After receiving Ellen Brown's latest article, I suggested to her that all our efforts at fixing the economy have come to naught.
We must take to the streets, to demand the Change that was promised.
She agreed, and came up with some slogans for placards:
not Wall Street
Workers not Bankers.
Here are some others for consideration:
We voted for Change
You voted for Wall Street
You promised Change
but Sold us Out
(1) Cut Wall Street Out! - Ellen Brown
(2) The Rich Have Stolen the Economy - Paul Craig Roberts
(3) Obama’s banker-friendly financial overhaul
(4) Happy Anniversary Wall Street - Steve Keen
(1) Cut Wall Street Out! - Ellen Brown
From: Ellen Brown <email@example.com> Date: 01.11.2009 01:11 PM
SATURDAY 31 OCTOBER 2009
Cut Wall Street Out! How States Can Finance Their Own Economic Recovery
Saturday 31 October 2009
Ellen Hodgson Brown
Pouring money into the private banking system has only fixed the economy for bankers and the wealthy; it has not done much to address either the fundamental problem of unemployment or the debt trap so many Americans find themselves in.
President Obama's $787 billion stimulus plan has so far failed to halt the growth of unemployment: 2.7 million jobs have been lost since the stimulus plan began. California has lost 336,400 jobs. Arizona has lost 77,300. Michigan has lost 137,300. A total of 49 states and the District of Columbia have all reported net job losses.
In this dark firmament, however, one bright star shines. The sole state to actually gain jobs is an unlikely candidate for the distinction: North Dakota. North Dakota is also one of only two states expected to meet their budgets in 2010. (The other is Montana.) North Dakota is a sparsely populated state of less than 700,000 people, largely located in cold and isolated farming communities. Yet, since 2000, the state's GNP has grown 56 percent, personal income has grown 43 percent and wages have grown 34 percent. The state not only has no funding problems, but this year it has a budget surplus of $1.3 billion, the largest it has ever had.
Why is North Dakota doing so well, when other states are suffering the ravages of a deepening credit crisis? Its secret may be that it has its own credit machine. North Dakota is the only state in the Union to own its own bank. The Bank of North Dakota (BND) was established by the state legislature in 1919, specifically to free farmers and small businessmen from the clutches of out-of-state bankers and railroad men. The bank's stated mission is to deliver sound financial services that promote agriculture, commerce and industry in North Dakota.
The Advantages of Owning Your Own Bank
So, how does owning a bank solve the state's funding problems? Isn't the state still limited to the money it has? The answer is no. Chartered banks are allowed to do something nobody else can do: They can create credit on their books simply with accounting entries, using the magic of "fractional reserve" lending. As the Federal Reserve Bank of Dallas explains on its web site:
"Banks actually create money when they lend it. Here's how it works: Most of a bank's loans are made to its own customers and are deposited in their checking accounts. Because the loan becomes a new deposit, just like a paycheck does, the bank ... holds a small percentage of that new amount in reserve and again lends the remainder to someone else, repeating the money-creation process many times."
How many times? President Obama puts this "multiplier effect" at eight to ten. In a speech on April 14, he said:
"[A]lthough there are a lot of Americans who understandably think that government money would be better spent going directly to families and businesses instead of banks - 'where's our bailout?,' they ask - the truth is that a dollar of capital in a bank can actually result in eight or ten dollars of loans to families and businesses, a multiplier effect that can ultimately lead to a faster pace of economic growth."
It can, but it hasn't recently, because private banks are limited by bank capital requirements and by their for-profit business models. And that is where a state-owned bank has enormous advantages: States own huge amounts of capital, and they can think farther ahead that their quarterly profit statements, allowing them to take long-term risks. Their asset bases are not marred by oversized salaries and bonuses; they have no shareholders expecting a sizable cut, and they have not marred their books with bad derivatives bets, unmarketable collateralized debt obligations and mark-to-market accounting problems.
