Monday, January 30, 2012

WHAT FREE MARKET? UNCLE SAM WANTS YOU TO SPEND ...

In my classes I always make the case that we don't have a free market. The very visible hand of the state is involved in subsidizing and encouraging purchases and other activities that many of us simply take for granted. Uncle Sam wants you to spend, and to spend on things that are supposed to make us all better off (at least that's the way the programs are sold to us).



Let's take employer provided health insurance, for example. I'm sure most of you look for jobs with employer provided health insurance, and are thankful when you find a job that can provide it, right? Well, guess what? Your employer doesn't actually pay for your health insurance. You do. And so does your neighbor.

Your employer might pay the insurance provider, but your employer then gets reimbursed by the federal government (i.e. the American taxpayer) for the expense. While the process is called a tax deduction, it's also the essence of fiscal policy; i.e. when congress creates legislation that encourages certain economic activities over others. Over the next four years the medical plan your employer "provides" will cost the U.S. taxpayer over $1 trillion. 

Below I've attached a brief list of several major tax deductions designed to encourage spending & investment, and what they will cost the U.S. taxpayer this year (over $600 billion) and a few years down the road.




One thing should be clear from this list. The federal government - at the request of industry lobbyists - is doing a lot to keep our "free market" afloat (just ask Mitt Romney). Whether you agree with the long list of write-offs and deductions is another matter.

- Mark

Thursday, January 26, 2012

YEAH, LET'S TAX THE POOR ...

Responding to President Obama's call for a fairer tax code, Fox News is demanding that the poor pay more in taxes. A couple of points here.

First, as I've pointed out elsewhere, President Ronald Reagan was on board with revising the tax code so that millionaires paid a greater share than bus drivers.




Second, even if we turned the poorest Americans into paupers and industrial slaves and taxed and confiscated everything the poorest 50% of Americans own today (about 2.5% of our nation's wealth), this would amount to roughly $1.2 trillion (give or take a few hundred billion).



While $1.2 trillion is a lot of money this amount still wouldn't pay for the first installment of the Wall Street bailout (well above $4 trillion, to date), let alone for the amount that that we, as taxpayers, are now responsible for (between $9-14 trillion).

Third, Adam Smith, the intellectual godfather of capitalism, believed that higher tolls on luxury carriages should be charged. Why? Because the "indolence and vanity of the rich" should be made to pay for the public good.



Fox News ... clueless, again.

- Mark

Wednesday, January 25, 2012

THE "HORRIBLE GIFT FROM GOD"

If you're OK with torture ... support a "qualified" death penalty ... oppose euthanasia for the terminally ill ... and believe over 100,000 civilians killed in a reckless war of choice is justified ... how can your support for the "dignity of every human life" be your rationale for denying women, who have been raped, the option to choose what they want to do with their bodies?

Republican presidential candidate Rick Santorum told Piers Morgan that he believes abortion is wrong, even in the case of rape

I'm asking this because Rick Santorum believes that women who've been raped should welcome their "horrible gift from God" by making the "best out of a bad situation." Hence his opposition to abortion as an option for women.
 
Seriously, can someone explain how torture, lethal injection, living with a cancer ridden body, and supporting reckless wars of choice helps to uphold and defend the dignity of every human life? Where's the spiritual and philosophical symmetry here?

Anyone?

- Mark

HISTORY: "ON HOOVER'S ATTEMPTS TO RESCUE THE BANKS"

Bloomberg.com has a regular "Echoes" column that covers economic history. The articles are not long, are informative, and provide insight into who we are today. Below I've posted the opening to Phillip Scranton's article "On Hoover's Attempts to Rescue the Banks." If you see similarities to what's happening today you're not alone.

************** 


In 1929, there were nearly 25,000 banks in the U.S. Many European nations had fewer than 100. More than 90 percent of U.S. banks served small towns and rural districts, held state charters and hadn't joined the Federal Reserve System (which was mandatory for nationally chartered banks). Thus they couldn't seek loans from the Fed to support liquidity.

