Wednesday, April 28, 2010

'Regulate' Wall Street by controlling gov't deficits?

Very interesting history on the sudden rise of the once very small Wall Street firms in the 1980s, thanks in large part to Reagan's skyrocketing budget deficits.

Although I definitely don't agree with Farrell that the "only way to truly rein in the power of the modern financial giants, aka the too-big-to-fail club, is for governments to embrace balanced budgets," it certainly would help, and it highlights the symbiotic relationship between out-of-control gov't spending and too-big-too-control Wall Street banks which must trade all that gov't debt. (This goes for Europe and Japan, too.)

Since the giant financial firms gorge on massive government debt issuance, a prudent fiscal regime would curb the investment bankers' power

By Chris Farrell
April 28, 2010 | Bloomberg Businessweek

The future of Wall Street certainly seemed bleak on Apr. 27. Executives from Goldman Sachs (GS), the world's most profitable securities firm, were grilled by the Senate Permanent Subcommittee on Investigations for their behavior during the housing market crash. The stature of the firm—and by proxy, Wall Street—are diminished, no matter what comes of the Securities & Exchange Commission's allegation that Goldman defrauded customers in creating and selling a synthetic security during that crash.

But another meeting that day in Washington suggests the possibility of a brighter business future for the major Wall Street firms: the National Commission on Fiscal Responsibility & Reform's gathering at the White House. The bipartisan blue chip group has been charged by President Barack Obama with devising ways to reduce the federal government's $1.4 trillion deficit and bring down its $7.8 trillion debt. The meeting served as a sober reminder that it will take years to bring down the massive amounts of debt the government will be issuing in coming years—assuming that a bipartisan deficit-reduction measure can be agreed upon and passed into law.

Here's the thing: History may not repeat itself, but it does rhyme. In which case the increase in government debt should be a good thing for Wall Street. After all, it isn't just the U.S. that's issuing lots of government debt that needs to be distributed to investors worldwide. Following dramatic actions to shore up their beleaguered economies during the Great Recession, sovereign debt levels of the Group of Seven industrialized nations as a proportion of gross domestic product are nearing 60-year highs, according to the International Monetary Fund.

The numbers are striking. The IMF projects that gross general government debt will reach 78% of GDP in 2010 in the United Kingdom, 77% in Germany, 84% in France, 93% in the U.S., and 227% of GDP in Japan. According to the 2010 league tables compiled by Bloomberg, the leading players in global bonds are Barclays Capital (BCS); JPMorgan (JPM); UBS (UBS); Deutsche Bank (DB); Bank of America Merrill Lynch (BAC); Goldman Sachs; Morgan Stanley (MS); Citigroup (C); Credit Suisse (CS); and HSBC Bank PLC (HBC). The reputations of these Wall Street titans may be tattered at the moment, but governments will need them to market and manage all that debt.


A critical factor behind the rise of modern Wall Street was a major shift in fiscal policy during Ronald Reagan's Presidency. In the post-World War II period, government debt had shrunk as a proportion of GDP. Even in the late 1960s, Wall Street was a small place, still recovering from the debacle of the 1930s. When Roy Smith, a market historian and professor at New York University's Stern School of Business, went to Goldman Sachs in 1966 after graduating from the Harvard Business School, the U.S. investment banking industry was dominated by Morgan Stanley. Investment banking consisted of some 20 partnerships that averaged 500 employees apiece, with an aggregate capital base of less than $100 million.

When Smith arrived on Wall Street, "many of the partners sat in one large Dickensian room behind matching mahogany rolltop desks so they could easily communicate with one another when they needed to," he writes in his latest book, Paper Fortunes: Modern Wall Street; Where It's Been and Where It's Going.

Wall Street started changing during the high-inflation years of the 1970s and the deregulation of commissions. With the rise of supply side economics in the early 1980s, government debt volumes surged and Wall Street expanded with them. All that debt had to be distributed, sold, and traded in large volume. "It had a lot to do with transforming the business model of the firms from advice into being traders for its own sake," says Smith. "You can't be a market maker without being a trader."

The effect was dramatic. For the first eight decades of the 20th century, financial assets grew at about the same rate as GDP, except in wartime. Subsequently the total value of financial assets as a percent of GDP has grown more than twice as much as in the previous 80 years, according to calculations by McKinsey & Co. In 30 years, the Wall Street firms grew from small private partnerships to publicly traded global behemoths.


To be sure, marketing government bonds is a low-margin business. And there were plenty of other things keeping Wall Street busy, from rising stock market trading volumes to merger & acquisition mania. Still, the "growth of government debt might have encouraged all of these other activities by providing safe and liquid securities that could be sold, repo'ed, or otherwise collateralized to fund the other activities," muses Richard Sylla, economic historian at New York University.

Governments are going to need the set of skills honed over the decades by Wall Street financiers. It isn't just the volume of debt. Sovereign bailouts, refinancing, and other financing maneuvers are complicated. "All the major firms are comfortable dealing with U.S. government debt and foreign bonds," says Smith. "It's a great business opportunity for the next several years."

It all implies that financial reform is the solution. The only way to truly rein in the power of the modern financial giants, aka the too-big-to-fail club, is for governments to embrace balanced budgets. That's what Tyler Cowen, economist at George Mason University and Marginal Revolution blogger, recently wrote about the U.S.

"There's a different way to think about the bailouts, namely that the U.S. government stands at the center of a giant nexus of money-raising, most of all goes to finance the U.S. government budget deficit and keep the whole show up and running," Cowen wrote. "If you do wish to break or limit the power of the major banks, running a balanced budget is probably the most important step we could take."

He's right, and not just for the U.S. In the meantime, Wall Street looks to thrive once again on debt volume and market turmoil. Plus ça change ….

Chomsky: Obama no better than W. on Israel

You know, after 9/11 I was called names by some people when I suggested that those attacks were at least partly "chickens coming home to roost" because of America's unquestioning support of Israel. Now that Obama has had the audacity to claim that the Israel-Palestine conflict harms U.S. national security, (which is patently true), he's been called out by the Washington establishment, the Anti-Defamation League (which Jews did Obama defame, anyway?), and of course the Likud conservative wing in Israel.

Not that his policy differs from Bush's, and is in fact even worse. Oh, but the U.S. media and Israel lobby will slam you even if you speak out of turn, policies aside.

By Noam Chomsky
April 27, 2010 |

The fact that the Israel-Palestine conflict grinds on without resolution might appear to be rather strange. For many of the world's conflicts, it is difficult even to conjure up a feasible settlement. In this case, it is not only possible, but there is near universal agreement on its basic contours: a two-state settlement along the internationally recognized (pre-June 1967) borders -- with "minor and mutual modifications," to adopt official U.S. terminology before Washington departed from the international community in the mid-1970s.

The basic principles have been accepted by virtually the entire world, including the Arab states (who go on to call for full normalization of relations), the Organization of Islamic States (including Iran), and relevant non-state actors (including Hamas). A settlement along these lines was first proposed at the U.N. Security Council in January 1976 by the major Arab states. Israel refused to attend the session. The U.S. vetoed the resolution, and did so again in 1980. The record at the General Assembly since is similar.

There was one important and revealing break in U.S.-Israeli rejectionism. After the failed Camp David agreements in 2000, President Clinton recognized that the terms he and Israel had proposed were unacceptable to any Palestinians. That December, he proposed his "parameters": imprecise, but more forthcoming. He then stated that both sides had accepted the parameters, while expressing reservations.

Israeli and Palestinian negotiators met in Taba, Egypt, in January 2001 to resolve the differences and were making considerable progress. In their final press conference, they reported that, with a little more time, they could probably have reached full agreement. Israel called off the negotiations prematurely, however, and official progress then terminated, though informal discussions at a high level continued leading to the Geneva Accord, rejected by Israel and ignored by the U.S.

A good deal has happened since, but a settlement along those lines is still not out of reach -- if, of course, Washington is once again willing to accept it. Unfortunately, there is little sign of that.

Substantial mythology has been created about the entire record, but the basic facts are clear enough and quite well documented.

The U.S. and Israel have been acting in tandem to extend and deepen the occupation. In 2005, recognizing that it was pointless to subsidize a few thousand Israeli settlers in Gaza, who were appropriating substantial resources and protected by a large part of the Israeli army, the government of Ariel Sharon decided to move them to the much more valuable West Bank and Golan Heights.

Instead of carrying out the operation straightforwardly, as would have been easy enough, the government decided to stage a "national trauma," which virtually duplicated the farce accompanying the withdrawal from the Sinai desert after the Camp David agreements of 1978-79. In each case, the withdrawal permitted the cry of "Never Again," which meant in practice: we cannot abandon an inch of the Palestinian territories that we want to take in violation of international law. This farce played very well in the West, though it was ridiculed by more astute Israeli commentators, among them that country's prominent sociologist the late Baruch Kimmerling.

After its formal withdrawal from the Gaza Strip, Israel never actually relinquished its total control over the territory, often described realistically as "the world's largest prison." In January 2006, a few months after the withdrawal, Palestine had an election that was recognized as free and fair by international observers. Palestinians, however, voted "the wrong way," electing Hamas. Instantly, the U.S. and Israel intensified their assault against Gazans as punishment for this misdeed. The facts and the reasoning were not concealed; rather, they were openly published alongside reverential commentary on Washington's sincere dedication to democracy. The U.S.-backed Israeli assault against the Gazans has only been intensified since, thanks to violence and economic strangulation, increasingly savage.

Meanwhile in the West Bank, always with firm U.S. backing, Israel has been carrying forward longstanding programs to take the valuable land and resources of the Palestinians and leave them in unviable cantons, mostly out of sight. Israeli commentators frankly refer to these goals as "neocolonial." Ariel Sharon, the main architect of the settlement programs, called these cantons "Bantustans," though the term is misleading: South Africa needed the majority black work force, while Israel would be happy if the Palestinians disappeared, and its policies are directed to that end.

