Archive for April, 2010

>German Magazine Reveals Drug Companies’ Influence

>to Engineer Swine Flu Fake Pandemic

Posted by Dr Mercola (April 22 2010)

When the swine flu first emerged, World Health Organization officials estimated that between two and 7.4 million could die. The panic that ensued mounted worldwide vaccination programs while government agencies prepared for disaster.

But as the world now knows, swine flu was actually relatively harmless … and the deadly “pandemic” never emerged. As it turns out, those who suspected a greed- and money-driven conspiracy was at play may have been right all along.

As the German magazine Der Spiegel reports, the swine flu pandemic of 2009 may have been engineered by the drug companies:

In mid-May, about three weeks before the swine flu was declared a pandemic, thirty senior representatives of pharmaceutical companies met with WHO Director-General Chan and United Nations Secretary General Ban Ki Moon at WHO headquarters.

The vaccine industry was mainly interested in one question: the decision to declare phase six.

Phase six acted as a switch that would allow bells on the industry’s cash registers to ring, risk-free, because many pandemic vaccine contracts had already been signed. Germany, for example, signed an agreement with the British firm GlaxoSmithKline (GSK) in 2007 to buy its pandemic vaccine – as soon as phase six was declared.

Many jumped on the pandemic bandwagon, but not everyone was fooled. As Spiegel Online reported, Polish health minister, physician Ewa Kopacz, saw through the scam and declined to buy swine flu vaccines for the country. She asked:

Is it my duty to sign agreements that are in the interest of Poles, or in the interest of the pharmaceutical companies?


Digital Journal (March 14 2010)

Spiegel Online (March 12 2010),1518,682613,00.html

Dr Mercola’s Comments:

I remember very well when last year on June 11, the World Health Organization (WHO) raised its swine flu pandemic alert from a five to a six. Already by this time the swine flu virus was showing itself to have mild symptoms, quick recovery time, and low incidence of death among the vast majority of H1N1 patients throughout the world.

Yet all the drug companies needed to begin shipping out their profitable new H1N1 vaccine across the world was for the swine flu to be kicked up one notch, from a phase five to a phase six pandemic … and that is exactly what they got.

How Did a Mild Flu Virus Get the Highest Warning Level Available?

Phase six is the highest warning level that indicates a pandemic capable of widespread human infection.

However, in reality, the word ‘pandemic’ only means that a new virus is spreading across the world. It says nothing about its level of physical danger, but that was not always the case.

WHO actually changed their definition of a pandemic just one month before raising the swine flu alert level.

As Spiegel Online reported:

On the WHO Web site, the answer to the question “What is a pandemic?” included mention of “an enormous number of deaths and cases of the disease” – until May 4 2009. That was when a CNN reporter pointed out the discrepancy between this description and the generally mild course of the swine flu. The language was promptly removed.

So the swine flu only became a “pandemic” because the WHO decided to change the definition in May last year to make it no longer necessary for an enormous amount of people to have contracted an illness or died before a pandemic could be called.

Instead, under the new definition, it doesn’t matter how many, or how few, people are affected. All a disease has to do to be labeled a pandemic is move beyond a few countries’ borders.

So in mid-May 2009, just weeks before the swine flu was declared a pandemic, what do you think the thirty senior pharmaceutical company representatives wanted to discuss when they met with WHO Director-General Chan and United Nations Secretary General Ban Ki Moon at WHO headquarters?

By changing the definition, nations were compelled to implement pandemic plans and to purchase H1N1 flu vaccines – some already had existing contracts in place to do so! In the blink of an eye, this enabled drug companies to pocket billions of dollars on fast-tracked, untested vaccines.

Swine Flu Hysteria

In the beginning, even before it was declared a level six pandemic by WHO, a group of “scientists” were sounding the alarm that this might indeed be the terrifying, deadly pandemic they had been expecting for over half a century.

We were told that young, healthy people, pregnant women and small children were falling ill and quickly dying, and the virus was spreading rapidly. They even suggested it could mutate into an even more dangerous form that could kill countless numbers of people.

The drug companies, of course, also played a role in keeping up this mounting hysteria. According to Spiegel Online:

The pharmaceutical industry was particularly adept at keeping this vision alive. Manufacturers of flu remedies and vaccines even funded a group of scientists devoted solely to this issue: the European Scientific Working Group on Influenza, which regularly held conferences and meetings of experts.

The lobbying group was headed by Albert Osterhaus of the Erasmus Medical Center in Rotterdam, who also happened to be one of the WHO’s most influential advisors on influenza vaccines.

The Scam, Exposed

The scare phenomenon … the scare machine … the fear mongering that took hold of much of the world last year as government officials spread panic in the form of inaccurate swine flu statistics and worst-case scenarios turned out to be a major scam.

It started to come out in late 2009 when British and French media began saying the H1N1 pandemic had been “hyped” by medical researchers {1} to further their own cause, boost research grants and line the pockets of drug companies.

Ontario health officials also declared H1N1 a “dud” pandemic {2}, stating the huge government investment made so far may have been unjustified. And a study by researchers at Harvard University and the Medical Research Council Biostatistics Unit in the UK also found that the “pandemic” was never a cause for alarm {3}.

After analyzing H1N1 deaths in the United States in the spring, then projecting outcomes for this past fall, they found the flu season should have been no different than a typical flu season – and possibly even milder than average!

A Faked Pandemic!

On January 4, fourteen members from ten countries in the Council of Europe stunned the world by calling H1N1 a FAKED pandemic!

In a motion asking the council to investigate the declaration of H1N1 as a pandemic, these members accused pharmaceutical companies of faking the pandemic {4} and farming it out to the world, so they could fill their pockets with the proceeds:

In order to promote their patented drugs and vaccines against flu, pharmaceutical companies have influenced scientists and official agencies, responsible for public health standards, to alarm governments worldwide.

They have made them squander tight health care resources for inefficient vaccine strategies and needlessly exposed millions of healthy people to the risk of unknown side-effects of insufficiently tested vaccines.

The motion, spear-headed by Dr Wolfgang Wodarg, chairman of the Parliamentary Assembly of the Council of Europe (PACE), goes on to say:

The “bird-flu”-campaign (2005/2006) combined with the ‘swine-flu’ campaign seem to have caused a great deal of damage not only to some vaccinated patients and to public health budgets, but also to the credibility and accountability of important international health agencies. The definition of an alarming pandemic must not be under the influence of drug-sellers.

The member states of the Council of Europe should ask for immediate investigations on the consequences at national as well as European level.

In the United States, we should be doing the same thing, by demanding a call to action for complete, detailed accountings from the CDC, the FDA, the Advisory Committee on Immunization Practices (ACIP) and all health agencies and academic researchers and scientists who have stakes in any drug that is mass-marketed.

At the very least, this swine flu fiasco will likely make many Americans think twice before standing in line for an experimental vaccine against a very mild disease.

As for how it will impact the workings of the public health agencies … well, that remains to be seen. As it stands, as of April 9 2010 the US CDC is STILL recommending Americans get vaccinated for 2009 H1N1 {5}.

Outrageous, yes, but true nonetheless.







Related Links:

WHO and Big Pharma: Guilty of Blackmail and Extortion in Swine Flu Fiasco?

Harvard Takes it Back and Says Swine Flu was Oversold

What May Be the Single Biggest Threat to Your Health?

Bill Totten

Categories: Uncategorized

>The Compound Interest Paradox

>FSK’s Guide to Reality (June 02 2007)

I made an updated series of posts on the Compound Interest Paradox. Some people complained this post is too complicated, and I made a simpler version.

By a wide margin, this is my most popular post. It’s popular for a good reason. You don’t understand the corrupt nature of the economic system until you understand the Compound Interest Paradox.

I’ve seen the following argument mentioned on many “critics of the Federal Reserve” pages. It confused me immensely until I finally figured it out. The argument is that in a financial system like the one in the United States, where money is created via debt, the only outcome can be that the banks will eventually own everything. The problem is that, in the course of repaying a loan, the sum amount of payments always exceeds the amount of the loan. The net effect of a loan is to decrease the amount of money in circulation. Since money can only be put into circulation via a loan, the system guarantees that the banks will eventually own practically everything.

Suppose you buy a house for $350,000. You make a $50,000 downpayment and take out a loan for $300,000 at a fixed six percent interest rate payable over thirty years. Your total payments over the lifetime of the loan (assuming you don’t repay it early), will be $647,514.

What is the effect of this loan on the money supply? When you take out the loan, the money supply was increased by $300,000. Either the bank loaned you money that was already on deposit, or it borrowed the money from the Federal Reserve at the discount rate. As you pay off your loan, money is removed from circulation. In practice, as you pay off your loan, that money will be used to issue other loans, or be paid out as the bank’s expenses and profits. (Actually, the bank typically will sell your loan immediately so it isn’t exposed to the risk that the short-term interest rate will change. That was the cause of the Savings & Loan crisis; banks were borrowing short-term from depositors but lending long-term to mortgages. When short-term interest rates spiked up due to inflation and the abandonment of the gold standard, the banks were stuck.)

The net effect of your loan, viewed in isolation, is that the total money supply has DECREASED by $347,514. You collected $300,000 and repaid $647,514. Fortunately for you, between the time you received your loan and when you repaid it, the bank was also issuing other loans to other people. Enough extra money was printed so that you could repay your loan.

But where does that $347,514 go? It goes to the financial industry. They are receiving the money in the future, when it will be worth less than it is now. Some of that money is paid out as profits and salaries and expenses. But what effort did the bank spend to create the $300,000 it gave you? The answer is: no effort at all. It was just a bookkeeping entry. They may have borrowed the money from the Federal Reserve at the risk-free rate of 5.25%, so they could loan it to you at six percent, but the Federal Reserve ultimately just printed the money it lent to the bank. The bank had sufficient collateral, its assets and other deposits (and now your mortgage).

In such a system, the banks will eventually own everything. The only way for new money to be created is by a loan, and money lent out is always less than money repaid. Total debt can only increase exponentially over time.

That is why newspapers and television are never critical of the banking industry. You will never see a major newspaper or TV show criticize the fundamental structure of our financial system. That’s because the banks were careful to make sure they control all the major media. After all, with all the money, it’s very easy to buy up all the major media. Their control is hidden via trusts and preferred voting shares. Plus, any story critical of the banking industry really wouldn’t be entertaining. It would be too complicated for the average person to understand and wouldn’t attract advertisers. A TV station wouldn’t want to lose the ads placed by banks.

However, the banks don’t own absolutely everything. A careful person can minimize his use of debt, and eventually build up a reasonable amount of investments. Plus, debt at a rate of only six percent might be beneficial, if you can invest the proceeds at ten percent or more. It’s only possible to do this because other people are making loans as well. If you knew that the loan you took out would be the last one ever issued, you would never be able to repay it.

Each loan has the effect of decreasing the number of dollars in circulation, because the payments always are more than the principal. What would happen if all the banks got together and said “let’s collude and offer no more new loans”? As loans were repaid, there would be fewer and fewer dollars in circulation. Prices would drop. Some people would be unable to pay off their loans. The banks would foreclose, taking possession of real assets, even though the dollars they loaned out cost nothing to print. Provided the bank had managed its risk effectively, the value of the confiscated assets, plus the loan repayments received, would be enough to stay in business and still profit.

