Friday, November 30, 2012

Breaking Free From Wall Street

Public banking: Breaking free of Wall Street and the boom-bust cycle

By Mike Krauss
Bucks County Courier Times

The Bucks County Commissioners have unveiled a preliminary budget for 2013, and like county, city and state elected officials across the nation, they are looking at a deficit. In this case, $2.7 million.

The cause of the deficits is largely the same everywhere: in the wake of the man-made catastrophe of the collapse and bailout of Wall Street, the economy remains in recession, unemployment high and tax revenues decreased, combined with cutbacks in state and federal funding.

State funding has been cut back because of the same declining revenues, no relief in sight. And with Washington focused on what many consider a propaganda-induced crisis — the “fiscal cliff” — there will be no relief there.

The options touted to close the gap are about the same in Bucks County as across the nation: raise taxes, reduce services (when unemployment and foreclosures increase the demand for those vital services), lay off employees and add to unemployment or borrow, adding yet more debt to already burdened taxpayers.

Those are the only tools state and local governments have, tools to share the pain. Or are they?

While Americans view the economic contraction and recession as global, it isn’t. It is highly localized to the economies of the United States and Europe, which are most closely tied to the central bank cartel of Wall Street and Federal Reserve private banking system. But in many other nations, where on the average 40 percent of the market is in public banks, economies are growing.

These are the so called BRIC nations (Brazil, Russia, India and China), as well as Australia, New Zealand, Canada, Iceland, South Africa and Japan; and the healthiest economy in Europe, Germany, where public banks have existed for decades and provided much of the credit and investment for West Germany’s recovery from World War II. The public “Post Office Bank” in Japan played the same role there.

This is not to say that these nations have not felt the impact of declining exports to the sick economies of the U.S. and Europe. They have. But no one in China, or Brazil or India is talking austerity.

Just the failed central bankers and the 1 percent in the U.S. and Europe who caused the catastrophe.

But there are cracks in the wall. Iceland told the predatory bankers to get lost, prosecuted, went after the money they stole and now its economy is recovering while the U.S. and Europe languish. Members of the English Parliament are considering real limits on the private banks.

And last week in Scotland, the finance minister, members of Parliament and civil servants heard from advocates of a public bank as they consider legislation to create a public bank on a national scale.

But public banks are unknown in the U.S., except for one state, North Dakota, where the Bank of North Dakota (BND) has played a major role in sustaining the strongest economy and banking industry in the nation: lowest unemployment, rising wages, continued budget surpluses and no bank failures.

In addition to a current loan portfolio of $2.9 billion invested throughout the state’s economy (businesses, mortgages, student loans), the BND invests in municipal infrastructure, supports disaster relief and has returned an annual average profit of $30 million a year over 10 years to the state’s general fund — revenue without taxes.

The BND is also partnering in North Dakota’s strong energy and agriculture sectors — for example, helping to finance the first new refinery in the United States in decades — multiplying those sectors’ contributions to the economy.

So what about Pennsylvania, which has energy and agriculture and a whole lot more, in a far more diversified economy than North Dakota? The impacts of a state public bank in Pennsylvania could well exceed those of North Dakota. And a public bank of Bucks County could help diversify its economy and end its decades long dependence on residential real estate taxes and state and federal handouts.

Small wonder that now 20 states and a growing number of municipalities across the country. are exploring how public banking can grow their economies, create jobs, boost tax revenues in an expanding economy, halt cuts to vital services, end layoffs and reduce taxpayer debt.

Of course, the benefits of any new public bank will not be felt immediately. The best studies to date (by the Center for State Innovation) project a three to five year period until public bank profits begin to flow, depending on how the bank is capitalized. But the creation of affordable credit to invest in the local economy can begin almost immediately.

The Commonwealth of Pennsylvania and counties like Bucks have more than sufficient assets and access to capital to form a public bank. This innovation deserves the attention of our elected officials.

Because one thing is certain. As long as the creation and cost of credit is controlled by Wall Street and the Fed, recessions will come and go and come again. The time to begin breaking free of that cycle is now, so we don’t get stuck again in a few years with the same bad choices.

Mike Krauss, formerly of Levittown, is a former officer of Bucks County and Pennsylvania government and chair of the Pennsylvania Project. Email:

Friday, November 16, 2012

The fiscal cliff sell out

The thanks of a grateful 1 percent

By Mike Krauss
Bucks County Courier Times

Many weeks ago in this column I forecasted an Obama victory. It was an obvious call.

Mr. Romney was and is a poster boy for Wall Street and the 1 percent. He represented a party – at least those who have done its talking for thirty years – that veers between indifference and hostility to gays, Hispanics, African Americans, the unemployed, uninsured, homeless and women.

Who was left to disdain?  

So Obama’s victory was assured. Now the question is, what will he do with that victory? The answer is again obvious. He will do as he did after his first election, and protect the interests of the 1 percent.

Obama came to the presidency with more good will and political capital among the American people than any new president in modern times. But even before he took office, he and House Speaker Pelosi ran to Wall Street’s rescue and rounded up the votes to pass the bail out.

Then as president, Mr. Obama stood up for Wall Street. He surrounded himself with Wall Street’s minders and errand boys, legitimized Wall Street’s greed and fraud, put Wall Street’s boys at Treasury, Justice and the Fed. He stood up for Wall Street as he sat down on unemployment and foreclosure, and instead led the nation off into the health care wilderness.

Not that health care is unimportant. But even a second rate political strategist could have told you that if Obama had gone after Wall Street, put the barons on the run and in the dock, his approval rating would have gone from 60 plus percent to about, well, about 99 percent.

The president could then have gotten any jobs and foreclosure bills he wanted, the American people and economy would have come roaring back, and he could finally have gotten the health care reform most Americans have long supported - a single payer system for all Americans.

He didn’t want to. His re-election should have been impossible. But the GOP and the 1 percent served up Romney and Obama won – big.

And it was a big victory. Not just the contest for president, but across the board in the Senate and House, the GOP got hammered, and Obama immediately stepped up to talk  - compromise.

It is as if, when the treaties were signed to end World War II, the U.S. had then asked the Germans and Japanese how much of Europe and Asia they would like back.

Do you think, if Romney and the GOP had won, they would be talking compromise? Of course not.  They would be talking “mandate” 24/7. And there would be bills tomorrow to “save” what is left of the safety net by cutting more holes in it, complete with continued historic low taxes for the already wealthy and more corporate subsidies.

And there will be such bills and soon. Mr. Obama will give cover to those Democrats in Congress who Wall Street and the 1 percent have already purchased, and an opportunity for the true believing predators in the GOP to push for cuts in the safety net that will make the coming sell out sound reasonable.

It is the same drill that got the bail out through Congress in 2008, led by Democrats Obama and Pelosi and a national media that hectored the American people night and day with the specter of a “credit freeze” and collapse of the economy.

The bail out was enacted and Americans got – an economic collapse. This time it is the even more ominous sounding “fiscal cliff” which is trotted out day and night to frighten Americans into burning down their own house. And the result will be more hardship and poverty for most Americans, and more wealth for the already wealthy.

It is time to ask, if you have not yet, whether the two major national political parties in the U.S. any longer can make a claim to represent average Americans; or whether both have been reduced to puppet parties, the strings of each pulled by Wall Street and the 1 percent, going through election “extravaganzas” as scripted as any professional wrestling match, outcome predetermined: the 1 percent win and the 99 percent lose.

There were some hopeful signs in the elections for Congress, most notably the election of Elizabeth Warren as Senator from Massachusetts. But that is one reason why Wall Street and the 1 percent are trying to stampede the nation now, and get this deal done with the lame duck Congress, before anybody is in place to head them off.

It does not take a political genius to forecast harder times still for most Americans. Likewise, it is obvious that the fight for simple justice and the prosperity of the 99 percent will not be led from Washington. It will be led from America’s municipalities, counties and states, rebuilding an American community, or it will not be led at all.

And four years from now Mr. Obama will retire with the thanks of a grateful 1 percent and we can try again to elect a president of the people, by the people and for the people.

Sunday, November 4, 2012

Road to Ruin

Only jobs can stop the drift

By Mike Krauss
Bucks County Courier Times

It was a throw away, seven words in a sentence at the end of a recent editorial in this newspaper encouraging a write in vote for former Pennsylvania Gov. Ed Rendell for U.S. Senate.

