Fleecing What’s Left of the Treasury, by Chris Hedges

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

20080922_fleecing_whats_left_of_america/
Posted on Sep 21, 2008

By Chris Hedges

The lobbyists and corporate lawyers, the heads of financial firms and
the crooks who control Wall Street, all those who spent the last
three decades assuring us that government was part of the problem and
should get out of the way, are now busy looting the U.S. treasury.
They are also working feverishly inside the Democratic and Republican
parties to blunt any effective regulatory reform as they pass on
their distressed assets to us. The process is stunning in its hubris
and mendacity, and two of the most potent enablers of this
unprecedented act of corporate welfare are John McCain and Barack Obama.

The federal government, reeling backward from the meltdown of
financial markets, is now considering taking responsibility for the
bad assets of numerous financial companies. But if that intervention
does not include robust new mechanisms of regulation, accountability
and control we will see nothing more than a massive taxpayer-funded
bailout of stockholders and the financial industry.

The rhetoric of the two presidential candidates about the crisis has
been filled with pious outrage about the abuses of Wall Street and
short on actual solutions. John McCain and Barack Obama know, after
all, who funds their campaigns. The financial industry has given
$22.5 million in the current election cycle to Obama and $19.6
million to McCain, according to the Center for Responsive Politics.
And the financial industry has come around to collect. Two of the
biggest financial groups in Washington, the Financial Services
Roundtable and the Mortgage Bankers Association, have been holding
meetings with McCain and Obama?s economic advisers. They are working
with the campaigns to protect the unregulated power of financial
industries and at the same time to shift bad debt to taxpayers. The
Wall Street Journal reported that the Financial Services Roundtable,
made up of the very banks and firms that got us into this mess, has
developed draft legislation. The Roundtable has called a meeting this
week with the chief executives of more than 50 banks, brokerages and
insurers. The three-day meeting includes private, closed-door
sessions on Thursday with Obama economic adviser Ian Soloman and
McCain adviser Ike Brannon. Those hovering around Obama?economists
like Paul Volcker, Robert Rubin, Lawrence Summers and Laura Tyson?
bear as much responsibility for the dismantling of government
regulation as those advising McCain.

If the financial-services industry is able to suck us dry, our
assets, from our homes to our retirement investments, will continue
to tumble. Taxes will go up. Jobs will be lost. The grim economic
indicators will get worse. The dollar, which has already lost about a
third of its value against the euro, will continue to plummet. The
rate of foreclosures, one in every 416 U.S. households in August,
will skyrocket. Consumer spending, the engine of the U.S. economy,
will continue to decline. Industrial production, which has fallen for
three consecutive quarters, will fall further. Unemployment, which
shot up to 6.1 percent in August from 5.7 percent in July, will get
worse. These tremors presage an earthquake.

Ralph Nader, who has spent his adult life battling corporations,
understands more about the rise of the corporate state and the steady
fleecing of American citizens by corporations than anyone else in the
country. The core of his message is that Republicans and Democrats
are hostage to corporate power.

Nader warned in a letter to Congress on July 23 that the federal
government?s bank insurance fund may be insufficient to handle the
developing crisis in the banking industry. The letter was, at the
time, greeted with indifference and ridicule. Rep. Spencer Bachus, R-
Ala., at a congressional hearing, mentioned the letter and assured
those present that ?Our banks are well capitalized, our deposit
insurance fund is sound. There?s absolutely no factual basis for
saying that there?s not money there to pay.?

Two months later our federal bank insurance fund, which insures our
bank deposits, is being swiftly emptied. The collapse of a huge
commercial bank, such as Bank of America, which has assumed control
of Merrill Lynch?s losses with no real idea of how extensive these
losses are, could see ordinary depositors wiped out.

Nader warned eight years ago that the Federal National Mortgage
Association (Fannie Mae) and the Federal Home Loan Mortgage
Corporation (Freddie Mac) were about to tank like the savings and
loan industry of the 1980s and ?90s. Because his warnings were
ignored, taxpayers today face losing billions of dollars to cover
these bad debts.

Nader, in a letter to Securities and Exchange Commission Chairman
Christopher Cox in 2006, criticized the exorbitant salaries of
government-sponsored enterprise executives Jamie Gorelick, Daniel
Mudd, Robert J. Levin and Timothy Howard. He noted in his letter that
their financial incentives were in direct conflict with consumer
financial security. A grave moral hazard was created by the
accounting manipulations they sanctioned, Nader said. These
manipulations benefited their personal wealth, yet there was no
penalty for being caught.

Nader has called for an immediate halt to the increase in the
national debt. He demands an end to corporate subsidies and
unconditional taxpayer bailouts of corporations. And he has called
for aggressive prosecution of corporate criminals.

