The Smartest Guys in the Room.....are crooks

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California State Treasurer Bill Lockyer is a man with a lot of questions. On March 29, 2010 his office sent letters to Bank of America Merrill Lynch, Barclays, Citigroup, Goldman Sachs, JP Morgan and Morgan Stanley asking about their Credit Default Swap practices. In his letter, he expressed worries that these firms - who are hired to market California's General Obligation (GO) bonds for the State and also sell many other municipal debt issuances across the United States -- also participate in the credit default swap (CDS) business of betting against these bonds.

Mr. Lockyer notes that the State of California has never defaulted on its' obligations, he asked each bank to explain why they both sell for the State on one hand and bet against the State with the other. Responses were due back by April 12, 2010 and the State of California posted all of the responses on the Treasurer's website at this URL http://www.treasurer.ca.gov/cds/index.asp.

Why is there a market in California defaults? Basically an opportunity for arbitrage - what I like to call a mathematical gap between reality and financial modeling - exists. In an article published by Bloomberg News on April 19 on L.A. Unified's latest bond issuance, they note that California has "the lowest-rated U.S. state, is ranked Baa1 by Moody's, three steps above non-investment grade, and A- by S&P, four levels above." Bookies call this the "spread" and so does Wall Street.

The language of the banks responses to California are steeped in the murky language of finance but translated into English the banks say the answer is because there's money to be made playing both sides of the street. In the finance business it's acceptable for institutions to happily take fees and commissions both on the "sell side" as they market California's debt to primary buyers and on the "buy side" making markets - that means promoting business - for people betting against that debt using, among other things, CDS. Of the banks asked, the response by Goldman Sachs was the most direct.

They explained that working both sides is fine and dandy because a "Chinese Wall" separates the two sides of their activities. The message is that California - or any municipality - is a client only of the sell-side. California is not a client of the buy-side on the other side of the "Chinese Wall. That's some other "client" in need of insurance because the rating agencies say your State isn't a risk free investment. In effect, they take the business position that the job of a Wall Street middleman is to make as much for the house from both business channels. The other banks admit they do this too though the demeanor of their letters seem somewhat less ebullient probably remembering that there's money to be made on the sell side.

The letters tell California State Treasurer Lockyer that CDS is actually a good thing because someone buying insurance on the predicted mathematical default probability somehow means they are creating a bigger market to buy more of it. Huh? That's what the letters say. The common theme says because someone buying California GO bonds can also buys CDS protection they can lever up and buy more GO bonds. They've hedged their position against California defaulting on its' debts even though it never has. Remembering that their sell-side services business is also lucrative, they also say that California's bonds are among the most desirable on the planet. This brings up two questions. One, are you sure that Chinese Wall is sound proof? And two, why do you need default insurance on bonds that don't default again?

Citigroup, one of California's staunchest sellers of tax-exempt municipal issuances, did note with what I felt was a hint of sympathetic frustration in their response that they thought the buy-side hype about California's so called modeled default spreads has been overblown and at times out of control. Insurance is about selling perceived risk even if that perception is purely mathematical. So maybe we need to ask if, just as people wonder if some ratings were pushed up to help sell certain types of now toxic securities, might there also be a need to see if we need to weed out systemic pressures to push risk spreads on CDS arbitrage?

If your head isn't hurting too badly yet read on. It gets weirder.

On February 17, 2009, President Barack Obama signed the American Recovery and Reinvestment (ARR) Act. Part of this stimulus package created something called the Build America Bonds program known in finance circles as BAB's. Most municipal bonds are tax-exempt financial instruments. BAB's aren't. They are federally subsidized taxable bonds sharing some of the characteristics of corporate bonds.

BAB's opened a door for taxable bond investors, who had previously not been as active in this area, to become active speculating on municipals. In case you haven't figured it out by now the finance universe consists of micro-communities that get along about as well as the bi-polar opposites of the U.S. middle-class, Progressives and Tea Partiers. Taxable bond investors are used to working with corporate bonds. Unlike sovereign debt, corporations carry tangible default risks and corporate bond investors live by the motto that it's prudent to take on insurance to hedge their positions. So what happens when these people come to play in the municipal bonds sector?

Their deeply ingrained habits about the "investment tripod" of position, hedge and financing will begin to alter the market for municipal bonds. Corporate bond CDS spreads are based on the perceived problems of the company. Anything and everything imaginable is fair game for arguing what the spread should be. And these folks can be a mite jittery. Can Municipal BAB's be any less risky than a heavily government subsidized entity like General Motors? And so California's legendary polar politics, budget woes and legislative gridlock become the shrapnel far outweighing the payment history tapes.

Reading their letters, all of the respondents noted that they weren't quite sure what this means. Alignments of unsteadiness like that are significant in finance. BAB's are new, a very recent invention on the Obama Administration's watch. All of them were careful to assure California that this won't affect demand for the State's General Obligation bonds. But the letters also said the CDS desks of these institutions fully intend to continue to make markets from this new source of transaction clients interested in purchasing CDS insurance on things like BAB's. They also indicated the possibility that the CDS' written on these BAB's may result in an uptick in both rational and irrational analysis of municipal issuer default quality. That could make all municipal bonds harder to sell. Given that the credo of charge what the market will bear is almost irresistible to Wall Street, one needs to ask if the law of unintended consequences just manufactured another future systemic challenge to deal with.

One additional note, the statutory issuance window for BAB's ends in January, 2011. However, other federally subsidized taxable bond programs such as the Qualified School Construction Bond (QSCB) program authorized under the very recent Hiring Incentives to Restore Employment Act also exist. So it's not like these things are going to disappear. Per the Bloomberg article mentioned earlier and QSCB's trade more thinly than BAB's so the pressure to help them liquefy is even stronger.

My point is that finance is never quite as simple as calling for solutions one can make with a machete. Bill Lockyer's stack of letters deserves a broader reading. They are a canvas to learn a little more about the perturbations we make to the very complex system that is the U.S. economy.

Thanks to Tom Petruno from the L.A. Times for pointing me at the letters.


Follow Dennis Santiago on Twitter: www.twitter.com/DennisSantiago

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William K. BlackAssoc. Professor, Univ. of Missouri, Kansas City; Sr. regulator during S&L debacle
Posted: April 27, 2010 01:00 PM
13 Bankers: The American Oligarchs And The Systemically Dangerous Institutions (SDIs) They Rule
We know that Simon Johnson and James Kwak have hit a nerve because Larry Summers, the administration's principal economic adviser and the man that carries water for what the authors rightly call the financial "oligarchs" -- has been forced into an open defense of the oligarchs' rule. Summers has kept a low profile and protected the oligarchs from substantive reform by using his power as gatekeeper to minimize the presentation of views by those that support effective financial regulation. Summers' ability to marginalize Paul Volcker demonstrates his power and success -- and the harm he causes the nation.

The issue that has caused Summers to publicly carry water for the oligarchs is the inherent insanity of allowing systemically dangerous institutions (SDIs) to continue. The oligarchs are all SDIs. Under the administration's own logic, if any SDI fails it creates a serious potential of causing a global financial crisis.

The administration (implicitly) asserts that the power to resolve failed SDIs removes this systemic risk. Treasury Secretary Geithner's prepared testimony before the House on April 20, 2010 argued:

No regulatory regime will be able to prevent major financial firms from reaching the point of insolvency. But a well-designed regulatory framework must put in place shock absorbers to contain the damage caused by a major firm's default (p.1).
The first sentence is a devastating admission that the administration's embrace of the oligarchs will, as the authors have warned, produce recurrent global financial crises. We know that "private market discipline" is an oxymoron -- the lenders and investors that are supposed to "discipline" fraudulent enterprises actually fund their growth. That means we have to rely on regulators to prevent future epidemics of "control fraud" (frauds in which those that control seemingly legitimate entities use them as "weapons" to defraud). But Geithner admits that "no regulatory regime" can be counted on to prevent the failure of an SDI -- which they claim exposes us to a global crisis.

Note the extreme vagueness of Geithner's solution to the future failures, which he concedes are inevitable, of the DSIs. What "shock absorbers" does he plan to put in place to prevent the failure of an SDI from causing the global crisis that he says their failure would normally cause?
Consider the not-so-hypothetical failure of Citicorp. It is the counterparty to tens of thousands of transactions. If it fails due to accounting control fraud -- and that is the most common reason an SDI fails -- then its capital requirement will be meaningless even if its increased. Accounting control fraud produces guaranteed, record (albeit fictional) "income" which can flow through to "capital" and meet any capital requirement under consideration. Alternatively, a bank can follow the Iceland strategy and lend the funds to those that will purchase its stock. This creates whatever level of fictional capital is required. Capital is an accounting concept. If you game the accounting the capital can be fictional. Capital requirements cannot stop accounting control frauds -- the principal cause of major bank failures. Note that Geithner implicitly admits this, because he admits that no regulatory regime can guarantee closure prior to insolvency -- even though the regulators are required by the Prompt Corrective Action Act to do so.

We demonstrated during the reregulatory phase of the S&L debacle that regulators that understand accounting control fraud can identify and close the frauds before they cause catastrophic failures, but Geithner and Summers cannot even bring themselves to use the "f word" -- fraud -- much less identify, constrain, and prosecute it.

Absent effective anti-fraud regulators, there is only one "shock absorber" that can be used once the looters have caused the catastrophic failure of an SDI. If Citicorp is insolvent by $400 billion there is only one "shock absorber" that can reduce (1) cascade failures among the counterparties and (2) sending a shock throughout the financial system as investors and creditors realize that there is an enormous bubble (whatever bubble comes next), that asset values are grossly inflated, and that there is widespread fraud covering up losses at many banks. That shock absorber is money -- massive amounts of money. The reality, which politicians like to assume away, is that most of this money will come from public funds. As long as banks are allowed to be so large that their failure can cause a crisis they will be bailed out. If, like Lehman, they are not bailed out their failure will cause so much damage that the subsequent SDI failures will be bailed out.

The authors correctly explain that the issue isn't simply economics. The oligarchs will be failed out because of their political power. As long as they are allowed to be SDIs they will have exceptional political power and they will use it to harm the public.

Simon Johnson and James Kwak have identified the financial oligarchs as the greatest threat to the global economy and our democracy. (I would add that their frauds create a criminogenic environment that also threatens our integrity.)

We know that the authors have scared the oligarchs and their political allies in both parties because of the money the oligarchs are spending to fend off serious regulatory reform and the fact that Summers has found it necessary to go public in his effort to protect the oligarchs. He was interviewed recently on PBS' Newshour.