The editors found insufficient reason to endorse either incumbent U.S. Senator Bob Casey or his GOP challenger Tom Smith, and suggested that Rendell could bring much needed leadership to a dysfunctional U.S. Senate, immobilized by partisanship — and here are the seven words — “even as the nation drifts toward ruin.”

And there it is: the truth, the whole truth and nothing but the truth, in black and white and right between the eyes.

We are drifting toward ruin.

It begins at the beginning, with the oath the president took to “preserve, protect and defend the Constitution of the United States against all enemies, foreign and domestic.”

Mr. Obama has foresworn that oath and is trashing our constitution, shredding the rights to due process, habeus corpus and the protection against unreasonable search and seizure.

The war on terror has become a war on liberty.

Americans may now be arrested at will — that of the president, urged on by some nameless functionary, and imprisoned indefinitely without evidence before a judge or a warrant. The president has taken upon himself the power to execute alleged “bad guys,” including American citizens, without recourse to any judge or trial.

His opponent, Mr. Romney has had this to say about this Caesar-like power grab by the nation’s chief executive — nothing.

So we drift away from our constitution, as we drift away from our democracy.

The election for president and members of Congress will hit new spending records, of itself not all that surprising. It takes a lot of money to stage a two year circus.

But there is almost no way to know where all the money comes from and no way to limit the influence of the corporate elite that now buy elections as they buy votes in Congress.

The nation drifts as the unemployed and homeless drift. God only knows how this faceless army is faring in the aftermath of “The Storm.” It was bad enough before the storm hit.

Better Markets ( is a non-profit and non-partisan organization that promotes transparency, efficiency and integrity in the nation’s finance industry and markets. Its director is a high power lobbyist, Dennis M Kelleher, who has been described as “Occupy’s suit wearing cousin.”

In late September they released a report that quantified the damage inflicted on the nation in the other catastrophic storm of recent memory, the collapse of Wall Street. The report puts its message in its title: “The Cost of the Wall Street-Caused Financial Collapse and Ongoing Economic Crisis Is More Than $12.8 Trillion.”

The report describes the reality of America: five years since Wall Street failed and was rescued, the nation is stuck in “the worst economy since the Great Depression, which touches every corner of our country.”

The $12.8 trillion represents the losses that can be quantified: “destruction of human capital from long-term unemployment, lost household wealth, foreclosures, government bailouts, emergency spending measures, and the other actions that were necessary to prevent a second Great Depression.”

But the report also notes the difficult to quantify, but very real losses that all the “feel good” propaganda in the world cannot mask: the “widespread human suffering that has resulted from the surge in poverty, homelessness, and hunger.”

“Surge.” Like the tide that hit Lower Manhattan and the Jersey shore, with similarly devastating consequences.

The report concludes that this suffering and deprivation will continue “for many years to come.” Or, as another report put it some months ago, the nation is in the midst of a “slow moving social catastrophe.”

Drifting toward ruin.

What will arrest the drift and get the nation moving forward again?

A psychological lift would help, something we could all cheer, like jailing some of the banskters on Wall Street or a moratorium on home foreclosures. But more is needed: jobs — good paying jobs.

Jobs are everything. Jobs for the middle aged Americans now out of work for years, unemployment exhausted, home foreclosed, future bleak, winter coming on.

Jobs for the debt shackled and unemployed recent college grad. Jobs for the 50 percent unemployed minority youth. Jobs for the laid off teachers, cops and firefighters. Jobs.

It is so achingly obvious.

Jobs eliminate the need for public assistance and create taxpayers, economic activity, local tax revenue and hope. Jobs create buyers for products and services and the need to increase production, capacity and employment that all the tax breaks and corporate profit serving deregulation in the world can never produce.

Where will those jobs come from? Washington? Wall Street? The Federal Reserve?


Perhaps, in the aftermath of “The Storm” there will be funds to rebuild and some will be put to work in the areas affected. But expect the Congress to cry poor, as cover to legislate a windfall for major donors and the one percent. It’s the new American Way.

Maybe, by some miracle, the elections will produce a president and a Congress who are on fire to put America back to work, the deficit be damned. But again, don’t hold your breath.

To arrest the drift, jobs must be created on a massive scale. New models are needed. The old and failed must be discarded.

Friday, September 7, 2012

Prophet of profit

Why Romney won't win

Bucks County Courier Times

I promised myself I would not write about the GOP and Democratic conventions until both were over. But then I figured, since I am writing about U.S. politics, where all promises are made to be broken and no one seems to care, what the hell.

Mitt Romney is headed to defeat.

It should not be possible. Most Americans now realize that the election of Mr. Obama was the result of the greatest “bait and switch” marketing campaign in the history of American politics, but he will be re-elected.

Mr. Obama drove Wall Street’s get-away car, his attorney general riding shotgun. He chose to stand aside while millions lost their homes. He has proved unable/incompetent/unwilling (Pick one) to put Americans back to work. His big domestic initiative has not made health care more affordable, and so it is less available when and where it is needed. He has kept America at war.

Mr. Obama swore the great oath to “preserve, protect and defend the Constitution of the United States against all enemies, foreign and domestic,” but is quite possibly the greatest threat to that Constitution in the history of the nation.

He has assumed powers and trashed constitutional protections in the manner of a Roman Caesar or a Tudor king.

The president and his apologists are compelled to embarrass themselves and argue that Americans are better off today than they were four years ago; and if they are not, well, he had nothing to do with that.

Mr. Obama should go down in a landslide. But he won’t. How is that possible?

For the answer, you need look no further than Mr. Romney’s acceptance speech.

The Nielson Agency says about 800,000 more Americans watched the GOP Convention than did so in 2008. It also reports that the audience was overwhelmingly 55 years or older. It did not say, and did not need to say, that the audience was also overwhelmingly white.

That is the GOP base. And Gallup reports that Romney’s speech got “the lowest ratings of any Gallup has measured since 1996.”

Trouble in River City. Why?

No one trusts the man. He has changed positions on issues more frequently than most men change underwear. And while he has strengths, they cannot be spoken.

He was a reasonably effective governor. But he has disavowed almost every policy he championed then, in an effort to hide out among the tea party that would impress a chameleon.

And his other strength — that of a deal making businessman — only serves to remind Americans that in the U.S. today, it is often only the deal maker who wins. Romney could only allude to it, and he had to rewrite history to do it.

Romney said, “He (Mr. Obama) took office without the basic qualification that most Americans have and one that was essential to his task. He had almost no experience working in a business.”

The most effective presidents in modern time had no experience with business. Teddy Roosevelt, FDR, Eisenhower, Johnson and Nixon spent their entire adult lives in public service, and Reagan’s only brush with business was as a sportscaster and actor.

There is a vast difference between a life devoted to public service and a life devoted to profit, which is all that business is about. Period. And most Americans know it.

Maybe not the latter day Republicans who now dominate that party, but most Americans know that a life organized around profit will be fundamentally different that a life organized around service, and that while each has its place in America, neither can be successfully directed like the other.

Mr. Obama has failed not because he has no business experience, but because he had insufficient experience of American government, perhaps even insufficient experience of America, and got rolled by Wall Street.

And Mr. Romney appears to fit right in with that same crowd of parasites in pinstripes. I don’t see Americans jumping from the frying pan into the fire.

Mike Krauss is chairman of the Pennsylvania Project and was executive director of the Pennsylvania Republican State Committee in the Thornburgh administration. Email:

Thursday, August 2, 2012

The LIBOR Scandal

Coming Economic Armageddon?

It was variously reported as the “Wall Street Heist of the Century,” “Biggest Fraud of All Time,” and “Mother of All Scandals.”

“It” is the fixing of the LIBOR (London Interbank Offered Rate) which sets the interest paid on hundreds of trillions of dollars of financial transactions.

By most reports, all the Wall Street and major European banks were in on the deal, conspiring for years to defraud not only consumers, but businesses, investors and municipal governments (taxpayers) of untold billions. Municipalities — maybe yours — took the hit in interest rate swaps.

Wall Street watchdog Pam Martens explains the scam.