The Bank of North Dakota (BND) is set up as a dba: "the State of North Dakota doing business as the Bank of North Dakota." Technically, that makes the capital of the state the capital of the bank. Projecting the possibilities of this arrangement to California, the State of California owns about $200 billion in real estate, has $62 billion in various investments and has $128 billion in projected 2009 revenues. Leveraged by a factor of eight, that capital base could support nearly $4 trillion in loans.
To get a bank charter, specific investments would probably need to be earmarked by the state as startup capital; but the startup capital required for a typical California bank is only about $20 million. This is small potatoes for the world's eighth largest economy, and the money would not actually be "spent." It would just become bank equity, transmuting from one form of investment into another - and a lucrative investment at that. In the case of the BND, the bank's return on equity is about 25 percent. It pays a hefty dividend to the state, which is expected to exceed $60 million this year. In the last decade, the BND has turned back a third of a billion dollars to the state's general fund, offsetting taxes. California could do substantially better than that. California pays $5 billion annually just in interest on its debt. If it had its own bank, the bank could refinance its debt and return that $5 billion to the state's coffers; and it would make substantially more on money lent out.
Besides capital, a bank needs "reserves," which it gets from deposits. For the BND, this too is no problem, since it has a captive deposit base. By law, the state and all its agencies must deposit their funds in the bank, which pays a competitive interest rate to the state treasurer. The bank also accepts deposits from other entities. These copious deposits can then be plowed back into the state in the form of loans.
Public Banking on the Central Bank Model
The BND's populist organizers originally conceived of the bank as a credit union-like institution that would free farmers from predatory lenders, but conservative interests later took control and suppressed these commercial lending functions. The BND is now chiefly a "bankers' bank." It acts like a central bank, with functions similar to those of a branch of the Federal Reserve. It avoids rivalry with private banks by partnering with them. Most lending is originated by a local bank. The BND then comes in to participate in the loan, share risk and buy down the interest rate.
One of the BND's functions is to provide a secondary market for real estate loans, which it buys from local banks. Its residential loan portfolio is now $500 billion to $600 billion. This function has helped the state to avoid the credit crisis that afflicted Wall Street when the secondary market for loans collapsed in late 2007. Before that, investors routinely bought securitized loans (CDOs) from the banks, making room on the banks' books for more loans. But these "shadow lenders" disappeared when they realized that the derivatives called "credit default swaps" supposedly protecting their CDOs were a highly unreliable form of insurance. In North Dakota, this secondary real estate market is provided by the BND, which has invested conservatively, avoiding the speculative derivatives debacle.
Other services the BND provides include guarantees for entrepreneurial startups and student loans, the purchase of municipal bonds from public institutions and a well-funded disaster loan program. When the city of Fargo was struck by a massive flood recently, the disaster fund helped the city avoid the devastation suffered by New Orleans in similar circumstances; and when North Dakota failed to meet its state budget a few years ago, the BND met the shortfall. The BND has an account with the Federal Reserve Bank, but its deposits are not insured by the FDIC. Rather, they are guaranteed by the State of North Dakota itself - a prudent move today, when the FDIC is verging on bankruptcy.
The Commercial Banking Model: The Commonwealth Bank of Australia
The BND studiously avoids competition with private banks, but a publicly-owned bank could profitably engage in commercial lending. A successful model for that approach was the Commonwealth Bank of Australia, which served both central bank and commercial bank functions. For nearly a century, the publicly-owned Commonwealth Bank provided financing for housing, small business, and other enterprise, affording effective public competition that "kept the banks honest" and kept interest rates low. Commonwealth Bank put the needs of borrowers ahead of profits, ensuring that sound investment flows were maintained to farming and other essential areas; yet, the bank was always profitable, from 1911 until nearly the end of the century.
Indeed, it seems to have been too profitable, making it a takeover target. It was simply "too good not to be privatized." The bank was sold in the 1990s for a good deal of money, but it's proponents consider it's loss as a social and economic institution to be incalculable.
A State Bank of Florida?