If all outstanding loans were called in, would there be enough dollars in circulation to pay them all back simultaneously? I suspect the answer is no, but I couldn’t find hard statistics. That’s why the Federal Reserve is able to lower the money supply by increasing interest rates. As interest rates are raised, fewer new loans are issued. The net effect is that loans are called back and the amount of money in circulation decreases.

The Federal Reserve is able to force banks to collude and offer fewer loans, because the Federal Reserve controls interest rates. If the interest rate was so high that no new loans were offered at all, then banks would just invest their assets with the Federal Reserve at that rate, instead of investing by issuing loans.

Economic cycles are inevitable in an economy where money is only created by debt. Artificially low interest rates encourage borrowing. At some point, those loans need to be repaid and there’s a temporary decrease in available money. During a recession or depression, loans are defaulted on and the banks take possession of real assets. That is the only time that total debt decreases, but even with these defaults, debt increases exponentially faster than the money supply.

In my “Discounted Cashflow Paradox” post, I made an argument that the value of a dollar is zero. If the supply of dollars in circulation is less than the sum of all outstanding loans, then the value of a dollar is not zero, it’s imaginary! I mean imaginary in the strict Mathematical sense. If there’s no way that all outstanding loans could be simultaneously repaid, then the supply of dollars will always be less than the total demand. If you solve the equations, you get (I suspect), an imaginary number. In practice, this does not occur, because new loans are always being issued.

I really need to look up this statistic – sum total of all outstanding loans and sum total of all dollars in circulation. I have no idea where to look, but I suspect that the sum of all dollars is far less than the sum of all loans. New loans need to keep being issued to prevent collapse.

For example, the accumulated federal deficit is larger than the current M2 money supply. How can the government be in debt by more money than actually is in circulation? That’s kind of silly.

Of course, if there was an absolute bar on issuing new loans, it would soon be obvious to everyone what is happening. Instead, what happens is that the price of a loan is increased slightly. This means that marginal loans are not issued. There are now slightly fewer dollars in circulation, but not so much fewer that the entire scam is exposed. Only the people with the worst credit rating are forced into bankruptcy. Does this sound familiar? It’s the current “sub-prime lending” problem.

The Federal Reserve doesn’t say “Let’s increase the wealth confiscation rate”. Instead, they say “We are concerned about inflation and decreasing unemployment and we are increasing the short-term interest rates”.

Why should the Federal Reserve be concerned about decreasing unemployment? Decreasing unemployment means that workers are starting to be able to demand higher salaries. Their standard of living is increasing. That means that there is more wealth available due to a more productive economy. That wealth needs to be confiscated. The easiest way to confiscate it is to take money out of circulation, forcing everyone who has a loan to have a harder time repaying it.

When the money supply starts getting too tight, the fed lowers interest rates. However, the average person does not get to borrow at the risk-free rate. The benefits of financial stimulation (lower rates) primarily go to financial industry insiders. The average person just sees inflation, especially if he has money in the bank instead of inflation-hedged investments.

Plus, the average person does not know in advance when interest rates are going to be raised or lowered. That makes it much riskier for the average person to take out a loan. An insider has the opportunity to profit immensely.

There needs to be continuous inflation or else the whole system will collapse. Inflation is needed to ensure there’s enough new money to pay back all the loans. If everybody simultaneously refused to borrow money, the financial system would collapse. If a substantial percentage of people simultaneously refused to borrow money, everyone else would be forced into bankruptcy.

Another benefit of inflation is that the average person keeps his money in the bank, or has benefits such as a pension or social security. These payments are not properly adjusted for inflation. Inflation allows the financial industry and government to slowly confiscate these assets. That’s why the government doesn’t want to ever contract the money supply too much. If the money supply contracted too much there would be deflation and the average person, who is holding mostly cash, would benefit.

As long as the Federal Reserve keeps a balance, the average person won’t get wise to the situation. As long as a certain number of new loans are made, the average person will have access to enough money to repay his debts. There will be some foreclosures and bankruptcies, but from the point of view of the average person, those people deserved it. They won’t say “The financial system was stacked against them – a certain number people had to go bankrupt because there wasn’t enough money in circulation”.

Most of the people who are aware of the details of this scam are themselves billionaires already. Knowing the defect in the financial system, they are able to profit from it immensely. Plus, they are insiders who know in advance which way interest rates are going to be moved. It’s easy to make money if you know that. They have no incentive to fix the current system, except for the possibility that it might completely collapse soon. Any billionaire who is aware of the system can profit immensely from it. Any billionaire who is not aware will soon lose his wealth. With an awareness of the manipulations of others, it is possible to structure your own investments to maximum advantage. The basic advice I would give the average person is to minimize debt and invest in concrete assets – stocks or real estate or your own business.

If the banks wound up obviously owning everything, the average person would revolt. Some of the assets are hidden in trusts, so the average person doesn’t know about it. Most media companies are incorporated in a way that insiders effectively control the company, even though they own a minority interest, through the issue of preferred voting shares. The money supply and tax rate are carefully managed so that the average person gets to own enough so that they don’t revolt.

The national debt is actually absolutely necessary under the current system. Money can only be created via debt, and debt increases exponentially faster than the supply of money. The only way that someone can have money is for someone else to be in debt by an even bigger amount. Since the government is the only entity that can have unlimited debt without being forced into bankruptcy, the government needs to have bigger and bigger debt just so that there would be a supply of money for other people to have.

Is there any escape from this system? I think there is, but it would take a massive coordinated effort. I’m worried that the government and media are too corrupt to be trusted to fix this problem. It’s tricky, because any solution would have to be implemented without breaking any existing laws, which are specifically designed to prevent anyone from ending this system of abuse.

I thought about advocating a return to a barter system. That wouldn’t work, because a person doing barter legally has to pay income taxes on the value of his transaction, and the only valid means for paying taxes is with dollars. Because the government demands that taxes be paid in dollars, that creates a certain demand for dollars. It’s impossible to live legally without dollars, because you have to pay your taxes. Maybe that’s why the income tax had to be implemented the same time as the Federal Reserve system was established. Without income taxes, a person could effectively boycott the Federal Reserve, only making enough transactions in dollars to pay their taxes and dealing in barter otherwise. Since barter transactions are taxed the same as dollar transactions, with taxes paid in dollars, there’s no way to boycott the Federal Reserve system by returning to a barter system.

The only way to fix the monetary system is by changing the laws. There’s no way for individuals to legally boycott the standard financial system, because they have to pay their taxes in dollars.

That’s one thing that annoys me about the other “critics of the Federal Reserve” websites. They explain the problem, but they don’t really propose a workable solution. I don’t think there is a solution possible without getting enough grassroots support to change the laws.

Bill Totten

Categories: Uncategorized

>Looting Main Street

>How the nation’s biggest banks are ripping off American cities with the same predatory deals that brought down Greece

by Matt Taibbi (Issue 1102, April 15 2010)

If you want to know what life in the Third World is like, just ask Lisa Pack, an administrative assistant who works in the roads and transportation department in Jefferson County, Alabama. Pack got rudely introduced to life in post-crisis America last August, when word came down that she and 1,000 of her fellow public employees would have to take a little unpaid vacation for a while. The county, it turned out, was more than $5 billion in debt – meaning that courthouses, jails and sheriff’s precincts had to be closed so that Wall Street banks could be paid.

As public services in and around Birmingham were stripped to the bone, Pack struggled to support her family on a weekly unemployment check of $260. Nearly a fourth of that went to pay for her health insurance, which the county no longer covered. She also fielded calls from laid-off co-workers who had it even tougher. “I’d be on the phone sometimes until two in the morning”, she says. “I had to talk more than one person out of suicide. For some of the men supporting families, it was so hard – foreclosure, bankruptcy. I’d go to bed at night, and I’d be in tears.”

Homes stood empty, businesses were boarded up, and parts of already-blighted Birmingham began to take on the feel of a ghost town. There were also a few bills that were unique to the area – like the $64 sewer bill that Pack and her family paid each month. “Yeah, it went up about 400 percent just over the past few years”, she says.

The sewer bill, in fact, is what cost Pack and her co-workers their jobs. In 1996, the average monthly sewer bill for a family of four in Birmingham was only $14.71 – but that was before the county decided to build an elaborate new sewer system with the help of out-of-state financial wizards with names like Bear Stearns, Lehman Brothers, Goldman Sachs and JP Morgan Chase. The result was a monstrous pile of borrowed money that the county used to build, in essence, the world’s grandest toilet – “the Taj Mahal of sewer-treatment plants” is how one county worker put it. What happened here in Jefferson County would turn out to be the perfect metaphor for the peculiar alchemy of modern oligarchical capitalism: A mob of corrupt local officials and morally absent financiers got together to build a giant device that converted human shit into billions of dollars of profit for Wall Street – and misery for people like Lisa Pack.

And once the giant shit machine was built and the note on all that fancy construction started to come due, Wall Street came back to the local politicians and doubled down on the scam. They showed up in droves to help the poor, broke citizens of Jefferson County cut their toilet finance charges using a blizzard of incomprehensible swaps and refinance schemes – schemes that only served to postpone the repayment date a year or two while sinking the county deeper into debt. In the end, every time Jefferson County so much as breathed near one of the banks, it got charged millions in fees. There was so much money to be made bilking these dizzy Southerners that banks like JP Morgan spent millions paying middlemen who bribed – yes, that’s right, bribed, criminally bribed – the county commissioners and their buddies just to keep their business. Hell, the money was so good, JP Morgan at one point even paid Goldman Sachs $3 million just to back the fuck off, so they could have the rubes of Jefferson County to fleece all for themselves.

Birmingham became the poster child for a new kind of giant-scale financial fraud, one that would threaten the financial stability not only of cities and counties all across America, but even those of entire countries like Greece. While for many Americans the financial crisis remains an abstraction, a confusing mess of complex transactions that took place on a cloud high above Manhattan sometime in the mid-2000s, in Jefferson County you can actually see the rank criminality of the crisis economy with your own eyes; the monster sticks his head all the way out of the water. Here you can see a trail that leads directly from a billion-dollar predatory swap deal cooked up at the highest levels of America’s biggest banks, across a vast fruited plain of bribes and felonies – “the price of doing business”, as one JP Morgan banker says on tape – all the way down to Lisa Pack’s sewer bill and the mass layoffs in Birmingham.

Once you follow that trail and understand what took place in Jefferson County, there’s really no room left for illusions. We live in a gangster state, and our days of laughing at other countries are over. It’s our turn to get laughed at. In Birmingham, lots of people have gone to jail for the crime: More than twenty local officials and businessmen have been convicted of corruption in federal court. Last October, right around the time that Lisa Pack went back to work at reduced hours, Birmingham’s mayor was convicted of fraud and money-laundering for taking bribes funneled to him by Wall Street bankers – everything from Rolex watches to Ferragamo suits to cash. But those who greenlighted the bribes and profited most from the scam remain largely untouched. “It never gets back to JP Morgan”, says Pack.