“A typical deal involved the municipality issuing variable rate municipal bonds and simultaneously signing a contract (interest rate swap) with a Wall Street bank that locked it into paying the bank a fixed rate while it received from the bank a floating interest rate tied to one of two indices. One index, LIBOR, was operated by an international bankers’ trade group, the British Bankers Association. The other index, SIFMA, was operated by a Wall Street trade association...When the two sets of cash flows are calculated, the side that generates the larger payments receives the difference between the sums. In many cases, continuing to this day, the municipality ended up receiving a fraction of 1 percent, while contractually bound to pay Wall Street firms as much as 3 to 6 percent in a fixed rate for 20 years or longer. If the local or state governments or school boards wanted out of the deal, a multimillion dollar penalty fee could be charged based on the rate structure and notional (face amount) of the swap.”

In only a preliminary investigation, Pennsylvania Auditor General Jack Wagner identified more than 600 swaps entered into between October 2003 and June 2009, by 107 of Pennsylvania’s 500 school districts and 86 other local governments, for more than $14.9 billion in municipal bonds.

Huge losses have been reported nationwide, including nearby Philadelphia, Bethlehem and Reading. Many may still be unreported, concealed by municipal officials, wary of voters’ wrath.

So the fixing of the LIBOR involves fantastic losses by the American people. Very big news, indeed. For two days, And then — nothing.

Nothing in the New York Times, Wall Street Journal or Washington Post. No damning expose by CNN, or anyone else in the major media. No outrage from the president, attorney general or secretary of the Treasury. No legislation in Congress to take back the stolen billions. Only silence. Why?

The answer was provided in a recent essay by former Reagan Deputy Treasury Secretary Paul Craig Roberts. Not only were all the major banks in on the fix, so too were the Federal Reserve and the Bank of England.

“As the Federal Reserve and the Bank of England are themselves fixing interest rates at historic lows in order to mask the insolvency of their respective banking systems, they naturally do not object that the banks themselves contribute to the success of this policy by fixing the LIBOR rate and by selling massive amounts of interest rate swaps, a way of shorting interest rates and driving them down… The lower is LIBOR, the higher is the price or evaluations of floating-rate debt instruments… and thus the stronger the banks’ balance sheets appear.”

Roberts asks if the only way the U.S. and U.K. financial systems can be kept afloat is by systemic fraud, and concludes, “The answer is yes.” He explains.

“Imagine the Federal Reserve called before Congress or the Department of Justice to answer why it did not report on the fraud perpetrated by private banks, fraud that was supporting the Federal Reserve’s own rigging of interest rates (and the same in the UK.)

“The Federal Reserve will reply: “So, you want us to let interest rates go up? Are you prepared to come up with the money to bail out the FDIC-insured depositors of JP Morgan Chase, Bank of America, Citibank, Wells Fargo, etc.? Are you prepared for U.S. Treasury prices to collapse, wiping out bond funds and the remaining wealth in the US and driving up interest rates, making the interest rate on new federal debt necessary to finance the huge budget deficits impossible to pay, and finishing off what is left of the real estate market? Are you prepared to take responsibility, you who deregulated the financial system, for this economic Armageddon?

“Obviously, the politicians will say NO, continue with the fraud.”

So here is where the American people have been led by the deregulators, “The Market Knows Best” wizards of the Clinton years — Rubin, Greenspan, Summers and their acolytes, Presidents Bush and Obama and current Treasury Secretary Geithner: into a trap.

Either the American people acquiesce to massive fraud and the skimming of countless billions by Wall Street, or we collapse the dollar, or we wait for the rest of the world — even now decoupling from the dollar — to collapse its value, and destroy what is left of the wealth of the American people.

The U.S. governing elite have nothing to say because they are terrified. Like Mickey Mouse in the movie Fantasia, vainly trying to stop the flood let loose by the mops and buckets he brought to life, they don’t know what to do.

In my next column, some modest suggestions.

Thursday, July 19, 2012

The Banksters

Adding compound fraud to compound interest

By Mike Krauss
Bucks County Courier Times

The vastness of the fraud and criminality at the heart of the international private banking cartel can no longer be denied or explained away.

Let’s look at the news of only the past two weeks.

In a courtroom in New York, a long investigation culminated in the prosecution of three wheeler-dealers for their role in rigging the U.S. municipal bond market. The scope of the scam and cost to ordinary Americans are extraordinary. Here is how it was reported by Matt Taibbi, the investigative journalist writing for Rolling Stone.

“The defendants in the case… worked for GE Capital, the finance arm of General Electric. Along with virtually every major bank and finance company on Wall Street – not just GE, but J.P. Morgan Chase, Bank of America, UBS, Lehman Brothers, Bear Stearns, Wachovia and more – these three Wall Street wiseguys spent the past decade taking part in a breathtakingly broad scheme to skim billions of dollars from the coffers of cities and small towns across America… By conspiring to lower the interest rates that towns earn on these investments, the banks systematically stole from schools, hospitals, libraries and nursing homes – from ‘virtually every state, district and territory in the United States,’ according to one settlement. And they did it so cleverly that the victims never even knew they were being ¬cheated.”

Unbelievable? Hold on to your hat and let’s look in on the news last week from London.

LIBOR is the London Interbank Offered Rate. It is a key interest rate set daily by the biggest banks. It affects the cost of, by some estimates, more than $800 trillion of “financial instruments” worldwide: credit cards, consumer and business loans, mortgages, corporate bonds and more.

Investigators have established that the rate has for years been fixed to enhance the profits of the banks that set the rate. One bank, Barclays, has admitted its culpability. More are under investigation.

The rigging was reported (in the Wall Street Journal, no less) almost five years ago. But it has taken the underfunded and understaffed regulators this long to uncover the evidence.

More tellingly, even with an investigation underway, the banksters felt secure enough to continue running the scam.

And as the veteran Wall Street watchdog Pam Martens explains, the LIBOR fraud is directly connected to the magnitude of the multi million dollar losses suffered by individual municipalities large and small across America, in the interest rates swaps peddled by Wall Street con men.

“The Libor rate was used to manipulate, not just tens of trillions of consumer loans, but hundreds of trillions in interest rate contracts (swaps) with municipalities across America and around the globe.”

The banksters added compound fraud to their compound interest.

How can ordinary mortals who don’t hold an MBA from Harvard or the London School of Economics make sense of this?

Here is how Robert Scheer summed it up. “Modern international bankers form a class of thieves the likes of which the world has never before seen. Or, indeed, imagined. The scandal over Libor… reveals that behind the world’s financial edifice lies a reeking cesspool of unprecedented corruption. The modern-day robber barons pillage with a destructive abandon totally unfettered by law or conscience and on a scale that is almost impossible to comprehend.”

And they get away with it on both sides of the Atlantic in exactly the same way: a bought and paid for political and governing elite.

President Obama should be vowing to put the likes of JP Morgan CEO Jamie Diamon in jail. Mitt Romney should be all over the administration for its failure to go after the banksters. Legislation to break up the big banks, and a constitutional amendment to end corporate campaign contributions should be flying through Congress.

Instead, much of the political elite in Washington are sucking up to the barons for campaign cash and post Washington payoffs, while they gear up for another Obamacare sideshow. Another diversion.

There is an obvious alternative to allowing our money, credit and public finances to be controlled by a corrupt and rapacious private banking cartel: public control. And it will fall to the American people to make it a reality.

States, municipalities, unions, school districts, foundations, churches and charities control perhaps trillions of dollars, much on deposit with Wall Street. That money needs to be moved to Main Street, into local banks, and a significant portion set aside to capitalize the public banks which can guarantee the sustainable and affordable credit required to rebuild American prosperity, and re-establish the accountability and transparency necessary to the finances of a democracy.

But more is needed. While the scale of the fraud is international, the impacts are local - touching your family, your neighbors and your community. It is time for state and municipal officers to take action to begin to recover the stolen wealth of their citizens.

And such actions have begun - from Milan, Italy to Baltimore, MD, New Britain, CT and Oakland, CA.

For too long, the people of the United States and Europe have been the servants of finance. Now, finance must serve the people. We can begin with a simple action at the local level: take the money back.

What happened to banking?

Kill Wall Street before Wall Street kills America

By Mike Krauss
Bucks County Courier Times

Not so long ago, the words “banker” and” banking” were synonymous with prudence, probity and respectability. But say those words today, and across the U.S. and Europe tens of millions now react with anger and scorn.

What happened?

Political power flows from wealth. In the decades after World War II, the American people built up perhaps the greatest and (this is the important part) most broadly shared wealth the world had known. A democratic economics insured a democratic politics.

But beginning in the 1970s, federal tax, budget and economic policy began to favor the concentration of wealth in the hands of the already wealthy. As wealth was concentrated, so too was political power.

