Tuesday, April 27, 2010

Matt Taibbi contemplates Goldman Sachs' zeitgeist

Will Goldman Sachs prove greed is God?

The investment bank's cult of self-interest is on trial against the whole idea of civilisation – the collective decision by all of us not to screw each other over even if we can
Matt Taibbi
The Guardian, Saturday 24 April 2010

So Goldman Sachs, the world's greatest and smuggest investment bank, has been sued for fraud by the American Securities and Exchange Commission. Legally, the case hangs on a technicality.

Morally, however, the Goldman Sachs case may turn into a final referendum on the greed-is-good ethos that conquered America sometime in the 80s – and in the years since has aped other horrifying American trends such as boybands and reality shows in spreading across the western world like a venereal disease.

When Britain and other countries were engulfed in the flood of defaults and derivative losses that emerged from the collapse of the American housing bubble two years ago, few people understood that the crash had its roots in the lunatic greed-centered objectivist religion, fostered back in the 50s and 60s by ponderous emigre novelist Ayn Rand.

While, outside of America, Russian-born Rand is probably best known for being the unfunniest person western civilisation has seen since maybe Goebbels or Jack the Ripper (63 out of 100 colobus monkeys recently forced to read Atlas Shrugged in a laboratory setting died of boredom-induced aneurysms), in America Rand is upheld as an intellectual giant of limitless wisdom. Here in the States, her ideas are roundly worshipped even by people who've never read her books oreven heard of her. The rightwing "Tea Party" movement is just one example of an entire demographic that has been inspired to mass protest by Rand without even knowing it.

Last summer I wrote a brutally negative article about Goldman Sachs for Rolling Stone magazine (I called the bank a "great vampire squid wrapped around the face of humanity") that unexpectedly sparked a heated national debate. On one side of the debate were people like me, who believed that Goldman is little better than a criminal enterprise that earns its billions by bilking the market, the government, and even its own clients in a bewildering variety of complex financial scams.

On the other side of the debate were the people who argued Goldman wasn't guilty of anything except being "too smart" and really, really good at making money. This side of the argument was based almost entirely on the Randian belief system, under which the leaders of Goldman Sachs appear not as the cheap swindlers they look like to me, but idealised heroes, the saviours of society.

In the Randian ethos, called objectivism, the only real morality is self-interest, and society is divided into groups who are efficiently self-interested (ie, the rich) and the "parasites" and "moochers" who wish to take their earnings through taxes, which are an unjust use of force in Randian politics. Rand believed government had virtually no natural role in society. She conceded that police were necessary, but was such a fervent believer in laissez-faire capitalism she refused to accept any need for economic regulation – which is a fancy way of saying we only need law enforcement for unsophisticated criminals.

Rand's fingerprints are all over the recent Goldman story. The case in question involves a hedge fund financier, John Paulson, who went to Goldman with the idea of a synthetic derivative package pegged to risky American mortgages, for use in betting against the mortgage market. Paulson would short the package, called Abacus, and Goldman would then sell the deal to suckers who would be told it was a good bet for a long investment. The SEC's contention is that Goldman committed a crime – a "failure to disclose" – when they failed to tell the suckers about the role played by the vulture betting against them on the other side of the deal.

Now, the instruments in question in this deal – collateralised debt obligations and credit default swaps – fall into the category of derivatives, which are virtually unregulated in the US thanks in large part to the effort of gremlinish former Federal Reserve chairman Alan Greenspan, who as a young man was close to Rand and remained a staunch Randian his whole life. In the late 90s, Greenspan lobbied hard for the passage of a law that came to be called the Commodity Futures Modernisation Act of 2000, a monster of a bill that among other things deregulated the sort of interest-rate swaps Goldman used in its now-infamous dealings with Greece.

Both the Paulson deal and the Greece deal were examples of Goldman making millions by bending over their own business partners. In the Paulson deal the suckers were European banks such as ABN-Amro and IKB, which were never told that the stuff Goldman was cheerfully selling to them was, in effect, designed to implode; in the Greece deal, Goldman hilariously used exotic swaps to help the country mask its financial problems, then turned right around and bet against the country by shorting Greece's debt.

Now here's the really weird thing. Confronted with the evidence of public outrage over these deals, the leaders of Goldman will often appear to be genuinely confused, scratching their heads and staring quizzically into the camera like they don't know what you're upset about. It's not an act. There have been a lot of greedy financiers and banks in history, but what makes Goldman stand out is its truly bizarre cultist/religious belief in the rightness of what it does.

The point was driven home in England last year, when Goldman's international adviser, sounding exactly like a character in Atlas Shrugged, told an audience at St Paul's Cathedral that "The injunction of Jesus to love others as ourselves is an endorsement of self-interest". A few weeks later, Goldman CEO Lloyd Blankfein told the Times that he was doing "God's work".

Even if he stands to make a buck at it, even your average used-car salesman won't sell some working father a car with wobbly brakes, then buy life insurance policies on that customer and his kids. But this is done almost as a matter of routine in the financial services industry, where the attitude after the inevitable pileup would be that that family was dumb for getting into the car in the first place. Caveat emptor, dude!

People have to understand this Randian mindset is now ingrained in the American character. You have to live here to see it. There's a hatred toward "moochers" and "parasites" – the Tea Party movement, which is mainly a bunch of pissed off suburban white people whining about minorities consuming social services, describes the battle as being between "water-carriers" and "water-drinkers". And regulation of any kind is deeply resisted, even after a disaster as sweeping as the 2008 crash.

This debate is going to be crystallised in the Goldman case. Much of America is going to reflexively insist that Goldman's only crime was being smarter and better at making money than IKB and ABN-Amro, and that the intrusive, meddling government (in the American narrative, always the bad guy!) should get off Goldman's Armani-clad back. Another side is going to argue that Goldman winning this case would be a rebuke to the whole idea of civilisation – which, after all, is really just a collective decision by all of us not to screw each other over even when we can. It's an important moment in the history of modern global capitalism: whether or not to move forward into a world of greed without limits.

Thursday, April 22, 2010

Bill Black's Eye-Popping Opening Statement to the House Financial Services Committee on the Lehman Brothers Bankruptcy

This event took place only two days ago. Go here for the original posting and transcript. A MUST WATCH! It'll knock your socks off!

In the U.S. it is easy for election-computer operators to rig an election and difficult to prove they've done it: Arizona activists propose a solution

Bloggers Note: This column by Tucson attorney Bill Risner is the latest appearance in the local media of the story of Pima County citizens' dogged efforts to establish a means of knowing whether or not future elections are rigged. My earlier posts on this subject can be found here, here, and here.

Notably, the national media never pick up on such stories. Given that it's a proven fact that computerized elections can be rigged by election computer operators, it's almost as though so-called "mainstream" media don't want you to know that...

Guest Opinion
The elections-integrity fight isn't about the RTA vote; it's about future rigged elections

by Bill Risner

News stories have repeatedly framed the election-integrity efforts of the Pima County Democratic Party as a "fight over the 2006 Regional Transportation Authority election," an illogical assertion, since the party endorsed the RTA.

That frame diverts attention from the truly serious systemic problem. Whether the RTA was fraudulently rigged is certainly a big deal, but the struggle for every vote count to be honest is a much bigger deal. In our world of media sound bites, it is difficult to get the media or the public to focus on a problem. The use of computers with secret instructions to count our votes is among our biggest problems that few are willing to examine.

It has been said that those who know the most about computers are the least willing to have them count our ballots. The Pima County Democratic Party and its ally in this struggle, the Pima County Libertarian Party, have a unique group of highly skilled and educated computer experts that began investigating our Pima County election system years before the RTA election.

In July 2003, almost three years before the RTA vote, the Pima County Democratic Party adopted a report that detailed security problems with our election computer system.