JEFFREY BROWN: The too-big-to-fail issue, why not go further? Why not just limit the size of banks?
LAWRENCE SUMMERS: Jeff, that was the approach America took to banking before the Depression. That was the approach that America took to lending in the thrift sector before we had the S&L crisis.

Most observers who study -- who study this believe that to try to break banks up into a lot of little pieces would hurt our ability to serve large companies and hurt the competitiveness of the United States.

But that's not the important issue. They believe that it would actually make us less stable, because the individual banks would be less diversified and, therefore, at greater risk of failing, because they would haven't profits in one area to turn to when a different area got in trouble.

And most observers believe that dealing with the simultaneous failure of many -- many small institutions would actually generate more need for bailouts and reliance on taxpayers than the current economic environment.

The administration, rather than repudiating this ode to the oligarchs, joined Summers' chorus.
"Banks in the United States are proportionately smaller than in Canada and in many European countries," writes Matthew Vogel, a White House spokesman, in an e-mail to HuffPost. "We propose nothing to increase the size of financial institutions. In fact, we tighten the limit on liabilities to further prevent firms from growing excessively large and require firms to separate out their riskiest, proprietary trading activities."

Summers' comments are not honest. Economists and regulators have reached a consensus -- the SDIs are inefficiently large (as well as dangerously large). They harm our international competitiveness. His continued embrace of the regulatory "race to the bottom" is appalling. This is precisely the (logic-free) logic that Rubin, Summers, Greenspan and Patrick Parkinson used to convince Congress pass the Commodities Futures Modernization Act of 2000 that destroyed Brooksley Born's effort to protect the public from credit default swaps (CDS).

Summers' argument rests on a (doubly) false dichotomy. First, the alternative to SDIs is not a nation of 100,000 banks that each has $1 million in assets. Banks can reach efficient scale without becoming so large that they become SDIs or oligarchs. Second, SDIs tend to survive not because they are more stable than smaller banks, but because they are bailed out when they get in trouble because of their power as oligarchs. It was the larger S&Ls, for example, that caused the severe losses during the S&L debacle.

The White House argument that there is no reason to take on the U.S. banking oligarchs because the banking oligarchs in some other nations also have dominant power in their nations is bizarre. The administration does not get the most basic fact that Johnson & Kwak have documented - the financial oligarchs are bad for America. The fact that they are also bad for Germany, Iceland, Ireland, Japan and the UK adds to the case for destroying the power of our oligarchs.

The administration may be proposing no new laws to make the oligarchs even bigger, but it (1) has encouraged their growth through acquisitions of failed banks and (2) stood silent and useless as many of the SDIs have continued to grow. It is insane to allow the SDIs to continue to exist and it is doubly insane to allow, much less encourage, them to grow. Encourage everyone you know to read this book and learn why defeating the oligarchs is imperative for our economy and our democracy.

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‘God, What a Piece of Crap’

http://www.truthdig.com/report/item/wha ... _20100428/

Posted on Apr 28, 2010

By Robert Scheer

It was the Perry Mason moment in the unraveling of what was left of Goldman Sachs’ reputation. Only in this case, it involved a grizzled former prosecutor, Sen. Carl Levin, rather than a genial defense attorney. The case was broken and the truth about the depth of Goldman’s corruption revealed in his startling cross-examination of Goldman Chief Financial Officer David Viniar.

The Michigan Democrat, citing the language of the internal e-mails of Goldman traders concerning the deceptive products they were selling, asked: “And when you heard that your own employees in these e-mails are looking at these deals said `God what a shitty deal. God, what a piece of crap,’ when you hear your own employees and read about those e-mails, do you feel anything?”

Viniar’s answer told us all we need to know about the banal but profound immorality of Goldman’s business culture: “I think that’s very unfortunate to have on e-mail.”

A flabbergasted Levin cut in with “On e-mail? How about feeling that way?” and Viniar, apparently moved by jeers of ridicule from the audience, conceded “I think it is very unfortunate for anyone to have said that in any form.” Pressed further by Levin asking, “How about to believe that and sell them?” the CFO finally conceded, “I think that’s unfortunate as well.” To which Levin responded, “That’s what you should have started with.”

But Goldman’s executives didn’t start with any such moral qualms or end with them, as was made clear in the testimony of Goldman Chief Executive Officer Lloyd Blankfein that followed. Blankfein basically pleaded ignorance about the company’s scams, making it clear that offering the details of such products was below his pay scale. That would be $68 million in 2007, the highest in Wall Street history, when Goldman’s bets against its customers paid off so handsomely. What was clear is that his job was to ensure the company’s immense year-end profitability with no questions asked about the methods used. “I did not know” he replied when asked about the details of the company’s trades, and at another point he added, “We’re not that smart.” Then there was “I don’t have any knowledge” on selling short, and finally, “We did not know what subsequently occurred in the housing market.”

What he did know is that the scoundrels in his mortgage betting rooms were, as with that high-flying London operation that got AIG so much loot before it exploded, raking in enormous profits. Such ignorance is bliss for a Goldman CEO who apparently is rewarded in inverse proportion to what he knows of the operation as long as he pays attention to the bottom line.

That was certainly the case for the man whom Blankfein succeeded the year before, Henry Paulson, when Paulson went off to serve as George W. Bush’s treasury secretary. As Paulson admits in his memoir, he was unaware that suspect mortgages were at the heart of the banking meltdown, even though he was head of Goldman when those toxic mortgage securities were developed.

And then there is that other Goldman-honcho-turned-public-servant Robert Rubin, who was a Goldman vice chairman before serving as Bill Clinton’s treasury secretary. In that Cabinet job, Rubin pushed through the Financial Services Modernization Act, which demolished the wall between investment and commercial banking. Ironically, that reversal of the New Deal regulations that had operated successfully for 60 years, the Glass-Steagall Act, was referenced by Blankfein in his Tuesday testimony explaining how Goldman and other firms spun out of control.

When asked by Sen. Ted Kaufman, D-Del., how Goldman had morphed from a traditional investment bank backing sound business ventures to a market gambler in fanciful products, Blankfein attributed it, somewhat forlornly, to “a change in the sociology of the business that took place over the last 15 to 20 years.” He added, “I’m not sure that it was precipitated by the fall of Glass-Steagall or it caused Glass-Steagall to fall. …”

Of course there was nothing inevitable about the fall of Glass-Steagall in 1999, since it was the result of decades of lobbying by the financial industry. That change was followed by the total deregulation of financial derivatives by the Commodity Futures Modernization Act, which Rubin had pushed and which President Clinton signed into law.

Clinton recently conceded that he got bad advice from Rubin on derivatives regulation, but he still holds to the notion that the reversal of Glass-Steagall was not harmful. No one listening carefully to the day of testimony by the various Goldman executives could accept the idea that these folks can function decently without strict boundaries.




Goldman Sachs chairman and chief executive officer Lloyd Blankfein gets ready to testify before the Senate Subcommittee on Investigations hearing on Wall Street investment banks and the financial crisis on Capitol Hill on Tuesday.

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HUFFINGTON POST


Rep. Alan GraysonCongressman Alan Grayson represents Central Florida (FL-8).
Posted: May 3, 2010 11:42 AM

Last year, I asked the Vice Chairman of the Federal Reserve Board who received $1 trillion in funds that the Fed handed out to domestic banks and financial institutions.He said, essentially, "I'm not going to tell you." More recently, I asked the Chairman of the Fed who received the half trillion dollars - that's $500,000,000,000 - that the Fed handed over to foreign central banks. He said he didn't know. Half a trillion dollars, and he doesn't know!

That kind of ignorance and arrogance must end. We need to audit the Fed. And now we're closer than ever.

The House passed our bill to conduct the first independent audit of the Fed in its 96-year history. Now it's time for the Senate to act.

A bipartisan group of Senators is pushing for an amendment to audit the Fed. This amendment is similar to the legislation that we passed in the House last year. It's called the Federal Reserve Accountability Amendment. It will ensure that the American people know to whom the Fed is lending our money.

The amendment is simple. If it passes, the Fed finally will be audited. Regarding all those billions that the Fed hands out like party favors, we will find out who, what, when, where and how. (We already know "why" - the answer to that question is "Wall Street Greed.") But if this amendment fails, the Fed can continue to make hand out our money to whomever it wants, without telling Congress or the American People.

We think we can pass the Senate Amendment, with your help. The amendment is already cosponsored by progressive heroes like Bernie Sanders, Pat Leahy and Russ Feingold. And joining us in this strange-bedfellows coalition are John McCain, Jim DeMint, David Vitter and Sam Brownback. (We hesitate to use the terms "bedfellows" and "David Vitter" in the same sentence, but that would be changing the subject.)

With such bipartisan support, you'd think that passing this legislation would be a slam dunk. Wrong. Wall Street bankers and their lobbyists are twisting arms and pouring millions into the campaign coffers of politicians on both sides of the political divide, to keep their sweetheart Fed loans under wraps. It's time to counter their influence-peddling by making the Senate listen to the united voice of the American People.

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PAUL B. FARRELL


May 4, 2010, 12:01 a.m. EDT
6 reasons 'Goldman Conspiracy' must kill reforms
Derivatives-bonus culture needs neo-Reaganomics resurgence to survive

By Paul B. Farrell, MarketWatch
ARROYO GRANDE, Calif. (MarketWatch) -- Remember Nietzsche? "God is dead." Let's translate that 19th century Germanic philosophy into modern economics. In Adam Smith's 1776 capitalism, God was the Invisible Hand, a mysterious force running the economy from the shadows.

Flash forward to 2010: Capitalism is dead. The economy has a new Invisible Hand, the Goldman Conspiracy of Wall Street bankers.


Advisers face fallout over Goldman issues
Regulatory concerns surrounding the recent Goldman Sachs hearings leave financial advisers with some explaining to do. Steve Stahler, an independent adviser and President of The Stahler Group, explains how advisers can go about having these difficult conversations with clients.

This transfer of power happened suddenly. As recently as late 2008 the Invisible Hand was on life support, near death. Suddenly, miraculously the Treasury secretary, Goldman's former CEO, transferred the power into a new Invisible Hand of God, the free-market ideology of Reaganomics ... a power absolutely essential to the survival of Wall Street's mega-bonus culture.