Until well after World War II, the finance industry accounted for no more than about 18 percent of U.S. domestic profit. It was one among many important industries. But as U.S. manufacturing was dismantled in order to maximize corporate profit, and as banking was allowed to consolidate into the “too-big-to-fail” banks, by 2010 the finance industry grew to account for 60 percent of U.S. domestic profit.

The power of that wealth was projected in Washington through legalized bribes that now make a mockery of democratic elections, and gutted the regulation that once protected homeowners, pensioners, savers and investors. Fraud became a business model. Wall Street exploded in a riot of greed, finding ever more clever ways to extract wealth from the American people.

So great is Wall Street’s power in Washington, that when its recklessly leveraged house of cards came tumbling down in 2008, two presidents and the Congress tried to put it back together, rather than let it die the death it had earned.

Instead of coming to the aid of the American people, and allowing the many thousands of responsible American banks and many more thousands of responsible bankers to retake their industry and market share from the con men and criminals, Washington caved to the wealth of Wall Street.

And the barons went right back at it, using every device known to man — and apparently taught in U.S. business schools for much of the past fifty years — to continue their campaign to extract every last nickel from anybody they could, any way they could.

Hyperbole? If only.

The mortgage market was a criminal enterprise. Deceit and double dealing were standard in the interest rate and credit default swaps markets. The municipal bond market was rigged. Wall Street wizards like former New Jersey governor and U.S. senator Jon Corzine gambled for their own account with huge sums of clients’ money without their consent or knowledge — and lost big.

It’s still going on. Now, the news from London. It is called the biggest scandal in history. The numbers are mind boggling.

LIBOR is the London Interbank Offered Rate. It is the interest rate set daily by the big banks and affects the cost of an estimated $800 trillion of “financial instruments,” including credit cards, mortgages, corporate bonds and bank loans worldwide. It has been rigged — and regulators have known it was rigged since at least 2008.

So blatant is the fraud and criminality, that even the British newspaper The Economist, a bastion of 1 percent capitalism, had to lead its coverage of this latest and greatest scandal with a headline it has so far tried to avoid: “Banksters.”

The storm now centers on Barclay’s Bank in London, but it is growing and will engulf all the big banks. And once again, regulators and governments on both sides of the Atlantic will bark, but they will not bite. There will be some fines and someone will get fired and walk away with a $20 million dollar severance package. Poor baby.

Finance has usurped our democracy. How do we take back it back?

In the United States, there is again a great hue and cry to break up the big banks and reinstate the Glass-Steagall Act, which separated the banks and investment houses after the Great Depression, but was repealed by Democratic President Clinton and a Republican Congress when they bowed to Wall Street a decade ago.

Great ideas. Don’t hold your breath; at least, not in the United States. The barons own this Congress, they will own the next and they are placing their markers with both Obama and Romney.

Rather, states and municipalities, unions, foundations, churches and not for profit organizations, which control perhaps trillions of dollars and much of it on deposit with Wall Street, can take those dollars out of the Wall Street banks, bank locally and set up a network of public banks, to put the money of the American people to work for the American people.

There may not be much time. When Merrill Lynch went down in 2008, it was leveraged 42 to 1. Today, of the $230 trillion derivatives market — 15 times larger than the entire U.S. economy — 97 percent is held by five banks. Those bets are insanely leveraged at 200 and 300 to 1. One more bad bet of the kind JP Morgan CEO Jamie Diamon could not explain to Congress (at least, not under oath), and the entire economy could go with it.

It is no longer enough to regulate Wall Street. We must take the money back. Americans must kill Wall Street, before Wall Street kills America.

Wednesday, June 20, 2012

Emblem of an Era

Where the story all began

By Mike Krauss
Bucks County Courier Times

Almost 300 years ago, my family was among the pioneers who settled the Pennsylvania wilderness near the present city of Reading. Sixty years ago, my generation moved into Levittown with the suburban pioneers — the modern American middle class.

Most living Americans think of the middle class as a fact of life: always been there, always will. But as Levittown hits 60, it is worth noting how short lived it has been.

Before the 1950s, the vast majority of Americans lived in crowded big cities or on farms, with a far smaller number in small-city mill and market towns, or grimy mining towns. The suburbs then were the leafy enclaves of the few and well-to-do: places like Scarsdale, N.Y., and the Philadelphia “Main Line.”

The Second World War, GI Bill and William Levitt changed all that.

The war pumped billions of dollars into the American economy for which there were few things to buy. Production went to the war. Money was saved.

The war literally blasted apart the productive capacity of all the major industrial nations of the world — except the U.S. After the world war and Korean War, U.S. manufacturers had a field day, selling to the war weary but cash rich American market and exporting globally.

Then the GI Bill sent veterans to college and gave them access to inexpensive credit to buy homes. Enter William Levitt.

Levitt and others like him changed the face of America, and during the 1950s the modern American suburbs and the middle class exploded in the most broadly shared prosperity the world has ever known.

Through the 50s, 60s and into the 70s that prosperity kept growing and expanding, until like some great battleship plowing through the ocean, the United States was the world super power drawing lesser nations in its wake.

A democratic tide was running and seemed to lift all boats — although not all equally.

“Restricted” and “exclusive” communities began to admit Jews, but blacks and other minorities lagged far behind. Women were routinely excluded from the ballot and the board room. Gays were closeted, often fearful and always careful.

The suburbs were prosperous but overwhelmingly white, and the exodus of whites from the cities left many urban centers to decay.

But the incompleteness of the egalitarian American promise realized in the suburbs cannot mask the scale of the advance for many millions of ordinary Americans.

The Levittown in which I grew up — the one in which this newspaper has circulated almost from the beginning — was very much the emblem of an era. Its various “sections” of relentlessly similar homes, with sections and streets named by some unknown marketer of genius to suggest a common pastoral life never in fact shared previously by most “Levittowners,” effectively homogenized the residents into a new, stronger and above all, hopeful whole.

That changed.

Beginning in the mid 1970s, “free trade” began to export the good paying jobs. Manufacturing began a slow decline, now almost to the point of collapse.

Unchecked immigration assured a supply of labor above demand. Wages stayed flat while costs of living climbed, despite the promise of inexpensive goods produced abroad.

Unions were systematically reduced, broken outright when possible and weakened by the declining membership brought about by the export of American manufacturing. Most union members now are public employees, who have lost public support as the economy worsens. It’s not hard to understand why.

When steelworkers went on strike there was considerable sympathy in the community. What the men in the mill wanted was a piece of corporate profit. Now, when teachers strike, what they want is a greater share of taxes from a public already struggling to make ends meet.

The reality and effects of low wages and high costs of living to support corporate profit were masked by the introduction of massive amounts of consumer credit. Families began to eat up the equity in their homes, just to stay even or “keep up with the Jones’” — whose swell and enviable lives were endlessly advertised in the media.

Debt service became an ever bigger line item in the family and national budgets, and the stress mounted. Divorce rates skyrocketed and drug use became widespread. And I don’t mean marijuana. That’s the least of our problems.

Adult Americans and their children now pop more legal pills to control their anxiety and behavior than an army of junkies.

The middle class is an anxious place these days. Levittown has not been spared.

Unemployment was a crisis in 2008. But it has lasted four years, no end in sight and is a catastrophe. Home foreclosures roll on. Levittown has been especially hard hit. Vital pubic services are battered; most especially the public schools.

Levittown and the middle class are clearly changed and changing. Meanwhile, Wall Street wallows in the former wealth of the middle class; war goes on without end, piling debt on their future; and the federal government has been completely over-run by Wall Street and the corporate elite.

If the American middle class is to survive and regain its prosperity, someone has to take a stand. As Levittown hits 60, it occurs to me: Why not here, where the story all began?

Saturday, June 16, 2012

Clinton Spanks Obama

Wall Street Rules
By Mike Krauss
Bucks County Courier Times

The Declaration of Independence and U.S. Constitution are among the most important achievements of mankind. They established democratic and republican government in the modern world: a free people of equal and inalienable rights who confer power on their government.

It was never a sure thing that either would last.

Wise Ben Franklin knew it. After the Constitution was adopted and Franklin was asked what kind of government had been created, he replied, “A republic, if you can keep it.”

Lincoln knew it. He wondered in the Gettysburg Address if a nation “conceived in liberty and dedicated to the proposition that all men are created equal… can long endure.”