If you want to get all Glenn Beck about it, you could lay the blame for this entire mess at the feet of weepy, tree-hugging environmentalists. It all started with the Cahaba River, the longest free-flowing river in the state of Alabama. The tributary, which winds its way through Birmingham before turning diagonally to empty out near Selma, is home to more types of fish per mile than any other river in America and shelters 64 rare and imperiled species of plants and animals. It’s also the source of one of the worst municipal financial disasters in American history.

Back in the early 1990s, the county’s sewer system was so antiquated that it was leaking raw sewage directly into the Cahaba, which also supplies the area with its drinking water. Joined by well – intentioned citizens from the Cahaba River Society, the EPA sued the county to force it to comply with the Clean Water Act. In 1996, county commissioners signed a now-infamous consent decree agreeing not just to fix the leaky pipes but to eliminate all sewer overflows – a near-impossible standard that required the county to build the most elaborate, ecofriendly, expensive sewer system in the history of the universe. It was like ordering a small town in Florida that gets a snowstorm once every five years to build a billion-dollar fleet of snowplows.

The original cost estimates for the new sewer system were as low as $250 million. But in a wondrous demonstration of the possibilities of small-town graft and contract-padding, the price tag quickly swelled to more than $3 billion. County commissioners were literally pocketing wads of cash from builders and engineers and other contractors eager to get in on the project, while the county was forced to borrow obscene sums to pay for the rapidly spiraling costs. Jefferson County, in effect, became one giant, TV-stealing, unemployed drug addict who borrowed a million dollars to buy the mother of all McMansions – and just as it did during the housing bubble, Wall Street made a business of keeping the crook in his house. As one county commissioner put it, “We’re like a guy making $50,000 a year with a million-dollar mortgage”.

To reassure lenders that the county would pay its mortgage, commissioners gave the finance director – an unelected official appointed by the president of the commission – the power to automatically raise sewer rates to meet payments on the debt. The move brought in billions in financing, but it also painted commissioners into a corner. If costs continued to rise – and with practically every contractor in Alabama sticking his fingers on the scale, they were rising fast – officials would be faced with automatic rate increases that would piss off their voters. (By 2003, annual interest on the sewer deal had reached $90 million.) So the commission reached out to Wall Street, looking for creative financing tools that would allow it to reduce the county’s staggering debt payments.

Wall Street was happy to help. First, it employed the same trick it used to fuel the housing crisis: It switched the county from a fixed rate on the bonds it had issued to finance the sewer deal to an adjustable rate. The refinancing meant lower interest payments for a couple of years – followed by the risk of even larger payments down the road. The move enabled county commissioners to postpone the problem for an election season or two, kicking it to a group of future commissioners who would inevitably have to pay the real freight.

But then Wall Street got really creative. Having switched the county to a variable interest rate, it offered commissioners a crazy deal: For an extra fee, the banks said, we’ll allow you to keep paying a fixed rate on your debt to us. In return, we’ll give you a variable amount each month that you can use to pay off all that variable-rate interest you owe to bondholders.

In financial terms, this is known as a synthetic rate swap – the spidery creature you might have read about playing a role in bringing down places like Greece and Milan. On paper, it made sense: The county got the stability of a fixed rate, while paying Wall Street to assume the risk of the variable rates on its bonds. That’s the synthetic part. The trouble lies in the rate swap. The deal only works if the two variable rates – the one you get from the bank, and the one you owe to bondholders – actually match. It’s like gambling on the weather. If your bondholders are expecting you to pay an interest rate based on the average temperature in Alabama, you don’t do a rate swap with a bank that gives you back a rate pegged to the temperature in Nome, Alaska.

Not unless you’re a fucking moron. Or your banker is JP Morgan.

In a small office in a federal building in downtown Birmingham, just blocks from where civil rights demonstrators shut down the city in 1963, Assistant US Attorney George Martin points out the window. He’s pointing in the direction of the Tutwiler Hotel, once home to one of the grandest ballrooms in the South but now part of the Hampton Inn chain.

“It was right around the corner here, at the hotel”, Martin says. “That’s where they met – that’s where this all started”.

They means Charles LeCroy and Bill Blount, the two principals in what would become the most important of all the corruption cases in Jefferson County. LeCroy was a banker for JP Morgan, serving as managing director of the bank’s southeast regional office. Blount was an Alabama wheeler-dealer with close friends on the county commission. For years, when Wall Street banks wanted to do business with municipalities, whether for bond issues or rate swaps, it was standard practice to reach out to a local sleazeball like Blount and pay him a shitload of money to help seal the deal. “Banks would pay some local consultant, and the consultant would then funnel money to the politician making the decision”, says Christopher Taylor, the former head of the board that regulates municipal borrowing. Back in the 1990s, Taylor pushed through a ban on such backdoor bribery. He also passed a ban on bankers contributing directly to politicians they do business with – a move that sparked a lawsuit by one aggrieved sleazeball, who argued that halting such legalized graft violated his First Amendment rights. The name of that pissed-off banker? “It was the one and only Bill Blount”, Taylor says with a laugh.

Blount is a stocky, stubby-fingered Southerner with glasses and a pale, pinched face – if Norman Rockwell had ever done a painting titled “Small-Town Accountant Taking Enormous Dump”, it would look just like Blount. LeCroy, his sugar daddy at JP Morgan, is a tall, bloodless, crisply dressed corporate operator with a shiny bald head and silver side patches – a cross between Skeletor and Michael Stipe.

The scheme they operated went something like this: LeCroy paid Blount millions of dollars, and Blount turned around and used the money to buy lavish gifts for his close friend Larry Langford, the now-convicted Birmingham mayor who at the time had just been elected president of the county commission. (At one point Blount took Langford on a shopping spree in New York, putting $3,290 worth of clothes from Zegna on his credit card.) Langford then signed off on one after another of the deadly swap deals being pushed by LeCroy. Every time the county refinanced its sewer debt, JP Morgan made millions of dollars in fees. Even more lucrative, each of the swap contracts contained clauses that mandated all sorts of penalties and payments in the event that something went wrong with the deal. In the mortgage business, this process is known as churning: You keep coming back over and over to refinance, and they keep “churning” you for more and more fees. “The transactions were complex, but the scheme was simple”, said Robert Khuzami, director of enforcement for the SEC. “Senior JP Morgan bankers made unlawful payments to win business and earn fees”.

Given the shitload of money to be made on the refinancing deals, JP Morgan was prepared to pay whatever it took to buy off officials in Jefferson County. In 2002, during a conversation recorded in Nixonian fashion by JP Morgan itself, LeCroy bragged that he had agreed to funnel payoff money to a pair of local companies to secure the votes of two county commissioners. “Look”, the commissioners told him, “if we support the synthetic refunding, you guys have to take care of our two firms”. LeCroy didn’t blink. “Whatever you want”, he told them. “If that’s what you need, that’s what you get. Just tell us how much.”

Just tell us how much. That sums up the approach that JP Morgan took a few months later, when Langford announced that his good buddy Bill Blount would henceforth be involved with every financing transaction for Jefferson County. From JP Morgan’s point of view, the decision to pay off Blount was a no-brainer. But the bank had one small problem: Goldman Sachs had already crawled up Blount’s trouser leg, and the broker was advising Langford to pick them as Jefferson County’s investment bank.

The solution they came up with was an extraordinary one: JP Morgan cut a separate deal with Goldman, paying the bank $3 million to fuck off, with Blount taking a $300,000 cut of the side deal. Suddenly Goldman was out and JP Morgan was sitting in Langford’s lap. In another conversation caught on tape, LeCroy joked that the deal was his “philanthropic work”, since the payoff amounted to a “charitable donation to Goldman Sachs” in return for “taking no risk”.

That such a blatant violation of anti-trust laws took place and neither JP Morgan nor Goldman have been prosecuted for it is yet another mystery of the current financial crisis. “This is an open-and-shut case of anti-competitive behavior”, says Taylor, the former regulator.

With Goldman out of the way, JP Morgan won the right to do a $1.1 billion bond offering – switching Jefferson County out of fixed-rate debt into variable-rate debt – and also did a corresponding $1.1 billion deal for a synthetic rate swap. The very same day the transaction was concluded, in May 2003, LeCroy had dinner with Langford and struck a deal to do yet another bond-and-swap transaction of roughly the same size. This time, the terms of the payoff were spelled out more explicitly. In a hilarious phone call between LeCroy and Douglas MacFaddin, another JP Morgan official, the two bankers groaned aloud about how much it was going to cost to satisfy Blount:

LeCroy: I said, “Commissioner Langford, I’ll do that because that’s your suggestion, but you gotta help us keep him under control. Because when you give that guy a hand, he takes your arm.” You know?

MacFaddin: [Laughing] Yeah, you end up in the wood-chipper.

All told, JP Morgan ended up paying Blount nearly $3 million for “performing no known services”, in the words of the SEC. In at least one of the deals, Blount made upward of fifteen percent of JP Morgan’s entire fee. When I ask Taylor what a legitimate consultant might earn in such a circumstance, he laughs. “What’s a ‘legitimate consultant’ in a case like this? He made this money for doing jack shit”.

As the tapes of LeCroy’s calls show, even officials at JP Morgan were incredulous at the money being funneled to Blount. “How does he get fifteen percent?” one associate at the bank asks LeCroy. “For doing what? For not messing with us?”

“Not messing with us”, LeCroy agrees. “It’s a lot of money, but in the end, it’s worth it on a billion-dollar deal”.

That’s putting it mildly: The deals wound up being the largest swap agreements in JP Morgan’s history. Making matters worse, the payoffs didn’t even wind up costing the bank a dime. As the SEC explained in a statement on the scam, JP Morgan “passed on the cost of the unlawful payments by charging the county higher interest rates on the swap transactions”. In other words, not only did the bank bribe local politicians to take the sucky deal, they got local taxpayers to pay for the bribes. And because Jefferson County had no idea what kind of deal it was getting on the swaps, JP Morgan could basically charge whatever it wanted. According to an analysis of the swap deals commissioned by the county in 2007, taxpayers had been overcharged at least $93 million on the transactions.

JP Morgan was far from alone in the scam: Virtually everyone doing business in Jefferson County was on the take. Four of the nation’s top investment banks, the very cream of American finance, were involved in one way or another with payoffs to Blount in their scramble to do business with the county. In addition to JP Morgan and Goldman Sachs, Bear Stearns paid Langford’s bagman $2.4 million, while Lehman Brothers got off cheap with a $35,000 “arranger’s fee”. At least a dozen of the county’s contractors were also cashing in, along with many of the county commissioners. “If you go into the county courthouse”, says Michael Morrison, a planner who works for the county, “there’s a gallery of past commissioners on the wall. On the top row, every single one of ‘em but two has been investigated, indicted or convicted. It’s a joke.”