Could the sort of commercial model tested by Commonwealth Bank work today in the United States? Economist Farid Khavari thinks so. A Democratic candidate for governor of Florida, he proposes a Bank of the State of Florida (BSF) that would make loans to Floridians at much lower interest rates than they are getting now, using the magic of fractional reserve lending. He explains:
"For $100 in deposits, a bank can create $900 in new money by making loans. So, the BSF can pay 6 percent for CDs, and make mortgage loans at 2 percent. For $6 per year in interest paid out, the BSF can earn $18 by lending $900 at 2 percent for mortgages."
The state would earn $15,000 per $100,000 of mortgage, at a cost of about $1,700, while the homeowner would save $88,000 in interest and pay for the home 15 years sooner. "Our bank will save people about seven years of their pay over the course of 30 years, just on interest costs," says Dr. Khavari. He also proposes 6 percent credit cards and 6 percent certificates of deposit.
The state could earn billions yearly on these loans, while saving hefty sums for consumers. It could also refinance its own debts and those of its municipal governments at very low interest rates. According to a German study, interest composes 30 percent to 50 percent of everything we buy. Slashing interest costs can make projects such as low-cost housing, alternative energy development, and infrastructure construction not only sustainable, but profitable for the state, while at the same time creating much-needed jobs.
(2) The Rich Have Stolen the Economy - Paul Craig Roberts
From: IHR News <firstname.lastname@example.org> Date: 28.10.2009 03:04 PM
The Rich Have Stolen the Economy
Paul Craig Roberts
By Paul Craig Roberts
October 16, 2009 "Information Clearing House" -- Bloomberg reports that Treasury Secretary Timothy Geithner’s closest aides earned millions of dollars a year working for Goldman Sachs, Citigroup and other Wall Street firms. Bloomberg reports that none of these aides faced Senate confirmation. Yet, they are overseeing the handout of hundreds of billions of dollars of taxpayer funds to their former employers.
The gifts of billions of dollars of taxpayers’ money provided the banks with an abundance of low cost capital that has boosted the banks’ profits, while the taxpayers who provided the capital are increasingly unemployed and homeless.
JPMorgan Chase announced that it has earned $3.6 billion in the third quarter of this year.
Goldman Sachs has made so much money during this year of economic crisis that enormous bonuses are in the works. London Evening Standard reports that Goldman Sachs’ “5,500 London staff can look forward to record average payouts of around 500,000 pounds ($800,000) each. Senior executives will get bonuses of several million pounds each with the highest paid as much as 10 million pounds ($16 million).“
In the event the banksters can’t figure out how to enjoy the riches, the Financial Times is offering a new magazine--”How To Spend It.” New York City’s retailers are praying for some of it, suffering a 15.3% vacancy rate on Fifth Avenue. Statistician John Williams (shadowstats.com) reports that retail sales adjusted for inflation have declined to the level of 10 years ago: “Virtually 10 years worth of real retail sales growth has been destroyed in the still unfolding depression.”
Meanwhile, New York City’s homeless shelters have reached the all time high of 39,000, 16,000 of whom are children.
New York City government is so overwhelmed that it is paying $90 per night per apartment to rent unsold new apartments for the homeless. Desperate, the city government is offering one-way free airline tickets to the homeless if they will leave the city and charging rent to shelter residents who have jobs. A single mother earning $800 per month is paying $336 in shelter rent.
Long-term unemployment has become a serious problem across the country, doubling the unemployment rate from the reported 10% to 20%. Now hundreds of thousands more Americans are beginning to run out of extended unemployment benefits. High unemployment has made 2009 a banner year for military recruitment.
A record number of Americans, more than one in nine, are on food stamps. Mortgage delinquencies are rising as home prices fall. According to Jay Brinkmann of the Mortgage Bankers Association, job losses have spread the problem from subprime loans to prime fixed-rate loans. On a Wise, Virginia, fairgrounds, 2,000 people waited in lines for free dental and health care.
While the US speeds plans for the ultimate bunker buster bomb and President Obama prepares to send another 45,000 troops into Afghanistan, 44,789 Americans die every year from lack of medical treatment. National Guardsmen say they would rather face the Taliban than the US economy.
Little wonder. In the midst of the worst unemployment since the Great Depression, US corporations continue to offshore jobs and to replace their remaining US employees with lower paid foreigners on work visas.