?Given the contrast between the ?free market? ideology of the
Republicans and the corporate or state socialism that is their
increasing practice, the time is ripe for full congressional hearings
next year on the organized power, greed and lack of regulation that
is shaking the foundations of Wall Street,? Nader said in prepared
remarks delivered to editors at The New York Times? Washington bureau.

Nader has come up with 10 market reforms that he says need to be
implemented immediately along with any bailout. These reforms are:

1. No bailouts without conditions and reciprocity in the form of
stock warrants.
2. No more lobbying for any company that is bailed out.
3. No golden parachutes or get-out-of-jail-free cards for guilty
executives.
4. No bailouts without public hearings.
5. Reduce the moral hazard in U.S. mortgage markets by
introducing covered bonds for the majority of mortgage products, as
is done in Western Europe. That gives institutions that finance
mortgages an incentive to be prudent, because they cannot just unload
them and wipe their hands clean of the liability, but are instead on
the hook if the homeowner defaults.
6. Maintain neighborhood stability and housing security by
passing a law with a sunset clause allowing below-median-value
homeowners facing foreclosure the right to ?rent to own? their homes
at fair market value rates.
7. Avoid future housing bubbles by removing implicit government
guarantees for new mortgages that exceed thresholds of greater than
15 to 20 times the annual fair market rent value of the home.
8. Make the Federal Reserve a Cabinet position, so it is
accountable to Congress, as well as make sure all Federal Reserve
Bank presidents are appointed by the president and answerable to
Congress.
9. Reduce conflicts of interest by taking away power for auditor
and rating agency selection from companies and placing it in the
hands of the SEC to be administered on random assignment.
10. Implement a securities speculation tax, starting with
derivatives, to deter casino-style capitalism.

You can vote for Obama or, if you are really into self-delusion, you
can support McCain. But you owe it to yourself, even if you
erroneously blame Nader for the election of George W. Bush, to
remember these Nader reforms. Hold them up against the proposed
reforms that will soon be issued by the McCain and Obama camps. If
the Nader reforms are not adopted, if we bail out our corporate
masters with hundreds of billions of tax dollars without instituting
draconian market reform and launching criminal prosecution, we will
be left to bear the cross of corporate malfeasance. We will pay for
corporate crime. We will leave those who robbed us free to plunder.

Chris Hedges is a leading writer on the subjects of religion, war and
empire. His critically acclaimed books, such as ?American Fascists,?
can be found here. Hedges? Truthdig column appears every Monday.

WHY THE FED FINANCIAL RESCUE PACKAGE WILL FAIL

Washington lawmakers are still trying to figure out who exactly will pay for the US$900 billion-plus rescue package proposed by the Treasury Department and the Federal Reserve Bank. But the package itself does not address the most fundamental issue which led to the crisis in the first place: a total breakdown in the integrity of asset valuations.

The pricing logic on which the US government will purchase bad debt from faltering financial institutions has not yet been disclosed. In fact, currently available information suggests that no verifiable pricing mechanism will be publicly available at all. By all accounts, Treasury or Fed officials will determine debt prices on a case-by-case basis. And that is precisely why the entire rescue package is doomed to fail; as bond risk spreads this coming week will show, the chaos and uncertainty surrounding asset valuations will continue, and even intensify.

The underlying fact is that no group or institution in particular is responsible for the crisis.  It is the capitalist system which is imploding, in its totality. The rapidly changing structure of the global economy is ensuring that the true worth of American labour will remain depressed well into the next decade. As a consequence, family incomes are not only capped; for a large majority, incomes are declining in real terms, given the sharp hikes in food and oil prices. Since the overall capacity to service housing, credit card and other types of consumer debt is severely restricted, it is virtually impossible to see what key value drivers will improve the quality of mortgage paper in the foreseeable future.

Nobody has recommended taking remedial action to rectify either the impaired status of asset valuation techniques or the flawed system of credit ratings. When told that an asset is worthless unless it can generate sustainable cash flows, an advisor to presidential hopeful Barack Obama indicated that the policy of constructive protectionism will eventually upgrade inflation-adjusted family incomes which, in turn, will underpin home values. A John McCain surrogate claimed that more oil drilling will, almost immediately, change the course of the US economy. In reality, neither protectionism nor drilling will resolve anything.