Given that deposits were uninsured, "runs" commenced when rumors circulated that a bank was having difficulty collecting mortgage and loan payments. Accountholders lined up hoping to recover their savings or liquidate their checking accounts. Banks often responded by limiting payouts or requiring, say, 30 days' notice for withdrawals. Fears of being "wiped out" spread and deepened, credit dried up, closures multiplied.

About 800 banks closed their doors in late 1930, and more than 1,500 in 1931 ...

Read the rest here.

****************

- Mark

Monday, January 23, 2012

STUFF THAT I SHARED WITH OTHERS

What happens when the states' rights argument goes rogue? A pictoral account of marriage and race in the 1960s via Loving v. Virginia  ...

Mitt Romney has more baggage than vision: Check it out here (hat tip to Brian) ...

From PCMag.com we have the top five reasons to oppose SOPA &PIPA.

How SOPA might affect television commentators: Check what Jon Stewart has to say about SOPA.

- Mark

CORPORATE PERSONHOOD ... STILL A FLAWED IDEA

Two years ago this week, on January 21, the Supreme Court lost it's head. Specifically, in Citizens United v. Federal Elections Commission a split Supreme Court ruled that corporations could dump as much money as they wanted on political campaigns. No joke. Five members of the Supreme Court think it's a good idea to give corporations unlimited voice in America's democratic experience.



Below is an op-ed article - "Corporate personhood: A flawed construct that undermines democracy" - that I penned for the Bakersfield Californian last month. It explains why the Citizens United decision is both flawed, and needs to be reversed. I'm posting it again not only because it's the anniversary week of Citizens United, but because it's one of the most important issues of our time.

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"If you can't vote, you can't contribute." This was part of a conversation I had about political campaigns awhile back. And it stopped me in my tracks. With this simple comment, my friend Larry Moxley summarized how to deal with the influence money has on our political system. And I agreed.

So you know -- and I want to be clear on this -- Larry Moxley and I are on opposite sides of the political spectrum. There's very little we agree on. We've had strong debates that literally have turned heads in restaurants over the years. But we're friends who can agree on the things that undermine our national priorities.

When it comes to the influence of money in our political system, Mr. Moxley and I agree on this: It's undermining our political system.



Most of us understand the influence money has on our politics. Simply put, to become legitimate candidates, office seekers spend so much time chasing large donations and corporate money that they lose sight of what's good for our communities and our nation.

This shouldn't be a surprise. When asked why he did what he did, famed bank robber Willie Sutton replied, "That's where the money is." Candidates go where the money is too. This means going to large corporations and groups with deep pockets. More on this later. But first, some background.

Candidates for office are forced to pursue money in part because of two legal developments. The most recent allows corporations to give almost unlimited amounts to political campaigns. The earlier, and most important, development granted corporations personhood status. GOP presidential candidate Mitt Romney acknowledged this when he shot back at a heckler: "Corporations are people, my friend."


What Romney didn't discuss was how corporations became people. If he had, he would've had to explain how corporate personhood came about.

The key here is an 1886 U.S. Supreme Court decision on taxes, Santa Clara County v. Southern Pacific Railroad Co. While the Supreme Court ruled in the railroad's favor -- arguing corporations are entitled to 14th Amendment protections -- it said nothing about corporate "personhood." A court reporter did.

Specifically, a court reporter -- not a Supreme Court justice -- wrote in the Santa Clara summary head notes that corporations enjoy the same rights as a U.S. citizen. Corporate America has been running with this ruling ever since (yes, I've deliberately oversimplified the primary issues here). And just like that -- and with no birth certificate -- corporations now have the same rights and protections as any U.S. citizen.



Later, the Supreme Court ruled in Buckley v. Valeo (1976) that spending money on elections is a form of constitutionally protected free speech.

