Wednesday, December 17, 2014

Anything goes

Wall Street learns a lesson

It is a matter of public record, established by the Senate Select Committee On Investigations, federal and state attorneys, regulators like the Securities and Exchange Commission and tireless investigative reporters like Pam Martens and Matt Taibbi: the serial fraud and violations of banking and securities law that crashed the American and global economy continue to this day. Wall Street and the global banking cartel party on.

Is anyone surprised?

On the novel theory that no individuals rigged the mortgage market, the municipal bond market, the commodities markets, intentional interest rates and foreign exchange markets, the response of federal law enforcement officials, most notably the U.S. Department of Justice and Attorney General Eric Holder, has been to enforce fines on the banks, but not the banksters.

The banksters skate away scot-free, no indictments or prosecutions such as occurred in the Savings and Loan and Enron scandals, their millions and billions of effectively stolen wealth untouched.

The Obama administration taught the banksters a lesson: anything goes. Small wonder it continues.

As a nation, we need to consider the corrosive effect of this lesson on the ancient standards of honest dealing in the market place and between citizens that is the bedrock of a moral and just society.

Christians and Jews will be familiar with the Book of Deuteronomy — which means “Second Law” and was attributed to Moses, who delivered the first law, the Ten Commandments — in which there is an exhortation to maintain honest and true weights and measures.

It is why thousands of American state or local governments have departments of weights and measures: to insure you get the gallon of gas or a pound of beef you pay for.

But now, we have cause to wonder. We wonder for example if the Wall Street firms managing our IRAs, pensions and public funds are looking out for us, or themselves.

Billions of dollars of public pension funds are now managed by Wall Street firms. Increasingly, the fees and commissions paid are being kept secret.

As David Sirota and others have reported, state officials in Kentucky have kept secret the agreements between the Kentucky Teachers’ Retirement System and the Wall Street firms that are managing the system’s money.

Last month, Illinois officials denied an open records request for information identifying which financial firms are managing that state’s pension money.

In Rhode Island, the then treasurer and now governor, a former hedge fund manager and darling of Wall Street, declared that financial firms have the right to “minimize attention” around their compensation.

And just in case elected officials actually want to represent those who elected them and provide the information about how their money is managed and at what cost, Wall Street is ready.

In Iowa, the private equity firm KKR warned officials that if they release information about the fees that Iowa taxpayers are paying to Wall Street, the financial industry may retaliate by excluding Iowa from future private equity investments.

Wall Street has learned a lesson: anything goes. The lesson is not lost on America’s best and brightest young people.

As reported by Pam Martens in Wall Street on Parade, “a graduate of George Washington University Law School, applying for a job at JP Morgan, attempted to set himself apart from the competition by advertising at the very top of his resume that during a previous job in power procurement at Southern California Edison, he had ‘identified a flaw in the market mechanism Bid Cost Recovery that is causing the CAISO [the California grid operator] to misallocate millions of dollars’ In case that was too subtle, the young job applicant went on to note that he had ‘showed how units in reliability areas can increase profits by 400%.’ ”

In plain language, how to rig the market.

It worked. The person who would become this young man’s boss at JP Morgan, Francis Dunleavy, advised his colleagues, “Please get him in ASAP.”

Martens reports, “Within three months of JP Morgan hiring the law grad in July 2010, he was actively engaged in developing manipulative bidding strategies for JP Morgan in California electric markets. A few months later, the plan was deployed. By fall of the same year, JP Morgan was estimating that the strategy “could produce profits of between $1.5 and $2 billion through 2018.”


This is the lesson the nation’s “best and brightest” are now taught. On Wall Street and at the highest levels of responsibility in the nation, anything goes.

Monday, November 24, 2014

The scheme to seize depositors' money

What will Congress do?
Recently, the heads of state of the G20, the developed nations, met in Brisbane, Australia. One piece of business was the advancement of new banking rules that will allow what were called the Too Big to Fail Banks, and are now called Global Systemically Important Banks (G-SIBs) to seize depositors money to save themselves in the next crash.

The scheme has been orchestrated by the Bank for International Settlements (BIS), the Financial Stability Board (created by the BIS) and the usual crowd of central bank bureaucrats in the banksters’ international cartel.

