By Shamus Cooke

Five years ago it would be unthinkable that a harsh critique of capitalism would attract a mass audience. But this is exactly what Michael Moore’s new movie — Capitalism: A Love Story — has done.  The source of Moore’s success is his willingness to focus on what the media ignores: the human faces behind unemployment, bankruptcy, foreclosures, evictions, etc., and the faces benefiting from this misery — the corporate-elite sitting atop the financial system.

This reality has quickly educated millions of Americans, who now understand that our economic system is dominated by a tiny crust of super-rich individuals, bailing themselves out with taxpayer money while playing deaf to an exploding social crisis.

To combat these truths, the corporate-elite are planning a pro-capitalist media blitz.

The U.S. Chamber of Commerce is an organization where the biggest U.S. corporations come together to chat, organize, and throw money at politicians.  Now, they are launching their “dream big” campaign, with the aim of “…preserving and advancing the American free enterprise system [capitalism].”

This $100 million campaign — as explained on the Chamber’s website — will focus on “national advertising,” “grassroots advocacy,” “research and ideas leadership” [think tanks and universities], and “Citizen, Community, and Youth Engagement” — combining “…outreach to governors, mayors, and young audiences…” with “…online social networking” (Facebook).

Aside from saving capitalism, the campaign aims to save “… the 7 million jobs lost to the current recession and create the 13 million new jobs that will be needed over the next decade.”

But as Albert Einstein pointed out, “no problem can be solved from the same level of consciousness that created it.”  No serious economist is predicting that the economy is going to start pumping out jobs, let alone 20 million of them.

The Chamber of Commerce isn’t the only entity trying to shore up the profit system.  Corporate-oriented pundits and politicians are falling over themselves to sing high praises to our troubled economic system.

Bush gave such a speech shortly after the system crashed, where he admitted that people were beginning to equate the market economy [capitalism] with “…greed, exploitation, and failure.”  This was wrong, Bush claimed.  Instead, regulation was the culprit, a simple, easy-to-fix problem. The giant banks and other mega-corporations — owned and controlled by tiny groups of ultrarich individuals — could remain in place.

Another rescuer of capitalism is Newsweek Editor and savvy politician, Fareed Zakaria, who wrote a Newsweek article entitled, The Capitalist Manifesto.  In it, Zakaria explains, “What we are experiencing is not a crisis of capitalism. It is a crisis of finance, of democracy, of globalization and ultimately of ethics.”  To further obscure the problem, he concludes that the banks and corporations are not to blame… everybody is:

“… there is enough blame to go around and many fixes to make…But at heart, there needs to be a deeper fix within all of us, a simple gut check. If it doesn’t feel right, we shouldn’t be doing it.”  (June 13, 2009).

Of course not every defense of capitalism is as ridiculous as Bush’s or Zakaria’s.  A more nuanced approach can be heard by both Ariana Huffington and Ron Paul, who both share the same perspective: capitalism did not fail because capitalism did not exist — “corporatism” did.

Assuming that Paul and Huffington are defining “corporatism” as an economy dominated by large banks and other corporations, they’re right.  They’re wrong to think that “corporatism” and capitalism are mutually exclusive.  In fact, capitalism has been dominated by large corporations for over a hundred years, with the advent of the “robber barons” — monopoly corporation owners like Rockefeller, Morgan, Carnegie, Vanderbilt, etc.

At its foundation, however, capitalism hasn’t changed.  The system has always produced goods for the purpose of private profit, not people’s need, and the people who profit from capitalism have always been those who own the wealth, machines and buildings that produce these goods, whether they be cars, computers, or loans.

Although capitalism’s essence remains intact, its appearance has morphed over the years.  In the early days, small businesses dominated, alongside small banks.  But as transportation and technology developed, the world seemed to get smaller, while more and more goods were being produced.

This created the conditions that led to a capitalist free for all; a relentless battle to out-sell the others on the global marketplace. The big dogs ate the little dogs, and became bigger and bigger dogs — super-corporations that now span the globe, with gigantic facilities producing unimaginable amounts of commodities.

This is the world we live in today.  These companies wield absolute power over political and social life: their tremendous wealth enables them to purchase politicians and army generals, while keeping certain topics in Congress “off the table.”  This is the reality of capitalism as it exists today, a fact that must be acknowledged by anybody offering a credible solution.

We cannot regulate capitalism to meet our needs when we do not control the system; those who own the banks and corporations do.  Real social change will require that this dynamic be smashed, so that socially precious institutions are not the property of any individual or small group.  Any entity that seriously affects the general public should be run in the interest of the public, and thus owned by no one.

Shamus Cooke is a social service worker, trade unionist, and writer for Workers Action (www.workerscompass.org).  He can be reached at shamuscook@yahoo.com

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WASHINGTON – The federal government has devoted $4.7 trillion to help the financial sector through its crisis, a level of assistance equal to about one-third of the overall U.S. economy, a watchdog report said Monday.