This was followed with a 5-4 decision in Citizens United v. Federal Elections Commission (2010), which effectively allows corporations to spend what they want on political campaigns.

The result? Because of the functional equivalent of a typo (1886), corporations are considered people who can speak (1976) as loudly and brashly as they want (2010).

Conversely, citizens in the streets of America are given strict limits (time, place, voice) as to how they can exercise their constitutional rights. And it's distorting our political picture.

If you don't see the picture, here's what's wrong:

* Corporations are legal abstracts, created by the state. Per the Enlightenment, constitutional protections were designed for citizens whose rights were historically abused by large corporate entities and the state.

* Corporate "personhood" status was a legal accident. No claim to citizen rights should rest on the functional equivalent of a typo.

* If we can't yell "fire" in a crowded theater, corporations shouldn't be able to set fire to political campaigns. The Citizens United ruling went too far.

* Unlike most citizens, corporations can directly lobby and get favorable legislation, regular bailouts, subsidies, generous tax write-offs, legal exemptions, limited liability, and can live on indefinitely.

* Foreign subsidiaries can access Madison Avenue, which can distort and elevate their foreign "voice" above most U.S. citizens.

* Corporations find legal cover under proprietary rights (trade secrets) and legal settlements (or fines). This allows corporations to distort and hide their voice.

Our Constitution was created to protect citizens from corporate and state abuses. One way to address the trend of corporate money swamping broader national priorities is to consider what Mr. Moxley has suggested for some time now: "If you can't vote, you can't contribute."

It won't solve all our problems, but it's a start.

Mark A. Martinez, Ph.D., author of "The Myth of the Free Market," is a professor of political science at Cal State Bakersfield.

************************
 
Long story short? Citizens United needs to be reversed.
 
- Mark

Sunday, January 22, 2012

FAMILY VALUES CROWD STRUGGLES WITH THEIR HYPOCRISY

This past week I read through a thread on one of my conservative friends FB site. The thread focused on Newt Gingrich's ex-wife, and whether she revealed anything new in her most recent interview (she didn't).



The comments on the FB site were dominated by the conservative Christian crowd, so there was much said about media conspiracies (against conservatives), comments akin to "why doesn't the media look at Democrats who cheat?" (ignoring how Eliot Spitzer, Anthony Weiner, etc. got pushed out of their jobs), and a whole bunch of "nobodies perfect" commentary that smelled a whole lot like "God doesn't want us to judge." In a few words, they pretty much wanted to white wash Newt, while dancing around the larger elephant in the room ... i.e. conservative family values hypocrisy.

In an effort to set the record straight - and because I wanted to have a little fun - I decided to participate. I also decided to share my comments with you. Here's what I wrote ...

God wants me to speak out here ... At the end of the day I'd like to say who cares about any of this stuff. Seriously. The problem is that conservative politicians and the family values crowd have a tendency to tear down and demonize anyone who disagrees with their moral imperatives on their way up the political ladder. But then we learn about people like Ken Mehlman (gay), David Vitter (whore mongerer), Larry Craig (bathroom enthusiast), Mark Sanford ("I'll spend Father's Day with my mistress in Argentina"), John Ensign ("I do staffer's wives"), Newt Gingrich (serial cheater), Ted Haggard ("Spank me, I'm cured of the gay"), et al. I think most of us are not too concerned about what politicians do with their love lives. It's between them and their significant others (and God). But the moral posturing on the way up suggests that they deserve to be politically isolated and singled out when they get caught. If you want to have an affair? Fine. But be sure you don't build your political profile around family values. There's no conspiracy or evil ploys here. Think it through ...
Funny thing, though. While the thread was full of lively commentary, no one found it necessary to comment on my post. I wonder why ...

- Mark

Saturday, January 21, 2012

LIBERTY UNDER FIRE? (AGAIN)

Original post got jostled in the roll out. Here it is again ...
____________________________________________________



Take a look at this proposal working it's way through congress ...