Blockading Gaza by Land and Sea

One step towards cantonization and the undermining of hopes for Palestinian national survival is the separation of Gaza from the West Bank. These hopes have been almost entirely consigned to oblivion, an atrocity to which we should not contribute by tacit consent. Israeli journalist Amira Hass, one of the leading specialists on Gaza, writes that

"the restrictions on Palestinian movement that Israel introduced in January 1991 reversed a process that had been initiated in June 1967. Back then, and for the first time since 1948, a large portion of the Palestinian people again lived in the open territory of a single country -- to be sure, one that was occupied, but was nevertheless whole.… The total separation of the Gaza Strip from the West Bank is one of the greatest achievements of Israeli politics, whose overarching objective is to prevent a solution based on international decisions and understandings and instead dictate an arrangement based on Israel's military superiority.…

"Since January 1991, Israel has bureaucratically and logistically merely perfected the split and the separation: not only between Palestinians in the occupied territories and their brothers in Israel, but also between the Palestinian residents of Jerusalem and those in the rest of the territories and between Gazans and West Bankers/Jerusalemites. Jews live in this same piece of land within a superior and separate system of privileges, laws, services, physical infrastructure and freedom of movement."

The leading academic specialist on Gaza, Harvard scholar Sara Roy, adds:

"Gaza is an example of a society that has been deliberately reduced to a state of abject destitution, its once productive population transformed into one of aid-dependent paupers.… Gaza's subjection began long before Israel's recent war against it [December 2008]. The Israeli occupation — now largely forgotten or denied by the international community — has devastated Gaza's economy and people, especially since 2006…. After Israel's December [2008] assault, Gaza's already compromised conditions have become virtually unlivable. Livelihoods, homes, and public infrastructure have been damaged or destroyed on a scale that even the Israel Defense Forces admitted was indefensible.

"In Gaza today, there is no private sector to speak of and no industry. 80 percent of Gaza's agricultural crops were destroyed and Israel continues to snipe at farmers attempting to plant and tend fields near the well-fenced and patrolled border. Most productive activity has been extinguished.… Today, 96 percent of Gaza's population of 1.4 million is dependent on humanitarian aid for basic needs. According to the World Food Programme, the Gaza Strip requires a minimum of 400 trucks of food every day just to meet the basic nutritional needs of the population. Yet, despite a March [22, 2009] decision by the Israeli cabinet to lift all restrictions on foodstuffs entering Gaza, only 653 trucks of food and other supplies were allowed entry during the week of May 10, at best meeting 23 percent of required need. Israel now allows only 30 to 40 commercial items to enter Gaza compared to 4,000 approved products prior to June 2006."

[Well, obviously the Palestinians in Gaza have forgotten how to pull themselves up by their bootstraps. - J]

It cannot be too often stressed that Israel had no credible pretext for its 2008–9 attack on Gaza, with full U.S. support and illegally using U.S. weapons. Near-universal opinion asserts the contrary, claiming that Israel was acting in self-defense. That is utterly unsustainable, in light of Israel's flat rejection of peaceful means that were readily available, as Israel and its U.S. partner in crime knew very well. That aside, Israel's siege of Gaza is itself an act of war, as Israel of all countries certainly recognizes, having repeatedly justified launching major wars on grounds of partial restrictions on its access to the outside world, though nothing remotely like what it has long imposed on Gaza.

One crucial element of Israel's criminal siege, little reported, is the naval blockade. Peter Beaumont reports from Gaza that, "on its coastal littoral, Gaza's limitations are marked by a different fence where the bars are Israeli gunboats with their huge wakes, scurrying beyond the Palestinian fishing boats and preventing them from going outside a zone imposed by the warships." According to reports from the scene, the naval siege has been tightened steadily since 2000. Fishing boats have been driven steadily out of Gaza's territorial waters and toward the shore by Israeli gunboats, often violently without warning and with many casualties. As a result of these naval actions, Gaza's fishing industry has virtually collapsed; fishing is impossible near shore because of the contamination caused by Israel's regular attacks, including the destruction of power plants and sewage facilities.

These Israeli naval attacks began shortly after the discovery by the BG (British Gas) Group of what appear to be quite sizeable natural gas fields in Gaza's territorial waters. Industry journals report that Israel is already appropriating these Gazan resources for its own use, part of its commitment to shift its economy to natural gas. The standard industry source reports:

"Israel's finance ministry has given the Israel Electric Corp. (IEC) approval to purchase larger quantities of natural gas from BG than originally agreed upon, according to Israeli government sources [which] said the state-owned utility would be able to negotiate for as much as 1.5 billion cubic meters of natural gas from the Marine field located off the Mediterranean coast of the Palestinian controlled Gaza Strip.

"Last year the Israeli government approved the purchase of 800 million cubic meters of gas from the field by the IEC…. Recently the Israeli government changed its policy and decided the state-owned utility could buy the entire quantity of gas from the Gaza Marine field. Previously the government had said the IEC could buy half the total amount and the remainder would be bought by private power producers."

The pillage of what could become a major source of income for Gaza is surely known to U.S. authorities. It is only reasonable to suppose that the intention to appropriate these limited resources, either by Israel alone or together with the collaborationist Palestinian Authority, is the motive for preventing Gazan fishing boats from entering Gaza's territorial waters.

There are some instructive precedents. In 1989, Australian foreign minister Gareth Evans signed a treaty with his Indonesian counterpart Ali Alatas granting Australia rights to the substantial oil reserves in "the Indonesian Province of East Timor." The Indonesia-Australia Timor Gap Treaty, which offered not a crumb to the people whose oil was being stolen, "is the only legal agreement anywhere in the world that effectively recognises Indonesia's right to rule East Timor," the Australian press reported.

Asked about his willingness to recognize the Indonesian conquest and to rob the sole resource of the conquered territory, which had been subjected to near-genocidal slaughter by the Indonesian invader with the strong support of Australia (along with the U.S., the U.K., and some others), Evans explained that "there is no binding legal obligation not to recognise the acquisition of territory that was acquired by force," adding that "the world is a pretty unfair place, littered with examples of acquisition by force."

It should, then, be unproblematic for Israel to follow suit in Gaza.

A few years later, Evans became the leading figure in the campaign to introduce the concept "responsibility to protect" -- known as R2P -- into international law. R2P is intended to establish an international obligation to protect populations from grave crimes. Evans is the author of a major book on the subject and was co-chair of the International Commission on Intervention and State Sovereignty, which issued what is considered the basic document on R2P.

In an article devoted to this "idealistic effort to establish a new humanitarian principle," the London Economist featured Evans and his "bold but passionate claim on behalf of a three-word expression which (in quite large part thanks to his efforts) now belongs to the language of diplomacy: the 'responsibility to protect.'" The article is accompanied by a picture of Evans with the caption "Evans: a lifelong passion to protect." His hand is pressed to his forehead in despair over the difficulties faced by his idealistic effort. The journal chose not to run a different photo that circulates in Australia, depicting Evans and Alatas exuberantly clasping their hands together as they toast the Timor Gap Treaty that they had just signed.

Though a "protected population" under international law, Gazans do not fall under the jurisdiction of the "responsibility to protect," joining other unfortunates, in accord with the maxim of Thucydides -- that the strong do as they wish, and the weak suffer as they must -- which holds with its customary precision.

Obama and the Settlements

The kinds of restrictions on movement used to destroy Gaza have long been in force in the West Bank as well, less cruelly but with grim effects on life and the economy. The World Bank reports that Israel has established "a complex closure regime that restricts Palestinian access to large areas of the West Bank… The Palestinian economy has remained stagnant, largely because of the sharp downturn in Gaza and Israel's continued restrictions on Palestinian trade and movement in the West Bank."

The World Bank "cited Israeli roadblocks and checkpoints hindering trade and travel, as well as restrictions on Palestinian building in the West Bank, where the Western-backed government of Palestinian president Mahmoud Abbas holds sway." Israel does permit -- indeed encourage -- a privileged existence for elites in Ramallah and sometimes elsewhere, largely relying on European funding, a traditional feature of colonial and neocolonial practice.

All of this constitutes what Israeli activist Jeff Halper calls a "matrix of control" to subdue the colonized population. These systematic programs over more than 40 years aim to establish Defense Minister Moshe Dayan's recommendation to his colleagues shortly after Israel's 1967 conquests that we must tell the Palestinians in the territories: "We have no solution, you shall continue to live like dogs, and whoever wishes may leave, and we will see where this process leads."

Turning to the second bone of contention, settlements, there is indeed a confrontation, but it is rather less dramatic than portrayed. Washington's position was presented most strongly in Secretary of State Hillary Clinton's much-quoted statement rejecting "natural growth exceptions" to the policy opposing new settlements. Prime Minister Benjamin Netanyahu, along with President Shimon Peres and, in fact, virtually the whole Israeli political spectrum, insists on permitting "natural growth" within the areas that Israel intends to annex, complaining that the United States is backing down on George W. Bush's authorization of such expansion within his "vision" of a Palestinian state.

Senior Netanyahu cabinet members have gone further. Transportation Minister Yisrael Katz announced that "the current Israeli government will not accept in any way the freezing of legal settlement activity in Judea and Samaria." The term "legal" in U.S.-Israeli parlance means "illegal, but authorized by the government of Israel with a wink from Washington." In this usage, unauthorized outposts are termed "illegal," though apart from the dictates of the powerful, they are no more illegal than the settlements granted to Israel under Bush's "vision" and Obama's scrupulous omission.

The Obama-Clinton "hardball" formulation is not new. It repeats the wording of the Bush administration draft of the 2003 Road Map, which stipulates that in Phase I, "Israel freezes all settlement activity (including natural growth of settlements)." All sides formally accept the Road Map (modified to drop the phrase "natural growth") -- consistently overlooking the fact that Israel, with U.S. support, at once added 14 "reservations" that render it inoperable.

If Obama were at all serious about opposing settlement expansion, he could easily proceed with concrete measures by, for example, reducing U.S. aid by the amount devoted to this purpose. That would hardly be a radical or courageous move. The Bush I administration did so (reducing loan guarantees), but after the Oslo accord in 1993, President Clinton left calculations to the government of Israel. Unsurprisingly, there was "no change in the expenditures flowing to the settlements," the Israeli press reported. "[Prime Minister] Rabin will continue not to dry out the settlements," the report concludes. "And the Americans? They will understand."

