BILL O'REILLY: THIS WEEKS VILLAGE IDIOT

While defending Wall Street and the big banks, Fox's Bill O'Reilly asked why there haven't been any investigations into Wall Street criminality if what they did was so bad. In an exchange with Cornell West and Tavis Smiley, O'Reilly argued that there is "no evidence" of wrongdoing because "they didn't violate any laws!"

What an idiot.

We haven't had big investigations - let alone convictions - after the 2008 market collapse because we dumped trillions in taxpayer funded bailouts and other guarantees into the financial sector. In the process we effectively removed the threat of receivership, bankruptcy, disgrace, or the full force of our legal system from Wall Street's horizon. This is the way our legal and political system works for white collar executives with money.

So, it's not that there wasn't illegality and theft in the lead up to 2008. It's just that the rules of the game prevents our financial mandarins from having to account for their actions. And, yes, this undermines the integrity of our market system.

Specifically, O'Reilly needs to take a look at:


Purified Toxic Crap ...
Bailouts essentially turned straw into gold by using taxpayer funded cash, to purchase toxic "legacy assets" for example. To date, well over $5 trillion in watered stock, bad assets, and toxic securities have been pretty much cleaned up (forcibly) by the U.S. government taxpayer. If the worst is cleaned up, what do you go after?

Information Blackouts ...
One of the cornerstones of any market economy - and any democracy - is transparency. Without it you can't get good information. Guess what? Bailout payout information was deliberately withheld from the public on orders from current Secretary of Treasury Tim Geithner. With an information blackout the most toxic and ethically challenged market instruments have been able to fly under the radar (and then get cleaned up).

Out of Court Legal Settlements ...
Instead of entering into court battles - which are critical for building precedent and case law - financial firms like Goldman Sachs routinely pay fines into the hundreds of millions of dollars. This is chump change when you look at the trillions the financial industry has hauled in (and the trillions more we're on the hook for). It's hard to get convictions when you can pay a taxpayer subsidized fine and walk away.

Right to Sue is Waived ...
At the center of all the toxic payouts in 2008 was A.I.G. In exchange for getting bailout cash, A.I.G. was forced to give up it's right to sue Wall Street firms in court. In a few words, A.I.G. was given an offer they couldn't refuse: Take the money and shut up, or you don't get any help at all (and you might even get caught up in a legal dragnet too). But it gets better (or is that worse?). At one point during the height of the market crisis in 2008 the Federal Reserve demanded unusual national security procedures before it would share or supply critical A.I.G. bailout related documents.

For whatever reason, none of this adds up for Bill O'Reilly.

So, to simplify, you can't be sued or convicted if the problem is purified with a pile of taxpayer backed cash ... information is deliberately withheld or distorted ... you pay record fines to avoid court trials ... and if the initial keystone bailout institution is told they can't sue as a condition for receiving taxpayer money.

Let me repeat the point. You can't get investigations - let alone sued - if the state intervenes to help you bury the financial bodies. It's that simple.

If you understand this you know why Bill O'Reilly is this weeks Village Idiot.

- Mark

Addendum: As you can imagine, things haven't gotten any better over the years. Corporate America is busy playing Blame Games, and are suing one another for selling toxic crap to one another. Similarly, we're learning about the usual political stonewalling and massive lobbying of state attorney generals, which prevents or undermines larger investigations. All of this is critical for understanding why there haven't been any investigations because of how the FBI acknowledged that "mortgage fraud was substantial" as early as January 2008.

UPDATE: Here's Robert Reich with more examples of Wall Street seeking and getting legislative and legal cover from Washington.

"I'M SHOCKED, SHOCKED ..."

Remember when American International Group (AIG) executives promised to return bonuses seven months ago? Well, Bloomberg is reporting that the highest-paid executives in the AIG unit responsible for insuring, gambling and then losing AIG's money have not returned the bonuses they paid themselves.

Who would have thought that people who gambled away their shareholders' wealth would stoop so low as to keep taxpayer funded bonus money they did not earn? As Casablanca's Captain Renault (and Alan Greenspan) might say, "I'm shocked, shocked ..."

Seriously, this is beyond ridiculous. Many of the people who helped collapse our economy should be in jail. At the very least, we should quit the game playing and simply impose clawback taxes on the bailed out industry.