Yes, that's why the Goldman Conspiracy must kill financial reforms ... why they will kill effective reform with the backroom support of Obama and Dodd. This was predicted back in late 2008, even before the bailouts, back when we thought Reaganomics dead. "Shock Doctrine" author Naomi Klein warned:

"Free market ideology has always been a servant to the interests of capital ... During boom times it's profitable to preach laissez faire, because an absentee government allows speculative bubbles ... When those bubbles burst, the ideology becomes a hindrance and goes dormant while big government rides to the rescue," then a neo-Reaganomics "ideology will come roaring back when the bailouts are done. The massive debts the public is accumulating to bail out the speculators will then become part of a global budget crisis," setting up a new bubble, bigger meltdown, and the Great Depression 2 the world narrowly avoided in 2008.

America's now at a historic turning point. If the Goldman Conspiracy succeeds in killing reform, another collapse is guaranteed, soon. Listen to Time magazine's Stephen Gandel:

"Of all the causes of the financial crisis, one of the biggest was a power shift on Wall Street that left the traders in charge and the bankers who had traditionally run everything from Broad Street to Maiden Lane sidelined. Years ago, the investment world and its professionals believed in long-term relationships. That meant nurturing the economy and the companies and people in it." Yes, that was the culture when I was with Morgan Stanley back in the '70s.

But "two decades of cheap money, though, helped turn the Street over to the traders. That led to a very different way of doing business." Gandel captures Wall Street's new culture in one powerful quote: "With a trader, the goal of every minute of every day is to make money ... So if running the economy off the cliff makes you money, you will do it, and you will do it every day of every week."

Wall Street's culture is without a conscience, reveling in $100 million profit days. Traders act like cocaine addicts. Their brains have warped Wall Street's ethics so badly they can't think of anything but bonuses. They've lost their moral compass.

The 6 reasons Obama/Dodd helping Wall Street kill financial reforms

In this context, the Goldman Conspiracy's goals are very simple as they manipulate Congress and the president to protect their warped culture:

No Fed audits, no transparency, no matter how much money the Fed prints for the banks

A toothless Consumer Protection Agency

Wall Street must continue controlling rating agencies

Unregulated proprietary trading of derivatives with loopholes for corporate derivatives

No new Glass-Steagall laws to prevent Wall Street from trading with customers' deposits

And taxpayers must remain liable for future bailouts over $50 billion up to unlimited sums even greater that the recent $23.7 trillion the Fed and Treasury handed out.

Bottom line: The Goldman Conspiracy must kill any real financial reform. Why? The Goldman Conspiracy cannot generate huge bonuses without their new Invisible Hand; the resurrection of unregulated neo-Reaganomics allowing traders to keep gambling in the lucrative $670 trillion global derivatives shadow banking casino.

There's a super-power ideology driving this new Invisible Hand, the neo-Reaganomics that the Conspiracy's lobby is pushing as a substitute for real reform. The principles of their neo-Reaganomics are simple, three ideologies evolved since Reagan's election.

Former Fed Chairman Alan Greenspan's guru Ayn Rand: "When I say capitalism, I mean a pure, uncontrolled, unregulated laissez-faire capitalism, with a separation of economics, in the same way and for the same reasons as a separation of state and church." This ideology guided the world's monetary policy 18 years.

Nobel economist Milton Friedman taught President Reagan "government is the problem." Democracy changed too slowly for him. Klein tells us Friedman believed that "only a great rupture, a flood, a war, a terrorist attack, can create the vast, clean canvasses they crave ... to begin remaking the nation" using the tools of "privatization, government deregulation and deep cuts in social spending."

The current resurgence of Reaganomics is all part of the Goldman Conspiracy's takeover of America. But what's most alarming in their efforts to kill reforms is the new form of government. What they want goes beyond a plutocracy of the rich. Goldman Conspiracy is creating an Orwellian world that resembles the 14 traits of totalitarianism outlined by Laurence Britt in Free Inquiry, an article that's become the single most downloaded article in that magazine.

We first reviewed the 14 traits prior to the 2008 election in "Wall Street's 'Disaster Capitalism for Dummies." Since then this trend has rapidly spread across America.

With this trend, the Conspiracy has crossed a dangerous line. Their lobbying efforts make clear they no longer have to pretend America is a democracy.

I do not like what Wall Street's doing to our freedoms. Years ago I was an investment banker with Morgan Stanley. I'm a patriot, a Marine veteran, volunteered for Korea. I see the Goldman Conspiracy not only killing Adam Smith's capitalism but also democracy and substituting itself as the new Invisible Hand of God running the economy ... and the government.

14 traits of the Conspiracy's emerging new American government

Britt's historical analysis of totalitarian governments revealed 14 shared traits that are now emerging in this resurgent neo-Reaganomics ideology. As you read these 14 traits that Britt wrote just five years ago in Free Inquiry magazine imagine their impact on your retirement and your children's future under the Goldman Conspiracy's rule, without real reforms. Imagine later, after the next meltdown that Wall Street will trigger:

The rich get first priority: laws, tax breaks, favorable regulations

Labor and low wages: stagnant for decades, while CEOs skyrocket

National security obsession: same paranoia shorts domestic programs

Superpower with huge military: war gets 54% of America's budget

Extreme nationalism: ego-driven need to feel superior when threaten

Demonize "enemies:" manipulates public, tightens central control

Corruption and cronyism: the rich get richer with unlimited authority

Obsession with crime: psychological projection of guilt onto "them"

Contempt for human rights: democratic protections hinder leaders

Fraudulent elections: Supreme Court approves political rule by rich

Mass media manipulation: new Orwellian world, ends justify means

Obsession with sexism: ideologies dictate constitutional freedoms

Disdain for intellectuals: Palin, Joe the Plumber replace Bill Buckley

Religion in government: anti-science ideologues guide public policy

Yes, officially America is still a democracy. We still have enough rituals to support the illusion. But the truth is, America has become a plutocracy run by and for the wealthy. Now the rich are running a new trickle-down political economy dispensing leftovers as they rule America through lobbyist mega-bucks siphoned from taxpayers and congressional puppets ... all the signs of the new totalitarianism government that most Americans are in denial of even as the Conspiracy flagrantly pushes this agenda.

It's crucial you see the logical outcome of Goldman Conspiracy's agenda as they keep spending upwards of $400 million on lobbyists to kill financial reforms. They want to destroy Adam Smith's original Invisible Hand of Capitalism. They are blindly obsessed with the new Invisible Hand of Reaganomics that grants economic immortality to Wall Street's too-greedy-to-fail banks, a position that even Ronald Reagan would reject.

Why? Because the Goldman Conspiracy is destroying not just America's economic position as the world's super-power but our moral leadership in the world.

The Goldman Conspiracy's destiny is to blow a new bigger bubble, trigger a new bigger meltdown, and finally drive America into the second Great Depression we dodged twice before.

These guys have no conscience, so be warned. If the financial reforms are as dead as already being widely reported, then the Goldman Conspiracy has won and you should prepare for a repeat of 1929 and the 1930s Depression in the near future.


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America's Ten Most Corrupt Capitalists
Thursday 13 May 2010
by: Zach Carter | AlterNet

The financial crisis has unveiled a new set of public villains—corrupt corporate capitalists who leveraged their connections in government for their own personal profit. During the Clinton and Bush administrations, many of these schemers were worshiped as geniuses, heroes or icons of American progress. But today we know these opportunists for what they are: Deregulatory hacks hellbent on making a profit at any cost. Without further ado, here are the 10 most corrupt capitalists in the U.S. economy.

1. Robert Rubin

Where to start with a man like Robert Rubin? A Goldman Sachs chairman who wormed his way into the Treasury Secretary post under President Bill Clinton, Rubin presided over one of the most radical deregulatory eras in the history of finance. Rubin's influence within the Democratic Party marked the final stage in the Democrats' transformation from the concerned citizens who fought Wall Street and won during the 1930s to a coalition of Republican-lite financial elites. Rubin's most stunning deregulatory accomplishment in office was also his greatest act of corruption. Rubin helped repeal Glass-Steagall, the Depression-era law that banned economically essential banks from gambling with taxpayer money in the securities markets. In 1998, Citibank inked a merger with the Travelers Insurance group. The deal was illegal under Glass-Steagall, but with Rubin's help, the law was repealed in 1999, and the Citi-Travelers merger approved, creating too-big-to-fail behemoth Citigroup.

That same year, Rubin left the government to work for Citi, where he made $120 million as the company piled up risk after crazy risk. In 2008, the company collapsed spectacularly, necessitating a $45 billion direct government bailout, and hundreds of billions more in other government guarantees. Rubin is now attempting to rebuild his disgraced public image by warning about the dangers of government spending and Social Security. Bob, if you're worried about the deficit, the problem isn't old people trying to get by, it's corrupt bankers running amok.

2. Alan Greenspan

The officially apolitical, independent Federal Reserve chairman backed all of Rubin's favorite deregulatory plans, and helped crush an effort by Brooksley Born to regulate derivatives in 1998, after the hedge fund Long-Term Capital Management went bust. By the time Greenspan left office in 2006, the derivatives market had ballooned into a multi-trillion dollar casino, and Greenspan wanted his cut. He took a job with bond kings PIMCO and then with the hedge fund Paulson & Co.—yeah, that Paulson and Co., the one that colluded with Goldman Sachs to sabotage the company's own clients with unregulated derivatives. Incidentally, this isn't the first time Greenspan has been a close associate of alleged fraudsters. Back in the 1980s, Greenspan went to bat for politically connected Savings & Loan titan Charles Keating, urging regulators to exempt his bank from a key rule. Keating later went to jail for fraud, after, among other things, putting out a hit on regulator William Black. ("Get Black – kill him dead.") Nice friends you've got, Alan.

3. Larry Summers

During the 1990s, Larry Summers was a top Treasury official tasked with overseeing the economic rehabilitation of Russia after the fall of the Soviet Union. This project, was, of course, a complete disaster that resulted in decades of horrific poverty. But that didn't stop top advisers to the program, notably Harvard economist Andrei Shleifer, from getting massively rich by investing his own money in Russian projects while advising both the Treasury and the Russian government. This is called "fraud," and a federal judge slapped both Shleifer and Harvard itself with hefty fines for their looting of the Russian economy. But somehow, after defrauding two governments while working for Summers, Shleifer managed to keep his job at Harvard, even after courts ruled against him.

That's because after the Clinton administration, Summers became president of Harvard, where he protected Shleifer. This wasn't the only crazy thing Summers did at Harvard—he also ran the school like a giant hedge fund, which went very well until markets crashed in 2008. By then, of course, Summers had left Harvard for a real hedge fund, D.E. Shaw, where he raked in $5.2 million working part-time. The next year, he joined the the Obama administration as the president's top economic adviser. Interestingly, the Wall Street reform bill currently circulating through Congress essentially leaves hedge funds untouched.