The problem that you and I share is that it is easy to cheat and rig any election in Pima County—and there is nothing that we can do under our current rules to expose the cheating or reverse any announced election result. This easy-to-cheat fact is not seriously challenged by any knowledgeable observer. Numerous reports from experts detail the many ways to cheat.

What makes it so easy to cheat? The Pima County Diebold GEMS computer was built so that the log entries that record how data has been manipulated is not a file separate from the data itself. Any log entry can simply be deleted, and no record will remain of what has been done to the data.

Those changes need not be done at the election office; they can be accomplished on a home computer using the common Microsoft Access program. Court testimony from several Pima County Elections Department workers established that our county's computer operator regularly took home copies of election data during elections.

The ballots at each of our precincts are counted on optical scanners that record and print the results from "memory cards"—that can be programmed in advance of the election to print fake results. When election departments nationwide were alerted on July 4, 2005, by a special report from the Black Box Voting organization that a machine called a "crop scanner" could be used to program the cards to fraudulently rig elections, Pima County's response was to immediately buy one of those hack tools. Pima County's election computer operator testified that he practiced with the machine, and that it wasn't difficult to get the memory cards to record and print false results.

The ease-of-cheating problem becomes magnified when combined with the impossibility of challenging any computerized rigged election in Arizona. Arizona law allows five days only to challenge an election. The Pima County Superior Court ruled last summer that the five-day period was the exclusive remedy not only to challenge an election, but even to obtain relief to protect future elections.

All computer experts are in agreement that it is impossible to analyze computerized election data within five days and show specifically how an election was rigged. The result is that it is easy to cheat and impossible to challenge.

The security problems are not limited to the Diebold system, as all of the systems have serious problems. The good news is that there is a solution to cheating: The Arizona Democratic Party has endorsed our plan to graphically scan all ballots. If all ballots cast are graphically scanned and made available to all parties and the public, those ballots can be counted by anyone. The result would be that no one could cheat in the future.

Pima County is currently refusing to graphically scan, and the court has refused to even accept jurisdiction to consider significant evidence of cheating. That legal fight is being continued by the Libertarian Party in the state Court of Appeals.

The goal of honest counting is the goal of local election activists. We fully understand that the RTA is here to stay. It is the next rigged elections that are our concern.

Tuesday, April 20, 2010

Revolt of the Damned: The Bolivian Water Wars

Likely everyone has heard of the book Confessions of an Economic Hit Man, wherein the author John Perkins described his former career as convincing the political and financial leadership of underdeveloped countries to accept enormous development loans from institutions like the World Bank and USAID. Then saddled with debts they could not hope to repay, those countries were forced by the World Bank and the International Monetary Fund (IMF) to accept privatization of all natural resources and government functions as a condition for refinancing. Full disclosure: I did not read this book and have cribbed a bit from Wikipedia.

However, I have read the book The Best Democracy Money Can Buy by Greg Palast, investigative reporter extraordinaire, who came into possession of documentation of the concealed objectives of the World Trade Organization (WTO), the World Bank, and the IMF. I adopted the title of this post from a sub-section title in Chapter 4 of Greg's book. And here below are some selected passages from The Best Democracy Money Can Buy:
      So I thumbed through my purloined IMF "Strategy for Ecuador" searching for [something else]... Instead, I found a secret schedule. Ecuador's government was ordered to raise the price of cooking gas by 80 percent by November 1, 2000. Also, the government had to eliminate twenty-six thousand jobs and cut real wages for the remaining workers by 50 percent in four steps and on a timetable provided by the IMF. By July 2000, Ecuador had to transfer ownership of its biggest water system to foreign operators, then grant British Petroleum rights to build and own an oil pipeline over the Andes.
      Officially, the WTO assures us that nothing threatens the right to enforce laws in the nation's public interest. But that's not according to their internal memo, where the WTO reports that trade ministers, in the course of secretive multinational negotiations, agreed that, before the GATS [General Agreement on Trade in Services] tribunal, a defense of "safeguarding public interest ... was rejected."
      One of the key aims of the GATS treaty is to turn publicly owned water services over to private enterprise. Governments have built a trillion dollars in piping systems workd wide, with no intention of turning a profit. ... But water was cheap stuff -- foolish governments seemed to give the stuff away, just covering the cost of pipes. Higher prices would make markets in water possible, and lure entrepreneurs to the spigots.
      Public water was first sold off to corporate operators in England. Prices jumped 250 percent and watering English gardens has, at times, been criminalized. The English, as they do, grumbled, then shrugged, then paid. Meeting no resistance, the water privateers marched on to Egypt, Indonesia, and Argentina. But when they reached Cochabamba, Bolivia, something happened that the water barons did not expect. The thirsty poor resisted. In the end they payed, too -- in blood.

With the above as background, I hope that you will be motivated to sit through this stirring segmenent of yesterday's edition of Democracy Now! with Amy Goodman.

If you do watch the above and would like to watch more, there are two follow-on segments that you can play by clicking these links:

Monday, April 19, 2010

Just because you don't want to be known as a conspiracy theorist doesn't mean some conspirators aren't out to get you.

The first time I heard the ironic truism "Just because you know you're paranoid doesn't mean someone out there isn't out to get you" it fell from the lips of my third-level supervisor who was quipping to someone else within my earshot. Nowadays, the mainstream media constantly runs articles leading us to believe that only Muslim terrorists are out to get us and that any "conspiracy theorists" who think differently are paranoid kooks.

But what if the most dangerous terrorists are actually powerful global corporations and rogue groups within our government who have been responsible not only for the 9/11 attacks but all sorts of other nasty things ...like staging a pandemic?

According to a neighbor of ours down here in San Carlos who watches nothing but Mexican TV every night, two months before the first case of H1N1 swine flu was reported in March of 2009 as having been contracted by a 5-year-old boy in the tiny town of La Gloria, down wind of the larger pig-raising town of Xaltepec, about half way between the coast of the State of Veracruz and the City of Puebla, Mexican TV extensively covered the opening of a "billion dollar" plant for manufacturing vaccines located some place "between Puebla and Veracruz."

The company name is AstraZeneca. Wikipedia tells much about AstraZeneca, but nothing about a new vaccine plant in Mexico. An AstraZeneca web site gives the address of its Mexican Operations as Lomas Verdes, Naucalpan on the western outskirts of Mexico City.  So there seems to be no public record of the exact location of the "billion dollar" plant that Mexican TV was picking up on months before -- and after -- the appearance and rapid spread of swine flu 2009 H1N1.

By June 2009 this new virus was declared a "phase 6" pandemic by the World Health Organization (WHO) by arbitrarily changing the rule to mean essentially any new disease that may spread around the world irregardless of its communicability or mortality rate. In fact, by that time data from the southern hemisphere had shown that the new swine flu has a lower mortality rate and complications rate than the annual flu.

But by falsely raising the alarm to phase 6, WHO was able to act on the authority granted to it by the UN to command that the entire world be vaccinated -- an edict that would grant the world's pharmaceutical industry a multi-billion-dollar windfall by guaranteeing big-time buyers of their untestested -- and unneeded -- vaccines comprising most of the developed countries of the world. I've extensively chronicaled this history in an earlier post.

Would it be too paranoid to believe that the global pharmaceutical industry in collusion with the WHO would spread a virus to make us sick (and an an unpredictable number of us dead) in order to boost their profits by many billions of dollars? Or are you totally unable to believe anyone would do such a dastardly thing ...even when they clearly have the motive, means, and opportunity?

Personally, I subscribe to this quote attributed to Edmund Burke:

“There is no safety for honest men except by believing all possible evil of evil men.”

Does anyone remember that the 1918 pandemic flu virus was resurrected in 2005?  Well, it was ...with the help of the body of an infected woman exhumed from the Alaska permafrost.

Flash forward to last month:

Below I reproduce parts of a "News of the Week" article appearing in the 26 March 2010 issue of the prestigious magazine Science. For easier reading and better focus on my point, I have suppressed in my redacted version below (1) many highly technical portions of the article that are neutral to the case I'm suggesting, (2) comments by researchers in the pay of the pharmaceutical industry, and (3) some scientists' counter-intutive speculations to the effect that maybe evolution really can run backwards.