The official report from the meeting does not, of course, say that in the next crash deposits will be confiscated. The scheme is only alluded to in the official statement by the citation of a report from the FSB, titled Adequacy of Loss-Absorbing Capacity of Global Systemically Important Banks in Resolution.

The summary provided on the G20 web site states that G-SIBs “must have sufficient loss absorbing and recapitalization capacity available in resolution to implement an orderly resolution that minimizes any impact on financial stability, ensures the continuity of critical functions, and avoids exposing taxpayers to loss.”

Pure obfuscation.

Worried that the politicians they have bought won’t stay bought, that their nerve may fail them when confronted with a demand for trillion dollar bail outs in the next crash and that democratic government might assert itself, the banksters have a Plan B: an automatic “bail in.”

This is what the FSB calls “robust arrangements for dealing with stress in the financial system.”

In this soon to be global paradigm, as one commentator explained, “banks [will] no longer recognize your deposits as money, but as liabilities and securitized capital owned and controlled by the bank or institution, just part of a commercial bank’s capital structure.”

In the next crash, depositors will be subordinated to other creditors and will be pushed down through banks’ capital structure to a position of “material capital risk” — just another creditor fighting for a share of the assets of a failed bank, forced to settle for maybe pennies on the dollar.

Small deposits in the U.S. have until now been guaranteed by the Federal Deposit Insurance Corporation (FDIC). But as has been reported, total FDIC reserves are dwarfed by the amount of deposits at risk and the more than $200 trillion exposure to derivatives of the banksters’ cartel.

But municipal deposits are not guaranteed by anything, except the liquidity of the bank that holds them. Cities, counties and states all across America have perhaps several trillion dollars on deposit.

Unprosecuted, unreformed, unregulated and unrepentant, Wall Street parties on. Those deposits are at increasing risk.

You might not see it coming. State and municipal treasurers who manage government deposits might not see it coming. Members of Congress might not see it coming. But central bankers like those of the Fed know it is coming.

So does the FDIC. Months ago it laid out this new scheme to protect Wall Street in a policy document prepared jointly with the central bank of the U.K., the Bank of England.

“Wait a minute,” you say. “Why would the FDIC participate in a scheme to raid the deposits it insures? The FDIC works for the American people.”

Wrong. The FDIC was created in 1933 to calm a jittery public after the 1929 crash, head off runs brought on by panicked depositors and save banks, not depositors.

This may strike you as hard to believe, as prior to the Great Depression Americans thought the ownership of gold and silver was inviolate, almost sacred. But in 1933 the federal government confiscated gold and silver to bail out the banks and Federal Reserve.

The American people must recognize that history can and does repeat itself, that the money we thought was our own, protected in our checking and savings accounts could be taken in an instant should there be a financial crisis even remotely similar to that of 2008.

I said “could be.” In the United Sates these policies must be enacted and signed into the law by the Congress and the president. Whose side are they on?

President Obama calls the banksters “savvy businessmen” and his “friends.” He pushed the 2008 bail out through Congress, surrounded himself with Wall Street advisers and put Wall Street agents in charge of the regulatory agencies.

That may leave it up to Congress to protect Main Street from Wall Street and the banksters in the next crash.

What are the odds? Main Street, we have a problem.


Wednesday, November 12, 2014

Should President Obama resign


Time to shuffle the deck

By Mike Krauss
Bucks County Courier Times

You have to feel at least a little sorry for President Obama. Once compared to Lincoln and FDR and sure to take his place in the pantheon of great American presidents, he is now risks being remembered as another James Buchanan or Herbert Hoover – arguably the most failed presidents in our nation’s history.

Mr. Obama is hurting from a self inflicted wound. No president in modern history came to the office with more good will and political capital, or more promptly threw it away.

The American people did not like the Wall Street bail out – not at all. Obama helped push it through the Congress.

The outgoing Secretary of the Treasury, Henry Paulson suggested to president elect Obama that, for the sake of fairness, some of the bail out billions ought to go to foreclosure relief. 

Obama said “the market” would take care of that.