(d) AUTHORITIES. — Nothing in this section shall be construed to affect the existing criminal enforcement and national security authorities of the Federal Bureau of Investigation or any other domestic law enforcement agency with regard to a covered person, regardless whether such covered person is held in military custody.
This is the language that was inserted into the proposed National Defense Authorization Act (NDAA) in the Senate. In plain speak it permits the U.S. government to detain indefinitely, without trial, anyone who “substantially supported al Qaeda, the Taliban, or associated forces that are engaged in hostilities against the United States.”



There are several problems here:

* The proposed legislation allows the United States government to imprison anyone without charge or trial, even if they are U.S. citizens.

* The Bush adminsitration detained, and kept detained, many prisoners after they learned of their innocence because they did not want them on the streets speaking about their unlawful detention (sort of like, "How can we be wrong when there's no one to claim we did anything wrong"?).

* In arguing that the President has almost unlimited powers in times of war, a Working Group Report for President Bush cited Hamilton v. Dillin, 88 U.S. (21 Wall.) 73, 87 (1874) cited a Supreme Court decision which held (unanimously) that it's “the President alone who is constitutionally invested with the entire charge of hostile operations.”

* Current FISA statutes provide enough leeway for the U.S. government to make arrests - and to make their case for the arrest - when it comes to terrorism.

And just in case you want to claim that you can't be held indefinitely because you're a U.S. citizen, Senator Joe Lieberman has introduced legislation (the Enemy Expatriation Act) which would remove U.S. citizenship from anyone accused of supporting “hostilities against the United States.”

And, yes, the language is murky enough to be interpreted loosely.

Yeah, yeah, I know ... al Qaeda, worse than the Nazis, "greatest threat of all time," terrorism, be afraid, etc. But does this mean you neuter constitutional protections in the process? Should we start granting this type of authority to any president because a tactically successful, but largely fringe, terrorist group says "Boo"? Think about it. At the time that this nation was founded, there were far greater threats than what we face today. Britain, Spain, France, Russia, and the indigenous nations on the continent, among other threats, didn't subscribe to Geneva-like conventions either. And they were all around us, literally.

It seems to me that more than a few members of congress need to read about America's history (again). Fortunately, Rep. Ron Paul has introduced legislation to cut this language out of the NDAA.

Sigh ...

- Mark

UPDATE: Click here for additional figures, and discussion.

Wednesday, January 18, 2012

WALL STREET'S DOING IT AGAIN (PART II): Our Daisy Chain of Debt

Last week I wrote in a post that Wall Street was "doing it again." Specifically, in the post I discussed how broker-dealers in the 1960s had "borrowed" assets from client accounts and used them as collateral to secure loans from banks (i.e. repo borrowing). They then used the money to make investments elsewhere, which they (or the firm) pocketed when the gambles paid off. Problems developed, however, because numerous broker-dealer deals failed, which led to over $100 million in losses for their clients.



As you can imagine, investors were furious. Congress acted and we ended up with new regulations through Rule 15c 3-3. To be sure, broker-dealers in the United States still retained the authority to borrow against client accounts. But they would not be able to operate as loosely as they did in the late 1960s (securities accounts were segregated, new net capital rules were implemented, reserve requirements were imposed, etc.). This is precisely why this article by Money Morning's Keith Fitz-Gerald is an eye opener.

In "How Banks Are Using Your Money to Create the Next Crash" Fitz-Gerald makes it clear that market players are not only using client accounts to borrow money and make trades elsewhere, but they're now borrowing and gambling at record levels.


How is this happening, you ask? Check it out.

Let's say you have a portfolio valued at $5,000. Most of what you have is invested in stocks, securities and other market instruments. Suddenly, you find yourself in need of cash (for whatever reason) and dip into your investment fund. You borrow $2,000 against your $5,000 portfolio. Legally you have to pay the $2,000 back or suffer serious early withdrawal tax penalties. But you're fine with this because you're actually paying yourself back.