Under the worst of circumstances, the report said, the government’s maximum exposure could total nearly $24 trillion, or $80,000 for every American.

The figures are part of a tough new quarterly report to Congress from special inspector general Neil Barofsky, who accuses the Treasury Department of repeatedly failing to adopt recommendations aimed at making one component of the government financial rescue effort more accountable and transparent.

The $4.7 trillion commitment to the industry takes into account about 50 initiatives and programs set up since 2007 by the Bush and Obama administrations as well as by the Federal Reserve. Barofsky oversees one of the initiatives — the $700 billion Troubled Asset Relief Program.

Much of the government assistance is backed by collateral and Barofsky’s $23.7 trillion estimate represents the gross, not net, exposure that the government could face.

Because of declining participation in short-term loan programs and because some infusions of money have been repaid, the maximum amount actually spent has declined to a current outstanding balance of $3 trillion, Barofsky said.

Treasury spokesman Andrew Williams said the actual cash outlay to date of all the programs cited by Barofsky is actually less than $2 trillion and said the maximum exposure estimate “is inflated in a number of ways.”

The agencies and the programs assisting the financial sector include a newly created Federal Housing Finance Agency, increased deposit insurance initiated by the Federal Deposit Insurance Corp., and 18 support programs created by the Fed under the special powers it can deploy to address a systemwide financial crisis.
Story continues below

Banks have cut back on their use of the Fed’s emergency lending program as well as other programs to ease credit stresses. Given that, the Fed has reduced the amount it will lend to financial institutions under two programs and it has decided to let a program to support money market mutual funds to expire as currently scheduled at the end of October.

Barofsky’s $23.7 trillion estimate represents the maximum exposure that the government would face if all eligible applicants requested the maximum assistance at the same time. It does not account for the fees and other costs that some of these programs charge and for the collateral that many of the programs require that participants provide.

For instance, Barofsky assigns $6.8 trillion in potential exposure to the Federal Housing Finance Agency, which oversees mortgage giants Fannie Mae, Freddie Mac and the 12 federal home loan banks. However, losses of that magnitude would require every homeowner with a Fannie or Freddie guaranteed mortgage to default and the value of the homes drop to zero. And Barofsky concedes that the finance agency and Treasury are not entirely liable for Fannie and Freddie losses.

The total also includes $3.35 trillion for a Treasury program, announced in September, to back money market mutual funds. But the Treasury has capped its liability for that program at $50 billion.

“While quantity and quality of the assets backing all of these programs vary, ignoring that side of these programs misrepresents ‘potential exposure’ associated with them,” Treasury’s Williams said.

In his report, Barofsky says Treasury has accepted some of his recommendations for greater accountability, but says the department has not taken steps to require all TARP recipients to report on their actual use of funds. He said Treasury also should report the values of its investments in banks and other financial institutions, disclose the identity of borrowers under a nonrecourse loan program and disclose trading activity under a public-private investment fund.

Barofsky says Treasury’s inaction means taxpayers have not been told what the financial institutions that have received assistance are doing with the money.

Rep. Darrell Issa of California, the top Republican in the House Oversight and Government Reform Committee, said that by not adopting Barofsky’s recommendation, Treasury is contradicting President Barack Obama’s vows to increase government accountability.

“I don’t know how you can justify hiding from the American people how their tax dollars are being spent,” Issa said.

Barofsky’s conclusion is contained in a quarterly report to Congress and in testimony he is prepared to give Tuesday to the Oversight and Government Reform Committee.

“The very credibility of TARP (and thus in large measure its chance of success) depends on whether Treasury will commit, in deed as in word, to operate TARP with the highest degree of transparency possible,” Barofsky said.

AP Economics Writers Jeannine Aversa and Christopher S. Rugaber contributed to this report.

Read more at: http://www.huffingtonpost.com/2009/07/20/bailout-may-cost-237-tril_n_241512.html

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Dylan Ratigan|Oct. 18, 2009, 11:38 AM | 1,090 |17

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Max Keiser in his prime, discussing whether the crisis is over: “It’d not froth, it’s fraud. This is an incredible case of accounting fraud and the American peasants have got to be the stupidest people in the world today: they don’t mind becoming peasants, they don’t mind living like peasants, and if that’s the case, we should do nothing to step them from sliding into a peasant class.” And this pearl: “The bankers on Wall Street are the equivalent of suicide bombers in other countries. They threaten to blow themselves up and blow up the economy in exchange for huge bailout money.”

Full clip

Part 1:

Part 2:

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Yesterday, we brought you the insurance company that wouldn’t insure a 17-pound infant because he was too heavy. Today, we bring you the investment bank that manages to double its bonuses during the worst recession since the Great Depression.

