"Occupy Wall Street" Anti-Semitic?

Goldman Sachs is often used as the poster child for some of the most egregious practices on Wall Street that are believed to have set off the current economic crisis now sweeping much of America and Europe. This sentiment was summarized in an article Matt Taibi wrote for Rolling Stone Magazine as follows: "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."



Taibi's criticism of Goldman Sachs immediately drew charges of antisemitism from some American Jewish leaders. And as the "Occupy Wall Street" movement gathers momentum, similar charges are now flying against the protesters who are joining this movement. Some of the Jewish media outlets, like Yeshiva World News, are using video footage of individual protesters to editorialize the claim that “many Jews” are feeling a bit uncomfortable with the growing protests.

“The reasons for these ‘uncomfortable feelings’ don’t need to be elaborated on this page,” the editorial reads. “Suffice to say that Jews have been blamed for the world’s troubles for thousands of years, and many are nervous that this finger-pointing will soon start — or , maybe it already has.”

I, for one, do not believe that the protests are motivated by antisemitism, and such charges are a great disservice to ordinary middle class Americans who have been forced to take to the streets.

From what I can tell, "Occupy Wall Street" appears to be a genuine grass roots movement that stems from a sense of deep dissatisfaction with the way the majority of American politicians of both parties have aided and abetted in the misdeeds committed by the big Wall Street firms. Some of these misdeeds have been laid bare by a number of authors, including Michael Lewis most recently in his two books on the subject. The actions of Goldman Sachs and other big Wall Street firms have led to massive job losses, growing homelessness, and deep concerns among middle class Americans about their own future and the future of this country. A similar situation is now gripping Europe as well.

I think President Obama should seize this opportunity to tap into this anger and use it to push new legislation to bail out the middle class and put an end to the excesses committed by the big business including the Wall Street banks and their highly-paid executives.

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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.

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Gaussian Copula: The Formula That Wrecked the World Economy

Not unlike Albert Einstein whose equation E=MC2 made possible the creation of physical weapons of mass destruction, Chinese mathematician David X. Li could go down in history as the man who enabled the development of financial weapons of mass destruction on Wall Street. Li's Gaussian copula models for the pricing of collateralized debt obligations (CDOs)are being blamed for the catastrophic losses leading to the global financial collapse.

In addition to underlying bonds, bond investors also invest in pools of hundreds or even thousands of mortgages. The sums involved are mind boggling: Americans now owe more than $11 trillion on their homes, according to Wired Magazine. But mortgage pools are not as simple as most bonds. There's no guaranteed interest rate, since the amount of money homeowners collectively pay back every month is a function of how many have refinanced and how many have defaulted. There's certainly no fixed maturity date: Money shows up in irregular chunks as people pay down their mortgages at unpredictable times—for instance, when they decide to sell their house. And most problematic, there's no easy way to assign a single probability to the chance of default. Al of this makes it much more difficult to calculate risk on mortgage pools and CDOs than on conventional bonds or old-fashioned home loans.

Wall Street "solved" many of these problems through a process called tranching, which divides a pool and allows for the creation of safe bonds with a risk-free triple-A credit rating. Investors in the first tranche, or slice, are first in line to be paid off. Those next in line might get only a double-A credit rating on their tranche of bonds but will be able to charge a higher interest rate for bearing the slightly higher chance of default. And so on.

David Li simplified the risk models further by using market data of credit default swaps on underlying debt, including pools of disparate mortgages, as convenient proxy for the probability of default on various tranches the CDOs. Almost all of CDS market data, however, was accumulated during a period of rising real estate values and fairly robust job markets, when defaults were rare.

What are credit default swaps? Credit-default swaps are an indicator of the cost of bond "insurance" that varies with the risk of bond default. Credit default swaps are privately traded derivative contracts traditionally bought by bond holders from CDS issuers like AIG, Ambac, FGIC, and MBIA and other entities. Like other derivatives, CDSs are not regulated by government agencies. Any investor can sell CDSs. The CDS sellers are expected (not guaranteed or back-stopped by governments) to reimburse bondholders or buyers in case the bond issuing companies or governments default.