Good so far? Great. This is where it starts to get good.

According to SEC Rule 15c3-3, the broker-dealers who run your portfolio can take what you owe to yourself - in this case $2,000 - and use that amount as a source of credit for their own use. Loosely speaking, your broker-dealer can use your promise to repay yourself as if it were a promise to pay the firm. The idea is that since you're going to return the $2,000 to your fund, you're actually paying your broker-dealer because they're the ones who manage the account.


It makes perfect sense, doesn't it? I mean, since you owe your account money, it's actually a credit for the broker-dealers who manage your funds, right?

But wait. It gets better ... for the broker-dealers that is.

According to the rules broker-dealers can add 40% of what you owe to "their" credit accounts. So, for example, if you borrow $2,000 from your account your $2,000 debt magically turns into a $2,800 credit (or borrowing limit) for the broker-dealers. Once your broker-dealer borrows $2,800 and then deposits it in a bank the $2,800 (less reserve requirements) can then be invested or lent out elsewhere. This money can then be deposited, and then used again (again, less reserve requirements), then deposited and lent again, then ... well, you get the point.

This daisy chain of debt is one of the primary reasons that the size and volume traded in our financial markets has exploded (computers, deregulation, etc. have also contributed to its growth).




In effect, your debt contract enables broker-dealers to borrow and gamble in other areas that they might never had done, were it not for your account. And while it's been going on since the 1960s, it really exploded with computers, deregulation, and the creation of new security products (repo borrowing surged past $1 trillion before the 2008 market collapse).

The explosion in financial trading has been phenomenal. Consider the following.

While our national economy produced approximately $14 trillion in goods and services in 2011, the total value (i.e. "notional value") that our financial market players have gambled on various market instruments, or now claim some kind of control over, has grown to well over $300 trillion (commercial banks contribute about $120 trillion to this amount).

To put this in perspective, this is akin to your debt-laden neighbor making $60,000 a year and your bank allowing him borrow $1.2 million to invest gamble as they want.Try asking your bank if they'll let you borrow 20 times the value of your assets & income.

But wait. It gets even better. On a global level, if we throw in what market players in the G-10 nations are doing, the total value (i.e. notional value) that our market players now control or claim some kind of authority over now hovers around $600 trillion, or 40 times what America produces in a year. Nice.



At the end of the day, this financial daisy chain is built on your hard work. It derives it's entire value from your financial accounts (and your debt). But here's the kicker. Whatever paper trail of wealth that's created won't be shared with you (have you ever seen a note in your monthly portfolio statement that reads "Here's an extra $20,000, which represents a small part that I earned from using your account to make bets elsewhere"? Neither have I).

According to Larry Fitz-Gerald, not only is this wealth extracting daisy chain legal, but "it's common practice specified in the fine print of most brokerage agreements." And it's called rehypothecation.

I think I'll leave it that for now.

- Mark

ADDENDUM: All of this is only the beginning. The legal use of your account (i.e. rehypothecation) has created a murky world where activities derived from your account (i.e. pledged collateral rights tied to rehypothecated instruments) can be used by several entities at once (p. 9). This is one of the reasons that the size of our shadow banking system (which is largely unregulated) now reaches into the multiples of trillions (p. 9), while the size of our real economy pales in comparison to our symbolic economy by a ratio of at least 20: 1. 

Tuesday, January 17, 2012

NEWSWEEK: WHY ARE OBAMA'S CRITICS SO DUMB?

OK, unless you're living under a rock, most of us understand how President Obama's policies helped prevent our nation from sliding into a 1930s like Depression. We're not out of the woods yet, but the snowball effect of the Bush economy has been slowed, and even reversed when it comes to adding jobs to the economy.



