Thursday, March 19, 2009

AIG Bonuses: Schumer's Phony Outrage

"If you don't return it on your own, we will do it for you," Senator Charles E. Schumer warned the AIG bonus recipients, as he joined in the public outrage against AIG's executive bonuses of $165 million. After receiving $170b in US taxpayer money, AIG announced these scandalous bonuses for their executives in the financial products unit which sold derivatives that cratered the company and the entire financial system.

The grandstanding by the senator from Wall Street, as Mr. Schumer is known because of his close links to the financial services industry, seems to be designed to deflect public anger and scrutiny from the real scandal and the main culprits of collapse of AIG and other financial institutions--the politicians in Washington. For years, as the Wall Street cheerleader on Capitol Hill, the senator joined his other corrupt colleagues in preventing any regulation of the financial weapons of mass destruction such as credit default swaps (CDS) and collaterlized debt obligations (CDO) in exchange for millions of dollars in campaign contribution from Wall Street.

Mr. Schumer led the Democratic Senatorial Campaign Committee for the last four years, raising a record $240 million while increasing donations from Wall Street by 50 percent, according to the New York Times. That money helped the Democrats gain power in Congress, elevated Mr. Schumer’s standing in his party and increased the industry’s clout in the capital.

Schumer gathered support and donations by embracing the industry’s free-market, deregulatory agenda more than almost any other Democrat in Congress, even backing measures now blamed for contributing to the financial crisis.

While other lawmakers took the lead on efforts like deregulating the complicated financial instruments called derivatives, it was Mr. Schumer, a member of the Banking and Finance Committees, who repeatedly took other steps to protect industry players from government oversight and tougher rules, a review of his record shows. Over the years, he has also helped save financial institutions billions of dollars in higher taxes or fees, according to the New York Times.

On the nature of deregulated credit default swaps (CDS) that caused the collapse of AIG and financial markets, a recent CBS 60 Minutes segment explained, "In retrospect, giving Wall Street immunity from state gambling laws and legalizing activity that had been banned for most of the 20th century should have given lawmakers pause, but on the last day and the last vote of the lame duck 106th Congress, Wall Street got what it wanted when the Senate passed the bill unanimously." Though CNN has only picked Senator Phil Gramm as one its top 10 Culprits of Collapse, the entire US Congress shares responsibility for it.

The American people need to put the AIG bonus issue in proper perspective to channelize their genuine and deep anger and resentment against the corrupt political-industrial elite who are the real culprits of collapse. The bonus amount of $165m is an extremely tiny fraction of the trillions of dollars of losses in retirement savings and home values suffered by Americans because of the Wall Street misdeeds, committed with the collaboration of Schumer and his fellow politicians in Washington. It's also a small fraction of the tens of billions of dollars of US aid for Israel, the biggest recipient of US aid, that Sen. Schumer continues to champion as a staunch supporter of Israel on the Hill. The anger of the nation in severe distress should be used to force reforms in Washington. The first steps toward serious reform should include a grassroots campaign for major curbs on political campaign contributions by the lobbyists followed by an open, public trial of Senators Charles Schumer, Chris Dodds, Phil Gram and their Democratic and Republican colleagues on the US Senate's Finance and Banking Committees to hold them to account.

Related Links:

Buffet Warns of Financial weapons of Mass Destruction

Who Rules America?

Will American Capitalism Survive?

China's Nuclear Option

Senator Schumer: The Champion of Wall Street on the Hill

Pay to Play is the Name of the Game in Washington

Are Jews Culprits of Collapse on Wall Street?

Keynes on Jews

Democrats and Republicans Share Blame for Financial Collapse

Jewish Network in US Congress

Jewish Power Dominates at Vanity Fair

Jewish Power Grows in US Congress

Did Schumer and Emanuel Sink Freeman?


Riaz Haq said...

In a recent book titled "Capitalism and the Jews", author Muller argues that it was Chrisitians' distaste and dis like of usury that left wide open the business of lending and capitalism to Jews in Europe:

"The unique historical relationship between capitalism and the Jews is crucial to understanding modern European and Jewish history. But the subject has been addressed less often by mainstream historians than by anti-Semites or apologists. In this book Jerry Muller, a leading historian of capitalism, separates myth from reality to explain why the Jewish experience with capitalism has been so important and complex--and so ambivalent.