The offshoring of jobs, the bailout of rich banksters, and war deficits are destroying the value of the US dollar. Since last spring the US dollar has been rapidly losing value. The currency of the hegemonic superpower has declined 14% against the Botswana pula, 22% against Brazil’s real, and 11% against the Russian ruble. Once the dollar loses its reserve currency status, the US will be unable to pay for its imports or to finance its government budget deficits.
Offshoring has made Americans heavily dependent on imports, and the dollar’s loss of purchasing power will further erode American incomes. As the Federal Reserve is forced to monetize Treasury debt issues, domestic inflation will break out. Except for the banksters and the offshoring CEOs, there is no source of consumer demand to drive the US economy.
The political system is unresponsive to the American people. It is monopolized by a few powerful interest groups that control campaign contributions. Interest groups have exercised their power to monopolize the economy for the benefit of themselves, the American people be damned.
(3) Obama’s banker-friendly financial overhaul
31 October 2009
In the wake of a financial meltdown that precipitated the deepest recession since the 1930s, the Obama administration and Democratic congressional leaders are working to institute regulatory changes that avoid any serious constraints on Wall Street banks and financial institutions.
The so-called legislative process itself is a mockery of democracy. An army of financial industry lobbyists is at work wining and dining key legislators, whose elections were funded by millions in campaign contributions from banks, insurance companies, hedge funds, etc. Wall Street lawyers are helping draft the details of regulatory bills in closed-door meetings, while Obama and his top economic advisers—many of whom are former investment bankers and all of whom are longstanding proponents of bank deregulation—confer with the CEOs of the most powerful firms.
The guiding premise of the enterprise is that the capitalist “free market” must at all costs be safeguarded, along with the personal fortunes of the financial oligarchy. Flowing from this, the informing notion behind the proposed changes is to allow the banks to return to business as usual, recouping their gambling losses at the expense of this and future generations of working people, while setting in place mechanisms for the government to more effectively manage the next financial debacle.
On Thursday, Treasury Secretary Timothy Geithner testified before the Financial Services Committee of the House of Representatives in support of a bill jointly sponsored by the White House and committee Chairman Barney Frank (Democrat of Massachusetts). The bill would give the Treasury and the Federal Reserve Board so-called “resolution authority” to order the seizure of a major financial firm whose failure would destabilize the financial system.
The idea is to prevent the type of panic that accompanied the collapse of Lehman Brothers in September of 2008. Geithner, Frank and the White House are selling the bill as a boon to taxpayers. It is supposedly an alternative to the multibillion-dollar bailouts at taxpayer expense that followed last year’s crash.
In fact, the proposal would give the executive branch and the Fed unlimited powers, without the need for congressional consent, to allocate taxpayer money to prevent the failure of a major commercial or investment bank, insurance firm (such as AIG) or other financial company by placing the firm in receivership. Supposedly, the seized firm’s shareholders and unsecured creditors would take large losses, the firm’s top management would be sacked, and the firm’s assets would be sold off to investors.
The cost of the rescue, according to the bill, would be repaid through fees levied on other banks with more than $10 billion in assets (around 120 banks). However, these fees would be assessed over an indefinite period, while the taxpayers would pay the bill upfront.
One provision of the bill which has garnered little comment either by its official proponents or the media would give the Federal Deposit Insurance Corporation, with the consent of the treasury secretary and the Fed, the power to “extend credit or guarantee obligations … to prevent financial instability during times of severe economic distress.”
This amounts to a blank check to use public funds to bail out Wall Street. What is actually being proposed is the replacement of the ad hoc bailouts that characterized the past year with an institutionalized mechanism for looting the public purse for the benefit of the financial aristocracy.
Little wonder that Jamie Dimon, the CEO of JPMorgan Chase, has broadly endorsed the administration’s bank “reform.” He told a conference in New York this week that “we need a resolution mechanism so that the system isn’t destroyed.” Dimon knows full well that such a law will expand the profits of the big banks by making their borrowing costs cheaper, far outstripping any fees they might be required to pay in the event of a government seizure of a major firm.