The crazy thing is that such arrangements – where some local scoundrel gets a massive fee for doing nothing but greasing the wheels with elected officials – have been taking place all over the country. In Illinois, during the Upper Volta-esque era of Rod Blagojevich, a Republican political consultant named Robert Kjellander got ten percent of the entire fee Bear Stearns earned doing a bond sale for the state pension fund. At the start of Obama’s term, Bill Richardson’s Cabinet appointment was derailed for a similar scheme when he was governor of New Mexico. Indeed, one reason that officials in Jefferson County didn’t know that the swaps they were signing off on were shitty was because their adviser on the deals was a firm called CDR Financial Products, which is now accused of conspiring to overcharge dozens of cities in swap transactions. According to a federal antitrust lawsuit, CDR is basically a big-league version of Bill Blount – banks tossed money at the firm, which in turn advised local politicians that they were getting a good deal. “It was basically, you pay CDR, and CDR helps push the deal through”, says Taylor.

In the end, though, all this bribery and graft was just the table-setter for the real disaster. In taking all those bribes and signing on to all those swaps, the commissioners in Jefferson County had ­basically started the clock on a financial time bomb that, sooner or later, had to explode. By continually refinancing to keep the county in its giant McMansion, the commission had managed to push into the future that inevitable day when the real bill would arrive in the mail. But that’s where the mortgage analogy ends – because in one key area, a swap deal differs from a home mortgage. Imagine a mortgage that you have to keep on paying even after you sell your house. That’s basically how a swap deal works. And Jefferson County had done 23 of them. At one point, they had more outstanding swaps than New York City.

Judgment Day was coming – just like it was for the Delaware River Port Authority, the Pennsylvania school system, the cities of Detroit, Chicago, Oakland and Los Angeles, the states of Connecticut and Mississippi, the city of Milan and nearly 500 other municipalities in Italy, the country of Greece, and God knows who else. All of these places are now reeling under the weight of similarly elaborate and ill-advised swaps – and if what happened in Jefferson County is any guide, hoo boy. Because when the shit hit the fan in Birmingham, it really hit the fan.

For Jefferson County, the deal blew up in early 2008, when a dizzying array of penalties and other fine-print poison worked into the swap contracts started to kick in. The trouble began with the housing crash, which took down the insurance companies that had underwritten the county’s bonds. That rendered the county’s insurance worthless, triggering clauses in its swap contracts that required it to pay off more than $800 million of its debt in only four years, rather than forty. That, in turn, scared off private lenders, who were no longer ­interested in bidding on the county’s bonds. The banks were forced to make up the difference – a service for which they charged enormous penalties. It was as if the county had missed a payment on its credit card and woke up the next morning to find its annual percentage rate jacked up to a million percent. Between 2008 and 2009, the annual payment on Jefferson County’s debt jumped from $53 million to a whopping $636 million.

It gets worse. Remember the swap deal that Jefferson County did with JP Morgan, how the variable rates it got from the bank were supposed to match those it owed its bondholders? Well, they didn’t. Most of the payments the county was receiving from JP Morgan were based on one set of interest rates (the London Interbank Exchange Rate), while the payments it owed to its bondholders followed a different set of rates (a municipal-bond index). Jefferson County was suddenly getting far less from JP Morgan, and owing tons more to bondholders. In other words, the bank and Bill Blount made tens of millions of dollars selling deals to local politicians that were not only completely defective, but blew the entire county to smithereens.

And here’s the kicker. Last year, when Jefferson County, staggered by the weight of its penalties, was unable to make its swap payments to JP Morgan, the bank canceled the deal. That triggered one-time “termination fees” of – yes, you read this right – $647 million. That was money the county would owe no matter what happened with the rest of its debt, even if bondholders decided to forgive and forget every dime the county had borrowed. It was like the herpes simplex of loans – debt that does not go away, ever, for as long as you live. On a sewer project that was originally supposed to cost $250 million, the county now owed a total of $1.28 billion just in interest and fees on the debt. Imagine paying $250,000 a year on a car you purchased for $50,000, and that’s roughly where Jefferson County stood at the end of last year.

Last November, the SEC charged JP Morgan with fraud and canceled the $647 million in termination fees. The bank agreed to pay a $25 million fine and fork over $50 million to assist displaced workers in Jefferson County. So far, the county has managed to avoid bankruptcy, but the sewer fiasco had downgraded its credit rating, triggering payments on other outstanding loans and pushing Birmingham toward the status of an African debtor state. For the next generation, the county will be in a constant fight to collect enough taxes just to pay off its debt, which now totals $4,800 per resident.

The city of Birmingham was founded in 1871, at the dawn of the Southern industrial boom, for the express purpose of attracting Northern capital – it was even named after a famous British steel town to burnish its entrepreneurial cred. There’s a gruesome irony in it now lying sacked and looted by financial vandals from the North. The destruction of Jefferson County reveals the basic battle plan of these modern barbarians, the way that banks like JP Morgan and Goldman Sachs have systematically set out to pillage towns and cities from Pittsburgh to Athens. These guys aren’t number-crunching whizzes making smart investments; what they do is find suckers in some municipal-finance department, corner them in complex lose-lose deals and flay them alive. In a complete subversion of free-market principles, they take no risk, score deals based on political influence rather than competition, keep consumers in the dark – and walk away with big money. “It’s not high finance”, says Taylor, the former bond regulator. “It’s low finance”. And even if the regulators manage to catch up with them billions of dollars later, the banks just pay a small fine and move on to the next scam. This isn’t capitalism. It’s nomadic thievery.

More by Matt Taibbi:;kw=[blog,58584]

Bill Totten

Categories: Uncategorized

>Eyjafjallajokull: Impending Catastrophe?

>by Timothy Bancroft-Hinchey

Pravda.Ru (April 17 2010)

Eyjafjallajökull. While some say it is “unpronounceable”, it would be a good idea to get used to the name because for sure it is going to be around the international media for a long time to come. Eyjafjallajökull is threatening to become an ecological catastrophe. Eyjafjallajökull is dangerous, it is toxic, is poses a serious health threat and it has always been a precursor of worse disasters to come.

Let us call a spade a spade. And let us start to treat these issues with a frank, sincere openness and inform people of what is going on. Eyjafjallajökull (ei-zha-fiAla-jo-kUtl). Island-Mountains Glacier. It’s done it before and it wasn’t pretty. It erupted in 920, 1612, 1821 to 1823 and now in 2010. All of the previous eruptions were precursors to more massive activity from the neighbouring Katla volcano, which this time, according to geologists, could take one to two years to erupt. And Eyjafjallajökull is the dwarf, Katla the giant.

The last time Eyjafjallajökull erupted, the outpouring of toxic ash went on (intermittently) for around two years. If after three days European airspace is closed down (Austria, Belgium, Bosnia-Herzegovina, Czech Republic, Denmark, Estonia, Finland, Germany, Hungary, Ireland, Latvia, Luxembourg, Netherlands, Poland, Slovakia, Slovenia, Sweden, Switzerland, Ukraine have closed their airspace totally; Belarus, Croatia, France, Italy, Lithuania, Norway, Serbia, Spain, Bulgaria, Greece and Turkey have severe restrictions, some almost total), let us imagine what can happen if this goes on for a couple of months. Or if the wind changes and blows it south-west across Canada and the USA.

Then what happens when Katla blows?

It is a question of going to bed on Wednesday night, waking up on Thursday morning and finding oneself in a different world.

Economic impact

In the first 24 hours after the eruptions on April 13 and 14 (when the crater blew through 200 metres of compacted ice), 29,000 flights from and to Europe were cancelled. Saturday added a further 16,000 (out of 22,000), as the plume rises eleven kilometres in height and contains particles of glass, sand and rock which would tear an aircraft’s engine to shreds. The impact on an industry already reeling from the collapse of the economic and banking system is some 200 million US Dollars per day. With the situation at Eyjafjallajökull worsening, the situation in the skies cannot be expected to improve.

Health hazard

Let us tell the truth. It is alarming.

Once again the World Health Organization has nothing to say (after all, what to expect from an organization which stood back and watched A H1N1 sweep the globe and limited itself to informing us how far it was spreading instead of doing something?), apart from the fact that “so long as ash remains in the upper atmosphere, there will not likely be an increased risk of health effects”.

Things fall, Newtonwise. Gravity and stuff.

According to research into the matter being belched out of Eyjafjallajökull, around 25% of the particles are less than ten microns in size. Here the WHO contradicts itself: “The small particulates less than ten microns in size are more dangerous because they can penetrate deeper into the lungs” (Dr Maria Neira, Director of Public Health and Environment, World Health Organization).

She adds “If people are outside and notice irritation in their throat and lungs, a runny nose or itchy eyes, they should return indoors and limit their outdoor activities”.

So then, there is a health risk. The last time Eyjafjallajökull had an episode was in 1821, pouring tonnes of ash containing toxic fluoride gas into the atmosphere. It lasted not 24 hours, but until 1823, causing the deaths of many cattle and sheep through fluor poisoning. The winds were more clement, dissipating the plume and blowing it in several directions. When another Icelandic volcano, Laki, blew in 1783 and 1784, 120 million tonnes of sulphur dioxide was released (three times the European industrial output in 2006), resulting in thousands of deaths across Europe.

While this article is presenting a worst-case scenario, and is not an attempt at scare-mongering, it is a valid point to entertain the notion that you can wake up one morning in a changed world. Eyjafjallajökull has reared its head. Let us hope that for the first time in the last thousand years, Katla decides not to follow suit.

(c) 1999-2009. PRAVDA.Ru. When reproducing our materials in whole or in part, hyperlink to PRAVDA.Ru should be made. The opinions and views of the authors do not always coincide with the point of view of PRAVDA.Ru‘s editors. показано количество просмотров и посетителей за 24 часа

Bill Totten

Categories: Uncategorized

>The Great Unreasoning

>Wherever we go, and whatever we do, we find ourselves surrounded by a variety of human and animal noises:

“Woof!” – “Meow!” – “Moo!” – “Baah!” – “Tweet!” – “How about them Red Sox!”

by Dmitry Orlov

Club Orlov (April 18 2010)

And, naturally, we find ourselves wondering, What are they all saying? What does it all mean? Does it mean anything at all, or is it just a lot of meaningless background noise?

To be sure, sometimes it is just noise. But it seems that while animals use just one or two utterances (bark, growl, whimper) to convey an entire range of meanings, humans use a vast, seemingly infinite array of utterances to convey just one meaning: “Me! Me! Look at me! I am important! My opinions matter!” How is it that animals, with their restricted vocal repertoire, nevertheless manage to convey thoughts such as “Let’s all fly south now!” or “Tiger on the prowl! Form an orderly stampede!” while we, with our virtual symphony orchestra of linguistic means at our disposal, never seem to manage anything better than the weak and ineffectual “What I think we should all do is … baah!”

