A political-economic oligarchy has taken over the United States of America. This oligarchy has institutionalized a body of law that protects businesses at the expense of not only the common people but the nation itself.
CNN interviewed a person recently who was seriously burned when his vehicle burst into flames because a plastic brake-fluid reservoir ruptured. Having sued Chrysler, he was now concerned that its bankruptcy filing would enable Chrysler to avoid paying any damages. A CNN legal expert called this highly likely, since the main goal of reorganization in bankruptcy is preserving the company's viability and that those creditors who could contribute most to attaining that goal would be compensated first while those involved in civil suits against the company would be placed lowest on the creditor list since compensating them would lessen the chances of the company's surviving. This rational clearly implies that the preservation of companies is more important than the preservation of people. Of course, similar cases have been reported before. The claims of workers for unpaid wages have often been dismissed as have their contracts for benefits.
But there is an essential difference between a business that lends money or delivers products or services to another company and the employees who work for it. Business is an activity that supposedly involves risk. Employment is not. Neither is unknowingly buying a defective product. Workers and consumers do not extend credit to the companies they work for or buy products from. They are not in any normal sense of the word “creditors.” Yet that distinction is erased in bankruptcy proceedings which preserve companies at the public's expense.
Of course, bankruptcy is not the only American practice that makes use of this principle. The current bailout policies of both the Federal Reserve and the Treasury make use of it. Again companies are being saved at the expense of the American people. America's civil courts are notorious for favoring corporate defendants when sued by injured plaintiffs. Corporate profiteering is not only tolerated, it is often encouraged. The sordid records of both Halliburton and KBR are proof enough. Neither has suffered any serious consequences for their abysmal activities in Iraq while supplying services to the troops deployed there. Even worse, these companies continue to get additional contracts from the Department of State. “A former Army chaplain who later worked for Halliburton's KBR unit ... told Congress ... ‘KBR came first, the soldiers came second.'" [http://www.halliburtonwatch.org/news/deyoung.html] Again, it's companies first, people last. But Major General Smedley Butler made this point in 1935. [See http://www.scuttlebuttsmallchow.com/racket.html] And everyone is familiar with the influence corporate America has over the Congress through campaign contributions and lobbying. For instance, “the U.S. Chamber of Commerce has earmarked $20 million over two years to kill [card check].” [http://www.latimes.com/news/nationworld/nation/la-na-card-check4-2009jun04,0,7195326.story?track=rss] Companies expect returns on their money, and preventing workers from unionizing offers huge returns. And on Thursday June 4, 2009 USA Today reported that, “Republicans strongly oppose a government run [healthcare] plan saying it would put private companies insuring millions of Americans out of business. ‘A government run plan would set artificially low prices that private insurers would have no way of competing with,' Senate Minority Leader Mitch McConnell, R-Ky, said ... .” (Kentucky ranks fifth highest in the number of people with incomes below poverty. Why is he worried about the survival of insurers?)
The profound question is how can any of it be justified?
President Calvin Coolidge did say that the business of America is business and the American political class seems to have adopted this view, but the Constitution cannot be used to justify it. The word “business” in the sense of “commercial firm” occurs nowhere in it. Nowhere does the Constitution direct the government to even promote commerce or even defend private property. The Constitution is clear. It was established to promote just six goals: (1) form a more perfect union, (2) establish justice, (3) insure domestic tranquility, (4) provide for the common defense, (5) promote the general welfare, and (6) secure the blessings of liberty to ourselves and our posterity. Of course, the Constitution does not prohibit the government from promoting commerce or defending private property, but what happens when doing so conflicts with one or more of its six purposes? Shouldn't any law that does that be unconstitutional? For instance, wouldn't it be difficult the claim that a bankruptcy procedure that protects business and subordinates or dismisses the claims of workers and injured plaintiffs establishes justice? How can spending trillions of dollars to save financial institutions and other businesses whose very own actions brought down the global economy be construed as establishing justice or even promoting the general welfare when people are losing their incomes, their pensions, their health care, and even their homes? These actions clearly conflict with the Constitution's stated goals. Shouldn't they have been declared unconstitutional? Although the Constitution does provide people with the right to petition the government for a redress of grievances, it does not clearly provide that right to organizations or corporations and it certainly does not provide to anyone the right to petition the government for special advantages. Yet that is what the Congress, even after its members swear to support and defend the Constitution of the United States, allows special interest groups to do. Where in the Constitution is there a justification for putting the people last?