4. Phil and Wendy Gramm

Summers, Rubin and Greenspan weren't the only people who thought it was a good idea to let banks gamble in the derivatives casinos. In 2000, Republican Senator from Texas Phil Gramm pushed through the Commodity Futures Modernization Act, which not only banned federal regulation of these toxic poker chips, it also banned states from enforcing anti-gambling laws against derivatives trading. The bill was lobbied for heavily by energy/finance hybrid Enron, which would later implode under fraudulent derivatives trades. In 2000, when Phil Gramm pushed the bill through, his wife Wendy Gramm was serving on Enron's board of directors, where she made millions before the company went belly-up.

When Phil Gramm left the Senate, he took a job peddling political influence at Swiss banking giant UBS as vice chairman. Since Gramm's arrival, UBS has been embroiled in just about every scandal you can think of, from securities fraud to tax fraud to diamond smuggling. Interestingly, both UBS shareholders and their executives have gotten off rather lightly for these acts. The only person jailed thus far has been the tax fraud whistleblower. Looks like Phil's earning his keep.

5. Jamie Dimon

J.P. Morgan Chase CEO Jamie Dimon has done a lot of scummy things as head of one of the world's most powerful banks, but his most grotesque act of corruption actually took place at the Federal Reserve. At each of the Fed's 12 regional offices, the board of directors is staffed by officials from the region's top banks. So while it's certainly galling that the CEO of J.P. Morgan would be on the board of the New York Fed, one of J.P. Morgan's regulators, it's not all that uncommon.

But it is quite uncommon for a banker to be negotiating a bailout package for his bank with the New York Fed, while simultaneously serving on the New York Fed board. That's what happened in March 2008, when J.P. Morgan agreed to buy up Bear Stearns, on the condition that the Fed kick in $29 billion to cushion the company from any losses. Dimon-- CEO of J.P. Morgan and board member of the New York Fed-- was negotiating with Timothy Geithner, who was president of the New York Fed-- about how much money the New York Fed was going to give J.P. Morgan. On Wall Street, that's called being a savvy businessman. Everywhere else, it's called a conflict of interest.

6. Stephen Friedman

The New York Fed is just full of corruption. Consider the case of Stephen Friedman (expertly presented by Greg Kaufmann for the Nation). As the financial crisis exploded in the fall of 2008, Friedman was serving both as chairman of the New York Fed and on the board of directors at Goldman Sachs. The Fed stepped in to prevent AIG from collapsing in September 2008, and by November, the New York Fed had decided to pay all of AIG's counterparties 100 cents on the dollar for AIG's bets—even though these companies would have taken dramatic losses in bankruptcy. The public wouldn't learn which banks received this money until March 2009, but Friedman bought 52,600 shares of Goldman stock in December 2008 and January 2009, more than doubling his holdings.

As it turns out, Goldman was the top beneficiary of the AIG bailout, to the tune of $12.9 billion. Friedman made millions on the Goldman stock purchase, and is yet to disclose what he knew about where the AIG money was going, or when he knew it. Either way, it's pretty bad—if he knew Goldman benefited from the bailout, then he belongs in jail. If he didn't know, then what exactly was he doing as chairman of the New York Fed, or on Goldman's board?

7. Robert Steel

Like better-known corruptocrats Robert Rubin and Henry Paulson, Steel joined the Treasury after spending several years as a top executive with Goldman Sachs. Steel joined the Treasury in 2006 as Under Secretary for Domestic Finance, and proceeded to do, well, nothing much until financial markets went into free-fall in 2008. When Wachovia ousted CEO Ken Thompson, the company named Steel as its new CEO. Steel promptly bought one million Wachovia shares to demonstrate his commitment to the firm, but by September, Wachovia was in dire straits. The FDIC wanted to put the company through receivership—shutting it down and wiping out its shareholders. But Steel's buddies at Treasury and the Fed intervened, and instead of closing Wachovia, they arranged a merger with Wells Fargo at $7 a share—saving Steel himself $7 million. He now serves on Wells Fargo's board of directors.

8. Henry Paulson

His time at Goldman Sachs made Henry Paulson one of the richest men in the world. Under Paulson's leadership, Goldman transformed from a private company ruled by client relationships into a public company operating as a giant global casino. As Treasury Secretary during the height of the financial crisis, Paulson personally approved a direct $10 billion capital injection into his former firm. But even before that bailout, Paulson had been playing fast and loose with ethics rules. In June 2008, Paulson held a secret meeting in Moscow with Goldman's board of directors, where they discussed economic prognostications, market conditions and Treasury rescue plans. Not okay, Hank.

9. Warren Buffett

Warren Buffett used to be a reasonable guy, blasting the rich for waging "class warfare" against the rest of us and deriding derivatives as "financial weapons of mass destruction." These days, he's just another financier crony, lobbying Congress against Wall Street reform, and demanding a light touch on—get this—derivatives! Buffet even went so far as to buy the support of Sen. Ben Nelson, D-Nebraska, for a filibuster on reform. Buffett has also been an outspoken defender of Goldman Sachs against the recent SEC fraud allegations, allegations that stem from fancy products called "synthetic collateralized debt obligations"—the financial weapons of mass destruction Buffett once criticized.

See, it just so happens that both Buffet's reputation and his bottom line are tied to an investment he made in Goldman Sachs in 2008, when he put $10 billion of his money into the bank. Buffett has acknowledged that he only made the deal because he believed Goldman would be bailed out by the U.S. government. Which, in fact, turned out to be the case, multiple times. When the government rescued AIG, the $12.9 billion it funneled to Goldman was to cover derivatives bets Goldman had placed with the mega-insurer. Buffett was right about derivatives—they are WMD so far as the real economy is concerned. But they've enabled Warren Buffett to get even richer with taxpayer help, and now he's fighting to make sure we don't shut down his own casino.

10. Goldman Sachs

No company exemplifies the revolving door between Wall Street and Washington more than Goldman Sachs. The four people on this list are some of the worst offenders, but Goldman's D.C. army has includes many other top officials in this administration and the last.

White House:

Joshua Bolton, chief of staff for George W. Bush, was a Goldman man

Regulators:

Current New York Fed President William Dudley is a Goldman man

Current Commodity Futures Trading Commission Chairman Gary Gensler has been a responsible regulator under Obama, but he was a deregulatory hawk during the Clinton years, and worked at Goldman for nearly two decades before that.

A top aide to Timothy Geithner, Gene Sperling, is a Goldman man

Current Treasury Undersecretary Robert Hormats is a Goldman man

Current Treasury Chief of Staff Mark Patterson is a former Goldman lobbyist

Former SEC Chairman Arthur Levitt is now a Goldman adviser

Neel Kashkari, Henry Paulson's deputy on TARP, was a Goldman man

COO of the SEC Enforcement Division Adam Storch is a Goldman man

Congress:

Former Sen. John Corzine, D-N.J., was Goldman's CEO before Henry Paulson

Rep. Jim Himes, D-Conn., was a Goldman Vice President before he ran for Congress

Former House Minority Leader Dick Gephardt, D-Mo., now lobbies for Goldman

And the list goes on.

Zach Carter is an economics editor at AlterNet and a fellow at Campaign for America's Future. He writes a weekly blog on the economy for the Media Consortium and his work has appeared in the Nation, Mother Jones, the American Prospect and Salon.

[admin]

PAUL B. FARRELL
http://www.marketwatch.com/story/americ ... iteid=nbkh

June 1, 2010, 3:11 a.m. EDT
American investors: Predictably stupid losers
Commentary: Obama backs status quo, helping Wall Street skim hundreds of billions

By Paul B. Farrell, MarketWatch
ARROYO GRANDE, Calif. (MarketWatch) -- Yes, I am mad as hell again. Wall Street's soulless, immoral, greedy bankers really believe that the vast majority of America's 95 million investors are not only "predictably irrational" but "stupid," as J.P. Morgan Chase's chief investment officer put it in Forbes a while back.

Worse, Main Street investors are losers for continuing to trust Wall Street after they lost 20% of our retirement money the last decade. Now, worst of all, Wall Street's traders have profiled Main Street investors in their algorithms: Yes, investors are "predictably stupid losers," what Vegas croupiers call a mark, a dumb gambler that can be easily conned out of his money.


Detecting fraud's early warning signs
Investors and financial advisers always need to watch out for companies engaging in fraud and deceit. Howard Schilit, founder and CEO at Financial Shenanigans Detection Group, describes some of the early warnings signs of accounting tricks and gimmicks companies use to manipulate their financial statements. Steven Russolillo has the interview from the CFA Institute conference.

Why so blunt? Listen: Recently I explained why the Wall Street banks must kill financial reform, to preserve their multibillion dollar bonus pool. One reader commented: "I worked at the Bear Sterns ... every word written here is true. Fact is, bankers regard themselves as wolves and the public as prey, and speak about it openly, among themselves." Then he added a sucker punch: "What is extraordinary to me is how willingly the sheep submit to this."

Yes, folks, Wall Street is certain that America's 95 million investors are clueless sheep headed for the slaughterhouse.

But wait, that's not news. Twenty years ago former bond trader Michael Lewis' "Liar's Poker" described the insanity of our addiction to gambling in a few memorable lines: "Men on the trading floor may not have been to school but they have Ph.D.s in man's ignorance." They know that "in any market, as in any poker game, there is a fool. The astute investor Warren Buffett is fond of saying that any player unaware of the fool in the market probably is the fool in the market."

And as we now know, in the stock market the vast majority of America's 95 million investors are fools -- predictably stupid losers.

Lewis says traders instinctively know that "the larger the number of people" chasing a trend, "the easier it was for them to delude themselves that what they were doing must be smart. The first thing you learn on the trading floor is that when large numbers of people are after the same commodity, be it a stock, a bond, or a job, the commodity quickly becomes overvalued," making it easy for traders to generate hundred-million-dollar-profit days.

Too blunt? Sorry but that's exactly how Wall Street sees you

Are we too harsh, folks? Sorry for lumping you readers in with the rest of Main Street's 95 million predictably stupid losers. But what else could a rational person conclude?

So you ask: What triggered this rant? Simple: A new book, "The Upside of Irrationality: The Unexpected Benefits of Defining Logic at Work and at Home," by Dan Ariely, the brilliant Duke University behavioral economist who earlier wrote the one book whose title alone tells you all you'll ever need to know about behavioral economics. Answer: You are "Predictably Irrational." Period.