Obama administration officials informed the press that the Bush I measures are "not under discussion," and that pressures will be "largely symbolic." In short, Obama understands, just as Clinton and Bush II did.

American Visionaries

At best, settlement expansion is a side issue, rather like the issue of "illegal outposts" -- namely those that the government of Israel has not authorized. Concentration on these issues diverts attention from the fact that there are no "legal outposts" and that it is the existing settlements that are the primary problem to be faced.

The U.S. press reports that "a partial freeze has been in place for several years, but settlers have found ways around the strictures… [C]onstruction in the settlements has slowed but never stopped, continuing at an annual rate of about 1,500 to 2,000 units over the past three years. If building continues at the 2008 rate, the 46,500 units already approved will be completed in about 20 years.… If Israel built all the housing units already approved in the nation's overall master plan for settlements, it would almost double the number of settler homes in the West Bank." Peace Now, which monitors settlement activities, estimates further that the two largest settlements would double in size: Ariel and Ma'aleh Adumim, built mainly during the Oslo years in the salients that subdivide the West Bank into cantons.

"Natural population growth" is largely a myth, Israel's leading diplomatic correspondent, Akiva Eldar, points out, citing demographic studies by Colonel (res.) Shaul Arieli, deputy military secretary to former prime minister and incumbent defense minister Ehud Barak. Settlement growth consists largely of Israeli immigrants in violation of the Geneva Conventions, assisted with generous subsidies. Much of it is in direct violation of formal government decisions, but carried out with the authorization of the government, specifically Barak, considered a dove in the Israeli spectrum.

Correspondent Jackson Diehl derides the "long-dormant Palestinian fantasy," revived by President Abbas, "that the United States will simply force Israel to make critical concessions, whether or not its democratic government agrees." He does not explain why refusal to participate in Israel's illegal expansion -- which, if serious, would "force Israel to make critical concessions" -- would be improper interference in Israel's democracy.

Returning to reality, all of these discussions about settlement expansion evade the most crucial issue about settlements: what the United States and Israel have already established in the West Bank. The evasion tacitly concedes that the illegal settlement programs already in place are somehow acceptable (putting aside the Golan Heights, annexed in violation of Security Council orders) -- though the Bush "vision," apparently accepted by Obama, moves from tacit to explicit support for these violations of law. What is in place already suffices to ensure that there can be no viable Palestinian self-determination. Hence, there is every indication that even on the unlikely assumption that "natural growth" will be ended, U.S.-Israeli rejectionism will persist, blocking the international consensus as before.

Subsequently, Prime Minister Netanyahu declared a 10-month suspension of new construction, with many exemptions, and entirely excluding Greater Jerusalem, where expropriation in Arab areas and construction for Jewish settlers continues at a rapid pace. Hillary Clinton praised these "unprecedented" concessions on (illegal) construction, eliciting anger and ridicule in much of the world.

It might be different if a legitimate "land swap" were under consideration, a solution approached at Taba and spelled out more fully in the Geneva Accord reached in informal high-level Israel-Palestine negotiations. The accord was presented in Geneva in October 2003, welcomed by much of the world, rejected by Israel, and ignored by the United States.

Washington's "Evenhandedness"

Barack Obama's June 4, 2009, Cairo address to the Muslim world kept pretty much to his well-honed "blank slate" style -- with little of substance, but presented in a personable manner that allows listeners to write on the slate what they want to hear. CNN captured its spirit in headlining a report "Obama Looks to Reach the Soul of the Muslim World." Obama had announced the goals of his address in an interview with New York Times columnist Thomas Friedman. "'We have a joke around the White House,' the president said. 'We're just going to keep on telling the truth until it stops working and nowhere is truth-telling more important than the Middle East.'" The White House commitment is most welcome, but it is useful to see how it translates into practice.

Obama admonished his audience that it is easy to "point fingers… but if we see this conflict only from one side or the other, then we will be blind to the truth: the only resolution is for the aspirations of both sides to be met through two states, where Israelis and Palestinians each live in peace and security."

Turning from Obama-Friedman Truth to truth, there is a third side, with a decisive role throughout: the United States. But that participant in the conflict Obama omitted. The omission is understood to be normal and appropriate, hence unmentioned: Friedman's column is headlined "Obama Speech Aimed at Both Arabs and Israelis." The front-page Wall Street Journal report on Obama's speech appears under the heading "Obama Chides Israel, Arabs in His Overture to Muslims." Other reports are the same.

The convention is understandable on the doctrinal principle that though the U.S. government sometimes makes mistakes, its intentions are by definition benign, even noble. In the world of attractive imagery, Washington has always sought desperately to be an honest broker, yearning to advance peace and justice. The doctrine trumps truth, of which there is little hint in the speech or the mainstream coverage of it.

Obama once again echoed Bush's "vision" of two states, without saying what he meant by the phrase "Palestinian state." His intentions were clarified not only by the crucial omissions already discussed, but also by his one explicit criticism of Israel: "The United States does not accept the legitimacy of continued Israeli settlements. This construction violates previous agreements and undermines efforts to achieve peace. It is time for these settlements to stop." That is, Israel should live up to Phase I of the 2003 Road Map, rejected at once by Israel with tacit U.S. support, as noted -- though the truth is that Obama has ruled out even steps of the Bush I variety to withdraw from participation in these crimes.

The operative words are "legitimacy" and "continued." By omission, Obama indicates that he accepts Bush's vision: the vast existing settlement and infrastructure projects are "legitimate," thus ensuring that the phrase "Palestinian state" means "fried chicken."

Always even-handed, Obama also had an admonition for the Arab states: they "must recognize that the Arab Peace Initiative was an important beginning, but not the end of their responsibilities." Plainly, however, it cannot be a meaningful "beginning" if Obama continues to reject its core principles: implementation of the international consensus. To do so, however, is evidently not Washington's "responsibility" in Obama's vision; no explanation given, no notice taken.

On democracy, Obama said that "we would not presume to pick the outcome of a peaceful election" -- as in January 2006, when Washington picked the outcome with a vengeance, turning at once to severe punishment of the Palestinians because it did not like the outcome of a peaceful election, all with Obama's apparent approval judging by his words before, and actions since, taking office.

Obama politely refrained from comment about his host, President Mubarak, one of the most brutal dictators in the region, though he has had some illuminating words about him. As he was about to board a plane to Saudi Arabia and Egypt, the two "moderate" Arab states, "Mr. Obama signaled that while he would mention American concerns about human rights in Egypt, he would not challenge Mr. Mubarak too sharply, because he is a 'force for stability and good' in the Middle East… Mr. Obama said he did not regard Mr. Mubarak as an authoritarian leader. 'No, I tend not to use labels for folks,' Mr. Obama said. The president noted that there had been criticism 'of the manner in which politics operates in Egypt,' but he also said that Mr. Mubarak had been 'a stalwart ally, in many respects, to the United States.'"

When a politician uses the word "folks," we should brace ourselves for the deceit, or worse, that is coming. Outside of this context, there are "people," or often "villains," and using labels for them is highly meritorious. Obama is right, however, not to have used the word "authoritarian," which is far too mild a label for his friend.

Just as in the past, support for democracy, and for human rights as well, keeps to the pattern that scholarship has repeatedly discovered, correlating closely with strategic and economic objectives. There should be little difficulty in understanding why those whose eyes are not closed tight shut by rigid doctrine dismiss Obama's yearning for human rights and democracy as a joke in bad taste.

Polls: Americans schizo & confused about economic plight

We all know who the real enemy is: that Muslim African Marxist in the White House. If we could just impeach or un-elect him, all our problems would go away. Why can't people who don't tea party see that???

Studies Reveal Declining Living Standards and Increasing Anger
By Hiram Lee
April 24, 2010 | Global Research

A series of recent studies conducted by the Pew Research Center shed new light on the scope of the economic crisis in the US and the level of hostility the majority of the American population holds for the US government.

Released in March, before the passage of the Obama administration's health care legislation, a survey entitled "Health Care Reform—Can't Live With It, or Without It" indicates that 92 percent of Americans give the national economy a negative rating. No fewer than 70 percent of the respondents report having suffered job-related and financial problems in the past year, an increase from 59 percent the year before. Fifty-four percent report someone in their home has been without a job and looking for work in the past year, up from 39 percent in 2009.

The poll saw an aggravation of conditions in every area of economic life studied the year before. Increasing numbers of people are reporting difficulty receiving or affording medical care (26 percent) or paying their rent or mortgage payments (24 percent). More Americans faced problems with collections and credit agencies (21 percent), or had mortgages, loans or credit card applications denied (19 percent).

As could be expected, the poorest Americans are suffering the most. Some 44 percent of those making $30,000 per year or less report difficulty obtaining medical care, compared to 11 percent of those making $75,000 per year or more. A similar gap can be found in the category of rents and mortgages, with 37 percent of those making $30,000 or less reporting difficulty making rent or mortgage payments, compared to 11 percent of those making $75,000 or more. However, the percentage of those facing difficulties paying rent has increased dramatically for both groups since 2009.

[Obviously the problem is that too many people make $30,000 or less. They need to pull themselves up by their bootstraps and start drinking the trickle of economic goodies flowing down to them! - J]

Large numbers of workers polled in the study say they have little confidence in job security and prospects for the future, with almost half (49 percent) saying it is "very or somewhat likely" they will suffer "job-related financial stress" in the next year. Twenty-five percent of workers say they expect to be forced to take a pay cut this year, while 24 percent expect to be laid off.

The Pew survey found that 85 percent of Americans reported difficulty finding jobs in their communities. This and other statistics revealing the increasingly dismal employment opportunities facing millions of Americans are provided context in another study released this month by the Pew Economic Policy Group.

"A Year or More: The High Cost of Long-Term Unemployment" reports that no fewer than 44 percent of unemployed Americans met or exceeded the standard measure of long-term unemployment (six months or more) in March 2010. This marks the highest rate for long-term unemployment levels since World War II.