- Mark

PUMPED UP PROFITS

Have you ever had a friend or an acquaintance that strutted around, announcing to the world that he was a "self-made" man? You know the kind. Their parents paid for tutors, paid their college expenses, and then lined up jobs and money for their investments after they got out of college. Even when they fell on their face, family friends and contacts looked the other way and gave them a chance because "he's really a nice kid" who comes from a good family.

If this sounds like George W. Bush, it's not coincidental.

Well, guess what? We have the same dynamics working in the banking industry today.

JP Morgan Chase just announced quarterly "profits" of $3.6 billion. Representatives from JP Morgan Chase pointed to increased trading, income from fixed-income markets, and other jargon-laced market developments as the motor behind growing profits. What JP Morgan Chase left out is that their profits - and their existence - are really the result of more than $20 trillion in taxpayer funded bailouts and other government guarantees.

Think about it. Without his family name, their friends, and their financial networks our former president would have been, at best, an asterisk in American history. Similarly, without government subsidies, bailouts, and legislated protections for the industry, JP Morgan Chase and other banks would be headed for history's ash heap.

Even if JP Morgan Chase were the best run financial institution in the world (they're not) their existence and profits today are completely dependent on taxpayer money making other financial institutions whole. Without this, their incredibly stupid bets and poor investments would be paying perhaps 35 cents on the dollar (if it paid out at all), instead of the full value they're getting now.

Still, we get this nonsense from what is supposed to be a respected market analyst:

“[JP Morgan Chase's] revenue growth was very impressive,” said Anthony Polini, an analyst at Raymond James & Associates. “They’re benefiting from a turn in the economy and they’re asserting their dominance.”

If Anthony Polini were to tell the truth (or had a clue) he would have said the following:

The market bailout was great for JP Morgan Chase. Having the federal government use taxpayer money to fund the industry's stupidity and greed really benefited every player in the industry. With guaranteed bailouts, JP Morgan Chase not only looks healthy but they will be able to make big profits well into the future.

Market players like Anthony Polini, however, don't understand what's going on so they couch their "analysis" in superficial market lingo, which makes it appear that they have a grip on what's happening.

But he's not the only one in the industry doing this. Take this snippet from the CEO of JP Morgan Chase, James Dimon:

“While we are seeing some initial signs of consumer credit stability, we are not yet certain that this trend will continue ... Despite the near-term uncertainty about the path of the economy, our strong capital position and underlying earnings power will enable us to continue to invest in our businesses, creating a lasting franchise for many years to come.”

If I run this through my "Truth-O-Meter" this is what Dimon is really saying:

After the first big wave of foreclosures and employee pink-slips the federal government did little to nothing to protect America's middle class. This was great for us because it told us which side the government was going to take in this mess. We can only hope this continues ... As well, the trillion dollar guarantees that our industry got will go a long way in covering both our bad bets and the stupid decision-making of others in our industry. This will allow us to continue making big profits at taxpayer expense, no matter how much money we actually lose, long into the future.

With taxpayer dollars and other market guarantees totaling almost $24 trillion there's a certain Alice in Wonderland quality to Wall Street crowing about revenue growth and their investments paying off, as if they're legitimate "market" developments. They're not. They are subsidized and pumped up profits paid for by the American taxpayer.

This is corporate welfare, plain and simple.

- Mark

HOUSE FLIPPERS & PRIVATE EQUITY FIRMS: WHAT'S THE DIFFERENCE?

Have you ever had a bunch of credit cards with zero balance and then thought about doing a cash withdrawal for the maximum amount on each one, and then walking away? If you have then you've got the heart of a private equity fund manager.

In this excellent video interactive "How Private Equity Dealmakers Can Win While Their Companies Lose" (which is divided up into 1-2 minute segments) the NY Times presents a nice introduction to private equity markets that could also be called The Roots of Debt & Wealth Extraction in America

In a few words, private equity fund managers are individuals who manage money provided by wealthy market players. They then purchase (invest in) a firm with the idea of improving the company's performance and/or market share. As the video points out, the idea is similar to someone who purchases a house, with the goal of selling (flipping) it within a year after they've made improvements.


For example, in the housing market we know that there are many house flippers who took out cash advances on their credit cards, or borrowed against the value of their primary residence, to make home improvements. The idea was to enhance the value of the homes they bought. On a general level, this mentality is not only good for the individuals involved, but for markets too. But then greed and stupidity raises it's ugly head.