I feel sorry for all books on behavioral economics. Why? Because most are written by brilliant academicians and top journalists, not callous, greedy Wall Street traders who'd never divulge their secrets. But that's no excuse: These books are all filled with misleading pop-psychology nonsense based on a simple premise: That if you just buy these books and apply their advice, you can change the way you think, become less irrational and be a better investor, even beat Wall Street. Wrong.

Never read another behavioral economics book ... ever

Here's a partial list of popular behavioral economics books you should never waste time reading. They're also based on that same misleading assumption that you can make your brain less irrational and win at Wall Street's casino. Never happen in a million years. Never.

Wall Street's already programmed your psychological profile into their trading algorithms. They're light-years ahead of you, misleading you into their slaughterhouses and casinos. Here's the list of the popular books no investor should ever read:

"Animal Spirits: How Human Psychology Drives the Markets and Why It Matters for Global Capitalism"

"Beyond Greed and Fear: Understanding Behavioral Finance & the Psychology of Investing"

"Blind Spots: Why Smart People Do Dumb Things"

"Blunder: Why Smart People Make Bad Decisions"

"Drunkard's Walk: How Randomness Rules Our Lives"

"Logic of Life: Rational Economics in an Irrational World"

"Mind Over Money: Matching Your Personality to a Winning Financial Strategy"

"Myth of the Rational Market: A History of Risk Reward & Delusion on Wall Street"

"Nudge: Improving Decisions About Health, Wealth & Happiness"

"Sway: The Irresistible Pull of Irrational Behavior"

"Train Your Mind, Change Your Brain: How a New Science Reveals Our Extraordinary Potential to Transform Ourselves"

"Your Money & Your Brain: How the New Science of Neuroeconomics can Help Make You Rich"

"Why Smart People Make Big Money Mistakes, And How to Correct Them: Lessons From the New Science of Behavioral Economics"

Why such a strong warning? Remember, all these books were built on the original research of Daniel Kahneman who won the 2002 Nobel Economics Prize for his work in behavioral economics. Moreover, all of them were published before Wall Street's meltdown a couple years ago. And still Main Street investors lost trillions of retirement money.

Get it? Reading books on behavioral economics not only didn't help, it probably gave you a false sense of security that made you even more vulnerable to Wall Street's deceptive con game ... and given their current $400 million lobbying efforts to kill reforms, you can bet another meltdown is destined to happen again, soon.

Admit it, investors are sheep, fools, predictably stupid losers

So what's the only thing you need to know about behavioral economics? Begin with the fact that you are predictably irrational. Your brain is not only irrational, your behavior is easily predicted. You can be manipulated without ever knowing it. Wall Street knows your brain is your worst enemy, that 88% of your behavior is driven by the subconscious, biases you cannot change. The fact is, Wall Street does not want intelligent investors who think.

So read all you want, see all the shrinks you want, trade all you want, nothing will save you. Wall Street already has your profile in their trading algorithms. They'll always be light-years ahead of you.

And finally, in spite of all their claims of professionalism, neuroeconomists, perhaps more than other economists, are political animals. As Bloomberg BusinessWeek put it, "the rap on economists, only somewhat exaggerated, is that they are overconfident, unrealistic and political. They claim a precision that neither their raw material nor their skill warrants. Too many assume that people behave like the mythical homo economicus, who is hyperrational and omniscient."

The fact is, neuroeconomists are political mercenaries-for-hire who can "prove" any scenario, neoKeynesian or Reaganomics.

Worse, our political leaders are becoming predictably stupid losers

Political animals? You bet. Reminds me of Alan Greenspan's congressional testimony admitting that the Reaganomics free market trickle-down economics failed America: Greenspan admitted he made a "mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and equity."

There was "a flaw in the model ... that defines how the world works," said Greenspan. "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief," he told Congress. Unregulated markets "held sway for decades" ... then "the whole intellectual edifice, however, collapsed."

And it'll get worse, thanks to Bernanke, Obama and Goldman's lobbyists. Greenspan's deeply flawed Reaganomics remains anchored deep in America's brain and DNA. So every promise made in every behavioral-economics book ever written about the principles originally defined by Kahneman will continue to mislead America's 95 million Main Street investors ... and fail.

Why? Because the insatiable greed driving the Goldman Conspiracy of Wall Street banks is so addictive, so powerful, so overwhelming, so much in control of the political process that nothing, absolutely nothing, can change the next inevitable mega-crash dead ahead.
http://www.marketwatch.com/story/americ ... iteid=nbkh

[admin]

farrell_paul.jpg (9.72 KiB) Viewed 311 times

PAUL B. FARRELL
http://www.marketwatch.com/story/americ ... iteid=nbkh

June 1, 2010, 3:11 a.m. EDT
American investors: Predictably stupid losers
Commentary: Obama backs status quo, helping Wall Street skim hundreds of billions

By Paul B. Farrell, MarketWatch
ARROYO GRANDE, Calif. (MarketWatch) -- Yes, I am mad as hell again. Wall Street's soulless, immoral, greedy bankers really believe that the vast majority of America's 95 million investors are not only "predictably irrational" but "stupid," as J.P. Morgan Chase's chief investment officer put it in Forbes a while back.

Worse, Main Street investors are losers for continuing to trust Wall Street after they lost 20% of our retirement money the last decade. Now, worst of all, Wall Street's traders have profiled Main Street investors in their algorithms: Yes, investors are "predictably stupid losers," what Vegas croupiers call a mark, a dumb gambler that can be easily conned out of his money.


Detecting fraud's early warning signs
Investors and financial advisers always need to watch out for companies engaging in fraud and deceit. Howard Schilit, founder and CEO at Financial Shenanigans Detection Group, describes some of the early warnings signs of accounting tricks and gimmicks companies use to manipulate their financial statements. Steven Russolillo has the interview from the CFA Institute conference.

Why so blunt? Listen: Recently I explained why the Wall Street banks must kill financial reform, to preserve their multibillion dollar bonus pool. One reader commented: "I worked at the Bear Sterns ... every word written here is true. Fact is, bankers regard themselves as wolves and the public as prey, and speak about it openly, among themselves." Then he added a sucker punch: "What is extraordinary to me is how willingly the sheep submit to this."

Yes, folks, Wall Street is certain that America's 95 million investors are clueless sheep headed for the slaughterhouse.

But wait, that's not news. Twenty years ago former bond trader Michael Lewis' "Liar's Poker" described the insanity of our addiction to gambling in a few memorable lines: "Men on the trading floor may not have been to school but they have Ph.D.s in man's ignorance." They know that "in any market, as in any poker game, there is a fool. The astute investor Warren Buffett is fond of saying that any player unaware of the fool in the market probably is the fool in the market."

And as we now know, in the stock market the vast majority of America's 95 million investors are fools -- predictably stupid losers.

Lewis says traders instinctively know that "the larger the number of people" chasing a trend, "the easier it was for them to delude themselves that what they were doing must be smart. The first thing you learn on the trading floor is that when large numbers of people are after the same commodity, be it a stock, a bond, or a job, the commodity quickly becomes overvalued," making it easy for traders to generate hundred-million-dollar-profit days.

Too blunt? Sorry but that's exactly how Wall Street sees you

Are we too harsh, folks? Sorry for lumping you readers in with the rest of Main Street's 95 million predictably stupid losers. But what else could a rational person conclude?

So you ask: What triggered this rant? Simple: A new book, "The Upside of Irrationality: The Unexpected Benefits of Defining Logic at Work and at Home," by Dan Ariely, the brilliant Duke University behavioral economist who earlier wrote the one book whose title alone tells you all you'll ever need to know about behavioral economics. Answer: You are "Predictably Irrational." Period.

I feel sorry for all books on behavioral economics. Why? Because most are written by brilliant academicians and top journalists, not callous, greedy Wall Street traders who'd never divulge their secrets. But that's no excuse: These books are all filled with misleading pop-psychology nonsense based on a simple premise: That if you just buy these books and apply their advice, you can change the way you think, become less irrational and be a better investor, even beat Wall Street. Wrong.

Never read another behavioral economics book ... ever

Here's a partial list of popular behavioral economics books you should never waste time reading. They're also based on that same misleading assumption that you can make your brain less irrational and win at Wall Street's casino. Never happen in a million years. Never.

Wall Street's already programmed your psychological profile into their trading algorithms. They're light-years ahead of you, misleading you into their slaughterhouses and casinos. Here's the list of the popular books no investor should ever read:

"Animal Spirits: How Human Psychology Drives the Markets and Why It Matters for Global Capitalism"

"Beyond Greed and Fear: Understanding Behavioral Finance & the Psychology of Investing"

"Blind Spots: Why Smart People Do Dumb Things"

"Blunder: Why Smart People Make Bad Decisions"

"Drunkard's Walk: How Randomness Rules Our Lives"

"Logic of Life: Rational Economics in an Irrational World"

"Mind Over Money: Matching Your Personality to a Winning Financial Strategy"

"Myth of the Rational Market: A History of Risk Reward & Delusion on Wall Street"

"Nudge: Improving Decisions About Health, Wealth & Happiness"

"Sway: The Irresistible Pull of Irrational Behavior"

"Train Your Mind, Change Your Brain: How a New Science Reveals Our Extraordinary Potential to Transform Ourselves"

"Your Money & Your Brain: How the New Science of Neuroeconomics can Help Make You Rich"

"Why Smart People Make Big Money Mistakes, And How to Correct Them: Lessons From the New Science of Behavioral Economics"

Why such a strong warning? Remember, all these books were built on the original research of Daniel Kahneman who won the 2002 Nobel Economics Prize for his work in behavioral economics. Moreover, all of them were published before Wall Street's meltdown a couple years ago. And still Main Street investors lost trillions of retirement money.

Get it? Reading books on behavioral economics not only didn't help, it probably gave you a false sense of security that made you even more vulnerable to Wall Street's deceptive con game ... and given their current $400 million lobbying efforts to kill reforms, you can bet another meltdown is destined to happen again, soon.

Admit it, investors are sheep, fools, predictably stupid losers

So what's the only thing you need to know about behavioral economics? Begin with the fact that you are predictably irrational. Your brain is not only irrational, your behavior is easily predicted. You can be manipulated without ever knowing it. Wall Street knows your brain is your worst enemy, that 88% of your behavior is driven by the subconscious, biases you cannot change. The fact is, Wall Street does not want intelligent investors who think.

