Bullwinkle, come in.

The real trick comes in the form of some real regulatory stupidity (courtesy of the Financial Accounting Standards Board, or FASB) that allows America’s financial institutions to revalue the price of their toxic assets. I’ll leave it to market sociopaths to explain "the market" rationale, which you can find here. The end result is to create a world where Alice in Wonderland math governs our market environment, but how it works is really pretty simple.

Regulating Market Prices Out of the Market
Imagine you own a home before 2008. You likely watched a slow bleed process as it's market price tumbled over the past two years. Your $500,000 home is now worth $250,000 (or something like that). Because you have powerful neighbors who don't want to see their homes lose value if you walk away and leave an empty house (called a strategic default) they get the banks to legally allow you to reinflate the value of your home on their books.

The best part of getting another shot at reassessing the value of your home is that you can maintain previous debt levels, or borrow against the home, as if little happened to your houses market price. To be sure, it's really not that simple. But the concept applies (I've written in greater detail about the process here, here, and here). The end result, though, is that we effectively regulate market prices right out of the market. Same hat trick, different result.

The problem with this regulatory maneuver is that this is not being done for your home. You don't get to use the regulatory tools that the banks have access to. Like handicap parking it’s only available to a certain class of banks. In this case it's (FASB, Statement 157) only available to the incompetent sociopaths who run America’s biggest financial institutions.

Taking the Market Prices Out of the Market
By allowing America's financial institutions to re-price their toxic assets two things happen. Both will help solve our bankster's trillion dollar problem above.

ASSETS ROLLED OVER/GAME CONTINUES: It allows banks and governments, who had to rollover loans in 2009, to pretend the assets they underwrote are worth more than they actually are.

FINANCIAL AND LEGAL BAILOUT: It shields private equity firms in our shadow banking system (private investors) who “invested“ in toxic assets. They escape culpability and investor lawsuits. 

On one level this explains why the recovery we're experiencing is superficial, at best. First we got $1.5 trillion in bailout money from the Bush and Obama administrations to save our nation's financial institutions and their incredibly self-absorbed executives. Then we got trillions more for America’s financial institutions in the form of government guarantees and credits.

And, just like that, our nation’s financial institutions are able to go to the Federal Reserve and Treasury Department and say, "Let us use these repriced (toxic) assets as collateral for a new loan. You can go ahead and keep the asset if I stop paying (wink, wink)."

Flush with bailout cash, new credits, new guarantees, and government approved unicorn methods to revalue their assets, and it should come as no surprise that America's financial institutions have continued to live in a make believe world drenched in irresponsibility and never ending

How Banksters Will Stick Us With the Bill
In 2008 only 2.7% of BofA’s failing loans were backstopped by the American taxpayer. In 2009 that number jumped 20.5%! Take a look at the numbers. But wait, it gets worse. These bad assets - which the Federal Reserve and the financial industry like to call "legacy assets" - are being dumped on the American taxpayer. This is how it's being done.

In order to put America's toxic, or legacy, assets on life-support (while putting more money into the banking system) we created something called a Term Asset-Backed Securities Loan Facility (TALF). In real simple terms TALFs are government-backed loans. They can be accessed by those who hold financial crap, or non-performing securities. To better understand the concept let's use our home example from above.

If TALFs were available to America's home owners they would be able to use their homes to get a loan from the bank, even if they're upside down on the loan. Unfortunately, TALF loans are only made available to America's largest and most powerful financial players through the Federal Reserve of New York (and, no, President Obama's Making Home Affordable Program doesn't even come close to TALF).

Here's the real good part.

The big financial players don't need to put up any good collateral for the loans they get. They can use their poorly performing toxic assets as collateral. Best of all, they can revalue these assets upward, courtesy of the federal government. If the collateral doesn't pay off you and I are stuck with the bill.

How much will this add up to? We don't know just yet. But we do know that the Federal Reserve has made at least $1 trillion available for these TALF products, and another $1.45 trillion for non-performing assets in the housing market.

Put another way, don’t worry about the banks. They’ll get their money to rollover their loans. The American taxpayer, however, will be stuck with the toxic assets and the affects of an austerity program that’s just beginning to take shape.
- Mark

Saturday, July 3, 2010


From the NY Times ...

... an examination of the American tax code indicates that oil production is among the most heavily subsidized businesses, with tax breaks available at virtually every stage of the exploration and extraction process.

According to the most recent study by the Congressional Budget Office, released in 2005, capital investments like oil field leases and drilling equipment are taxed at an effective rate of 9 percent, significantly lower than the overall rate of 25 percent for businesses in general and lower than virtually any other industry.

How bad does it get? According to a letter sent in June to the Senate Finance Committee, Transocean "used a tax break for the oil industry to write off 70 percent of the rent for Deepwater Horizon — a deduction of more than $225,000 a day since the lease began."

So, in essence, you and I are picking up 70% of the tab for Transocean's drilling expense. Nice. In return for subsidizing the company's activities, "Transocean, moved its corporate headquarters from Houston to the Cayman Islands in 1999 and then to Switzerland in 2008" which helped it avoid taxes here in the U.S.

But, of course, in the name of free market capitalism, the oil industry will always say it doesn't want the government involved in it's affairs. They are rugged individualists, after all ...

- Mark

Friday, July 2, 2010


Apart from being the type of financial reform that only the comics at Monty Python could appreciate, the new financial reform bill does almost nothing with regards to change the structural conditions that led to the 2008 market collapse. John R. Talbott, author of The Coming Crash in the Housing Market (2003) has a detailed master list of what makes the financial reform bill largely toothless.