To be sure, we're still dealing the aftermath of President Bush's decisions to not pay for Medicare Part "D," to not pay for two wars, and to not pay for tax cuts. All of these (and more) have left us at the borrowing mercy of the Chinese, which has added hundreds of billions to our national debt. But at least we've turned the tide, of sorts. The situation is still bad, and we're heading for another Wall Street led collapse, but we can thank the GOP's obstructionism for not getting more done.

This is why I especially like this Newsweek piece - "Why Are Obama's Critics So Dumb?" - from Andrew Sullivan. He goes after both the left and the right for their criticisms of President Obama (though, it would seem, the right is the only group who don't like being criticized). Check out Sullivan's defense of Obama with Chris Matthews.




- Mark

Monday, January 16, 2012

BEYOND MLK ... ANOTHER MT. RUSHMORE?


With all that's going on today - and with last year's dedication of the Martin Luther King, Jr. Memorial - it might be time to start thinking beyond MLK and Black History month. How about another Mount Rushmore?

- Mark

Saturday, January 14, 2012

FOX NEWS A JOKE ... STILL



Fox News is at it again (actually, they don't ever stop). They're busy trying to give the economy that President Bush left to President Obama a makeover. Put another way, they're lying.

Media Matters has the story, and links, here. I especially like this reference to unemployment rates under Bush (which I blogged about here and here):

In addition to blurring the timeline, media conservatives inflated Bush's economic performance. In August, Limbaugh claimed that Obama inherited "an unemployment rate of 5.7 percent." A few days later, Hannity claimed Obama inherited an unemployment rate of 5.6 percent. Fox's Brian Kilmeade hearkened back to a time when things were "a lot better" under Bush, when unemployment was 5 percent. All of these figures are "flat out lies." Obama inherited an unemployment rate of 7.8 percent.

Long story short? Fox News lies, but their viewers don't seem to give a damn. Sigh ...

- Mark

FINANCING FAILURE ... A STORY HALF TOLD

One of the joys I get from writing about the relationship between markets and politics is reviewing books that set out to deliberately elevate the virtures of the market while demonizing the state. Financing Failure: A Century of Bailouts is one of those books.

On the surface, one might be inclined to follow the argument made by the author, Vern McKinley. It's pretty simple, and it makes sense. In a few words he argues that government intervention creates a crutch, which doesn't allow poorly run institutions to fail. End of story. This would be a strong narrative - especially since it's true - were it not for one thing. It's only half of the story.

What McKinley ignores is how financial institutions and other market players have consistently overplayed their hands and then go running to Washington for cover when things blow up (he also ignores how it's the role of the state to protect everyone's interests, and not to simply allow market players to run wild, which even Adam Smith understood ... but this is another story for another day). Things really took off after the Great Depression, when FDR figured out that wild economic swings and periodic market collapse were no way to run a nation. Dangerous ideas, and even more dangerous movements often followed.



In part because of the growth of our regulatory infrastructure after the Great Depression, industry lobbyists have been yapping in Washington's ear ever since.

Year after year, decade after decade, their goal is the same. To find someone to grant a waiver or to write favorable legislation that will either protect them (or their industry), subsidize them, or bail them out. It's even better when they can get market sycophants appointed to head government agencies, where they will dutifully ignore or reinterpret mandates. McKinley either downplays or ignores these dynamics because, in his eyes, market players are virtuous and rational while state sponsored agencies are irrational. For McKinley, government agencies are created - and exist - for no other reason than to antagonize rational market players who do the right thing and rarely over reach.

Is this an exaggeration on my part? Perhaps (it is my blog after all). But the message that McKinley sends follows this logic.

To be sure, I want to make it clear that McKinley is spot on when he argues that the federal government (especially congress) often manages things by the seat of their pants during crisis. It's not a fun thing to watch. The most recent market collapse in 2008 is evidence of this. But McKinley ignores how virtually everything that was done to save the system after 2008 was done at the request of the nation's biggest financial institutions and other market players who had a financial stake in the system. But this is where McKinley's argument falls flat (and lies at the core of what McKinley downplays or ignores).