So read all you want, see all the shrinks you want, trade all you want, nothing will save you. Wall Street already has your profile in their trading algorithms. They'll always be light-years ahead of you.

And finally, in spite of all their claims of professionalism, neuroeconomists, perhaps more than other economists, are political animals. As Bloomberg BusinessWeek put it, "the rap on economists, only somewhat exaggerated, is that they are overconfident, unrealistic and political. They claim a precision that neither their raw material nor their skill warrants. Too many assume that people behave like the mythical homo economicus, who is hyperrational and omniscient."

The fact is, neuroeconomists are political mercenaries-for-hire who can "prove" any scenario, neoKeynesian or Reaganomics.

Worse, our political leaders are becoming predictably stupid losers

Political animals? You bet. Reminds me of Alan Greenspan's congressional testimony admitting that the Reaganomics free market trickle-down economics failed America: Greenspan admitted he made a "mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and equity."

There was "a flaw in the model ... that defines how the world works," said Greenspan. "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief," he told Congress. Unregulated markets "held sway for decades" ... then "the whole intellectual edifice, however, collapsed."

And it'll get worse, thanks to Bernanke, Obama and Goldman's lobbyists. Greenspan's deeply flawed Reaganomics remains anchored deep in America's brain and DNA. So every promise made in every behavioral-economics book ever written about the principles originally defined by Kahneman will continue to mislead America's 95 million Main Street investors ... and fail.

Why? Because the insatiable greed driving the Goldman Conspiracy of Wall Street banks is so addictive, so powerful, so overwhelming, so much in control of the political process that nothing, absolutely nothing, can change the next inevitable mega-crash dead ahead.
http://www.marketwatch.com/story/americ ... iteid=nbkh

[admin]

farrell_paul.jpg (9.72 KiB) Viewed 263 times

(advocate comment......Fascinating article by Paul. What I get out of what he is pointing out to us, is that the investment and banking industry may have captured the high moral ground by spending billions of dollars on advertising. The public at large cannot know what to believe since the ads convince them things are properly run, and yet the industry gets to pick the pockets of the country while all this goes on, and most of us are not able to recognize this. Ignorance is indeed bliss...............)

PAUL B. FARRELL
June 22, 2010, 12:01 a.m. EDT · Recommend (7) · Post:
Wall Street's Invisible Gorilla is killing America's soul
Commentary: Why millions of Main Street investors cannot see they're destroying capitalism

Doomsday Capitalism virus is spreading

The investor's brain is a very bad computer

Years ago America's leading behavioral economist, Richard Thaler warned: "Think of the human brain as a personal computer with a very slow processor and a memory system that is small and unreliable ... the PC I carry between my ears has more disk failures than I care to think about." And it ages badly.

Factor the Lake Wobegon Effect and the Invisible Gorilla into your computer. What do they tell you about the impact of billions of irrational decisions made by all gamblers betting at Wall Street's 24/7 global casino?

Here are four irrational clues: Remember, between 2000 and 2010 Wall Street lost 20% of your retirement playing the stock market ... Still Wall Street pocketed hundreds of billions for themselves ... Still those fat cats off-loaded trillions of debt on taxpayers when in de facto bankruptcy in 2008 ... and yet our brains let them get away with it.

The conclusion is obvious: The average investor's brain is so irrational it is totally inadequate as a tool in evaluating market trends, cycles and patterns, in picking stocks, and in judging the value of so-called expert advice we get from self-interested bankers, advisers and cable pundits ... and yet, paradoxically, like alcoholics, coke addicts and gamblers, we cannot stop. Crazy but true. Listen as Dr. Bloom continues:

"Halfway through the video, a woman wearing a full-body gorilla suit walks slowly to the middle of the screen, pounds her chest, and then walks out of the frame. If you are just watching the video, it's the most obvious thing in the world. But when asked to count the passes, about half the people miss it." (Translation: Same happens when you're counting passes in the stock market; you miss not only the obvious but the secret stuff Wall Street's Invisible Gorillas are purposely hiding)

Only half? No, my friends, it's far worse. In Bloom's own studies "63% of Americans consider themselves more intelligent than the average American, a statistical impossibility. In a different survey, 70% of Canadians said they considered themselves smarter than the average Canadian." But when it comes to financial markets, its closer to 100%, for both little "gamblers" and the big "casino owners."

Wall Street's Invisible Gorillas really are stealing America blind

Want more proof? Remember the studies by University of California behavioral finance professors Terrance Odean and Brad Barber: They researched the trading behavior of 65,000 American investors. Also all investors trading on the Taiwan Stock Exchange. Their conclusion: "The more you trade the less you earn." 77% of Americans were losers. 82% of Chinese investors were losers. And still: Their brains are so irrational, so addicted, they can't stop, just keep going back.

Yes, investors are stuck with addictive Loser Brains. Even confronted with the facts investors continue in denial, victims of the Lake Wobegon Effect, refusing to learn the lessons of the Invisible Gorilla. Bloom concludes:

"When you direct your mental spotlight to the basketball passes, it leaves the rest of the world in darkness ... Even when you are looking straight at the gorilla (and other experiments find that people who miss it often have their eyes fully on it) you frequently don't see it, because it's not what you're looking for."

Get it? Your brain is wired to make bad decisions. Wired to make them over and over. Wired to miss crucial data. And this has a cumulative and collective effect that drives markets to the edge of a precipice with such powerful momentum that we're blinded by euphoria, never see the Invisible Gorilla, the Black Swan, the WMD ... never see the risks until it's too late, a catastrophe happens and the invisible becomes painfully visible, tragically blowing up in our faces

Sound familiar? It did happen in 2008 forcing former Fed Chairman Alan Greenspan to admit to a congressional committee: "I found a flaw ... I made a mistake." Actually Mr. Greenspan you were a miserable maestro. For 18 years the mistakes your irrational brain made blinded you to an invisible Reaganomics Gorilla that's still destroying America.

Treasury Secretary Henry Paulson was even worse, later reluctantly admitted he should "have seen the subprime crisis coming earlier." But it turns out he's a liar and con man. Yes, later Bloomberg News reported Paulson not only saw the Invisible Gorilla, he warned Bush's staff at Camp David in 2006, two years before the meltdown. But then the Lake Wobegon Effect kicked in, our leaders all ignored the warnings until the 2008 crash.

Wall Street has no soul, is drowning America in Lake Wobegon

The irrational brains of our leaders are so self-destructive they let bubbles blow and blow ... they will always fail to act early enough ... they are trapped in their greedy brains in denial ... trapped in their narrow ideologies ... trapped, making endless stupid decisions ... ignoring the obvious ... they will let risks become increasing more deadly till minor pops becomes colossal WMD-category meltdowns, crashes, collapses of epic catastrophic proportions, worse than the estimated $23.7 trillion aftermath of the 2008 meltdown ... and another is dead ahead.

Yes, tragically many more are coming because Wall Street is morally dead, it has no conscience, no soul, no ethics, no moral values other than getting as rich as possible, as fast as possible. Tragically, Wall Street is now the Invisible Hand of Capitalism 4.0. Tragically, Wall Street's believes the best economy is an unregulated free-market system where the collective greed of the biggest players best serves the public good.

Yes, tragically for future generations of Americans the guidance system of capitalism's Invisible Hand has been replaced by the guiding hand of Wall Street: With no public conscience, no soul, no ethics, no moral values, nothing other than the addict's obsession to get as rich as possible, fast as possible.

And tragically, Main Street America is trapped with them in the Lake Wobegon Effect. Tragically, the Invisible Gorilla will strike again, soon, and again, and again exploding into visibility ... until our rude awakening.

[admin]

How Wall Street Wrecked Your Retirement


By Nicholas von Hoffman <http://www.alternet.org/authors/9694/> ,

The Nation <http://www.thenation.com/> .

July 25, 2008 <http://www.alternet.org/ts/archives/?date[F]=07&amp;date[Y]=2008&amp;date[d]=25&amp;act=Go/> .

People are discovering they have been forced into a system in which others have gambled with their retirement savings and lost it.

Our dysfunctional financial system hit a new low last week when Citigroup, the hopeless wreck of Wall Street, announced it had lost $2.5 billion <http://online.wsj.com/article/SB121636319957764985.html?mod=%20todays_us_page_one> in the past three months – a cheer went up, and so did the Dow. Only $2.5 billion; <http://www.fool.com/investing/general/2008/07/21/strike-three-for- citigroup.aspx> people were afraid the losses would be much higher. Happy days are here again.


There are no happy days for the millions of Americans who have been trying to put away some money for their retirement in tax-sheltered entities like IRAs, Roth Accounts and 401(k)s. For them, the market's downward slope has been harrowing and frightening. When will the steady erosion of their savings end? And when it does, what will be left of their future financial security?


Many of the millions suffering through these worrisome months didn't buy a house they could not afford, didn't speculate on their homes, didn't let greedy impulses lead them to the edge of foreclosure or bankruptcy. Nevertheless, the excesses of their neighbors and the criminal folly of American finance is destroying their plans for retirement. It is dragging down much of the value of their homes, on which they have never missed a payment, homes on which they were counting on selling at retirement to help finance their last years in comfort.


For years, the privatization propagandists have been telling people that when the time comes, Social Security will not be there for them. Now many are learning that it's their private savings that may not be there. They are discovering they have been forced into a system in which other people have, in effect, been allowed to gamble with their retirement savings and have lost it.


The way the private, you're-on-your-own retirement system was supposed to work had individuals, during their younger, working years, investing in stock through tax-sheltered accounts. Almost nobody who is not breaking the law can choose among individual stocks and make money, so future retirees have been encouraged to buy mutual funds run by professional managers, who are supposed to be able to pick the winners.


Most of them aren't much better at doing that than are their customers, but in a rising market, a chicken pecking at stock tables can pick winners. In boom times, it doesn't matter that the future retiree must choose among thousands of mutual funds, many of which carry ruinously high fees. The damage to people's savings goes unnoticed until the market begins to go down.


Even as the market falls, future retirees are told not to panic, to keep their money where it is, because in the long run the value of their accounts will go up and they will have many a happy sunset year traveling the globe and showering their grandchildren with presents.


As the retirement date comes near, they are advised to begin selling stocks and buying fixed-income securities – as bonds are sometimes called – because these pay the interest they earn on a fixed schedule, providing a regular income.


