Saturday, July 31, 2010

Paul Craig Roberts' farewell address to the American People was posted here before, but it somehow disappeared from my site. All the more reason to put it up again ...and encourage all of you to read it again!

Wednesday, March 24, 2010
Paul Craig Roberts Farewell Address To The American People


Truth Has Fallen and Taken Liberty With It


There was a time when the pen was mightier than the sword. That was a time when people believed in truth and regarded truth as an independent power and not as an auxiliary for government, class, race, ideological, personal, or financial interest.

Today Americans are ruled by propaganda. Americans have little regard for truth, little access to it, and little ability to recognize it.

Truth is an unwelcome entity. It is disturbing. It is off limits. Those who speak it run the risk of being branded “anti-American,” “anti-semite” or “conspiracy theorist.”

Truth is an inconvenience for government and for the interest groups whose campaign contributions control government.

Truth is an inconvenience for prosecutors who want convictions, not the discovery of innocence or guilt.

Truth is inconvenient for ideologues.

Today many whose goal once was the discovery of truth are now paid handsomely to hide it. “Free market economists” are paid to sell offshoring to the American people. High-productivity, high value-added American jobs are denigrated as dirty, old industrial jobs. Relicts from long ago, we are best shed of them. Their place has been taken by “the New Economy,” a mythical economy that allegedly consists of high-tech white collar jobs in which Americans innovate and finance activities that occur offshore. All Americans need in order to participate in this “new economy” are finance degrees from Ivy League universities, and then they will work on Wall Street at million dollar jobs.

Economists who were once respectable took money to contribute to this myth of “the New Economy.”

And not only economists sell their souls for filthy lucre. Recently we have had reports of medical doctors who, for money, have published in peer-reviewed journals concocted “studies” that hype this or that new medicine produced by pharmaceutical companies that paid for the “studies.”

The Council of Europe is investigating the drug companies’ role in hyping a false swine flu pandemic in order to gain billions of dollars in sales of the vaccine.

The media helped the US military hype its recent Marja offensive in Afghanistan, describing Marja as a city of 80,000 under Taliban control. It turns out that Marja is not urban but a collection of village farms.

And there is the global warming scandal, in which NGOs. the UN, and the nuclear industry colluded in concocting a doomsday scenario in order to create profit in pollution.

Wherever one looks, truth has fallen to money.

Wherever money is insufficient to bury the truth, ignorance, propaganda, and short memories finish the job.

I remember when, following CIA director William Colby’s testimony before the Church Committee in the mid-1970s, presidents Gerald Ford and Ronald Reagan issued executive orders preventing the CIA and U.S. black-op groups from assassinating foreign leaders. In 2010 the US Congress was told by Dennis Blair, head of national intelligence, that the US now assassinates its own citizens in addition to foreign leaders.

When Blair told the House Intelligence Committee that US citizens no longer needed to be arrested, charged, tried, and convicted of a capital crime, just murdered on suspicion alone of being a “threat,” he wasn’t impeached. No investigation pursued. Nothing happened. There was no Church Committee. In the mid-1970s the CIA got into trouble for plots to kill Castro. Today it is American citizens who are on the hit list. Whatever objections there might be don’t carry any weight. No one in government is in any trouble over the assassination of U.S. citizens by the U.S. government.

As an economist, I am astonished that the American economics profession has no awareness whatsoever that the U.S. economy has been destroyed by the offshoring of U.S. GDP to overseas countries. U.S. corporations, in pursuit of absolute advantage or lowest labor costs and maximum CEO “performance bonuses,” have moved the production of goods and services marketed to Americans to China, India, and elsewhere abroad. When I read economists describe offshoring as free trade based on comparative advantage, I realize that there is no intelligence or integrity in the American economics profession.

Intelligence and integrity have been purchased by money. The transnational or global U.S. corporations pay multi-million dollar compensation packages to top managers, who achieve these “performance awards” by replacing U.S. labor with foreign labor. While Washington worries about “the Muslim threat,” Wall Street, U.S. corporations and “free market” shills destroy the U.S. economy and the prospects of tens of millions of Americans.

Americans, or most of them, have proved to be putty in the hands of the police state.

Americans have bought into the government’s claim that security requires the suspension of civil liberties and accountable government. Astonishingly, Americans, or most of them, believe that civil liberties, such as habeas corpus and due process, protect “terrorists,” and not themselves. Many also believe that the Constitution is a tired old document that prevents government from exercising the kind of police state powers necessary to keep Americans safe and free.

Most Americans are unlikely to hear from anyone who would tell them any different.

I was associate editor and columnist for the Wall Street Journal. I was Business Week’s first outside columnist, a position I held for 15 years. I was columnist for a decade for Scripps Howard News Service, carried in 300 newspapers. I was a columnist for the Washington Times and for newspapers in France and Italy and for a magazine in Germany. I was a contributor to the New York Times and a regular feature in the Los Angeles Times. Today I cannot publish in, or appear on, the American “mainstream media.”

For the last six years I have been banned from the “mainstream media.” My last column in the New York Times appeared in January, 2004, coauthored with Democratic U.S. Senator Charles Schumer representing New York. We addressed the offshoring of U.S. jobs. Our op-ed article produced a conference at the Brookings Institution in Washington, D.C. and live coverage by C-Span. A debate was launched. No such thing could happen today.

For years I was a mainstay at the Washington Times, producing credibility for the Moony newspaper as a Business Week columnist, former Wall Street Journal editor, and former Assistant Secretary of the U.S. Treasury. But when I began criticizing Bush’s wars of aggression, the order came down to Mary Lou Forbes to cancel my column.

The American corporate media does not serve the truth. It serves the government and the interest groups that empower the government.

America’s fate was sealed when the public and the anti-war movement bought the government’s 9/11 conspiracy theory. The government’s account of 9/11 is contradicted by much evidence. Nevertheless, this defining event of our time, which has launched the US on interminable wars of aggression and a domestic police state, is a taboo topic for investigation in the media. It is pointless to complain of war and a police state when one accepts the premise upon which they are based.

These trillion dollar wars have created financing problems for Washington’s deficits and threaten the U.S. dollar’s role as world reserve currency. The wars and the pressure that the budget deficits put on the dollar’s value have put Social Security and Medicare on the chopping block. Former Goldman Sachs chairman and U.S. Treasury Secretary Hank Paulson is after these protections for the elderly. Fed chairman Bernanke is also after them. The Republicans are after them as well. These protections are called “entitlements” as if they are some sort of welfare that people have not paid for in payroll taxes all their working lives.

With over 21 per cent unemployment as measured by the methodology of 1980, with American jobs, GDP, and technology having been given to China and India, with war being Washington’s greatest commitment, with the dollar over-burdened with debt, with civil liberty sacrificed to the “war on terror,” the liberty and prosperity of the American people have been thrown into the trash bin of history.

The militarism of the U.S. and Israeli states, and Wall Street and corporate greed, will now run their course. As the pen is censored and its might extinguished, I am signing off.
Paul Craig Roberts was an editor of the Wall Street Journal and an Assistant Secretary of the U.S. Treasury. His latest book, HOW THE ECONOMY WAS LOST, has just been published by CounterPunch/AK Press. He can be reached at:

Here's the video that goes with Thursday's post of Jesse Freeston's article.

More at The Real News

Do undocumented immigrants want citizenship? Are they more likely to be dangerous criminals? Do they hurt the economy? Do they steal jobs and lower wages? The two sides in the Arizona debate have vastly different answers to these questions. On the face of it, this stand-off appears to be more about information than opinion.

Produced by Jesse Freeston.

Thursday, July 29, 2010

A Canadian reporter visits Arizona to take the pulse of supporters and opponents of the draconian new anti-immigrant law, recently placed on hold. It seems that some of those opposed cited lies told by the Governor.


Are Latino Immigrants a 21st Century Invasion or the Latest Economic Scapegoat? After just a few days in Arizona, it's become abundantly clear to me that many of those active in the debate around the controversial immigration law SB1070 are operating on very different information. On Wednesday, a last-second injunction from Judge Susan Bolton temporarily stopped the most aggressive provisions of SB1070 from going into effect. In particular, she struck down the section that compels police officers to demand identification from anyone they stop whom they suspect of being in the country without papers. Arizona's state government has announced it will appeal Bolton's decision.


In the hours after the injunction was announced, hundreds of SB1070 opponents gathered in front of the State Capitol building in Phoenix for a celebration that included mariachi music and dancing.

Jill Abbott was one of four supporters of the bill who stood some fifty feet from the celebration holding signs expressing their disapproval with the judge's decision. "They're celebrating their victory, but it's not gonna last long. Because when it gets to the Supreme Court, that's where we'll win."