As an investor, you have a choice: You can either lend directly to borrowers or sell investors credit default swaps, insurance against those same borrowers defaulting. In either case, you get a regular income stream—interest payments or insurance premiums —and either way, if the borrower defaults, you lose a lot of money. The returns on both strategies are nearly identical, but because an unlimited number of credit default swaps can be sold against each borrower, the supply of swaps isn't limited the way the supply of bonds is, so the CDS market managed to grow very raidly. Though credit default swaps were relatively new when Li proposed his idea, they soon became a bigger and more liquid market than the underlying bonds on which they were based.

The growth of the CDO market was exponential. Using Li's formula, Wall Street's quants saw a new range of possibilities. And the first thing they did was start creating a huge number of brand-new triple-A securities. Using Li's copula approach meant that ratings agencies like Moody's—or anybody wanting to model the risk of a tranche—no longer needed to puzzle over the quality of mortgages of various kinds that also proliferated. All they needed was that correlation number based on CDS data, and out would come a rating telling them how safe or risky the tranche was.

The CDS and CDO markets grew along similar trajectories, drawing strength from each other. At the end of 2001, there was $920 billion in credit default swaps outstanding. By the end of 2007, that number had skyrocketed to more than $62 trillion. The CDO market, which stood at $275 billion in 2000, grew to $4.7 trillion by 2006.

It all worked well until the housing market and job markets began to weaken, causing a wave of defaults, beginning with the less creditworthy borrowers. The CDS markets started to behave erratically out of fear. And the CDS data accumulated during the good times no longer served as a useful proxy for the actual risk of various trances of mortgage pools. Even the AAA rated tranches were hit by defaults, because some them contained subprime mortgages.

There were several people, including experts such as Darrell Duffie, Paul Wilmott and Janet Tavakoli, who warned about the dangers of blindly using Li's copula function as a basis for assessing risk of default for CDOs. But the greedy Wall Street executives and money managers, who were making enormous profits from such derivatives, ignored such warnings. And the politicians didn't care because they were receiving their share of the profits as Wall Street contributed large amounts of money to their campaign coffers.

The CDOs, based on Li's Copula function and created and traded on Wall street, now account for most of the toxic assets that have turned shares of major banks like Citicorp into penny stocks. The insolvent troubled banks are now receiving hundreds of billions of dollars from taxpayer funded bailouts orchestrated by the US treasury. The ongoing credit crunch and the wave of home foreclosures show no signs of abating. The negative effects of the US woes are being felt around the world. With globalization of the financial markets and trade, the rest of of the world is not immune from America's economic crisis.

Here's a video titled "The Formula That Wrecked the Economy":



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K Street Booms as Main Street Suffers

K Street Booms Even As Main Street Suffers

With Washington on an unprecedented spending spree to stimulate the economy, President Barack Obama has repeatedly promised unprecedented transparency. "Instead of politicians doling out money behind closed doors, the important decisions about where taxpayer dollars are invested will be yours to scrutinize," the President said in a video announcing the opening of the site called recovery.gov.

While polls indicate that most Americans support their new president in his sincere efforts to revive the US economy, it is clear that President Obama is up against the massive power of Washington's corrupt political-industrial elite that has brought American economy near collapse. And many of the same people are still in charge on the Hill.

As the stimulus package is getting the nod from the US Congress, the lobbyists on K-street say that their phones are ringing off the hook. "There was this unique opportunity that government was handing out money and anytime that happens, companies will spend what they must to get in line to get a piece of the pie", said Sheila Krumholz, Executive Director of Center for Responsive Politics in a report aired on NPR Radio today.

Washington lobbyists earned a whopping $3.2 billion last year. That's the highest amount in the decade tracked by the nonpartisan watchdog group's Sheila Krumholz. She said interest groups spent $17.4 million on lobbying every day Congress was in session last year. And with Washington on a spending spree, companies are boosting their influence on Capitol Hill.

The situation is no different on Wall Street, one of the largest contributors to the powerful politicians in America. Despite crippling losses, multibillion-dollar bailouts and the passing of some of the most prominent names in the business, employees at financial companies in New York, the now-diminished world capital of capital, collected an estimated $18.4 billion in bonuses for the year, according to a recent report in the New York Times.

