War On You: Breaking Alternative News » Bailouts

Obama to Use Pension Funds of Ordinary Americans to Pay for Bank Mortgage “Settlement”

WarOnYou — Wed, 25 Jan 2012 04:59:18 +0000

Obama to Use Pension Funds of Ordinary Americans to Pay for Bank Mortgage “Settlement”

January 24, 2012

Obama’s latest housing market chicanery should come as no surprise. As we discuss below, he will use the State of the Union address to announce a mortgage “settlement” by Federal regulators, and at least some state attorneys general. It’s yet another gambit designed to generate a campaign talking point while making the underlying problem worse.

The president seems to labor under the misapprehension that crimes by members of the elite must be swept under the rug because prosecuting them would destablize the system. What he misses is that we are well past the point where coverups will work, and they may even blow up before the November elections. If nothing else, his settlement pact has a non-trivial Constitutional problem which the Republicans, if they are smart, will use to undermine the deal and discredit the Administration.

To add insult to injury, Obama is apparently going to present his belated Christmas present to the banking industry as a boon to ordinary citizens. He refused to appoint a real middle class advocate, Elizabeth Warren, to the Consumer Financial Protection Bureau, but he’s not above stealing her talking points.

We and other commentators have discussed how the mortgage settlement negotiations nominally led by Iowa attorney general Tom Miller had descended into farce. Almost nothing the Miller camp said was believable. They were presented as “attorney general” discussions when the Administration was pulling the strings. They’ve described a deal as weeks away for over a year. They kept claiming that they had undertaken investigations when not a single subpoena was issued by the AGs still involved in the negotiations. They’ve argued from the get go that a pact will be good for homeowners when the deal reached by under-resourced Nevada attorney general Catherine Cortez Masto with a single servicer, Saxon, resulted in a payout that is 10 to 20 times what the Administration is calling a victory. And that assumes that the banks will live up to their side of the deal when past settlements of servicing abuses have shown that they don’t.

The administration has finally woken up to the fact that the housing mess is almost certain to get worse before it gets better, and Obama must therefore be armed with better propaganda. The Miller-led talks have become a bit of an embarrassment and needed to be put out of their misery. So Team Obama and Federal banking regulators have agreed on terms and as we discussed last Friday, are upping the pressure on state attorneys general to fall into line. As reported by Shahien Nasiripour of the Financial Times:

Banks and government negotiators have cleared a big hurdle in efforts to resolve allegations of widespread mortgage-related misdeeds, agreeing on terms for a settlement that are being circulated to the 50 US states for approval, state officials and a bank representative say.

The proposed pact would potentially reduce mortgage balances and monthly payments by more than $25bn for distressed US homeowners…

State prosecutors have already received a set of documents detailing new mortgage servicing standards that the banks and the government negotiators have agreed to. The states were also being sent documents detailing other main components of the deal, such as the liability release for the banks, the so-called “menu” of options describing the various forms of aid to be given to borrowers, as well as the precise language of the so-called “most favoured nation” clause, which spells out how participating states in the deal would be eligible to receive more advantageous terms should a holdout state strike a more favourable deal on its own with the five targeted banks.

The story did not outline terms, but previous leaks have indicated that the bulk of the supposed settlement would come not in actual monies paid by the banks (the cash portion has been rumored at under $5 billion) but in credits given for mortgage modifications for principal modifications. There are numerous reasons why that stinks. The biggest is that servicers will be able to count modifying first mortgages that were securitized toward the total. Since one of the cardinal rules of finance is to use other people’s money rather than your own, this provision virtually guarantees that investor-owned mortgages will be the ones to be restructured. Why is this a bad idea? The banks are NOT required to write down the second mortgages that they have on their books. This reverses the contractual hierarchy that junior lienholders take losses before senior lenders. So this deal amounts to a transfer from pension funds and other fixed income investors to the banks, at the Administration’s instigation.

Another reason the modification provision is poorly structured is that the banks are given a dollar target to hit. That means they will focus on modifying the biggest mortgages. So help will go to a comparatively small number of grossly overhoused borrowers, no doubt reinforcing the “profligate borrower” meme.

But those criticisms assume two other things: that the program is actually implemented. The experience with past consent decrees in the mortgage space is that the servicers get a legal get out of jail free card, a release, and do not hold up their end of the deal. Similarly, we’ve seen bank executives swear in front of Congress in late 2010 that they had stopped robosigning, which turned out to be a brazen lie. So here, odds favor that servicers will pretty much do nothing except perhaps be given credit for mortgage modifications they would have made anyhow.

There are two clever features of the deal, but neither look intended to benefit ordinary citizens. One is that the deal throws some funding at chronically cash stressed mortgage counselors. They are thus certain to voice approval of the pact. The other is (per the FT story) the deal’s “most favored nations clause” is designed to reduce the bargaining leverage of any AGs that go their own way. It means that any servicer will have the incentive to fight hard against giving any state a better deal because it will automagically trigger improved terms across the states that signed on to the Federal deal. But this may have interesting perverse effects, since banks that refuse to settle with breakaway AGs will ultimately have damages awarded by a court. That means longer and most costly fights by the states, but in most cases, ultimately bigger awards (frankly, the fact set is so bad that all the state AGs need to do is focus on fairly conservative legal theories to have good odds of scoring big wins).

Dave Dayen seemed to think that the AG rebellion was likely to stay firm, given how few of the Democrats were going to Chicago on Monday for an arm-twisting meeting with HUD head Shaun Donovan and an unnamed emissary from the Department of Justice. I would not be so certain. With states so budget starved, I don’t see how anyone can justify sending a live body to Chicago when a phone briefing would work just as well. More important, the most favored nation clause is nasty, and may nudge some fence-sitters over the line.