The 2008-09 bailout was made necessary only after the financial sectors biggest players over borrowed, and then over bet (even surpassing 30-1 ratios). What makes McKinley's "the-state-is-the-problem" argument even less convincing is that the financial sector over borrowed only after the industry pushed for, and secured, favorable rulings in Washington that would allow them to over borrow (like the SEC's 2004 net capital rule change).



Then we want to keep in mind that nobody forced anyone in the industry to go out and gamble on the toxic securities that Wall Street was able to create only after they lobbied congress to deregulate their business practices. This is what allowed Wall Street to create the toxic securities (CDOs, ABSs, etc.) that - as George W. Bush put it - Wall Street got drunk on before 2008.




It has often been said that the definition of chutzpah is a child asking the judge for leniency after he kills his parents because he's an orphan. Wall Street's chutzpah is conceptually similar to this. McKinley ignores how this logic applies to Wall Street. And it shows.

Too bad. McKinley's primary argument - government interventions creates a crutch - is a good one. It's just incomplete.

- Mark

Thursday, January 12, 2012

WALL STREET'S DOING IT AGAIN (PART I)

Once upon a time there was a big problem on Wall Street. But it wasn't 1929. It was 1968. And the problem would persist until 1970. More than 40 years ago broker-dealers who over saw individual investment portfolios decided that it would be a good idea to use the assets in client accounts as collateral for their personal business deals. So, for example, if you had $500,000 invested with a Wall Street firm they would use your assets (mostly securities) as collateral for their own investment purposes.


The idea was that they would put up your assets as collateral, take out a loan, invest that money, make a quick killing, and then return the asset before anyone knew what happened. Shear brilliance, wouldn't you say?

Anyways, in part because of the increased number of trades being made at the time major market players - but especially the broker-dealers - found it difficult to keep track of all the transactions (it was before computers and automation dominated the day). No one really knew who had what. This was OK by many broker-dealers because they really didn't really want their clients (or the Feds) to know what they were up to (proprietary information, you know).

Because market players weren't offering up their own assets as collateral they made big bets. Needles to say, they were also  reckless. As the brilliant schemes of broker-dealers began to collapse, a large number of their client's assets (i.e. securities) were seized and sold. After the dust settled it was discovered that big chunks of customer accounts - many of whose assets were stuffed with fully paid securities - had disappeared.

Wow. As Yogi Berra might have said, it could be déjà vu all over again.



Banks who had granted loans to broker-dealers had cashed in the collateral. Clients lost millions. Many Wall Street firms who had either participated or winked and nodded at the activities crashed too.

In fact, more than a dozen New York Stock Exchange firms failed (many because their "back offices" couldn't keep up). Losses exceeded $100 million. To stop the bleeding of public confidence swift action was taken to prop up the securities industry. Funds were pooled from industry survivors to help compensate clients who had been cheated. But this was just the beginning.

To protect the public Congress enacted the Securities Investment Protection Act (SIPA) in 1970 which, generally speaking, is the cornerstone of Rule 15c3-3 for the Securities Exchange Commission (SEC).

Among the changes that Rule 15c3-3 did was:

* Segregate Accounts: SIPA mandated that fully paid off securities in a customer's account be kept separate from client assets that have been used as collateral, or that have not been fully paid off (i.e. purchased on margin).
* Reserve Requirement / Net Capital Rule: SIPA mandated that accounts have enough liquid assets on hand. This meant implementing a requirement that broker-dealers had to tabulate how much a client's portfolio was worth in the market, and then limited how much could be borrowed against those assets (about 8-15 times the total value; this is the "net capital" rule).
* Securities Investor Protection Corporation (SIPC): SIPC is a federally mandated, member-funded, corporation that protects securities investors if their broker-dealer cheats them or goes under. In many ways, SIPC is an insurance program for holders of securities.