There are those within the financial and political establishment who are warning that the administration’s policies are enhancing the power of the biggest banks and making an even greater financial disaster all but inevitable. Asked by CNN on October 21 whether the administration’s regulatory changes will avert another financial meltdown, Neil Barofsky, the special inspector general of the Treasury’s Troubled Asset Relief Program (TAPR), said:
“I think actually what’s changed is in the other direction. These banks that were too big to fail are now bigger. Government has sponsored and supported several mergers that made them larger… The idea that the government is not going to let these banks fail, which was implicit a year ago, is now explicit.
“So, if anything, not only has there not been any meaningful regulatory reform to make it less likely, in a lot of ways, the government has made such problems more likely. Potentially, we could be in more danger now than we were a year ago.”
Paul Volcker, the former Fed chairman who heads Obama’s Economic Recovery Advisory Board, is evidently alarmed. He has been publicly calling for the reinstatement of the legal wall between commercial banking and investment banking that was a cornerstone of the Depression-era bank reforms instituted by Franklin D. Roosevelt. Under the Glass-Steagall Act of 1933, commercial banks—which take deposits from ordinary consumers—were banned from owning and trading risky securities, the very practice that brought the biggest banks to the brink of collapse in 2008.
This would mean breaking up such behemoths as JPMorgan Chase, Citigroup, Bank of America and Wells Fargo. Volcker has no support within the Obama administration. Wall Street is adamantly opposed to such a reform, as are Obama’s top economic advisers. The director of the White House’s National Economic Council, Lawrence Summers, pushed through the repeal of Glass-Steagall in 1999 when he was treasury secretary in the Clinton administration.
Daniel Tarullo, a Fed governor appointed by Obama, last week dismissed Volcker’s proposal as “more of a provocative idea than a proposal.”
As for the claims that the public will not be forced to pay for the government “resolution” of major financial firms facing collapse, their worth can be judged by looking at the other major planks of the administration’s financial regulatory plan.
Frank’s Financial Services Committee this month passed a bill on derivatives—the unregulated $592 trillion market in complex and murky financial contracts that led to the collapse of AIG—which exempts from government oversight a huge portion of such deals, including so-called “customized” credit default swaps and derivatives contracts of non-financial companies. It also places the management of “standard” derivatives in the hands of privately owned clearinghouses closely aligned to the big Wall Street banks.
The Consumer Financial Protection Agency bill passed by Frank’s committee, nominally establishing a new agency to police consumer lending fraud and abuse, exempts 98 percent of the nation’s banks as well as car dealerships from oversight, and allows the federal government to override state consumer protection laws that are tougher than federal regulations.
All of these loopholes were inserted at the behest of bank lobbyists.
Then there are the sham bank pay restraints announced last week by Obama’s “pay czar,” Kenneth Feinberg. Not only do these rules apply only to the 25 highest-paid executives and employees of seven companies still holding TARP money, including just two banks, they apply only for November and December of this year. And the limits in cash salaries and bonuses imposed by Feinberg are to be largely offset by stock issued to the affected multimillionaires.
The Wall Street Journal published an analysis Wednesday showing that Feinberg actually increased the base salaries of 89 of the 136 people under his remit, raising their average regular salaries to $438,000, an average increase of 14 percent. At Citigroup, which is 34 percent owned by the US government, Feinberg agreed to more than double salaries for 13 of the 21 employees, upping them by an average of $202,000.
(4) Happy Anniversary Wall Street - Steve Keen
From: ERA <email@example.com> Date: 30.10.2009 01:05 AM
Happy Anniversary Wall Street
by Steve Keen
Published on October 29th, 2009
If I was asked to nominate the wisest aphorism of all time, Mark Twain’s “History doesn’t repeat, but it sure does rhyme” would definitely be one of my top two candidates.
On song, today Wall Street is replaying the 1930s, but to a slightly different meter. With the 80th anniversary of the Great Crash of 1929 falling on October 29th of this year, Wall Street is celebrating in characteristic style–with a euphoria-led bubble that now appears to be crashing up against economic reality.