Drawing on economic, social, political, and intellectual history from medieval Europe through contemporary America and Israel, Capitalism and the Jews examines the ways in which thinking about capitalism and thinking about the Jews have gone hand in hand in European thought, and why anticapitalism and anti-Semitism have frequently been linked. The book explains why Jews have tended to be disproportionately successful in capitalist societies, but also why Jews have numbered among the fiercest anticapitalists and Communists. The book shows how the ancient idea that money was unproductive led from the stigmatization of usury and the Jews to the stigmatization of finance and, ultimately, in Marxism, the stigmatization of capitalism itself. Finally, the book traces how the traditional status of the Jews as a diasporic merchant minority both encouraged their economic success and made them particularly vulnerable to the ethnic nationalism of the nineteenth and twentieth centuries.

Providing a fresh look at an important but frequently misunderstood subject, Capitalism and the Jews will interest anyone who wants to understand the Jewish role in the development of capitalism, the role of capitalism in the modern fate of the Jews, or the ways in which the story of capitalism and the Jews has affected the history of Europe and beyond, from the medieval period to our own."

Riaz Haq said...

Here's an excerpt from a story in the Guardian about growing wealth gap between whites and blacks in America:

"A huge wealth gap has opened up between black and white people in the US over the past quarter of a century – a difference sufficient to put two children through university – because of racial discrimination and economic policies that favour the affluent.

A typical white family is now five times richer than its African-American counterpart of the same class, according to a report released today by Brandeis University in Massachusetts.

White families typically have assets worth $100,000 (£69,000), up from $22,000 in the mid-1980s. African-American families' assets stand at just $5,000, up from around $2,000.

A quarter of black families have no assets at all. The study monitored more than 2,000 families since 1984.

"We walk that through essentially a generation and what we see is that the racial wealth gap has galloped, it's escalated to $95,000," said Tom Shapiro, one of the authors of the report by the university's Institute on Assets and Social Policy.

"That's primarily because the whites in the sample were able to accumulate financial assets from their $22,000 all the way to $100,000 and the African-Americans' wealth essentially flatlined."

The survey does not include housing equity, because it is not readily accessible and is rarely realised as cash. But if property were included it would further widen the wealth divide.

Shapiro says the gap remains wide even between blacks and whites of similar classes and with similar jobs and incomes.

"How do we explain the wealth gap among equally-achieving African-American and white families? The same ratio holds up even among low income groups. Finding ways to accumulate financial resources for all low and moderate income families in the United States has been a huge challenge and that challenge keeps getting steeper and steeper.

"But there are greater opportunities and less challenges for low and moderate income families if they're white in comparison to if they're African-American or Hispanic," he said.

America has long lived with vast inequality, although 40 years ago the disparity was lower than in Britain.

Today, the richest 1% of the US population owns close to 40% of its wealth. The top 25% of US households own 87%.

The rest is divided up among middle and low income Americans. In that competition white people come out far ahead.

Only one in 10 African-Americans owns any shares. A third do not have a pension plan, and among those who do the value is on average a fifth of plans held by whites.

The report shows that a typical white middle income family, earning
about $30,000 a year, has accumulated $74,000 in assets, five times that of a black family in the same class which has only about $14,000
in wealth.

The gap is even wider when it comes to families with an income above $50,000 a year."

Riaz Haq said...

Here is a NY Times Op Ed by Nobel Laureate Paul Krugman on questions about rule of law in US foreclosures crisis:

The accounting scandals at Enron and WorldCom dispelled the myth of effective corporate governance. These days, the idea that our banks were well capitalized and supervised sounds like a sick joke. And now the mortgage mess is making nonsense of claims that we have effective contract enforcement — in fact, the question is whether our economy is governed by any kind of rule of law.

The story so far: An epic housing bust and sustained high unemployment have led to an epidemic of default, with millions of homeowners falling behind on mortgage payments. So servicers — the companies that collect payments on behalf of mortgage owners — have been foreclosing on many mortgages, seizing many homes.

But do they actually have the right to seize these homes? Horror stories have been proliferating, like the case of the Florida man whose home was taken even though he had no mortgage. More significantly, certain players have been ignoring the law. Courts have been approving foreclosures without requiring that mortgage servicers produce appropriate documentation; instead, they have relied on affidavits asserting that the papers are in order. And these affidavits were often produced by “robo-signers,” or low-level employees who had no idea whether their assertions were true.

Now an awful truth is becoming apparent: In many cases, the documentation doesn’t exist. In the frenzy of the bubble, much home lending was undertaken by fly-by-night companies trying to generate as much volume as possible. These loans were sold off to mortgage “trusts,” which, in turn, sliced and diced them into mortgage-backed securities. The trusts were legally required to obtain and hold the mortgage notes that specified the borrowers’ obligations. But it’s now apparent that such niceties were frequently neglected. And this means that many of the foreclosures now taking place are, in fact, illegal.