Abbot questioned the sincerity of the demand for legalization that accompanies all anti-SB1070 protests. "They don't want to become citizens, they want everything free and handed to them on a silver platter."

This statement came just minutes after I met recent high-school graduate Alejandra Valenzuela, who would love nothing more than US citizenship.

When she was seven years old her father died of cancer. Her mother then moved the family to the US, without papers, to find a way to provide for the family. "Everything was going well until I found out I was undocumented," Valenzuela tells me with a confident smile. "[I] had a 4.0 GPA, was doing great, involved in my community clubs, and then they tell me I can't go to college because I don't have enough money and can't get money from the government."

I ask Carlos Alvarez of the Phoenix chapter of the ANSWER Coalition about allegations that people choose to avoid legal processes for getting papers. He rolls his eyes. "I think all the people that say that never had to cross the border. Meaning that they never had to run away from poverty, never had to run away from war, never had to run away from right-wing despots that the US has imposed on other countries. When we're talking about immigration we're talking about US foreign policy."


"This is an invasion."

Says Judy Hoelscher, co-founder of the Cave Creek Patriots Tea Party Posse, one of numerous citizen groups that have formed under the Arizona Tea Party banner over recent months. Hoelscher is a firm supporter of the controversial SB1070 immigration law.

"We simply cannot afford illegal immigration," explains Hoelscher. "We're suffering from the crime wave, the drugs that are coming across, murders, rapes, and kidnappings." There's no question that Mexico-based drug cartels are operating in Arizona, often violently. However, the ease with which SB1070 supporters link them to undocumented workers is troublesome. The crime wave that Hoelscher refers to is difficult to substantiate when Department of Justice statistics show that the violent crime rate has dropped by 23% over the past ten years. Over that same decade, Department of Homeland Security statistics estimate that the population of undocumented immigrants in Arizona roughly doubled.

Public figures like Arizona governor Jan Brewer haven't helped to clarify any of these errors. Brewer has said that "the majority" of those that cross the border undocumented are carrying drugs. Meanwhile, the Tucson Border Patrol reports that less than 1% of those apprehended without documents are charged with drug offenses. (http:// "What that's called is a lie," says Carlos Alvarez of Phoenix's ANSWER Coalition. "She's also said that they've found headless bodies, which we know they have not." ( AR2010070902342.html)

But why lie?

"[The statements are] meant to terrorize the undocumented community and turn the white community against the undocumented workers." Alvarez believes it's all part of an electoral strategy based on hate mongering. "Arizona is the state with the most active white supremacist groups in the nation. It's a very real social relationship that people have to racism." ( nazi_jt_ready_and_us_borde.php)

Phoenix Police Chief Jack Harris, who opposes SB1070, told the LA Times that "[a]ll you have to do in Arizona is come out with anything that's anti-immigrant and you will be in good shape in the polls." ( arizona-crime-20100503/2)


Raymond Nowakowski is the father of the current Vice-Mayor of Phoenix. He wears his US Army cap with pride while attending the 101st straight day of anti-SB1070 vigils in front of the State Capitol building. Nowakowski was part of the 101st Airborne Division that was deployed by President Eisenhower in 1957 to escort nine black students into Central High School in Little Rock, Arkansas. They marched the students past the governor, the Arkansas National Guard, and the white segregationist crowds that just weeks earlier had worked together to keep the students out of the building. The 'Little Rock Nine' became known the world over for breaking Arkansas' racially segregated school system.

"There was a hatred against a certain class of people back then," says Nowakowski, "and I see that same hatred being built up now." He adds that during his 44 years in Phoenix, there's always been friction between the white-Anglo majority and communities of color, but that its been growing over recent years, with the passing of SB1070 marking its apex. Nowakowski believes that the angst directed at Latino immigrants in Arizona has its roots in election demographics. He says that in 5-10 years, the quickly aging white-Anglo majority might become a minority, and that means losing power.


The night before the injunction was passed, I was at a meeting of the Sun City Tea Party. As the meeting came to a close, I struggled to find anyone amongst the all-white crowd who appeared to be of working age. Hoelscher was one of only a handful that fit the profile. She's a seamstress by trade who has been unable to find steady employment for the last few years. She says that undocumented workers have lowered the wages in Arizona, and rendered employment in sectors like hers all but impossible. I can see the concern in her eyes as she routinely shifts her gaze from me to her young daughter, who is waiting patiently to go home.

If it's about wages, I ask, then why not support legalization? Wouldn't the accompanying labor protections force the wages up?

"Real unemployment is at 18% here, and growing," she explains. "To have to compete for that few jobs? Millions and millions of more people for that few jobs? We need to take care of our own. America's citizens first and not the rest of the world's third world citizens."

For Monica Ruiz, who traveled from New York City to be a part of the actions in Arizona, the jobs argument is a dangerous misconception that is taking hold at a national level. She tells me that workers both take and create jobs by spending their earnings. So, she explains, there's no such thing as a fixed number of jobs because growth through immigration is the history of the United States. "[This is the] hysteria they've created around the country, where even liberals are saying 'well, we really have an immigration problem.'" Her voice deepens and her pace slows while she takes on her 'liberal persona' before returning to her original, determined rhythm. "The only reason this is an issue today is because there is a downturn in the economy and somebody has to be blamed."

"It's easier for the majority of middle-class people, who are losing more than anybody else right now, to direct their hatred and their anger toward the ones that have the least. Rather than making sure that they're actually looking up, instead of down." I will be in Arizona all week. Keep checking for video coverage of these events and more.
Jesse Freeston is a video-journalist with The Real News Network. He is originally from Ontario, Canada, but has spent most of the last two years reporting from El Salvador, Honduras, and the United States. His work has covered a variety of topics including: the military-industrial complex, economics & labor issues, Central American social movements, and resource rights.
Blogger's Note: See what the AFL-CIO has to say about illegal workers.

Wednesday, July 28, 2010

Bill Black is back ...pointing out that Obama has retained all of the nonfeasant, misfeasant, and malfeasant financial regulators appointed by Bush.

PAUL JAY, SENIOR EDITOR, TRNN: "...the way the [finance reform] bill is established, everything depends so much on regulators. And given how powerful Wall Street is in lobbying and appointing regulators, [with lax regulators] you wind up with very little in this bill. Am I reading it correctly?"

WILLIAM K. BLACK, ASSOC. PROF. ECONOMICS AND LAW, UMKC: "You end up with nothing. Indeed, you end up with, potentially, two very bad things. One, you end up with complacency. After all, everybody said this is going to prevent all future crises, so we don't have to worry about future crises. The second thing that you end up [with] is that there are actually provisions in the bill which make the world worse."
"But your question also raises the more fundamental point. If Obama and his economic team really wanted to regulate banks more intensively, well, you know, we're a long way into the administration at this point."
"Obama left in charge the absolutely disastrous leader who was supposed to regulate Fannie and Freddie, a guy who, by the way, had been a personal friend of Bush for 40 years..."
"[The Obama administration] left the worst regulator in the history of the Office of the Comptroller of Currency. This is a guy that not only didn't protect us from frauds; he ran a holy war against state regulators who tried to crack down on predatory lending—it's called 'preemption'."
"If the Obama administration really wanted to regulate, to protect us, it had ample authority under the existing laws, without any passage, to revolutionize the protection. And instead... they have [Lawrence] Summers and [Timothy] Geithner, who are lifelong opponents of effective regulation, running their economic policies."

JAY: "...Should people simply be demanding some kind of public alternative for credit and for financing?"

BLACK: "Yes, they should. But the broader logic also applies, and that was you've got to change the incentive structures. If you leave the private insurers in place, the incentive structure is inherently anti-public."
"So, yes, we have to change the fundamental incentive structures. And, again, this bill, the dominant fact about it is it doesn't even examine, much less attempt to fix, the perverse incentives that are causing not just this crisis [but also those in Britain, Spain, Greece, Latvia, and Iceland, who have] all had their own versions of this crisis, not driven by the US crisis, but driven by these perverse incentives that I've talked about and this belief that you didn't need to regulate or supervise."

More at The Real News

Blogger's Note: This is Part 3 of the series begun in my previous post below.

Monday, July 26, 2010

The recently passed "financial reform bill" -- by design -- will NOT prevent a repeat of big bank crashes and consequent additional taxpayer bailouts ...proving once again our government to be "Of the rich, by the rich, and for the rich."

PRESIDENT BARACK OBAMA (speaking on the new financial reform bill): "There will be no more tax-payer funded bailouts, period. If a large financial institution should ever fail, this reform gives us the ability to wind it down without endangering the broader economy."