And I have also been told that Donovan was on the Hill late last week pressuring Congressmen to support the deal. Since this is a regulatory measure that does not require Congressional approval, this move is meant to deprive dissenting state AGs from any support in local media from sympathetic Congressmen. For instance, 31 California representatives wrote the Justice Department, the Federal Reserve and the Office of the Comptroller of the Currency calling on them to “investigate possible violations of law or regulations by financial institutions in their handling of delinquent mortgages, mortgage modifications and foreclosures.” Clearly they could be expected to support California attorney general Kamala Harris’ withdrawal of the deal. Donovon is trying to get them and like minded solons speaking from the Obama script.

But the Administration’s scheme may not be playing out according to script. Senator Sherrod Brown sent a letter last week to associate attorney general Thomas Perelli, Donovan, the CFPB’s Richard Cordray and Tom Miller criticizing the settlement pact. It could have been written by Naked Capitalism readers. Key section:

Now while Republicans may relish the specter of Democrats infighting, the fact is no one is going to want to be seen to be undermining the leader of the party in an election year. So that will put a damper on how aggressive the opponents will be. And media outlets have been amplifying Obama’s efforts to take credit for gravity. For instance, the Administration is touting the fall in foreclosures as an indicator of success when their policies have ranged from do nothing to disasters like HAMP. The fall in foreclosures is actually a sign of failure, as banks are attenuating the process more and more, in some cases due to their inability to come up with necessary documentation, in others out of a desire to wring even more fees out of investors (when a borrower can’t pay, the bank’s fees come first out of the eventual sale of the house).

Either a Gingrich nomination or Romney getting too dented during Republican primary fights increase the odds of what heretofore seemed impossible: an Obama win in November. So if the Republicans were smart, they’d take advantage of a serious weakness in this deal: that it violates the 5th Amendment takings clause. I am told by Bill Frey of Greenwich Financial that a servicer safe harbor provision in HAMP, which was supposed to shield servicers from investor lawsuits over mortgage modifications, was passed by both the House and Senate but was removed in reconciliation because that provision would have run afoul of the 5th Amendment. This settlement is intended to have servicers engage in even more aggressive mortgage modifications and would thus seem to have precisely the same Constitutional problem.

As I urged last week, please call your state attorney general and tell them you think taking from your pension to enrich banks for abusing homeowners is a lousy idea and they should therefore refuse to sign on to the settlement. You can find their phone numbers here. Please call today if you haven’t already. Thanks!

Bank Of America Dumps $75 Trillion In Derivatives On U.S. Taxpayers With Federal Approval

WarOnYou — Sat, 24 Dec 2011 08:01:11 +0000

Bank Of America Dumps $75 Trillion In Derivatives On U.S. Taxpayers With Federal Approval

December 23, 2011

Print Version

Source: Seeking Alpha

Bloomberg reports that Bank of America (BAC) has shifted about $22 trillion worth of derivative obligations from Merrill Lynch and the BAC holding company to the FDIC insured retail deposit division. Along with this information came the revelation that the FDIC insured unit was already stuffed with $53 trillion worth of these potentially toxic obligations, making a total of $75 trillion.

Derivatives are highly volatile financial instruments that are occasionally used to hedge risk, but mostly used for speculation. They are bets upon the value of stocks, bonds, mortgages, other loans, currencies, commodities, volatility of financial indexes, and even weather changes. Many big banks, including Bank of America, issue derivatives because, if they are not triggered, they are highly profitable to the issuer, and result in big bonus payments to the executives who administer them. If they are triggered, of course, the obligations fall upon the corporate entity, not the executives involved. Ultimately, by allowing existing gambling bets to remain in insured retail banks, and endorsing the shift of additional bets into the insured retail division, the obligation falls upon the U.S. taxpayers and dollar-denominated savers.

Even if we net out the notional value of the derivatives involved, down to the net potential obligation, the amount is so large that the United States could not hope to pay it off without a major dollar devaluation, if a major contingency actually occurred and a large part of the derivatives were triggered. But, if such an event ever occurs, Bank of America’s derivatives counter-parties will, as usual, be made whole, while the American people suffer. This all has the blessing of the Federal Reserve, which approved the transfer of derivatives from Merrill Lynch to the insured retail unit of BAC before it was done.

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Wall Street’s “Secret Government”

WarOnYou — Sat, 03 Dec 2011 07:47:08 +0000

Wall Street’s “Secret Government”

December 2nd, 2011

Via: Alternet:

We now have concrete evidence that Wall Street and Washington are running a secret government far removed from the democratic process. Through a freedom of information request by Bloomberg News, the public now has access to over 29,000 pages of Fed documents and 21,000 additional Fed transactions that were deliberately hidden, and for good reason. (See here and here.)

These documents show how top government officials willfully concealed from Congress and the public the true extent of the 2008-’09 bailouts that enriched the few and enhanced the interests of giant Wall Streets firms.

Occupy Movement: Next Step Convergence

WarOnYou — Sat, 03 Dec 2011 00:45:58 +0000

Occupy Movement: Next Step Convergence

The US Occupy movement is at a critical point. To succeed it must develop a message of specific solutions to fix our broken system. People are seeing the next step as advocacy for constitutional amendments proposed through an Article V convention.
by Joel S. Hirschhorn
(libertarian)

Contact Joel S. Hirschhorn through delusionaldemocracy.com.]
Monday, November 28, 2011

There is a growing convergence of thinking about where the US Occupy movement should go as a next step to turning its values, concerns and commitments into changing what most Americans see as broken government under control of corporate interests. When it comes to political and social movements, history shows us that they usually fail not because they disappear, but rather because they become marginalized, unimportant despite a core group of committed people and groups.