This is very, very bad. For one thing, it’s a near certainty that significant numbers of borrowers are being defrauded — charged fees they don’t actually owe, declared in default when, by the terms of their loan agreements, they aren’t.

Beyond that, if trusts can’t produce proof that they actually own the mortgages against which they have been selling claims, the sponsors of these trusts will face lawsuits from investors who bought these claims — claims that are now, in many cases, worth only a small fraction of their face value.

And who are these sponsors? Major financial institutions — the same institutions supposedly rescued by government programs last year. So the mortgage mess threatens to produce another financial crisis.

Riaz Haq said...

Talking about democracy, here are some excerpts from a Vanity Fair article by Nobel Laureate Economist Joe Stiglitz about growing concentration of wealth and power in America. It's titled "Of the 1%, For the 1%, By the 1%":

Americans have been watching protests against oppressive regimes that concentrate massive wealth in the hands of an elite few. Yet in our own democracy, 1 percent of the people take nearly a quarter of the nation’s income—an inequality even the wealthy will come to regret.

It’s no use pretending that what has obviously happened has not in fact happened. The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent. One response might be to celebrate the ingenuity and drive that brought good fortune to these people, and to contend that a rising tide lifts all boats. That response would be misguided. While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. For men with only high-school degrees, the decline has been precipitous—12 percent in the last quarter-century alone. All the growth in recent decades—and more—has gone to those at the top. In terms of income equality, America lags behind any country in the old, ossified Europe that President George W. Bush used to deride. Among our closest counterparts are Russia with its oligarchs and Iran. While many of the old centers of inequality in Latin America, such as Brazil, have been striving in recent years, rather successfully, to improve the plight of the poor and reduce gaps in income, America has allowed inequality to grow.

Economists long ago tried to justify the vast inequalities that seemed so troubling in the mid-19th century—inequal ities that are but a pale shadow of what we are seeing in America today. The justification they came up with was called “marginal-productivity theory.” In a nutshell, this theory associated higher incomes with higher productivity and a greater contribution to society. It is a theory that has always been cherished by the rich. Evidence for its validity, however, remains thin. The corporate executives who helped bring on the recession of the past three years—whose contribution to our society, and to their own companies, has been massively negative—went on to receive large bonuses. In some cases, companies were so embarrassed about calling such rewards “performance bonuses” that they felt compelled to change the name to “retention bonuses” (even if the only thing being retained was bad performance). Those who have contributed great positive innovations to our society, from the pioneers of genetic understanding to the pioneers of the Information Age, have received a pittance compared with those responsible for the financial innovations that brought our global economy to the brink of ruin.

Riaz Haq said...

Here are some excerpts from a recent speech by veteran journalist Bill Moyers given in memory of historian Howard Zinn:

In polite circles, among our political and financial classes, this is known as "the free market at work." No, it's "wage repression," and it's been happening in our country since around 1980. I must invoke some statistics here, knowing that statistics can glaze the eyes; but if indeed it's the mark of a truly educated person to be deeply moved by statistics, as I once read, surely this truly educated audience will be moved by the recent analysis of tax data by the economists Thomas Piketty and Emmanuel Saez. They found that from 1950 through 1980, the share of all income in America going to everyone but the rich increased from 64 percent to 65 percent. Because the nation's economy was growing handsomely, the average income for 9 out of 10 Americans was growing, too - from $17,719 to $30,941. That's a 75 percent increase in income in constant 2008 dollars.

But then it stopped. Since 1980 the economy has also continued to grow handsomely, but only a fraction at the top have benefited. The line flattens for the bottom 90% of Americans. Average income went from that $30,941 in 1980 to $31,244 in 2008. Think about that: the average income of Americans increased just $303 dollars in 28 years.

That's wage repression.

Another story in the Times caught my eye a few weeks after the one about Connie Brasel and Natalie Ford. The headline read: "Industries Find Surging Profits in Deeper Cuts." Nelson Schwartz reported that despite falling motorcycle sales, Harley-Davidson profits are soaring - with a second quarter profit of $71 million, more than triple what it earned the previous year. Yet Harley-Davidson has announced plans to cut fourteen hundred to sixteen hundred more jobs by the end of next year; this on top of the 2000 jobs cut last year.

The story note: "This seeming contradiction - falling sales and rising profits - is one reason the mood on Wall Street is so much more buoyant than in households, where pessimism runs deep and unemployment shows few signs of easing." There you see the two Americas. A buoyant Wall Street; a doleful Main Street. The Connie Brasels and Natalie Fords - left to sink or swim on their own. There were no bailouts for them.