WILLIAM K. BLACK, ASSOC. PROF. ECONOMICS AND LAW, UMKC (commenting on Obama's statement above): "Now, that is nonsense. There is nothing in the bill that will prevent that. Actually, there's nothing in any bill that really could ensure that you would never have those circumstances."

More at The Real News

PAUL JAY, SENIOR EDITOR, TRNN (after listing to Black's discouraging answer to his first question): "And there's no—nothing in the current bill will change this?"

BILL BLACK (excerpt): "No. And indeed, more generally, there's nothing to fix rating agencies." ... "Americans don't know that over 10 percent of all appraisers in America have signed a petition calling for the government to step in and regulate and enforce [the rating agencies] because of this Gresham's dynamic. A Gresham's dynamic is where cheaters and the least moral people prosper, and they drive the honest, moral people out of the marketplace. (emphasis added)"


William K. Black, author of THE BEST WAY TO ROB A BANK IS TO OWN ONE, teaches economics and law at the University of Missouri — Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics. Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement. Black developed the concept of "control fraud" — frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.
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Friday, July 23, 2010

Noted Economist James K. Galbraith to Obama's Commission on Deficit Reduction: " is difficult to believe that the goal of deficit reduction per se serves any coherent, or presently desirable, economic objective."

Statement to the Commission on Deficit Reduction
James K. Galbraith, Lloyd M. Bentsen, jr., Chair in Government/Business Relations, Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin
June 30, 2010

Mr. Chairmen, members of the commission, thank you for inviting this statement.

I am a professional economist, but I have served in a political role, as Executive Director of the Joint Economic Committee of the United States Congress. I am offering this statement on behalf of Americans for Democratic Action, an organization co-founded in 1949 by (among others) Eleanor Roosevelt, John Kenneth Galbraith, Arthur M. Schlesinger, jr., and Ronald Reagan. Accordingly I would like to begin with a political comment.

1. Clouds Over the Work of the Commission.

Your proceedings are clouded by illegitimacy. In this respect, there are four major issues.

First, most of your meetings are secret, apart from two open sessions before this one, which were plainly for show. There is no justification for secret meetings on deficit reduction. No secrets of any kind are involved. Nothing you say will affect financial markets. Congress long ago -- in 1975 -- reformed its procedures to hold far more sensitive and complicated meetings, notably legislative markups, in the broad light of day.

Secrecy breeds suspicion: first, that your discussions are at a level of discourse so low that you feel it would be embarrassing to disclose them. Second, that some members of the commission are proceeding from fixed, predetermined agendas. Third, that the purpose of the secrecy is to defer public discussion of cuts in Social Security and Medicare until after the 2010 elections. You could easily dispel these suspicions by publishing video transcripts of all of your meetings on the Internet, and by holding all future meetings in public. Please do so.

Second, there is a question of leadership. A bipartisan commission should approach its task in a judicious, open-minded and dispassionate way. For this, the attitude and temperament of the leadership are critical.

I first met Senator Simpson when we were both on Capitol Hill; at Harvard he became friends with my late parents. He is admirably frank in his views. But Senator Simpson has plainly shown that he lacks the temperament to do a fair and impartial job on this commission. This is very clear from the abusive response he made recently to Alex Lawson of Social Security Works, who was asking important questions about the substance of the commission's work, as well as calling attention to the illegitimate secrecy under which you are operating.

A general cannot speak of the President with contempt. Likewise the leader of a commission intended to sway the public cannot display contempt for the public. With due respect, Senator Simpson's conduct fails that test.

Third, most members of the Commission are political leaders, not economists. With all respect for Alice Rivlin, with just one economist on board you are denied access to the professional arguments surrounding this highly controversial issue. In general, it is impossible to have a fair discussion of any important question when the professional participants in that discussion have been picked, in advance, to represent a single point of view.

Conflicts of interest constitute the fourth major problem. The fact that the Commission has accepted support from Peter G. Peterson, a man who has for decades conducted a relentless campaign to cut Social Security and Medicare, raises the most serious questions. Quite apart from the merits of Mr. Peterson's arguments, this act must be condemned. A Commission serving public purpose cannot accept funds or other help from a private party with a strong interest in the outcome of that Commission's work. Your having done so is a disgrace.

In my view you also should not have accepted help from the Economic Policy Institute, even though EPI's positions on the merits are substantially closer to mine.

Let me now turn to the economic questions. A first economic question is, what caused the deficits and rising public debt? The answer comes in two parts: present deficits and projected future deficits.

2. Current Deficits and Rising Debt were Caused by the Financial Crisis.

Overwhelmingly, the present deficits are caused by the financial crisis. The financial crisis, the fall in asset (especially housing) values, and withdrawal of bank lending to business and households has meant a sharp decline in economic activity, and therefore a sharp decrease in tax revenues and an increase in automatic payments for unemployment insurance and the like. According to a new IMF staff analysis, fully half of the large increase in budget deficits in major economies around the world is due to collapsing tax revenues, and a further large share to low (often negative) growth in relation to interest payments on existing debt. Less than ten percent is due to increased discretionary public expenditure, as in stimulus packages.

This point is important because it shows that the claim that deficits have resulted from "overspending" is false, both in the United States and abroad.

3. Future Deficit Projections are Generally Based on Forecasts which Begin by Assuming Full Recovery, but this Assumption is Highly Unrealistic.

Unlike the present deficits, expected future deficits are not usually considered to be due to continued recession and high unemployment. To understand how the discussion of future deficits is being framed, it is necessary to grasp the work of the principal forecasting authority, the Congressional Budget Office. CBO's projections proceed in two steps. First, they wipe out the current deficits, over a very short time horizon, by assuming a full economic recovery. Second, they create an entirely new source of future deficits, essentially out of whole cloth. The critical near-term assumption in the CBO baseline concerns employment. CBO claims to expect a relatively rapid return, over five years, to high levels of employment, and the baseline incorporates a correspondingly high rate of real growth in the early recovery from the great crisis. If this were to happen, then tax revenues would recover, and ordinarily the projected deficits would disappear. This is what did happen under full employment in the late 1990s.

But under present financial conditions this scenario of a rapid return to high employment is highly unrealistic. It can only happen if the credit system finances economic growth, which implies a rising level of private (household and company) debt relative to GDP. And that clearly is not going to happen. On the contrary, de-leveraging in the private sector is sure to remain the rule for a long time, as mortgages and other debts default or are paid down, and as many households remain effectively insolvent due to their mortgage debt.

With high unemployment, high public deficits are inevitable. The only choice is between an active deficit, incurred by putting people to work or otherwise serving national needs -- such as providing a decent retirement and health care to the aged -- and a passive deficit, incurred because at high unemployment tax revenues necessarily fail to cover public spending. Cutting public spending or raising taxes, now or in the future, by any amount, cannot reduce a deficit due to high unemployment. The only fiscal effect is to convert an active deficit into a passive one -- with disastrous economic and social effects.

4. Having Cured the Deficits with an Unrealistic Forecast, CBO Recreates them with Another, Very Different, but Equally Unrealistic Forecast.

In the CBO models, high future deficits and rising debt relative to GDP are expected. But the source is not a weak economy. It is a set of assumptions describing an economy after full recovery from the present crisis. In the CBO forecasts, big future deficits arise from a combination of (a) rapidly rising health care costs and (b) rising short-term interest rates, in the context of (c) a rapid return to high employment and (d) continued low overall inflation. This combination produces, mechanically, a very large net interest payout and a rapidly rising public debt in relation to a slowly rising nominal GDP.

Even if CBO were right about recovery, which it is not, this projection is internally inconsistent and wholly implausible. It isn't going to happen. Low overall inflation (at two percent) is inconsistent with the projected rise of short-term interest rates to nearly five percent. Why would the central bank carry out such a policy when no threat of inflation justifies it? But the assumed rise in interest rates drives the projected debt-to-GDP dynamic.

Similarly, the rise in projected interest payments is inconsistent with low nominal inflation. Interest payments rising to over 20 percent of GDP by mid-century would constitute new federal spending similar in scale to the mobilization for World War II. Obviously this cannot happen with two percent inflation. And although a higher inflation rate is undesirable, arithmetically it means a lower debt-to-GDP ratio.

Finally, rapidly rising health care costs and low overall inflation are mutually consistent only if all prices except health care are rising at less than that low overall inflation rate -- including energy and food prices in a time of increasing scarcity. This too is extremely unlikely. Either overall health care costs will decelerate (relieving the so-called Medicare funding problem) or the overall inflation rate will accelerate -- reducing the debt-to-GDP ratio.