That was the sixth-largest haul on record, according to a report released Wednesday by the New York State comptroller.

Massive loss of confidence in many of the US public and private institutions is largely responsible for the current global economic crisis of historic proportions. It is in the best interest of America's political-industrial elite to reform themselves in the larger interest of the nation and the world. I hope our new popular new president can get the people on the Hill as well as those on Wall Street and K Street to behave themselves in their own best interest. To accomplish this challenging task, Obama should be willing to risk going directly to the people, over the heads of the Congressmen, including his fellow Democrats, early and often to maintain his own credibility with the people.

Here is an Obama video clip promising complete transparency:



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Democrats Must Share Blame for Worst Financial Crisis

The Bush administration has been the target of attacks by Democrats for the international financial crisis that began on Wall street earlier this year. The critics' main argument is that the Bush-era anti-regulation environment allowed unregulated derivatives contracts, called "weapons of mass destruction" by Warren Buffett, to grow into a mushroom cloud.

While it is true that the dramatic growth of derivative contracts such as credit default swaps happened on Republicans' watch, the fact is that the seeds of the current crisis were sown during Clinton years. It all began with an obscure but critical piece of federal legislation called the Commodity Futures Modernization Act of 2000. And the bill was a big favorite of the financial industry it would eventually help destroy.

It not only removed derivatives and credit default swaps from the purview of federal oversight (on page 262 of the legislation), Congress prohibited the state and local governments from enforcing existing gambling and bucket shop laws against Wall Street.

As the 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 senate is responsible for it.

Clearly, the unanimous Senate passage of the Commodity Futures Modernization Act of 2000 demonstrated the power of Wall Street over both Republicans and Democrats. In fact, the data of the financial services industry's recent campaign contributions shows that two of the top three recipients of the largess from Wall street are Democrats Barack Obama and Hilary Clinton. John McCain is in a distant third position. Overall, Sen Obama's campaign is awash with record, massive cash contributions.

Since the current financial crisis has its roots in easy, plentiful mortgages and the housing bubble facilitated by the Democrats' unabashed and reckless support for home ownership via Fannie and Freddie and community re-investment legislation, a larger share of the blame for the current crisis should be assigned to the Congressional Democrats such as Barny Frank and Chris Dodd.

Story of Fear, Greed and Bailout on Wall Street

As the US faces its worst financial crisis since the Great Depression of the 1930s, the American financial and economic leadrship has come under severe criticism by the world. Last week -- even before Wall Street's latest collapse -- 13 former finance ministers met at the University of Virginia campus and called on the Americans to fix their 'broken financial system.' Australia's Peter Costello noted that lately the US has been "exporting instability" in world markets, and Yashwant Sinha, former finance minister of India, concluded, "The time has come. The U.S. should accept some monitoring by the IMF." The Wall Street Journal reports that the turmoil in the U.S. financial sector is rippling through political debates around the world, giving ammunition to foreign officials who question American economic leadership and oppose policies that follow the U.S. model. While the U.S. has been a model for Chinese reforms, now it's clear "the teachers have their own problems," says Song Guoqing, an economist at Peking University's China Center for Economic Research. Former Malaysian prime minister Mahathir Mohamad has criticized the U.S.'s handling of the financial crunch on his Web site. "I remember well how we were told never to bail out failing companies," he wrote in his blog on Sept. 18. "But in the last one year the Fed has bailed out dozens of failing banks, mortgage corporations and other businesses."

Clearly, this crisis has presented a rare opportunity to the critics of the American economic leadership around the world, especially those who have had to listen to lectures from American officials or accept the IMF-prescribed bitter medicines as cure for their economic ills. In spite of the harsh and overt criticism by these ministers and economists, the fact remains that their own nations have been emulating the US financial system and their banks have been full participants in it. What drives the financial markets of the world today are the basic human emotions of fear an greed.