In the housing market, house flippers are losing big time today because they got in over their heads. Simply put, most were under-capitalized borrowers betting they could make a killing and get out before the market collapsed. President Obama's $75 billion bailout for homeowners acknowledged this, and excluded debtor-speculators and Ponzi-like house flippers from gaining access to federally-backed bailout funds.

Their mistake was that they should have become private equity fund managers, rather than house flippers. Here's why.

Unlike individual house flippers private equity managers don't have to pay back what they borrow. Pivate equity fund managers not only get paid for making a purchase but they work out arrangements where they can receive "special dividends" before the company they purchased shows any improvements or new profits.

What makes special dividend payments (which run into the millions) especially odious is that they are usually paid out with money borrowed from banks who helped fund the purchase, or takeover, of a company. As a point of reference, think about what Danny DeVito's character did in the movie, "Other People's Money" (1991).

For you romantics out there think about Richard Gere's character in "Pretty Woman."


For a modern version of how Devito and Gere's characters operate see today's NY Times' article on the Simmons Mattress Company here. According to the NY Times article, "Simmons owes $1.3 billion, compared with just $164 million in 1991, when it began to become a Wall Street version of 'Flip This House'." Over this period the various private equity owners of Simmons have made about $750 million in salaries, bonuses, dividends, and fees. You do the math.

Simmons' performance was improved so much during this period that it is now declaring bankruptcy.

If this seems a bit confusing think of it this way. Imagine that you purchase a house that you want to flip within a year. Then imagine that you max out the credit cards you have because you can legally tie the credit card debt into the house you are going to sell (legally, you can't do this, but play along here). You borrow more and pay yourself big "management" fees, but only make superficial (if any) repairs on the house. You then declare bankruptcy, or sell the house to someone else who might also declare bankruptcy (for the tax write-off). Under both scenarios you walk away richer, and debt free.

Now imagine that you can do this over and over again. In many respects, this is what the private equity market players have done over the years.

At the end of the day, when we bailed out the banks we were also bailing out the deals and bets that were made by private equity firms who destroyed firms like Simmons by dumping hundreds of millions in debt on the company. When President Bush and President Obama pushed for and guaranteed trillions of dollars for the financial and banking sector they propped up the debt creating deals of private equity firms. In effect they sanctioned the activities of a small group of financial parasites who do little more than extract rather than build wealth.

What a racket.

- Mark

NO INSURANCE? NO PROBLEM ... UNLESS YOU'RE SICK

Imagine that you don't have health insurance (1 in 6 of you probably don't). Now imagine how wonderful it would be to seek and get coverage after you were struck with some horrible medical calamity. Wouldn't it be great if you could suddenly access insurance and have the federal government subsidize the effort? Well, you can ... but only if you're a U.S. Senator living in flood zones, own a farm or ranch, or sell terrorism insurance. Here's how it happens.

PUBLIC OPTION FOR PROPERTY, NOT PEOPLE
In yesterday's Huffington Post, David Cay Johnston wrote about homeowners who "have access to public option flood insurance." Johnston tells the story of former Senator, Trent Lott of Mississippi, whose Gulf-front home was nailed by Hurricane Katrina in 2005.

Johnston writes:

Lott had not exercised personal responsibility by taking out flood insurance even though it was available from the federal government at low cost. He did have private insurance, but his insurer refused to pay much of the claim, saying it was not wind damage (which was covered by the policy), but water damage (which was excluded).

What's a man to do? Instead of taking his lumps, and fighting with insurance companies to get them to pay for his uninsured home, Lott did what any other market-loving American would do. He introduced Senate Bill 1936, which would have authorized retroactive flood insurance. Here's how his bill would work.

First, it would let flood victims pay 10 years of flood insurance premiums after-the-fact; i.e. after the disaster hits. But don't worry. It's not a complete give-away. There would also be a 5 percent late payment penalty. Ouch! That should teach them.

As Johnston points out, "Instead of being laughed at by his fellow Republicans for promoting socialism, the concept of retroactive relief was warmly embraced, although not the idea for retroactive insurance. Instead the government went with handouts." It was left to fellow Senator Thad Cochran, also from Mississippi (and a Republican free market proponent) to secure taxpayer benefits for flooded property. At the end of the day, flood benefits were issued and expanded twice. The total cost to you and me was approximately $18 billion. Nice.

In a few words, what we have is a system that provides a retroactive public option for homes, but not people. Johnston asks: "How about a similar retroactive option for people with a pre-existing condition who do not have health insurance?"