In sum: the economic forecasts on which you are being asked to develop a credible plan for reducing deficits over the medium term are a mess. The unemployment and growth forecasts are implausibly optimistic, while the inflation and interest rates projections are implausibly pessimistic and mutually inconsistent.

Good policy cannot be based on bad forecasts. As a first step in your work -- long overdue -- the Commission should require the development of internally consistent, and factually plausible, economic forecasts on which to base future deficit and debt projections.

5. The Only Way to Reduce Public Deficits is to Restore Private Credit.

The conclusion to draw from the above argument is that large deficits going forward are likely to have the same source as they do right now: stubbornly high unemployment.

The only way to reduce a deficit caused by unemployment is to reduce unemployment. And this must be done with a substantial component of private financing, which is to say by bank credit, if the public deficit is going to be reduced. This is a fact of accounting. It is not a matter of theory or ideology; it is merely a fact. The only way to grow out of our deficit is to cure the financial crisis.

To cure the financial crisis would require two comprehensive measures. The first is debt restructuring for the entire household sector, to restore private borrowing power. The second is a reconstruction of the banking system, effectively purging the toxic assets from bank balance sheets and also reforming the bank personnel and compensation and other practices that produced the financial crisis in the first place. To repeat: this is the only way to generate deficit-reducing, privately-funded growth and employment.

As a former top adviser in the Clinton White House, co-chairman Bowles no doubt knows that privately-funded economic growth produced the boom years of the late 1990s and the associated surplus in the federal budget. He must also know that the practices of banks and investment banks with which they were closely associated worked to destroy the financial system a decade later. But I would wager that the Commission has spent no time, so far, on a discussion of the relationship between deficit reduction and financial reform.

To be clear: unemployment can be cured without private-sector financing, if public deficits are large enough -- as was done during World War II. But if the objective is to reduce public deficits, for whatever reason, then a large contribution from private credit is essential.

One more time: without private credit, deficit reduction plans through fiscal austerity, now or in the future, will fail. They cannot succeed. If at the time the cuts take effect the economy is still relying on public expenditure to fund economic activity, then reducing expenditure (or increasing taxes) will simply reduce GDP and the deficits will not go away.

Further, if the finances of the private sector could be fixed, then an austerity program would be entirely unnecessary to reduce public debt. The entire national experience from 1946 to 1980, when public debt fell from 121 to about 33 percent of GDP and again from 1994 to 2000, proves this. In those years the debt-to-GDP ratio fell mainly because of creditdriven economic growth -- certainly not because of public-sector austerity programs. And this is why the deficits returned, in 1980-2 and in 2000, once the credit markets froze up and the private economy entered recession.

Thus until the private financial sector is fully reformed -- or supplemented by parallel financing institutions as was done in the New Deal -- high deficits and a high public-debt-to-GDP ratio are inevitable. In the limit, if there is no private financial recovery, debt-to-GDP will converge to some steady-state value, probably near 100 percent - a normal number in some countries - and at that point the public deficit will be the sole engine of new economic growth going forward. Only when the private sector steps up, will the debt-to-GDP ratio begin to decline.

For this reason, a Commission report focused on "entitlement reform" rather than "financial reform" would be entirely beside the point. Entitlement cuts, no matter how severe, cannot and will not achieve deficit reduction. They cannot "meaningfully improve the long-term fiscal outlook," as required by your charter. All they will accomplish is to impoverish vulnerable Americans, impairing the functioning of the private economy and the taxing capacity of the government.

6. Social Security and Medicare "Solvency" is not part of the Commission's Mandate.

I note from Chairman Simpson's conversation with Alex Lawson that the Commission has taken up the questions of the alleged "insolvency" of the Social Security system and of Medicare. If true, this is far outside any mandate of the Commission. Your mandate is strictly limited to matters relating to the deficit, debt-to-GDP ratio and fiscal stability of the U.S. Government as a whole. Social Security and Medicare are part of the government as a whole, so it is within your mandate to discuss those programs -- but only in that context.

To make recommendations about the matching of benefits to payroll taxes -- now or in the future -- would be totally inappropriate. Within your mandate, the levels of payroll taxes and of Social Security benefits are relevant only insofar as they influence the current and future fiscal position of the government as a whole. Their relationship to each other is not relevant. You are not a "Social Security Commission" and there is no provision in your Charter for a separate discussion of the alleged financial condition of either program taken on its own. Such discussions, if they are occurring, should be subjected to a point of order.

The usual "solvency" arguments directed at the Social Security system and at Medicare as separate entities are in any event complete nonsense. These programs are just programs, like any others, in the Federal Budget, and the Social Security and Medicare "systems" are thus fully solvent so long as the Federal Government is. Further, as explained below, under our monetary arrangements there is no "solvency" issue for the federal government as a whole. The federal government is "solvent" so long as U.S. banks are required to accept US. Government checks -- which is to say so long as there is a Federal authority in the Republic. This point has been demonstrated repeatedly in times of stress, notably during the Civil War and World War II.

7. As a Transfer Program, Social Security is Also Irrelevant to Deficit Economics.

Political discussions of "long-term fiscal sustainability" -- including in the Charter for this Commission -- make an economic error when they loosely use the word "entitlements" and suggest that supposed economic dangers of federal deficits (for instance, rising real interest rates) can be reduced by "entitlement reform." As a matter of economics, this is not true.

"Government Spending" -- as any textbook will verify -- is a component of GDP only insofar as the spending is directly on purchases of goods and services. That alone is what economists mean by the phrase "government spending." GDP is the final consumption of produced goods and services, and government is one of the major consuming sectors; the others being private business (investment) and households (consumption).

Social Security is a transfer program. It is not a spending program. A dollar "spent" on Social Security does not directly increase GDP. It merely reallocates a dollar from one potential final consumer (a taxpayer) to another (a retiree, a disabled person or a survivor). It also reallocates resources within both communities (taxpayers and beneficiaries). Specifically, benefits flow to the elderly and to survivors who do not have families that might otherwise support them, and costs are imposed on working people and other taxpayers who do not have dependents in their own families. Both types of transfer are fair and effective, greatly increasing security and reducing poverty -- which is why Social Security and Medicare are such successful programs.

Transfers of this kind are also indefinitely sustainable -- in fact there can intrinsically be no problem of sustainability with transfer programs. Apart from their effect on individual security, a true transfer program uses (by definition) no net economic resources. The only potential macroeconomic danger from "excessive" transfers is that the transfer function may be badly managed, leading to excessive total demand and to inflation. But there is no risk of this so long as the financial crisis remains uncured. Under present conditions Social Security and Medicare are bulwarks for stabilizing a total demand that would otherwise be highly deficient.

Similarly, cutting Social Security benefits, in particular, merely transfers real resources away from the elderly and toward taxpayers, and away from the poor toward those less poor. One can favor or oppose such a move on its own merits as social policy - but one cannot argue that it would save real resources that are otherwise being "consumed" by the government sector.

The conclusion to be drawn is that Social Security should in any event be off the agenda of your Commission, as it is a transfer program and not a program of public spending in the economic sense. In particular it does not use capital resources and will not drive up interest rates. This is true whether the "Social Security System" is in internal balance or not.

8. Markets are not calling for Deficit Reduction; Now or Later.

Let me turn next to a larger economic question. Do deficit projections matter? Are they important? Was the President well-advised to frame the mandate of the Commission as he did?

What, in short, are the economic consequences of a high public deficit and a rising debt-to-GDP ratio, and what (if any) benefits are to be expected from creating an expectation that deficits will come down and that the debt-to-GDP ratio will fall?

The idea that US economic policy should aim for a path of reduced deficits in the future, is shared by liberals and conservatives, and it is, from a political standpoint, a very powerful idea. The Commission's charter takes for granted that this goal is desirable. It specifies that your objective is to achieve a balanced "primary budget" -- net of interest payments, by 2015.

Yet your charter does [not] say why this is an appropriate goal. It cites no study to which one might refer. It does not explain why 2015 is the right target date, as opposed to (say) 2025 or even 2050. It does not spell out the economic consequences -- if any -- of failing to meet the stated objective.

Does the requirement make economic sense? I shall tackle that question in two parts. The first accepts the view most people hold of the fiscal and financial world. The second reflects, from an operational standpoint, how that world actually works in practice.

Most informed laymen believe that the Federal government must borrow in order to spend. They believe that the interest rate on Treasury securities is set in a market for government bonds. The markets impose discipline on the government. Thus their idea is that "fiscal responsibility" will produce low long-term interest rates and tolerable borrowing conditions for the federal government, while "irresponsibility" will be punished by higher, and eventually intolerable, debt service costs.