In addition to this, the Pew study reports that "23 percent of the nearly 15 million Americans who are unemployed have been jobless for a year or more." This translates to 3.4 million people, "roughly equivalent," the study points out, "to the population of the state of Connecticut."

These alarming numbers should be considered along with findings in another recent Pew research study entitled "The People and Their Government," released April 18. This report finds that "by almost every conceivable measure Americans are less positive and more critical of government these days."

Only 22 percent of Americans say their government can be trusted, according to the new survey. The report puts this among the lowest measures of trust in the government in half a century.

The study also shows across-the-board declines in approval ratings for numerous federal agencies, including the Department of Education, the Food and Drug Administration, the Social Security Administration, the Environmental Protection Agency, and the Centers for Disease Control and Prevention. Forty-three percent say the government has a negative effect on their daily life, up from 31 percent in 1997.

[Right on! It's all that education, food and drug safety, social security, environmental protection, and disease control and prevention that is keeping the average worker down. Get rid of all those things and -- zoom! -- watch the U.S. economy take off! Sounds like sound policy to me. - J]

While approval ratings for the government are remarkably low, with 65 percent saying the federal government and congress have a negative impact "on the way things are going in the country," the approval ratings for other major institutions are as low or lower. Sixty-nine percent of those surveyed say banks and other financial institutions have a negative impact on the way things are going in the country, while 64 percent say "large corporations" have a negative impact. Some 57 percent say the national news media has a negative impact, while 49 percent say labor unions have such an impact.

The report states that "more than six-in-ten (62%) say it is a major problem that government policies unfairly benefit some groups while nearly as many (56%) say that government does not do enough to help average Americans."

[Exactly! The federal government is doing both too much and too little to help the Little Guy. Start helping us out and get off our backs, Big Guvmint! - J]

Taken as a whole, the Pew studies from March and April offer additional insight into the growing social misery under conditions of the worst economic crisis since the Great Depression, and the outrage it is generating.

Wide layers of the population, who have seen trillions of dollars funneled from the public treasury into the coffers of Wall Street executives while their own living standards have been assaulted, their jobs slashed, their children's schools closed, and vital social programs such as Medicare cut by billions of dollars, have no faith in the US government to secure their most basic social needs.

The corporate-controlled news media, along with the major institutions overseeing the nation's educational needs and basic food and medical resources, are considered corrupt and untrustworthy, contributing to the suffering of millions.

President Barack Obama, continuing to pose as a populist man of the people when he finds it necessary or beneficial, stands exposed as the chief representative of the interests of the American ruling elite and the standard bearer in the assault on the working class.

[No, that's a lib'rul media bias and myth. See, Obama is a socialist who wants to destroy the ruling economic elite and America in the process. - J]

The restructuring of society taking place, in the direct interests of the corporate-financial elite and at the expense of the working population, is not occurring unnoticed. The American and international working class will inevitably find itself drawn into struggle against the present, untenable form of social organization.

U.S. Military: PowerPoint is the enemy

So just like everything made by Microsoft, we hate PPT but we haven't yet figured out how to live without it.

We Have Met the Enemy and He Is PowerPoint

A PowerPoint diagram meant to portray the complexity of American strategy in Afghanistan certainly succeeded in that aim.

By Elisabeth Bumiller
April 26, 2010 | New York Times


Tuesday, April 27, 2010

Book: Chernobyl killed almost 1 million people

I guess we're all Ukrainian, whether we like it or not. (That goes for Belarusians too).

Book's Astounding Allegation: Chernobyl Radiation Killed Nearly One Million People

Emissions from this one reactor exceeded a hundred-fold the radioactive contamination of the bombs dropped on Hiroshima and Nagasaki according to a new book.

April 26, 2010 | Environmental News Service

Nearly one million people around the world died from exposure to radiation released by the 1986 nuclear disaster at the Chernobyl reactor, finds a new book from the New York Academy of Sciences published today on the 24th anniversary of the meltdown at the Soviet facility.

The book, "Chernobyl: Consequences of the Catastrophe for People and the Environment," was compiled by authors Alexey Yablokov of the Center for Russian Environmental Policy in Moscow, and Vassily Nesterenko and Alexey Nesterenko of the Institute of Radiation Safety, in Minsk, Belarus.

The authors examined more than 5,000 published articles and studies, most written in Slavic languages and never before available in English.

The authors said, "For the past 23 years, it has been clear that there is a danger greater than nuclear weapons concealed within nuclear power. Emissions from this one reactor exceeded a hundred-fold the radioactive contamination of the bombs dropped on Hiroshima and Nagasaki."

"No citizen of any country can be assured that he or she can be protected from radioactive contamination. One nuclear reactor can pollute half the globe," they said. "Chernobyl fallout covers the entire Northern Hemisphere."

WSJ: 9 years to clear foreclosed housing inventory

Here I was worried that I'd miss the nadir of the housing market. Nah, I think I can wait a little longer to buy.

Sunday, April 25, 2010

Hawking: Earth should beware aliens

Hawking proves that space aliens can't be any scarier looking than he is.
Warned Stephen Hawking:
"We only have to look at ourselves to see how intelligent life might develop into something we wouldn't want to meet. I imagine they might exist in massive ships, having used up all the resources from their home planet. Such advanced aliens would perhaps become nomads, looking to conquer and colonise whatever planets they can reach."
He concludes that trying to make contact with alien races is 'a little too risky'. He said: "If aliens ever visit us, I think the outcome would be much as when Christopher Columbus first landed in America, which didn't turn out very well for the Native Americans."

Well, you don't have to be a disabled genius astrophysicist to know that. All you had to do was watch Independence Day or the re-make of War of the Worlds

And if you've ever listened to Sarah Palin or Tom Tancredo, then you know we should also beware terrestrial aliens who are nomads looking to conquer and colonize whatever countries they can reach.

By Jonathan Leake
April 25, 2010 | Times Online

Simon Johnson & James Kwak on breaking up the U.S. oligarchy

I'm including only this semi-optimistic excerpted quote from 13 Bankers co-author, co-creator, and MIT business professor Simon Johnson, in order to give some much needed historical perspective on the crisis we find ourselves in today.

Interview with Simon Johnson and James Kwak
April 23, 2010 | PBS


Bill Moyers: But we can't compete with those lobbying dollars. We can't compete with this interlocking oligarchy that you say. That's a fact.

Simon Johnson: Bill, in 1902, when Theodore Roosevelt took on the industrial trusts, nobody knew what he was doing. Nobody thought he could win. The Senate was called the Millionaires Club for a reason. And it wasn't even any theory. The antitrust theory, everything we know and believe about monopoly, why monopoly is bad for society, didn't really exist, certainly not in the mainstream consensus, when Roosevelt decided to take on J.P. Morgan, okay?

Ten years later, the mainstream consensus has shifted completely. People understood from the debate and from the struggle, from the fact- from the way the trusts fought back and the way they spent their money, they began to understand this was profoundly dangerous, politically and socially. 1912, everyone agreed that breaking up Standard Oil was a good idea. Had to be done. They broke into 35 companies, most of them did well. The shareholders actually made money. It's a very American resolution, Bill. And it's very clear that we've had this confrontation before in American history: Andrew Jackson against the Second Bank of the United States in the 1830s, Jackson won, barely; Theodore Roosevelt, the beginning of the 20th Century; FDR in the 1930s.

The American democracy was not given to us on a platter. It is not ours for all time, irrespective of our efforts. Either people organize and they find political leadership to take this on, or we are going to be in big trouble, okay?

More heroic testimony from Rambo-regulator Bill Black

More amazing testimony from former bank regulator Bill Black. You can watch it here:

or read the following transcript:

Interview with Bill Black
April 23, 2010

BILL MOYERS: You probably heard the President speaking in New York yesterday, stumping for more regulation of Wall Street:

You've also probably heard about the government's charge that Goldman Sachs committed a highly sophisticated fraud. The claim is that this kingpin of Wall Street made a bundle by packaging mortgage debt as exotic investments some in the firm knew would fail.

That word "fraud" pops up more and more as we dig deeper into Wall Street's outrageous behavior during the run up to the great collapse of 2008. We heard it right here on the Journal, one year ago.

WILLIAM K. BLACK: Fraud is deceit. And the essence of fraud is, "I create trust in you, and then I betray that trust, and get you to give me something of value." And as a result, there's no more effective acid against trust than fraud, especially fraud by top elites, and that's what we have.

BILL MOYERS: That was Bill Black, who's no stranger to bank investigations. He was a senior regulator for the Federal Home Loan Board who cracked down on banking during the Savings & Loan crisis of the 1980s.

Just this week, he was on Capitol Hill testifying about another failed financial firm, Lehman Brothers.

WILLIAM K. BLACK Lehman's failure is a story in large part of fraud. And it is fraud that begins at the absolute latest in 2001.

BILL MOYERS: Bill Black is with me now. One of the country's leading experts on crimes in high places he teaches economics and law at the University of Missouri-Kansas City, and wrote this book, THE BEST WAY TO ROB A BANK IS TO OWN ONE.

Welcome back to the JOURNAL.


BILL MOYERS: What did you think of the President's speech late this week?

WILLIAM K. BLACK It's a good speech. He's a very good spokesman for his causes. I don't think substantively the measures are going to prevent a future crisis. And I was disappointed that he wasn't willing to be blunt. He used a number of euphemisms, but he was unwilling to use the F word.

BILL MOYERS: The F word?

WILLIAM K. BLACK: The F word's fraud in this. And it's the word that explains why we have these recurrent, intensifying crisis.

BILL MOYERS: How is that? What do you mean when you say fraud is at the center of it?

WILLIAM K. BLACK: Well, first, when you deregulate or never regulate, mortgage bankers were never regulated, you effectively have decriminalized that industry, because only the regulators can serve as the sherpas, that the FBI and the prosecutors need to be able to understand and prosecute these kind of complex frauds. They can do one or two or maybe three on their own, but when an entire industry is beset by wide scale fraud, you have to have the regulators. And the regulators were the problem. They became a self-fulfilling prophecy of failure, because they, President Bush appointed people who hated regulation. I call them the anti-regulators. And that's what they were.