How this situation could have arisen is a puzzle? Haven't our elected officials, our justices, our legal scholars, our professors of Constitutional Law, or even our political scientists read the Constitution? Have they merely misunderstood it? Or have they simply chosen to disregard the preamble as though it had no bearing on its subsequent articles? Why have no astute lawyers brought actions on behalf of the people? Why indeed?
The answer is that a political-economic oligarchy has taken over the nation. This oligarchy has institutionalized a body of law that protects businesses at the expense of not only the common people but the nation itself. Businessmen have no loyalties. The Bank of International Settlements insures it, since it is not accountable to any national government. (See my piece, A Banker' Economy, http://www.jkozy.com/A_Bankers__Economy.htm.) Thomas Jefferson knew it when he wrote, “Merchants have no country. The mere spot they stand on does not constitute so strong an attachment as that from which they draw their gain.” Mayer Amschel Rothschild knew it when he said, "Give me control of a nation's money and I care not who makes the laws." William Henry Vanderbilt knew it when he said, “The public be damned.” Businesses know it when they use every possible ruse to avoid paying taxes, they know it when they offshore jobs and production, they know it when the engage in war profiteering, and they know it when they take no sides in wars, caring not an iota who emerges victorious. IBM, GM, Ford, Alcoa, Du Pont, Standard Oil, Chase Bank, J.P. Morgan, National City Bank, Guaranty, Bankers Trust, and American Express all knew it when they did business as usual with Germany during World War II. Prescott Bush knew it when he aided and abetted the financial backers of Adolf Hitler.
Yet somehow or other the people in our government, including the judiciary, do not seem to know it, and they have allowed and even abetted businesses that have no allegiance to any country to subvert the Constitution. Unfortunately, the Constitution does not define such action as treason.
America's youthful students are regularly taught Lincoln's Gettysburg Address and are familiar with its peroration, “we here highly resolve that these dead shall not have died in vain—that this nation, under God, shall have a new birth of freedom—and that government: of the people, by the people, for the people, shall not perish from the earth.” If that nation ever existed, it no longer does. And when Benjamin Franklin was asked, “Well, Doctor, what have we got—a Republic or a Monarchy?” he answered, “A Republic, if you can keep it.” We haven't. What we have ended up with is merely an Unpublic, an economic oligarchy that cares naught for either the nation or the public.
To argue that the United States of America is a failed state is not difficult. A nation that has the highest documented prison population in the world can hardly be described as domestically tranquil. A nation whose top one percent of the people have 46 percent of the wealth cannot by any stretch of the imagination be said to be enjoying general welfare (“generally true” means true for the most part with a few exceptions). A nation that spends as much on defense as the rest of the world combined and cannot control its borders, could not avert the attack on the World Trade Center, and can not win its recent major wars can not be described as providing for its common defense. How perfect the union is or whether justice usually prevails are matters of debate, and what blessings of liberty Americans enjoy that peoples in other advanced countries are denied is never stated. A nation that cannot fulfill its Constitution's stated goals surely is a failed one. How else could failure be defined? By allowing people with no fastidious loyalty to the nation or its people to control it, by allowing them to disregard entirely the Constitution's preamble, the nation could not avoid this failure. The prevailing economic system requires it.
Woody Guthrie sang, “This Land Is My Land, This Land Is Your Land,” but it isn't. It was stolen a long time ago. Although it may have been “made for you and me,” people with absolutely no loyalty to this land now own it. It needs to be taken, not bought, back! America needs a new birth of freedom, it needs a government for the people, it needs a government that puts people first, but it won't get one unless Americans come to realize just how immoral and vicious our economic system is.
Sunday, July 5, 2009
Thursday, July 2, 2009
What the Big Banks have Won
The trouble started 24 months ago, but the origins of the financial crisis are still disputed. The problems did not begin with subprime loans, lax lending standards or shoddy ratings agencies. The meltdown can be traced back to the activities of the big banks and their enablers at the Federal Reserve. The Fed's artificially low interest rates provided a subsidy for risky speculation while deregulation allowed financial institutions to increase leverage to perilous levels, creating trillions of dollars of credit backed by insufficient capital reserves. When two Bear Stearns hedge funds defaulted in July 2007, the process of turbo-charging profits through massive credit expansion flipped into reverse sending the financial system into a downward spiral.
It is inaccurate to call the current slump a "recession", which suggests a mismatch between supply and demand that is part of the normal business cycle. In truth, the economy has stumbled into a multi-trillion dollar capital hole that was created by the reckless actions of the nation's largest financial institutions. The banks blew up the system and now the country has slipped into a depression.