Recently, science has started to shed light on the phenomenon. In one experiment, dogs were given bones to gnaw while two different kinds of prerecorded growls were played to them: playful growls and defensive growls. To the human ear, the growls are almost indistinguishable. However, it was observed that a statistically significant number of dogs would leave the bone alone whenever a defensive growl was played to them. In another experiment, human infants were instrumented with electrodes and two types of prerecorded human voices were played to them: calm, soothing voices and angry voices. The infants were observed to remain calm when hearing calm, soothing voices and to become agitated when hearing angry ones. “It is uncanny!” said Doctor Obvious, a Behavioral Scientist at Johns Hopkins University (no relation to the famous Captain Obvious). “It is as if there exists some innate, private channel of communication that we cannot directly observe”. How is it that a mere infant, incapable of even parsing the sentence “I am feeling very angry right now!” is nevertheless able to sense anger? To an Asperger Syndrome sufferer such as Doctor Obvious, this appears as a great mystery.

It appears that animals, human infants and, to a lesser extent, adult humans have the uncanny ability to read minds. It is not a pure sort of telepathy; for instance, it is of no use when trying to figure out what random number your dog or someone happens to be thinking of. (If a mind is sufficiently simple, it is sometimes possible to sense what dollar amount it is thinking of.) It is also not a pure sort of telepathy because it generally doesn’t work over distance. A lot of it depends on physical proximity, and on synesthetic perception, which combines sight, sound, smell, touch and other senses into a single perceptual bundle. It is a sort of communication that arises spontaneously out of shared experience, and cannot be simulated or reconstituted in its absence.

Animals can be taught to make all sort of noises, but they can rarely be taught to associate them with specific meanings. For instance, I taught our cat to whisper when meowing, to avoid waking up my wife. Now I can say “Shhh!” and the cat will meow silently. She will only do this in my wife’s is absence. It doesn’t matter whether my wife is sleeping or out for a walk or in France: the cat doesn’t distinguish between different kinds of absence. She doesn’t mean anything specific by her silent meowing, except “Fine, I’ll be quiet if I must”. I know this because, after years of study, I have learned to read her simple cat mind.

It is rather similar with us humans. We can learn to say all sorts of things and sound quite educated and intelligent, but of course it all still boils down to one thing: “Me! I am well-spoken, well-read and well-informed! My opinion matters! Listen to meeeeee!” To which I say, “Shhh!” Just as songbirds learn their specific birdsong to fit into bird society, we try to learn the dominant dialect – be it posh or jargon-laden or bad-ass or pseudo-folksy or crazy mumbling – so that we can say what that those around us want to hear. Just as with birdsong, human speech is mostly not about communication but about demonstrating one’s fitness. The actual communication happens along other channels: subtleties of voice, body language, sight, touch, smell and other sense-data, which I hesitate to call data since they cannot be usefully observed and recorded.

To be sure, we humans do have some communication strategies up our sleeves that give a major advantage over other animals. These boil down to our ability to use what linguists call “wh” words (what, when, where and so on) along with their corresponding “th” words (that, then, there, et cetera) which linguists call deictic terms, from the Greek δεῖξις (point of reference). We also have ways of indicating entities that aren’t immediately present or visible (“the big rock on the other side of that hill”) or not even directly observable (electrons, black holes) or that are never actually observable (angels, elves, pixies, et cetera). This is all either useful or entertaining, or both, but we also have the strange ability to play a sort of mental puppet theater with entities that we can’t directly observe, or can only observe under special, staged circumstances (“Behold, the Wizard of Oz!” or “Ladies and Gentlemen, the President of the United States!”) and it is here that we tend to get into an awful lot of mental difficulty that other animals seem to be able to avoid.

Our species’ hypertrophied linguistic abilities have allowed us to create entire systems composed of elements that we either cannot directly observe or cannot observe at all: mathematics, physics, ideologies, theologies, economies, democracies, technocracies and the like, which manipulate abstractions – symbols and relationships between symbols – rather than the concrete, messy, non-atomistic entities that have specific spacial and temporal extents and that constitute reality for all species. There is a continuum between products of pure thought, such as chess or mathematics, sciences which produce theories that can be tested by repeatable direct experiment, such as physics and chemistry, and the rest – political science, economics, sociology and the like – which are a hodgepodge of iffy assumptions and similarly iffy statistical techniques. Perfectly formal systems of thought, such as logic and mathematics, seem the most rigorous, and have served as the guiding light for all other forms of thinking. But there’s a problem.

The problem is that formal systems don’t work. They have internal consistency, to be sure, and they can do all sorts of amusing tricks, but they don’t map onto reality in a way that isn’t essentially an act of violence. When mapped onto real life, formal systems of thought self-destruct, destroy nature, or, most commonly, both. Wherever we look, we see systems that we have contrived run against limits of their own making: burning fossil fuels causes global warming, plastics decay and produce endocrine disruptors, industrial agriculture depletes aquifers and destroys topsoil, and so on. We are already sitting on a mountain of guaranteed negative outcomes – political, environmental, ecological, economic – and every day those of us who still have a job go to work to pile that mountain a little bit higher.

Although this phenomenon can be observed by anyone who cares to see it, those who have observed it have always laid blame for it on the limitations and the flaws of the systems, never on the limitations and the flaws of the human ability to think and to reason. For some un-reason, we feel that our ability to reason is limitless and infinitely perfectable. Nobody has voiced the idea that the exercise of our ability to think can reach the point of diminishing, then negative, returns. It is yet to be persuasively argued that the human propensity for abstract reasoning is a defect of breeding that leads to collective insanity. Perhaps the argument would have to be made recursively: the faculty in question is so flawed that it is incapable of seeing its own flaws.

Or we can argue that argument itself is perhaps not the right approach, and instead rely on direct observation. Formal systems and languages can be taught to machines, but natural human languages cannot. Observe that there aren’t any robots that can speak a language – any non-formal language – with any degree of mental adequacy. This is not for lack of trying: there have been many large, ambitious efforts to capture all aspects of human language, including semantic models of the “real world” – all to no avail. As far as robotic technology, artificial intelligence and the like, all we can do is breed autistic savants. Lock some high-functioning autistic people in a room with some expensive computer equipment, and eventually they manage to reproduce, electronically if not biologically.

Humans lack the ability to make machines human, but they certainly do have the ability to make themselves machine-like, and some of us have formed a subspecies that mostly interacts with machines, and with other machine-like humans. There are now hordes of humans running around compulsively diddling their electronic life support units. Why do we need to design and manufacture robots when we can just breed them? When it comes to making machines that work and play well with other species, our record is no better. Yes, there are documented cases of cats that ride around on Roomba robotic vacuum cleaners, but we are decades away from engineering a Roomba that could successfully fetch a ride on a cat. Yes, it certainly is possible to condition animals to behave in a machine-like fashion, but people who do so stand to be accused of cruelty to animals. They should stick to experimenting on humans.

Another approach to take toward dislodging the strange notion that human ability to think knows no bounds is to put it down to an innate fault of human language (well, almost every human language): the arbitrary distinction it draws between being and doing, or between state and action. For no adequately explored reason, being is grammatically more often a state than an act. Is it easy to be you, or is it hard work? If so, how do you do it – be, that is? If you not so much act as happen or occur, then everything you do is the result of everything that you’ve done and that’s happened to you over your entire life. If you speak a language, it is just your being acting itself out. There is, then, no language that can be abstracted away from your entire existence, any more than a meow can be meaningfully abstracted away from a given physical cat: you have to be there to hear it, or it’s just not the same. Those who are interested in this train of thought should look up Phenomenology. Maurice Merleau-Ponty is my particular favorite.

If making machines into humans runs into difficulties with how well humans are able to think about machines, then what about the converse? How well can we fashion humans into machines, and where does that begin to break down? Making humans into machines (aside from direct human-machine interaction) commonly goes under the names of politics, political science and social engineering. The most advanced model of social organization we have attained is known as representative democracy, where all sorts of different people can make their opinions heard by voting, and their elected representatives then see to it that the majority opinion prevails on a wide array of public policy decisions.

Modern society is highly specialized, and so there are all sorts of different people, who know a whole lot about certain things and next to nothing about everything else. Suppose we have a society that consists of dogs, cats and sheep. You wouldn’t want to take a sheep hunting with you, dogs are useless at trimming a lawn or rodent control, and cats … well, you get the picture. But they can still form opinions on all these things that they know nothing about, can’t they? And then they can periodically go and cast a vote, to give voice to their opinions. Usually the “Baahs” carry the vote. When their elected representatives can’t tell their constituents’ opinions from their votes alone (this is the part that always makes me laugh) they have to look to opinion polls to find out what the populace is thinking at the moment; that is, what the sheep think of duck hunting and rodent control, and what sort of grass dogs and cats should have to eat. Alternatively, the different animals can form special interest groups, to lobby the government and to counter the prevailing majority opinion. But the politicians don’t like to be seen as “caving in” to the special interests. And so either you have a corruption of the democratic process by the undue influence of special interests, or the “Baahs” prevail. And that is the best the world of politics has to offer, because alternative political arrangements are commonly viewed as being even worse.

Doesn’t it seem laughable that the entire edifice of modern political science rests on mere opinion? Some mornings I entertain up to a dozen mutually contradictory opinions, and that’s before even getting off the toilet! It is a flaw of the English language that when someone is convinced of something, the result is said to be a change of opinion. If one is indeed convinced, wouldn’t that change one’s convictions? But it’s easy to see why nobody bothers to conduct “conviction surveys”, because the results would be quite boring. Convictions hardly ever change, because they are generally not amenable to persuasion or argument. Convictions tend to form as a result of actual experiences, not from listening to pundits or experts or from reading the popular press. They form part of who we are, not what we might be thinking at any given moment.

It is almost impossible to change someone’s convictions through persuasion or argument, and it is equally difficult to cause someone to form convictions through these same means. That is why the most difficult subjects of our time – ones involving hard issues such as overpopulation, natural resource use and depletion, global climate destabilization, looming national bankruptcy and the like – are more or less left out of public discourse. They are of no consequence as matters of opinion, while as matters of conviction they are political dynamite. Plus, just how many people are there whose lives have provided them with the experiences they would need to form convictions on these subjects? These subjects are avoided for the same reason one doesn’t leave coiled hoses lying around a slaughterhouse: the sheep might think that they are seeing snakes, stampede and ruin your whole work-shift. It is much better to just let them move smoothly along and cast their vote for “Baah!”

The relatively few people who do have firm convictions are often regarded as “unreasonable” because their convictions cannot be reasoned away as mere opinions can. That to me seems exactly as it should be. Humanity is in the process of demonstrating that it can successfully reason its way into a cul de sac. But is there any reason to believe that it can also reason its way out of it? Perhaps it is high time to start being unreasonable, to decide for ourselves that we do not like the cul de sac into which our reason has steered us, and to refuse to go into it any deeper. Perhaps we could even find a way out of it. And perhaps a few of those people whose minds you can sometimes almost read will almost be able to read our minds as well, and will choose to follow us out. And the rest will just stand around and argue about it: “Baah!”

Bill Totten

Categories: Uncategorized

>Health Insurers Hedge Bets With Fast Food Stock

>Researchers Lambast Health Insurance Companies

by Todd Neale, MedPage Today Staff Writer (April 16 2010)

Companies providing life and health insurance owned $1.9 billion worth of stock in the fast-food industry as of June 11 2009, researchers reported online in the American Journal of Public Health.