"Greed is good", said Gordon Gekko, a fictional character from the 1987 film "Wall Street". Gekko is based loosely on arbitrageur Ivan Boesky, who gave a speech on greed at the University of California, Berkeley in 1986 and real-life activist investor / corporate raider Carl Icahn. A number of prominent Wall Street figures, including Ivan Boesky, were found guilty of criminal behavior and convicted in the 1980s.

Fear and greed. These are the two main human emotions that primarily drive the world of finance and investing. Sanity prevails when fear and greed are in a state of near equilibrium. Things go badly out of kilter when one of these emotions significantly dominates investors and finance executives behavior. The years of extraordinary greed, unhindered by regulators, produced massive hedge funds, rampant speculation and AAA and AA rated questionable mortgage-backed securities and other new-fangled financial instruments such as CDSs (credit default swaps) with shaky foundations that brought enormous profits to the investment banks on Wall Street. Now, overwhelming fear is driving the big Wall Street firms into bankruptcy and the US economy toward a prolonged and deep recession. The fear is so great that the investors around the world have grown increasingly nervous and stormed into the safest investment around -- short-term Treasury Bills issued by the US government.

The behind-the-scenes nightmare scenario for US economy, painted by Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke, has scared the recalcitrant US Congress into agreeing to a massive $700b bailout of Wall Street. This large sum amounts to $2,333.33 for each American. On Tuesday, in his testimony before the US Congress, Bernanke said "Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress". "Action by Congress is urgently required to stabilize the situation and avert what could otherwise be very serious consequences for our financial markets and our economy", he said further. "We must do so in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten the well-being of American families' financial well-being, the viability of businesses both small and large and the very health of our economy," Paulson said.

As the criticism of the bailout plan on the Main Street mounts, the markets around the world are taking huge sigh of relief, confirming the pre-eminent status of the US as the epicenter of the world economy. Meanwhile, there are reports of a compromise deal in US Congress that will dole out $250b immediately, followed by a second tranche of $100b in a few months, after review by Congress. The remaining $350b is not committed but it will be considered in the future, based on the progress made by the US Treasury.

According to media reports, the plan would allow the government to buy bad mortgages and other troubled assets held by the banks and financial institutions at risk. Getting those debts off their books should bolster their balance sheets, making them more inclined to lend and easing one of the biggest choke points in the credit crisis. If the plan works, it should help lift a major weight off the sputtering economy. There reports also indicate that there will be strong Congressional oversight, new regulations, limits on executive compensation and the government will get warrants that can be converted to common stock of the Wall Street firms which accept the government's bailout offer.

As the White House and Congressional leadership try to hammer out a bailout plan, the FBI is reportedly investigating market manipulation charges against a number of leading traders and short sellers. It is alleged that speculators started and spread false rumors about many Wall Street firms to profit from the precipitous decline and collapse of Bear Stearns, Lehman Brothers and other financial institutions.

The last few days have severely tested the abilities of Secretary Paulson and Chairman Bernanke as crisis managers. Both have spent long days and sleepless nights working on their bailout plan and convincing President Bush, congressional leadership, and presidential hopefuls Barack Obama and John McCain to come together in supporting their plan with a great sense of urgency. They seem to be succeeding in spite of the bitterly contested US elections only about 40 days away. The key leaders and presidential candidates have met today at the White House and agreed to expedite the passage of the plan.

There are still many critics and many unanswered questions about the plan. The most common criticism is based on the concern, known as "moral hazard", that the bailout will encourage more reckless behavior by market participants if they do not bear the full consequences of their actions. Some, particularly conservative Republicans, are ideologically opposed to government intervention in capital markets. They consider any government-led bailout as "socialism" or even "communism". Others are proposing some form of government backed insurance plan for the troubled mortgage-backed securities rather than outright purchase by the US Treasury. However, there is broad consensus emerging that the price of inaction would be far greater than the cost of the proposed plan to the American taxpayers. It is clear that decisive action is needed by the US to stabilize the world markets and reduce the chances of a deep, worldwide recession that will likely take its biggest toll on the most vulnerable people around the world. While the deal appears close, it could still fall apart due to political rancor and powerful Republican opposition led by Sen Richard Shelby, the ranking Republican on the Senate Banking Committee.