The great enemy of democratic and republican government is well established in human affairs. It is the concentration of wealth in the hands of the few, which creates a concentration of power that over time becomes ever more self serving, until those who monopolize wealth and power can break the law with impunity and ignore even the urgent needs of the people.

Understood in this way, the United States has ceased to be either a democracy or a republic, so great is the concentration of vast wealth in the hands of the few. Really, the number is even smaller than 1 percent.

The finance industry, dominated by a handful of big banks, now accounts for more than 60 percent of all domestic profit and rules the roost. When Wall Street says jump, presidents, Congress and candidates ask, “How high?”

But the big banks and major corporations – defense, security, energy, health care, pharmaceutical, agribusiness – rarely need to ask, at least not in public. An army of lobbyists, mountains of campaign cash and lucrative post-office rewards have made the elected “representatives” of the people fully attentive to the needs of the nation’s corporate elite – like well trained dogs.

“Sit! Lie down. Roll over. Good boy!” And you give the dog a treat.

The 2012 contest for president illustrates the undemocratic and unrepublican reality of the American government. The lessons are being taught by the huckster-in-chief, former president Bill Clinton.

Clinton was one of the “New Democrats” of the mid 1980s who stole the Democratic Party for Wall Street. Their getaway vehicle was the Democratic Leadership Council (DLC).

The DLC supported free trade, the mechanism for off shoring jobs, holding down wages and maximizing corporate profit, and supported creation of the too-big-to-fail banks.

And when the Mexican peso collapsed – another Wall Street special – then-President Clinton bailed out Mexico, so the big banks could be bailed out.

Near the end of his term, Clinton allied with the GOP to nullify the Glass-Steagall Act, which since the 1929 crash had separated the banks from their investment and speculation operations. This gave Wall Street access to the hard assets of the American people – savings, pensions, investments and mortgages – which they looted.

Later, when Bush II declared war on Iraq, Clinton and the DLC supported that.

War is always good for Wall Street.

When Obama was elected, Wall Street moved into the White House – and the Treasury, Department of Justice and dozens of important policy and regulatory offices, and the DLC closed up shop. Mission accomplished.

Bill figured to have Wall Street as an ally when Hillary ran for president, but she had too much baggage and Wall Street dumped her for Obama. Bill took it like a man, the way he took the book deals, foundation money, speaking fees, secretary of State for Hillary, and of course, another shot at the White House if she behaves herself – and Bill carries the water for Wall Street.

So when an Obama campaign ad criticized Mitt Romney’s Wall Street, deal-making days at Bain Capital, Clinton went public to spank the president: the stick. Then, just days later, Clinton chaperoned Obama to Manhattan for a series of fundraisers: the carrot.

Last week Clinton was again in the media to discipline the president, suggesting that any new taxes on the wealthy were really not a good idea, “at this time.”

Now I know and you know, I hope, that Obama’s call for slightly higher taxes on the rich is not going anywhere. The GOP would rather die. And perhaps Wall Street will oblige them to do so.

Still, to have Clinton again take a public position in opposition to the president is – instructive.

If John Kennedy, Lyndon Johnson or Dick Nixon had been crossed in that way – twice ! – both Clintons would be missing body parts. The president of the United States is the leader of his party and The Most Powerful Man in the World, right?

Wrong. He, like Clinton and Romney now executes the plays called in from the sidelines – or Executive Dining Room or Super Box, whatever – making only the slightest of attempts to address the needs of the great struggling majority of the American people.

The 2012 election for president is a sham. So are most “contests” for the Congress. The candidates have been pre-approved. Not Obama, Romney or the Congress will deviate from Wall Street’s playbook, and the consolidation of wealth and power in the hands of the few will continue in the once democratic republic of the United States.

Until the American people take their nation back. We need to start thinking hard about how to do that.

Thursday, May 31, 2012

The state budget shell game

Pennsylvania broke, unless you count the $91 billion

By Mike Krauss
Bucks County Courier Times

For almost four years, the administration and Congress have showered money, protection and even praise on those who caused an economic catastrophe that still rolls across America like a slow motion tidal wave.

It is crystal clear who Washington represents, and what the American people can expect from the next administration and Congress -– more of the same, rhetoric and excuses.

But the needs of the American people can’t wait another four years. States and local governments must do the job Washington will not. New leaders and new ideas are urgently needed. One such idea is public banking.

A public bank, such as the hugely successful Bank of North Dakota (BND), is capitalized with public funds, has one shareholder — the people — no outrageous compensation for managers and no incentive to gamble.

A public bank partners with community banks, credit unions, other local financial institutions and municipal governments to provide the sustainable and affordable credit that is essential to support locally directed economic development, restore vital public services and create jobs.

Wall Street hates the idea, fearing the loss of trillions of dollars of state and municipal deposits, and the huge fees they reap for providing cash management, payroll and other services that states and municipalities could provide internally and at far lower cost -– if they owned their own bank.

The parasites-in-pinstripes argue, “But your state is broke. Where will you get the money to capitalize a bank?”

But are the states broke? An examination of the finances of U.S. states and municipalities turns up an astonishing fact. They keep two sets of books.

The one that gets all the attention is used for operating budgets, and generally paints a picture of state and municipal budgets stretched to the limit. But the other set of books, required by law and called the Consolidated Annual Financial Report (CAFR), indicates that there is public money stashed all over the place. Nationally, it amounts to trillions of dollars.

California, with its giant economy, reports more than $600 billion in these “off budget” funds. In Pennsylvania, the total is about $91 billion -- not exactly small change –- and it can be found in the state’s 2011 CAFR in three categories.

Proprietary Funds, generated when a government charges customers for the services it provides.

Fiduciary Funds, in which the state acts as a trustee to hold resources for the benefit of others, such as pensions; and

Component Units, which are legally separated organizations for which the government is financially accountable, and the revenue is derived from assessments, fines, penalties, licenses, etc.

If only 20 percent of these funds were used to capitalize a bank and were leveraged at a conservative ratio of 8-1, Pennsylvania could inject more than $145 billion into its economy, creating an economic revival on a scale never before seen.

Wall Street responds to this prospect with scare tactics. “You mean put 20 percent of your pensions at risk?”

To which proponents rightly respond, “No, we mean get those pension funds under better and more productive management.”

As the New York Times reported, the $26.3 billion Pennsylvania State Employees’ Retirement System (PSERS) has more than 46 percent of its assets in what analysts describe as “riskier” alternatives, including hundreds of private equity, venture capital and real estate funds. PSERS paid about $1.35 billion in management fees in the last five years and reported a five-year annualized return of 3.6 percent.

“That is below the target needed to meet its financing requirements, and it also lags behind a 4.9 percent median return among public pension systems.

“By contrast, Georgia’s $14.4 billion municipal retirement system, which is prohibited by state law from investing in the alternative investments favored in Pennsylvania, has earned 5.3 percent annually over the same time frame and paid about $54 million total in fees.”

Even adjusting for the size of the respective funds, Pennsylvania retirees paid out 13 times more in fees than Georgia, for a worse result.

The conservatively managed BND produced a 17 percent return on equity last year, while the PSRS reported in a press release that it had “achieved” a 2.7 percent return for 2011 -– not even meeting the previous and anemic 3.6 percent average return.

That’s like boasting about a C- report card.

A far more prudent and productive policy would be to rein in risk-taking fund managers, reduce their gigantic fees and shift at least 20 percent of investments from their riskier deals into the lower risk, higher return equity of a public bank.

A closer look at Pennsylvania’s 2011 CAFR turns up another interesting item. At page 99, there is a discussion of how these off-budget funds manage the risk of investments in 36 foreign currencies.

Foreign currencies? Thirty-six? The high-rolling fund managers are shifting billions of dollars out of the Pennsylvania economy, and into foreign economies and job creation, while Pennsylvanians go begging.

Even a modestly capitalized public bank can put billions of dollars of affordable credit to work in Pennsylvania, generate substantial non-tax revenue as a direct return on investment and increase local and state tax revenue in an improving economy.

A public bank has the capacity to turn a tidal wave of economic devastation into a wave of opportunity and prosperity. Pennsylvania needs to catch that wave.

Thursday, May 24, 2012

Tune out the elections

The first step to a better future

By Mike Krauss
Bucks County Courier Times

It has begun to dawn on even the most ardent of President Obama’s supporters that there is a gap between what he said he would do as a candidate in 2008, and what he has done since his election.