They lose popular appeal and support or never expand beyond a small early group of supporters. The nation and many supporters move on. Other movements grab the interest of the most informed, dissident-type people seeking truth, justice or change. A good example of such a failed contemporary movement is the 911 truth effort. The groups, websites and true believers keep on pushing their objectives a decade after the historic event. But the goal of revealing what really happened that the official government story does not divulge is like a moldy piece of forgotten food in the refrigerator.

Movement death by inattention happens despite good resources, charismatic leaders and even great organization and communication skills. Critical mass of public support simply never materializes, in large measure because diverse segments of the population never buy into the central arguments of the movement. The Internet is littered with websites of activist groups that persist despite clear evidence of decay and wide disinterest. True believers have a mission in life tied to their egos that prevent them from admitting defeat. They do not move on.

The biggest mistake that passionate advocates for a cause make is overestimating their ability to reach critical mass and underestimating the competition of other movements with greater appeal which rob them of both attention and supporters.

Make no mistake; I totally and enthusiastically support the Occupy movement because it offers the prospect of producing reforms to fix our broken government and attracting very wide public support for a nonviolent Second American Revolution. What worries me, however, is that many of its participants seem over confident, as if they cannot fail. On the other hand, I have become impressed by a convergence of thinking about what the next big step for the Occupy movement can and should be. I will briefly identify examples of this convergent thinking.

Canadian author Erich Koch has written a compelling article: An Objective for the U.S. Occupy Movement: A Constitutional Convention. He buys into the view that the Occupy movement could embrace the thinking of Harvard Professor Lawrence Lessig who has presented the case for amendments to fix Congress. Like others Koch is correct in saying that “No one in the movement would disagree with its main point: the fundamental problem is the corruption of Congress.” Unlike others, Koch recognizes the path for obtaining reform constitutional amendments is using the provision in Article V for a convention of state delegates, having the same power as Congress in proposing amendments that still must be ratified by three-quarters of the states. It has never been used despite many hundreds of state requests for a convention because, clearly, Congress and most status quo forces fear such a convention.

Koch cited a great article by Alesh Houdek: Has a Harvard Professor Mapped Out the Next Step for Occupy Wall Street? Most is a review of Lessig’s book. Correctly noted about using the convention option is “it bypasses the usual means of reform (Congress, presidential elections, etc.) which the lobbyists and other interested parties have learned so well to manipulate. And lastly, such a convention would be free to propose solutions that would otherwise be subject to be stricken as unconstitutional by the Supreme Court.” This is critical to understand. Houdek concludes: “Properly presented, the strategies and aims of Lessig’s book could make it the handbook the protesters have been looking for — and provide a pathway for them to ride out the winter ahead.”

Dan Froomkin also has presented the same case in: Lawrence Lessig’s New Book On Political Corruption Offers Protesters A Possible Manifesto. He quoted what Lessig himself had said in an article about the Occupy movement and the concern that I share, namely that the Occupy movement “will become too diffuse and not focused” on the root issue of corruption of government. And that the movement will only grow “if a wide range of people can be part of it.” This requires coalescing around an issue “as fundamental as the corruption of the system.” Only a constitutional amendment can fix the corrupting impact of money in politics. This is also the focus of Dylan Ratigan’s fine effort, except that the use of the convention path has not been emphasized.

A specific call for an Article V convention was made by the pro-Occupy US Day of Rage group: “We are organizing a coordinated national campaign at local and state levels, including where necessary the occupation of state capitols, in order to demand an article V constitutional convention be called to restore representative democracy to our nation.” A set of specific reforms to be fix the corruption-money problem are presented.

The 99 Percent Declaration group has also presented an important statement centered on the call for a National General Assembly, where delegates would formulate a petition of a list of grievances that would be delivered to the main parts of the federal government on behalf of 99 percent of Americans. A suggested list of grievances includes the need for constitutional amendments to achieve solutions, but only for a few of the issues. Not explicitly acknowledged, however, is that constitutional amendments, not ordinary laws, would be necessary for other solutions, such as term limits for Congress and abandoning the Electoral College. Moreover, there is no specific recognition that serious amendment reforms will not be proposed by Congress, and that an Article V convention is needed. Inattention to method was also the shortcoming of a similar list of solutions by Ralph Lopez.

Author Scott Turow has presented: How Occupy Wall Street Can Restore Clout of the 99%. His recommendation to the Occupy movement is “work across the nation for a constitutional amendment requiring Congress to regulate the expenditure of private money on elections. … The best antidote to this imbalance of income and influence would be to greatly reduce the role of private funding in our elections. …As for the Occupy Wall Street movement, it has been criticized by some for not having a realistic agenda, even though polling shows that millions of Americans, including me, are sympathetic to the basic message of the protests.” His prescription: “rally around a single goal and reinvigorate their movement.” Fine, but missing from his analysis is the recognition that Congress will never propose reform amendments, only an Article V convention will do the job.

This sampling of recent writings clearly shows convergent thinking that the Occupy movement can and should focus on key reform constitutional amendments and, second, that some better informed critical thinkers recognize, this requires advocacy for using the Article V convention option that Congress has refused to honor.

As to Occupy movement success, I want again to emphasize that there is always competition for the attention and support of concerned Americans who recognize how broken our system is. In particular, the well financed Americans Elect effort is impressive. Because it is offering an alternative path to nominating a presidential candidate in 2012, over 2 million Americans have already signed up to be delegates for a web convention, with millions more very likely as the mainstream media keeps giving this effort attention. Disgust with the two-party plutocracy is surely shared by Occupy participants and supporters. But for movement success based on enticing many millions of Americans, the Occupy movement cannot ignore competition such as Americans Elect. This means that the Occupy movement must explicitly start making the case to the broad public why their effort can achieve more of what is needed. This is easily done.

