Abusing Economics

Solyndra Loan Drama Overblown

2011-10-04T13:58:00.000-07:00

"Many have cautioned that the drama around Solyndra is overblown. The Solyndra loan represents just 1.3 percent of the $39 billion in loans that the loan-guarantee program has generated thus far, and only around 3 percent of the total loan guarantees targeting the solar industry. The fact that Solyndra received up to $1 billion in private sector banking alone would suggest that leaders at the DOE weren't the only ones who saw promise in the technology."

And meanwhile China is giving it's companies HUNDREDS of billions.

http://www.huffingtonpost.com/2011/10/03/obama-solyndra-loan_n_993085.html

#OccupyWallStreet

2011-09-29T14:18:00.000-07:00

I have never witnessed a protest geared directly toward my individual concerns about economics. Usually protests by Progressives are directed toward social issues, and as allies, for sake of solidarity, I might participate.

But what is going on in New York City right now seems to be targeted directly toward issues I personally care a lot about. I have visions of it being the '68 Democratic Convention for our time, after 10 years of pent up disappointment (instead of 2-4 years back then).

Define Rich

2011-09-19T16:20:00.000-07:00

Define Rich

Part I

Part II

Part III

The Effect of Individual Income Tax Rates on the Economy

2011-09-19T16:03:00.000-07:00

The Effect of Individual Income Tax Rates on the Economy
Part 1
Part 2
Part 3
Part 4
Part 5
Part 6
Part 7

What They Don't Teach Economists: Hamilton

2011-05-31T15:49:00.000-07:00

Google Hamilton's famous phrase and "macroeconomics" and you will get less than a page of links:
"the powerful cement of our Union" + macroeconomics

Hamilton felt that the Federal government would not be able to borrow money from anyone in the future if these debts were not paid. By selling bonds to pay the debt, bondholders would have a direct financial interest to help the new United States government survive and thrive. Creditors who purchased the bonds could use them as collateral for loans, stimulating the economy even more.
...
He also reckoned that failure to establish the creditworthiness of the Federal government would weaken the United States, and called a permanent, reasonably-sized public debt "the powerful cement of our Union."

Like it or not, the idea worked.

http://en.wikipedia.org/wiki/First_Report_on_the_Public_Credit

Wall Street Journal 100% Tax Hoax

2011-04-22T12:25:00.000-07:00

A reader writes:

The Wall Street Journal notes, if you taxed everyone who makes over $100,000 at a rate of 100 percent, you still wouldn’t raise enough to balance president Obama’s budget, never mind pay off any debt.
I feel like there is something wrong with this statement... am I wrong?

WSJ link: http://online.wsj.com/article/SB10001424052748703730104576260911986870054.html

Well without even going further, he's saying the current TAXABLE income...
13,215,000 Americans earn more than $100k a year...

Seems they are ASSUMING THAT ALL OF THEM ONLY MAKE $100k, and no more.

6% of the US pop makes more than $100k. The top 1% of income earners alone accounts for almost 50% of all income. All income in the US is on the order of $14 trillion. So without going any further, 100% of the income (NOT WEALTH which is WAY WAY higher) of the top 1% (who earn MUCH MORE THAN $100k) would amount to roughly $7 TRILLION DOLLARS.
(and WSJ is alleging that the top 6% don't make even $1.4 Trillion)

If you want to be on the safe side and eliminate capital gains from the discussion (which pretty damn conservative given that a HUGE proportion of the top income earners income comes from capital gains), then you can work with the top 10% of income earners, who earn 45% of all income...
(see fig 1 tab in Excel spreadsheet linked to below)
which gives you about $6 Trillion.

Since $100k income earners are top 5%, you can very safely say that (ignoring capital gains, which account for more than half of actual income earned by top dudes) they earn $3 Trillion a year.

Sources:
Saez, E. & Piketty, T. (2003). Income inequality in the United States: 1913-1998. Quarterly Journal of Economics, 118(1), 1-39.
data at: http://elsa.berkeley.edu/~saez/TabFig2005prel.xls

Census data:
http://pubdb3.census.gov/macro/032006/hhinc/new06_000.htm

24 Economists Were Asked What They Thought the US Wealth Distribution Was

2011-03-09T10:21:00.000-08:00

And every single one got it wrong. By an order of 7x.

Michael Norton of Harvard Business School, surveyed two dozen academic economists to check their findings. The pros got it wrong, too, although they did better than the random sample of Americans. The economists estimated the poorest two quintiles owned about 2 percent of wealth, seven times their actual share.

United in Our Delusion - David Cay Johnston

James O'Keefe Can Suck It

2011-03-09T10:14:00.000-08:00

Please, if you are going to be cognizant of the Ron Schiller "sting fail", watch the entire uncut video, which has been posted online (kind of surprisingly by O'Keefe himself, a strategic feint I suppose). Schiller says NOTHING wrong...surprise???

The most outlandish thing he says is that he is a registered REPUBLICAN. Yes, the head of fundraising at NPR is a Republican.

America is not broke. Check the other pocket.

2011-03-07T14:32:00.000-08:00

Conservative Forbes Magazine Says Leave Obamacare Alone

2011-01-07T15:29:00.000-08:00

Rick Ungar, policy analyst for Forbes magazine, says:

"If these small businesses found the new law to be so onerous, why have so many of them voluntarily taken advantage of the benefits provided in the law to give their employees these benefits? They were not mandated to do so. And to the extent that the coming mandate obligations might figure into their thinking, would you not imagine they would wait until 2014 to make a move as the rules do not go into effect until that time?
Of course, there is the nagging banter as to how Obamacare is leading us down the road to socialism.

Let it go, folks."

Will the GOP listen? Boehner is not. If you love your country, you will share this article far and wide as fast as you can before it is too late.

http://blogs.forbes.com/rickungar/2011/01/06/more-small-businesses-offering-health-care-to-employees-thanks-to-obamacare/

Krugman: Recognizes the Earth Has Shifted

2010-11-30T09:57:00.001-08:00

Both validating and frightening at the same time when mainstream press finally realizes the earth has shifted.

"My sense is that most Americans still don’t understand this reality. They still imagine that when push comes to shove, our politicians will come together to do what’s necessary. But that was another country." - Paul Krugman, Novemeber 22 2010.

http://www.nytimes.com/2010/11/22/opinion/22krugman.html

Top Tax Rates and Federal Debt 1950-2008

2010-11-19T13:34:00.001-08:00

Patriotic Millionaires

2010-11-19T11:47:00.000-08:00

From the Fiscal Strength project:

Only 375,000 Americans have incomes of over $1,000,000

Between 1979 and 2007, incomes for the wealthiest 1% of Americans rose by 281%

During the Great Depression, millionaires had a top marginal rate of 68%

In 1963, millionaires had a top marginal tax rate of 91%

In 1976, millionaires had a top marginal tax rate of 70%

Today, millionaires have a top marginal tax rate of 35%

Reducing the income tax on top earners is one of the most inefficient ways to grow the economy according to the non-partisan Congressional Budget Office

44% of Congress people are millionaires

The tax cuts were never meant to be permanent

Letting tax cuts for the top 2% expire as schedule would pay down the debt by $700 billion over the next 10 years

Also see http://www.salon.com/news/opinion/joe_conason/2010/11/18/millionaires

Why Party Matters

2010-11-12T13:53:00.000-08:00

Just found this fantastic post by Kel Munger explaining what I feel very strongly about: despite idealistic dreams to the contrary, the political party matters way more than the individual candidate.

Her original post is:
Why the party matters in elections

Why the party matters in elections

I’ve got a lot of friends who are insistently independent. It’s one of the things I love about them–the way they demand the right to make up their own minds, first and foremost. But when that “independence,” including their identity as “independent voters,” is tied to an election, well, I kinda want to give a civics lesson.

So for all you dear friends who "vote for the person, not the party,” here’s why I think that’s a much more idealistic (and possibly harmful) position than you seem to realize.

First—and while they’re teaching about the three branches of government and the electoral college in civic class, they rarely mention this—we have a two-party system. These days, it’s the Democratic Party and the Republican Party. We’ve had Whigs, too, and we started with the Federalists and the Anti-Federalists. You can read all about it here.

But since much of the business of government is conducted by elected officials, and elected officials represent the parties on whose tickets they ran as much as they do the voters who elected them, we also have things like caucuses. The ones we need to be concerned with here are the “informal meetings” that all the members of a party, or a sub-group of that party, attend—at which they decide their strategy for legislation.

And that, my friends, is why it makes a difference which party you vote for: We have a winner-take-all two-party system, and the party in the majority is the one that sets the agenda and makes the rules. The minority party can only force compromise by blocking the agenda of the majority party, and this has been the rule in the last three decades, since the Reagan Revolution.

Yeah, we’ve always been a partisan nation, but the neo-conservative movement, especially the politics of people like Grover Norquist, Lee Atwater and Karl Rove, has been as bad as anything since the Civil War. The first thing you’ll notice about those guys is that none of them was a candidate or elected official. They have been, instead, the political operatives. And, while they have their counterparts on the Democratic side of the aisle—James Carville, David Axelrod—the Dems have never been as successful at staying on-message and fighting hard and dirty. And yes, the Dems take a lot of money from the same people who fund the Republicans; it’s just that the Republicans take nine times more of it (and that’s from the Independent Voters Network).

So let’s say the two candidates in your Congressional district are, hypothetically speaking, a jackass idiot of a Democrat who can’t tie his shoelaces by himself and never worked a day in his life and a very nice, small businessman, moderate Republican. Who are you going to vote for?

Well, if you’re one of my friends, you’ll vote for the man, not the party—and that man happens to be a Republican.

The trouble is, it might be the wrong choice. Because that moderate Republican is going to be a junior Congressman in a system that is run by the parties. No matter what he thinks or cares about, he will either bow to the party’s agenda or he will get no support for re-election and he’ll face a primary contest from the right.

And that asshat Democrat? He, too, will be in a Congress that is run by the parties. Because he’s a Democrat, he’ll have some friends—the Blue Dog Democrats—and while he’ll get a chance to speak his mind, he will also be fairly quickly brought into line with the party’s agenda.

That’s why they call ‘em whips, folks.

And that’s why party matters. The party that’s in control of Congress also controls the agenda.