For this to work, stock prices must be high when the holdings are sold and the bonds purchased must pay high rates of interest. But what happens when the stock market is in a nosedive and interest rates are half of the inflation rate, as is the case right now? Panic and worry, no golden years of travel, no presents for the grandchildren. The energy that was to be expended on leisure activities is now spent instead trying to figure out how to make ends meet.


The bright spot is Social Security. That check does come with the regularity of the calendar, whether the market is up or down, whether interest rates be high or low and if, as is the case now, the Greenspan-Bush inflation is destroying family budgets. Social Security adjusts for the rising prices.


But Social Security is too narrow a ledge to stand on through the years between retirement and death. It was designed as the base on which other retirement savings were to be built.


Those savings – the house and the tax-sheltered retirement accounts – are shriveling up and blowing away. The persons for whom Americans' savings have been a reliable source of income are the brokers, the lawyers, the account administrators, the whole tribe of Wall Street fee farmers. They get other people's retirement money regardless of the direction the market may be moving in.


You can't call it a broken system because it was a bad one from the start. It is failing, just as its critics said it would. And what lies ahead for those whose retirement savings are gone may be a very unpleasant old age.

[admin]

PAUL B. FARRELL

July 6, 2010, 12:01 a.m. EDT
Obama's 'Presidency in Peril' or 'Failed President?'
12 deadly signs Wall Street's 'Conspiracy of Weasels' killed Obama's reforms

By Paul B. Farrell, MarketWatch
ARROYO GRANDE, Calif. (MarketWatch) -- Financial reform is D.O.A. Window dressing. What's next? An implosion? Yes, a depression. Dead ahead.

Scott Adams warned of this trend in "Dilbert & the Way of the Weasel." Forget competition. No, capitalism breeds monopolies, it's a "financial system designed to transfer money from lesser weasels to greater weasels. Someday, if everything goes according to plan, one supreme weasel will have all the money and everyone else will be his or her domestic servant."


Jobs data point to more uncertainty
Phil Izzo & Paul Vigna analyze today's jobs report and what it says about the state of the economic recovery. Plus, Naftali Bendavid on why today's unemployment numbers are a problem for Democrats.

Until then, 99% of America's wealth remains concentrated in Wall Street's "Conspiracy of Weasels." They know only one thing, blindly "follow the money. If you took the same amount of money" traded daily on the NYSE, "sealed it in drums and dropped it in the ocean, 4 billion weasels would drown just trying to be near it."

When Obama signs the so-called reform bill, blow a goodbye kiss to our last great hope for true reform: Obama failed. True reform will never happen. Wall Street gains more power fighting every new reform bill, making massive investments in lobbyists. Witness their rapid return to power since near-bankruptcy in 2008.

No, the Weasel Conspiracy members didn't drown, they rule America. They killed democracy, destroyed capitalism and are consolidating vast new wealth and power in the hands of this conspiracy of Wall Street, Corporate CEOs, the Forbes 400 and Washington's pay-to-play power-players. Result: Less than one million co-conspirators control a nation of 310 million citizens.

Here are 12 more warnings exposing the Weasel Conspiracy's phony financial reforms:

1. Robert Kuttner: Obama, 'Presidency in Peril?' Or a 'Failed President?'

Kuttner's opening paragraph in his new book, "Presidency in Peril" is brutal: "In the spring of his second year, Barack Obama is at risk of being a failed president ... a great stagnation ... prolonged suffering for ordinary people ... the lost promise of an era of reform." Obama's failure would leave 2008-2012 as merely a brief interregnum in a long Republican era, with the far right more dominate and more extreme with each election cycle."

Yes, we "averted a second Great Depression," but to benefit few: "Wall Street has recovered and its executives are once again collecting tens of billions in bonuses, but Main Street is not sharing in the prosperity." Why? Obama continued "Bush's failed policies ... a president elected as a change agent opted for so much continuity" that he merely institutionalized "the enduring and bipartisan influence of the financial industry."

2. Morici: If the economy 'goes down ... it's for good ... cannot soon recover'

Economist Peter Morici warns: "Outlook darkens for Obama" with "a terrible performance" the year after "a deep recession ... The economy must add 13 million private-sector jobs by the end of 2013 to bring unemployment down to 6%, and Obama's policies are not creating conditions for businesses to hire."

Then, in "Double Dip or Off the Cliff" Morici sounds a dark alarm: "Without a radical change in policy, the nation is at risk of a terrible calamity ... If the economy goes down a second time ... deficits can't be much increased ... the Fed can't further cut interest rates." So the economy "likely goes down for good. Unemployment would rise into the teens, and the economy would sink into a depression -- a deep and painful slump from which it cannot soon recover."

3. Paul Krugman: 'The Third Depression?' or the 'Great Depression II?'

"We are now ... in the early stages of a third depression" and "the cost -- to the world economy and, above all, to the millions of lives blighted by the absence of jobs -- will nonetheless be immense ... primarily a failure of policy ... governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending. ... And who will pay the price for this triumph of orthodoxy? The answer is tens of millions of unemployed workers, many of whom will go jobless for years and some of whom will never work again."

4. The Economist: Coming revolution will force a new age of austerity

"Borrowing has been the answer to all economic troubles in the past 25 years. Now debt itself has become the problem," says Philip Coggan in the Economist. "A society built on consumption will have to pay more attention to saving. The idea that using borrowed money to buy assets" is over, "the debt-financed model has reached its limit. Most of the options for dealing with the debt overhang are unpalatable. ... The battle between borrowers and creditors may be the defining struggle of the next generation."

Struggle? An underestimation: It will accelerate rapidly into a revolution after November.

5. Dylan Ratigan: Reform? No, Obamanomics is same failed Reaganomics

"The same Washington spinsters who have driven our country into the ground" are now claiming a "policy victory" the "the most sweeping change of our financial regulatory since the Great Depression." Wrong ... "The real sweeping change of our financial system took place over the past 20 years." The "repeal of Glass-Steagall in 1999. The Commodities and Futures Modernization Act of 2000 ... legalized the most destructive financial instruments of all, derivatives," writes MSNBC's Ratigan in HuffPost. "What does it mean ... that the same people who brought you these horrible changes" have now "institutionalized the policies that will keep the causes of these problems firmly in place."

6. Time: 'The Best Laws Money Can Buy. For Sale: Your Government'

Lobbyists got $3.5 billion last year. "That's the biggest bargain in town," says Steven Brill in Time. Example: "Since 2009, the Private Equity Council has paid Capitol Tax ... $30,000-a-month retainer to keep its members' taxes low." With other groups lobbying on the same issue, the overall spending ... was maybe $15 million. ... What did the money managers get for their $15 million investment?

While lawmakers did manage to boost the taxes of hedge-fund managers ... they agreed to a compromise ... A tax bite about $10 billion smaller than what the reformers wanted." That $15 million bet on lobbyists returned $10 billion, a 700:1 return. Yes, reform's dead, new meltdown ahead.

7. New York Times: Weak president, Congress surrender reg-making to lobbyists

The president is doing the same thing with the SEC and Wall Street that Cheney did with the Minerals Management Service Agency and the oil giants, letting industry write its own regulations. The Times warns: "Lobbying Shifts to Regulations ... Well before Congress reached agreement on the details of its financial overhaul legislation, industry lobbyists and consumer advocates started preparing for the next battle: influencing the creation of several hundred new rules and regulations."

By letting agencies "decide many details," a weak president and weaker Congress are surrendering to Wall Street lobbyists. No wonder analyst Robert Prechter "foresees a slide worse that the Great Depression."

8. U. S. News: Lobbyists kill 'fiduciary duty,' Congress buries it in 'studies'

Another example: Congress "resolved an impasse over whether broker-dealers who give personalized advice to retail investors should be required to act in the best interests of those clients. The compromise calls for the SEC to conduct a six-month study on the subject. The commission will then have the authority to decide whether to impose a new standard."

So Wall Street wins again forcing a weak president "compromise." Up to a week ago the House bill directed the SEC to impose a universal fiduciary duty. Jack Bogle's been after one for 50 years. But Wall Street hates the idea of having any ethical duties to Main Street. Lacking a moral conscience, they will quietly kill it later.

9. Bloomberg News: Congressional 'weasels' gut the Volcker Rule

Worse: In the New York Review of Books a month ago Volcker saw little hope, warning "the time we have is growing short." Then, at the last minute came the final insult, reported Bloomberg: Congress gave "banks until 2022 to fully implement the so-called Volcker rule as an accommodation for Wall Street ... The Glass-Steagall Act of 1933 forced commercial banks such as what is now J.P. Morgan Chase & Co. to shed their investment-banking units in less than two years."

Accommodation? Seems like all Obama, Dodd and Frank have been doing is "accommodating" Wall Street. Sadly, by 2022 the next wave of Reaganomics power-players will have totally erased Obama's reforms from history.

10. Simon Johnson: 'Financial reform is irrelevant' to Goldman Sachs

More proof? Goldman now believes domestic reforms are irrelevant, while it increases global betting, says Simon Johnson, former IMF chief economist and co-author of "13 Bankers." Johnson quotes Sam Finkelstein, Goldman's head of emerging markets: "Debt-to-GDP ratios in the developed world are about double those in emerging markets and they're growing. This makes emerging markets interesting."

Since Goldman's already screwed up America, they're now are hell-bent on screwing up the rest of the world.

11. Time, Stephen Gandel: Traders now dominate 'The Weasel Conspiracy'

The Fed's "two decades of cheap money" turned "the Street over to the traders. That led to a very different way of doing business" which former UBS trader Philipp Meyer says is very simple: "With a trader, the goal of every minute of every day is to make money. If running the economy off the cliff makes you money, you will do it, and you will do it every day of every week." Morality, ethics and the public interest are irrelevant in the Weasel Conspiracy's business model. All that matters is making money, making it fast.

12. Fortune: 'No Perp Walks? No Jail Time?' Why? Banksters own America!

Back in 2002 former SEC Chairman Arthur Levitt told Fortune: "America's investors have been ripped off as massively as a bank being held up by a guy with a gun and a mask." Sadly, Levitt now consults for Goldman.

Recently Becky Quick, anchor of CNBC's Squawk Box wrote a Fortune column: "No Perp Walks. No Jail Time. Why Prosecutors Are Going Easy on Wall Street." Answer: Because Wall Street's banksters no longer need guns and masks. Their highly effective mercenary lobbyists now own Obama's "Presidency in Peril." So they're all protected by get-out-of-jail-free cards.

Quick's summary predicts the future: "Populist anger on Main Street is boiling over, and no wonder. As long as prosecutors continue to look at such white-collar crime as too difficult or too unrewarding to tackle, you can expect the mercury to just keep rising."