Meanwhile, Matt Krantz reports in USA TODAY that "Cash is gushing into company's coffers as they report what's shaping up to be a third-consecutive quarter of sharp earning increases. But instead of spending on the typical things, such as expanding and hiring people, companies are mostly pocketing the money or stuffing it under their mattresses." And what are their plans for this money? Again, the Washington Post:

... Sitting on these unprecedented levels of cash, U.S. companies are buying back their own stock in droves. So far this year, firms have announced they will purchase $273 billion of their own shares, more than five times as much compared with this time last year... But the rise in buybacks signals that many companies are still hesitant to spend their cash on the job-generating activities that could produce economic growth.

That's how financial capitalism works today: Conserving cash rather than bolstering hiring and production; investing in their own shares to prop up their share prices and make their stock more attractive to Wall Street. To hell with everyone else.

Riaz Haq said...

Here are some excerpts from a piece by Michael Kinsley on Jewish investment bankers' role in US economic woes:

Goldman Sachs, the huge and hugely profitable investment bank, has become a symbol of the financial excesses that helped to bring on the current recession. Because Goldman is thought of as a "Jewish" firm, and because it dominates the financial industry, criticism of Goldman, or of bankers generally, is often accused of being anti-Semitic. Commentators including Rush Limbaugh and Maureen Dowd have been so accused. When, if ever, are such accusations fair?

If you believe that Goldman has done nothing wrong, then any criticisms of Goldman or use of the firm as a symbol of the crisis are obviously unfair to Goldman. Furthermore, they would raise the legitimate question of "Why pick on Goldman?" and the possibility that anti-Semitism is part of the explanation. Similarly, if you believe that anything Goldman did wrong was done wrong by lots of others, the question of "Why pick on Goldman" arises, as does the same obvious answer.

Unfortunately for Goldman, it is not obviously blameless in the crisis. It was never so reckless that it risked going under. It borrowed only [sic] ten billion dollars from the Federal government, even that under duress, and paid it back as soon as possible, with interest. But the firm engaged in complex transactions that amounted to betting against its clients. Throughout the crisis, it enjoyed an implicit government guarantee on the grounds of being "too big to fail." The government bailed out one of Goldman's biggest borrowers--the insurance company AIG--saving Goldman billions in losses. And its profits and executive bonuses revealed, at the least, a lack of sensitivity at a time when millions are losing their jobs.

Even if Goldman did nothing in particular wrong, its status as one of only two remaining huge investment banks on Wall Street (the other is Morgan Stanley) might make it a legitimate focus, especially given its reputation, even before the crisis, for ruthlessness.
Then there is this oft-quoted passage at the beginning of a lengthy rant against Goldman Sachs by Matt Taibbi last July in Rolling Stone: "The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." This sentence, many have charged, goes beyond stereotypes about Jews and money, touches other classic anti-Semitic themes about Jews as foreign or inhuman elements poisoning humanity and society, and--to some critics-- even seems to reference the notorious "blood libel" that Jews use the blood of Christian babies to make matzoh.

Taibbi claims to have been utterly blindsided by accusations that his article was anti-Semitic. He says he finds the idea "ludicrous." He denies any relation between his words and classic anti-Semitic stereotypes. His critics find this impossible to believe. Could such a sophisticated writer (the article skewers Goldman with great skill and style) actually not know about the stereotypes and ancient lies that this passage echoes, and could he actually be surprised that there would be people calling his article, fairly or otherwise, anti-semitic? It may be possible to call Goldman Sachs a bloodsucker without being an anti-Semite. But is it possible to call Goldman Sachs a bloodsucker and then be surprised when you're called an anti-Semite?

Riaz Haq said...

A number of writers and analysts, including Michael Lewis author of Boomerang, believe that Goldman Sachs is responsible for the Greek crisis which could lead a collapse in the Euro Zone. Here's a NY Times story related to it:

Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.

As worries over Greece rattle world markets, records and interviews show that with Wall Street’s help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.

Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November — three months before Athens became the epicenter of global financial anxiety — a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting.

The bankers, led by Goldman’s president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece’s health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.

It had worked before. In 2001, just after Greece was admitted to Europe’s monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means.

Athens did not pursue the latest Goldman proposal, but with Greece groaning under the weight of its debts and with its richer neighbors vowing to come to its aid, the deals over the last decade are raising questions about Wall Street’s role in the world’s latest financial drama.