Not that Wall Street insiders are unaware of the need to revamp asset valuation methodologies; what they lack is the will, and what they fear is the explosive political impact of a programme which will directly challenge the qualifications of real estate brokers, appraisal specialists, bank managers, certified accountants, project engineers, corporate monitors and financial analysts. The lack of quality at all levels of the valuation matrix was far from apparent as long as asset prices were rising, year after year. Today, as the surpluses supporting housing debt servicing have disappeared, for a variety of well-grounded reasons, the serious weaknesses within that matrix stand exposed. The rescue package, in brief, simply reflects the fact that a new era of state capitalism has begun with a vengeance. In its true form, the free market has collapsed.

Rakesh Saxena Sept 20 2008

Meltdown On Wall Street: Grave Warning For India

By Partha Banerjee

17 September, 2008
Countercurrents.org

Brooklyn, New York: On September 15, the house of cards starts falling down on Wall Street. Lehman Brothers goes for bankruptcy protection, Merrill Lynch goes for a shotgun marriage with Bank of America, AIG is about to unravel, later to be nationalized by the U.S. Just last week, Fannie Mae and Freddie Mac were bailed out by the U.S. govt. CEO’s and big investors get out okay; ordinary employees and little people on the street suffer heavily.

Stock markets fell sharply as investors reacted to some of the most dramatic economic news in recent U.S. history. The Dow Jones industrial average closed down 500 points in their worst drop since the September 2001 terrorist attacks.

The developments took place as U.S. voters, who rank the economy as their topmost concern, get ready to elect a new president in six weeks. Presidential candidates Republican John McCain and Democrat Barack Obama reacted strongly.

Obama called the news “the most serious financial crisis since the Great Depression” of the 1930s. McCain, however, announced that the fundamentals were still strong. Bush declared that the U.S. economy “is healthy enough to withstand the adjustments that are taking place” in the financial markets. Adjustments? To millions who lost everything, it sounds surreal, cruel.

The collapse of the Wall Street giants comes six months after the meltdown of Bear Stearns and a year after the start of the credit crisis, set off by bad mortgage financing and real estate investments: none of which can be blamed on ordinary investors or home owners — it’s the latter that suffered the greatest (countless people lost their homes). In spite of an outpouring of help from peer institutions, the U.S. market took a great hit and pulled the global markets down. On September 16, the FTSE-100 share index went down 4.07 percent in London, the Paris CAC-40 was off 4.5 percent and Germany’s DAX 30 index tumbled 3.23 percent. India’s Sensex also crashed 3.4 percent.

The crisis is major, as it’s evident by the somber tone of market experts in the U.S. “It’s clear we’re one step away from a financial meltdown,” said Nouriel Roubini, chairman of the consulting firm RGE Monitor.

The end of Lehman Brothers, a 150-year-old corporation, may not stop the financial crisis that has gripped Wall Street for months, analysts said. “More investment banks could disappear soon.”

The independent broker-dealers “are going the way of the dodo bird,” said Bert Ely, a Virginia-based banking consultant.

Christopher Whalen, managing director of Institutional Risk Analytics, a research firm, predicted that “approximately 110 banks with $850 billion in assets could close by next July. That’s out of 8,400 federally insured institutions, which together hold $13 trillion in assets,” he said.

It’s a major debacle for U.S.-style corporate capitalism that thrives on empowering the most powerful and enriching the richest. Nowhere in the world — even in other market-driven economies such as Europe, Canada or Japan — a country is run under the guise of democracy, yet power never percolates down to the ordinary people.

India is perhaps the only exception — a country that copycats the U.S. model without having strong safeguards. Unless we stop the massive and lightening-speed Americanization of the economy, India is sure headed for a similar disaster. I have every faith and trust that Indian media would expose the Wall Street scandals and warn the ordinary people about putting all their life’s savings in the hands of big corporations.

Whether it’s the dotcom bust or banking sector collapse, always it’s the ordinary, disempowered people like us who suffer — Indian or American people that neither the media nor the political leaders care or talk about. We never hear organized labor’s point of view about the crisis; we practically never hear from the people on the street who just lost their jobs, health care or retirement.

Okay, maybe, we hear from some of them in India, but they hardly speak up about their fear, anger or hopelessness: that’s how consent for a broken system is manufactured.

Especially since the terrorist attacks of September 11, this administration of Bush, Cheney and McCain, with active help from a self-censored media, lied to us both about the war and the status of the crumbling economy. On one hand, a trillion dollar war destroyed two ancient civilizations called Iraq and Afghanistan and killed countless men, women and children; at the same time, the enormous cost of the war emptied precious resources from within the U.S. — resources that could well have been spent on jobs, health care, education, housing, environment, energy, immigration and other top priorities.

I pray to God that Americans now find the courage to stand up against the lies, distortions and censorship. I pray to God that Indians now find the courage to stand up against a mindless mimicking of a failed and exploitative economic and political system.

[Note: the quotations are taken from MSNBC, Reuters and AP news pieces.]