So what agenda are you voting for? It pays to know. You can read the party’s official platforms, Democratic and Republican.

In my perfect world, we’d have public campaign financing and limits on campaign spending; a limited campaign season; a return to the Fairness Doctrine; Instant Runoff Voting; and a multi-party system that required coalition building to form governments.

Under those circumstances, I’d probably be a Green or a Democratic Socialist. But that’s not the world we live in.

In the world I actually live in, it makes a great deal of difference to me which party is in power. Do I want the party that has consistently at least given lip service to equality for LGBT people; that has defended women’s access to reproductive health care, including abortion when necessary; that at least tries to restrict corporate power and that supports some modicum of environmental legislation?

Or do I want the party that has expressed, as its main goal, to make sure that President Obama only gets one term?

Yeah, go ahead; start screaming about how liberal I am. No one is surprised. Just don’t pretend that you’re an independent if you always vote for the same party’s candidates, and don’t pretend that it makes no difference. There is a big difference between the two parties. One of them is organized, on-message, and out to roll the clock back to the McKinley Administration. (Curious about what that means? I’ve attached a .pdf copy of William Greider’s article on this subject to the post.)

The other is the Democratic Party. I don’t always like ‘em. I think they’re too damn timid and they don’t know how to stand up for themselves and for cryin’ out loud, can’t they communicate? I criticize ‘em a lot. But in the races where party counts—state and federal offices and legislatures—that’s how I’m voting.

Attached document: William Greider's article "Rolling Back the 20th Centruy" from The Nation, May 2003:
rb20thcentry.pdf

::posted by Kel Munger @ 2010-11-01 5:10 PM

Social Security: Lies You Accepted As Fact

2010-11-12T12:24:00.000-08:00

Usually used in reference of how great modern times are, what with new technology and medicine, enlightened concepts of nutrition and personal hygiene, the old adage about how life expectancy has increased so much in the past century really grates my nerves . The statistic is skewed because of child mortality. People hundreds of years ago were just as able to live to a ripe old age as nowadays. Yet you'll often hear how back in the 1700s you'd be dead by the time you turned 50, or in "cave man" times, the number was 30 (invoked when talking about dental health and podiatry). But lately I've at least seen one mainstream acknowledgement of this skewing (which I didn't even know was actually a lot more comparable to modern times before a huge dip it took during the Industrial Revolution).

Sometimes it is used in a Mathusian sense, to explain the oncoming crisis of society having to take care of elderly now living many more years. And this is precisely where it starts to become less a mere annoyance and more a deliberate lie. Paul Krugman points this out in today's piece on the Budget Deficit Commission, which recommends raising the retirement age:

...working until you’re 69, which may sound doable for people with desk jobs, is a lot harder for the many Americans who still do physical labor.

But beyond that, the proposal seemingly ignores a crucial point: while average life expectancy is indeed rising, it’s doing so mainly for high earners, precisely the people who need Social Security least. Life expectancy in the bottom half of the income distribution has barely inched up over the past three decades. So the Bowles-Simpson proposal is basically saying that janitors should be forced to work longer because these days corporate lawyers live to a ripe old age.

Paul Krugman's full Op-Ed is here: http://www.nytimes.com/2010/11/12/opinion/12krugman.html

UN Report is Causing Reverberations

2010-11-11T12:36:00.000-08:00

First, it refutes mainstream Economics, and without attribution, makes the same observations of one Karl Marx. This blogger does a good job of pointing that out:
http://nationalpoliticaleconomy.blogspot.com/2010/10/golden-calf-of-globalization.html

Second, it states that humans produce more stuff than they can afford to buy (I always had the feeling a lot of my job was make-work and we only have to put in 40 hours to
differentiate the deserving from the undeserving), and until now, the US has
bought most of that stuff (Americans being the Consumer of Last Resort). But since the richest Americans started hoarding all the wealth in the US, Americans will no longer be able to buy up all those exports from the rest of the world. So, the report warns all those developing countries to start sharing the goods.

The UN Report is here:
http://www.unctad.org/Templates/webflyer.asp?docid=13756&intItemID=1528〈=1

Gold Standard

2010-11-10T14:49:00.000-08:00

I hear some say "Return to the Gold Standard!"
Doesn't that make sense? Who ever let our government get away with moving off the Gold Standard (it was Nixon, btw) ? There are many issues involved, but I think I can offer up at least one kind of summary.

The bottom line is that a Gold Standard essentially limits how much a government can use monetary policy as an instrument of tweaking the economy. The tools a non-Tea Party government has at its disposal to "jump start a lagging economy" (that's the official technical term used on Econ exams...) are Fiscal and Monetary. Fiscal is having the government buy a few glasses of lemonade from the local kid to keep his spirits up and give him a little spending money himself with which to buy some sugar from Billy the sugar grower and Leona the lemon hoarder. Monetary policy is where the government can give freshly printed money to banks for just about free so that banks will have more with which to make loans to Billy so he can stock up on more sugar...though that is useless if no one is buying lemonade....

Of course, too much Easy Money via monetary policy can lead to high inflation if it backfires. And the worst thing for Rich People With Lots of Money Lent Out Everywhere is inflation ('cause by the time the borrowers pay back the loans, the money is worth significantly less). So some Rich People tend to be for a Gold Standard.

But some Rich People are for Easy Money, since its a win win deal for the Banks they might happen to own, and they'd rather Billy be forced to take out a loan from them than get a windfall in customers courtesy of Uncle Sam.

Nonetheless, having the Gold Standard ties Government hands to help the economy, so it accords well with Market Zealots.

For some discussion on this in the NY Times, see :
http://www.nytimes.com/roomfordebate/2010/11/09/back-to-a-gold-standard

Excerpt from "A New Economics for the 21st Century"

2010-11-05T21:09:00.000-07:00

Neva Goodwin writes:

The critical role for economic theory is no longer simply to explain how the existing system works, but also to explore how the economic system can be changed to become more adaptive and resilient in the face of the challenges of the 21st century, and how it can be more directly designed to support human well-being, in the present and the future.
...

The economic theory that was accepted as standard in the non-communist world during the second half of the twentieth century erects serious impediments to meeting the challenges of the twenty-first century. These impediments include:

1. Inappropriate goals: standard economic theory prizes wealth creation above all, and most often defines this goal in terms of steadily growing GDP – instead of focusing on what economies should really produce, which is human well-being, in the present and the future.

2. A bias toward monetary values: application of cost/benefit analysis or a focus on narrow measures of economic success often lead to an effort to apply monetary measures to human values, such as dignity, health, or fairness. The focus on what can be submitted to the measure of money leads to an overemphasis on formal markets, and pays insufficient attention to essential unpaid economic activities.

3. Difficulty in dealing with the future: the standard use of discounting often leads to conclusions that make future concerns appear less significant than they are.

4. A de-contextualized view of the economy: economic systems are viewed as operating in a vacuum, without regard for the critical ways in which the economy affects, and is affected by, its ecological and social contexts.

5. Bias toward the status quo: a number of tools and concepts used in economic analysis accept the existing distribution of resources as “given” – not really up for discussion. These include the concepts of Pareto optimality, aspects of the Coase theorem, and a focus on aggregate growth indices at the expense of disaggregated inequality indicators. The strong assumptions of rationality at the root of the theory often are used to assert that the existing system is the best possible; if it could have been made better, it would have. (This is the basis for the joke about the economist who walks past a ten dollar bill lying on the sidewalk. When asked why, he says “it couldn’t have been real; if it were, someone would have already picked it up.”)

6. Bias against the public sector and in favor of markets: economists, business people and politicians have joined in a chorus of disparagement against government, buttressed by an increasingly blind, but fervent, belief that markets can solve all problems. In fact, while markets can be a part of the solution to many human needs, they rarely can be the whole solution. Markets need boundaries, rules, and safeguards against their internal tendency toward concentration of power and their lack of internal motivation to work for the wider good. In many situations markets are, in fact, the problem. Some attention to environmental concerns has led to the idea that, if there are market failures, they can be corrected by internalizing externalities. It needs to be emphasized that market actors have no inherent incentive to do this: that incentive has to come from outside the market system.

7. Methods of analysis that exclude non-economists: Students, policy makers, and other citizens frequently complain about economists’ increasing reliance on highly mathematized modeling techniques. These require extreme simplifying assumptions – such as perfect competition, perfect information, and complete markets – and create a mindset reluctant to grapple with issues that are not amenable to such modeling. Meanwhile, the very sophistication of the mathematics used in these models means that fewer and fewer people can participate in an ever more obscure – and less relevant – discourse.

From The New Economics Institute

Wealth Condensation

2010-11-03T16:52:00.001-07:00

The number one reason I'm a Democrat? Wealth condensates. It really is quite simple. Due to the "magic" of compound interest, wealth will continue to follow a power law distribution without bounds. I'm not sure how, but in America, the aversion to inequality gets quite easily subverted. I think I'll conduct a poll to see if Americans know what the per family wealth would be if you evenly divided the entire net wealth of the nation, just for kicks, among every family. Its quite easy to figure out, but we'll see how off and in what direction most respondents are.

Chandler, Arizona Elections: Vote for Rebecca Schneider and Get Rid of Flake

2010-11-01T10:01:00.000-07:00

Chandler voters ! Vote for Rebecca Schneider for US Congress in AZ District 6!

Do NOT vote for Jeff Flake. His kind of narrow-minded view of economics is the reason Arizona and the country are in such desperate straits.

http://www.rebeccain2010.com/

Quietly, Arizona Goes Through with Sale of Capitol

2010-10-28T13:05:00.000-07:00

There was a lot of joking about this last year, because the Daily Show featured the idea as kooky. But after the hype, one was left with the impression that the state wasn't actually going to go ahead with it.

A year later, one wonders. Did they? I hadn't heard anything in the news about it. Well, that's because there wasn't any mention. The Arizona Republic didn't mention the sale until 6 months after Brewer's office put out a press release on the sale on January 14, 2010.

January 14, 2010: http://www.azdoa.gov/news/011410release.pdf
June 11, 2010: State-building sales net $300 mil for Arizona budget

Workers Don't Have the Right Skills? That's BS

2010-10-26T16:42:00.001-07:00

Read Krugman's "Workers Don't Have the Right Skills? That's BS"

"Structural” unemployment is a fake problem, which mainly serves as an excuse for not pursuing real solutions.