For anyone wishing to read the entire article, I've made it available for downloading here.

Please study the included figure at least until you come to understand what it is that I'm thinking.

www.sciencemag.org   SCIENCE   VOL 327   26 March 2010


What’s Old Is New: 1918 Virus Matches 2009 H1N1 Strain

The “novel” H1N1 swine influenza virus that last year caused the first human pandemic in 4 decades has one feature that is hardly novel: Its surface protein, hemagglutinin (HA) — which spikes cells and starts an infection — closely matches the HA in the H1N1 virus responsible for the 1918 pandemic. Separated by 91 years, the two strains of the highly mutable virus ought to be vastly different. This newfound similarity answers many mysteries about the 2009 pandemic, including why it largely spared the elderly. The new findings from different research groups also suggest intriguing explanations for how the 1918 influenza virus has evolved since it swept across the globe in several waves, killing more than 50 million people by the winter of 1919. And the investigators are proposing provocative—some say far-fetched—vaccination strategies to preempt future pandemics.
One study published 24 March in Science Translational Medicine shows that even though nearly a century separates the widespread circulation of the two viruses in humans, mice given a vaccine against the 1918 strain produced antibodies that “neutralized” the novel 2009 strain. When the team flipped the experiment and used a 2009 pandemic vaccine in mice, the immune response stopped the 1918 virus. “We kind of did a double take,” says virologist Gary Nabel, head of the Vaccine Research Center at the U.S. National Institute of Allergy and Infectious Diseases (NIAID) in Bethesda, Maryland, and the lead researcher on the project.
When Nabel, Terrence Tumpey of the U.S. Centers for Disease Control and Prevention (CDC) in Atlanta, and their co-workers focused on the amino acids in a discrete region of the HA tip that plays a critical role in binding to cells, they discovered a 95% similarity between the old and new pandemic strains. Comparisons between seasonal and the pandemic strains in this region found less than 70% similarity.

...“The closest related structure that we have to the current 2009 swine flu is the 1918 structure,” says [structural biologist Ian Wilson of the Scripps Research Institute in San Diego, California], who also analyzed sequences from many other influenza viruses that have circulated in humans between those two pandemics.

Sunday, April 18, 2010

Economist and top federal prosecutor during the S&L crisis, William Black, declares Goldman Sachs "rotten to the core"

"Rotten to the Core": Bill Black and Barry Ritholtz React to Goldman Fraud Charges

Posted on Yahoo Finance Tech-Ticker April 16, 2010 by Aaron Task

The SEC's civil suit against Goldman Sachs rocked the market Friday and has potentially major ramifications for the firm as well as the debate in Washington D.C. regarding financial re-regulation.

In the accompanying video, I discuss the news with Barry Ritholtz, CEO of FusionIQ and author of Bailout Nation, and William Black, a top federal prosecutor during the S&L crisis and associate professor of economics and law at the University of Missouri-Kansas City.

Ritholtz and Black agree there is strong evidence of wrongdoing and that it's unlikely this was an isolated incident. Wall Street is "rotten to the core," Black says. "When [Goldman CEO Lloyd] Blankfein said ‘Goldman's doing God's work,' we didn't know that ‘doing God's work' involved blowing up your own customers."

The SEC charged Goldman with misleading its customers by withholding "vital information" about a synthetic collateralized debt obligation (CDO) named Abacus that was intentionally stuffed with the most toxic subprime mortgage-backed securities.

Wall Street is a "sharp-elbowed, bloodthirsty place to work" but "this makes the 'Vampire Squid' nomer look soft and cuddly," Ritholtz quips. "There's been rampant fraud on Wall Street -- all kinds of bad behavior that's gone unpunished."

Goldman vowed to fight the charges, which the firms says are "completely unfounded in law and fact," The New York Times reports.

The suit also names Goldman V.P. Fabrice Tourre who helped create and sell the investment vehicle. "This was deliberate, corporate policy," not the work of a rogue employee, Black says.

Famed hedge fund manager John Paulson, who helped structure the Abacus deal and then shorted it, was not cited in the SEC suit. But it's like "the guy who owns the hurricane insurance on house is helping use crappier lumber to build it. So he made it pretty wobbly and then he bet against it," Ritholtz says.

Adds Ritholtz on Paulson: "He did something that's kind of sleazy. But I don’t see it as technically illegal. He let Goldman do all the illegal stuff.”

That's probably true, Black says, but Paulson “should have seen the disclosures. So if he sees disclosure statements by Goldman Sachs that he knows to be false, and that he’s going to profit from, he has a serious danger of being viewed as a co-conspirator. Now the SEC hasn’t chosen to go that way. The only individual named is small fry. That’s the major question here. Why is the SEC aiming so low in terms of individuals?”

Stay tuned for continuing coverage of this scandal.

Full disclosure: I edited Ritholtz's book and was paid for my contributions.

Saturday, April 17, 2010

Legal Defender Isabel Garcia: Arizona Bill Forcing Officers to Determine Immigration Status Marks “All-Out Assault” on Latino Communities

Blogger's note: For any Americans who think illegal aliens are a "problem" that requires a draconian solution, just remember that
big business loves these people for the cheap labor they provide. Well, "love" is the wrong word; they treat them as slaves. And remember also that they don't come north to steal American jobs, rather they come north because the U.S. via NAFTA destroyed the jobs they used to have in Mexico. I once wrote a letter to the Editor of the Washington Post touching on this subject, which was rejected.
I cannot recommend too highly yesterday's video interview with Isabel Garcia, co-chair of the Tuscon-based Coalition for Human Rights and legal defender of Pima County, Arizona. She is one of the most lucid and informed speakers I've ever listened to.

Legal Defender Isabel Garcia: Arizona Bill Forcing Officers to Determine Immigration Status Marks “All-Out Assault” on Latino Communities

Arizona lawmakers have approved what’s being described as the harshest anti-immigrant measure in the country, forcing police officers to determine the immigration status of someone they suspect of being an undocumented immigrant. Meanwhile, over fifty people were arrested Thursday in a federal immigration sweep targeting van operators allegedly involved in smuggling in undocumented migrants from Mexico. We speak to Isabel Garcia, co-chair of the Tuscon-based Coalition for Human Rights and legal defender of Pima County, Arizona.

Post Script: Just out on the internet: "America Must Boycott Arizona." It's first paragraph reads:
"Arizona is the Alabama of the new century and Maricopa County is the new Selma. America and the world should boycott GOP Governor Jan Brewer’s red state."

Friday, April 16, 2010

Food for Thought: A Graphical Peek at Income Inequality in the United States

By David L. Griscom

Ever since my post on the the unemployment situation in the U.S. last Sunday, I have been trying to get up to speed on what is known about income equality. My starting point was "15 Mind-Blowing Facts About Wealth And Inequality In America" comprising 15 graphs, the most impressive of which I reproduce below in a slightly modified form to make the comments at the top and bottom legible.