The investments were in the five largest fast-food corporations – Jack in the Box, McDonald’s, Burger King, Yum! Brands (KFC, Taco Bell, Pizza Hut, and others), and Wendy’s/Arby’s, according to J Wesley Boyd of Harvard Medical School and Cambridge Health Alliance in Massachusetts and colleagues.

“The insurance industry, ostensibly, appears to be concerned about people’s health and well-being”, Boyd said.

But, he said, “If the insurance industry is willing to invest in products known to be harmful and/or kill people then, prima facie, this is not an industry that actually cares about health and well-being”.

Although Boyd acknowledged that fast food can be consumed responsibly, he said the aggregate evidence points toward a negative effect on public health.

“We argue that insurers ought to be held to a higher standard of corporate responsibility”, he and his co-authors wrote in their paper.

All of the study authors are members – and two are co-founders – of Physicians for a National Health Program, a nonprofit organization advocating for universal, single-payer national health insurance.

“PNHP opposes for-profit control, and especially corporate control, of the health system and favors democratic control, public administration, and single-payer financing”, the organization’s mission statement reads.

Boyd said that the passage of healthcare reform makes the issue of owning stock in fast-food companies especially important.

“The health insurance industry is going to have a much bigger stake in providing healthcare, and what we’re doing in our paper is reminding people that [the industry's] primary interests are in earning money and generating profit, not in insuring people’s health”, he said.

Pauline Rosenau, a professor of management, policy, and community health at the University of Texas School of Public Health, said the investment strategy of these insurance companies is not ethical.

“They are placing themselves in a situation of substantial conflict of interest – especially starting in 2014″, she said.

“Starting in 2014, insurers will have an even greater incentive to encourage their customers to pursue healthy food choices”, she continued. “However, this is only with respect to their own customers, not those insured by other companies. As long as insurers are largely private, for-profit entities, they are unlikely to identify with a public health orientation.”

To determine the extent to which insurance companies invested in the fast-food industry, Boyd and his colleagues analyzed shareholder data from the Icarus database, which contains information from Securities and Exchange Commission filings and reports from news agencies.

Their data were “vetted during the peer-review process by outside referees”, according to a spokesperson for the American Public Health Association, which publishes the American Journal of Public Health.

The $1.9 billion worth of stock in the five leading fast food companies represented 2.2 percent of the total market capitalization of those companies on June 11 2009.

Most of the investments ($1.2 billion) were in McDonald’s, followed by Yum! Brands ($404.2 million), Burger King ($165.5 million), Jack in the Box ($120 million), and Wendy’s/Arby’s ($15 million).

The insurer investing the most in fast food – $422.2 million – was Northwestern Mutual, which offers life, disability, and long-term care insurance.

Next highest at $406.1 million was ING, a Dutch investment company selling life and disability insurance.

Massachusetts Mutual, which offers life, disability, and long-term care insurance, and Prudential Financial, which sells life insurance and long-term disability coverage, ranked third and fourth at $366.5 million and $355.5 million, respectively.

At first glance, it would appear that there is an inconsistency with insurance companies that have an interest in protecting health investing in the fast-food industry, although Boyd said that it makes sense financially.

“They’re hedging their bets”, he said. “First of all, they’re making money by directly investing in fast food, and, secondly, they’re making money by often charging higher premiums to people who’ve eaten a little too much fast food and are obese, have diabetes, cardiovascular disease, high blood pressure, et cetera”.

He said that he would like to see insurance companies sell their stakes in the fast-food companies.

“But if they don’t divest, at a minimum they could use their position as owners of fast food to insist on higher quality products, lower calories, [and] better information about how many calories are in different foods”, he said.

Dr David Orentlicher of the William S and Christine S Hall Center for Law and Health at Indiana University agreed that insurers should be held to a higher standard of corporate responsibility.

“That said”, he said, “it is very difficult in a capitalist society to expect people or companies to act against their self-interest. If we want people to act responsibly, we have to create financial incentives for them to do so.”

Theodore Marmor, a professor emeritus of public policy and management at Yale School of Management, did not agree that health and life insurers should be held to a different standard than other companies.

“I think this is a foolish approach to improving the health of the public”, Marmor said.

“It would be hard to find any corporation that did not have some effect on the public’s health. Why are insurers to be held to a higher standard? We have more important worries about health insurers than improving their stock portfolios – for example, their behavior as insurers.”

The Accused Claim Their Investments Not Irresponsible

ING did not respond to a request for comment.

In a statement, a spokeswoman for Northwestern Mutual disputed the study’s figures, saying that the company’s stock holdings in the fast-food industry at the end of 2008 totaled less than $257 million. The current total is slightly less at $248 million, or 0.17 percent of a $146.1 billion portfolio, she said.

A spokesman for Massachusetts Mutual said the reported investments were “absolutely incorrect”. He said that as of December 31, the company owned about $1.4 million worth of stock in fast-food-related companies, which was “less than one-hundredth of one percent of cash and total invested assets of $86.6 billion”.

A Prudential Financial spokesman said, “We can’t discuss specific investments within Prudential portfolios or those managed for third parties. That said, we have a fiduciary duty to manage assets in a way that provides the opportunity for consistently strong investment performance to our individual and institutional clients, while managing risk and investing responsibly.”

A spokesman for America’s Health Insurance Plans (AHIP), a trade group for health insurers, said he could not comment on the investments of individual companies.

“Our industry is strongly committed to health and wellness”, he said. “Health plans have pioneered programs to promote prevention and encourage people to live healthier lifestyles”.

Copyright (c) 2010 ABC News Internet Ventures

Bill Totten

Categories: Uncategorized

>Where’s Rico?

>Clusterfuck Nation

by James Howard Kunstler

Comment on current events by the author of
The Long Emergency
(2005) (April 19 2010)

It’s interesting and instructive to read The New York Times‘ lead story this morning, Top Goldman Leaders Said to Have Overseen Mortgage Unit {1}. While it pretends to report all the particulars of the huge scandal growing out of Friday’s SEC action against Goldman Sachs, the story really comes off as an attempt to create an alibi for the so-called “bank”. It pretends that some kind of an intellectual struggle was going on among Goldman Sachs executives as to whether the housing market was doing just fine or poised to tank – therefore muddling the company’s intent in setting up investment deals based on sketchy mortgages designed to blow up so that a favored big customer, John Paulson, could collect on the deal insurance known as credit default swaps.


The truth is that anyone with half a brain could see the securitized mortgage fiasco coming from ten-thousand miles away. I said as much in Chapter Six (“Running on Fumes: the Hallucinated Economy”) of my book The Long Emergency, which was published in 2005 but written well before that from 2002 to 2004. And I had had no work experience whatsoever in banking generally or Wall Street investment banking in particular.

One week before the SEC action against Goldman Sachs, the Pro Publica website published a story about virtually the same kind of mischief being run out of the Chicago-based hedge fund Magnetar led by a clever young fellow named Alec Litowitz. Like Goldman Sachs, Magnetar deliberately constructed investments (bundles of bundled mortgage-backed securities called collateralized debt obligations) that were certain to fail so that Magnetar could collect on credit default swaps that amounted to a bet against products they themselves had participated in creating. There was no question that Litowitz and his employees did this absolutely on purpose. Nor is there any question that they aggressively sold positions in these CDOs to credulous investors like Thrivent Financial for Lutherans and others.

The question that now begs to be answered is: why is this activity not being investigated and prosecuted under the federal RICO statutes against racketeering? The Racketeer Influenced and Corrupt Organizations Act was designed to punish exactly this kind of behavior, whether the defendant’s name ended in a vowel or not. How is it not a racket to deliberately and systematically construct investments designed to fail so you can collect what amounts to insurance against them – and then to sell those financial instruments to customers without telling them that these investments were engineered to blow up? At the very least it amounts to a failure to disclose material information, which is the basis for distinguishing illegality. More to the point, it almost certainly amounts to prosecutable criminal fraud and insider trading.

Dylan Ratigan at MSNBC asked pretty much this question on Friday when interviewing Connecticut attorney general Richard Blumenthal (because the AIG company, headquartered in his state, sold gobs of credit default swaps to Goldman Sachs for dodgy CDOs, leading to a giant government bailout and incidental huge payoffs to Goldman Sachs). Blumenthal’s answer was lame, to put it mildly – that recent federal rules tied his hands, he claimed. He could have at least publicly protested his hand-tying and applied pressure to the US Department of Justice to enforce the anti-racketeering law.

So where is the Department of Justice’s criminal division in all this? The Goldman Sachs racket has been publicly known, in one form or another, for several years. I wrote in this space several times at least as far back as 2007 that Goldman was essentially shorting it’s own issued securities, and I’m neither a lawyer or a finance professional. Anyone could see this from just reading the news. Magnetar’s activity was so notorious that the very business of engineering dodgy CDO investments to collect insurance on their failure became known throughout the industry as “the Magnetar Play”.

The feigned cluelessness among some the highest-profile figures in these rackets is something to behold. For instance Citibank was among the companies that helped Magnetar put together their CDOs-designed-to-fail. Citi’s chairman at the time, former US Treasury Secretary Robert Rubin, testifying before the new Financial Crisis Inquiry Commission said, “Almost all of us, including me, who were involved in the financial system – that is to say financial firms, regulators, rating agencies, analysts and commentators – missed the powerful combination of factors that led to this crisis and the serious possibility of a massive crisis”. Bank of America’s CEO, Brian Moynihan, told a congressional hearing, “No one involved in the housing system – lenders, rating agencies, investors, insurers, consumers, regulators, and policy-makers – foresaw a dramatic and rapid depreciation in home prices” [and therefore in investment instruments based on mortgages].

Either they lie or they are profoundly stupid and incompetent. If the former, then they might be induced to spend some time talking to federal prosecutors; if the latter then the US financial system is too hopeless to survive and we will all soon be bartering hand tools and designer shoes for food. Evidence of the latter is ample, for instance, in Citigroup’s loss of seventy percent share value during Robert Rubin’s chairmanship – for which, in the crash year of 2008 alone, he was paid $17 million plus $33 million in stock options.

The Goldman Sachs SEC action and the related Magnetar story seems to be a pretty big deal and appear to be dragging public opinion to a crossroads where we acknowledge the deep structural corruption of the financial system or watch the legitimacy of both banking and government dissolve. At least, it throws gouts of gasoline on the political fires lit by Tea Partiers and even more extreme political factions. I don’t see how President Obama can keep Robert Rubin at his elbow or the hosts of other Goldman Sachs alumni in their federal jobs. The whole episode is disgusting in the purest sense of the word. If Obama doesn’t shake these people loose, and if he doesn’t pick up the phone and direct his attorney general to execute the laws – including the RICO law – then all the moonbeams issuing from his renowned smile will not avail to keep him in office, or keep the financial underpinning of the USA from collapse.


A sequel to my 2008 novel of post-oil America, World Made By Hand, will be published in September 2010 by The Atlantic Monthly Press. The title is The Witch of Hebron.