Here are some key concepts that the Occupy movement could use. No matter who is nominated by Americans Elect, the odds are that either the better financed Democrat or Republican candidate will win the presidency. This may just require spending even more millions of dollars on campaigns. And whoever is nominated by the group will likely be strongly linked to one of the two major parties, rather than some courageous reformer and enemy of the status quo. Moreover, this group does not offer a realistic path to getting the key reforms of the system that most of us see critically needed, such as constitutional amendments, already recognized by many Occupy supporters.

A sign of trouble for the Occupy movement is a recent national poll that found: “In the latest survey, 33 percent voiced support for Occupy Wall Street, down from 35 percent in a previous poll, while opposition to the movement climbed from 36 percent to 45 percent. Twenty-two percent were unsure.” These results are worse than earlier polls. From the left, Chris Bowers commented: “the decline in Occupy Wall Street’s image is probably more connected to the increasingly negative coverage of the clashes between protesters and police than it is to declining support for movement’s message.” Now is the time to move the message from what is wrong to solutions, using an Occupy Congress approach. Otherwise, this view from the conservative right might prevail: “OWS will linger … but I’d argue we’ve seen the movement’s high tide. It will now recede into a mere annoying shadow of itself as support is withdrawn by political figures and organizations.”

True, Occupy movement success is not inevitable. The movement must better define what success means and how it can be achieved if it is to attract and keep the support of many millions of Americans. It needs specificity for its solutions that ordinary Americans can relate to. Never underestimate the power and commitment of status quo forces to maintain control over the political, government and economic system that has so harmed most Americans. The fight against the Occupy movement mostly seen as local police violence against peaceful demonstrators and protesters as well disinformation from some news outlets and pundits are nothing compared to what could be mounted if the movement is viewed as more threatening to the status quo delusional democracy with its delusional prosperity.

Fed secretly handed out $8 trillion

WarOnYou — Tue, 29 Nov 2011 08:27:50 +0000

Fed secretly handed out $8 trillion

November 28, 2011

Print Version

Source: RT

We knew the last bailout from the Federal Reserve was pretty big, but not until now did we have statistics on the actually tally. If you thought that the $700 billion bailout for TARP was big, get a load of this.

Just exactly how big was the Federal Reserve’s bailout of the banks between the years of 2008 and 2010? Thanks to a Federal Request of Information Act gone fulfilled, America now knows the truth behind a colossal cover-up: almost $8 trillion.

Ever since the Fed stepped in to bail out the biggest banks in the country, Ben Bernanke and company have gone to great lengths to keep the exact details of the transactions a secret, citing that the truth would cause concern for the world financial crisis far greater than what was already at hand, saying in particular that investors would step away from the “too big to fail” banks that were benefiting from the bailout. And while Fed Chairman Ben Bernanke went on the record to call the bailouts to even the most “sound institutions” only “marginal,” details of the FOIA request obtained by Bloomberg News now reveals that the Federal Reserve spent nearly half of the entire production output of the US during that span of less than two years — the biggest bailout in the country’s history — while going to great lengths to keep Congress and the American people in the dark.

By March of 2009, the Fed had already dished out $7.77 trillion to save the US financial system, dwarfing other assistance programs several times over. As the financial sector was on the brink of collapse, neither the Fed nor the banks involved came clean with the truth, instead lying through their teeth to keep the total facts a mystery. Until now.

While the banks kept the bailout a secret from Congress, they lobbied to the Legislative Branch to imply more lax governmental regulations on the industry, something that would haven arguably been near impossible had the truth surfaced at the time.

The website Naked Capitalism explains it pretty clearly in not so many words: “The bottom line is everybody close to the process lied like crazy.”

On November 26, 2008, Bank of America Chief Executive Officer Kenneth D. Lewis told shareholders that he ran “one of the strongest and most stable major banks in the world.” On that very day, BofA was indebted to the Fed something to the tune of nearly $90 billion. Less than two weeks later, the Federal Reserve blew $1.2 trillion total in a single day to bail out the breaking financial institutions.

All the while, of course, banks were borrowing loans at interest rates of as low as 0.01 percent. “No one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates,” writes Bloomberg now.

That’s not the worst part, either. As the Fed continues to operate without oversight from the Executive, Legislative and Judicial branches, further bailouts are guaranteed to keep being generated at the cost of the American taxpayer while a recession still seems imminent — if not already occurring. Critics including presidential hopeful Congressman Ron Paul have lobbied to abolish the Federal Reserve once and for all. Could the next president help make that dream a reality? In the meantime, don’t be surprised if billions get borrowed at America’s expense minute by minute.

AIG Sues U.S. Taxpayers for 25 Billion…Really

WarOnYou — Wed, 23 Nov 2011 08:24:07 +0000

AIG Sues U.S. Taxpayers for 25 Billion…Really.

« on: November 23, 2011, 03:04:09 AM »

A company run by former American International Group Chief Executive Maurice “Hank” Greenberg Monday filed a $25 billion lawsuit against the United States, claiming that the government takeover of the insurer was unconstitutional. In its complaint, Greenberg’s Starr International said that in bailing out AIG [AIG 21.01 --- UNCH ] and taking a nearly 80 percent stake, the government failed to compensate existing shareholders. It said this violated the Fifth Amendment, which bars the taking of private property for public use without just compensation.

“The government’s actions were ostensibly designed to protect the United States economy and rescue the country’s financial system,” Starr said. “Although this might be a laudable goal, as a matter of basic law, the ends could not and did not justify the unlawful means employed.”

The United States, it went on, “is not empowered to trample shareholder and property rights even in the midst of a financial emergency.”