Tea Party Hates So Much They Don't Know When They've Been Given What They Want

2010-10-26T16:41:00.000-07:00

They say "love is blind", but so is anger:

"My taxes have gone up!" No, they've gone down.

The Obama stimulus bill cut taxes for 95 percent of working families, but few voters noticed, a troubling sign for Democrats.

Income Distribution 1979-2006

2010-10-26T16:39:00.000-07:00

Working Group on Extreme Inequality » How Unequal Are We?

"· Percentage of U.S. total income in 1976 that went to the top 1% of American households: 8.9. · Percentage in 2007: 23.5. · Only other year since 1913 that the top 1 percent’s share was that high: 1928. · Combined net worth of the Forbes 400 wealthiest Americans in 2007: $1.5 trillion. · Combined n...

The share of total income going to the top 1 percent of earners, which stood at 8.9 percent in 1976, rose to 23.5 percent by 2007. "

Republicans Survival of the Fittest Law of Civilization Tea Party

2010-10-26T16:38:00.000-07:00

Ayn Rand Conservatism at Work -- Firefighters Let Family's House Burn Down Because Owner Didn't Pay.

"Talk of limited government is appealing until you see what it actually means in practice: a society in which it's every man for himself."

Businessman tells it like it is, but Republicans are deaf

2010-10-26T16:36:00.000-07:00

Let's be real folks..marginal tax cuts don't motivate

"I'm a venture capitalist and an entrepreneur. Over the past three decades, I've made both good and bad investments. I've created successful companies and ones that didn't do so well. Overall, I'm..."

Competition Among States: Race to the Bottom

2010-10-26T16:33:00.000-07:00

Attention Arizona voters:

Cutting State Corporate Income Taxes Is Unlikely to Create Many Jobs

"Corporate income taxes are important sources of revenue that states use to fund public services, including services essential to long-term economic growth like education, infrastructure, health care, and public safety.
Nonetheless, a number of 2010 [ Republican ] gubernatorial candidates have made corporate tax cuts key planks of their campaign platforms. This continues a trend of the past couple of years, during which policymakers in several states have proposed cutting corporate income tax rates — or even eliminating the tax completely — as a strategy for stimulating economic growth and creating jobs. These proposals, however, offer false hope. Corporate income tax cuts are unlikely to have a positive impact on a state’s rate of economic growth or the pace at which it generates private-sector jobs. "

Creative Destruction not so creative

2010-10-26T16:32:00.000-07:00

"This is important because Economists habitually downplay the difficulty of finding a new job, choosing to see shakeups as good for the economy and in the long run, for the employee, who'll no doubt just learn new skills in order to better compete in the new economy. Such consideration flies in the face of reality, as the IMF report shows. Of course, the IMF is a well-known Marxist organization, so I guess you have to take it with a grain of salt. " - Ezra Klein

Ezra Klein - Two graphs that should really scare us

Moody's, yes, the Wall Street friendly Moody's, says Republican Platform a Joke

2010-10-26T16:30:00.000-07:00

Rich Americans Save Tax Cuts Instead of Spending, Moody's Says

"Give the wealthiest Americans a tax cut and history suggests they will save the money rather than spend it.

Tax cuts in 2001 and 2003 under President George W. Bush were followed by increases in the saving rate among the rich, according to data from Moody’s Analytics Inc. When taxes were raised under Bill Clinton, the saving rate fell.

The findings may weaken arguments by Republicans..."

Unemployment: Boeing Lays Off Only Guy Who Knows How To Keep Wings On Plane

2010-10-26T16:18:00.000-07:00

A sign of the future that awaits us. The Onion has foretold actual business decisions before (witness the 4 bladed razor).

Boeing Lays Off Only Guy Who...

CHICAGO—With the airline industry continuing to suffer under the ongoing recession, the Boeing Company was forced Monday to lay off Al Freedman, the only guy left at the corporation who knows how to keep wings from falling off planes.

Reich: The Great Decoupling of Corporate Profits From Jobs

2010-10-26T15:48:00.000-07:00

As I've noticed for a long time, corporations no longer are focusing on U.S. consumers as their primary target. Not to sound provincial and xenophobic, but I think the signs were there when instructions for products not only started showing up in a gazillion languages, but English wasn't even prominent....you had to dig through to find it. I'm not really whining about that (well, maybe I am), I'm just saying it was a SIGN.

From July 26, 2010:
"Second-quarter earnings reports are coming in, and they're making Wall Street smile. Corporate profits are up. And big American companies are sitting on a gigantic pile of money. The 500 largest non-financial firms held almost a trillion dollars in the second quarter, and that money pile is growing larger this quarter. Profits that plummeted in the recession have bounced back. Big businesses have recovered almost 90 percent of what they lost.
So with all this money and profit, they'll start hiring again, right? Wrong - for three reasons.
First, lots of their profits are coming from their overseas operations. So that's where they're investing and expanding production."
the rest at HuffPost

Report: Unemployment High Because People Keep Blowing Their Job Interviews

2010-09-26T16:09:00.000-07:00

From Th' Onion :
"WASHINGTON—With unemployment at its highest level in decades, the U.S. Department of Labor issued a report Tuesday suggesting the crisis is primarily the result of millions of Americans just completely blowing their job interviews."

We Are The Super Rich

2010-09-25T17:36:00.000-07:00

from:
We are the Super Rich « Truth on the Market: Posted on September 15, 2010

We are the Super Rich

Posted by Todd Henderson on September 15, 2010

The rhetoric in Washington about taxes is about millionaires and the super rich, but the relevant dividing line between millionaires and the middle class is pegged at family income of $250,000. (I’m not a math professor, but last time I checked $250,000 is less than $1 million.) That makes me super rich and subject to a big tax hike if the president has his way.

I’m the president’s neighbor in Chicago, but we’ve never met. I wish we could, because I would introduce him to my family and our lifestyle, one he believes is capable of financing the vast expansion of government he is planning. A quick look at our family budget, which I will happily share with the White House, will show him that like many Americans, we are just getting by despite seeming to be rich. We aren’t.

I, like the president before me, am a law professor at the University of Chicago Law School, and my wife, like the first lady before her, works at the University of Chicago Hospitals, where she is a doctor who treats children with cancer. Our combined income exceeds the $250,000 threshold for the super rich (but not by that much), and the president plans on raising my taxes. After all, we can afford it, and the world we are now living in has that familiar Marxian tone of those who need take and those who can afford it pay. The problem is, we can’t afford it. Here is why.

The biggest expense for us is financing government. Last year, my wife and I paid nearly $100,000 in federal and state taxes, not even including sales and other taxes. This amount is so high because we can’t afford fancy accountants and lawyers to help us evade taxes and we are penalized by the tax code because we choose to be married and we both work outside the home. (If my wife and I divorced or were never married, the government would write us a check for tens of thousands of dollars. Talk about perverse incentives.)

Our next biggest expense, like most people, is our mortgage. Homes near our work in Chicago aren’t cheap and we do not have friends who were willing to help us finance the deal. We chose to invest in the University community and renovate and old property, but we did so at an inopportune time.

We pay about $15,000 in property taxes, about half of which goes to fund public education in Chicago. Since we care the education of our three children, this means we also have to pay to send them to private school. My wife has school loans of nearly $250,000 and I do too, although becoming a lawyer is significantly cheaper. We try to invest in our retirement by putting some money in the stock market, something that these days sounds like a patriotic act. Our account isn’t worth much, and is worth a lot less than it used to be.

Like most working Americans, insurance, doctors’ bills, utilities, two cars, daycare, groceries, gasoline, cell phones, and cable TV (no movie channels) round out our monthly expenses. We also have someone who cuts our grass, cleans our house, and watches our new baby so we can both work outside the home. At the end of all this, we have less than a few hundred dollars per month of discretionary income. We occasionally eat out but with a baby sitter, these nights take a toll on our budget. Life in America is wonderful, but expensive.

If our taxes rise significantly, as they seem likely to, we can cut back on some things. The (legal) immigrant from Mexico who owns the lawn service we employ will suffer, as will the (legal) immigrant from Poland who cleans our house a few times a month. We can cancel our cell phones and some cable channels, as well as take our daughter from her art class at the community art center, but these are only a few hundred dollars per month in total. But more importantly, what is the theory under which collecting this money in taxes and deciding in Washington how to spend it is superior to our decisions? Ask the entrepreneurs we employ and the new arrivals they employ in turn whether they prefer to work for us or get a government handout.

If these cuts don’t work, we will sell our house – into an already spiraling market of declining asset values – and our cars, assuming someone will buy them. The irony here, of course, is that the government is working to save both of these industries despite the impact that increasing taxes will have.

The problem with the president’s plan is that the super rich don’t pay taxes – they hide in the Cayman Islands or use fancy investment vehicles to shelter their income. We aren’t rich enough to afford this – I use Turbo Tax. But we are rich enough to be hurt by the president’s plan. The next time the president comes home to Chicago, he has a standing invitation to come to my house (two blocks from his) and judge for himself whether the Hendersons are as rich as he thinks.

Mike Kimel's book is out! The Real Economics of US Presidents

2010-09-01T16:26:00.000-07:00

The 'Conservative' Reagan and Other Political Myths Dispelled - US News and World Report

Something I said 3 years ago

2010-08-17T10:00:00.000-07:00

"The notion that I got from reading the original quote (from the interview, excerpted below) was more about how it could be a metaphor for an economy. That is, the more dynamic an economy becomes, perhaps there is a threshold at which it is TOO dynamic...goes too fast to allow a economic actor to react rationally to it (and it just becomes a series of random success stories).

Furthermore, I could see how the dyamicism introduced by global free trade could potentially, POTENTIALLY, push the rate of change beyond this threshold.

I think economic models must always be careful to figure in some real flesh constants related to the human lifespan (and, though obviously frought with hard to define numbers, constants matched to life STAGES...say, the "3 different phases of an adults work life/career")."

DC: Evolutionary psychology portrays us as having impulses that took form long ago, in a very pre-modern context (say, 10,000 years ago), and now these impulses are sometimes rather ill-adapted to our contemporary world. For example, in a food-scarce environment, we became programmed to eat whenever we can; now, with food abounding in many parts of the world, this impulse creates the conditions for an obesity epidemic. Given that our world will likely continue changing at a rapid pace, are we doomed to have our impulses constantly playing catch up with our environment, and does that potentially doom us as a species?