Accepting this view for the moment, what does the present level of long-term interest rates tell us? As I write, thirty year Treasury bonds are yielding just over four percent -- or just a little more than half their yield a decade back. On the argument just given, this must be an extraordinary success of virtuous policy. It seems that Wall Street has made a strong vote of confidence in the fiscal probity of our current policies. This vote is unqualified, backed by money, contingent on nothing. It therefore represents a categorical rejection, by Wall Street itself, of the CBO's doomsday scenarios and all other deficit-scare stories.

On this theory, it follows that the mandate to reduce the primary deficit to zero by 2015 is unnecessary. Such an action can hardly reduce interest rates -- neither short nor long-term -- which are already historically low.

But wait a minute, some may say. Yes interest rates are low at the moment. But bond markets are fickle, they can turn on a dime. And what then?

Yes, it is possible that interest rates could rise. But the problem with this argument is that it takes us away from the premise of rationality. If bond markets are fickle and arbitrary, who is to say what they will do in response to any particular policy? In the face of irrational markets, the sensible policy is to borrow heavily for so long as they are offering a good deal. One may say that all good things end, and perhaps they will. But if markets are irrational, then by construction you cannot prevent this by "good behavior."

The conclusion from this section is that one cannot logically argue that markets insist on deficit reduction. Either the markets are rationally unworried about deficits, or they are acting irrationally right now, in which case they can hardly "insist" on anything.

9. In Reality, the US Government Spends First & Borrows Later; Public Spending Creates a Demand for Treasuries in the Private Sector.

As noted, the above argument is based on the common belief that the government must borrow in order to spend, and thus that the government faces "funding risks" in private markets. Such risks exist, of course, for private individuals, for companies, for state and local governments, and for national governments such as Greece that have ceded monetary sovereignty to a central bank. But the situation of the United States government is quite different.

The U.S. government spends (and the Federal Reserve lends) in a very simple way. It does so by writing checks -- in fact simply by marking up numbers in a computer. Those numbers then appear in the bank accounts of the payees, who may be government employees, private contractors, or the recipients of federal transfer programs.

The effect of government check-writing is to create a deposit in the banking system. This is a "free reserve." Banks of course prefer to earn interest on their reserves. Thus they demand a US Treasury bond, which pays more interest without incurring any form of credit or default risk. (This is like moving a deposit from a checking to a savings account.) The Treasury can meet that demand, or not, at its option -- it can permit, or not permit, the stock of US Treasury bonds in circulation to increase.

So long as U.S. banks are required to accept U.S. government checks -- which is to say so long as the Republic exists -- then the government can and does spend without borrowing, if it chooses to do so. And if it chooses to issue Treasuries to meet the demand, it can do that as well. There is never a shortfall of demand for Treasury bonds; Treasury auctions do not fail.

In the real world, the government creates demand for bonds by spending above the level drained by taxation from the system. The extent to which those bonds are held locally, or abroad (another common source of worry) depends on the US current account deficit. This also has nothing to do with approval or disapproval by foreign bankers, central bankers, or their governments of American deficit policy. A foreign country cannot acquire a US Treasury bond unless someone outside the United States has acquired dollars to pay for them, which is generally done by running a trade surplus with the United States. And when foreigners do acquire those dollars, then like domestic banks they prefer to earn interest, which is why they buy Treasury bonds.

Insolvency, bankruptcy, or even higher real interest rates are not among the actual risks to this system. The actual risks in this system are (to a minor degree) inflation, and to a larger degree, depreciation of the dollar. However at the moment there is wide agreement that a lower dollar would be a good thing -- against the Chinese RMB and now also the euro. So it is difficult to believe that the goal of deficit reduction per se serves any coherent, or presently desirable,
economic objective.

We can conclude that there is actually no economic justification for the target of reducing the primary deficit to zero by 2015 or any other date. The right economic objectives are to meet real problems, not those conjured from thin air by economists. Bringing about a rapid end to unemployment, caring properly for an aging population, cleaning up the Gulf of Mexico, coping with our energy insecurity and with climate change are all far more important objectives than reducing a projection of future budget deficits.

10. The Best Place in History (for this Commission) Would be No Place At All.

Most people assume that "bipartisan commissions" are designed to fail: they are given thorny (or even impossible) issues and told to make recommendations which Congress is free to ignore or reject. In many cases -- yours is no exception -- the goal is to defer recognition of the difficulties for as long as possible.

You are plainly not equipped by disposition or resources to take on the true cause of deficits now and in the future: the financial crisis. Recommendations based on CBO's unrealistic budget and economic outlooks are destined to collapse in failure. Specifically, if cuts are proposed and enacted in Social Security and Medicare, they will hurt millions, weaken the economy, and the deficits will not decline. It's a lose-lose proposition, with no gainers except a few predatory funds, insurance companies and such who would profit, for some time, from a chaotic private marketplace.

Thus the interesting twist in your situation is that the Republic would be better served by advancing no proposals at all.

Tuesday, July 20, 2010

Although defying appropriate economic theory... "The corporate establishment has made it clear that a 'strong recovery' depends on U.S. workers making 'great sacrifices' in the areas of wages, health care, pensions, and ... reductions in so-called 'entitlement programs' — Social Security, Medicare, and other social services."

Labor Fights Back for Living Wages, Jobs For All

by Shamus Cooke posted on Tuesday, 20 July 2010

If the U.S. economy eventually recovers and current trends continue, U.S. workers won’t be celebrating in the streets. The corporate establishment has made it clear that a “strong recovery” depends on U.S. workers making “great sacrifices” in the areas of wages, health care, pensions, and more ominously, reductions in so-called “entitlement programs” — Social Security, Medicare, and other social services.

These plans have been discussed at length in corporate think tanks for years, and only recently has the mainstream media begun a coordinated attack to convince American workers of the “necessity” of adopting these policies. The New York Times speaks for the corporate establishment as a whole when it writes:
“American workers are overpaid, relative to equally productive employees elsewhere doing the same work [China for example]. If the global economy is to get into balance, that gap must close.”
“The recession shows that many workers are paid more than they’re worth…The global wage gap has been narrowing [because U.S. workers’ wages are shrinking], but recent labor market statistics in the United States suggest the adjustment has not gone far enough.”
The New York Times solution? “Both moderate inflation to cut real wages [!] and a further drop in the dollar’s real trade-weighted value [monetary inflation to shrink wages] might be acceptable.” (November 11, 2009).
The business journal, The Atlantic, agrees:
“So how do we keep wages high in the U.S.? We don’t…U.S. workers cannot ultimately continue to have higher wages relative to those in other nations [China, India, etc.] who compete in the same industries.”
President Obama speaks less bluntly about the wage subject for political purposes, but he wholeheartedly agrees with the above opinions, especially when he repeatedly said:
“We must lay a new foundation for growth and prosperity, where we consume less [as a result of lower wages] at home and send more exports abroad.”
So how will Obama implement his economic vision that inspired Wall Street to give him millions during his Presidential campaign? Much of the work is happening automatically, due to the Great Recession. Bloomberg news reports:
“More than half of U.S. workers were either unemployed or experienced reductions in hours or wages since the recession began in December 2007… The worst economic slump since the 1930s has affected 55 percent of adults in the labor force…” (June 30, 2010).
Employers are exploiting fears of joblessness by demanding workers take wage cuts and reductions or eliminations in benefits. The millions of unemployed are giving corporations an excuse to slash wages, since desperate workers will work for almost anything.

Federal, State and municipal workers are being specifically targeted and blamed — especially teachers — by politicians and corporate groups. The state budget crises and the federal deficit are being used as reasons to demand that public employees take huge reductions in wages and benefits, for those who aren’t laid off. Laid off public workers then enter the private workforce where they are to compete with millions of other unemployed workers. Democratic politicians nationwide have recently agreed with Republicans of the “necessity” of state workers to make huge “sacrifices.”

Ultimately, years of Wall Street gambling and corporate greed in general have destroyed the U.S. economy, sending jobs overseas to exploit slave wages with the inevitable result of slave wages coming to the U.S. Decades of tax-cuts for the rich combined with overseas wars for profit have undermined the foundation of economic stability — and U.S. workers are being asked to foot the bill.

In the long-term, the U.S. economy will need to be re-structured, meaning that giant corporations cannot continue to dominate the economy for their personal profits. In the short term, U.S. workers will need to organize themselves to fight back. Alliances with Democratic politicians are no longer an option to stave off attacks from corporations, since the attacks are now coming from both sides of the two-party system.