Then Obama populated his administration with Wall Street agents, the social catastrophe let lose by the Wall Street collapse rolled on, the rich got richer, life got tough for most Americans, has only gotten better for the already well-to-do, and that was that for his administration.

Had the president taken the side of the American people – Main Street, instead of Wall Street  – he could have written the kind of universal health care bill the American people support on the back of a cereal box and delivered it to Congress attached to a kite, and it would have sailed through to passage. Greatness beckoned.

But he did not and his presidency began to unravel, a slow and painful drama that has now delivered  both houses of Congress to the GOP, which has a really unhealthy dislike of the president.

Now what? What can this president and that Congress agree on? The only things they ever agree on: Wall Street and war.

The care and feeding of Wall Street has been the preoccupation of every American president since Ronald Reagan, and the system of legalized bribes showered on the Congress has insured its support.

And more war seems to suit everyone in Washington just fine; although to his credit Mr. Obama seems to be trying to avoid plunging the U.S. into a third war in the Middle East quagmire.

But the American people need more than that. Americans need good paying jobs, lots of them. Americans need affordable health care, investments in infrastructure, secure retirement for our seniors, world class public education and college education that does not condemn our young to decades of crushing debt.

And Americans want out from the hopeless pathologies of the Middle East, the never ending War on Terror and a life of constant fear and anxiety.

 Climate change. Help! Ebola. Watch out! We’re being foreclosed. Oh, God! Where are the kids? Call 911! Terrorists under the bed. The government spying on your every mail and phone call. Make it stop, please!

Two more years. Say it ain’t so. But it will be. Unless.

President Obama should accept the results of the elections for what they were – a resounding vote of no confidence – and resign.  He would be succeeded by Vice President Biden, who unlike the president is a veteran of the Congress and has the skill set and temperament to at least attempt a working relationship with that august body.

It would leave a venomous GOP with nowhere to sink its fangs.

And it would upset the apple cart of Hilary Clinton’s march to her coronation as the next president in the Wall Street dynasty. A President Biden would automatically be a contender for the nomination of the Democratic Party.

That alone ought to tempt the president.

What are the odds? Slim to none, I suppose. It’s nice being president. You and your family get treated really well, if you don’t mind the occasional lunatic over the White House fence and the ones in the Congress and half the world’s capitols.

Nevertheless, the president ought to think about this long and hard. It would change everything, shuffle the deck and give the American people a new deal.

But if not to resign, what? Two years of standoffs, shut-downs and speeches no one wants to hear? Is there an alternative?  One comes to mind. Fight.

The president could fight for those things Americans want, deserve and so urgently need. And maybe the president can claw his way back to greatness, as the American people claw back their stolen prosperity, security and peace.

It’s a thought.

Monday, October 27, 2014

The Public Bank Option

Building an Ark

By Mike Krauss
Bucks County Courier Times

Ellen H Brown is an attorney, researcher, author and daughter of U.S. diplomats. And observant.

In the aftermath of the Wall Street collapse and the catastrophe it let lose, she noticed that while forty-nine of the fifty states and thousands of municipal governments were drowning in red ink and deficits, one state was not: North Dakota.

She investigated and discovered that unlike the other states, the people of North Dakota owned their own central bank, a mini Federal Reserve, the Bank of North Dakota (BND), and as one North Dakota banker put it, “When the crash hit, the BND never blinked, and the credit kept flowing.”

Affordable credit is the life blood of modern economies, providing families and individuals who are not wealthy the essential tool to create some wealth and prosperity, and enabling businesses to grow and create jobs.

The BND is not a commercial bank. It partners with, and does not compete with local banks, credit unions and financial institution. allowing them to make larger loans than otherwise possible, or “buying down” interest rates, making loans more affordable so that local banks can approve more loans.

This is a no branches, no tellers, no ATM, no advertising, no mega salary or mega bonus bank. Low overhead and very profitable. Last year the bank returned $94 million in profits to the state – non tax revenue – for a budget surplus.

The BND has a current loan portfolio of $3.2 billion at work creating jobs in a state of 670,000 people, about the population of the county where this newspaper is published. Unemployment in North Dakota is 2.6%.

The story line out of Wall Street and Washington is that the BND has nothing to do with the prosperity of that state. It’s all about the shale gas boom.