Because the fine print in this figure could scarcely be read even in its web-published version, I reproduce those comments in the quotes below, which refer to the three vertical green bars in the top graph and then the two red bars in the lower graph.
The greater the gap between the rich and everyone else, the more dangerous economics becomes.
In 1928, a year before the U.S. economy nose-dived into depression, the top one-hundreth of 1 percent of U.S. families averaged 892 times more income than families in the bottom 90 percent.
In 1980, the last pre-Reagan year, families in the bottom 90 percent averaged $30,446 in income, after adjusting for inflation, $72 more than the the $30,374 comparable families earned in 2006. The top 0.01 percent in 1980 took home an average $5.4 million, less than one-fifth the $29.6 million average income of the super-rich in 2006.
In 2006 the top 0.01 percent averaged 976 times more income than America's bottom 90 percent.
In 1944 the top marginal tax rate -- the rate on income in the highest tax bracket -- hit 94 percent. In that year, taxpayers making more than $1 million, in 2005 inflation-adjusted dollars, paid Uncle Sam 65 percent of their total income in tax.
In 2005 taxpayers making more than $1 million faced a top marginal rate of 35 percent. These deep pockets paid just 23 percent of their income in federal tax.
Still, this nicely colored and annotated visual is a second-hand product. So I searched the web to find the authors of the two graphs. It turned out that the bottom graph was relatively well known (here for example), whereas the upper one was exclusively the result of relatively recent research by Professor Emmanuel Saez and his coworkers. The main publication on the subject authored by Thomas Piketty and Saez is entitled Income Inequality in the United States 1913--1998 and was published in the February 2003 issue of The Quarterly Journal of Economics. It has since been updated to 2006. These papers are based on study of individual income-tax returns that have been published by the IRS ever since 1913. The authors have carefully studied these returns in order to separate the shares of each source of income, such as wages, business income, and capital income. Their plotted data are for "tax units" defined as a married couple living together or a single adult, including dependents if any. Because of the much larger exemptions prior to 1944, uniting these data with the more recent data restricted them to studying only the top decile. However, they innovatively broke out the top decile into progressively smaller fractiles (see table below), where income is defined as gross income excluding capital gains and before individual taxes.

Inspired, I decided to search for recent tax data covering all deciles. The best I was able to find in the short time I spent looking were published by the U.S. Census Bureau as their Current Population Survery (CPS), and the latest CPS data available were for tax year 2008. These data are based a sampling of 117,181 households, sorted into bins incremented by $2,500 up to $99,999, with all of the higher earners (those studied in great detail by Saez) being binned simply as " $100,000 and over." Columns of data were presented for each of 15 definitions of income (plus 3 variants of Definition 1 and one variant of Definition 14) and were broken out only as quintiles.

I played around with graphing the CPS data and finally settled on a comparison of two of my plots, representing the "Definition 3" pre-tax data (where the rich pocketed all their capital gains while the poor were yet to receive government aid) and "Definition 15" (where the capital gains had been taxed and low-income households had become the benefactors of government transfers).

Note in my graphs below that the tall "spike" on the right (centered at $125,000) represents the percentage of households earning $100,000 OR MORE, rather then the percentage earning between $100,000 and $250,000, which would have been consistent with this style of graph. That is, to have been correct, the data for each $2,500-wide bin should have been plotted all the way out to Bill Gates. But this would have required a graph 10 times as long as those shown merely to pick up the first millionaire and 10,000 times as long to pick up the first billionaire on the present linear scale -- thought it could have been done on the same page by use of a logarithmic scale, had all those data been available (in this case they were not).

However, the left-hand "spike" centered on $1,250 is real and indicates that 12.7% of U.S. households were acutely stressed in 2008. Who can live on $100 a month? And what has become of those who became homeless? Have they been taken away to FEMA internment camps?

The top 2008 CPS quintiles (top 20%) are 96% and 87% comprised of the greater-than-$99,999 share for the Definition-3 and Definition 15 cases, respectively, and as listed in my graphs above they account respectively for 51.9% and 40% of the pre-tax and after-tax household incomes. The 2006 study by Saez found the top decile (top 10%) to include all households earning at least $104,700, and thus was 100% comprised of the greater-than-$99,999 share. Saez found this top decile to equal 49.7% of the total U.S. before-tax household income in 2006, a level higher than any other year since 1917.

In the figure below, Saez has decomposed this top decile income share into 3 progressively smaller, yet richer groups using data from 1913 through 2006.

Although less instructive, the two CPS-based bar graphs for 2008 that I've shown above do give a good impression of the results of progressive taxation in combination with government cash transfers to the impoverished.

So maybe the U.S. government is truly altruistic after all? Well, not exactly ...although in the graph below the U.S. is seen to beat out Italy, Greece, and Turkey.

Sunday, April 11, 2010

Why is it that one has to turn to Al Jazzera for a sympathetic view of the suffering resulting from the U.S. unemployment situation?

Bureau of Labor Statistics Data April 2, 2010:
153.9 million civilian labor force

15.0 million unemployed
         6.5 million long term (27 weeks or more)
9.1 million involuntary part-time workers
2.3 million marginally attached
1.0 million discouraged
27.4 million = 17.8% of entire force is unemployed or under employed

There are more than 6 jobless workers chasing one opening.

March 25: over 11.1 million claiming unemployment benefits 

But these are just numbers.  Where do we find stories of the human misery suffered by 11.1 to 27.4 million unemployed or underemployed Americans.

I decided to search "U.S. unemployment" in the New York Times for the past 30 days. Here's what I found:
4 Economix blog posts and reader comments (all bland demographics)
2 Economy: Business columns (one AP statistics from the Labor Department, the other a Bernanke speech warning of the impending "need" for "modifications to entitlement programs such as Social Security and Medicare")
2 Politics: U.S. columns (one featuring Tom Coburn asserting that added unemployment benefits "is theft," the other taking up immigration issues)
1 Times Topics entitled "Unemployment" (reviewing the history of the Current Population Survey and puzzling over the "bizarre combination of a falling employment rate and a falling unemployment rate")
1 Opinion: Letter (defending the "unemployment industry" against a remark in a 3 April 2010 Times column to the effect that the purpose of the industry is "helping employers process — and fight — unemployment claims")

That 3 April column appeared in the Times' U.S.: U.S. Section and was somehow missed by the Times' search engine when I searched on "U.S. unemployment." Unlike the ones brought up by my search above, this column actually evoked sympathy for victims of the thriving new "unemployment industry" (see picture).

For any of you interested in being exposed to more of the human side of U.S. unemployment situation, the following Al Jazzera broadcast is a "don't miss."

More at The Real News

Saturday, April 10, 2010

The Anthrax Attacks: An Essential Prologue to the Preceding Post

The Anthrax Attacks Remain Unsolved
The FBI disproved its main theory about how the spores were weaponized.


The investigation of the 2001 anthrax attacks ended as far as the public knew on July 29, 2008, with the death of Bruce Ivins, a senior biodefense researcher at the U.S. Army Medical Research Institute of Infectious Diseases (USAMRIID) in Fort Detrick, Md. The cause of death was an overdose of the painkiller Tylenol. No autopsy was performed, and there was no suicide note.

Less than a week after his apparent suicide, the FBI declared Ivins to have been the sole perpetrator of the 2001 Anthrax attacks, and the person who mailed deadly anthrax spores to NBC, the New York Post, and Sens. Tom Daschle and Patrick Leahy. These attacks killed five people, closed down a Senate office building, caused a national panic, and nearly paralyzed the postal system.

The FBI's six-year investigation was the largest inquest in its history, involving 9,000 interviews, 6,000 subpoenas, and the examination of tens of thousands of photocopiers, typewriters, computers and mailboxes. Yet it failed to find a shred of evidence that identified the anthrax killer—or even a witness to the mailings. With the help of a task force of scientists, it found a flask of anthrax that closely matched—through its genetic markers—the anthrax used in the attack.

This flask had been in the custody of Ivins, who had published no fewer than 44 scientific papers over three decades as a microbiologist and who was working on developing vaccines against anthrax. As custodian, he provided samples of it to other scientists at Fort Detrick, the Battelle Memorial Institute in Columbus, Ohio, and other facilities involved in anthrax research.

According to the FBI's reckoning, over 100 scientists had been given access to it. Any of these scientists (or their co-workers) could have stolen a minute quantity of this anthrax and, by mixing it into a media of water and nutrients, used it to grow enough spores to launch the anthrax attacks.

Consequently, Ivins, who was assisting the FBI with its investigation, as well as all the scientists who had access to the anthrax, became suspects in the investigation. They were intensely questioned, given polygraph examinations, and played off against one another in variations of the prisoner's dilemma game. Their labs, computers, phones, homes and personal effects were scrutinized for possible clues.