Labor unions must work together with community groups to demand that the rich pay for the recession with higher tax rates. As AFL-CIO President Richard Trumka recently argued before Obama’s Deficit Reduction Commission: “We believe it is only fitting to ask Wall Street to pay to rebuild the economy it helped destroy.” And he called for higher taxes on the rich in general, pointing out that “effective tax rates applicable to high-income taxpayers (earning over $250,000 in 2009 dollars) reached their lowest level in at least half a century in 2008.”

U.S. workers have been forced to bear the brunt of the current economic crisis, though they had no part in causing it. Meanwhile, Wall Street is back to speculative trading and rewarding itself with big bonuses. It is time to turn the tables and start properly rewarding hard-working Americans. U.S. workers have sacrificed enough!

This October 2, SEIU Local 1199, the NAACP, and other progressive organizations are staging a march on Washington, D.C., calling on the government to create more jobs. The AFL-CIO has recently endorsed this demonstration and is actively building it. Other major endorsers include the California Labor Federation and the American Federation of Teachers. The SEIU president is predicting the march will be “massive – we believe historic.” It might prove to be the beginning of organized labor’s comeback.
Shamus Cooke
Shamus Cooke is a social service worker, trade unionist, and writer for Workers Action. He can be reached at

Sunday, July 18, 2010

The Paramount Function of the U.S. Congress Seems to Be to Assist the Super-Rich to Get Richer the Expense of All the Rest of Us.

Heirs of the wealthy escape estate tax
Congress allowed the tax to lapse this year, leaving Uncle Sam without a piece of the inheritance for the first time in nearly 100 years.

By Lisa Mascaro, Tribune Washington Bureau

3:46 PM PDT, July 16, 2010

Reporting from Washington

If you're rich, 2010 is a great year to die.

This is the year that Congress has allowed the estate tax to lapse, allowing heirs to receive their windfalls without Uncle Sam taking a cut for the first time in nearly 100 years.

A reminder came this week with the passing of billionaire New York Yankees owner George Steinbrenner.

The baseball titan's heirs are likely to escape about $500 million in taxes, experts estimate, a fortune that has spotlighted Bush-era tax policies and the long debate over whether government spending or tax cutting is best for a shaky economy.

"It is embarrassing that we have a zero estate tax for the wealthiest Americans at this point," railed Sen. Byron L. Dorgan (D-N.D.) this week on the Senate floor.

"We have about 400 billionaires in America. I believe four of them have died in this year," Dorgan said. "How about an estate tax for estates worth billions of dollars?"

Other recently deceased billionaires, cited by Forbes magazine, include California real estate developer Walter H. Shorenstein, Houston oil man Dan L. Duncan and a member of the Minnesota family that founded agricultural giant Cargill Inc.

As congressional Democrats have struggled to extend unemployment benefits for jobless workers, the Republican-led push for inheritance tax breaks could draw a divide between the parties heading into the fall elections.

But the line is somewhat fuzzy — several Democrats have joined the Republicans in advocating breaks for heirs.

The 2010 lapse is a quirk of tax law and Washington politics. Under then- President George W. Bush, the estate tax rate was lowered in 2001 from 55% to 45% and the amount an individual can pass on without incurring the tax went from $1 million to $3.5 million.

When it was approved, the tax was scheduled to expire at the end of 2009, then resume in 2011 at its previous, higher rate. Lawmakers deadlocked and never agreed on new legislation.

So heirs have received a brief reprieve before the tax roars back to life next year, and at the higher levels that had been in place before the Bush tax cuts.

Republicans have long held that tax cutting is the best way to stimulate the economy. They believe the estate tax — which they derisively call the "death tax" — is particularly onerous on small and family-run businesses.

Senate Republicans have found common cause with key Democratic allies, including Sen. Blanche Lincoln of Arkansas, who is in a tough reelection battle.

Lincoln and Republican Sen. Jon Kyl of Arizona introduced a measure this week to make next year's estate tax lower than it was in 2009, when it brought in $14 billion. They would like to offset some of that lost revenue, but have yet to identify how to do it.

Their position stands in marked contrast to the fight over unemployment benefits. On that matter, most Republicans demand budget cuts to offset the full $33.9-billion cost of the jobless aid.

"There's a difference between spending and taxes," explained Sen. Lamar Alexander of Tennessee, the No. 3 Republican in the Senate.

"If you're going to spend more, you have to have a revenue source or you run up the debt," he said. Reducing taxes, on the other hand, "basically reduces the amount of revenue we have to spend, and we should reduce spending by an equal amount."

This conversation is a prelude to a broader debate unfolding about the future of other Bush tax breaks that expire by year's end. President Obama has promised to keep only those for families making less than $250,000 annually. Kyl and Lincoln, meanwhile, are pushing for a vote on their measure.

Some type of inheritance tax has been around since the early days of the nation. The tax has been used primarily to finance wars, including the Civil War, and a more permanent version of the tax was established in 1916, according to the congressional Joint Committee on Taxation.

The 2001 reduction in the estate tax came at a time that seems unrecognizable today, those early days of the Bush era when the war in Afghanistan was not yet fully underway, the Iraq war had not begun, and the government ran budget surpluses. But during a wobbly economic recovery, the attempt to soften a blow to the wealthy may prove a tough sell.

Among tax planners, the whole issue has lent itself to a measure of gallows humor. When asked how Congress will resolve the issue, Steve Hartnett, of the American Academy of Estate Planning Attorneys in San Diego, says he pulls a Magic 8-Ball from his desk, turns it over and declares: "Hmm. 'Uncertain.' "

Copyright © 2010, The Los Angeles Times

Saturday, July 17, 2010

The REAL News interviews economist and specialist on white-collar crime, Bill Black, RE the $550 million fine levied on Goldman Sachs. A big punshment? No, it's equivalent to only 2 weeks of Goldman's profits ...and it is simply restitution to banks in Scotland and Germany, to whom it sold "toxic waste" that it knew was so worthless that it was betting money that this waste would "blow up" its customers. A prosecutable crime? Well, Goldman was compelled to admit only that it had "made a mistake."


William K. Black, associate professor of economics and law at the University of Missouri, Kansas City, teaches White-Collar Crime, Public Finance, Antitrust, Law & Economics. A former financial regulator, he held several senior regulatory positions during the S&L debacle. Black is the author of The Best Way to Rob a Bank Is to Own One (2005) which focuses on the role of “control fraud” in financial crises. Black developed the concept of "control fraud" — frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined.

Blogger's Note: Please read the article in the preceding post (below) to learn just how feeble the new Financial Bill soon to be signed into law by President Obama really is.

Robert Reich's Assessment the Newly Passed Finance Bill: "Mountain of Legislative Paper, Molehill of Reform"

New Finance Bill: Mountain of Legislative Paper, Molehill of Reform

by Robert Reich posted on Saturday, 17 July 2010

Thursday the President pronounced that “because of this [financial reform] bill the American people will never again be asked to foot the bill for Wall Street’s mistakes.”

As if to prove him wrong, Goldman Sachs simultaneously announced it had struck a deal with federal prosecutors to pay $550 million to settle federal claims it misled investor — a sum representing a mere 15 days profit for the firm based on its 2009 earnings. Goldman’s share price immediately jumped 4.3 percent, and the Street proclaimed its chair and CEO,  Lloyd (“Goldman is doing God’s work”) Blankfein, a winner. Financial analysts rushed to affirm a glowing outlook for Goldman stock.

Blankfein, you may recall, was at the meeting in late 2008 when Tim Geithner and Hank Paulson decided to bail out AIG, and thereby deliver through AIG a $13 billion no-strings-attached taxpayer windfall to Goldman. In a world where money is the measure of everything, Blankfein’s power and influence have grown. Presumably, Goldman can expect more windfalls in future years.

Although the financial reform bill may have clipped some of Goldman’s wings — its lucrative derivative business may require Goldman to jettison its status as a bank holding company, and the access to the Fed discount window that comes with it — the main point is that the Goldman settlement reveals everything that’s weakest about the financial reform bill.

The American people will continue to have to foot the bill for the mistakes of Wall Street’s biggest banks because the legislation does nothing to diminish the economic and political power of these giants. It does not cap their size. It does not resurrect the  Glass-Steagall Act that once separated commercial (normal) banking from investment (casino) banking. It does not even link the pay of their traders and top executives to long-term performance. In other words, it does nothing to change their basic structure. And for this reason, it gives them an implicit federal insurance policy against failure unavailable to smaller banks — thereby adding to their economic and political power in the future.