Nice try.

The BND was putting in $30 million a year to the state before the shale gas boom. North Dakota’s neighbor states all have gas and oil, and went into budget shock when the crash came.

Pennsylvania is in a shale gas boom, but unemployment is at 5.7 percent,  not counting those who have given up looking for the jobs that are not there, and lawmakers had to close yet another budget deficit - $1.4 billion.

Small wonder twenty state legislatures now have some kind of public bank legislation pending. But getting a bill through a state legislature is a long slog, So municipalities, cities and counties, which are more agile, are taking the lead.

Last month, Santa Fe, NM became the first American city to move formally to consider how to establish its own bank. More will follow.

Why the urgency?

An unprosecuted and unrepentant Wall Street parties on.  The next crash is only a matter of time. It will take much of what is left of the prosperity of the American people with it, including municipal deposits banked on Wall Street.

But a public bank can hold those municipal deposits, securely and not leveraged to back the almost insane $200 trillion plus of derivative gambles that now sit on the balance sheets of the largest U.S. banks, just waiting for the piper to come calling.

Public banks can do something else of immediate benefit to taxpayers: drive down debt service.

Newly formed public banks can immediately grow their assets and balance sheets, and grow gradually into credit creation,  by buying up high cost municipal debt, replacing it with lower cost debt and driving down the debt service that is often a large part of municipal budgets.

The latest Consolidated Annual Financial Report (CAFR) available for county in which this newspaper is published shows total debt of $330.2 million, of which $79.5 million is interest. And as reported in this newspaper, the county’s debt service obligation will increase by 17 percent in 2014.

That has to be paid for by taxes.


Ellen Brown founded the American public banking movement. In a recent essay she explains that creation of public banks is more than tax relief and prudent management of public funds; it may be a vital necessity -  a way to build an Ark to safeguard public funds in the coming flood that Wall Street will let lose.

The Great Depression on steroids


The coming Wall Street collapse

By Mike Krauss
Bucks County Courier Times

The story line coming out of Washington and the Federal Reserve is that life is getting better all the time for the American people. It is a false narrative, pure propaganda.

The reality is that the overwhelming majority of the American people remain trapped in a slow moving social catastrophe, almost six years of bankster induced austerity – savage budget cuts and crippled public services, crumbling infrastructure, high unemployment, home foreclosures, bankruptcies, failing schools, crushing student debt, higher taxes and more public debt.

It is reported that most Americans could not lay hands on $400 to cover an emergency, while the gap in income and wealth between the less than one percent and the rest of the American people grows ever more obscenely wider. Some recovery.

At the heart of this travesty lies the slavish devotion of the federal government – the Congress, administration and the regulatory agencies – to the predatory banks on Wall Street.

We all know this.

What we may not all know is that nothing has been done to change the business practices of the banks that collapsed the prosperity of a nation; and on account of this, they have gone on doing what they had been doing.

It is only a matter of time before those practices induce another, more devastating collapse – the Great Depression on steroids.

But, you say, the Dodd-Frank reforms cleaned up that mess. Think again. Dodd- Frank was written by an army of Wall Street lobbyists, as were the rules to implement even its most mild of corrections.

Party on, Wall Street.

There have been only two tangible results of Dodd-Frank. One is to push ever more community banks and credit unions out of business, allowing Wall Street to gobble up more customer deposits to back their bets. The other is that affordable credit has dried up, as the Wall Street banks abandon lending to businesses in our communities to chase the mega profits in the derivatives casino.

The “too-big-to-fail” U.S. banks have collectively gotten 37% larger since the 2008 banking crisis. The six largest banks now control 67 percent of all banking assets.

According to the most recent quarterly report from the Office of the Controller of the Currency, five "too-big-to-fail" banks now have more than 40 trillion dollars each in exposure to derivatives.

Derivatives, like the interest rate swaps that cost Philadelphia and its school district about $500 million, are bets -  and bets on bets, and bets on bets on bets, waiting for one large failure to send Wall Street into a frenzy of calling in the bets, desperate to salvage their paper profits before the losers go bust.

Who will be the big losers in the next crash? Depositors.