As the so-called Amerithrax investigation proceeded, the FBI ran into frustrating dead ends, such as its relentless five-year pursuit of Steven Hatfill, which ended with an apology in 2007 and Mr. Hatfill receiving a $5.8 million settlement from the U.S. government as compensation. Another scientist, Perry Mikesell, became so stressed by the FBI's games that he began to drink heavily and died of a heart attack in October 2002.

Eventually, the FBI zeroed in on Ivins. Not only did he have access to the anthrax, but FBI agents suspected he had subtly misled them into their Hatfill fiasco. A search of his email turned up pornography and bizarre emails which, though unrelated to anthrax, suggested that he was a deeply disturbed individual.

The FBI turned the pressure up on him, isolating him at work and forcing him to spend what little money he had on lawyers to defend himself. He became increasingly stressed. His therapist reported that Ivins seemed obsessed with the notion of revenge and even homicide. Then came his suicide (which, as Eric Nadler and Bob Coen show in their documentary "The Anthrax War," was one of four suicides among American and British biowarfare researchers in past years). Since Ivins's odd behavior closely fit the FBI's profile of the mad scientist it had been hunting, his suicide provided an opportunity to close the case. So it held a congressional briefing in which it all but pronounced Ivins the anthrax killer.

But there was still a vexing problem—silicon.

Silicon was used in the 1960s to weaponize anthrax. Through an elaborate process, anthrax spores were coated with the substance to prevent them from clinging together so as to create a lethal aerosol. But since weaponization was banned by international treaties, research anthrax no longer contains silicon, and the flask at Fort Detrick contained none.


Yet the anthrax grown from it had silicon, according to the U.S. Armed Forces Institute of Pathology. This silicon explained why, when the letters to Sens. Leahy and Daschle were opened, the anthrax vaporized into an aerosol. If so, then somehow silicon was added to the anthrax. But Ivins, no matter how weird he may have been, had neither the set of skills nor the means to attach silicon to anthrax spores.

At a minimum, such a process would require highly specialized equipment that did not exist in Ivins's lab—or, for that matter, anywhere at the Fort Detrick facility. As Richard Spertzel, a former biodefense scientist who worked with Ivins, explained in a private briefing on Jan. 7, 2009, the lab didn't even deal with anthrax in powdered form, adding, "I don't think there's anyone there who would have the foggiest idea how to do it." So while Ivins's death provided a convenient fall guy, the silicon content still needed to be explained.

The FBI's answer was that the anthrax contained only traces of silicon, and those, it theorized, could have been accidently absorbed by the spores from the water and nutrient in which they were grown. No such nutrients were ever found in Ivins's lab, nor, for that matter, did anyone ever see Ivins attempt to produce any unauthorized anthrax (a process which would have involved him using scores of flasks.) But since no one knew what nutrients had been used to grow the attack anthrax, it was at least possible that they had traces of silicon in them that accidently contaminated the anthrax.

Natural contamination was an elegant theory that ran into problems after Congressman Jerry Nadler pressed FBI Director Robert Mueller in September 2008 to provide the House Judiciary Committee with a missing piece of data: the precise percentage of silicon contained in the anthrax used in the attacks.

The answer came seven months later on April 17, 2009. According to the FBI lab, 1.4% of the powder in the Leahy letter was silicon. "This is a shockingly high proportion," explained Stuart Jacobson, an expert in small particle chemistry. "It is a number one would expect from the deliberate weaponization of anthrax, but not from any conceivable accidental contamination."

Nevertheless, in an attempt to back up its theory, the FBI contracted scientists at the Lawrence Livermore National Labs in California to conduct experiments in which anthrax is accidently absorbed from a media heavily laced with silicon. When the results were revealed to the National Academy Of Science in September 2009, they effectively blew the FBI's theory out of the water.

The Livermore scientists had tried 56 times to replicate the high silicon content without any success. Even though they added increasingly high amounts of silicon to the media, they never even came close to the 1.4% in the attack anthrax. Most results were an order of magnitude lower, with some as low as .001%.

What these tests inadvertently demonstrated is that the anthrax spores could not have been accidently contaminated by the nutrients in the media. "If there is that much silicon, it had to have been added," Jeffrey Adamovicz, who supervised Ivins's work at Fort Detrick, wrote to me last month. He added that the silicon in the attack anthrax could have been added via a large fermentor—which Battelle and other labs use" but "we did not use a fermentor to grow anthrax at USAMRIID . . . [and] We did not have the capability to add silicon compounds to anthrax spores."


If Ivins had neither the equipment or skills to weaponize anthrax with silicon, then some other party with access to the anthrax must have done it. Even before these startling results, Sen. Leahy had told Director Mueller, "I do not believe in any way, shape, or manner that [Ivins] is the only person involved in this attack on Congress."

When I asked a FBI spokesman this month about the Livermore findings, he said the FBI was not commenting on any specifics of the case, other than those discussed in the 2008 briefing (which was about a year before Livermore disclosed its results). He stated: "The Justice Department and the FBI continue working to conclude the investigation into the 2001 anthrax attacks. We anticipate closing the case in the near future."

So, even though the public may be under the impression that the anthrax case had been closed in 2008, the FBI investigation is still open—and, unless it can refute the Livermore findings on the silicon, it is back to square one.

Mr. Epstein is currently completing a book on the 9/11 Commission.

The Anthrax Attacks: Yet Another Major 9/11 Mystery Left Unaddressed in an Official Report Fingering a Perpetrator Not Around to Defend Himself

Blogger's Note: This article and the figure below are both reproduced unaltered from a "News of the Week" article in the 19 March 2010 issue of Science, the prestigious journal of the American Association for the Advancement of Science.  However, I have taken the liberty of placing a quote from the article immediately below the figure.

The unusually high percentage of silicon-bearing spores in the attack material "is a bit of a strange thing," says Michael. "We have no way of knowing how they were really grown." An anthrax researcher who did not wish to be named calls it "awfully weird" and "a particularly inconvenient exception" because it leaves a gap in the case.
Science 19 March 2010:
Vol. 327. no. 5972, p. 1435
DOI: 10.1126/science.327.5972.1435

Silicon Mystery Endures in Solved Anthrax Case
Yudhijit Bhattacharjee

What about the silicon?

That question has confounded investigators throughout the probe into the 2001 anthrax letter attacks, which the U.S. government formally concluded in February. Scientists inside and outside the government say there is clear evidence that the high levels of silicon found in the anthrax came not from anything added to "weaponize" the anthrax spores—as researchers had suggested early in the probe—but from the culture in which the spores were grown. That evidence may have settled the issue of whether the anthrax was weaponized, at least for scientists familiar with the case. But it raises a different question: Why did the mailed anthrax have such a high proportion of spores with a silicon signature in comparison to most other anthrax samples?

The answer, according to academic scientists who helped with the case, probably would not change the FBI's conclusion that the attacks were the sole handiwork of now-deceased U.S. Army researcher Bruce Ivins. But it could help illuminate exactly how the attack material was prepared. Resolving the mystery might also pave the way for new techniques using trace elements in a bioterrorism agent to link it to its source.

"There's tremendous interest in using metal signatures as a forensic tool," says Adam Driks, an anthrax researcher at Loyola University Chicago in Illinois. But the science to do that is lacking: "We know very, very little about the diversity of elemental composition within spores when they are produced in different ways."

The FBI's scientific case against Ivins rests on DNA tests showing that the mailed anthrax came from a flask under Ivins's control at the U.S. Army Medical Research Institute of Infectious Diseases in Frederick, Maryland. Investigators also had the attack material chemically analyzed, first at the Armed Forces Institute of Pathology (AFIP) in Washington, D.C., within weeks of the attack. Examining the spores under a scanning electron microscope, AFIP scientists detected silicon and oxygen and concluded that the spores had been coated with silica to make them float easily, enhancing their power to kill.