The bill contains hortatory language but is precariously weak in the details. The so-called Volcker Rule has been watered down and delayed. Blanche Lincoln’s important proposal that derivatives be traded in separate entities which aren’t subsidized by commercial deposits has been shrunk and compromised. Customized derivates can remain underground. The consumer protection agency has been lodged in the Fed, whose own consumer division failed miserably to protect consumers last time around.

On every important issue the legislation merely passes on to regulators decisions about how to oversee the big banks and treat them if they’re behaving badly. But if history proves one lesson it’s that regulators won’t and can’t. They don’t have the resources. They don’t have the knowledge. They are staffed by people in their 30s and 40s who are paid a small fraction of what the lawyers working for the banks are paid. Many want and expect better-paying jobs on Wall Street after they leave government, and so are shrink-wrapped in a basic conflict of interest. And the big banks’ lawyers and accountants can run circles around them by threatening protracted litigation.

Why do you think Goldman got off so easily from such serious charges of fraud?

Reliance on the discretion of regulators rather than structural changes in the banking system plays directly into the hands of the big banks and their executives and traders who contribute mightily to Democratic and Republican campaigns. The flow of money virtually guarantees that regulatory agencies won’t be adequately staffed to enforce the law, that penalties for violations won’t be overly onerous, and that all loopholes (what’s a “derivative”? what has to be listed on exchanges? exactly how much capital must be on hand for which transactions? How are the various forms of predatory lending to be defined?) will be easily stretched in future years. Wall Street lawyers will have a field day. The profit-for-nothing sector of the economy (law, accounting, finance) will continue to grow buoyantly.

Make no mistake: As long as there’s no fundamental change in the structure of Wall Street — as long as the big banks stay as big and are allowed to grow bigger, and have every incentive to invent new financial gimmicks with which to bet other peoples’ money — they will remain too big to fail, and too politically powerful to control.

Goldman’s share price, as well as those of JP Morgan Chase, Citicorps, Morgan Stanley, and Bank of America, will no doubt soar the basis of the final bill because their future profits are almost guaranteed. The pay of their executives and traders, and of the managers of hedge funds and private-equity funds they deal with, will likewise accelerate. In the short term the economy will benefit, at least to the extent financial entrepreneurship is now the apex of American wealth and innovation. But over the longer term we will be much weaker for it.

Congress has labored mightily to produce a mountain of legislation that can be called financial reform, but it has produced a molehill relative to the wreckage Wall Street wreaked upon the nation.

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  and iTunes.

Thursday, July 15, 2010

Arizona Microcosm: If you think an election was stolen and you spend thousands of hours gathering the evidence and pursuing the matter through the courts, all your efforts may be foiled by your state's Attorney General...even if he is a Democrat!

- Special investigative report by Brad Friedman, The BRAD BLOG

The mystery surrounding a long-questioned and allegedly "fixed" non-partisan 2006 Regional Transportation Authority (RTA) bond election in Pima County, AZ continues to deepen as troubling new details have now emerged. The resolution in this matter --- should it ever come --- could spell trouble for supporters of paper-based optical-scan electronic voting systems, since indications are that if the election was rigged, it was done with insiders via the electronic central tabulating computers.

Late last week another new twist was discovered in the years-long election fraud investigation by Democratic and Libertarian Election Integrity advocates in Tucson. The revelations come to light in what was thought by many to have been a settled election, at last, following a long-sought hand-count of paper ballots carried out last year by the office of AZ's Democratic Attorney General Terry Goddard. The AG had announced in April of last year that his criminal investigation hand-count had "affirmed" the original results of the election were correct.

As it turns out, The BRAD BLOG, which has been covering this bizarre matter for years, plays a small roll in this latest development, as a promise that Goddard's office made to us last year concerning the "poll tapes" --- remarks which he was asked about during a press conference at the end of the hand count [see the remarks on video below] --- may have now boomeranged on him.

Given that Goddard is now the likely Democratic nominee to face Republican Gov. Jan Brewer in this fall's Gubernatorial race, this revelation couldn't have come at a much worse time for him.

After many years of litigation, Election Integrity advocates have now finally been allowed to review the long sought-after poll tapes in question. What they've discovered is disturbing and, so far, without legitimate explanation.

Out of 368 precincts, 112 poll tapes are completely missing. Moreover, 102 of the "yellow sheets" --- certified precinct reports, signed by poll workers, detailing corresponding summary information, such as numbers of ballots received, cast and spoiled, as helpful for important auditing functions at the precinct level --- are missing as well.

Furthermore, of the poll tape records that are not missing, 50 of them do not match the results as recorded in the final canvas of the election, according to the Election Integrity advocates who have compared them to the original electronic database numbers...

The background, the anomalies, the whistleblower and the 'fixed' election

Some background is in order to explain the significance of the rather disturbing new discovery in the case, which we revealed in an on-air exclusive late last week during an interview with Pima County, AZ attorney Bill Risner while guest hosting the nationally-syndicated Mike Malloy Show. [Audio of the complete interview with Risner is available at the end of this article.]

Without getting into too many of the weeds -- and there have been many along the way -- the RTA bond measure, or ones like it, had been on the ballot several times in Pima, and had always been defeated. In 2006, however, the initiative was said to have finally passed. Ironically, at least in hindsight, the Democratic Party had actually supported the measure at the time in order to help see new roads built in the Tucson area.

The election was run in Pima County (Tucson) on Diebold's paper-ballot based optical-scan machines, the same ones seen being hacked in HBO's Emmy-nominated 2006 documentary Hacking Democracy (video of that hack here). Election Integrity advocates from AUDIT-AZ (Americans United for Democracy, Integrity and Transparency in Elections - Arizona) and became suspicious about the election results after the measure had passed, and set about investigating various red flags in the contest.

Along the way, with Risner representing the county's Democratic Party, they were successful in securing the landmark release of Diebold's so-called "proprietary" databases from the race. The databases purport to show how votes were recorded and who may have accessed electronic tabulators at various times. In the course of that victory, it was discovered that county election officials had been printing out results of the race prior to Election Day, in violation of state law, and were perhaps even manipulating the databases themselves.

For years, Goddard refused repeated requests by the Democrats to hand-count the paper ballots from the election to assure the machine reported results were correct. The ballots had been held for some time by the Pima County Elections Division, and then in a supposedly secure, deep storage facility run by the Iron Mountain firm.

As the controversy roiled, and an official investigation by the AG found various concerns in the race, in the machines and with the county's security procedures, a former county official filed a startling affidavit in July of 2008. He alleged that he'd been told by Pima County Elections Division programmer Bryan Crane that he had "fixed" the RTA election "on the instructions of his bosses."

One of his bosses, Pima's Election Director Brad Nelson, had gained infamy at The BRAD BLOG some years earlier with his bizarre, video-taped outburst at a community meeting in response to questions by Pima County Election Integrity advocate John Brakey. Brakey had asked Nelson about Diebold touch-screen systems which the state had just purchased for use by disabled voters when Gov. Jan Brewer had served as Secretary of State. That video, which we fondly refer to as "Election Director Gone Wild" can be seen at right. (Nelson would later begrudgingly apologize for the outburst when asked about it by a local TV news channel.)

Even after the county whistleblower had come forward to allege he'd been told the election was "fixed" on the instructions of election officials, Goddard still refused the Democrats' newly re-iterated pleas to hand-count the paper ballots to determine whether the results, as reported by the potentially-manipulated electronic central tabulator, matched the hand-marked paper ballots as voted on Election Day in 2006.

Given that they had no way to hand-count the ballots on their own (only AG Goddard had the legal authority to call for a hand-count as part of a criminal investigation by that time), and that a judge had ordered the ballots --- long held at Iron Mountain pending the litigation --- could soon be destroyed, Risner filed a motion in court [PDF] requesting to review the "poll tapes and yellow sheets", supposedly stored inside the boxes along with their corresponding paper ballots at the storage facility.

The poll tapes are paper records printed by the precinct-based optical-scan machines at the close of polls, showing exactly what was scanned and what the results of that scan were before those numbers are sent to the central Diebold tabulator at county election headquarters.

Goddard's hand-count failed to examine poll tapes as promised

In February 2009, within days of the legal attempts to gain access to the poll tapes, and without notifying the Democrats who'd requested them, Goddard suddenly removed all of the ballots and poll tapes stored in the boxes with them in Tucson, and whisked them up to Maricopa County (Phoenix) after, he says, he suddenly determined that a criminal investigation merited a complete hand-count of the ballots.

As the Arizona Daily Star reported on February 13th, Goddard said there was no basis for him to hand-count the ballots. State law, he said, doesn't allow for hand-counts simply out of "curiosity".