PUBLIC OPTION FOR FARMERS-RANCHERS, NOT PEOPLE
In the aftermath of Hurricane Katrina I was told by my conservative colleagues and friends that the people in Louisiana were losers who should have prepared for the inevitable. They should have taken personal responsibility and left when they saw the hurricane forecast, like when Hurricane Floyd threatened (when President Clinton ordered the evacuation). In a few words, they got what they deserved.

Within a few weeks comes along this story. From Colorado it was reported that …

Many ranchers in Southeastern Colorado are unable to find or feed their cattle … state officials requested aid from the Federal Emergency Management Agency as part of their requests for federal assistance following back to back blizzards, to help ranchers recover their livelihoods. 

“We're anticipating that we have a serious disaster down in Southeastern Colorado," said outgoing Colorado Agricultural Commissioner Don Ament … “Those ranchers need money now, they need checks in their hands,” Ament said.

Blizzards and snow in Colorado? Who would have thought that this might occur? God must have been mad at Colorado.

But this story is not isolated. Here in California, "let-the-market-work" crowing farmers and rugged individualist ranchers regularly reach out to the government when the going gets rough. For example, farmers will make investments in vulnerable but very profitable crops like citrus (which are vulnerable to frost). Many buy frost insurance. Many others don't. It's a market risk, and a gamble. So we're told.

But then we get treated to 2007 headlines like this: "Gov. Schwarzenegger Proclaims State of Emergency in 10 Counties, Asks For Expedited Treatment of Requests for Federal Aid for Farmers." In a few words, farmers who gambled, took a risk, and then lost their shirts, went running to Uncle Sam for "retroactive protection" - and got our Republican Governor - to pitch their plight to the feds. This wasn't the first time either.

PUBLIC OPTION FOR INSURANCE COMPANIES, NOT PEOPLE
Have you ever heard of the Terrorist Reinsurance Act of 2002 (TRIA)? Don't worry, many haven't. It works like this ...

After 9/11 most insurers decided to stop providing terrorism insurance, or charged so much that policy holders dropped their policies. Worried about their investments, real estate developers, financial institutions, the hotel industry and many others urged Congress to provide "reinsurance" (nice euphemism; it's really a "subsidy" that is akin to "profit protection") to the insurance industry. The idea is to get the insurance industry to offer "private" terrorism protection (again) by having the federal government cover the industry's losses should another catastrophic terror event occur.

Congress obliged by passing TRIA, which says:

1) In the event of a terrorist attack the insurance industry is insured,
2) The feds would pick up 90% of the insurer's losses,
3) The insurance industry doesn't have to pay up front premiums to the government.

But the industry doesn't get off scot free. The industry must pay 7% of their earned premiums ex post if they want their subsidy. So, what does "ex post" mean? In this case, ex post is code for paying the premium only after a terrorist event occurs. In a few words, the insurance industry has a public option to cover their losses should their industry clients ever get hit with a terrorist claim.

So, let's sum up.

The insurance industry gets to collect terrorism premiums from their clients. They also get to invest the money. This increases portfolios and bolsters industry profits. The industry incurs little risk for offering terrorism insurance because they're not on the hook if a terrorist event occurs (the U.S. taxpayer is), and they don't have to pay premiums to the federal government until a terrorist event happens. At the same time, real estate and other industries get their private property protected through a publicly subsidized program. Sweet deal, huh?

PUBLIC OPTION FOR INDUSTRY, NOT PEOPLE
At the end of the day, if you're a U.S. Senator, a rugged individualist farmer-rancher, and a member of the insurance industry you have access to a public option for your property and investments. But if you're a Regular Joe, middle-class American, you're at the mercy of the "market."

It's ironic that the same people who like to lecture about personal responsibility and the integrity of the market are the first to ask for a handout when their assets are on the line. They're also the first to complain about paying the taxes necessary for keeping their public option "insurance" programs available. Unfortunately, they are also the same people railing against the public option in health care today.

Somehow, "hypocrite" is neither sufficient, nor appropriate here. I like parasite.

- Mark

MOORE ON THE TRYANTS & PARASITES ...

After posting "Financial Tryants and Social Parasites" I read Arianna Huffington's piece on Michael Moore, "Barack Obama Must See Michael Moore's Latest Film ...",


In the article Arianna shares with us the environment under which Michael Moore filmed the final segments of his movie:

It happened while he and his crew were shooting the climax of the movie, where Michael decides to mark Wall Street as a crime scene, putting up yellow police tape around some of the financial district's towers of power.