Monday’s lawsuit was filed with the U.S. Court of Federal Claims in Washington, D.C., which handles lawsuits seeking money from the government. Once the world’s largest insurer by market value, AIG accepted $182.3 billion of federal bailouts beginning on Sept. 16, 2008, amid a liquidity crisis spurred by its exposure to risky debt through credit default swaps.

http://www.dvorak.org/blog/2011/11/22/aig-sues-u-s-taxpayers-for-25-billion-really/
Do you think maybe he was a major stockholder? Unbelievable. The guillotine is way too good for this crook.

U.S. boosts estimate of auto bailout losses to $23.6B

WarOnYou — Fri, 18 Nov 2011 08:37:28 +0000

U.S. boosts estimate of auto bailout losses to $23.6B

November 17, 2011

Print Version

Source: Detroit News

The Treasury Department dramatically boosted its estimate of losses from its $85 billion autoindustry bailout by more than $9 billion in the face of General Motors Co.’s steep stock decline.

In its monthly report to Congress, the Treasury Department now says it expects to lose $23.6 billion, up from its previous estimate of $14.33 billion.

The Treasury now pegs the cost of the bailout of GM, Chrysler Group LLC and the auto finance companies at $79.6 billion. It no longer includes $5 billion it set aside to guarantee payments to auto suppliers in 2009.

The big increase is a reflection of the sharp decline in the value of GM’s share price.

The current estimate of losses is based on GM’s Sept. 30 closing price of $20.18, down one-third over the previous quarterly price.

GM’s stock closed Monday at $22.99, up 2 percent. The government won’t reassess the estimate of the costs until Dec. 30.

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How the Eurocrisis laid bare world’s new economic order

WarOnYou — Mon, 31 Oct 2011 01:45:44 +0000

How the Eurocrisis laid bare world’s new economic order

October 30, 2011

Print Version

Source: Guardian

The French Riviera in November conjures up images of ageing playboys eking out the last rays of autumn sunshine on the Croisette over a pastis. So it may be fitting that Nicolas Sarkozy has chosen Cannes as the venue for this week’s G20 summit, where the fading power of Europe‘s old world economies will be thrown into sharp relief by the nouveau riche arrivistes from China, India and Brazil.

Sarkozy’s humiliating call to Beijing last week, asking if the Chinese would care to invest in the European financial stability facility, the huge euro bailout fund, was portrayed within China as grovelling. Guido Mantegna, Brazil’s finance minister, rapidly issued a statement saying his country had no intention of taking part.

Silvio Berlusconi was also forced to bear his share of the humiliation, writing a letter to his eurozone neighbours promising to buck up his economic act, in return for a share of the aid package.

For Europeans, last week’s events were a stark reminder that through a combination of their own economic mismanagement and the irresistible rise of a new generation of financial powers, the old continent’s pre-eminence is a thing of the past.

Jonathan Loynes, chief European economist at the consultancy Capital Economics, says: “Clearly, the fact that Europe needs this money is a further demonstration of how its economic health has deteriorated, at least in the short term.”

Charles Dumas, of Lombard Street Research, says: “The optimistic view for growth in Europe is 0%; the pessimistic scenario is depression.”

That message will be rammed home to Angela Merkel and her colleagues as the Europeans rub shoulders with India, China and the other G20 nations in the south of France.

Before the world financial crisis, these setpiece and usually self-congratulatory summits were still held among the G8 countries – the traditional lineup of the US, Germany, Japan, France, Britain, Canada and Italy, plus Russia, added to the list in 1997 to cement the fact that the post-communist empire had come in from the cold. But even before mis-sold mortgages and reckless bankers triggered arguably the worst global financial crisis in living memory, it had become clear that this group was no longer a fair representation of the world economy.

Goldman Sachs economist Jim O’Neill coined the phrase “Brics” in 2001, to describe Brazil, Russia, India and China, a disparate group of nations that he predicted would soon wield greater power on the world economic stage.

In the ensuing decade, more economies have joined the list of promising upstarts, including African states such as Nigeria and Egypt, and Asian big beasts such as Indonesia. The credit crunch, which could weigh on economic growth in Europe and the US for several years, will only accelerate the great catch-up.

In a major report earlier this year, The World in 2050, economists at PricewaterhouseCoopers predicted that, judged by purchasing power parity – which allows for the fact that a dollar goes much further in Shanghai than in New York – China was already the world’s second-largest economy. By 2050, it reckons that the US will have slipped to number three, with India, Brazil, Mexico and Indonesia all in the top 10.

Economists call this “convergence”. Technological advances may arise first in Silicon Valley or the German Mittelstand, but in a globalised economy, they can rapidly be appropriated by firms and families thousands of miles away, helping to drive up economic growth. Nothing about convergence is automatic: politics matters too. China’s rise from closed communist state to workshop of the 21st-century world accelerated after it joined the World Trade Organisation in December 2001.

With easier access to the west’s consumer markets, China ruthlessly pursued an export-led growth model, racking up vast trade surpluses with the US and Europe, and spending much of the money on buying dollars, and other foreign currency denominated assets, to keep the yuan cheap, and its goods competitive. The 10% a year growth rates it has posted are a result of deliberate policy as well as its sheer size.

Many China-watchers are concerned that the country could be destined for an economic “hard landing” over the next 12 months, as rapid increases in property prices swing into reverse. But Gerard Lyons, chief economist of Standard Chartered, who travels to China frequently, insists any downturn will only be a temporary setback. He believes the world economy is in the middle of its third powerful “super-cycle”. The first was at the end of the 19th century, when Britain emerged as a mighty economic power; the second in the postwar years, when Japan rose to prominence, worrying the new hegemonic power, the US; and the third today, as China, India and several other developing economies take their place as major powers .

Lest the exhausted Europeans gathering in Cannes feel too overshadowed, though, there are two caveats to the triumph of the east. in this global game of economic top trumpsThe first is that while the massive populations of China, India and Indonesia will help to catapult them into the big league over the coming years, it will be much longer before living standards catch up. The average income in China is just 15% of the US level today, and even by 2050 it is still expected to be more than 50% lower than America’s.