And with it "moral hazard" will skyrocket as traders take ever bigger risks to justify their mega-million bonuses, convinced they're immune from prosecution and convinced that in the future taxpayers will again bailout Wall Street's too-political-to-fail banksters.

Warning: Soon the Weasel Conspiracy's out-of-control greed will trigger a historic backlash ... the coming second American Revolution ... an explosive economic class-driven civil war ... paving the way for the second Great Depression ... dead ahead.

[admin]

Goldman Sachs to pay
out more than $550M
to settle securities
fraud suit

BY Bill Hutchinson
NEW YORK DAILY NEWS STAFF WRITER

Thursday, July 15th 2010, 5:19 PM

The Wall Street giant was accused of
duping people into investing in subprime mortgages
that were designed to fail.

Wall Street titan Goldman Sachs agreed Thursday to
fork over $550 million to settle a civil suit that
charged it duped people into investing in subprime
mortgages designed to fail.

"This settlement is a stark lesson to Wall Street firms
that no product is too complex, and no investor too
sophisticated, to avoid a heavy price if a firm
violates the fundamental principles of honest
treatment and fair dealing," said Robert Khuzami,
enforcement director for the Securities Exchange
Commission.

Goldman Sachs has agreed to pay the SEC $300
million in fines and $200 million in restitution to
investors taken by the fraud, according to people
familiar with the deal.

The company, however, does not have to admit
wrongdoing.

The fine is the largest against a financial company
in SEC history, but is only 1/20th of the $10 billion
in bonuses the firm handed out last year.

The company earned $13.4 billion in 2009 and
$3.3 billion in the first quarter of this year.

Goldman Sachs was accused of misleading investors
by failing to tell them the mortgage securities had
been chosen by a Goldman hedge fund client,
Paulson & Co., that was betting the investments
would fail

The civil suit, charging Goldman with securities
fraud, was filed by the SEC on April 16.

It remained unclear if a separate criminal
investigation of Goldman by federal prosecutors will
be called off.

Goldman and other Wall Street giants have come
under heavy scrutiny for the financial shenanigans t
hat helped fuel the nation's economic meltdown.

Executives at Goldman were hauled before a Senate
committee for an embarrassing public grilling about
whether they bilked investors and pocketed huge
bonuses with financial instruments that were
designed to fail.

(advocate comments.......about five cents in fines for every dollar paid out in bonuses last year at Goldman. Probably closer to a thousandth of a cent for every dollar earned in a criminal nature. Who said crime does not pay?)

[admin]

images.jpeg (2.57 KiB) Viewed 55 times

Wallace Immen
From Wednesday's Globe and Mail
Published on Tuesday, Aug. 17, 2010 4:17PM EDT
Last updated on Tuesday, Aug. 17, 2010 4:18PM EDT
If you ever hear your boss use the phrase “what an incredible year the company has had,” when reporting the latest results, it might be time to dust off your résumé, a new study suggests.

Using inflated language and third-person phrases such as “the team” and “the company” rather than “I” and “we” can be verbal tip-offs that an executive is lying or covering up a bad situation, according to a new study by David Larcker, director of the corporate governance research program at Stanford University’s Graduate School of Business, and doctoral student Anastasia Zakolyukina.

Fibbing execs are more likely to talk in generalities rather than specifics, according to an analysis of 30,000 transcripts of executive conference calls about earnings from 2003 to 2007. Over all, 14 per cent of executives made statements that raised caution flags and about half of their companies later had to restate their earnings.

“It’s an age-old question to determine whether someone is lying. The breakthrough in this study is that we could use a computer to look at a huge sample of statements and find words that raise red flags that there is deception going on,” Professor Larcker said.

The study found execs who later revised their firm's financial statements displayed distinct styles of speech, including language that “disassociates themselves from their subject matter,” Prof. Larcker said. CEOs and CFOs who were deceptive used significantly fewer self-references and more third-person plural and impersonal pronouns, the study found.

For example, “rather than say ‘I know’ or ‘I’m sure,’ top executives at companies that later ran into trouble were most likely to refer the authority to someone else, saying ‘our auditors say’, or ‘this has been certified,’” Prof. Larcker said.

“A particular feature of statements that later proved inaccurate was the use of hyperbole with value-laden words like ‘fantastic’ and ‘outstanding.’ When you hear words like ‘incredible’ and ‘unbelievable’, they may be tip-offs that what the leader is saying really does strain credibility,” Prof. Larcker said.

A closer examination of several of the deceptive statements found that the speakers tended to use the shortest sentences, and had the least amount of hesitation between statements. The authors suggest that is because they had rehearsed phrases they wanted to use before the conference call.

One such transcript identified in the study was a conference call with Erin Callan, the former chief financial officer of Lehman Brothers a few months before the company collapsed. She used the word “great” 14 times, “strong” 24 times and “incredibly” eight times to describe the bank's performance. She also used the word “challenging” six times.

The results have practical applications for employees as well as clients of companies, Prof. Larcker said. “In a sense you are placing a bet on the long-term viability and reliability of a company as an employer and a supplier. If what a you hear from management gets more third person and vague it raises questions that all may not be as rosy as management is indicating.

He cautioned that the findings are by no means definitive. “I can’t say these are check boxes and when you see four you have hit trouble,” he said. “That said, they are an intriguing indication of potential trouble ahead.”

The researchers plan a follow-up study to determine whether it’s possible to use the wording of statements as an investment strategy to drop potentially risky companies from your portfolio, Prof. Larcker said. “If the statements indicate that the figures are not correct, you are wise to drop ... some of the firms whose statements include early warnings that there is risk you don’t know about. That’s especially important in an economy that is moving sideways.”

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[admin]

Week in Review
August 21, 2010

Income Inequality and Financial Crises


Hulton Archive/Getty Images
SCRAPING BY In Depression-era New York City,
scenes like this underscored the sudden hardship.

By LOUISE STORY

David A. Moss, an economic and policy historian at the Harvard Business School, has spent years studying income inequality. While he has long believed that the growing disparity between the rich and poor was harmful to the people on the bottom, he says he hadn’t seen the risks to the world of finance, where many of the richest earn their great fortunes.

Now, as he studies the financial crisis of 2008, Mr. Moss says that even Wall Street may have something serious to fear from inequality — namely, another crisis.

The possible connection between economic inequality and financial crises came to Mr. Moss about a year ago, when he was at his research center in Cambridge, Mass. A colleague suggested that he overlay two different graphs — one plotting financial regulation and bank failures, and the other charting trends in income inequality.

Mr. Moss says he was surprised by what he saw. The timelines danced in sync with each other. Income disparities between rich and poor widened as government regulations eased and bank failures rose.

“I could hardly believe how tight the fit was — it was a stunning correlation,” he said. “And it began to raise the question of whether there are causal links between financial deregulation, economic inequality and instability in the financial sector. Are all of these things connected?”

Professor Moss is among a small group of economists, sociologists and legal scholars who are now trying to discover if income inequality contributes to financial crises. They have a new data point, of course, in the recent banking crisis, but there is only one parallel in the United States — the 1929 market crash.

Income disparities before that crisis and before the recent one were the greatest in approximately the last 100 years.

· In 1928, the top 10 percent of earners received 49.29 percent of total income.

· In 2007, the top 10 percent earned a strikingly similar percentage: 49.74 percent.

· In 1928, the top 1 percent received 23.94 percent of income.

· In 2007, those earners received 23.5 percent.

Mr. Moss and his colleagues want to know if huge gaps in income create perverse incentives that put the financial system at risk. If so, their findings could become an argument for tax and social policies aimed at closing the income gap and for greater regulation of Wall Street.

This inquiry is one that some conservative economists are already dismissing.

R. Glenn Hubbard, for instance, who was the top economic advisor to former President George W. Bush, said income inequality was not the culprit in the most recent crisis.

“Cars go faster every year, and G.D.P. rises every year, but that doesn’t mean speed causes G.D.P.,” said Mr. Hubbard, dean of the Columbia Business School and co-author of the coming book “Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington, and How to Reclaim American Prosperity.”

Even scholars who support the inquiry say they aren’t sure that researchers will be able to prove the connection. Richard B. Freeman, an economist at Harvard, is comparing about 125 financial crises around the globe that occurred over the last 30 years. He said inequality soared before many of these crises. But, Mr. Freeman added, the data from different nations is difficult to compare. And Professor Freeman says he has found some places, like the Scandinavian countries, where there were crises without much inequality, suggesting that other factors, like deregulation, may be the best explanations.

For his part, Mr. Moss said that income inequality might have complicated links to financial crises. For instance,

n inequality, by putting too much power in the hands of Wall Street titans, enables them to promote policies that benefit them — like deregulation — that could put the system in jeopardy.

Inequality may also push people at the bottom of the ladder toward choices that put the financial system at risk, he said. And low-income homeowners could have better afforded their mortgages if not for the earnings gap.

(Mr. Hubbard has a different take: He says many lower-income homeowners should not have had mortgages in the first place. The latest crisis, he says, was caused by policymakers who decided to “democratize credit” by expanding home ownership. Their actions were driven by a desire to address inequality, but those policymakers were misguided and should have improved education instead, he adds.)

Scholars who study inequality often focus on people at the bottom. But, Mr. Moss said, the incentives of people at the top also deserve more scrutiny.

He pointed to the recent work of Margaret M. Blair, who teaches at Vanderbilt University Law School and is active with the Tobin Project, the nonprofit organization Mr. Moss founded a few years ago to study issues like economic inequality. She is researching whether financial workers promote bubbles and highly leveraged systems, even unconsciously. Ms. Blair said that because financial bubbles often lead to higher returns, financial workers have the potential to make more, and this pattern can influence their trading strategies and the policies they promote. Those decisions, in turn, drive even greater income inequality, she said.

After the 1929 crash, the income gap narrowed dramatically and remained low for decades, because of the huge wealth lost by people at the top and the sweeping financial reforms introduced in the 1930s that reined in Wall Street.

So far, the results are not as dramatic in the wake of the recent financial crisis. The income gap narrowed slightly in 2008, according to the most recent data available, but it remains unclear if it will continue shrinking.

This time, after all, the system did not collapse as it did in 1929. The status quo on income inequality looks like it was essentially maintained. Mr. Moss said he supported the government intervention in 2008, though he noted, "Financial elites

image001-11.jpg (23.6 KiB) Viewed 45 times

made off rather well."