Bill Totten

Categories: Uncategorized

>Can US dollar remain world’s currency? Part Three

>System depends on US as importer of last resort but wages too low and credit not there

Jane D’Arista Interview (Part 3 of 6) (April 16 2010)

Jane D’Arista is a research associate with the Political Economy Research Institute (PERI), University of Massachusetts, Amherst where she also co-founded an Economists’ Committee for Financial Reform called SAFER, that is stable, accountable, efficient & fair reform: She is also a research associate at the Economic Policy Institute. Jane served as a staff economist for the Banking and Commerce Committees of the US House of Representatives, as a principal analyst in the international division of the Congressional Budget Office. Representing Americans for Financial Reform, Jane has currently given Congressional testimony at financial services hearings. Jane has lectured at the Boston University School of Law, the University of Massachusetts at Amherst, the University of Utah and the New School University and writes and lectures internationally. Her publications include The Evolution of US Finance (1994), a two-volume history of US monetary policy and financial regulation.


PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I’m Paul Jay in Washington, and we’re joined again by Jane D’Arista. She’s an economist at the Political Economy Research Institute (PERI) in Amherst, Massachusetts. She also cofounded Committee of Economists for Financial Reform, called SAFER. So thanks for joining us again.


JAY: So in the last segment we ended up with the question, so why can’t this just keep going on? The Chinese and the Japanese can keep the American dollar afloat. And then the general thinking is sooner or later the banks and private capital will decide assets are kind of bottomed out and it’s time to start buying it again. And we’re told unemployment has slowed – is not increasing, at least. So why isn’t this a recovery, and what makes you think we could be heading for a new type of collapse?

D’ARISTA: Again, it’s a system that is based on the fact that the key currency country, whoever that may be – it happens to be the US now – has got to be the importer of last resort, and we have an economy that cannot afford that level of imports to keep the global system going. The banker function of the US out of Wall Street, as it were, with the money coming into the country and then being much too much for our own economy, being then sent out to the rest of the world, that has stopped. Trade, the fall in trade and the volume of global trade, is much worse now than during the Great Depression. So to get that trade going again, in order for other countries not to fall into deeper depression, then we have to change the system. The system doesn’t work.

JAY: Okay. The argument we’re hearing from the Obama administration and most of the sort of the conventional banking punditry establishment is that we’ve kind of reached a point of bottoming out. The private capital employers are starting to produce again. Employment’s starting to go up a little bit. People think assets [are] close to or have reached as low as they’re going to go, so it’s time to start buying again. In other words, we’re at the end of a normal cycle of a recession, and that if this starts again, then United States can once again become the great global consumer. So what’s wrong with that?

D’ARISTA: What’s wrong with that is that we are at historically high levels of debt as it is. We can’t go further. And I think you see that the American consumer is at a point where you’re not buying. I mean, a little bit, yes, but more saving. The problem with writing those checks out that the Treasury did was that people put them in their bank accounts. They didn’t spend them. They can’t spend. Do they know where their next job will be?

JAY: Or they’ll pay off debt with them.

D’ARISTA: Right, or they pay off debt, which they have. You mentioned China. So the word is out: oh, it’s their fault; they keep their currency …

JAY: Artificially low.

D’ARISTA: – Yes, artificially low; and they need to raise the value of their currency. The problem for them is same as it would be for the euro area. They don’t want to play this role. They know what happened to the United States – no, thank you. They don’t want to have their currency out there where everybody has to sell them goods in order to earn their currency in order to buy all the things in the global economy that they need and don’t produce at home.

JAY: There’s one other hypothetical alternative, at least in the short run, but not one that I think is going to happen. But it’s not like there isn’t a lot of wealth that’s come into the United States. Over the last – since Reagan, the amount of wealth that’s gone from the world into the top echelon of American elites’ pockets is unparalleled.

D’ARISTA: Exactly.

JAY: So there could be – if there was more income distribution in the United States, if wages went up, there would be more real purchasing power, which would – I’m not saying is the final solution to this global problem, but it would be a solution that certainly would mitigate the issue. But you never hear the word “wages” even discussed in this. Like, you hear in Congress, Senate finance committees, and you hear from the Obama administration; the fact that wages haven’t moved since the early 1970s never gets talked about.

D’ARISTA: And it is a big problem. I mean, we have an unfair distribution and uneconomical distribution, because people do not buy the things that are being produced. The US cannot import at the level that it did before, and will not be able to until you fill that number of jobs that have been lost. The wages are not there and the credit is not there.

JAY: So part of a solution is a new global financial regime.

D’ARISTA: A global clearing house, which is a platform suggested by John Maynard Keynes back in the 1940s when we got into Bretton Woods. We didn’t take his ideas, but many people have held on to them over the years. The idea of a global clearing house, if you will, is that it would operate at the global level like a bank: it would take checks and clear them against balances that are held by countries with the clearing house. So if I write a check to you in my currency and you take it to your bank, it goes to your central bank, then goes to the international clearinghouse and gets cleared there against the balance that that country has, and the money comes back to you in your own currency.

JAY: So how in fact are they going to decide what a currency’s worth? Because people are saying gold, if you have some kind of market mechanism based on precious metals …

D’ARISTA: Ah, but this would be a market mechanism, in the sense that if I have, as a country, an account in the clearinghouse and it gets run down, then obviously my currency loses value.

JAY: This exchange bank is keeping track of how much you’re buying and how much you’re selling, how much is going in, how much is going out. And if you’re in deficit, your exchange rate goes down, and if you’re in surplus, your exchange rate goes up. So there’s some kind of measurement about the actual strength of your economy.

D’ARISTA: Exactly. So it’s not a decision by a global authority on these exchange rates; it’s a reflection of what’s actually going on in the markets.

JAY: What would the effect of this be on the US dollar and the US economy?

D’ARISTA: It would be, hopefully, a neutral effect, in the sense that the US would find itself in a situation in which the value of its currency could go down without disrupting the world.

JAY: I mean, right now you’d think it would go down, given the enormous trade deficit. If this is a measurement of trade in and out, it would go down.

D’ARISTA: Right. But if we no longer are buying as much from the rest of the world, then we might be buying more from ourselves, and this might …

JAY: So this could be a spur to domestic production.

D’ARISTA: Exactly. And that would be an ideal situation.

JAY: Okay. So we’ll talk about more solutions with Jane D’Arista on The Real News Network.

End of Transcript

Disclaimer: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.

Bill Totten

Categories: Uncategorized

>Can US dollar remain world’s currency? Part Two

2010/04/20 1 comment

>Big states will defend dollar, but private capital may move to precious metals and oil

Jane D’Arista Interview (Part 2 of 6) (April 15 2010)

Jane D’Arista is a research associate with the Political Economy Research Institute (PERI), University of Massachusetts, Amherst where she also co-founded an Economists’ Committee for Financial Reform called SAFER, that is stable, accountable, efficient & fair reform: She is also a research associate at the Economic Policy Institute. Jane served as a staff economist for the Banking and Commerce Committees of the US House of Representatives, as a principal analyst in the international division of the Congressional Budget Office. Representing Americans for Financial Reform, Jane has currently given Congressional testimony at financial services hearings. Jane has lectured at the Boston University School of Law, the University of Massachusetts at Amherst, the University of Utah and the New School University and writes and lectures internationally. Her publications include The Evolution of US Finance (1994), a two-volume history of US monetary policy and financial regulation.


PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I’m Paul Jay in Washington. In a recent article, economist Jane D’Arista quotes another economist, whose name is Nicholas Kaldor. Here’s what he had to say: “as the products of American industry are increasingly displaced by others, both in American and foreign markets, maintaining prosperity requires ever-rising budgetary and balance of payments deficits, which makes it steadily less attractive as a method of economic management. If continued long enough it would involve transforming a nation of creative producers into a community of rentiers increasingly living on others, seeking gratification in ever more useless consumption, with all the debilitating effects of the bread and circuses of Imperial Rome.” Now joining us to explain all of this is Jane D’Arista. She’s an economist with the Political Economy Research Institute (PERI), at the University of Massachusetts Amherst, where she’s co-founder of a committee of economists called SAFER, for stable, accountable, fair, and efficient financial reform. Thanks for joining us, Jane.


JAY: So at the end of the last segment we left off with the question: so who is this good for? If Kaldor in 1971 – I don’t think I mentioned that Kaldor’s quote isn’t recent. Kaldor’s quote’s from 1971.

D’ARISTA: No. He wrote that in The London Times in September 1971.

JAY: So it was pretty clear then where this would all lead.

D’ARISTA: Exactly.

JAY: So they do it anyway. So who are they doing it for?

D’ARISTA: Well, the question there is one that put many progressive economists and others on the side of the National Association of Manufacturers, who complained: you’ve driven up the value of the dollar in the 1980s to a point where we can sell nothing abroad and we can’t sell anything in our own country. And there was no real response. They tried to bring down the value of the dollar toward the middle of the 1980s, but not sufficiently.

JAY: So who’s benefiting from this?

D’ARISTA: Well, so then what happened was the manufacturers of this country said, we can’t lick ‘em, we’ll join them, meaning the banks, and went offshore. So they were then manufacturing offshore in a cheap currency with cheap labor and selling back into the home market. So whose benefit? The financial sector.

JAY: So they go – by “cheap currency” meaning a cheap Chinese currency wherever they’re …

D’ARISTA: Yes, right, wherever they’re manufacturing.

JAY: And they sell back into the market, where there’s a high dollar.

D’ARISTA: Mexico and then China. Yeah. And they make a larger profit doing so.

JAY: But the problem is the high dollar’s based on what, other than the fact that it’s the world’s reserve currency? Because the more this happens, the less purchasing power people have.

D’ARISTA: That’s exactly right, unless you put them on credit. How do you make … ?

JAY: Or you could have done one other thing. You could have let wages come up in the United States. But that was a no-no.

D’ARISTA: You couldn’t, because what were you producing?

JAY: Well, there was still a big manufacturing sector. It wasn’t [inaudible] nothing.

D’ARISTA: It has really shrunk, and over time it really did shrink. And the issue was constantly no, no, you can’t raise wages because we’ll go from England to Virginia, we’ll go from Virginia to Mexico, we’ll go from Mexico – et cetera. Even the Mexicos began …

JAY: Which is sort of the point, is there deliberate measures taken, including Reagan’s breaking of the Air Traffic Controllers strike.

D’ARISTA: Exactly.

JAY: And there’s a real effort made to make sure wages didn’t go up, and push people into debt instead.

D’ARISTA: Precisely so. You really did sort of have to push them into debt in order to maintain a middle-class lifestyle, which people were accustomed to – they had houses, they had, you know, children in school, et cetera. So this is then what happened in that period in the 1980s. We got into a recession in the 1990s, and we came out of it only because Greenspan in March 1994 raised interest rates, so we see this dynamic then. How do you maintain the value of the dollar? You keep the difference between the US interest rate and all imported, foreign interest rates at a level that favors the dollar, so that everybody wants to be in dollars because you earn more money in dollars. That keeps it very strong. And that’s wonderful for Wall Street and the major banks. They have access to the dollar, and they make money on the transactions.