Currently, the banks are lobbying congress to preserve the "financial innovations" which are at the heart of the crisis. These so-called innovations are, in fact, the instruments (derivatives) and processes (securitization) which help the banks achieve their main goal of avoiding reserve requirements. Securitization and derivatives are devices for concealing the build-up of leverage which is essential for increasing profits with as little capital as possible. If Congress fails to see through this ruse and re-regulate the system, the banks will inflate another bubble and destroy what little is left of the economy.
On June 22, 2009, Christopher Whalen, of Institutional Risk Analysis, appeared before the Senate Committee on Banking, Housing and Urban Affairs, and outlined the dangers of Over-The-Counter (OTC) derivatives. He pointed out that derivatives trading is hugely profitable and generates "supra-normal returns" for banking giants JP Morgan, Goldman Sachs and other large derivatives dealers. He also noted that, "the deliberate inefficiency of the OTC derivatives market results in a dedicated tax or subsidy meant to benefit one class of financial institutions, namely the largest OTC dealer banks, at the expense of other market participants." As Whalen testified:
"Regulators who are supposed to protect the taxpayer from the costs of cleaning up these periodic loss events are so captured by the very industry they are charged by law to regulate as to be entirely ineffective....The views of the existing financial regulatory agencies and particularly the Federal Reserve Board and Treasury, should get no consideration from the Committee since the views of these agencies are largely duplicative of the views of JPM and the large OTC dealers."
Whalen's complaint is heard frequently on the Internet where bloggers have blasted the cozy relationship between the Fed and the big banks. In fact, the Fed and Treasury are not only hostile towards regulation, they operate as the de facto policy arm of the banking establishment. This explains why Bernanke has underwritten the entire financial system with $12.8 trillion, while the broader economy languishes in economic quicksand. The Fed's lavish gift amounts to a taxpayer-funded insurance policy for which no premium is paid.
Whalen continues:
"In my view, CDS (credit default swaps) contracts and complex structured assets are deceptive by design and beg the question as to whether a certain level of complexity is so speculative and reckless as to violate US securities and anti-fraud laws. That is, if an OTC derivative contract lacks a clear cash basis and cannot be valued by both parties to the transaction with the same degree of facility and transparency as cash market instruments, then the OTC contact should be treated as fraudulent and banned as a matter of law and regulation. Most CDS contracts and complex structured financial instruments fall into this category of deliberately fraudulent instruments for which no cash basis exists."
No one understands these instruments; they are deliberately opaque and impossible to price. they should be banned, but the Fed and Treasury continue to look the other way because they are in the thrall of the banks. This phenomenon is known as "regulatory capture".
Credit default swaps (CDS) are a particularly insidious invention. They were originally designed to protect against the possibility of bond going into default, but quickly morphed into a means for massive speculation which is virtually indistinguishable from casino-type gambling. CDS can be used to doll-up one's credit rating, short the market or hedge against potential losses. CDS trading poses a clear danger to the financial system (The CDS market has mushroomed to $30 trillion industry) but the Fed and other regulators have largely ignored the activity because it is a cash cow for the banks.
Whalen again:
"It is important for the Committee to understand that the reform proposal from the Obama Administration regarding OTC derivatives is a canard; an attempt by the White House and the Treasury Department to leave in place the de facto monopoly over the OTC markets by the largest dealer banks led by JPM, GS and other institutions....
The only beneficiaries of the current OTC market for derivatives are JPM, GS and the other large OTC dealers.... Without OTC derivatives, Bear Stearns, Lehman Brothers and AIG would never have failed, but without the excessive rents earned by JPM, GS and the remaining legacy OTC dealers, the largest banks cannot survive and must shrink dramatically." (Statement by Christopher Whalen to the Committee on Banking, Housing and Urban Affairs, Subcommittee on Securities, Insurance, and Investment, United States Senate, June 22, 2009)
The Geithner-Summers “reform” proposals are a public relations scam designed to conceal the fact that the banks will continue to maintain their stranglehold on OTC derivatives trading while circumventing government oversight. Nothing will change. Bernanke and Geithner's primary objective is to preserve the ability of the banks to use complex instruments to enhance leverage and maximize profits.
The banks created the financial crisis, and now they are its biggest beneficiaries. They don't need to worry about risk, because Bernanke has assured them that they will be bailed out regardless of the cost. Financial institutions that have explicit government guarantees are able to get cheaper funding because lending to the bank is the same as lending to the state.
It is inaccurate to call the current slump a "recession", which suggests a mismatch between supply and demand that is part of the normal business cycle. In truth, the economy has stumbled into a multi-trillion dollar capital hole that was created by the reckless actions of the nation's largest financial institutions. The banks blew up the system and now the country has slipped into a depression.
