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.
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
Levittown
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.
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.
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. www.papublicbankproject.org Email: mike@mikekrausscomments.com
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