As in the American subprime crisis and the implosion of the American International Group, financial derivatives played a role in the run-up of Greek debt. Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere.

In dozens of deals across the Continent, banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books. Greece, for example, traded away the rights to airport fees and lottery proceeds in years to come.

Critics say that such deals, because they are not recorded as loans, mislead investors and regulators about the depth of a country’s liabilities.

Some of the Greek deals were named after figures in Greek mythology. One of them, for instance, was called Aeolos, after the god of the winds.

The crisis in Greece poses the most significant challenge yet to Europe’s common currency, the euro, and the Continent’s goal of economic unity. The country is, in the argot of banking, too big to be allowed to fail. Greece owes the world $300 billion, and major banks are on the hook for much of that debt. A default would reverberate around the globe.

A spokeswoman for the Greek finance ministry said the government had met with many banks in recent months and had not committed to any bank’s offers. All debt financings “are conducted in an effort of transparency,” she said. Goldman and JPMorgan declined to comment.

While Wall Street’s handiwork in Europe has received little attention on this side of the Atlantic, it has been sharply criticized in Greece and in magazines like Der Spiegel in Germany.....

Riaz Haq said...

The Long History of Political Idiocy in #America. #presidentialdebate #Trump2016 #Huckabee #TedCruz2016

WE are currently enjoying a master class in the art of political stupidity. Donald J. Trump has been schooling us for some time, but the Iran nuclear deal has touched off a new race to the bottom. Mike Huckabee said the agreement with Iran would “take the Israelis and march them to the door of the oven.” Ted Cruz called the Obama administration “the world’s leading financier of radical Islamic terrorism.” Let’s not even get started on the Affordable Care Act, which Ben Carson once called “the worst thing that has happened in this nation since slavery.”

It’s tempting to rail against the media’s ability to elicit and amplify such stupidity. But none of this is new. Politicians have always resorted to dumb claims, blatant insults, bold exaggerations and baldfaced lies to gain press coverage and win votes. Indeed, Americans of the 19th century invented a name for it. The word “bunkum” — the origin of the word “bunk” — dates from the 1820s, a product of the over-the-top speechifying of Representative Felix Walker, who forewarned his congressional colleagues to ignore a blustery grandstand speech because it was intended only for the folks back home in Buncombe County, N.C. Then as now, raising hackles before the eyes of the press was a play for power; politicians who displayed their fighting-man spunk were strutting their suitability as leaders.

Such grandstanding was particularly blatant in the mid-19th century, an era with a political climate much like our own. The nation was becoming increasingly polarized because of the debate over the spread of slavery in new states born of Western expansion. At a time of enormous change, a sense of do-or-die extremism was in the air. New technologies, like the steam-powered printing press and the telegraph, were dramatically reshaping the power of the press.

Congress was particularly newsworthy in the 1840s, ’50s and ’60s. A typical newspaper had an extended account of debates in both houses, commentary on those debates and a “letter” from a Washington reporter (thus the term “correspondent”) filled with gossip about congressional doings. Legislators who went to extremes were virtually guaranteed press coverage. As Senator Franklin Pierce of New Hampshire griped in 1838, the visitors’ galleries were empty during debates on “great measures of policy,” but became “crowded almost to suffocation” when personal insults were expected.

Some men were known for such performances. Take Representative Henry A. Wise, a congressman from Virginia from 1833 to 1844. Like many purveyors of bunk, Wise was by no means a stupid man, however problematic his politics. (After his congressional career, he went on to become governor of Virginia, and signed the abolitionist John Brown’s death warrant.)

Wise loved grandstanding of all kinds: the swaggering threat, the mocking taunt, the over-the-top insult. He even took an occasional swing at an opponent. In 1842, he demonstrated his pro-slavery credentials by threatening to assault John Quincy Adams, an opponent of slavery, who had returned to the House after serving as president. “If the Member from Massachusetts had not been an old man, protected by the imbecility of age,” Wise warned, “he would not have enjoyed, as long as he has, the mercy of my mere words.” A horrified Adams wrote in his diary that night that Wise made “a threat of murdering me in my seat.”

Perhaps polarized times require such grandstanding. They certainly invite it. But, as now, some politicians in the 1850s recognized the risks and voiced their concerns. They understood that extreme claims and violent words have escalating consequences. The tossing of verbal “missiles” in Congress could cause bloodshed, one congressman presciently warned in July 1856.

In recent weeks, by contrast, we haven’t heard much talk of the consequences of political flame-throwing, save some hand-wringing by President Obama.