A more detailed analysis by Joseph Michael and Paul Kotula of Sandia National Laboratories in Albuquerque, New Mexico, contradicted that conclusion. Studying individual spores with a transmission electron microscope, they found that the silicon was located within the spore coat, well inside the cell's exosporium (outermost covering). By contrast, when they looked at surrogate spores weaponized with silica, the silicon was clearly outside the exosporium.

But the Sandia study, presented last September to a National Academies panel reviewing the science behind the investigation, still leaves questions. Out of 124 spores from a letter mailed to Senator Patrick Leahy of Vermont, Michael found the silicon-and-oxygen signature in 97—78% of the sample. The signature was present in 66% of a sample from a letter to former Senator Tom Daschle and in 65% of spores from a letter sent to the New York Post.

Out of nearly 200 other anthrax samples from different labs, none came close to displaying such a prominent silicon signature. The highest, in a sample from Dugway Proving Ground in Utah, was 29%. The researchers couldn't find silicon in the coat of a single spore out of some 300 taken from RMR-1029, the flask in Ivins's lab identified as the source of the bacteria used in the attacks; they concluded that all the silicon had come from the culture.

The unusually high percentage of silicon-bearing spores in the attack material "is a bit of a strange thing," says Michael. "We have no way of knowing how they were really grown." An anthrax researcher who did not wish to be named calls it "awfully weird" and "a particularly inconvenient exception" because it leaves a gap in the case. However, neither scientist thinks the anomaly casts doubt on the broader investigation.

The key to the mystery likely lies in the culture medium the perpetrator used to grow the anthrax spores, says Michael. In a recent study, Japanese researchers grew colonies of Bacillus cereus—a close relative of the anthrax bacterium, B. anthracis—in culture media with and without added silicate. Spores grown in the silicate-containing culture showed silicon within the spore coat. In the absence of silicate, there was no silicon, the group reported in January in the Journal of Bacteriology.

One of the study's authors, microbiologist Akio Kuroda of Hiroshima University in Japan, says the precise amount of silicon in individual spores from the anthrax letters could offer clues about the medium. "If the anthrax spores contained a high amount, the suspect must have used a medium that was supplemented with silicon or that intrinsically contained a lot of silicon," Kuroda says. "If a thorough testing of various media sold in the U.S. identifies a few that contain higher amounts of silicon, those could become an investigative clue."

Thursday, April 08, 2010

If you thought the U.S. mainstream media weren't telling you the truth, would you turn to Russia Today?

Now hold on, I'm NOT a commie, a com-symp, or a pinko! And today's Russia is NOT synonymous with the former Soviet Union. Communism is finished there -- replaced by a corrupt oligarchy, very much like the U.S. today except less powerful.

In fact, Russia Today, or "RT," has been airing some pretty decent news programs, some of which have involved interviews with highly informed red-blooded Americans like Katrina Vanden Huevel and Mark Crispin Miller, or "MCM," as he signs his emails.

MCM is Professor of Media Ecology at NYU Steinhardt School of Culture, Education, and Human Development, and on his home page he describes his Research interests as including "modern propaganda, history and tactics of advertising, American film, and media ownership" and mentions that his published books include

Boxed In: The Culture of TV; Seeing Through Movies, ed.; Mad Scientists: The Secret History of Modern Propaganda; Spectacle: Operation Desert Storm and the Triumph of Illusion; and The Bush Dyslexicon. His newest book is Cruel and Unusual: Bush/Cheney's New World Order.

Full disclosure: MCM was also Editor of Loser Take All -- Election Fraud and the Subversion of Democracy, 2000-2008 ...which includes a chapter written by me.

Here below is a MCM's recent interview on RT. Enjoy!

ACORN proved innocent of abetting child prostitution; FOX News proved guilty of dishonest journalism; Congress proved to be a nest of fools.

The recent demise of ACORN has undoubtedly been a cause for celebration among those who would deny poor people a political voice.  But it should also serve as a wake-up call to all those decent folks who don't actually hate poor people, but did believe ACORN was guilty of something, to begin wondering what else Fox News has been lying about.

Monday, April 05, 2010

"I dislike singling out individuals for blame or praise in a political system as complex as that of the United States but I worry ... that these individuals ... still don't get it." -- Robert Reich

Blogger's Note: The FRONTLINE story from which I adapted the graphic below can be found here.
Greenspan, Summers, and Why the Economy Is So Out of Whack

Robert Reich, Robert Reich's Blog
Sunday, April 4, 2010

I’m in the “green room” at ABC News, waiting to join a roundtable panel discussion on ABC’s weekly Sunday news program, This Week.

Alan Greenspan is now being interviewed. He says he bore no responsibility for the housing bubble that catapulted the nation into a financial crisis in 2008 because no one could have known about the bubble when he chaired the Fed in the years before it burst. Larry Summers was interviewed just before Greenspan. He said the economy is expanding, that the Administration is doing everything it can to bring jobs back, and that the regulatory reform bills moving on the Hill will prevent another financial crisis.


If any single person is most responsible for the financial crisis, it’s Alan Greenspan. He presided over a Fed that lowered interest rates to zero (adjusted for inflation) but failed to prevent banks from using essentially free money to speculate wildly. You do not have to be a brain surgeon to understand that if money is free, banks will take it and lend it out. And if oversight is inadequate, the banks will lend the money to anyone who can stand up straight and to many who cannot. The result will be a giant subprime lending bubble that will burst.

If any three people are most responsible for the failure of financial regulation, they are Greenspan, Larry Summers, and my former colleague, Bob Rubin. In 1999 they advised Congress to repeal the Glass-Steagall Act, which since 1933 had separated commercial from investment banking. By 1999, Wall Street was salivating over such a repeal because it wanted to create financial supermarkets that could use commercial deposits to place bets in the financial casino. That would yield the Street trillions.

At the same time, Greenspan, Summers, and Rubin also quashed the efforts of the Commodity Futures Trading Corporation to regulate derivatives, when its director began to worry that derivative trading already was getting out of control.

Yet Greenspan continues to take no responsibility for what occurred. In the interview he just completed he avoiding saying anything about the failure of the Fed under his watch to adequately oversee the banks, and the absence of sufficient financial regulation to begin with.

I dislike singling out individuals for blame or praise in a political system as complex as that of the United States but I worry the nation is not on the right economic road, and that these individuals — one of whom advises the President directly and the others who continue to exert substantial influence among policy makers — still don’t get it.

The direction financial reform is taking is not encouraging. Both the bill that emerged from the House and the one emerging from the Senate are filled with loopholes that continue to allow reckless trading of derivatives. Neither bill adequately prevents banks from becoming insolvent because of their reckless trades. Neither limits the size of banks or busts up the big ones. Neither resurrects the Glass-Steagall Act. Neither adequately regulates hedge funds.

More fundamentally, neither bill begins to rectify the basic distortion in the national economy whose rewards and incentives are grotesquely tipped toward Wall Street and financial entrepreneurialism, and away from Main Street and real entrepreneurialism. It was just reported, for example, that America’s top 25 hedge fund managers last year earned an average of $3 billion each. They continue to pay a federal income tax of 15 percent on most of that, by the way, because their lobbying efforts have been so successful.

Meanwhile, the so-called jobs bills emerging from Congress and the White House are puny relative to the challenge of restoring jobs in America. Last Friday’s jobs report, read most positively, showed 112,000 private-sector jobs added to the economy in March. But that’s below the number needed simply to keep up with an expanding population. In other words, we’re actually worse off now than we were a month ago. At the same time, the median wage of Americans with jobs keep dropping.

The American economy is seriously out of whack. The two people interviewed this morning don’t seem to understand how far.

Robert Reich is Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written twelve books, including The Work of Nations, Locked in the Cabinet, and his most recent book, Supercapitalism. His "Marketplace" commentaries can be found on publicradio.com and iTunes.

Sunday, April 04, 2010

Yes, Virginia, there IS a component of the U.S. mainstream media that still tells the truth!