Currently, the banks are lobbying congress to preserve the "financial innovations" which are at the heart of the crisis. These so-called innovations are, in fact, the instruments (derivatives) and processes (securitization) which help the banks achieve their main goal of avoiding reserve requirements. Securitization and derivatives are devices for concealing the build-up of leverage which is essential for increasing profits with as little capital as possible. If Congress fails to see through this ruse and re-regulate the system, the banks will inflate another bubble and destroy what little is left of the economy.
On June 22, 2009, Christopher Whalen, of Institutional Risk Analysis, appeared before the Senate Committee on Banking, Housing and Urban Affairs, and outlined the dangers of Over-The-Counter (OTC) derivatives. He pointed out that derivatives trading is hugely profitable and generates "supra-normal returns" for banking giants JP Morgan, Goldman Sachs and other large derivatives dealers. He also noted that, "the deliberate inefficiency of the OTC derivatives market results in a dedicated tax or subsidy meant to benefit one class of financial institutions, namely the largest OTC dealer banks, at the expense of other market participants." As Whalen testified:
"Regulators who are supposed to protect the taxpayer from the costs of cleaning up these periodic loss events are so captured by the very industry they are charged by law to regulate as to be entirely ineffective....The views of the existing financial regulatory agencies and particularly the Federal Reserve Board and Treasury, should get no consideration from the Committee since the views of these agencies are largely duplicative of the views of JPM and the large OTC dealers."
Whalen's complaint is heard frequently on the Internet where bloggers have blasted the cozy relationship between the Fed and the big banks. In fact, the Fed and Treasury are not only hostile towards regulation, they operate as the de facto policy arm of the banking establishment. This explains why Bernanke has underwritten the entire financial system with $12.8 trillion, while the broader economy languishes in economic quicksand. The Fed's lavish gift amounts to a taxpayer-funded insurance policy for which no premium is paid.
Whalen continues:
"In my view, CDS (credit default swaps) contracts and complex structured assets are deceptive by design and beg the question as to whether a certain level of complexity is so speculative and reckless as to violate US securities and anti-fraud laws. That is, if an OTC derivative contract lacks a clear cash basis and cannot be valued by both parties to the transaction with the same degree of facility and transparency as cash market instruments, then the OTC contact should be treated as fraudulent and banned as a matter of law and regulation. Most CDS contracts and complex structured financial instruments fall into this category of deliberately fraudulent instruments for which no cash basis exists."
No one understands these instruments; they are deliberately opaque and impossible to price. they should be banned, but the Fed and Treasury continue to look the other way because they are in the thrall of the banks. This phenomenon is known as "regulatory capture".
Credit default swaps (CDS) are a particularly insidious invention. They were originally designed to protect against the possibility of bond going into default, but quickly morphed into a means for massive speculation which is virtually indistinguishable from casino-type gambling. CDS can be used to doll-up one's credit rating, short the market or hedge against potential losses. CDS trading poses a clear danger to the financial system (The CDS market has mushroomed to $30 trillion industry) but the Fed and other regulators have largely ignored the activity because it is a cash cow for the banks.
Whalen again:
"It is important for the Committee to understand that the reform proposal from the Obama Administration regarding OTC derivatives is a canard; an attempt by the White House and the Treasury Department to leave in place the de facto monopoly over the OTC markets by the largest dealer banks led by JPM, GS and other institutions....
The only beneficiaries of the current OTC market for derivatives are JPM, GS and the other large OTC dealers.... Without OTC derivatives, Bear Stearns, Lehman Brothers and AIG would never have failed, but without the excessive rents earned by JPM, GS and the remaining legacy OTC dealers, the largest banks cannot survive and must shrink dramatically." (Statement by Christopher Whalen to the Committee on Banking, Housing and Urban Affairs, Subcommittee on Securities, Insurance, and Investment, United States Senate, June 22, 2009)
The Geithner-Summers “reform” proposals are a public relations scam designed to conceal the fact that the banks will continue to maintain their stranglehold on OTC derivatives trading while circumventing government oversight. Nothing will change. Bernanke and Geithner's primary objective is to preserve the ability of the banks to use complex instruments to enhance leverage and maximize profits.
The banks created the financial crisis, and now they are its biggest beneficiaries. They don't need to worry about risk, because Bernanke has assured them that they will be bailed out regardless of the cost. Financial institutions that have explicit government guarantees are able to get cheaper funding because lending to the bank is the same as lending to the state.
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