SK: In fact, we’re not playing catch up; we’re stuck. For any evolutionary change to take place, the environment has to remain more or less constant for many generations, so that evolution can select the traits that are adaptive and eliminate those that are not. When the environment undergoes rapid change within the space of a generation or two, as it has been for the last couple of millennia, if not more, then evolution can’t happen because nature can’t determine which traits to select and which to eliminate. So they remain at a standstill. Our brain (and the rest of our body) are essentially frozen in time — stuck in the Stone Age.
link

Hillary Clinton Drags Taliban Leader's Body Through Streets Of Kabul

2010-08-12T16:23:00.000-07:00

Just to reiterate, we'd have been a lot better off with Hillary than Obama.

Hillary Clinton Drags Taliban Leader's Body Through Streets Of Kabul
KABUL, AFGHANISTAN—As members of the international press looked on, Secretary of State Hillary Clinton rode on horseback through the streets of Kabul Monday, dragging the mutilated remains of Taliban leader Mullah Abdul Jalil through the dirt behind...

Th'Onion.

Macroeconomics? In America, that means Study the Rich

2010-08-10T16:20:00.000-07:00

In 1994, as we created economic models in grad school, this fact was explained to me (that "we U.S. economists" really only need to be concerned with the spending patterns of the rich, since that spending accounts for most of the US economy).

us-economy-is-increasingly-tied-to-the-rich: Personal Finance News from Yahoo! Finance

Krugman: Crumbling Infrastructure

2010-08-09T16:18:00.000-07:00

Remember that bridge in Minnesota....

Paul Krugman at NYT Op-Ed page: America Goes Dark
"With infrastructure and education crumbling, we’re on the unlit, unpaved road to nowhere."

Companies Not Restoring 401(k)s

2010-08-05T16:13:00.000-07:00

Daniel Gross reports on the sweet benevolence of business:

The 401(k) Travesty
"Recent government data suggest an economy in confusion. Growth and consumption are slowing, but savings are rising, up to 6.4 percent of personal income. The savings rate, in fact, has been climbing for three years, as Americans have been hoarding cash to protect themselves against the struggling economy....."
Hugely profitable companies that won't restore the 401(k) match they ditched in 2008.

EconoSpeak: If anyone watched my video tonight, I would appreciate your comments

2010-08-04T14:49:00.000-07:00

Michael Perelman says: EconoSpeak: If anyone watched my video tonight, I would appreciate your comments

http://www.ustream.tv/channel/unsettling-economics

The Superlatives Can Now Be Uttered, and Blame on the Boomers

2010-07-30T15:57:00.000-07:00

A new study highlights a devastating trend of increasing economic insecurity among American families.

Thanks a lot, previous generations. You really squandered things for us.

"The pain coursing through American families is all too real and no one seems to know what to do about it. A rigorous new analysis for the Rockefeller Foundation shows that Americans are more economically insecure now than they have been in a quarter of a century, and the trend lines suggest that things will only get worse."
continued....

Rockefeller Foundation Study - Long-Term Economic Pain for American Families

Judge Bolton's ruling on SB1070 Full-text

2010-07-29T16:06:00.000-07:00

The takeaway? The law was written so poorly as to suggest its authors were as unfamiliar with writing a legal statute as a slug is to riding a bicycle.

You gotta love this line: "In its Motion, the United States provided evidence that Arizona police officers have no familiarity with assessing whether a public offense would make an alien removable from the United States."

Read the ruling here: SB1070 Ruling

Shouldn't High Unemployment = Less Work To Do?

2010-07-28T16:02:00.000-07:00

Productivity, a better future....Dave Johnson writes:

Seeing the Forest: Shouldn't High Unemployment = Less Work To Do?

Source: www.seeingtheforest.com

"Simple question: have we reached a point where machines and computers leave us with less work to do? If so it can mean a lot of people are left without jobs and incomes, losing their homes and health, while the rest have our wages dragged ever downward. Or we can make some changes in who gets what for what, and every one of us ends up better off." Continued..

"What was worse than what you did, is that you LIED to me about it"

2010-05-17T15:49:00.000-07:00

David Neiwart points out what I've been saying all along on this SB-1070 issue:
"Will a driver's license suffice as proof of citizenship in Arizona? Maybe, but only if you're from Arizona

One of the claims being made by defenders of Arizona's police-state immigration law is that Latino citizens won't have to carry their birth certificate or other proof of citizenship in order to avoid arrest should they have contact with police -- all they need to carry is their driver's license."

He goes on to show how that's a bold faced lie.
Original at Crooks and Liars

Reprinted here:
"

Crooks and Liars

Monday May 17, 2010 10:00 am

Will a driver's license suffice as proof of citizenship in Arizona? Maybe, but only if you're from Arizona

By David Neiwert

[media id=12823]
One of the claims being made by defenders of Arizona's police-state immigration law is that Latino citizens won't have to carry their birth certificate or other proof of citizenship in order to avoid arrest should they have contact with police -- all they need to carry is their driver's license.
Among others making this claim is the bill's co-author, State Sen. Russell Pearce, last week on Neil Cavuto's Fox News show:

Pearce: Citizens aren't required to carry any documentation they weren't required to carry yesterday. In Arizona, if you have a driver's license, a state ID, an identity card, that's presumption that you're in the state legally.

Pearce is far from alone in claiming this. In his NYT op-ed on the law, Kris Kobach -- another key player in the bill's authorship -- wrote the same thing:

Because Arizona allows only lawful residents to obtain licenses, an officer must presume that someone who produces one is legally in the country.

Roy Beck's nativist outfit, NumbersUSA, made a similar claim on its fact sheet:

The majority requests for documentation will take place during the course of other police business such as traffic stops. Because Arizona allows only lawful residents to obtain licenses, an officer must presume that someone who produces one is legally in the country.

And Byron York, in his much-quoted (by conservatives) defense of SB 1070, writes similarly:

But what if the driver of the car had shown the officer his driver's license? The law clearly says that if someone produces a valid Arizona driver's license, or other state-issued identification, they are presumed to be here legally. There's no reasonable suspicion.

Here's what the text of SB 1070 says:

A PERSON IS PRESUMED TO NOT BE AN ALIEN WHO IS UNLAWFULLY PRESENT IN THE UNITED STATES IF THE PERSON PROVIDES TO THE LAW ENFORCEMENT OFFICER OR AGENCY ANY OF THE FOLLOWING:
1. A VALID ARIZONA DRIVER LICENSE.
2. A VALID ARIZONA NONOPERATING IDENTIFICATION LICENSE.
3. A VALID TRIBAL ENROLLMENT CARD OR OTHER FORM OF TRIBAL IDENTIFICATION.
4. IF THE ENTITY REQUIRES PROOF OF LEGAL PRESENCE IN THE UNITED STATES BEFORE ISSUANCE, ANY VALID UNITED STATES FEDERAL, STATE OR LOCAL GOVERNMENT ISSUED IDENTIFICATION.

But as Stephen Lemon points out, this language is actually pretty startling: You will be presumed to be an illegal alien in Arizona unless you can produce one of these four kinds of ID.
Now, I haven't been able to find anything in Arizona code requiring citizens to carry one of these forms of ID with them at all times. But SB1070 certainly does create that requirement. As Lemons says:

If during any police investigation, a cop has "reasonable suspicion" to think you're in the country illegally, he or she can presume you're an undocumented alien unless you provide one of several forms of ID.
... Subsequently, even U.S. citizens could be held until someone from Immigration and Customs Enforcement is called to sort them out.
Keep in mind that a cop can stop someone and begin the process during the "enforcement of any other law or ordinance of a county, city or town or this state." That's so broad as to include weed abatement and barking dogs.

But this also raises a huge question: What if you're from another state? What if you're only carrying an out-of-state driver's license?
Many states refuse to require proof of citizenship when issuing driver's licenses: they wisely understand that it's more important to have people driving their roads with licenses and documentation than not, and requiring citizenship papers is a good way to discourage it.
So if someone -- say, a fourth-generation Latino citizen with an accent -- traveling through Arizona with a California or a Washington driver's license has the misfortune to be pulled over in a traffic stop -- or maybe just one of Sheriff Joe Arpaio's roadblocks -- and has the similar misfortune to arouse an officer's "reasonable suspicion" (say, he has a heavy accent or looks nervous), he could be hauled in and arrested under SB 1070, until someone back home can fax the birth certificate.
Finally, as much as the law's apologists might make this claim, the reality is that Latino drivers in Arizona are already being arrested for failing to carry a birth certificate of proof of citizenship. Remember this fellow?
[media id=12614]
He first showed the officers who arrested him his driver's license.
All this would explain why ConsumerTraveler.com issued the following advisory:

U.S. legal resident aliens, and especially U.S. citizens, normally don’t carry proof of their immigration status or citizenship, when traveling domestically. In fact, most U.S. citizens don’t even have proof of citizenship. Fewer than 22% of Americans have passports, and probably fewer than 30% have “certified” birth certificates. Most Americans only have “hospital” birth certificates. U.S. Citizens could carry their passport, passport card, certified birth certificate if born in the U.S., or naturalization papers to prove citizenship, but that would be a first for U.S. citizens, traveling in their own country, to have to prove citizenship.
After reviewing the new law, and carefully considering the statements of the law’s supporters and critics, especially if you’re a swarthy skinned traveler in Arizona, I’d recommend you carry proof of U.S. citizenship or legal immigration status to avoid possible detention, if this law goes into effect.
Travel agents with whom I’ve spoken are unanimous, that if the law goes into effect, they will add a strongly worded advisory, to all client invoices and itineraries for travel to or through Arizona, to carry proof of citizenship or legal immigration status.

And if you live in Arizona, I would not count on the assurances of Russell Pearce and Kris Kobach. Because a driver's license may get you off the hook -- or maybe not. It'll depend on the officer, apparently.
Sure sounds like a police state to me."

Update: Until the governor sneakily re-wrote the law just prior to signing it.

THE GREAT AMERICAN BUBBLE MACHINE

2009-06-29T13:32:00.001-07:00

THE GREAT AMERICAN BUBBLE MACHINE

From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression - and they're about to do it again

By MATT TAIBBI

The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled-dry American empire, reads like a Who's Who of Goldman Sachs graduates.