On Thursday, Goldman Sachs will announce the firm’s bonus payments for 2009. Analysts expect the bonus pool to mushroom to $23 billion — double the bonus pool paid to employees in 2008. Earlier this year, Goldman Sachs said that it had put aside $11.4 billion for bonuses during the first half of the year.

“The absolute size of compensation payouts will rise significantly,” Keith Horowitz, an analyst at Citigroup, wrote in a note to clients two weeks ago, highlighted by Andrew Sorkin in The New York Times‘ dealbook column Tuesday.

How much is $23,000,000,000?

For one thing, it’s enough to send 460,000 full paying students to Harvard University for one year, or 115,000 for four years.

It’s enough to pay the health insurance premium for the average American family ($13,375) 1.7 million times.

It’s enough to upgrade 191 million computers to Windows 7 operating system (priced at $119.99), or to buy 115 million iPhones at $199.99 (provided the recipient was willing to sign a two-year contract).

Or, apparently, it’s enough to reward the employees of Goldman Sachs for a bonanza trading year, at a firm where average employee compensation was recently $622,000 — and likely to be greater this year.

The $23 billion figure could leave some American taxpayers woozy — the US government bailed out Goldman Sachs with a multi-billion payment last year, which the firm has since repaid.

But while Goldman is likely to pay its biggest bonuses ever to employees, the firm pays very little in taxes worldwide. In 2008, the company was said to have paid just $14 million in taxes worldwide, and paid $6 billion in 2007.

The firm’s corporate tax rate? About 1 percent. According a prominent tax lawyer, “They have taken steps to ensure that a lot of their income is earned in lower-tax jurisdictions.”

Sorkin says Goldman’s CEO is trying to hold off criticism by making a big charitable donation.

“Now there’s talk inside Goldman that it is considering making a huge charitable donation — perhaps more than $1 billion — as a way to help deflect the criticism,” Sorkin says. “Such a donation would be a welcome gesture that would no doubt benefit many needy organizations. But it would most likely be seen for what it is: a one-time move to draw attention away from where most of the money is really going. A large charitable donation also raises questions about the company’s fiduciary duty to its shareholders; it could be seen as giving away profits that ostensibly belong to them.”

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The battle to reform the American banking system needs to include reimposing the barrier between investment banking and depository banking (Glass-Steagall), pay incentives based on what is best for Americans and not just the top executives, the end of too big to fail, and other changes which are frequently discussed by financial writers. These are vital issues.

But there is more to the battle for reform than you might know.

New York Versus the Rest of the Country

If you are happy with the banking system, and don’t think it needs to be reformed, then you probably work for one of the banks headquartered in New York.

Indeed, the banks outside of New York have acted much more conservatively, used more conservative capital ratios and less leverage and gotten less involved in credit derivatives and other speculative investments.

Buy a banker in the Midwest a drink, and he will probably rail against the giant New York banks for causing the financial crisis, costing the smaller, better run banks a lot of money and huge fees, and driving many smaller banks out of business.

And even within the Federal Reserve, what the New York Fed and Bernanke are saying is wholly different from what the heads of the regional Fed banks are saying. The Fed banks in Philadelphia and Kansas City and Dallas and elsewhere disagree with what the New York Fed and Fed’s Open Market Committee are doing. See this and this.

So the battle isn’t between bankers versus outsiders. It is between the giant New York money-centered banks and the rest of the country.

Reserve RequirementsCongresswoman Kaptur said last week:

We used to have capital ratios. We need to get back to them. Ten to one. For every dollar in your bank, you can lend ten. You know what J.P. Morgan did? A hundred to one. And then with derivatives, who knows how much?

Remember, Milton Friedman – the monetary economist worshipped as the guy with all of the answers in the latter part of the 20th century – advocated for 100% reserves.

Forget 100 to 1 or even 10 to 1. Friedman said the capital ratio should be 1 to 1, where banks only lend out the amount they actually have as deposits on hand.

Friedman has been deified as the economist to follow. But his views on reserve requirements have been completely ignored.

Goldman Using Taxpayer Dollars to Buy Stock in China?

As everyone knows, Goldman became a “bank holding company” in September, to be able to access funds from the Fed at essentially zero percent interest.

But in a new interview with Bill Moyers, Simon Johnson noted that in August of 2009, Goldman switched again – to a “financial holding company”.

What’s the difference?

Johnson says that being a financial holding company means that Goldman can borrow money from the Fed at essentially no cost, and then invest it in any thing it wants. For example, Johnson says that Goldman has bought a large share of the stock of a Chinese automaker. Johnson says that if the investment succeeds, Goldman will reap the profits; but if it fails, the taxpayers are on the hook.

Banks Have the Power to Create Money

Congresswoman Kaptur also said last week:

Banks have the power to create money. And decide how much that is worth.