Blogger's Note: Whether or not you read this article in its entirety, do not fail to play this fabulous two and a half minute video!  Sorry, but because no embedding code was provided, you will need to go directly to the McClatchy Newspapers site.

Posted on Thu, Apr. 01, 2010
Not satisfied with U.S. history, some conservatives are rewriting it

Steven Thomma | McClatchy Newspapers
last updated: April 03, 2010 10:05:15 AM

WASHINGTON — The right is rewriting history.

The most ballyhooed effort is under way in Texas, where conservatives have pushed the state school board to rewrite guidelines, downplaying Thomas Jefferson in one high school course, playing up such conservatives as Phyllis Schlafly and the Heritage Foundation and challenging the idea that the Founding Fathers wanted to separate church and state.

The effort reaches far beyond one state, however.

In articles and speeches, on radio and TV, conservatives are working to redefine major turning points and influential figures in American history, often to slam liberals, promote Republicans and reinforce their positions in today's politics.

The Jamestown settlers? Socialists. Founding Father Alexander Hamilton? Ill-informed professors made up all that bunk about him advocating a strong central government.

Theodore Roosevelt? Another socialist. Franklin D. Roosevelt? Not only did he not end the Great Depression, he also created it.

Joe McCarthy? Liberals lied about him. He was a hero.

Some conservatives say it's a long-overdue swing of the pendulum after years of liberal efforts to define history on their terms in classrooms and in popular culture.

"We are adding balance," Texas school board member Don McLeroy said. "History has already been skewed. Academia is skewed too far to the left."

The effort in Texas and nationwide is controversial, however, even among many conservatives. McLeroy was defeated in a recent primary after he led the campaign for a more conservative version of history, a defeat that the National Review, a leading conservative organ, called "sensible."

While even some conservative intellectuals say that some of the revisionist history is simply wrong, at the core, the effort reflects the ever-changing view of history, which is always subject to revision thanks to new information or new ways of looking at things, and often is viewed through a political lens.

"History in the popular world is always a political football," said Alan Brinkley, a historian at Columbia University. "The right is unusually mobilized at the moment."

"Part of the tide of history is that it's contested terrain," said Fritz Fischer, a historian at the University of Northern Colorado and the chairman of the National Council for History Education. "We should always be arguing and questioning what happened in the past."

It's not just historians who contest history, however. It's also politicians and pundits.

The left has done it.

Fischer cited the case of controversial former University of Colorado professor Ward Churchill, whose essay claiming that the 9/11 terrorist attacks were the fruit of illegal U.S. policies became a cause celebre. Fischer said Churchill "ignored a lot of evidence and made some up to promulgate a particular political belief."

Now, it's the right.

"There's clearly a political impetus behind this that connects to the issues of today," Fischer said, such as labeling President Barack Obama a socialist. "But when history is ignored to do it, that can be dangerous."

Here are five recent examples of new conservative versions of history:


Reaching for an example of how bad socialism can be, former House of Representatives Majority Leader Dick Armey, R-Texas, said recently that the people who settled Jamestown, Va., in 1607 were socialists and that their ideology doomed them.

"Jamestown colony, when it was first founded as a socialist venture, dang near failed with everybody dead and dying in the snow," he said in a speech March 15 at the National Press Club.

It was a good, strong story, helping Armey, a former economics professor, illustrate the dangers of socialism, the same ideology that he and other conservatives say is at the core of Obama's agenda.

It was not, however, true.

The Jamestown settlement was a capitalist venture financed by the Virginia Company of London — a joint stock corporation — to make a profit. The colony nearly foundered owing to a harsh winter, brackish water and lack of food, but reinforcements enabled it to survive. It was never socialistic. In fact, in 1619, Jamestown planters imported the first African slaves to the 13 colonies that later formed the United States.


At the same event, Armey urged people to read the Federalist Papers as a guide to the sentiments of the tea party movement.

"The small-government conservative movement, which includes people who call themselves the tea party patriots and so forth, is about the principles of liberty as embodied in the Constitution, the understanding of which is fleshed out if you read things like the Federalist Papers," Armey said.

Others such as Democrats and the news media, "people here who do not cherish America the way we do," don't understand because "they did not read the Federalist Papers," he said.

A member of the audience asked Armey how the Federalist Papers could be such a tea party manifesto when they were written largely by Alexander Hamilton, who the questioner said "was widely regarded then and now as an advocate of a strong central government."

Armey ridiculed the very suggestion.

"Widely regarded by whom?" he asked. "Today's modern, ill-informed political science professors? . . . I just doubt that was the case, in fact, about Hamilton."

Hamilton, however, was an unapologetic advocate of a strong central government, one that plays an active role in the economy and is led by a president named for life and thus beyond the emotions of the people. Hamilton also pushed for excise taxes and customs duties to pay down federal debt.

In fact, Ian Finseth said in a history written for the University of Virginia, others at the constitutional convention "thought his proposals went too far in strengthening the central government."


Theodore Roosevelt was long an icon of the Republican Party, a dynamic leader who ushered in the Progressive era, busting trusts, regulating robber barons, building the Panama Canal and sending the U.S. fleet around the world announcing ascendant American power.

Fox TV commentator Glenn Beck, however, says that Roosevelt was a socialist whose legacy is destroying America. It started, Beck said, with Roosevelt's admonition to the wealthy of his day to spend their riches for the good of society.

"We judge no man a fortune in civil life if it's honorably obtained and well spent," Roosevelt said, according to Beck. "It's not even enough that it should have been gained without doing damage to the community. We should permit it only to be gained so long as the gaining represents benefit to the community."

Actually, Roosevelt said, "We GRUDGE no man a fortune ... if it's honorably obtained and well USED." But either way, Beck saw the threat.

"Oh? Well, thank you," Beck said with scorn during his keynote speech to the recent Conservative Political Action Conference in Washington. The presidential suggestion that the wealthy of the Gilded Age should contribute to the good of society was a clear danger that must be condemned, Beck said.

"Is this what the Republican Party stands for? Well, you should ask members of the Republican Party, because this is not our founders' idea of America. And this is the cancer that's eating at America. It is big government; it's a socialist utopia," Beck said.

"And we need to address it as if it is a cancer. It must be cut out of the system because they cannot coexist. ... You must eradicate it. It cannot coexist."

There's no doubt that Roosevelt was a domestic policy liberal by today's standards. In a 1910 speech in Kansas, he acknowledged that his "New Nationalism" meant "far more active governmental interference with social and economic conditions in this country than we have yet had."

The 26th president insisted, however, that he wanted the government to guarantee opportunity, not a handout.

"The fundamental thing to do for every man is to give him a chance to reach a place in which he will make the greatest possible contribution to the public welfare," he said.

"Give him a chance, not push him up if he will not be pushed. ... Help any man who stumbles; if he lies down, it is a poor job to try to carry him; but if he is a worthy man, try your best to see that he gets a chance to show the worth that is in him."

In his autobiography three years later, Roosevelt went on to dismiss the tenets of socialism as taught by Karl Marx as "an exploded theory."

"Too many thoroughly well-meaning men and women in the America of today glibly repeat and accept," he wrote, "various assumptions and speculations by Marx and others which by the lapse of time and by actual experiment have been shown to possess not one shred of value."

In addition, Roosevelt didn't advocate government ownership of the means of production, the definition of socialism.


It's long been debated how well Franklin D. Roosevelt's New Deal government programs countered the Great Depression, but now a prominent conservative has introduced the idea that Roosevelt CAUSED the Depression.

"FDR took office in the midst of a recession," Rep. Michele Bachmann, R-Minn., told the Conservative Political Action Conference in February. "He decided to choose massive government spending and the creation of monstrous bureaucracies. Do we detect a Democrat pattern here in all of this? He took what was a manageable recession and turned it into a 10-year depression."

A year before, Bachmann went to the House floor to blame FDR and what she called the "Hoot-Smalley" tariffs for creating the Depression.