“Gap” might not be the right word. It is a chasm in which you could lose a continent.

He promised to close Guantánamo Bay. It is still there, along with who knows how many secret “rendition centers” where U.S. laws against torture do not apply. Worse, his administration has produced a new rationale for indefinite detention without trial.

He promised to clean out the lobbyists, but they still own Washington.

Candidate Obama promised transparency and access by the media and public to the deliberations of his administration. Instead, his administration has prosecuted more people under the Espionage Act than all former administrations combined, for the crime of getting information to the American people.

Mr. Obama promised an end to war, but the U.S. is still bogged down in Afghanistan, is fighting undeclared wars in Pakistan and Yemen, conducting “operations” in Africa and Latin America and rattling swords against Syria, Iran and China.

The Nobel Peace Prize Mr. Obama won after weeks in office begins to look like the Norwegians’ idea of humor. The joke, of course, is on the U.S. taxpayer, and who knows how many dead civilians on three continents.

Candidate Obama promised health care, and delivered a give-away to the insurance and pharmaceutical companies –- and skyrocketing costs.

And of course, as candidate and president, Mr. Obama promised jobs –- repeatedly. But the layoffs continue, the reality masked by doctored statistics. It is a catastrophe. Unemployment is not only massive, it goes on and on. And the longer it goes on, the less likely it is that those unemployed will ever again find work.

Americans are becoming aware that young people can’t find work, and millions are saddled with student loans they will be paying off for decades. But what is not yet fully understood is that legions of adult Americans will never re-enter the work force. Older men have been especially hard hit.

With prolonged unemployment came the foreclosures. The “sub-prime” borrowers were wiped out in the early stages of the first wave. Now the middle class is being battered. Millions will not make it.

In one area, Mr. Obama has been good for his word. He said it was vitally important to bail out Wall Street. That he did; and surrounded himself with Wall Street advisers, including a Secretary of the Treasury who has protected his once and future colleagues at every turn, and an Attorney General who has turned a blind eye to the fraud that brought the American economy – and people – to their knees.

Two weeks ago JP Morgan and its CEO had to go public with a fantastic loss in the kind of out-of-control speculation that brought down the banks in 2008, proving that nothing has changed and the so-called reforms of Wall Street are a sham.

Incredibly, the president rushed to publicly defend the bank and its CEO.

Given all that –- and there is more –- you might think the president would not stand a snowball’s chance in hell of being re-elected. But my guess is he will be. How is that possible?

The short hand answer of political pundits is that the GOP is on a death march to defeat, doubling down on a shrinking constituency of the ever more marginalized party faithful, playing the “no more taxes for the wealthy,” abortion, marriage, and “Remember the 50s” cards to a nation that has urgent business and will never again be the 1950s.

But that analysis sidesteps what is actually going on.

There are no longer two political parties in the United States, each offering a constructive if differing view of how to secure the welfare, prosperity, security and liberty of the American people. Instead, there is one party, the party of corporate profit and the status quo, kept in power by the ability to spend vast sums of money no political party can hope to match, and able to so dominate elections as to set up a choice for president that can only be described as one between two sides of the same bent coin.

The same money owns Congress.

Where does that leave the American people? I would say, on their own. And that’s OK. There is enormous diversity, vitality and talent in America. And it is beginning to stir.

The first step to a better future is to show that we “get it”. Tune out the elections of 2012. They do not matter. The only possible result is more of the same. Go to the polls in November just long enough to vote for anybody for president but Mr. Obama and Mr. Romney. If there is no other candidate on your local ballot, write in your own name.

And then start looking around locally for the new ideas that can begin to rebuild the American democracy and what was the greatest and most broadly shared prosperity the word had even known.

It is the only way.

Friday, April 20, 2012

Will Americans get their "Irish" up?

Where democracy took a stand and the bankers and barons paid

By Mike Krauss
Bucks County Courier Times

It’s not much in the news in the U.S., because people might get the wrong idea about all the good things austerity can do for a nation, but Greece is falling apart and democracy is dying there.

Some will argue that democracy is not doing all that well in the U.S., but Greece points to how bad it can get. Shops are shuttered, beggars wander aimlessly, hospitals report rising and alarming rates of suicide and mental illness. The Orthodox Church in Athens reports a food emergency, children starving.

In order to protect the banks and bondholders from losses on the debt they piled on Greece — much of it artfully concealed in complicated transactions that misled investors and even European regulators — the Greek people no longer have a democratic government. Like Italy, and soon perhaps Spain, the “prime minister” was appointed by — well, that’s not clear.

The Financial Times describes it this way: “In exchange for the most recent financing, the Greek government has had to cede part of its sovereignty to the Troika (the European Union, European Central Bank and International Monetary Fund).

“The lobby of the elegant Hotel Grande Bretagne on Syntagma Square swarms with north European lawyers and bureaucrats and their assistants laden with files. It is they who now determine Greece’s future. Many come from the law firms that advise the giants of global finance and the EU, the very institutions that helped create the Greek debt crisis.”

But the appointed Greek prime minister has excellent credentials. Like his opposite number in Italy, as well as the president of the European Central Bank and at least a dozen high ranking European ministers, he came up through the ranks on the flagship of the Wall Street pirate fleet, Goldman Sachs.

And what has the new Greek management done? They have laid off enough workers to drive official unemployment to 21.5 percent, cut pensions by 25 percent and state salaries by 60 percent. Unemployment is even more catastrophic among the young, as it is throughout Europe as austerity works its magic — about 50 percent.

Have a nice future.

But not all was lost. As European newspapers have reported, while European governments, led by the Germans, were telling the Greeks their credit was shot unless they agreed to cannibalize their economy, they financed more than $1.2 billion in military hardware to Greece — German aircraft, a French submarine, etc — and are demanding that the contracts may not be canceled, but must be paid for out of the “rescue” package imposed on the Greek people.

On both sides of the Atlantic, the military contractors get a pass on austerity.

The Irish are next in the bankers’ sights, but they are proving less amenable to coercion and have scheduled a referendum; partly because having already bowed once to the bankers’ demands, their economy is in a rapid descent to ruin.

Ireland may be where democracy makes a stand in Europe.

But if it is, it won’t be the first. Ireland is thought of by many as the frontier of Western Europe, the last island past England on the way to the New World. But it isn’t. Far out in the North Atlantic, little Iceland has already fought the bankers — and won. And while this may be news to Americans, the Irish know the story.

The same Wall Street special that blew up Ireland, then Greece and now threatens Italy and Spain, even as it devastates families and communities across the U.S., hit Iceland first. But while the rest of Europe, led by the U.S. rushed to bail out the bankers, Iceland let its big banks go down and defaulted on its debt to the big English and Dutch banks.

Today, Iceland’s economy is actually recovering, and three weeks ago, after three years of preparation, Iceland’s equivalent of the Wall Street barons went on trial — after the former prime minister was put on trial.

Iceland’s new prime minister sees this as therapeutic, and said in a recent speech that “the wide-ranging criminal investigation that is being conducted against reckless financiers” will help bring about “a national reconciliation” and “heal the wounds that the collapse inflicted.”

An Icelandic businessman who lost his 20-year-old construction company in the collapse put it differently, saying, “What is important is that this is the year when the bankers hopefully are made to pay.”

No such day of reckoning appears on the horizon in the U.S. The GOP and Democratic candidates for president, and most candidates for Congress seem determined only to talk about the twin catastrophes of unemployment and foreclosures and a rising tide of human misery, and focus on “fiscal responsibility” and protecting the wealth of their major donors in the 1 percent. The U.S. Department of Justice gave the barons on Wall Street a pass.

Certainly, there is nothing in the U.S. news about the trial of the bankers in Iceland. I mean, we wouldn’t want to send the wrong message to the American people.

But who knows? If little Iceland can tell the bankers where to get off, and the Irish people say “No” to more punishment for the sins of the bankers, maybe Americans will finally get their “Irish” up.

Mike Krauss, formerly of Levittown, is an international logistics executive and chairman of the Pennsylvania Project. Email:

Thursday, April 5, 2012

Horse and Buggy Banking

Too-Big-To-Fail: The sequel

By Mike Krauss

The creation of the Federal Reserve in 1913 was a fateful end-run around democratic government. It gave control of the supply and cost of the nation’s money and credit to what is in fact a private banking cartel — Wall Street.