Dodd-Frank prohibits taxpayer funded bailouts like that of 2008. So, in the coming crash the Wall Street banks will go under? Of course not.  Instead, they will be “bailed in” by seizing depositors funds. The dry run was Cyprus.

But, you say, that’s my money! No, it isn’t. Legally, when you deposit money in a bank, it belongs to the bank, and what the depositor has is an IOU; which gets paid if there is any money left in a bank meltdown.

And there won’t be. The reserves of the FDIC will get blown away in days, if not minutes. And the 2005 bankruptcy “reform,” gives the counter parties to derivative bets “super priority” status to get paid off before “unsecured creditors.”

That’s you, and any local government which parks its money on Wall Street; money needed to meet payroll, for example.

This pending catastrophe is not something members of Congress, the president, or the real power in the U.S., the Federal Reserve, want to discuss.

But those responsible for public funds must pay attention to what the “invisible hand” at the Federal Reserve is doing, understand that it controls the American system of banking and finance and the U.S. economy, and that it works for the banksters on Wall Street and no one else.


In the next column, how the American people can survive another banking catastrophe.

Sunday, October 19, 2014

Philadelphia: broke unless you count the $11 billion


Putting the common wealth to work for the common good

By Mike Krauss

The finances of Philadelphia and its school district continue their roller coaster ride from one crisis to the next, taking the people of the city – and the children – along for the ride.

The latest jolt was delivered by the School Reform Commission (SRC), the unelected junta that controls Philadelphia public education. Meeting in an almost clandestine session, the SRC abrogated a long standing contractual agreement  with the teachers and compelled them to make contributions to their health care benefits.

Some will look at this and say, “Well, I pay for my health care, so why not teachers.” Sounds reasonable, until you consider the facts.

Teachers make a considerable investment in their own education.   Many are burdened with the debt they incurred for that education. They want to see a return on that investment, like any smart private business person, the kind who sit on the SRC.

In contract negotiations, health care is a part of the teachers’ compensation, in place of higher pay. It makes more sense to buy health care as a group and get lower premiums, than to take more salary and buy health care individually.

So the action by the SRC is in fact a pay cut, which was justified by two arguments which don’t stand up to scrutiny.

The first is that the savings by the district can be immediately distributed to our struggling schools for such critically needed items as teaching material, counseling, nurses and all the many critical aids to good teaching that have been cut.

The teachers are made to pay for what the people’s government will not.

What’s next? Will  police be asked to pay for their uniforms and weapons? Will firefighters be asked to pay for their protective gear?

The second argument for this pay cut for the teachers is that “There’s no more money.” But that is not so. This city has lots of money. It is just not managed to maximum benefit for the city.

The people of Philadelphia hold more than $11 billion in investments, managed by the Pension and Retirement Board, the Treasurer or various agencies and authorities. It is managed, in the case of the Pension and Retirement Board, by more than 100 different managers of different types of investments, financial products.

The Pension and Retirement Board regularly moves that money around from one investment to another, generating fees and commissions for the managers, but no appreciably greater return than had the money sat in the stock market.

Virtually none of the $11 billion is invested in and at work in the city, creating jobs and the tax revenues that can support a first class, world class education for our children.

There is an alternative.

Some portion of those investments – say  5 percent, or about $550 million - can be redirected into an equity position in the formation of a pubic Bank of Philadelphia, modeled on the hugely successful public Bank of North Dakota (BND).

Those funds are then leveraged as with any bank, in partnership with our community banks, credit unions and development agencies to generate many times that amount in affordable credit – the life blood of modern economies – flowing into the city.

For job creation, neighborhood improvement, infrastructure, sustainable business, better schools and more  - all those things the people of this great city deserve, but are told are not affordable.

The BND last year returned $94 million of profit to the state’s general fund, helping to post yet another budget surplus. No layoffs or cutbacks. It has $3.2 billion dollars invested in that state’s economy, with a population half that of Philadelphia, helping to drive unemployment to 2.6 percent. It helps reduce the interest paid on bond issues – public debt – and interest paid is to the people and into their own bank.

Perhaps most important, the state deposits its own money in its own bank, safely away from the casino on Wall Street, whose banks have done this city great harm but only small favors.