On February 18th, attorney Risner informed Goddard in a letter [PDF] of the party's attempt to examine the poll tapes.

And on February 23rd, Goddard's office suddenly announces they'd received a "secret court order", to remove the ballots from Pima to examine them in Maricopa.

"There were suspicions that went in all one direction that could not be explained," Goddard would later tell the media after the hand-count had been completed in April. "There wasn't a credible explanation for all of the different coincidences that seemed to have happened on this particular election."

Though Goddard's office had claimed the counting would be done publicly, observation was strictly limited to just a few observers from the various political parties who had to be specifically approved by the AG.

As the count proceeded, the AG's Press Secretary, Anne Titus Hilby, told The BRAD BLOG directly that the poll tapes would be examined as part of their investigative hand-count. The Election Integrity advocates wanted them examined to make certain that the ballots themselves --- which had been stored at various times at both the Pima County Elections Division (with the "Suspects", as Risner has described them) as well as at the Iron Mountain facility --- hadn't been manipulated and that they matched the poll tapes as printed on Election Day.

"Do we plan to examine those?" Hilby responded directly to our questioning by phone, "Yes, we're examining all of the evidence seized, including the poll tapes."

That, however, would not be the case.

At his press conference following the count, announcing that the hand-count had affirmed the original tally (with a few exceptions he believed to be minor), he was asked about the promise his office had made to The BRAD BLOG to examine the poll tapes.

As seen in the short video below, compiled by filmmaker J.T. Waldron, who has documented the years-long fight in Pima County in the recently-released documentary Fatally Flawed: The Pursuit of Justice in a Suspicious Election, Goddard threw his Press Secretary Hilby under the bus. "She did not have the authority" to promise poll tapes would be examined along with the thousands of ballots at the Maricopa County counting room, Goddard explained.

His bizarre responses to those who'd pressed him at the press conference --- perhaps much more bizarre in light of the recent discovery of so many missing and mis-matching poll tapes --- are worth watching to get a full appreciation of his comments in response to the concerns expressed to him at the time...

"Why would we count a poll tape?," Goddard said at the presser, as seen in the clips above. "I mean, I don't see how they are relevant to the hand-count."

"The final evidence of the election are the ballots themselves," he told the assembled citizens and media, apparently oblivious to the need to confirm the possibility of ballot manipulation by the "Suspects" in his own criminal investigation.

"The poll tapes are a different picture of the same process," he said, telling a reporter, to the amazement of the activists, that counting ballots is enough and that he didn't see how examining poll tapes would have any relevance to his investigation.

Unanswered questions, missing evidence and more red flags

The Pima County Election Integrity Advocates continue to be skeptical about whether the chain of custody for the 2006 ballots had been truly secure by the time Goddard performed his hand-count in 2009, or if the Pima election officials --- the "Suspects" alleged by affidavit to have "fixed" the election --- might have had the means, motive and opportunity to manipulate the ballots in order to cover their tracks.

In fact, as the EI folks pointed out during the hand-count --- while being ignored by Goddard --- the county had long ago purchased a "print on demand" ballot printer that can print ballots virtually identical to those used on Election Day in 2006. The actual original ballots, however, were printed by an offset printing press which, if compared under a microscope to the high-speed laser-printed "print on demand" ballots, offer tell-tale differences. Such a forensic examination of the ballots being counted by Goddard, might have revealed that original ballots had been replaced.

When Goddard was asked about such a forensic examination at the 2009 post-hand-count presser, he admitted that, despite the requests, he had carried out no such examination to determine the authenticity of the ballots.

"Did you do any forensic checks of the ballots to make sure they were real, period 2006 ballots?," asked Jim March of at the press conference.

"No," the AG tersely replied.

One full year of litigation later, and the EI advocates have now finally gotten access to the poll tapes they'd sought more than a year ago, the ones which were stored in Iron Mountain.

"30% of the poll tapes are missing," Risner told us during our live interview with him on the Malloy Show last week. "They simply are not in the boxes. And that's compared with the last election we had in Pima County. Some citizens asked for copies of the poll tapes and they were all there --- 100% of them were there."

Risner says that prior to Goddard's having swooped in to take the ballots out of Pima last year in advance of the hand-count, they had explained to him the significance of reviewing the poll tapes.

"We told the attorney general's office that if we look at the poll tape, there would be clues on it that would tell us whether they had used the machines to fraudulently program [the election]," Risner explained. "That's when he grabbed the ballots."

Brakey and March's examination of those poll tapes which are not missing, show that some 50 of them do not match the numbers in the Diebold electronic databases. They say that many of the places where numbers don't jibe are the same places where their initial analysis of those databases --- the ones they received after their long court battle to get access to them more than two years ago --- are the same places where red flags were seen, such as precincts where memory cards appear to have been uploaded multiple times, for reasons still unknown.

"A significant portion of missing poll tapes had corresponding anomalies in the electronic data records," documentarian J.T. Waldron told us. "It's naive to think that electronic records would be manipulated without some measure to cover tracks by either creating a new paper trail or removing the one that exists."

The investigators say they are eying questionable findings from, among other places, precincts in a small township north of Tucson, called Oro Valley.

When asked if he could offer any legitimate reason that the poll tapes would now be missing, Risner was blunt: "Yeah. They're possible evidence that the election was rigged."

Goddard's press office responded to The BRAD BLOG's request for comment just prior to publication of this article. However, new Press Secretary Molly Edwards informed us she'd need time to look into the matter and into our detailed questions on the missing and mismatched poll tapes and yellow sheets, on whether or not the materials were there and/or accounted for when they performed their hand-count last year, and other related matters. We will update this article with whatever responses we receive from his office.

'Immaculate' perceptions and 'Not the end of the story'

So was the election rigged? Have all these questions been those of a bunch of conspiracy theorists? Even AG Goddard himself, now set to be the state's Democratic candidate for Governor this November, had previously noted that "there wasn't a credible explanation for all of the different coincidences that seemed to have happened on this particular election." He even later conceded to the Associated Press that the paper-based optical-scan systems used in Tucson --- and in virtually every state in the nation, by the way --- "are very, very bad."

We still don't know all the answers, and the EI advocates promise more news to come as their investigation presses forward. But the fact remains that when we don't bother to actually count paper ballots and rely instead on electronic scanners which may or may not be accurate, which may or may not have been manipulated, all of these questions continue to persist and the legitimacy of American democracy itself is further drawn into question.

The corporate media, however, would like to see things differently. After Goddard's hand-count last year "affirmed" the original results --- out of some 120,000 ballots reviewed, the count was off by "only" 600 votes or so, according to the AG --- local media declared the mysteries surrounding the 2006 RTA election to be at an end. All was well again in Pima County's democracy.

"It's over. Done. Finished. Finis. Terminado. The state Attorney General's Office hand count of the ballots from the 2006 regional transportation authority election affirmed the initial results," the Arizona Daily Star pronounced in an unbylined April 23, 2009 editorial.

"Let that be the final word," the paper pleaded, before offering a familiar, condescending refrain for Election Integrity advocates: "It's time to move on."

For good measure, they even used the "c" word: "Conspiracy theorists will probably remain unconvinced that Pima County is vindicated."

The Star editorial, hoping to quell concerns, uncritically quoted Goddard saying that "the chain of custody was immaculate."

How "immaculate" was that chain of custody? The Election Integrity advocates have discovered that the facility at Iron Mountain wasn't as secured as they'd originally been told.

"Our County Manager had instructed the County Attorney to tell Iron Mountain that no one could approach those boxes," Risner told us last week. "But in our recent poll tape case, the Iron Mountain guy said 'no one ever told us that, and our customers, the county, could always come in to these boxes'."

The county "could always come in to these boxes"?! Did they?

Risner doesn't yet know. "That's the next step in the lawsuit. I'm going to ask for permission to get that information from Iron Mountain," he said. "It's not the end of this story."

Pima County, it should be noted, still employs the same elections personnel who ran the 2006 election. They are still operating, as Waldron says, "with impunity."

To date, neither the Arizona Daily Star, nor any of the other local papers who declared the RTA election settled and done after last year's hand-count, have bothered to report on the newly discovered 112 missing poll tapes, 102 missing yellow sheets, and 50 poll tapes that don't match the original count.

• Special thanks to J.T. Waldron for his contributions to this article.
• See this February 18, 2009 letter [PDF] from Risner to Goddard for much more detail on the back story.

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Our interview with Pima County trial attorney Bill Risner, as heard live on the Mike Malloy Show last week, on July 8th, 2010, may be downloaded here [MP3], or listened to online below [appx 30 mins]...