By now, most of us know the major players. As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup - which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the rear end in a top hat chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multibillion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden parachute payments as his bank was self-destructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York - which, incidentally, is now in charge of overseeing Goldman - not to mention ...

But then, any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain - an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

The bank's unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere - high gas prices, rising consumer-credit rates, half-eaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you're losing, it's going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it's going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth - pure profit for rich individuals.

They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They've been pulling this same stunt over and over since the 1920s - and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.

If you want to understand how we got into this financial crisis, you have to first understand where all the money went - and in order to understand that, you need to understand what Goldman has already gotten away with. It is a history exactly five bubbles long - including last year's strange and seemingly inexplicable spike in the price of oil. There were a lot of losers in each of those bubbles, and in the bailout that followed. But Goldman wasn't one of them.

IF AMERICA IS NOW CIRCLING THE DRAIN, GOLDMAN SACHS HAS FOUND A WAY TO BE THAT DRAIN.

BUBBLE #1 - THE GREAT DEPRESSION
Goldman wasn't always a too-big-to-fail Wall Street behemoth, the ruthless face of kill-or-be-killed capitalism on steroids - just almost always. The bank was actually founded in 1869 by a German immigrant named Marcus Goldman, who built it up with his son-in-law Samuel Sachs. They were pioneers in the use of commercial paper, which is just a fancy way of saying they made money lending out short-term IOUs to small-time vendors in downtown Manhattan.

You can probably guess the basic plotline of Goldman's first 100 years in business: plucky, immigrant-led investment bank beats the odds, pulls itself up by its bootstraps, makes shitloads of money. In that ancient history there's really only one episode that bears scrutiny now, in light of more recent events: Goldman's disastrous foray into the speculative mania of pre-crash Wall Street in the late 1920s.

This great Hindenburg of financial history has a few features that might sound familiar. Back then, the main financial tool used to bilk investors was called an "investment trust." Similar to modern mutual funds, the trusts took the cash of investors large and small and (theoretically, at least) invested it in a smorgasbord of Wall Street securities, though the securities and amounts were often kept hidden from the public. So a regular guy could invest $10 or $100 in a trust and feel like he was a big player. Much as in the 1990s, when new vehicles like day trading and e-trading attracted reams of new suckers from the sticks who wanted to feel like big shots, investment trusts roped a new generation of regular-guy investors into the speculation game.

Beginning a pattern that would repeat itself over and over again, Goldman got into the investment-trust game late, then jumped in with both feet and went hog-wild. The first effort was the Goldman Sachs Trading Corporation; the bank issued a million shares at $100 apiece, bought all those shares with its own money and then sold 90 percent of them to the hungry public at $104. The trading corporation then relentlessly bought shares in itself, bidding the price up further and further. Eventually it dumped part of its holdings and sponsored a new trust, the Shenandoah Corporation, issuing millions more in shares in that fund - which in turn sponsored yet another trust called the Blue Ridge Corporation. In this way, each investment trust served as a front for an endless investment pyramid: Goldman hiding behind Goldman hiding behind Goldman. Of the 7,250,000 initial shares of Blue Ridge, 6,250,000 were actually owned by Shenandoah - which, of course, was in large part owned by Goldman Trading.

The end result (ask yourself if this sounds familiar) was a daisy chain of borrowed money, one exquisitely vulnerable to a decline in performance anywhere along the line; The basic idea isn't hard to follow. You take a dollar and borrow nine against it; then you take that $10 fund and borrow $90; then you take your $100 fund and, so long as the public is still lending, borrow and invest $900. If the last fund in the line starts to lose value, you no longer have the money to pay back your investors, and everyone gets massacred.

In a chapter from The Great Crash, 1929 titled "In Goldman Sachs We Trust," the famed economist John Kenneth Galbraith held up the Blue Ridge and Shenandoah trusts as classic examples of the insanity of leverage-based investment. The trusts, he wrote, were a major cause of the market's historic crash; in today's dollars, the losses the bank suffered totaled $475 billion. "It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity," Galbraith observed, sounding like Keith Olbermann in an ascot. "If there must be madness, something may be said for having it on a heroic scale."

BUBBLE #2 - TECH STOCKS
Fast-Forward about 65 years. Goldman not only survived the crash that wiped out so many of the investors it duped, it went on to become the chief underwriter to the country's wealthiest and most powerful corporations. Thanks to Sidney Weinberg, who rose from the rank of janitor's assistant to head the firm, Goldman became the pioneer of the initial public offering, one of the principal and most lucrative means by which companies raise money. During the 1970s and 1980s, Goldman may not have been the planet-eating Death Star of political influence it is today, but it was a top-drawer firm that had a reputation for attracting the very smartest talent on the Street.

It also, oddly enough, had a reputation for relatively solid ethics and a patient approach to investment that shunned the fast buck; its executives were trained to adopt the firm's mantra, "long-term greedy." One former Goldman banker who left the firm in the early Nineties recalls seeing his superiors give up a very profitable deal on the grounds that it was a long-term loser. "We gave back money to 'grownup' corporate clients who had made bad deals with us," he says. "Everything we did was legal and fair - but 'long-term greedy' said we didn't want to make such a profit at the clients' collective expense that we spoiled the marketplace."

But then, something happened. It's hard to say what it was exactly; it might have been the fact that Goldman's co-chairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. While the American media fell in love with the story line of a pair of baby-boomer, Sixties-child, Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised crush on Rubin, who was hyped as without a doubt the smartest person ever to walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far behind.

Rubin was the prototypical Goldman banker. He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nightmare about being forced to fly coach. It became almost a national cliche that whatever Rubin thought was best for the economy - a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline THE COMMITTEE TO SAVE THE WORLD. And "what Rubin thought," mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. During his tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy - beginning with Rubin's complete and total failure to regulate his old firm during its first mad dash for obscene short-term profits.

The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren't much more than pot-fueled ideas scrawled on napkins by up-too-late bong-smokers were taken public via IPOs, hyped in the media and sold to the public for megamillions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.

It sounds obvious now, but what the average investor didn't know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system - one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman's later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry's standards of quality control.

"Since the Depression, there were strict underwriting guidelines that Wall Street adhered to when taking a company public," says one prominent hedge-fund manager. "The company had to be in business for a minimum of five years, and it had to show profitability for three consecutive years. But Wall Street took these guidelines and threw them in the trash." Goldman completed the snow job by pumping up the sham stocks: "Their analysts were out there saying Bullshit.com is worth $100 a share."

The problem was, nobody told investors that the rules had changed. "Everyone on the inside knew," the manager says. "Bob Rubin sure as hell knew what the underwriting standards were. They'd been intact since the 1930s."

Jay Ritter, a professor of finance at the University of Florida who specializes in IPOs, says banks like Goldman knew full well that many of the public offerings they were touting would never make a dime. "In the early Eighties, the major underwriters insisted on three years of profitability. Then it was one year, then it was a quarter. By the time of the Internet bubble, they were not even requiring profitability in the foreseeable future."

Goldman has denied that it changed its underwriting standards during the Internet years, but its own statistics belie the claim. Just as it did with the investment trust in the 1920s, Goldman started slow and finished crazy in the Internet years. After it took a little-known company with weak financials called Yahoo! public in 1996, once the tech boom had already begun, Goldman quickly became the IPO king of the Internet era. Of the 24 companies it took public in 1997, a third were losing money at the time of the IPO. In 1999, at the height of the boom, it took 47 companies public, including stillborns like Webvan and eToys, investment offerings that were in many ways the modern equivalents of Blue Ridge and Shenandoah. The following year, it underwrote 18 companies in the first four months, 14 of which were money losers at the time. As a leading underwriter of Internet stocks during the boom, Goldman provided profits far more volatile than those of its competitors: In 1999, the average Goldman IPO leapt 281 percent above its offering price, compared to the Wall Street average of 181 percent.

How did Goldman achieve such extraordinary results? One answer is that they used a practice called "laddering," which is just a fancy way of saying they manipulated the share price of new offerings. Here's how it works: Say you're Goldman Sachs, and Bullshit.com comes to you and asks you to take their company public. You agree on the usual terms: You'll price the stock, determine how many shares should be released and take the Bullshit.com CEO on a "road show" to schmooze investors, all in exchange for a substantial fee (typically six to seven percent of
the amount raised). You then promise your best clients the right to buy big chunks of the IPO at the low offering price - let's say Bullshit.com's starting share price is $15 - in exchange for a promise that they will buy more shares later on the open market. That seemingly simple demand gives you inside knowledge of the IPO's future, knowledge that wasn't disclosed to the day-trader schmucks who only had the prospectus to go by: You know that certain of your clients who bought X amount of shares at $15 are also going to buy Y more shares at $20 or $25, virtually guaranteeing that the price is going to go to $25 and beyond. In this way, Goldman could artificially jack up the new company's price, which of course was to the bank's benefit - a six percent fee of a $500 million IPO is serious money.

Goldman was repeatedly sued by shareholders for engaging in laddering in a variety of Internet IPOs, including Webvan and NetZero. The deceptive practices also caught the attention of Nichol as Maier, the syndicate manager of Cramer & Co., the hedge fund run at the time by the now-famous chattering television rear end in a top hat Jim Cramer, himself a Goldman alum. Maier told the SEC that while working for Cramer between 1996 and 1998, he was repeatedly forced to engage in laddering practices during IPO deals with Goldman.

"Goldman, from what I witnessed, they were the worst perpetrator," Maier said. "They totally fueled the bubble. And it's specifically that kind of behavior that has caused the market crash. They built these stocks upon an illegal foundation - manipulated up - and ultimately, it really was the small person who ended up buying in." In 2005, Goldman agreed to pay $40 million for its laddering violations - a puny penalty relative to the enormous profits it made. (Goldman, which has denied wrongdoing in all of the cases it has settled, refused to respond to questions for this story.)