For too long, Philadelphia’s leaders have fought the annual budget battle with the same old tools – layoffs, cutbacks, more taxes, more debt or givebacks from employees.

Public banking is the new tool this city needs to build a new future of broadly shared prosperity, opportunity and justice for all its sons and daughters.

And get the city and its children off the roller coaster.

Mike Krauss is Chairman of the Pennsylvania Project and a founding director of the Public Banking Institute. www.publicbankingpa.org


Thursday, July 10, 2014

The Disappearing Congress

Turning back the clock on democracy
By Mike Krauss
Bucks County Courier Times

Americans are generally taught that the Declaration of Independence sprung whole from the mind of Thomas Jefferson, to launch America to greatness. But in fact that great work was preceded or accompanied by 90 like minded state and local “declarations of independence.”

As Bill Bigelow of the Zinn Education Project put it, “Jefferson was not a lonely genius conjuring his notions from the ether; he was part of a nationwide political upheaval.”

That upheaval was a long time coming, as Jefferson and all the “Founders” and “Framers” of the United States and its Constitution well knew.

The American Revolution was a step forward in more than 500 years of struggle, beginning in England in 1252 with the Magna Carta, which set the first limits on the old feudal order of arbitrary, aristocratic privilege and “royal” executive authority.

The language of the Declaration and the Bill of Rights in the U.S. Constitution echo earlier democratic writers and an English Bill of Rights promulgated in 1689, which the Founders and Framers of our democracy also knew well.

The protection against “cruel and unusual punishment” was written into American law because they knew the savage punishments common in English law up to the decades of the colonization of the New World.

The right of the accused in American courts to a speedy, public trial at which evidence must be presented and can be contested was written into our law precisely because the Founders and Framers well knew the secret courts of English “justice” and the prisons in which those arrested by royal command could languish for years, or have their confessions “extracted” (read torture), to be condemned and executed on trumped up evidence or a mere assertion of guilt.

The Declaration and the Constitution followed from the long struggle to establish democracy and the rule of law against feudal privilege and power.

That history is still being written.

The Member of Congress for the district in which this newspaper is published championed two bills, the Enforce the Law Act and the Faithful Execution of the Law Act. The point of these bills is that the president is deciding what parts of legislation the Congress enacts he will choose to enforce.

To some extent, these bills are part of the GOP’s never ending hissy fit over Obamacare. That’s unfortunate, because what the Congressman rightly calls “executive over-reach” is a real threat to our democracy and the rule of law.

Under our Constitution, the representatives of the people in Congress are empowered by the people to make the laws. The president, the executive, is charged to “faithfully execute” his office; that is, to carry out those laws.

This arrangement is not accidental. As the American jurist and diplomat, Craig S. Barnes notes in his seminal book, Democracy at the Crossroads, the intended purpose was to insure that in America, “The chief executive [the president] would have no royal prerogative to act on his own…Law would come from the compromise fashioned in the assembly [Congress] draw from the people. The [president’s] oath of office would be an explicit and solemn remedy for the severe grievances against which the colonists’ ancestors had been struggling for more than five hundred years.”

But beginning with Richard Nixon and his chief of staff, Dick Cheney, American presidents have been embarked on a power grab, and now issue “Signing Statements” to accompany the laws Congress has passed, indicating which parts of the law they will and will not enforce.

On whose authority does the president assert this extraordinary power? His own.

Hail, Caesar and thank you, Your Majesty.

The congressman is rightly concerned. This subversion of the Constitution has been fully embraced by George Bush and Barack Obama, and turns back the clock on democracy and the rule of law.

But the Congressman’s bills do not need to be enacted. The Constitution provides a remedy for a president who forswears the great oath to “faithfully execute” his office and “preserve, protect and defend the Constitution of the United States.” The remedy is impeachment.

But that remedy will not be employed, and nor will the congressman’s bills become law, because this Congress has almost no support among the American people, who know full well that only the one percent of the one percent who fund elections now have a voice there.

The congressman is shadow boxing.


The corruption of our elections, the captured Congress they produce and an increasingly autocratic presidency are pulling our hard won democracy back into the undemocratic injustice of the old, feudal order which the first American patriots threw off.