Headline numbers don’t capture inequality either: comparatively rich countries measured by GDP alone can still contain pitifully poor populations, if a kleptocratic elite is appropriating the spoils, or an ineffectual bureaucracy fails to create the social safety nets the public need.

Finally, the world’s leaders should console themselves with the fact that if they get things right, we should all be winners. Richard Snook, of PwC, says: “It’s fair to say that over the next five or six years things are going to be pretty difficult. But over the next 40 years, we are expecting the standard of living to improve a lot.”

But he insists the convergence of China and the rest should be good news, because it creates large and growing markets which the old powers should be able to take advantage of. “This is not a ‘decline of the west’ story: we’re still expecting the European and the US economies to expand by two and a half or three times by 2050,” he says.

Lyons agrees. “I don’t think the west should be pessimistic,” he says. “We need to be realistic about the near-term: the debt and the need to deleverage point to a difficult couple of years. But the west still has the ability to do well.”

EU Considers Temporary Bans on Sovereign Ratings

WarOnYou — Fri, 21 Oct 2011 18:55:38 +0000

EU Considers Temporary Bans on Sovereign Ratings

October 20, 2011

Print Version

Source: WSJ

BRUSSELS—The European Commission is leaning toward proposing a ban on the issuing of sovereign credit ratings for countries in bailout talks, a top official said on Thursday.

“I think it’s legitimate to have a special treatment when a country is in negotiation or is covered by an international solidarity program with the IMF or a European solidarity” program, said Michel Barnier, European internal market commissioner.

Should the commission, the executive arm of the European Union, come to view these sovereign ratings are inappropriate, “we could ban it or suspend the rating for the necessary time frame,” he said. “I am …

Read Full Article Here…

Obama administration ‘bailed out’ GM salmon firm

WarOnYou — Thu, 20 Oct 2011 06:35:30 +0000

Obama administration ‘bailed out’ GM salmon firm

October 19, 2011

Print Version

Source: Guardian UK

The Obama administration awarded a coveted research grant to a financially strapped company working to put genetically modified (GM) salmon on American dinner tables, overlooking disclosures that the firm could run out of cash in early 2012, it has emerged.

Campaigners say the $500,000 grant to AquaBounty amounts to a bail-out for the firm’s main investor, the business tycoon and former economics minister of Georgia, Kakha Bendukidze. They are also comparing it to the Solyndra controversy, which saw a solar company go bankrupt after receiving government loan guarantees.

“Certainly this does have shades of Solyndra. We have seen this company’s stock plummeting for months and months – years actually – and what does the US Department of Agriculture (USDA) do but give this company money?”, said Colin O’Neil, a policy analyst at the Centre for Food Safety, which opposes GM salmon.

“This is research that any public university or independent institution could be doing, so why is the USDA funding this interested company to do it?” he said.

The grant, awarded last month, comes at a critical juncture for AquaBounty.

After $67m and 16 years’ waiting, the Food and Drug Administration could pronounce GM salmon fit for human consumption within weeks, the company’s chief executive, Ronald Stotish, said.

Read Full Article Here…

The Federal Reserve and Bank of America Initiate a Coup to Dump Billions of Dollars of Losses on the American Taxpayer

WarOnYou — Wed, 19 Oct 2011 05:59:29 +0000

The Federal Reserve and Bank of America Initiate a Coup to Dump Billions of Dollars of Losses on the American Taxpayer

October 18, 2011

Print Version

Source: Washington’s Blog

Bloomberg reports that Bank of America is dumping derivatives onto a subsidiary which is insured by the government – i.e. taxpayers.

Yves Smith notes:

If you have any doubt that Bank of America is going down, this development should settle it …. Both [professor of economics and law, and former head S&L prosecutor] Bill Black (who I interviewed just now) and I see this as a desperate move by Bank of America’s management, a de facto admission that they know the bank is in serious trouble.

The short form via Bloomberg:

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation…

Bank of America’s holding company — the parent of both the retail bank and the Merrill Lynch securities unit — held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.

That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives, the OCC data show.

Now you would expect this move to be driven by adverse selection, that it, that BofA would move its WORST derivatives, that is, the ones that were riskiest or otherwise had high collateral posting requirements, to the sub. Bill Black confirmed that even though the details were sketchy, this is precisely what took place.

And remember, as we have indicated, there are some “derivatives” that should be eliminated, period. We’ve written repeatedly about credit default swaps, which have virtually no legitimate economic uses (no one was complaining about the illiquidity of corporate bonds prior to the introduction of CDS; this was not a perceived need among investors). They are an inherently defective product, since there is no way to margin adequately for “jump to default” risk and have the product be viable economically. CDS are systematically underpriced insurance, with insurers guaranteed to go bust periodically, as AIG and the monolines demonstrated. [Background.]

The reason that commentators like Chris Whalen were relatively sanguine about Bank of America likely becoming insolvent as a result of eventual mortgage and other litigation losses is that it would be a holding company bankruptcy. The operating units, most importantly, the banks, would not be affected and could be spun out to a new entity or sold. Shareholders would be wiped out and holding company creditors (most important, bondholders) would take a hit by having their debt haircut and partly converted to equity.

This changes the picture completely. This move reflects either criminal incompetence or abject corruption by the Fed. Even though I’ve expressed my doubts as to whether Dodd Frank resolutions will work, dumping derivatives into depositaries pretty much guarantees a Dodd Frank resolution will fail. Remember the effect of the 2005 bankruptcy law revisions: derivatives counterparties are first in line, they get to grab assets first and leave everyone else to scramble for crumbs. [Background.] So this move amounts to a direct transfer from derivatives counterparties of Merrill to the taxpayer, via the FDIC, which would have to make depositors whole after derivatives counterparties grabbed collateral. It’s well nigh impossible to have an orderly wind down in this scenario. You have a derivatives counterparty land grab and an abrupt insolvency. Lehman failed over a weekend after JP Morgan grabbed collateral.