Another practice Goldman engaged in during the Internet boom was "spinning," better known as bribery. Here the investment bank would offer the executives of the newly public company shares at extra-low prices, in exchange for future underwriting business. Banks that engaged in spinning would then undervalue the initial offering price - ensuring that those "hot" opening price shares it had handed out to insiders would be more likely to rise quickly, supplying bigger first-day rewards for the chosen few. So instead of Bullshit.com opening at $20, the bank would approach the Bullshit.com CEO and offer him a million shares of his own company at $18 in exchange for future business - effectively robbing all of Bullshit's new shareholders by diverting cash that should have gone to the company's bottom line into the private bank account of the company's CEO.

In one case, Goldman allegedly gave a multimillion-dollar special offering to eBay CEO Meg Whitman, who later joined Goldman's board, in exchange for future i-banking business. According to a report by the House Financial Services Committee in 2002, Goldman gave special stock offerings to executives in 21 companies that it took public, including Yahoo! co-founder Jerry Yang and two of the great slithering villains of the financial-scandal age - Tyco's Dennis Kozlowski and Enron's Ken Lay. Goldman angrily denounced the report as "an egregious distortion of the facts" - shortly before paying $110 million to settle an investigation into spinning and other manipulations launched by New York state regulators. "The spinning of hot IPO shares was not a harmless corporate perk," then-attorney general Eliot Spitzer said at the time. "Instead, it was an integral part of a fraudulent scheme to win new investment-banking business."

Such practices conspired to turn the Internet bubble into one of the greatest financial disasters in world history: Some $5 trillion of wealth was wiped out on the NASDAQ alone. But the real problem wasn't the money that was lost by shareholders, it was the money gained by investment bankers, who received hefty bonuses for tampering with the market. Instead of teaching Wall Street a lesson that bubbles always deflate, the Internet years demonstrated to bankers that in the age of freely flowing capital and publicly owned financial companies, bubbles are incredibly easy to inflate, and individual bonuses are actually bigger when the mania and the irrationality are greater.

GOLDMAN SCAMMED HOUSING INVESTORS BY BETTING AGAINST ITS OWN CRAPPY MORTGAGES.

Nowhere was this truer than at Goldman. Between 1999 and 2002, the firm paid out $28.5 billion in compensation and benefits - an average of roughly $350,000 a year per employee. Those numbers are important because the key legacy of the Internet boom is that the economy is now driven in large part by the pursuit of the enormous salaries and bonuses that such bubbles make possible. Goldman's mantra of "long-term greedy" vanished into thin air as the game became about getting your check before the melon hit the pavement.

The market was no longer a rationally managed place to grow real, profitable businesses: It was a huge ocean of Someone Else's Money where bankers hauled in vast sums through whatever means necessary and tried to convert that money into bonuses and payouts as quickly as possible. If you laddered and spun 50 Internet IPOs that went bust within a year, so what? By the time the Securities and Exchange Commission got around to fining your firm $110 million, the yacht you bought with your IPO bonuses was already six years old. Besides, you were probably out of Goldman by then, running the U.S. Treasury or maybe the state of New Jersey. (One of the truly comic moments in the history of America's recent financial collapse came when Gov. Jon Corzine of New Jersey, who ran Goldman from 1994 to 1999 and left with $320 million in IPO-fattened stock, insisted in 2002 that "I've never even heard the term 'laddering' before.")

For a bank that paid out $7 billion a year in salaries, $110 million fines issued half a decade late were something far less than a deterrent - they were a joke. Once the Internet bubble burst, Goldman had no incentive to reassess its new, profit-driven strategy; it just searched around for another bubble to inflate. As it turns out, it had one ready, thanks in large part to Rubin.

BUBBLE #3 - THE HOUSING CRAZE
Goldman's role in the sweeping disaster that was the housing bubble is not hard to trace. Here again, the basic trick was a decline in underwriting standards, although in this case the standards weren't in IPOs but in mortgages. By now almost everyone knows that for decades mortgage dealers insisted that home buyers be able to produce a down payment of 10 percent or more, show a steady income and good credit rating, and possess a real first and last name. Then, at the dawn of the new millennium, they suddenly threw all that poo poo out the window and started writing mortgages on the backs of napkins to cocktail waitresses and ex-cons carrying five bucks and a Snickers bar.

None of that would have been possible without investment bankers like Goldman, who created vehicles to package those lovely mortgages and sell them en masse to unsuspecting insurance companies and pension funds. This created a mass market for toxic debt that would never have existed before; in the old days, no bank would have wanted to keep some addict ex-con's mortgage on its books, knowing how likely it was to fail. You can't write these mortgages, in other words, unless you can sell them to someone who doesn't know what they are.

Goldman used two methods to hide the mess they were selling. First, they bundled hundreds of different mortgages into instruments called Collateralized Debt Obligations. Then they sold investors on the idea that, because a bunch of those mortgages would turn out to be OK, there was no reason to worry so much about the lovely ones: The CDO, as a whole, was sound. Thus, junk-rated mortgages were turned into AAA-rated investments. Second, to hedge its own bets, Goldman got companies like AIG to provide insurance - known as credit-default swaps - on the CDOs. The swaps were essentially a racetrack bet between AIG and Goldman: Goldman is betting the ex-cons will default, AIG is betting they won't.

There was only one problem with the deals: All of the wheeling and dealing represented exactly the kind of dangerous speculation that federal regulators are supposed to rein in. Derivatives like CDOs and credit swaps had already caused a series of serious financial calamities: Procter & Gamble and Gibson Greetings both lost fortunes, and Orange County, California, was forced to default in 1994. A report that year by the Government Accountability Office recommended that such financial instruments be tightly regulated - and in 1998, the head of the Commodity Futures Trading Commission, a woman named Brooksley Born, agreed. That May, she circulated a letter to business leaders and the Clinton administration suggesting that banks be required to provide greater disclosure in derivatives trades, and maintain reserves to cushion against losses.

More regulation wasn't exactly what Goldman had in mind. "The banks go crazy - they want it stopped," says Michael Greenberger, who worked for Born as director of trading and markets at the CFTC and is now a law professor at the University of Maryland. "Greenspan, Summers, Rubin and [SEC chief Arthur] Levitt want it stopped."

Clinton's reigning economic foursome - "especially Rubin," according to Greenberger - called Born in for a meeting and pleaded their case. She refused to back down, however, and continued to push for more regulation of the derivatives. Then, in June 1998, Rubin went public to denounce her move, eventually recommending that Congress strip the CFTC of its regulatory authority. In 2000, on its last day in session, Congress passed the now-notorious Commodity Futures Modernization Act, which had been inserted into an 1l,000-page spending bill at the last minute, with almost no debate on the floor of the Senate. Banks were now free to trade default swaps with impunity.

But the story didn't end there. AIG, a major purveyor of default swaps, approached the New York State Insurance Department in 2000 and asked whether default swaps would be regulated as insurance. At the time, the office was run by one Neil Levin, a former Goldman vice president, who decided against regulating the swaps. Now freed to underwrite as many housing-based securities and buy as much credit-default protection as it wanted, Goldman went berserk with lending lust. By the peak of the housing boom in 2006, Goldman was underwriting $76.5 billion worth of mortgage-backed securities - a third of which were subprime - much of it to institutional investors like pensions and insurance companies. And in these massive issues of real estate were vast swamps of crap.

Take one $494 million issue that year, GSAMP Trust 2006-S3. Many of the mortgages belonged to second-mortgage borrowers, and the average equity they had in their homes was 0.71 percent. Moreover, 58 percent of the loans included little or no documentation - no names of the borrowers, no addresses of the homes, just zip codes. Yet both of the major ratings agencies, Moody's and Standard & Poor's, rated 93 percent of the issue as investment grade. Moody's projected that less than 10 percent of the loans would default. In reality, 18 percent of the mortgages were in default within 18 months.

Not that Goldman was personally at any risk. The bank might be taking all these hideous, completely irresponsible mortgages from beneath-gangster-status firms like Countrywide and selling them off to municipalities and pensioners - old people, for God's sake - pretending the whole time that it wasn't grade-D horseshit. But even as it was doing so, it was taking short positions in the same market, in essence betting against the same crap it was selling. Even worse, Goldman bragged about it in public. "The mortgage sector continues to be challenged," David Viniar, the bank's chief financial officer, boasted in 2007. "As a result, we took significant markdowns on our long inventory positions .... However, our risk bias in that market was to be short, and that net short position was profitable." In other words, the mortgages it was selling were for chumps. The real money was in betting against those same mortgages.

"That's how audacious these assholes are," says one hedge-fund manager. "At least with other banks, you could say that they were just dumb - they believed what they were selling, and it blew them up. Goldman knew what it was doing." I ask the manager how it could be that selling something to customers that you're actually betting against - particularly when you know more about the weaknesses of those products than the customer - doesn't amount to securities fraud.

"It's exactly securities fraud," he says. "It's the heart of securities fraud."

Eventually, lots of aggrieved investors agreed. In a virtual repeat of the Internet IPO craze, Goldman was hit with a wave of lawsuits after the collapse of the housing bubble, many of which accused the bank of withholding pertinent information about the quality of the mortgages it issued. New York state regulators are suing Goldman and 25 other underwriters for selling bundles of crappy Countrywide mortgages to city and state pension funds, which lost as much as $100 million in the investments. Massachusetts also investigated Goldman for similar misdeeds, acting on behalf of 714 mortgage holders who got stuck ho1ding predatory loans. But once again, Goldman got off virtually scot-free, staving off prosecution by agreeing to pay a paltry $60 million - about what the bank's CDO division made in a day and a half during the real estate boom.

The effects of the housing bubble are well known - it led more or less directly to the collapse of Bear Stearns, Lehman Brothers and AIG, whose toxic portfolio of credit swaps was in significant part composed of the insurance that banks like Goldman bought against their own housing portfolios. In fact, at least $13 billion of the taxpayer money given to AIG in the bailout ultimately went to Goldman, meaning that the bank made out on the housing bubble twice: It hosed the investors who bought their horseshit CDOs by betting against its own crappy product, then it turned around and hosed the taxpayer by making him payoff those same bets.

And once again, while the world was crashing down all around the bank, Goldman made sure it was doing just fine in the compensation department. In 2006, the firm's payroll jumped to $16.5 billion - an average of $622,000 per employee. As a Goldman spokesman explained, "We work very hard here."

But the best was yet to come. While the collapse of the housing bubble sent most of the financial world fleeing for the exits, or to jail, Goldman boldly doubled down - and almost single-handedly created yet another bubble, one the world still barely knows the firm had anything to do with.