Of course, our time is not a mirror image of that momentous period 80 years ago. It’s closer to a mirror image of the days roughly a year later, when the first two bear market rallies that followed the crash finally petered out, and the long slow grind of the Great Depression gradually took hold on the economy and the minds of America.
But in 1930, though on our reckoning the Depression had well and truly begun, the mindset that prevailed was very similar to today’sthat the worst of the crisis is behind us, and economic recovery is underway.
This mindset is on show at the wonderful blog News from 1930, which in honour of this week’s anniversary is publishing news summaries from the Wall Street Journal of 1929 as well as from 1930. Reading newspaper stories from 1930 is remarkable enough on a day by day basis, as comments made about the recovery that was then in place (and the return of the bull market) could easily have been lifted from today’sor last week’snewspapers. But to see these juxtaposed with the actual coverage of the Crash of 1929 is all the more startling.
The most obvious chord in the historical song is that very few people realise when they are participants in an event of historic proportions. Even though the Dow had never fallen by anything like what it did in the five days of the Great Crash, the belief that this would nonetheless turn out to be a rather ordinary event was the dominant perspective, as this excerpt from the Wall Street Journal’s Editorial for Saturday October 26th 1929 indicates:
“The market will find itself, for Wall Street does its own liquidation and always with a remarkable absence of anything like financial catastrophe. … Suggestions that the wiping out of paper profits will reduce the country’s real purchasing power seem rather far-fetched.”
It seems that only in retrospect was it realised that 1929 was a watershed in world history: few living at the time actually understood that, and none of them had their prognostications published by the Wall Street Journal.
One year later, though the far-fetched had become somewhat harder to dismiss, the general tenor of economic and business commentary was that the worst of the crisis was over, and that 1931 would be a bumper year for the market and the wider economy. This observation in a radio address by General Motors executive and Democratic Party National Committee Chair J. Raskob is indicative of business attitudes in 1930:
In closing, let me say that no country in the world, not even our own, was ever in as splendid position to go forward and enjoy a period of prosperity as our own country is today. Everything has been thoroughly deflated and business is now turning upward. The momentum is necessarily slow at first, but within three months … we will quickly leave depression behind.”. (WSJ Tuesday October 1930)
The second chord is that the causes and effects of momentous events can be misunderstood both at the time and in retrospect, which leads humanity to repeat its mistakes all over again. Reading the commentary in the 1930, it is clear that the government of the time was doing all it thought possible to prevent the Crash turning into an economic crisis, and it appeared to believe that it had been successful.
The statistics certainly imply that Hoover wasn’t sitting on his hands doing nothing as Wall Street burned, which is the modern mythology. Government debt was equivalent to 30 percent of GDP when the crisis began; just 3 years later it was 70 percent of GDP, and that was when the so-called “automatic stabilisers” were a lot smaller than they are today (because the government sector was much smaller back then).
Yet the view that dominates conventional economic thinking today is that the Depression was caused by a disengaged government and bad monetary policy, if only the Fed hadn’t tightened in 1930, everything would have been fine. In fact, if the Fed did tighten, and the evidence on that is mixed, it was because they, like today’s Fed, believed they had already done enough to avert catastrophe.
Bollocks to that: the problem in 1930 wasn’t the tightening of fiat money, but the preceding failure to constrain the private debt bubble that financed Wall Street’s speculative excess of the 1920s. Yet armed with the misguided belief that there wouldn’t have been a Great Depression had the Fed not tightened in 1930, the Fed of the 1980s-2007 ignored an even bigger bubble in private debt than its predecessor ignored in the 1920s.
By the time Ben Bernanke made his fawning paean to Milton Friedman at his 90th birthday “Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again”, the Fed had already caused a far bigger crisis by ignoring private debt and the asset bubble it financed.
I’ll finish with my other favourite aphorism: Max Planck’s observation that “science progresses one funeral at a time”. It will take a lot of funerals before the economics profession abandons the follies that led it to describe the decade leading up to today’s crisis as “The Great Moderation”.