While unfurling the tape in front of a "too big to fail" bank, he became aware of a group of New York's finest approaching him. Moore has a long history of dealing with policemen and security guards trying to shut him down, but in this case he knew he was, however temporarily, defacing private property. And his shooting schedule didn't leave room for a detour to the local jail. So, as the lead officer came closer, Moore tried to deflect him, saying: "Just doing a little comedy here, officer. I'll be gone in a minute, and will clean up before I go."

The officer looked at him for a moment, then leaned in: "Take all the time you need." He nodded to the bank and said, "These guys wiped out a lot of our Police Pension Funds." The officer turned and slowly headed back to his squad car. Moore wanted to put the moment in his film, but realized it could cost the cop his job, and decided to leave it out. "When they've lost the police," he told me, "you know they're in trouble."

From the early reviews it appears that there's much in the film that I discuss in my book. It opens October 2. I encourage you to go and watch.

- Mark

P.S. On a related note ... A "Debtor's Revolt"? You might want to check this out. I like it.

FINANCIAL TYRANTS AND SOCIAL PARASITES

I wanted to post on "Americans Have Been Taken Hostage" last week but got caught up with the beginning of the school year and other posts. The article is written by Dylan Ratigan, host of MSNBC's Morning Meeting. In a few words he argues - and I agree - that America's financial interests have been hijacked and taken hostage by well-heeled and powerful interests on Wall Street.

Their power is made evident by two developments. First, virtually no one on Wall Street has had to pay for their stupidity and greed, even though their actions spiked unemployment, destroyed retirement wealth, collapsed home values, and brought us the worst recession since the Great Depression. Second, nothing has been done to change the status quo, which means it's all going to happen again. With reference to the former, Ratigan asks:

Why did we pay Goldman Sachs and all the other banks 100 cents on the dollar for their contracts with AIG, using taxpayer money, while we forced GM and others to take massive payment cuts?

Why hasn't any of the bonus money paid to the CEOs that built this financial nuclear bomb been clawed back?

... why does the US Congress refuse to outlaw the most anti-competitive structure known to our economy, one summed up as TOO BIG TOO FAIL?

These are good questions that I think any member of Congress would be hard-pressed to address. To be sure, we might hear the usual "We need to do something about _________" which would be followed by "blah, blah, blah." And that that would be the end of it.

For those of us who live in the real world, where corporate donations for the next election cycle aren't our lifeblood, the proper response would be (or would have been) to allow bankruptcies in the financial market, nationalization of the failed institutions, and the settling of contracts at par value - even if it was five cents on the dollar. In my view, if the U.S. taxpayer is paying for the bailout, we should own the institutions. The idiots who got us into this mess shouldn't be allowed to continue running things, with bonuses, as if they were victims of unforeseen forces.

We also should have followed this up with retroactive taxes on the CEOs and other executives of the bankrupt financial institutions who received bonuses and other pay benefits for their "sterling" performances over the previous five years. At the end of the day these people did not create wealth. They sucked it up and then destroyed it for others. A "failed corporation" tax clawback would go a long way in sending a message about accountability and personal responsibility. Seeing a few CEOs file for bankruptcy would help middle class morale too.

Finally, why don't we break up the financial institutions like we broke up Ma Bell and John D. Rockefeller's Standard Oil? No financial institution should be so large that it can call on and confiscate the resources of the state simply because it's considered too big to fail. As I wrote in my book, when I discussed the dangers of "too big to fail":

When the state allows the private sector to draw on the public treasury when market break down, it also allows the private sector to act like history's tyrants, who placed their needs above those of the public (p. 244).

Much needs to be done (which is why I like this observation from Sonia Sotomayor). Think about it. Together, Bank of America, JP Morgan Chase and Wells Fargo have more than one third of all deposits in the United States. If we throw Citibank and Merrill Lynch into this group these five corporations represent almost two out of every three credit card issuers in the country.

At the end of the day, as Dylan Ratigan tells us, we can't continue calling those who built and ran the failed financial institutions capitalists. They are, as I point out in my book, financial tyrants and social parasites. The sooner Congress recognizes this, and begins regulating them as such, the better off all of us will be.

More importantly, it could also mark the beginning of the long hard slog that will be our recovery.

- Mark

CALLING IT LIKE IT IS ...

I like this article, "Time to Say No the Giant Corporate 'Parasites' -- And Recognize Them for What They Are."

- Mark