It was sold as a great reform — taking these vital matters out of the hands of those elected in the political process, and giving them to the experts.

“In experts we trust.”

But this set-up made it possible for a small number of people in the private banking industry to accumulate fantastic wealth and political power at the expense of the whole of the American people. That was, of course, the intent.

Now, as Americans survey the wreckage of the economy and deride Fed Chairman Ben Bernanke as the greatest failure in the history of modern economics, the experts don’t look so good.

So they have doubled down, arguing that the U.S. has a “horse and buggy” regulatory system for a 21st century financial system, and what we really need is a more centralized and interconnected regulatory system, run by the experts, to manage a centralized and interconnected banking system.

This puts the American people between a rock and a hard place.

When Wall Street wanted to change an accounting rule, so that the banks’ near-worthless mortgages could be booked at several times their value, or wanted to exclude liabilities from the balance sheets altogether in order to mislead investors, boost the stock price and insure the gigantic bonuses, they had to deal with an agency that reports to Congress.

But since Wall Street owns Congress, this was no big problem.

Similarly, Wall Street is now spending millions in lobbying and campaign contributions to protect its gigantic derivative business. The latest quarterly report from the Office of the Comptroller of the Currency reports that four banks hold $250 trillion in the gross notional amount of derivative contracts outstanding, a whopping 95.9 percent of all derivative exposure.

One shock, one failed gamble of the kind that brought down AIG and Lehman Brothers, and there won’t be enough money in the world to cover the losses — not that they won’t try.

This is “Too-Big-To-Fail,” the sequel.

Incredibly, these same banks want more risk and are buying Congress to get it. As the New York Times lamented in an editorial, one bill would exempt a host of derivatives transactions from almost all regulation. Another would water down pending rules to require that most derivatives be traded on open exchanges, where investors can at least see what is going on. A third would let the banks trade derivatives through foreign subsidiaries and away from the scrutiny of U.S. regulators, which the Times accurately called “a loophole that would virtually invite banks to engage in unregulated transactions on a potentially vast scale.”

So, there’s the rock. A bought Congress and unbridled risk taking on Wall Street, with the capacity to sooner or later deliver another shock to the American economy — this time possibly fatal.

Now here’s the hard place. Give the Fed more control.

The Dodd-Frank “reform” creates the Consumer Financial Protection Bureau (CFPB). This sprawling new bureaucracy will be as reported, “an independent unit located inside and funded by the United States Federal Reserve.”

Independent of what and who? Well, of the Congress and the American people.

The CFSB will be funded, managed and staffed by the Fed. It won’t need to ask the Congress for nothin’. And that is precisely what Congress and the American people will get from them in the way of information and accountability.

The CFSB will “write and enforce bank rules (and) conduct bank examinations.” The Fed owns the CFSB and Wall Street owns the Fed. Think the Wall Street banks will pass the test?

The idea that the “expert” regulators cannot also be bought is laughable. In its least crude form, the purchase price is called the “round trip ticket” — depart Wall Street to Washington from a $500,000 a year job, to a few years of “public service” as a regulator at maybe $175,000 a year, and return Washington to Wall Street for $5 million a year.

There is a way out of this trap. It is to bypass the American central banking system and its incestuous relationship between the regulated and the regulators — whether the politicians or the experts — and create a network of locally authorized, autonomous, democratically operated and locally accountable public banks at the state and municipal level, to partner as “mini-Feds” with local banks and financial institutions in the business of banking and not speculation.

The U.S. banking and economic crisis was not brought on by antiquated banking regulation. Its cause is antiquated banking — the same “horse and buggy,” centralized banking system of 1913, organized now as a century ago to insure Wall Street against the certain losses of reckless speculation, at whatever the cost to the American people.

And it fails to create the affordable credit which in modern societies is an absolute necessity for economic development and the creation of widespread wealth and prosperity.

Public banking can address both these needs and bring American banking into the 21st century

Mike Krauss is a director of the Public Banking Institute and chairman of the Pennsylvania Project. Email

Sunday, April 1, 2012

Public Banking and the Post Wall Street Era

Public banking: A new era in state and municipal finance

By Mike Krauss
Bucks County Courier Times

Like state and municipal financial officers across the nation, Ohio Treasurer Josh Mandel is charged with the stewardship of a lot of other people’s money, including more than $41 billion in pension funds of Ohio workers.

Two weeks ago he announced plans to remove Bank of New York Mellon and State Street Bank as custodians of those funds, and transfer that responsibility, and business, to JP Morgan and CitiBank.

In a written statement, Mr. Mandel cited allegations of fraud against the present custodians as the basis for his decision. But his alternative leaves a lot to be desired.

The new custodians, JP Morgan and Citibank, are at this moment themselves the target of numerous lawsuits and legal actions on the part of state attorneys general, the SEC, investors, other banks, municipalities and pension funds. Allegations include mismanagement, deception, conflict of interest and fraud. The damages sought range from many millions to many billions of dollars.

And JP Morgan is the Wall Street leader ($1.4 billion in 2011 revenue) in the market of the interest rate swaps that have blown up municipal finances across the United States.

As Ellen Brown, author of “Web of Debt” explains, “The swaps were entered into to insure against a rise in interest rates; but instead, interest rates fell to historically low levels. This was not a flood, earthquake, or other insurable risk due to environmental unknowns or ‘acts of God.’ It was a deliberate, manipulated move by the Fed, acting to save the banks from their own folly in precipitating the credit crisis of 2008 ... rewarding them for their misdeeds at the expense of the taxpayers.”

Brown concludes, “This ‘financial engineering’ is sold, not by disinterested third parties, but by the very sharks who stand to profit from their counter-parties’ loss. Fairness is thrown out in favor of gaming the system.”

From New England to California, municipal governments and authorities have lost billions. Reading, Pa., already reeling from collapsing revenue, a vanishing middle class and jobs sent off-shore, lost $21 million — more than a year’s worth of real-estate taxes.

With the switch from NY Mellon and State Street to JP Morgan and Citibank, the Ohio treasurer may have done no more than take Ohio retirees from the proverbial frying pan and into the fire. It is a dilemma faced by state and municipal financial officers across the U.S.

Where does a steward of public funds — charged to do more than simply stuff money in a mattress and stand guard — bank and invest those funds?

The alternative to the Wall Street casinos is now emerging among state legislators and state and municipal financial officers nationwide. It is to place those funds in publicly owned state and municipal banks, where risk-taking is controlled and 100 percent of the substantial income generated is retained by local communities.

One model is the very successful Bank of North Dakota, which is managed by salaried civil servants with banking experience. The managers charged with day-to-day operations and decision making have no incentives for risk taking — no super-sized salaries, no fabulous bonuses, no recurring commissions for a short-term focus on boosting profit for quarterly statements.

Treasury officers across the nation generally have similar criteria to judge where to bank the funds of which they have stewardship. Safety of principal is foremost, but there must be sufficient liquidity to insure all anticipated demands on the funds are met, and a reasonable return.

Wall Street fails on two out of three. The safety of public funds has taken a back seat to private profit, and the return is diminished by commissions and fees to Wall Street managers, who all are paid — it is fair to say — a lot more than any manager in a state treasury or municipal finance department.

In fact, a public bank can return many times more on principal than Wall Street could hope to match, because capital, assets and deposits of the public bank can be leveraged — as with any bank — to create credit directed into the community in partnership with community banks, credit unions, savings and loans and local authorities, to generate economic development, jobs and tax revenue.

This is the real “multiplier effect” that never materialized when Congress and the Federal Reserve funneled first hundreds of billions, and then trillions into rescuing Wall Street from its premeditated recklessness.

With respect to municipal bonds and “hedging” in the complicated world of modern finance and interest-rate fluctuation, a public bank could buy municipal bonds at the market rate (And taxpayers would pay the debt service to themselves); and if it were deemed prudent, hedge the interest rates on their own bonds — cutting out the Wall Street middleman who is now playing everybody, as even Wall Street insiders have now begun to attest.

Seventeen states and a growing number of municipalities are now taking a serious look at public banking: keeping their substantial assets close to home, invested locally and managed prudently.

The first national Public Banking In America Conference takes place in Philadelphia at the end of April. We encourage state and municipal treasury officials to join this discussion and take an active role in shaping the post-Wall Street era in state and municipal finance.