Well, guess what? Because of deregulation (especially with reference to reserve requirements in 2004), much of what SIPA was supposed to do is now being undermined. To be sure, SIPA is still there. But the spirit of the law is being turned into a cruel joke.

It's somewhat complex, which is why I won't continue the discussion here in this post. But there should be no doubt that what's happening helps explain why we're in for another 2008-style market collapse. I hope to have this post up by the middle of next week, if not sooner.

Stay tuned.

- Mark

Tuesday, January 10, 2012

HUNTSMAN: BIG BANKS ARE THE PROBLEM

This one slipped in under my radar screen. I found it in the Fox News.com opinion section, so can you blame me? But then again, even a blind squirrel finds a nut now and then ...

07142011Jon-Huntsman

Anyways, this column from GOP presidential candidate John Huntsman is a good read. He makes the point that Wall Street's biggest banks are the real threat to our economy. It's generally well written, and demonstrates why he won't be the Republican candidate in 2012 ... he's simply too practical. He also wants to break up the big banks.

Oh well, at least we know that there's hope for the party in the future.

- Mark

Thursday, January 5, 2012

OBAMA SET TO CONFRONT GOP STONEWALLING IN 2012?

So Republicans are up in arms over the recess appointment of former Ohio Attorney General, Richard Cordray, to be our nation's top consumer protection agent. In the FYI category, the Constitution authorizes presidential recess appointees to serve until the end of the year, and don't require Senate confirmation. Cordray will head the Consumer Financial Protection Bureau (CFPB).

The GOP is also upset that President Obama made recess appointments at the National Labor Relations Board. I say, So what ... Who cares? Apart from the fact that the GOP has been deliberately stonewalling President Obama's agenda, President Obama is no where near making the number of recess appointments per year that his predecessors have.



President Obama's hand was forced because Republicans made it clear that unless the CFPB were gutted, and turned into a paper tiger, they would never support anyone who was nominated to head the CFPB, regardless of party.

Simply put, the GOP doesn't like the idea of the CFPB — or anyone else — protecting the interests of ordinary taxpaying consumers. To be sure, they have no problem with Republicans in Congress protecting and subsidizing the interests of Wall Street and the big banks.





They just don't want anyone sticking up for the American taxpayers who underwrite the trillions in corporate bailouts. Go figure.

Anyways, the real problem Republicans have with Mr. Cordray - as the Raw Story's Linette Lopez points out - is that Cordray doesn’t just go after Wall Street Institutions. He goes after individual executives as well. Here are a couple of examples:


* In 2009, representing several state public pension funds, he reached a settlement with Hank Greenberg and other AIG execs that blew the SECs settlement out of the water. Cordray got $115 million, the SEC got a mere $15 million.

* The following year he settled another suit against AIG itself (also for Ohio) for $750 million. Some reports said the insurance company would actually be paying out $1 billion.

* And then there was the Bank of America Merrill Lynch merger. Cordray sued on behalf of Ohio pensions on the grounds that BofA concealed billions of dollars of Merrill Lynch losses from their clients before the merger. The case settled for $475 million.

Long story short? Cordray seems to understand the many and different ways Wall Street has screwed (or tried to screw) the American taxpayer. And he wants to hold them accountable.

Imagine that ...

- Mark

Tuesday, January 3, 2012

PAT ROBERTSON: THIS WEEK'S VILLAGE IDIOT

Making a repeat visit to my "This Week's Village Idiot" category, via the Huffington Post, we learn that God shared with Pat Robertson who the next President of the United States will be. Here's Robertson, in his own words: "I think He showed me about the next President, but I'm not supposed to talk about that ..."



 
Also, according to Robertson, God told him that President Obama has "radical" views. Well, at least he's not making any more asteroid predictions for 2011.

What an idiot.
 
- Mark