BILL MOYERS: This hearing that, where you testified this week, looking into the bankruptcy at Lehman Brothers, had something on this.

TIMOTHY GEITHNER: And tragically, when we saw firms manage themselves to the edge of failure, the government had exceptionally limited authority to step in and to protect the economy from those failures.

BEN BERNANKE: In September 2008, no government agency had sufficient authority to compel Lehman to operate in a safe and sound manner and in a way that did not pose dangers to the broader financial system.

ANTON VALUKAS: What is clear is that the regulators were not fully engaged and did not direct Lehman to alter the conduct which we now know in retrospect led to Lehman's ruin.

BILL MOYERS: The regulators were not fully engaged. I mean, this is an old story. We all know about regulatory capture where the regulated take control of the regulators.

WILLIAM K. BLACK Yeah, but this one is far worse. That's not very candid testimony on anybody's part there. The Fed had unique authority. And it had it since 1994 to regulate every single mortgage lender in America. And you might think the Fed would use that authority.

And you might especially think that, if you knew that Gramlich, one of the Fed members, went personally to Alan Greenspan and said, there's a housing bubble. And there's a terrible crisis in non-prime. We need to send the examiners in. We need to use our regulatory authority. And Greenspan refused. Lehman was brought down primarily by selling liar's loans. It was the biggest seller of liar's loans in the world.

And when we look at these liar's loans, we find 90 percent fraud. 90 percent. And we find that most of the frauds are not induced by the borrower, but they're overwhelmingly done by the loan brokers.

BILL MOYERS: And liar's loans are?

WILLIAM K. BLACK A liar's loan is we don't get any verified information from you about your income, your employment, your job history or your assets.

BILL MOYERS: You give me a loan, no questions asked?

WILLIAM K. BLACK No real questions asked. Certainly no answers checked. In fact, we just had hearings last week about WaMu, which is also a huge player--

BILL MOYERS: Washington Mutual--

WILLIAM K. BLACK --in these frauds. Washington Mutual, which used to make, run all those ads making fun of bankers who, because they were stuffy and looked at loan quality before they made a loan. Well, WaMu didn't do any of that stuff. And of course, WaMu had just massive failures. And who got in trouble at WaMu? Who got in trouble at Lehman? You got in trouble if you told the truth. They fired the people who found the problems. They promoted the people that caused the problem, and they gave them massive bonuses.

BILL MOYERS: I watched the testimony where you were present the other day in the Lehman hearings. And there was a very moving moment with a former vice-president of Lehman Brothers who had gone and tried to blow the whistle, who tried to get people to pay attention to what was going on. Take a look.

MATTHEW LEE: I hand-delivered my letter to the four addressees and I'll give a quick timeline of what happened, May 16th was a Friday, on the Monday I sat down with the chief risk officer and discussed the letter, on the Wednesday I sat down with the general counsel and the head of internal audit, discussed the letter. On the Thursday I was on a conference call to Brazil. Somebody came into my office, pulled me out, and fired me on the spot with out any notification. I stayed, sorry.

BILL MOYERS: Matthew Lee, vice-president of Lehman Brothers, fired because he tried to blow the whistle. What does that say to you?

WILLIAM K. BLACK Well, it tells me that they were covering up the frauds, that they knew about the frauds and that they were desperate to prevent other people from learning.

BILL MOYERS: Matthew Lee told the accounting firm Ernst & Young what was going on. Isn't the accounting firm supposed to report this, once they learn from somebody like him that there's fraud going on?

WILLIAM K. BLACK Yes, they're supposed to be the most important gatekeeper. They're supposed to be independent. They're supposed to be ultra-professional. But they have an enormous problem, and it's compensation. And that is, the way you rise to power within one of these big four accounting firms is by being a rainmaker, bringing in the big clients.

And so, every single one of these major frauds we call control frauds in the financial sphere has been-- their weapon of choice has been accounting. And every single one, for many years, was able to get what we call clean opinions from one of the most prestigious audit firms in the world, while they were massively fraudulent and deeply insolvent.

BILL MOYERS: I read an essay last night where you describe what you call a criminogenic environment. What is a criminogenic environment?

WILLIAM K. BLACK A criminogenic environment is a steal from pathology, a pathogenic environment, an environment that spreads disease. In this case, it's an environment that spreads fraud. And there are two key elements. One we talked about. If you don't regulate, you create a criminogenic environment because you can get away with the frauds. The second is compensation. And that has two elements. One is the executive compensation that people have talked about that creates the perverse incentives. But the second is for these professionals. And for the lower level employees, to give the bonuses. And it creates what we call a Gresham's dynamic. And that just means cheaters prosper. And when cheaters prosper, markets become perverse and they drive honesty out of the market.

BILL MOYERS: You also wrote that the New York Federal Reserve knew about this so-called three-card monte routine. But that, the man who led it, at the time, Timothy Geithner, now the treasury secretary, testified that there was nothing he could do.

TIMOTHY GEITHNER: In our system the Federal Reserve was a fire station, a fire station with important, if limited, tools to put foam on the runway, to provide liquidity to markets in extremis. However, the Federal Reserve, under the laws of this land was not given any legal authority to set or enforce limits on risk-taking by large financial institutions like the independent investment banks, insurance companies like AIG, Fannie and Freddie, or the hundreds of non-bank financial firms that operated outside the constraints of the banking system.

BILL MOYERS: Now, what I hear is the gentleman who was then chairman of the New York Fed, saying, I, we had this job to do, but we didn't have the authority to do it.


BILL MOYERS: We were the fire truck, but we didn't have any water in our hose.

WILLIAM K. BLACK Yeah, this was pretty disingenuous, because other portions of his testimony, he explained why there was this gap. And he said it was because we repealed Glass-Steagall. Well, the Fed pushed for the repeal of Glass-Steagall.

BILL MOYERS: Glass-Steagall was the act that was repealed in the late nineties that separated regular banks from investment banks, right?

WILLIAM K. BLACK Correct. So this is a deliberately created regulatory black hole, created by the Fed. And then the Fed comes into the hearing, eight years later, and said, we were helpless. Helpless to do anything, because of a black hole we designed.

BILL MOYERS: Well, it doesn't stop there, because as I listened the other day, I heard that the Securities and Exchange Commission knew that Lehman was repeatedly ignoring its own risks, but it did nothing. Here's what the new chairman of the SEC, Mary Schapiro, had to say the other day, about why the commission fell down on the job. Take a look.

MARY SCHAPIRO: The SEC didn't have the staff, the resources, or quite honestly, in some ways, the mindset to be a prudential regulator of the largest financial institutions in the world. It was such a deviation from our historic disclosure-based and rules-based approach to regulation to come in and be a prudential supervisor. The staff was never given the resources. This program peaked at 24 people for the entire universe of the five largest investment banking firms in the world.

WILLIAM K. BLACK Well, this is another example, the self-fulfilling failure. This wasn't done under Mary Shapiro's watch.


WILLIAM K. BLACK: This was Chris Cox, who was Bush's appointment. And he's the one who decided, we're only going to send 24 people to deal with all of the largest investment banks in the world. Now that's a farce. And everybody knows it's a farce. He didn't want effective regulation. We both spent time, considerable time, in Texas. And you know, the joke, one riot, one ranger, right?

BILL MOYERS: Texas ranger, right.

WILLIAM K. BLACK Treasury Secretary Geithner testified that in the circumstances they were dealing with at Lehman, "We were on the brink of the destruction of the entire global financial system." And then Chairman Bernanke testified how many people the Fed sent to Lehman to prevent us on the brink of global collapse.

BILL MOYERS: And how many?

WILLIAM K. BLACK: Two. They have a staff of thousands. This is criminal negligence except, because he's a federal employee, we can't charge him with a crime.

BILL MOYERS: Let's talk a moment about the government's allegations against Goldman Sachs. I mean, I get dizzy just reading about it. But the Wall Street Journal reporters did a terrific job this week of trying to sort it out. And they say, "It centers on a deal Goldman Sachs crafted, so that the hedge fund king, John Paulson, could bet on a collapse in housing prices." Is that your reading of it?

WILLIAM K. BLACK Yes, I mean, the complaint actually focuses on lying to investors. So it's a very traditional securities fraud complaint.

BILL MOYERS: Not about Paulson, by the way. He's not mentioned in the complaint.

WILLIAM K. BLACK No, but that's really interesting. And as to whether he will be mentioned eventually in this complaint, because Paulson has lots of potential liability on this one. John Paulson was allowed by Goldman, indeed encouraged by Goldman, to create a "Most Likely to Fail" list. So he took, within a particular category, the absolute worst stuff, because he wanted to bet that the stuff would fall in value. And they were certain to fall in value in terms of the economics.

BILL MOYERS: Wasn't he betting that people wouldn't be able to pay their mortgages?

WILLIAM K. BLACK Not even necessarily that, because most of these are liar's loans, again. And they will not pay, right? It's not an issue of liar's loans, will it work or will it not work. It's only when will it blow up. A liar's loan will blow up. If housing prices keep going up for three years hugely, then they will blow up in the fourth year.

But they will blow up. So he was betting against something that he knew was going to blow up. He didn't necessarily know the timing, but he proved to be right about the timing, because we know from the SEC complaint that he was in a rush to get this. He knew that the housing collapse was imminent. And he had to get this deal done right away. And Goldman Sachs felt the same thing. So they went and they got themselves a dupe, ACA. And they told the -- ACA is a group that puts together and supposedly checks the quality of mortgages. Not very well, as it turned out, of course. An investor would obviously want to know that this portfolio was picked to fail. Instead, they were told, according to the SEC complaint, "No, no, no, no. There's no John Paulson out there. There's only ACA, and it's in your corner. And it's picking a portfolio most likely to succeed." Now if John Paulson knew that Goldman was making those representations, then John Paulson knew those representations were false. And that could make him an aider and abettor.