BUBBLE #4 - $4 A GALLON
By the beginning of 2008, the financial world was in turmoil. Wall Street had spent the past two and a half decades producing one scandal after another, which didn't leave much to sell that wasn't tainted. The terms junk bond, IPO, subprime mortgage and other once-hot financial fare were now firmly associated in the public's mind with scams; the terms credit swaps and CDOs were about to join them. The credit markets were in crisis, and the mantra that had sustained the fantasy economy throughout the Bush years - the notion that housing prices never go down - was now a fully exploded myth, leaving the Street clamoring for a new bullshit paradigm to sling.

Where to go? With the public reluctant to put money in anything that felt like a paper investment, the Street quietly moved the casino to the physical-commodities market - stuff you could touch: corn, coffee, cocoa, wheat and, above all, energy commodities, especially oil. In conjunction with a decline in the dollar, the credit crunch and the housing crash caused a "flight to commodities." Oil futures in particular skyrocketed, as the price of a single barrel went from around $60 in the middle of 2007 to a high of $147 in the summer of 2008.

That summer, as the presidential campaign heated up, the accepted explanation for why gasoline had hit $4.11 a gallon was that there was a problem with the world oil supply. In a classic example of how Republicans and Democrats respond to crises by engaging in fierce exchanges of moronic irrelevancies, John McCain insisted that ending the moratorium on offshore drilling would be "very helpful in the short term," while Barack Obama in typical liberal-arts yuppie style argued that federal investment in hybrid cars was the way out.

GOLDMAN TURNED A SLEEPY OIL MARKET INTO A GIANT BETTING PARLOR - SPIKING PRICES AT THE PUMP.

But it was all a lie. While the global supply of oil will eventually dry up, the short-term flow has actually been increasing. In the six months before prices spiked, according to the U.S. Energy Information Administration, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped from 86.82 million barrels a day to 86.07 million. Not only was the short-term supply of oil rising, the demand for it was falling - which, in classic economic terms, should have brought prices at the pump down.

So what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help - there were other players in the physical-commodities market - but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures - agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.

As is so often the case, there had been a Depression-era law in place designed specifically to prevent this sort of thing. The commodities market was designed in large part to help farmers: A grower concerned about future price drops could enter into a contract to sell his corn at a certain price for delivery later on, which made him worry less about building up stores of his crop. When no one was buying corn, the farmer could sell to a middleman known as a "traditional speculator," who would store the grain and sell it later, when demand returned. That way, someone was always there to buy from the farmer, even when the market temporarily had no need for his crops.

In 1936, however, Congress recognized that there should never be more speculators in the market than real producers and consumers. If that happened, prices would be affected by something other than supply and demand, and price manipulations would ensue. A new law empowered the Commodity Futures Trading Commission - the very same body that would later try and fail to regulate credit swaps - to place limits on speculative trades in commodities. As a result of the CFTC's oversight, peace and harmony reigned in the commodities markets for more than 50 years.

All that changed in 1991 when, unbeknownst to almost everyone in the world, a Goldman-owned commodities-trading subsidiary called J. Aron wrote to the CFTC and made an unusual argument. Farmers with big stores of corn, Goldman argued, weren't the only ones who needed to hedge their risk against future price drops - Wall Street dealers who made big bets on oil prices also needed to hedge their risk, because, well, they stood to lose a lot too.

This was complete and utter crap - the 1936 law, remember, was specifically designed to maintain distinctions between people who were buying and selling real tangible stuff and people who were trading in paper alone. But the CFTC, amazingly, bought Goldman's argument. It issued the bank a free pass, called the "Bona Fide Hedging" exemption, allowing Goldman's subsidiary to call itself a physical hedger and escape virtually all limits placed on speculators. In the years that followed, the commission would quietly issue 14 similar exemptions to other companies.

Now Goldman and other banks were free to drive more investors into the commodities markets, enabling speculators to place increasingly big bets. That 1991 letter from Goldman more or less directly led to the oil bubble in 2008, when the number of speculators in the market - driven there by fear of the falling dollar and the housing crash - finally overwhelmed the real physical suppliers and consumers. By 2008, at least three quarters of the activity on the commodity exchanges was speculative, according to a congressional staffer who studied the numbers - and that's likely a conservative estimate. By the middle of last summer, despite rising supply and a drop in demand, we were paying $4 a gallon every time we pulled up to the pump.

What is even more amazing is that the letter to Goldman, along with most of the other trading exemptions, was handed out more or less in secret. "I was the head of the division of trading and markets, and Brooksley Born was the chair of the CFTC," says Greenberger, "and neither of us knew this letter was out there." In fact, the letters only came to light by accident. Last year, a staffer for the House Energy and Commerce Committee just happened to be at a briefing when officials from the CFTC made an offhand reference to the exemptions.

"1 had been invited to a briefing the commission was holding on energy," the staffer recounts. "And suddenly in the middle of it, they start saying, 'Yeah, we've been issuing these letters for years now.' I raised my hand and said, 'Really? You issued a letter? Can I see it?' And they were like, 'Duh, duh.' So we went back and forth, and finally they said, 'We have to clear it with Goldman Sachs.' I'm like, 'What do you mean, you
have to clear it with Goldman Sachs?'"

The CFTC cited a rule that prohibited it from releasing any information about a company's current position in the market. But the staffer's request was about a letter that had been issued 17 years earlier. It no longer had anything to do with Goldman's current position. What's more, Section 7 of the 1936 commodities law gives Congress the right to any information it wants from the commission. Still, in a classic example of how complete Goldman's capture of government is, the CFTC waited until it got clearance from the bank before it turned the letter over.

Armed with the semi-secret government exemption, Goldman had become the chief designer of a giant commodities betting parlor. Its Goldman Sachs Commodities Index - which tracks the prices of 24 major commodities but is overwhelmingly weighted toward oil - became the place where pension funds and insurance companies and other institutional investors could make massive long-term bets on commodity prices. Which was all well and good, except for a couple of things. One was that index speculators are mostly "long only" bettors, who seldom if ever take short positions - meaning they only bet on prices to rise. While this kind of behavior is good for a stock market, it's terrible for commodities, because it continually forces prices upward. "If index speculators took short positions as well as long ones, you'd see them pushing prices both up and down," says Michael Masters, a hedge-fund manager who has helped expose the role of investment banks in the manipulation of oil prices. "But they only push prices in one direction: up."

Complicating matters even further was the fact that Goldman itself was cheerleading with all its might for an increase in oil prices. In the beginning of 2008, Arjun Murti, a Goldman analyst, hailed as an "oracle of oil" by The New York Times, predicted a "super spike" in oil prices, forecasting a rise to $200 a barrel. At the time Goldman was heavily invested in oil through its commodities-trading subsidiary, J. Aron; it also owned a stake in a major oil refinery in Kansas, where it warehoused the crude it bought and sold. Even though the supply of oil was keeping pace with demand, Murti continually warned of disruptions to the world oil supply, going so far as to broadcast the fact that he owned two hybrid cars. High prices, the bank insisted, were somehow the fault of the piggish American consumer; in 2005, Goldman analysts insisted that we wouldn't know when oil prices would fall until we knew "when American consumers will stop buying gas-guzzling sport utility vehicles and instead seek fuel-efficient alternatives."

But it wasn't the consumption of real oil that was driving up prices - it was the trade in paper oil. By the summer of2008, in fact, commodities speculators had bought and stockpiled enough oil futures to fill 1.1 billion barrels of crude, which meant that speculators owned more future oil on paper than there was real, physical oil stored in all of the country's commercial storage tanks and the Strategic Petroleum Reserve combined. It was a repeat of both the Internet craze and the housing bubble, when Wall Street jacked up present-day profits by selling suckers shares of a fictional fantasy future of endlessly rising prices.

In what was by now a painfully familiar pattern, the oil-commodities melon hit the pavement hard in the summer of 2008, causing a massive loss of wealth; crude prices plunged from $147 to $33. Once again the big losers were ordinary people. The pensioners whose funds invested in this crap got massacred: CalPERS, the California Public Employees' Retirement System, had $1.1 billion in commodities when the crash came. And the damage didn't just come from oil. Soaring food prices driven by the commodities bubble led to catastrophes across the planet, forcing an estimated 100 million people into hunger and sparking food riots throughout the Third World.

Now oil prices are rising again: They shot up 20 percent in the month of May and have nearly doubled so far this year. Once again, the problem is not supply or demand. "The highest supply of oil in the last 20 years is now," says Rep. Bart Stupak, a Democrat from Michigan who serves on the House energy committee. "Demand is at a 10-year low. And yet prices are up."

Asked why politicians continue to harp on things like drilling or hybrid cars, when supply and demand have nothing to do with the high prices, Stupak shakes his head. "I think they just don't understand the problem very well," he says. "You can't explain it in 30 seconds, so politicians ignore it."

BUBBLE #5 - RIGGING THE BAILOUT
After the oil bubble collapsed last fall, there was no new bubble to keep things humming - this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.

It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers - one of Goldman's last real competitors - collapse without intervention. ("Goldman's superhero status was left intact," says market analyst Eric Salzman, "and an investment-banking competitor, Lehman, goes away.") The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.

Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year-old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bankholding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding - most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs - and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.

Converting to a bank-holding company has other benefits as well: Goldman's primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict-of-interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank-holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman - New York Fed president William Dudley - is yet another former Goldmanite.

The collective message of all this - the AIG bailout, the swift approval for its bank-holding conversion, the TARP funds - is that when it comes to Goldman Sachs, there isn't a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. "In the past it was an implicit advantage," says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. "Now it's more of an explicit advantage."

Once the bailouts were in place, Goldman went right back to business as usual, dreaming up impossibly convoluted schemes to pick the American carcass clean of its loose capital. One of its first moves in the post-bailout era was to quietly push forward the calendar it uses to report its earnings, essentially wiping December 2008 - with its $1.3 billion in pretax losses - off the books. At the same time, the bank announced a highly suspicious $1.8 billion profit for the first quarter of 2009 - which apparently included a large chunk of money funneled to it by taxpayers via the AIG bailout. "They cooked those first-quarter results six ways from Sunday," says one hedge-fund manager. "They hid the losses in the orphan month and called the bailout money profit."