What is Kaptur talking about?

Here Comes the Judge

Well, in First National Bank v. Daly (often referred to as the “Credit River” case) the court found that the bank created money without having the reserves:

[The president of the First National Bank of Montgomery] admitted that all of the money or credit which was used as a consideration [for the mortgage loan given to the defendant] was created upon their books, that this was standard banking practice exercised by their bank in combination with the Federal Reserve Bank of Minneaopolis, another private bank, further that he knew of no United States statute or law that gave the Plaintiff [bank] the authority to do this.

The court also held:

The money and credit first came into existence when they [the bank] created it.

(Here’s the case file).

Nobel Economists, Congressmen, the Fed and Treasury AgreeStill confused?

Well, let’s hear from some top economists.

As PhD economist Steve Keen pointed out recently, 2 Nobel-prize winning economists have shown that the assumption that reserves are created from excess deposits is not true:

The model of money creation that Obama’s economic advisers have sold him was shown to be empirically false over three decades ago.

The first economist to establish this was the American Post Keynesian economist Basil Moore, but similar results were found by two of the staunchest neoclassical economists, Nobel Prize winners Kydland and Prescott in a 1990 paper Real Facts and a Monetary Myth.

Looking at the timing of economic variables, they found that credit money was created about 4 periods before government money. However, the “money multiplier” model argues that government money is created first to bolster bank reserves, and then credit money is created afterwards by the process of banks lending out their increased reserves.

Kydland and Prescott observed at the end of their paper that:

Introducing money and credit into growth theory in a way that accounts for the cyclical behavior of monetary as well as real aggregates is an important open problem in economics.

In other words, if the conventional view that excess reserves (stemming either from customer deposits or government infusions of money) lead to increased lending were correct, then Kydland and Prescott would have found that credit is extended by the banks (i.e. loaned out to customers) after the banks received infusions of money from the government. Instead, they found that the extension of credit preceded the receipt of government monies.

Keen explained in an interview Friday that 25 years of research shows that creation of debt by banks precedes creation of government money, and that debt money is created first and precedes creation of credit money.

As Mish has previously noted:

Conventional wisdom regarding the money multiplier is wrong. Australian economist Steve Keen notes that in a debt based society, expansion of credit comes first and reserves come later.

This angle of the banking system has actually been discussed for many years by leading experts:

“[Banks] do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers’ transaction accounts.”
– 1960s Chicago Federal Reserve Bank booklet entitled “Modern Money Mechanics”

“The process by which banks create money is so simple that the mind is repelled.”
– Economist John Kenneth Galbraith

[W]hen a bank makes a loan, it simply adds to the borrower’s deposit account in the bank by the amount of the loan. The money is not taken from anyone else’s deposit; it was not previously paid in to the bank by anyone. It’s new money, created by the bank for the use of the borrower.
– Robert B. Anderson, Secretary of the Treasury under Eisenhower, in an interview reported in the August 31, 1959 issue of U.S. News and World Report

“Do private banks issue money today? Yes. Although banks no longer have the right to issue bank notes, they can create money in the form of bank deposits when they lend money to businesses, or buy securities. . . . The important thing to remember is that when banks lend money they don’t necessarily take it from anyone else to lend. Thus they ‘create’ it.”
-Congressman Wright Patman, Money Facts (House Committee on Banking and Currency, 1964)

“The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented.
– Sir Josiah Stamp, president of the Bank of England and the second richest man in Britain in the 1920s.

Banks create money. That is what they are for. . . . The manufacturing process to make money consists of making an entry in a book. That is all. . . . Each and every time a Bank makes a loan . . . new Bank credit is created — brand new money.
– Graham Towers, Governor of the Bank of Canada from 1935 to 1955

Monetary reformers argue that the government should take the power of money creation back from the private banks and the Federal Reserve system.

Indeed, PhD economist and candidate for Florida governor Farid Khavari wants to create a Bank of the State of Florida, to create credit without burdening the state and its citizens with high interest charges by private banks.

The state of North Dakota already has such a bank.

The bottom line is that monetary reformers argue that letting banks create credit and money and then charge high interest rates creates massive levels of debt for states and taxpayers. They argue that the power to create money should be reclaimed by the government and taken away from the private banks.

Personally, I agree with the monetary reformers. But even for those who think this is too radical a proposition, the question is whether a system where debt has to constantly and continually expand to keep the economy afloat is sustainable.

The Ever-Expanding Bubble

In a hearing held on September 30, 1941 in the House Committee on Banking and Currency, then-Chairman of the Federal Reserve (Mariner S. Eccles) said:

That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.

Indeed, Robert H. Hemphill, Credit Manager of the Federal Reserve Bank of Atlanta, said:

If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.

America’s banking system needs to be fundamentally reformed.

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In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading

By Robert Fisk

Rex

Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars.

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