But it’s even worse than that. During the savings & loan crisis, the FDIC did not have enough in deposit insurance receipts to pay for the Resolution Trust Corporation wind-down vehicle. It had to get more funding from Congress. This move paves the way for another TARP-style shakedown of taxpayers, this time to save depositors. No Congressman would dare vote against that. This move is Machiavellian, and just plain evil.

The FDIC is understandably ripshit. Again from Bloomberg:

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.

Well OF COURSE BofA is gonna try to take the position this is kosher, but the FDIC can and must reject this brazen move. But this is a bit of a fait accompli,and I have NO doubt BofA and the craven, corrupt Fed will argue that moving the derivatives back will upset the markets. Well too bad, maybe it’s time banks learn they can no longer run roughshod over regulators. And if BofA is at that much risk that it can’t survive undoing this brazen move, that would seem to be prima facie evidence that a Dodd Frank resolution is in order.

Bill Black said that the Bloomberg editors toned down his remarks considerably. He said, “Any competent regulator would respond: “No, Hell NO!” It’s time that the public also say no, and loudly, to this new scheme to loot taxpayers and save a criminally destructive bank.

Professor Black provided a “bottom line” summary in a separate email:

1.The bank holding company (BAC) is moving troubled assets held by an entity not insured by the public (Merrill Lynch) to the Bank of America, which is insured by the public
2. The banking rules are designed to prevent that because they are designed to protect the FDIC insurance fund (which the Treasury guarantees)
3. Any marginally competent regulator would say “No, Hell NO!”
4. The Fed, reportedly, is saying “Sure, no worries” by allowing the sale of an affiliate’s troubled assets to B of A
5. This is a really good “natural experiment” that allows us to test whether the Fed is protects the public or the uninsured and systemically dangerous institutions (the bank holding companies (BHCs))
6. We are all shocked, shocked [sarcasm] that Bernanke responded to the experiment by choosing to protect the BHC at the expense of the public.

Karl Denninger writes:

So let’s see what we have here.

Bank customer initiates a swap position with Bank. In doing so they intentionally accept the credit risk of the institution they trade with.

Later they get antsy about perhaps not getting paid. Bank then shifts that risk to a place where people who deposited their money and had no part of this transaction wind up backstopping it.

This effectively makes the depositor the “guarantor” of the swap ex-post-facto.

That the regulators are allowing this is an outrage.

If you’re a Bank of America customer and continue to be one you deserve whatever you get down the line, whether it comes in the form of higher fees and costs assessed upon you or something worse.

Stand Up to the Coup

Bank of America has repeatedly become insolvent due to fraud and risky bets, and repeatedly been bailed out by the government and American people. The government and banks are engineering an age of permanent bailouts for this insolvent, criminal bank (and the other too big to fails). Remember, this is the same bank that is refusing to let people close their accounts.

This is yet another joint effort by Washington and Wall Street to screw the American people, and to trample on the rule of law.

The American people will be stuck in nightmare of a never-ending depression (yes, we are currently in a depression) and fascism (or socialism, if you prefer that term) unless we stand up to the overly-powerful Fed and the too big to fail banks.

Boston police impose curfew for protesters

WarOnYou — Wed, 12 Oct 2011 01:45:02 +0000

Boston police impose curfew for protesters

October 11, 2011

Print Version

Source: Boston.com

Boston police moved in and began arresting scores of Occupy Boston protesters who refused to leave a large part of the Rose Fitzgerald Kennedy Greenway early this morning.

At 1:20 a.m., the first riot police officers lined up on Atlantic Avenue. Minutes later, dozens of sheriff vans and police wagons arrived and over 200 officers in uniforms and riot gear surrounded the Greenway.

Police Superintendent William Evans and Commissioner Edward F. Davis watched from across the street. Evans gave the crowd two minutes to disperse from the park, warning that they would be locked up if they did not comply.

The crowd of protesters, energized by the sudden appearance of the Boston and Transit police officers, chanted, ‘‘The people united will never be defeated,’’ “This is a peaceful protest,” and “the whole world is watching.’’

About 10 minutes later, the first officers entered the park and surrounded the group. Evans, using a loudspeaker, gave one more warning and then each protester was individually put on his or her stomach, cable-tied, and dragged off as others tore down tents and arrested and detained people on the fringe of the park.

Read full report here

Wall Street Protesters Plan ‘Millionaires March’ to Tycoons’ New York City Homes

WarOnYou — Wed, 12 Oct 2011 01:42:35 +0000

Wall Street Protesters Plan ‘Millionaires March’ to Tycoons’ New York City Homes

October 11, 2011

Print Version

Source: Fox News

NEW YORK – Protesters from the Occupy Wall Street movement plan to leave their downtown Manhattan headquarters Tuesday and head uptown as part of a “Millionaires March” visiting the homes of some of New York City’s wealthiest residents.

Between 400 and 800 people are expected to take part in the demonstration targeting the homes of JP Morgan Chase CEO Jamie Dimon, billionaire businessman David Koch, financier Howard Milstein, hedge fund maven John Paulson and News Corp. Chairman and CEO Rupert Murdoch, Crain’s New York Business reported.

The marchers will hold oversize checks they say demonstrate how much less the wealthy will pay when New York State’s 2 percent tax on millionaires expires at the end of the year.

“Ninety-nine percent of the residents of New York are going to suffer from this tax giveaway so the 1 percent who already live in absolute luxury can put more money in their pockets,” Doug Forand, one of the march organizers, told the New York Daily News. “This is fiscally, economically and morally wrong.”