But the real sin that I see in the financial reform legislation is not what it leaves out, but in it's premise. Fundamentally it's guided by a corrupted and failed ideology where the God's of Wall Street can say one thing ("When we're in trouble you need to bail us out") and then say another to Main Street ("When you're in trouble you can eat crack").

While our market ideology is supposed to be guided by the principle that if you work hard you will get ahead - which is the moral justification of capitalism - it's been turned on its head by Wall Street's new guiding lights of favorable legislation and unnecessary tax cuts. While the first corrupts the ideology, the latter deprives the state of the funds it needs to function.

Worse, after experiencing a catastrophic market collapse caused by 30 years of following Wall Street's "No tax, No Government" approach to public policy our political mandarins continue to believe that we need to appease the God's of Wall Street, as if they just did our nation a favor. What they don't understand is that the Wall Street's market players today are little more than rats on a sinking ship.

The failure to extend unemployment benefits, and the rather weak financial reform bill in front of Congress now, makes it clear that Congress is prepared to appease the Wall Street Gods. What they conveniently ignore is that unemployment benefits are needed because of what Wall Street did, and should not be determined by the sense that Wall Street will be offended by another $33 billion in debt (especially since we could pay for the benefits by retroactively taxing Wall Street's undeserved bonuses).

What our national leadership doesn't seem to understand is that as long as Wall Street is able to live by one set of rules, while Main Street is supposed to live by another, their concern over a few billion dollars in additional debt, and focusing on a set of weak "structural reforms" is akin to rearranging deck chairs on the Titanic. Want some evidence? Check out these two charts.

When compared to other economic downturns in the post-war era job losses have never been as steep as they are now.

Worse, the period of unemployment has almost doubled during this recession compared to other periods. It's one thing to be unemployed, but to be unemployed with no prospects on the horizon can be downright depressing.

The problem is that while Wall Street and their patrons have secured favorable legislation that's allowed them to change the rules of the game in their favor ("Bailouts & taxcuts for us, austerity & no job security for you ..."). This has created a situation where, as Les Lepold points out, there's "too much wealth in the hands of the few and too much power and wealth controlled by Wall Street".

While the new financial reform bill does little to limit this power and wealth, our too-big-to-fail banks, as Lepold points out, "are still with us--and cockier than ever." He adds:

Very few commentators or policy officials have the nerve to call for restoring taxes on the super-rich to the levels they paid from the 1930s through the 1970s. (Back then, their tax rate was up to 91%. Now they pay as little as 15% because they can claim their booty as "capital gains.") The 10 leading hedge fund managers each "earn" an average of $900,000 an hour (not a typo). Public officials and pundits should be calling such wildly excessive incomes a disgrace to democracy--especially given that without taxpayer bailouts the financial elites would have earned nothing at all. Instead we are told to admire the robbery as if it were a sign of entrepreneurial genius.

And, sure enough, we continue to admire the robbery. Think about it. How else could a group of people who caused our economic meltdown turn the tables and then be rewarded financially (bonuses & bailouts), legally (waivers), and with a politically opportunistic movement (Tea Party anyone?) that does their bidding? That Wall Street continues to have so much political influence after making a mess of things should be a national embarrassment.

At the end of the day, Wall Street and their political muscle in Congress continue to perpetuate the lie that we live in a free market economy. We don't (read The Myth of the Market). The reality is that Wall Street has become a voracious gambling den governed by favorable legislation and an irresponsible and clueless plutocracy.

Still, in the eyes of Congress, Wall Street continues to know best. Let's be blunt. As long as we continue to believe all we need to do is tinker on the margins of Wall Street's world, reform or no reform, we're in deep trouble.

- Mark

Thursday, July 1, 2010


During the height of the market crisis in 2008 the Federal Reserve demanded unusual security procedures before sharing or supplying critical A.I.G. bailout related documents. The Securities and Exchange Commission (SEC) said that if it agreed to go along with the request it would store the information it received where national security related files are kept.

Imagine ... demanding national security status in exchange for information needed to secure public funds, to save a private firm no less. Incredible. While it's not novel to tie economics into national security, this request provides an entirely new twist to the national security state (it actually makes a joke of it). But it appears we now know why the request was made.

According to this New York Times article, A.I.G. effectively gave up it's right to sue Wall Street firms once it took bailout money. Wall Street titans like Goldman Sachs, and their financial partners in crime, effectively got a blanket waiver from lawsuits from A.I.G. Why did this happen? Because Wall Street's biggest firms were really trying to cover their butts, and we're using their buddies in Washington to help them do so.

One way for Wall Street's biggest firms to cover their butts and avoid lawsuits (and even jail time) was to get A.I.G. - the insurer of their toxic crap - to give up their right to sue on behalf of shareholders. So Wall Street's friends at the Federal Reserve and the Treasury Department made A.I.G. an offer they couldn't refuse: Waive your right to sue and take our money with full payouts, or go under.

As I've pointed out before (many times), I think it's time we start thinking about invoking the Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO) to get some answers. Think about it. The only reason you would want to have your market information classified along national security lines AFTER the fact is because you've got something incriminating to hide (proprietary information, after all, doesn't need national security status). Any good prosecutor will tell you that a request to secure security status for documents suggests two things. Somebody has something to hide, and panic. Panic is good, if you're a good prosecutor.

To get a RICO case going on a Wall Street firm (which has been done before) the SEC would have to show a "pattern of racketeering activity" that was committed by an "ongoing criminal organization." What's more criminal than duping investors with toxic assets and then stealing taxpayer money?

- Mark