BILL MOYERS: So tell me where the fraud might be in there, if the government proves its case.

WILLIAM K. BLACK Well, the fraud is, I'm representing to you, the potential investor, that a competent professional independent firm, ACA, looking after your interests, has picked this portfolio because they believe it's most likely to succeed. When in fact, the portfolio was selected overwhelmingly by Paulson and was selected because it was deliberately chosen to fail.

BILL MOYERS: The complaint names only one person, Fabrice Tourre, if I get the name correct.

WILLIAM K. BLACK That is correct.

BILL MOYERS: Who was 27 at the time. Would he have been acting without supervision on a deal of that enormity?

WILLIAM K. BLACK Oh, not even close. And this was-- this was part of a package of about 18 deals as well. So as big as this package was, and it was huge, the overall package was absolutely the type of thing that received personal attention of the leaders, the absolute top leaders at Goldman Sachs. So it's very curious to me that the SEC has failed to name the higher-ups.

BILL MOYERS: Why did it take so long for the Securities and Exchange Commission, the SEC, to kick into gear on this? I mean, have they kicked into gear?

WILLIAM K. BLACK Well, they haven't kicked into gear fully, or they'd be naming Blankfein and other senior leaders of Goldman. And they've, as you just mentioned, they've only gone after a junior person. And there would be, if they were really in gear, there would be criminal charges here. And if they were really in gear, there'd be a broad investigation, not just of Goldman, but of all of these major entities.

In the last three weeks, we have finally done a half-baked investigation, mind you. Not -- nothing like we did in the Savings & Loan days -- of Washington Mutual (WaMu), Citicorp, Lehman, and Goldman. And we have found strong evidence of fraud at all four places.

And we have looked previously at Fannie and Freddie and found the same thing. So the only six places we've looked, at really elite institutions, we've found strong evidence of fraud. So where are the other investigations? Why are there no arrests? Why are there no convictions?

BILL MOYERS: Well, Bill, where are the other investigations? Why have there been no arrests? Why have there been no convictions?

WILLIAM K. BLACK Because we have still Bush's wrecking crew in charge of the key regulatory agencies. Why are they still in place? They have abysmal records as major causes of this crisis.

BILL MOYERS: You talk about the Bush appointees still being there, but Goldman's former lobbyist, his treasury secretary, Timothy Geithner's chief of staff, the head of the Commodity Futures Trading Commission, Gary Gensler, who may soon have new power over derivatives, worked for Goldman.

So did the deputy director of the White House National Economic Council, the under Secretary of State is a former Goldman employee. Goldman's hired Barack Obama's recent chief counsel from the White House on his defense team. I mean--

WILLIAM K. BLACK Don't forget Rubin.

BILL MOYERS: Robert Rubin, whose influence is all over the place, who used to be--

WILLIAM K. BLACK It's his protégés that are in charge of economic policy, under Obama.

BILL MOYERS: So is this administration, which still has some Bush holdovers in it, and now has a lot of Goldman people in it, is this administration going to be able to pass judgment on Goldman Sachs?

WILLIAM K. BLACK Well, so far, they haven't been able to do it. They can't even get themselves to use the word fraud.

There's a huge part that is economic ideology. And neoclassical economists don't believe that fraud can exist. I mean, they just flat out -- the leading textbook in corporate law from law and economics perspective by Easterbrook and Fischel, says -- I'll get pretty close to exact quotation. "A rule against fraud is neither necessary nor particularly important." Right?

Notice how extreme that statement is. We don't need laws. We don't need an FBI. We don't need a justice department. We don't even need rules like the SEC. The markets cleanse themselves automatically and prevent all frauds. This is a spectacularly naïve thing. There is enormous ideological content. And it fits with class. And it fits with political contributions.

Do you want to look at these seemingly respectable huge financial institutions, which are your leading political contributors as crooks?

BILL MOYERS: website says Goldman Sachs is uniquely positioned to fight this case, that it spent $18 million over the last decade lobbying members of Congress, and put millions more in their campaigns. I mean, you've said elsewhere. That's smart business, right, to invest in the politicians who are going to be investigating you?

WILLIAM K. BLACK I would tell you, the Savings & Loan crisis, our phrase was, "The highest return on assets is always a political contribution."

BILL MOYERS: Well, all right. You're a member of Congress. The Supreme Court has said, "Goldman Sachs can spend all it wants in November to defeat you." Are you going to take them on?

WILLIAM K. BLACK Absolutely, but I would never be elected to Congress because of that. So let me -- in terms of that Supreme Court decision, if corporations are going to be just like people, let me tell you my criminologist hat. Then let's use the three strike laws against them. Three strike laws, you go to prison for life, if you have three felonies. How many of these major corporations would still be allowed to exist, if we were to use the three strike laws, given what they've been convicted of in the past?

And in most states, they remove your civil rights when you're convicted of a felony. Well, let's take away their right to make political contributions that they're found guilty of a violation.

BILL MOYERS: Bill, are you describing a political culture, that is criminogenic?

WILLIAM K. BLACK It's deeply criminogenic. And this ideology that both parties are dominated by that says, "No, big corporations wouldn't cheat. Fraud can't happen. Market's automatically excluded," is insane. We now have the entitlement generation as CEOs. They just plain feel entitled to being wealthy as Croesus with no responsibility, no accountability. They have become literal sociopaths. So one of the things is, you clean up business schools, which right now are fraud factories at the senior levels, right?

They create the new monsters that take control and destroy massive enterprises and cause global economic crises, cause the great recession. And very, very close to causing the second Great Depression. We just barely missed that. And there's no assurance that we've missed it five years out.

BILL MOYERS: This brings us back to what the president said this week. He said the crisis was born of a failure of responsibility from Wall Street to Washington. You've just described that. That brought down many of the world's largest financial firms and nearly dragged our economy into a second Great Depression. But he didn't name names. He doesn't say who specifically was responsible. You have. But the president doesn't name names.

WILLIAM K. BLACK No, and one of the most important things a president has is the bully pulpit. We have not heard speeches by the president demanding that the frauds go to prison. We have not heard speeches from the attorney general of the United States of America, Eric Holder. Indeed, we haven't heard anything. It's like Sherlock Holmes, the dog that didn't bark. And that's the dog that is supposed to be our guard dog. It must bark. And it must have teeth, not just bark.

BILL MOYERS: Bill Black, thank you for being back on the Journal.

WILLIAM K. BLACK: Thank you.

Wednesday, April 21, 2010

U.S. lokul ejukashun meetz reseshun

Listen up, all you conservative cavemen (and cavegals) who want to go back to the Laura Ingalls Wilder days of the Little Red Schoolhouse (minus that little b**tch Nellie, I presume): Your beloved model of locally funded and run primary schools has sunken into a fiscal crisis so deep even Michael Landon's angel can't pull it out. That dern economic cycle that you stake your life on means that kids unfortunate enough to be kids today get a worse education.

Aint the free market grand?

Come on, we're smarter than this. Public education should be centrally controlled and financed. Kids -- the future of our nation's economic productivity, and the guarantors of your beloved Social Security and Medicare, you Boomers -- should not be at the mercy of the business cycle.

Meanwhile, the Marxist, failed, redistributive stimulus bill that has brought affluent white seniors to the point of, well, actually leaving their homes, has been responsible for saving more than 342,000 school jobs, about 5.5 percent of all the positions in the nation's 15,000 school systems. "That's just socialism!" I can hear Glenn Beck sobbing from his mansion. I hope he and Nellie will share a desk in hell.

Districts Warn of Deeper Teacher Cuts
By Tamar Lewin and Sam Dillon
April 20, 2010 | New York Times


Tuesday, April 20, 2010

Chomsky explains thinking for oneself

When God was handing out brains Chomsky heard him say 'brains' and didn't go to buy a ticket.
Great tribute to Chomsky and great advice from him on thinking for oneself:
"Don't take assumptions for granted. Begin by taking a skeptical attitude toward anything that is conventional wisdom. Make it justify itself. It usually can't. Be willing to ask questions about what is taken for granted. Try to think things through for yourself. There is plenty of information. You have got to learn how to judge, evaluate and compare it with other things. You have to take some things on trust or you can't survive. But if there is something significant and important don't take it on trust. As soon as you read anything that is anonymous you should immediately distrust it." [Emphasis mine. - J]
Great example of Ameri-centric bias in our media:
"If you read in the newspapers that Iran is defying the international community, ask who is the international community? India is opposed to sanctions. China is opposed to sanctions. Brazil is opposed to sanctions. The Non-Aligned Movement is vigorously opposed to sanctions and has been for years. Who is the international community? It is Washington and anyone who happens to agree with it. You can figure that out, but you have to do work. It is the same on issue after issue."
And on his disdain for liberal intellectuals, who enable the brutalization of our politics:
"I don't bother writing about Fox News. It is too easy. What I talk about are the liberal intellectuals, the ones who portray themselves and perceive themselves as challenging power, as courageous, as standing up for truth and justice. They are basically the guardians of the faith. They set the limits. They tell us how far we can go. They say, 'Look how courageous I am.' But do not go one millimeter beyond that. At least for the educated sectors, they are the most dangerous in supporting power."

Noam Chomsky Has 'Never Seen Anything Like This'
By Chris Hedges
April 19, 2010 | truthdig


Survey: Affluent Americans fear old-age health costs

Make of this survey what you will. And I know you will.

My prediction: Look for Republicans prior to November to scare old folks by saying that fiscal pressures from health care reform will threaten their Medicare benefits. And it will probably work. After all, all those affluent, old white folks didn't become Tea Partiers and protest after Dubya and the GOP gave them the Medicare Prescription Drug, Improvement, and Modernization Act in 2003, a massively expensive new entitlement.

By Alexis Leondis
April 20, 2010 | Bloomberg

Rising health-care costs are a top concern for a majority of wealthy Americans, according to a Bank of America Corp. survey.