Corporate-financier dominated Western media attempts to Wish-away “Occupy the Fed” Movement

WarOnYou — Mon, 10 Oct 2011 06:11:02 +0000

Even before its scheduled start this weekend, mention of the “Occupy the Fed” movement, which aims to bring attention to the real culprits behind America’s economic plight, is spreading, not just across the United States, but overseas as well. The corporate-financier elite which dominates the Western media are attempting in vain to redirect the growing anger of the American people toward the middle class, with President Obama leading the way in a clumsy demagogic campaign of class warfare. Ironically, Obama’s own administration is filled top to bottom with Wall Street bankers and Fortune 500 representatives eager to make sure the axe falls anywhere but upon their own necks. This fact regarding Obama’s ties to Wall Street and even many of the GOP challengers for 2012 like Herman Cain, a former Federal Reserve chairman, makes such pandering farcical if not entirely offensive to the American people’s intelligence. Not only are Americans calling this hubris-filled bluff, but so are foreign pundits overseas.

Officially announced on October 3, 2011, the “Occupy the Federal Reserve” movement called for by pro-freedom pundit Alex Jones and augmented by “End the Fed” movements nationwide, is set to begin this weekend. Despite the implications of large crowds convening upon America’s central bank, run by the very corporate-financier interests that have abused Wall Street and stirred up the “Occupy Wall Street” crowds in the first place, not a word of it has been spoken in the Western media – in fact a Google News search for “Occupy the Fed” retrieves the following, cartoonish headline: “Occupy Wall Street finds sympathy in the Fed.”

Abroad however, out from beneath the corporate-financier funded mainstream media and beyond Google’s rigged algorithms, not only is the “Occupy the Fed” movement mentioned, but along with genuine protesters at “Occupy Wall Street” it is mentioned in a positive light. Even as far flung as Thailand, in the local English language newspaper The Nation, one is pleasantly surprised to see “Occupy the Fed” mentioned as well as a critical take on how the Western media is trying to cover it up, along with the genuine concerns of protesters taking part in “Occupy Wall Street.”

“Conveniently ignoring the truth,” penned by The Nation’s Thanong Khanthong, begins by stating:

“The mainstream American media at first tried to pretend that Occupy Wall Street did not exist. They were forced to play up the story when New York police arrested 700 Occupy Wall Street protesters near the Brooklyn Bridge.

The editorial line of the mainstream American media on the Occupy Wall Street movement, which has now branched out to “Occupy the Fed”, remains obscure. For the media are part of the establishment, or the elite, which Occupy Wall Street is going after.”

And indeed this sums up almost entirely the current, growing unrest in America today. Even as the mainstream corporate media covers the protests, they do so only in a way that suits the elite, because as Thanong points out, the media is part of the establishment. Thanong’s editorial goes on to compare the Western media’s coverage of foreign-funded unrest in Thailand and across the Middle East with their current coverage of “Occupy Wall Street,” and the acute hypocrisy exhibited between how protests are covered that are driven by and serve the elite verses those that that oppose the global elite’s agenda.

When word of “Occupy the Fed” spreads literally to the other side of the planet in less than a week, and editorials by foreign journalists sound “Ron Paul -esque,” a real revolution is afoot, and the silence and isolation the corporate media attempts to paint the alternative media and protests like “End the Fed,” and now “Occupy the Fed,” with, is much like everything else the global elite deal in, absolute, utter, contrived theater. We are the majority, we are winning. Lies, deception, and cheating on the part of the global elite belie the strength they attempt to project across the planet.

Two months after declaring victory in Libya, for example, NATO continues to carry out on average 30-40 strike sorties a day on cities that are mere specks on a map in a futile attempt to wring from the minute nation a victory for themselves and their vast network of corporate-financier sponsors. As the world slowly awakens and calls the globalists’ bluff, we see what craven, back pedaling cowards they really are. The harder they try to portray strength, so the “Art of War” dictates, the weaker in reality they are. Their only advantage was and still is the ever-dwindling number of people that unquestionably accept what they see, hear, and read in the mainstream media, both in America and abroad.

When foreign editorials begin pointing this out with astounding accuracy, as Thailand’s The Nation has, the global awakening Zbigniew Brzezinski alluded to may be more than just a large scale CIA-backed destabilization. It may be a tangible realization across borders of just who really holds the power, and who just pretends to. It may also be a realization that globalization is a fraud, the disease of modern day imperialism driven by a not-so-secretive elite desperately trying to ward off anger in America, which as of this weekend, will be literally on their doorsteps – not on Wall Street, but at Federal Reserve branches across the United States.

The entire editorial featured in Thailand’s The Nation, can be found here.

Economist: The Financial System Is Broken And Corrupt

WarOnYou — Mon, 10 Oct 2011 06:00:27 +0000

Economist: The Financial System Is Broken And Corrupt

October 9, 2011

Print Version

Source: Washington’s Blog

Prominent economist Michael Hudson explains that the financial system is so fundamentally broken and corrupt that the message of the Occupy Wall Street protesters can’t be reduced down to a handful of “technocratic fixes”.

Hudson also said:

Banking should be a public utility (Background)

Bank of America, Wells Fargo and Citibank are crime gangs (Background)

Obama is backing de-criminalization of fraud (Background)

Obama doesn’t want to create jobs; instead, he wants to reduce wages by 30% (Background)

Geithner is just a bank lobbyist, and shouldn’t be in charge of treasury (Background here and here)

Note: Michael Hudson is a highly-regarded economist. He is a Distinguished Research Professor at the University of Missouri, Kansas City, who has advised the U.S., Canadian, Mexican and Latvian governments as well as the United Nations Institute for Training and Research. He is a former Wall Street economist at Chase Manhattan Bank who also helped establish the world’s first sovereign debt fund.

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