"The recession that FDR had to deal with wasn't as bad as the recession (President Calvin) Coolidge had to deal with in the early '20s," she said.

Coolidge cut taxes and created the roaring '20s, Bachmann said.

"FDR applied just the opposite formula: the Hoot-Smalley act, which was a tremendous burden on tariff restrictions. And of course trade barriers and the regulatory burden and of course tax barriers.

"That's what we saw happen under FDR. That took a recession and blew it into a full-scale depression. The American people suffered for almost 10 years under that kind of thinking."

The truth? Historians agree that tariffs hurt trade and worsened the depression.

However, the Smoot-Hawley Tariff Act — not Hoot-Smalley — was proposed by two Republicans, Sen. Reed Smoot of Utah and Rep. Willis Hawley of Oregon. A Republican House and a Republican Senate approved it. President Herbert Hoover, a Republican, signed it into law.

The facts also show that the country was in something far worse than a "manageable recession" in March 1933 when Roosevelt took office.

Stocks had lost 90 percent of their value since the crash of 1929. Thousands of banks had failed. Unemployment reached an all-time high of 24.9 percent just before Roosevelt was inaugurated.


Sen. Joseph McCarthy, R-Wis., burst onto the national stage in the early 1950s with accusations that he had a list of names of known Communists in the federal government. He didn't name them, was censured by the Senate eventually and his name became synonymous with witch hunts — McCarthyism.

Now, the end of the Cold War has opened up spy files and identified many Communist spies who operated inside the government during the era. Some conservatives argue that this proves not only that McCarthy was right, but also that he was a hero and that he was smeared by liberals, the news media and historians.

"Almost everything about McCarthy in current history books is a lie and will have to be revised," conservative activist Phyllis Schlafly said.

"Liberals had to destroy McCarthy because he exposed the entire liberal establishment as having sheltered Soviet spies," conservative commentator Ann Coulter said in one interview.

"The myth of 'McCarthyism' is the greatest Orwellian fraud of our times," she said in another. "Liberals are fanatical liars, then as now. The portrayal of Senator Joe McCarthy as a wild-eyed demagogue destroying innocent lives is sheer liberal hobgoblinism. ... If the Internet, talk radio and Fox News had been around in McCarthy's day, my book wouldn't be the first time most people would be hearing the truth about 'McCarthyism.' "

Yet even some prominent conservatives say that McCarthy's defenders go too far, and that even from a conservative perspective, McCarthy was no hero and damaged the country.

"A dangerous movement has been growing among conservative writers to vindicate the late Sen. Joseph R. McCarthy and his campaign to expose Soviet spies in the U.S. government," Ronald Kessler wrote for the conservative Web site Newsmax.com.

"The FBI agents who were actually chasing those spies have told me that McCarthy hurt their efforts because he trumped up charges, unfairly besmirched honorable Americans and gave hunting spies a bad name."

Kessler said the release of secret Cold War files under the Venona Project confirmed that there were Soviet spies in the U.S. government.

"The problem was that the people McCarthy tarnished as Communists or Communist sympathizers were not the real spies," Kessler wrote.

"The cause of anti-communism, which united millions of Americans and which gained the support of Democrats, Republicans and independents, was undermined by Sen. Joe McCarthy of Wisconsin," wrote William Bennett, who was the conservative secretary of education under President Ronald Reagan.

"McCarthy addressed a real problem: disloyal elements within the U.S. government. But his approach to this real problem was to cause untold grief to the country he claimed to love," Bennett wrote in his book "America: The Last Best Hope."

"Worst of all, McCarthy besmirched the honorable cause of anti-communism. He discredited legitimate efforts to counter Soviet subversion of American institutions."

More on Jamestown
Armey's speech at the National Press Club
Treasury Department history of Hamilton
University of Virginia on Hamilton
More on the Venona Project

Who should be at Obama's health care signing? Truman
Here's the truth: 'Birther' claims are just plain nuts
Secret camps and guillotines? Groups make birthers look sane

For more McClatchy politics coverage, visit Planet Washington
McClatchy Newspapers 2010

Thursday, April 01, 2010

The Financial Crisis is Due to Fraud on Wall Street ...Abetted by the SEC's Failure to Enforce Laws Already on the Books!

Fraud on the Street
By Robert Reich, Robert Reich's Blog
30 March 2010

The Securities and Exchange Commission announced Monday it had begun an inquiry into two dozen financial companies to determine whether they followed accounting practices similar to those recently disclosed in an investigation of Lehman Brothers.

Where on earth has the SEC been?

It's now clear Lehman Brothers' balance sheet was bogus before the bank collapsed in 2008, catapulting the Street and the world into the worse financial crisis since 1929. The Lehman bankruptcy examiner's recent report details what just about everyone on the Street has known since the firm imploded - that Lehman defrauded its investors. Even Hank Paulson, in his recent memoir, referred to Lehman's balance sheet as bogus.

In order to look like it could borrow $30 for every dollar of its own money, Lehman shifted liabilities off its books at the end of each quarter. Its CPA, Ernst and Young, approved of this fraud against the advice of its own whistle blower, whom Ernst and Young fired.

Lehman's practices couldn't have been all that different from those of every other big bank on the Street. After all, they were all competing for the same business, and using many of the same techniques. Lehman was just the first to go under, causing a financial run that led George W. to warn "this sucker could go down" unless the federal government came up with hundreds of billions to bail out the others.

In other words, the TARP covered the other bankers' assets and asses.

We now know, for example, Goldman Sachs helped Greece hide its public debt and then placed financial bets that Greece would default, using credit-default swaps to avoid risking its own capital. It's the same tactic Goldman used for (and against) American International Group (AIG): Hide the ball, and then bet against the ball and fob off the risk to investors and taxpayers, using derivatives to remove the risky tactics from the balance sheets. Even today no one knows the fair value of the complex derivatives underlying these and related maneuvers, which is exactly the point.

Congress is now struggling to come up with legislation to stop this from happening again. And the Street is struggling to stop Congress. As of now, the Street's political payoffs seem to be working. Proposed legislation still allows secret derivative trading in foreign-exchange swaps (similar to what Goldman used to help Greece hide its debt) and in transactions between big banks and many of their corporate clients (as with AIG).

But wait. We already have a law designed to stop this sort of fraud. It's called the Sarbanes-Oxley Act of 2002.

Think back to the corporate looting scandals that came to light almost a decade ago when the balance sheets of Enron, WorldCom, and others were shown to be fake, causing their investors to lose their shirts. Nearly every major investment bank played a part in the fraud - not only advising the companies but also urging investors to buy their stocks when the banks' own analysts privately described them as junk.

Sarbanes-Oxley - Sarbox, as it's come to be known - was designed to stop this. It requires CEOs and other senior executives to take personal responsibility for the accuracy and completeness of their companies' financial reports and to set up internal controls to assure the accuracy and completeness of the reports. If they don't, they're subject to fines and criminal penalties.

Sarbox is directly relevant to the off-the-balance-sheet derivative games the Street played and continues to play. No bank CEO can faithfully attest to the accuracy and completeness of its financial reports when derivatives guarantee that the reports are incomplete and deceptive.

So where has the SEC been?

I was on a panel a few weeks ago with a former chair of the Securities and Exchange Commission who was asked why the commission has so far failed to enforce Sarbox against Wall Street. He had no response except to mumble that legislation is meaningless unless adequately enforced. Exactly.

Bottom line: While financial reform is needed, there's no reason to wait for it. Sarbox is already there. And even if financial reform is enacted without loopholes, there's no reason to think it will be enforced if laws already on the books, such as Sarbox, aren't.

(Adapted from my column in The American Prospect.)

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Robert Reich is Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written twelve books, including "The Work of Nations," "Locked in the Cabinet," and his most recent book, "Supercapitalism." His "Marketplace" commentaries can be found on publicradio.com and iTunes.