The study, which interviewed 1,000 Americans during the first two weeks of March with investable assets of at least $250,000, found that 62 percent cited medical costs as a major concern, up from 59 percent in a December survey. The effect of health-care expenses on retirement planning was a concern for 56 percent, up from 40 percent, the survey said.

The number of respondents who said they're worried about outliving their retirement savings rose to 61 percent from 53 percent, according to the study.

"While Washington in the past quarter has been talking health care, health care, health care, these affluent Americans have heard health care, but are thinking retirement, retirement, retirement," Sallie Krawcheck, president of global wealth and investment management for the Charlotte, North Carolina-based bank, said today during a conference call to discuss the survey results.

The capital gains tax will rise to 23.8 percent in 2013, to help pay for health-care changes signed by President Barack Obama March 23. That's because the legislation applies a 3.8 percent Medicare tax on unearned income such as realized capital gains, dividends, interest, rents and royalties. The health-care bill also increases the employee's share of the Medicare payroll tax levied on wages by 0.9 percentage points to 2.35 percent in 2013.

Affluent Investors

Both increases related to the health-care legislation will apply to about 1 million individuals who earn more than $200,000 annually and about 4 million couples who file jointly and make more than $250,000.

Affluent investors are questioning what the health-care legislation means in terms of taxes, Krawcheck said, in a Bloomberg Television interview today.

Almost 70 percent of respondents aged 35 to 50 said Medicare will play little to no role in helping to pay for medical expenses during their retirement years, the study said.

[Score one for rational expectations theorists. If younger people are saving and investing according to this pessimistic belief, then the Medicare crisis truly will be like a bulge of water traveling through a narrow hose as the Baby Boomer generation gets older and sicker, racks up medical bills, then kicks the bucket. The bulge in the Medicare system should work itself out demographically. - J]

Married couples aged 65 can expect to spend on average $197,000 on health-care expenses through retirement, excluding nursing home care, according to a March report by the Center for Retirement Research at Boston College.

The Bank of America survey was done by Princeton, New Jersey-based Braun Research, a marketing research firm for Merrill Lynch Global Wealth Management, a unit of the bank.

Health-Care Reform

In a separate February survey by insurer Phoenix Cos. of 1,835 U.S. residents with a net worth of at least $1 million excluding primary residence, 61 percent of respondents said they agree or strongly agree with the statement: "I am very concerned about paying for health-care expenses in retirement." That compares with 56 percent last year, according to the survey released yesterday.

"The level of concern rose this year, and my hypothesis is that this is due in large measure to all the attention regarding health-care reform," said Walter Zultowski, senior adviser to Hartford, Connecticut-based Phoenix, in an e-mail.

Monday, April 19, 2010

MIT economist Simon Johnson on breaking up TBTF banks

The progressive economist talks about the fight to reform Wall Street, what Robert Rubin should do with his money, and why Jamie Dimon is the most dangerous man in America.

Interview with Simon Johnson by Zach Carter
April 17, 2010 | AlterNet

Simon Johnson is the former chief economist for the International Monetary Fund, and co-founder of the Baseline Scenario, a blog about the financial crisis and financial reform. He is a professor at the MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics. Johnson's latest book, 13 Bankers (co-authored with Baseline Scenario co-founder James Kwak) is a detailed examination of Wall Street's political and ideological power and the devastating economic results. AlterNet's economics editor Zach Carter recently talked with Johnson about the U.S. banking system.

Zach Carter: Your push to break up the largest banks into smaller banks that can actually fail without wreaking havoc on the economy has been very well-received by progressives. But historically, the IMF and the Federal Reserve are not exactly hotbeds of progressive thought. How did you and Paul Volcker become the vanguard of the economic left?

Simon Johnson: The ideas that we're advancing both in Baseline Scenario and in the book should appeal to people on the right, the center and the left. There's an article by Arnold Kling that we wrote about on Baseline Scenario. He's a libertarian, which I am not, but he's come around to our way of thinking about the banks. If you think about it from the right, our financial system is just monstrously unfair. It's not in any way a market economy to have these banks who are so big that the government can't let them fail. They have funding advantages over other banks, and those advantages only encourage them to get bigger. That's just not reasonable.

The left—which coincides more with my own views than the right—is very uncomfortable with the power structure that is inherent in that imbalance. And the center--which I would also say characterizes my own views, I'm a center-left person—the center is very concerned about the effects of giant banks on efficiency and the interworkings of the economy. You can see the spectrum of appeal from the blurbs on our book.

ZC: Sen. Jim Bunning, R-Kentucky, is a fan.

SJ: I thought we just had to include Jim Bunning, because what else would these people agree on? You can't list five other words in the entire English language that Bunning and Alan Grayson would agree on outside of financial reform.

ZC: But doesn't the broad appeal of your argument run counter to the basic idea? Your point is that Wall Street has taken over the economic ideology in Washington, D.C., but just by looking at the cover, we can see several economists and politicians who agree with you that what is good for Wall Street is often bad for society.

SJ: The ideological capture was complete through 2005 and 2008. I think now there's been some push-back against it. I think this is an ideological debate. I think it's a debate about doctrines and the real nature of a market economy. So there are now people who are pushing back. But I can assure you, Wall Street still has a fantastic grip at the top levels of this administration and on Capitol Hill.

We are in the fight, at least, and we have some people on our side, but it is very, very lopsided. Did you see Chris Dodd told Don Imus that he's reading 13 Bankers? I was quite amazed by that. So we're at the table, but it's going to be an uphill battle for some time.

ZC: You've been making this argument for more than a year now, that there's no way to fix our financial system without breaking up the big banks. But watching the debate over financial reform, Congress really hasn't seriously considered the idea. Is this something we can hope to enact with this reform bill, or are you geared up for a longer fight?

SJ: It's a longer fight. There is a slim chance—maybe it's five percent, maybe it's ten percent—that in this legislative cycle, the White House will change its position. And I think after they got a pretty good final outcome on health care, all things considered, a re-energized President Obama saying, "Anybody who opposes us is on the side of the too-big-to-fail banks, and here's how we're going to make them smaller" would have a tremendous effect. That's a very powerful message, and that's what we're telling the White House.

The political side of the White House, I think, finds that very appealing. The economic side of the White House, of course, is in a very different place, which is why the odds are about 90 percent against us. But that's just in this legislative cycle, and this is not a one-cycle debate. It took 10 years for Theodore Roosevelt and the people who came after him to change the consensus around big business in the U.S. at the beginning of the 20th century. [i.e. the Progressive Era movement - J] I think we're in a five- to ten-year fight to change and reshape the consensus. And I think the response to the book is very encouraging.

Not that Chris Dodd will suddenly change his mind and we'll see a sudden legislative shift, but that we'll have a good chance of moving the entire mainstream thinking on this—including mainstream left and mainstream right—away from support for this oligopoly. People currently think, 'Oh my gosh, we cannot allow a monopoly on an industrial product." After a hundred years, that's a mainstream view. But what people don't get is that massive banks are incredibly dangerous, too.

I would point to J.P. Morgan Chase CEO Jamie Dimon's letter to his shareholders this week as an indication of what we're up against. He says they should be allowed to get as big as they want, and that's how the free market works. Well no, Jamie, that's not a free market. That is the result of unfair competition and an implicit government subsidy.

ZC: He also completely ignores all of the egregious things his bank did over the past decade, particularly the $30 billion subprime operation. But it does seem like there has already been some positive ideological movement. When you were pushing this idea a year ago, a lot of people viewed it as crazy. That doesn't seem to be true any more. Lots of people still disagree with you, but your views have become an acceptable part of the dialogue.

SJ: I think that's true. But you also saw the Volcker rule in January, which turns out, I admit, to be rather tepid. Nevertheless, seeing the president say, "If these guys want to have a fight, let's have a fight," was very important. And to see Treasury willing to take on the financial lobby, even the Chamber of Commerce, is noteworthy, although it's only been over consumer protection. Treasury official Neal Wolin gave a pretty good speech recently where he said, "Look, you're spending $1.5 million a day on lobbying and employing four or five lobbyists per member of Congress. This is totally unacceptable, and you're not even representing the interests of all your members."

ZC: And Wolin is a former lobbyist for the financial industry.

SJ: Yes! If you gave me the opportunity, I would hire some of those people, too. In the U.K. there is an expression, I don't know if it works in the U.S., but it's "Hire poachers and turn them into gamekeepers."

ZC: The first SEC Chairman was Joe Kennedy, and he wasn't exactly a shining example of business integrity.

SJ: It takes one to know one, right?

ZC: Let's talk about the revolving door, though. A lot of people from Wall Street leave to work in Washington, and then go right back. The top bank regulator in the country used to be one of the top bank lobbyists, and he hasn't done a very good job as a regulator. How do you exploit the expertise of the financial sector without succumbing to its excesses?

SJ: Well yes, the revolving door is obviously out of control, and I didn't mean to say you should exclusively employ poachers, that doesn't go well. What you need is a very strong set of incentives and guidelines, and you need people at the top of the regulatory chain who truly believe that the bad aspects of the financial sector need to be curtailed. We haven't had that for a very long time. You saw just last week, a guy left Barney Frank's staff to become a financial lobbyist. Not to pick on that one guy, but it's a perfect illustration of how the whole culture between Wall Street and Washington is just totally out of whack.

You probably need to come in with some overly draconian initial restrictions, like banning anyone from revolving through the door for a period of five years. Once the cultural perceptions about Wall Street change, you can maybe relax those rules a bit. But right now it's just so massively out of control, it really does need strong action.

ZC: I want to ask you some smaller-bore economic questions. At a certain point, there was a lot of public debate on executive compensation, which has subsequently disappeared from the reform push. What role did executive compensation play in the crisis, and do people have a right to be angry about it?

SJ: Yes, people have a right to be angry about it. I think it's a symptom of a deeper problem. I don't think you can just fix executive pay by itself, because people will find other ways to compensate themselves that get those restrictions. But a lot of pay that rewards short-term performance is undoubtedly a reflection of the dangerous incentives in our financial system.