Mike Kraussis a director of the Public Banking Institute and chair of the Pennsylvania Project. Email

Sunday, March 25, 2012

The New Religion

Seasons of light, seasons of darkness

By Mike Krauss
Bucks County Courier Times

There have been times in which the human spirit soared and civilization flourished: the Athenian democracy, the Renaissance, the Enlightenment and Age of Reason.

The last two led to the epoch changing declaration sent forth from Philadelphia to the world in 1776, and the creation of modern western democracy.

Seasons of light.

But there are also seasons of darkness. We are in one now.

This is an era in which the powerful exploit the powerless with ruthless impunity — grasping, gouging, cheating and stealing, using and abusing. Democracy was thought to be a check on the descent of humankind into another dark age, but it has not worked out that way.

Democracies, we have learned, can be subverted and devolve into oligarchic tyrannies. Concentrations of wealth lead to concentrations of power that tend to ever more concentration of the resources and wealth of nations in the hands of the few, the arrogant, the self absorbed.

But the memory of the seasons of light lingers in the collective human consciousness, and the purveyors of darkness always feel compelled to offer up some reasons, some philosophy or ideology to explain why darkness is the “natural” and therefore just state of human affairs.

These are excuses for indifference.

In this season of darkness, as millions are reduced to ever expanding poverty and insecurity, and the cherished rights and liberties of Americans are subverted by their government, the powerful justify their privilege with a new gospel: material riches are the measure of all worth, people without such riches are worthless, and their rights are of no consequence.

The new god of American idolatry, exported globally, is private profit, to which every knee must now bend: presidents and prime ministers, congresses and parliaments, and the peoples of the nations.

The most notable prophet of this new gospel is the now dead iconoclastic sociopath, Ayn Rand. But it has been embraced and proclaimed by a host of her disciples, from former Fed Chairman Alan Greenspan — chief architect of the expropriation of the wealth of the middle class — to leaders in Congress and a multitude of “post partisan” priests and acolytes positioned throughout American government, business and media to enforce this brave new world of the self-sanctified “Masters of the Universe.”

What is remarkable about the ascent of this new religion is how little resistance it has met from the one it is displacing — Christianity. And I keep wondering, where is the American church in all this?

By “the American church,” I do not mean the pseudo-Christian tribalism of contemporary American politics, left and right. That is no more than majority social custom dressed up as the Law: the long canon of do’s and don’ts appended to the Ten Commandments, laws which God apparently meant for us, but never got around to.

Every generation adds new ones.

Thou shall not dance. Thou shall not have long hair. Thou shall not wear fur or eat meat. Thou shall not occupy public property or public attention.

They lead to absurdities. Thou shall oppose abortion, but support capital punishment. Thou shall oppose war, but support women in combat.

Some are new interpretations of old favorites. In ancient times, an “unruly” son could be stoned to death. Now, for some Christians, it’s the gay son.

And now as then, women are treated as chattel, objects to be controlled.

By “the American church,” I mean the church of the Gospels and the example of Christ — the continuous act of reaching out to the other. The Christian church.

Unlike earlier times in our history, when Christian abolitionists, suffragettes, civil rights and peace advocates spoke loud and clear with iron resolve, the Church today seems strangely mute.

Who in the Church now stands to demand, without equivocation or excuse, a government and policies that embrace the absolute and unequivocal equality of every man, woman and child; an equality bestowed freely by the loving God of all, and not dependent on any human authority or institution, or sanctified by material wealth?

To be sure, there are voices raised. But many are secular, and make their case based on the “human rights” said to be inherent in the “Natural Law.” But that is not compelling.

The “Natural Law” is not our refuge. There is nothing benign about nature. A tsunami destroys in its path the just and the unjust alike. The stronger infant must be taught not to take the food or the toy of the weaker. In the jungle, predators kill off the young, old and infirm.

As governments do today.

The Christian Gospels are a call to neither codes of behavior nor nature, but to the example of godliness above both social custom and nature. A call to the light.

Indifference is the heart of the darkness that now threatens the lives, liberty and security of many millions. Christians should be leading by example to the light that overcomes that darkness.

Mike Krauss was a pupil of the late Rev. Stanley A. Powell Jr., long time Rector of St. Paul’s Episcopal Church, Levittown. Email:

Tuesday, March 13, 2012

The new "Untouchables"

Moving on with an election sham

By Mike Krauss
Bucks County Courier Times

Perhaps like you, I’m on the mailing list of all sorts of organizations, whether I particularly agree with their stated purposes or not. MoveOn is one of those. It’s one way to keep track of what’s going on in American politics and government.

I just received another invitation to a MoveOn event, this one urging me to a rally in Bensalem Township this week, to “join us in calling on President Obama to stand with the 99 percent and take on the housing crisis.”

The invitation goes on to explain that “President Obama has the opportunity to be a homeowner hero — by pushing Fannie Mae and Freddie Mac to reduce mortgages to their fair market value. This will help millions of underwater homeowners and help get our economy back on track.”

It left me wondering, are the organizers at MoveOn hopelessly naive, or hopelessly cynical?

The administration has already taken a stand to address the tidal wave of foreclosures that still rolls across America: protect Wall Street and the 1 percent, whatever it takes.

The protection began when candidate Obama closed ranks with the 1 percent to push the Wall Street bailout through Congress.

The protection continued when President Obama installed Wall Street’s man as secretary of the Treasury, who as chairman of the Federal Reserve in New York had already collaborated with Bush Treasury Secretary Paulson to make sure Wall Street was rescued, whatever the cost to the American people and no matter the magnitude of the criminal fraud that caused the collapse.

Mr. Obama went on protecting Wall Street and the 1 percent when he re-appointed Fed Chairman Bernanke, who showered Wall Street with trillions of almost interest-free money, while Main Street collapsed.

And while Main Street was starved of the credit vital to a growing economy and jobs creation, the Fed pushed interest rates to near zero, in turn destroying the savings of millions of Americans — many senior citizens on fixed incomes, who now receive nothing for their savings, as prices rise.

And for three years, the Obama Justice Department has protected the criminals on Wall Street, as did the Bush administration.

In September 2004, The FBI warned in testimony before Congress that there was an “epidemic” of mortgage fraud and predicted that it would cause a “financial crisis” if it were not stopped.

It was not stopped, and the mortgage fraud exploded. Then, as noted by former regulator William Black and others, in 2008 the FBI geared up to do its job and go after the frauds, but “the Department of Justice (DoJ) deliberately, and successfully, sabotaged this effort to investigate the major frauds.”

Black, who led the effort that successfully prosecuted more than 900 criminals in the finance industry at the heart of the Savings and Loan Scandal of the 1980s, summed up the heart of the matter of the current scandal — a scandal of a magnitude never before seen.

He wrote, “The elite banking frauds who caused the Great Recession through their looting have done so with impunity.”

The new “Untouchables.”

Not one has been indicted on criminal charges — just a few civil suits and meaningless fines covered by insurance or picked up by shareholders.

Finally, and perhaps MoveOn missed it, there has been an announcement of the administration’s final solution to the housing crisis. It’s a one-two punch to the middle class.

First, the jab. A deal was cut to let Wall Street off the hook in exchange for a $25,000 reduction in mortgage principal for about 1 of 12 million homeowners still “underwater;” and about 750,000 of the many millions who lost homes will get a check for $2,000.

I can’t wait for the photos of members of Congress or mega-bank CEOs handing out checks to joyful homeowners and the now homeless dispossessed, sometime before the November elections.

Well, maybe not the homeless. First, you would have to find them; and second, someone might see them.

Then, the hook. The huge inventory of foreclosed and vacant homes of formerly middle class Americans which the federal government bought at above market prices to protect the big banks’ balance sheets, will now be sold off to “qualified investors” — in bulk — who will rent them back to those formerly middle class Americans.

The 1 percent will grow fatter still on the paychecks of renters, while they wait for the value of these assets to once again appreciate. Then they will sell them at a profit taxed at 15 percent as capital gains, and stuff themselves on yet another massive transfer of wealth from the 99 percent to themselves.

So, is the “team” at MoveOn who sign these invitations I receive naive or cynical? I vote naïve.

These invitations are written with all the eagerness of a freshman preening for an invite to the senior prom. They want so desperately to believe they have not been jilted.

And to prove they have not been jilted, they are eagerly helping to orchestrate a program of bought federal elections that will change nothing.

If there is to be a restoration of the prosperity of the American middle class, it will not be led by anybody or any organization now in Washington or party to this election sham.