JAY: And I guess the point that needs to be repeated over and over again is that they know they’re creating a bubble, they know the bubble’s going to burst someday, but it doesn’t matter because the guys that are doing all this are cashing out at every step of the way, either through bonuses or other ways. They actually don’t care if the bubble bursts. In fact, once the bubble did burst, they didn’t lose anyway, because the federal government comes in and saves their behinds anyway.

D’ARISTA: Yes, but there is also another mentality in that, which we hear constantly about the financial crisis in this country. People really do think the present will go on forever, and what I’m saying is: not necessarily.

JAY: So explain, go into that, because that’s really the key thing here is that this doesn’t keep going if at some point the dollar really collapses and people completely lose faith in it. And you’re saying we’re getting closer to that than a lot of people think.

D’ARISTA: We’re getting closer to that because we have an economy that has now come to the end of its rope, playing that role that Kaldor described, in the sense that we do not have a household sector that can continue to buy. They’ve lost their jobs; they’ve lost their homes. And so what is – they’ve been replaced by the government sector, in a sense, as the borrower in the global economy. And now we have, with the example of Greece, and with Bernanke himself making these statements, a problem. Governments are going into debt. They have to. Nobody else can spend. And at the same time, the market says, well, we don’t like that.

JAY: But we still see people, every time there’s a crisis, they still run to the dollar. And we understand – if you’re in the business news, at any rate, we’re told that even surreptitiously the Chinese are buying more long-term US bonds and seem to still believe in all of this, I mean, and I guess partly because they have to. So, I mean, to what extent can this be allowed to fall?

D’ARISTA: It is a very difficult situation should it fall, but we’re in a cliff-like situation. Here is the problem. First of all, as far as China is concerned, they are trying to diversify. They are still buying dollars, yes, but at the same time they’re also buying soybean fields in Brazil and oil in Africa, et cetera. They are buying real economic value, if you will, rather than pieces of paper. That’s what they want to do with their savings, and they’re doing it in terms of what are the needs of their economy. Other countries with high reserves may follow in that path as well. The Chinese, of course, as we know, have over $1 trillion of US assets. If they pull the plug on us, I mean, our interest rates would go thirty percent overnight. That’s not going to happen, because the Chinese are too responsible.

JAY: And, of course, it makes sense for them to let the business press report on how they’re buying some long-term bonds, because they need to stop any sense of panic.

D’ARISTA: That’s right, and they also know that the world has to continue, and they have to moderate their behavior. But at the same time, the private sector is not the Chinese government. The private sector is fickle. I mean, you know, you look at the stock markets, you look at any of it, if US interest rates stay low, if there’s no hope that they will rise, if it looks to them that the US government debt is getting too large and they want more and more interest rates on US government debt, they may then decide to either flee the dollar or push up the interest rate in the US to an extent in which we are in difficulty.

JAY: But flee the dollar to what?

D’ARISTA: Gold. Platinum. Have you noticed platinum prices have gone up? Bet on oil in the markets. I mean, remember, we got to $147 a barrel in 2008. There are opportunities to speculate. The commodities we did back in 2008, there are opportunities out there. There are the things to do. Speculate on land and other parts of the world, et cetera.

JAY: Although there’s a lot less real things to speculate on, so they’re creating these casino markets, which essentially is like horseracing. We did an interview recently about the speculation on food. They’re creating these, where you don’t have to own and hoard rice anymore; you can just bet on what’s going to happen to rice. And it’s exactly like a horserace.

D’ARISTA: Precisely so. Yeah. And so you’ve got it.

JAY: You don’t have to own the horses; you can just sit there and you can bet on the horses.

D’ARISTA: Right. So, I mean, when they do this, of course, this means that the value of the dollar does go down. In the process, the value of the vast savings of many countries also begins to shrink, and those savings are terribly important to those countries. They back – they are held, as it were, by the central banks, and they back domestic credit. So if we have an implosion of the reserves of most of the countries of the world, especially the emerging-market countries, then we will have a contraction of credit.

JAY: Okay. In the next segment, let’s talk a little bit more about why this might crash. I mean, a lot of this is in the hands of the Chinese and Japanese, I would think, who own most of the US securities. And, I mean, as long as they keep believing, why would it fall? But let’s answer that in the next segment of our interview. Please join us with Jane D’Arista on The Real News Network.

Bill Totten

Categories: Uncategorized

>Can US dollar remain world’s currency?

2010/04/20 1 comment

>US dollar as world’s reserve currency is great if you own a bank; not much good for Main Street

Jane D’Arista Interview (Part 1 of 6) (April 14 2010)

Jane D’Arista is a research associate with the Political Economy Research Institute (PERI), University of Massachusetts, Amherst where she also co-founded an Economists’ Committee for Financial Reform called SAFER, that is stable, accountable, efficient & fair reform: She is also a research associate at the Economic Policy Institute. Jane served as a staff economist for the Banking and Commerce Committees of the US House of Representatives, as a principal analyst in the international division of the Congressional Budget Office. Representing Americans for Financial Reform, Jane has currently given Congressional testimony at financial services hearings. Jane has lectured at the Boston University School of Law, the University of Massachusetts at Amherst, the University of Utah and the New School University and writes and lectures internationally. Her publications include The Evolution of US Finance (1994) a two-volume history of US monetary policy and financial regulation.


PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington. Between 1983 and 1990, the Reagan era, the total US debt – and by total US debt we mean households and businesses big and small, governments state, local, and federal. Under Reagan the debt grew from $5 trillion to $10 trillion. This has all been pointed out by Jane D’Arista in some of her recent writing. And she also points out it took 200 years to get to $5 trillion, so that move from five to ten is rather significant. Jane also writes: now there’s a possibility that a monetary collapse could engulf the entire global economy, that a loss in the value of the key currency, which means the US dollar, could precipitate a worldwide shrinkage in credit that would deepen the financial and economic crisis already underway. Now joining us is Jane D’Arista. She’s an economist at the Political Economy Research Institute, known as PERI, at the University of Massachusetts Amherst, where she’s also a cofounder of the Committee of Economists for Financial Reform, called SAFER, for Stable, Accountable, Fair and Efficient Reform. Thanks for joining us, Jane.


JAY: So if I understand your basic point is that the global economic system, based on the US dollar as the reserve currency of all international transactions, is actually exacerbating the crisis. Why and how?

D’ARISTA: Well, very much so, because it has played out its ability to perform the function that was in place before, namely, the US was the banker to the world and was in effect doing the transactions that allowed the global trade and investment regime to work. Now that we are so much in debt, and that it began, as you point out, with the Reagan administration and has run up precipitously over time, we are now at historic levels in terms of debt. And the household sector in this country, which we shifted to when in the Clinton administration we took down the federal deficit, the household sector has played out. As you know, unemployment is high. People are losing their houses. They cannot borrow money to continue to buy. And the whole global system came to be based on the idea that the American consumer was the engine for the global economy, and it is no longer.

JAY: So if I understand it correctly, your argument is that in 1971, when Nixon decouples the dollar from gold, more or less institutionalized something that had already been happening anyway, because there essentially wasn’t enough gold to fuel the amount of international global trade, so people had kind of already began relying on the dollar as the main means of exchange. They institutionalized it in 1971. But by everyone needing the US dollar to participate in global trade, it means everybody has to do something to get dollars. So what do they do, and what’s the effect of that?

D’ARISTA: Well, the effect of it is, as you say, that they have to export, they have to sell into the United States in order to earn those dollars. The alternative is to borrow them, and if they borrow them, they go into debt, and then they have to service the debt. Where do they get the dollars to service the debt? Exports to the US. And that has been the regime as it grew up. In 1971 you had a situation where the US was running out of gold. It had agreed among the central banks that if they needed to exchange their dollars for gold, the US would give them gold at $35 for an ounce of gold. The US reserves got much too low. And when some of the countries asked for gold at that time, because they were in trouble, Nixon closed the gold window. And what he did was to take the monetary system, the payment system, out of the hands of central banks and put in the hands of the private sector, the private international banks, the big ones, the ones whose names we know – Citibank, et cetera. And they began to be able to speculate on changes in the value of currencies over that period of time. Now, we got into a situation in 1970s where there was a good deal of inflation, and by the end of the 1970s the dollar did collapse. Paul Volcker came in and rushed up interest rates to twenty percent and absolutely flattened the country. That was the worst recession we had had since the 1930s.

JAY: And flattened a lot of other countries, because a lot of countries, like Brazil and others, have been pushed into getting these loans from the IMF and World Bank and other places at what was supposedly practically zero interest rates, except they were floating interest rates.

D’ARISTA: Exactly.

JAY: So when they go from one or two percent up to twenty percent, it could completely transform many of these economies.

D’ARISTA: It was a disaster. There were fifteen middle-income countries that were so highly indebted at that point that they did collapse, and we had what is called the lost generation in the 1980s for those countries. Meanwhile, the US got back on its feet. Why? The value of the dollar went up with those high interest rates. The privatized system now saw the virtue of investing in the dollar – you got all that currency appreciation with high interest rates.

JAY: Because most of this money that Brazil and others are doing is they’re using it to pay back debt back into the United States.

D’ARISTA: That is correct.

JAY: So this becomes this vacuum cleaner sucking back up all the dollars.

D’ARISTA: Right. So how could we get so much debt, $5 trillion national debt in the 1970s? Foreign savings – not our own savings, not our own wealth that we had created in our own economy. But the fact that the dollar was at the center of the monetary system, and if you put that interest rate up high enough, everybody wants more dollars. So they come into the US; they flood the markets; there’s a lot more credit.

JAY: Flood the markets with cheap products.

D’ARISTA: Well, no. Flood the markets with cheap money, and everybody then can buy. Remember, we had a housing crisis at the end of the 1980s because, again, housing prices had gone up as a result. I mean, we had a sort of a preview of what we have just now experienced at that time. And indeed, beginning in 2000, we had a similar episode of enormous increase in credit in every sector over a decade of time. Household sector debt went from 66 percent to 114 percent, and the most dramatic of all was the rise in the debt of the financial sector. So the financial sector has been running a casino, and it has put everybody into a very difficult situation. Meanwhile, of course, our problem is – and Nicolas Caldor pointed this out in 1971 – that we necessarily are a country that will lose its ability to compete in the world if we continue to be the key currency country. People must sell us goods in order to earn the dollars that they need to conduct their international transactions – buy oil, buy food, whatever it is they need to buy in the world – and therefore, in selling to us, putting us into a situation where the cheap goods undermine the wages of our own workers.

JAY: But doesn’t it depend on how you define “us”? Because it hasn’t been so bad if you happen to own a bank.

D’ARISTA: It’s been great if you own a bank. What we have to say is: why was the decision to keep the US dollar the key currency? It doesn’t do a thing for Main Street.

JAY: Okay. So in the next segment of our interview, let’s go back and answer the question.


JAY: Please join us for the next segment of our interview with Jane D’Arista on The Real News Network.

End of Transcript

Disclaimer: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.

Bill Totten

Categories: Uncategorized

Get every new post delivered to your Inbox.

Join 29 other followers