There was a very nice write-up in the Washington Post going through how people are being paid, and the executives of big banks, most notably John Stumpf, head of Wells Fargo, are getting just huge cash payouts. And those payouts are absolutely not in line with what the administration asked them to do.

I think this shows two important things. First, when you ask bankers nicely to do something, they just don't do it. Second, when Wells Fargo was pressed on why Stumpf was getting paid so much, his spokesperson said, "Well, we had a really good year in 2009." I'd say that, actually, no, you didn't have a good year, you were saved like all of the other big banks by the government. That is not a good year from a social point of view, it's not a good year if you're trying to run a bank well, and paying this much cash is completely inappropriate. It reflects how deep we are in this mess. We haven't gotten out of it.

ZC: So would you say that too-big-to-fail and excessive Wall Street pay are connected?

SJ: Yes, I would say they are two sides of the same coin. But I would caution that if you fix too-big-to-fail, I wouldn't have a problem with the compensation. Then I think it's an issue for shareholders and corporate governance that the company's owners can either take on or ignore.

If some hedge fund, for example, makes a lot of money and pays its guys a lot of money, I don't really have a problem with that, so long as they aren't creating systemic risk. I'm an entrepreneurship professor at M.I.T, I like people who take risks. What I don't like is people who play with house money, which in this case is the taxpayers' money.

ZC: Your background is with the IMF. Drawing on that experience—do financial crises of the size and scope of what we've just experienced take place without widespread fraud?

SJ: It's a good question. You never know how much fraud there is unless big banks actually collapse. You can see this around Lehman. We knew Lehman was a sharp operator, we knew Lehman was really skating along the edge in many ways, but we didn't know they were engaged in outright fraud. And in fact, even after the revelations about their Repo 105 plan to hide assets from investors, we still don't know if that behavior can be proved fraudulent in a court of law.

They certainly bent the rules massively. They certainly misrepresented things to their investors and to the market. Whether they can be held accountable for that is another question, unfortunately.

But you never really find out about fraud until the company collapses, because after that, nobody wants to do business with them anymore, and nobody wants to cover for them. Nobody thinks, "If I get tough on Lehman, they won't give me any more good trades," because Lehman is gone.

This is what protects the big guys right now, the J.P. Morgans, even Citigroup, which most people on Wall Street really dislike and regard as very poorly run. Even Citi is immune from some level of criticism because there are hedge fund people and people on Wall Street who are very knowledgeable and want to do business with those companies going forward. As long as a company stays in business, the public will never know what was fraudulent and what was not.

ZC: So what's the difference between an Enron-style scandal where people go to jail and what we just lived through?

SJ: I think there are a lot of parallels. With Enron, we never found out about anything until the firm collapsed. After that, there were prosecutions. So we should wait and see how things play out. But the rules that apply to the financial sector are very loosey-goosey, and much more open to interpretation and exploitation than the rules that apply to other companies. Enron was sort of a weird hybrid that committed many financial infractions, but they weren't a bank, and they didn't have the kind of protection that you get from being a bank and being regarded as central to the credit system.

ZC: But they were involved in the derivatives market, and they did engage in accounting hijinks.

SJ: Right, although by today's standards, of course, they were small-scale and primitive.

ZC: But shouldn't that scandal have sounded an alarm somewhere? Shouldn't there have been some broader federal response after Enron?

SJ: Well, the big alarm bell was the failure of the Long-Term Capital Management hedge fund in 1998. And the extraordinary thing, which we point out in 13 Bankers, is that Brooksley Born actually rang the alarm bell before the Long-Term Capital Management crisis, and she was ignored, marginalized and attacked for it.

I think Enron was actually misconstrued, because people dismissed it, saying it was just fraud, they just failed to disclose important things to shareholders. And we did get the Sarbanes-Oxley Act out of it, and I don't think that was a bad idea. But the response did not cut to what now appears to be the heart of the problem.

ZC: You've done a very good job emphasizing the conflict between big banks and the broader economy. But there are also conflicts between the managers of companies and the shareholders who own them. How do you align those incentives to prevent executives from looting their own firms, as thousands did during the savings and loan crisis?

SJ: That's a very tough problem and it gets to the heart of our modern economy. The central problems in the economy today are these agency problems, the phenomenon in which the people who run companies are controlled only very indirectly by shareholders or anyone else. And in big, complex enterprises, its easy to hide a lot of stuff. Remember even small banks are relatively large and complex compared to other businesses.

The savings and loan crisis was very much about regulatory failure, and about regulators being encouraged to look the other way by the executive branch and by Congress. At the end of the day, though, I would emphasize that the savings and loan crisis resulted in more than 750 people going to jail and more than 2,000 institutions going out of business—all without bringing down the global economy.

You cannot expect for there to be zero fraud in a country like the United States, with its dynamic culture and its complexity. It's just part of the way we are. What you want to make sure is that the economic structures you create cannot be completely destroyed by the actions of one, two, or thirteen bankers who engage in things you and I would consider fraudulent. That's obviously not where we are today.

ZC: In a recent column in the New York Times Paul Krugman argued that breaking up the big banks won't solve all of our problems, that the bank crash of the 1930s was mostly small banks, and the government made a mistake when it allowed them all to fail. Do you have a response to that?

SJ: The 1930s obviously taught us a very important lesson, particularly the need for deposit insurance. I would not want us to have small banks fail in the context where you had removed federal deposit insurance, but that's not going to happen. That's never going to happen. That aspect of a retail panic run is something people have to take away from the '30s experience.

Now, when you've prevented that, you've introduced a distortion into the system, because people now have protected sources of money, so they won't pay much attention to how the institution is governed. That means you have to have substantive regulations.

I'm not suggesting that we forbid or outlaw crises. That's impossible. But ask yourself this question. If Citigroup had failed in 2008—this is a little funny because of course they did fail, and we saved them—but in 2008, they had a total balance sheet of about $2.5 trillion. That's 17 percent or 18 percent of the U.S. economy. If they had been a $5 trillion bank, or a $10 trillion bank. If they'd been on a scale relative to the U.S. economy of what we saw in Ireland or the U.K.—in the U.K., Royal Bank of Scotland peaked at 1.75 times the U.K. economy, by our calculations. So let's say Citigroup was a $20 trillion bank. Would our problems today be better or worse?

That's question number one. Question number two is, are the incentives for the banks now to become bigger or smaller? Jamie Dimon's letter to his shareholders is very clear on this. He thinks if you do well, you should be allowed to get as big as you want. That is incredibly dangerous.

Actually, Jamie Dimon may be the most dangerous person in America today. He's dangerous because he's good. I fear the collapse of Citigroup, and I find Goldman Sachs more entertaining than anything else. They really help us because they aggravate so many people. But Jamie Dimon is smart. Jamie Dimon keeps his head down, and Jamie Dimon keeps getting bigger. Even if you think Jamie Dimon is a fantastic guy, and a savvy businessman, whatever the president said about him, which I'm not taking a side on. Jamie Dimon will not be running J.P. Morgan Chase forever. He's already lining up his successor, in fact. Whatever you think of John Reed and Sandy Weill at Citi, the fact is, they were succeeded by Chuck Prince, who was a disaster.

Every business eventually falls into the hands of somebody who doesn't know what they are doing. That is particularly true in finance, and it is particularly true at big financial institutions. So I think it's safe to say Jamie Dimon is the most dangerous man in America.

ZC: There is a very strong culture of hero worship in finance, not just on Wall Street but in the Federal Reserve. People view the Fed Chairman as this great golden god who descends from the clouds to speak to the monetary multitudes.

SJ: Yes, he's like the adventure hero in some King Kong movie.

ZC: At least with Alan Greenspan, and the way his reputation has changed so dramatically in the last three years, is it safe to say that this idolization is a bad thing?

SJ: This is sort of a secondary point to our main theme, but Federal Reserve reforms are very important. There should be term limits on the Fed Chairman and the Fed Governors, and you should change the Sunshine Act to the extent that it applies to the Fed. The Sunshine law says that if you have more than three Fed Governors meeting at any time, it has to be subject to public notification.

Over the past few years, Ben Bernanke, Donald Kohn, and Kevin Warsh were the inner core, and everyone else was basically ignored, and to be honest, not that important. That's a mistake. It feeds into this whole policymaker-as-hero idea which is very dangerous in a democracy.

ZC: You've mentioned Citigroup a few times. What should Robert Rubin do with all of his money?

SJ: Robert Rubin is the most interesting person and the most important character for the country to understand in this crisis. What he thought, when he thought it, why he pursued these deregulatory policies when he was at the Treasury during the 1990s, what he was doing or dreaming about when he was supposedly in charge of governance at Citi. The way he viewed the world, and the way Greenspan viewed the world, is largely responsible for what just happened. How that has changed, if at all, is very important.

ZC: I'm not a fan of his policies at Treasury, but whatever you think of them, he was one of the few people who stayed on at Citi for the entire mess.

SJ: And a figure who has slipped below the radar. But here's what he should do with his money. My kids love Colonial Williamsburg. And I think Rubin needs to take a page from John D. Rockefeller here and go out and restore some historic banking place and create a living museum where people can go around and learn about and wear the clothes of people from this crazy era. I'm being a little facetious here with Williamsburg, but my daughters like to wear the clothes of 18th-century Virginians. But some place where you could wear the clothes of 1990s American bankers, and play in financial markets and make them crash. That'd be wonderful.

ZC: But this lesson about financial crashes seems to get unlearned every few years. One of the more obnoxious things Jamie Dimon said before the Financial Crisis Inquiry Commission was that remark about how financial crises happen every five to seven years, and we should stop being surprised by it and stop trying to prevent or contain it. But why does it keep happening? Why can't people remember that markets often get out of control and crash?

SJ: Oh that's hooey; they remember. The problem is that they have incentives to do it again. The Chuck Prince quote that we all make fun of--"While the music is playing you've got to get up and dance"--is actually 100 percent correct. It totally encapsulates what is wrong with Wall Street now and what was wrong with Wall Street before. Remember, he said that in July 2007 just as the wheels were starting to come off the bus. The insanity couldn't continue forever, but everybody was getting rich by pretending it could.