Two more numbers stand out from that stunning first-quarter turnaround. The bank paid out an astonishing $4.7 billion in bonuses and compensation in the first three months of this year, an 18 percent increase over the first quarter of 2008. It also raised $5 billion by issuing new shares almost immediately after releasing its first-quarter results. Taken together, the numbers show that Goldman essentially borrowed a $5 billion salary payout for its executives in the middle of the global economic crisis it helped cause, using half-baked accounting to reel in investors, just months after receiving billions in a taxpayer bailout.

Even more amazing, Goldman did it all right before the government announced the results of its new "stress test" for banks seeking to repay TARP money - suggesting that Goldman knew exactly what was coming. The government was trying to carefully orchestrate the repayments in an effort to prevent further trouble at banks that couldn't pay back the money right away. But Goldman blew off those concerns, brazenly flaunting its insider status. "They seemed to know everything that they needed to do before the stress test came out, unlike everyone else, who had to wait until after," says Michael Hecht, a managing director of JMP Securities. "The government came out and said, 'To pay back TARP, you have to issue debt of at least five years that is not insured by FDIC - which Goldman Sachs had already done, a week or two before."

And here's the real punch line. After playing an intimate role in four historic bubble catastrophes, after helping $5 trillion in wealth disappear from the NASDAQ, after pawning off thousands of toxic mortgages on pensioners and cities, after helping to drive the price of gas up to $4 a gallon and to push 100 million people around the world into hunger, after securing tens of billions of taxpayer dollars through a series of bailouts overseen by its former CEO, what did Goldman Sachs give back to the people of the United States in 2008?

Fourteen million dollars.

That is what the firm paid in taxes in 2008, an effective tax rate of exactly one, read it, one percent. The bank paid out $10 billion in compensation and benefits that same year and made a profit of more than $2 billion - yet it paid the Treasury less than a third of what it forked over to CEO Lloyd Blankfein, who made $42.9 million last year.

How is this possible? According to Goldman's annual report, the low taxes are due in large part to changes in the bank's "geographic earnings mix." In other words, the bank moved its money around so that most of its earnings took place in foreign countries with low tax rates. Thanks to our completely hosed corporate tax system, companies like Goldman can ship their revenues offshore and defer taxes on those revenues indefinitely, even while they claim deductions upfront on that same untaxed income. This is why any corporation with an at least occasionally sober accountant can usually find a way to zero out its taxes. A GAO report, in fact, found that between 1998 and 2005, roughly two-thirds of all corporations operating in the U.S. paid no taxes at all.

This should be a pitchfork-level outrage - but somehow, when Goldman released its post-bailout tax profile, hardly anyone said a word. One of the few to remark on the obscenity was Rep. Lloyd Doggett, a Democrat from Texas who serves on the House Ways and Means Committee. "With the right hand out begging for bailout money," he said, "the left is hiding it offshore."

BUBBLE #6 - GLOBAL WARMING
Fast-Forward to today. It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs - its employees paid some $981,000 to his campaign - sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.

AS ENVISIONED BY GOLDMAN, THE FIGHT TO STOP GLOBAL WARMING WILL BECOME A "CARBON MARKET" WORTH $1 TRILLION A YEAR.

Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's co-head of finance) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits - a booming trillion-dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade.

The new carbon-credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.

Here's how it works: If the bill passes; there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy "allocations" or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billions worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.

The feature of this plan that has special appeal to speculators is that the "cap" on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand-new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison's sake, the annual combined revenues of an electricity suppliers in the U.S. total $320 billion.

Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigm-shifting legislation, (2) make sure that they're the profit-making slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for cap-and-trade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank's environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Paulson's report argued that "voluntary action alone cannot solve the climate-change problem." A few years later, the bank's carbon chief, Ken Newcombe, insisted that cap-and-trade alone won't be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that 'Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies) and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time, "We're not making those investments to lose money."

The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utah-based firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There's also a $500 million Green Growth Fund set up by a Goldmanite to invest in green-tech ... the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energy-futures market?

"Oh, it'll dwarf it," says a former staffer on the House energy committee.

Well, you might say, who cares? If cap-and-trade succeeds, won't we all be saved from the catastrophe of global warming? Maybe - but cap-and-trade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax-collection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it's even collected.

"If it's going to be a tax, I would prefer that Washington set the tax and collect it," says Michael Masters, the hedge fund director who spoke out against oil-futures speculation. "But we're saying that Wall Street can set the tax, and Wall Street can collect the tax. That's the last thing in the world I want. It's just asinine."

Cap-and-trade is going to happen. Or, if it doesn't, something like it will. The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees - while the actual victims in this mess, ordinary taxpayers, are the ones paying for it.

It's not always easy to accept the reality of what we now routinely allow these people to get away with; there's a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can't really register the fact that you're no longer a citizen of a thriving first-world democracy, that you're no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there.

But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It's a gangster state, running on gangster economics, and even prices can't be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can't stop it, but we should at least know where it's all going.

Proposal for Board Licensing Mechanism for Journalists

2009-05-01T13:49:00.001-07:00

A work in progress.
Outline:
[illustration of how the journalism sector is in bad straits]

[illustration of the commodification of journalists' work]

[licensing of journalists, board exam]

[barrier to entry as an established economic strategy]

[barrier to entry as a beneficial public service]

[case study of medical profession at turn of 19th-20th century]

[chief concern: But what of the free press? Government control of press is Totalitarianism]

[solution: use Bond Rating agency model]

[concern: Ponzi scheme]

[solution: ? ]

[trend that reinforces need for licensing solution: Disappearance of New York Times....
paper of record, stamp of quality, will no longer be tied to paper....
atomization of news reports...syndication model....
stamp of quality will be more on individual journalist...
Pulitzer and other awards work well except there is a VERY limited supply and, moreover,
current paradigm doesn't support the consumer of news easily knowing about such signifiers of quality (no "nutrition labeling" scheme for journalists)

[other benefits: further distancing influence of commercial concerns ....note that this ALSO is a benefit we'll see from
atomized/syndication/modulized news nugget trend]

The Jeff Farias Show - 11/20/2008

2008-11-21T11:06:00.001-08:00

Great interview with young talents Dakota and the Black River Bandit!

read more | digg story

Buy their sardonically titled CD "Reagan Lives!" at Independent Freedom Tribe records !

Strategy for Helping U.S. Automakers and Reforming Health Care

2008-11-18T09:37:00.000-08:00

If the U.S. auto industry wants a bailout, let us respond by offering to foot their health care bills. The U.S. auto industry is at a comparative disadvantage to foreign auto companies because they pay for part of employee (including retired employee) health insurance. This dollar figure has grown far faster than inflation for over a decade. If the U.S. government offered to include all auto industry employees in its government employee health care pool (this is Obama's plan for national health care), it would not only take a huge weight off of Detroit's shoulders, but also benefit the US by serving as a proof-of-concept for national health care. The success of the plan will take a lot of wind out of the sails of the anti-national healthcare lobbying groups (who derailed Hillary's proposal in 1993).

It's a win-win idea!

Myth That Doctors Love Private Healthcare

2008-11-18T09:31:00.000-08:00

New survey:
Many doctors plan to quit or cut back...dealing with our current system involves too much paperwork

Remember, a Single Payer, Universal National Health Care system streamlines paperwork.

I like the quote from the doctor who says he was trained in medicine, not in running a business. The myth is that as true Americans, everyone in their heart of hearts really wants to RUN A BUSINESS.

Yes, I know a lot of doctors do get off on being entrepreneurs. But this survey casts doubt on the true prevalence of that trait. Also, it will be interesting to see how the changing demographics (more women, more minorities) of doctors alter how common this trait is among doctors.

So Crazy It Might Just Work

2008-11-17T14:55:00.000-08:00

Crazy scheme to fix the economy:

The Theta Plan, as it is known, has drawn mixed reviews from economists. While most agree that the financial theory behind the scheme is "crazy," others counter that the idea of [sneaking into the Federal Reserve Bank with two cans of Barbasol and a giant fishing net in order to adjust the overnight lending rate while no one is looking] is so outside the realm of conventional thinking that, paradoxically, it just might work.

From The Onion

Holding the Bush Administration Accountable: Obama's Agenda

2008-11-13T11:13:00.001-08:00

I was reminded of how strong the urge for vindication is for those aghast at the Bush Administration's seemingly precedent-forming legal maneuvers over the past 8 years over at Democracy Interactive yesterday.

Is it wise or foolish to be bipartisan and forgiving? I cringed during the early Clinton years as he reached across the aisle, but felt I had been taught an important lesson in leadership and grew to see his approach as difficult to stomach but wise and ultimately strategic. Of course, it might be easier for me to appreciate Clinton's middle of the road approach because I directly benefited from some of the "concessions" he was able to wrangle from the Republicans (portability of health insurance). Less substantial, but gratifying all the same, was the real difference it makes in cultural approval of a Democratic leader. Clinton effectively took the bite out of Republican attacks in the early Clinton years.

Obama is of the same mold, albeit more overtly and perhaps (I guess we won't know for while) less strategically (or, "more sincerely", judging from his writings).

Do we take this as a reminder to reach for the higher ground, a lesson in civility? Or do we force Obama to take a more aggressive stand?

For now, my hope is that Obama will, strategically, use the goodwill to get some real legislative victories in his first year, but not abandon the real need for Democrats to resolve the injustices of the past 8 years. The accountability can, and from a strategic political perspective, should, come later. I hope there is some way he can signal such intentions to the Democratic base and that the Democratic base will be perceptive and patient. That is my wish. And I say this as someone who voted against Obama in the primary largely due to my fear (based on reading his books) that he would be far too bipartisan for my tastes (and as someone who came to be fan of Max and the Marginalized after hearing their song "Revenge").

Health Care

2008-11-13T11:01:00.000-08:00

On Obama's innovative Change.gov site last week, I sent my two cents of advice. My number one priority for the agenda is Healthcare. Universal healthcare is a policy that has the potential to lift all boats during this economic malaise. I won't list all the numerous benefits of Universal Healthcare here (but do want to remind pro-business folks that it will help our businesses compete with foreign businesses who don't' have to worry about paying for their employees healthcare....Ford and Chrysler anyone???) but I am convinced that tackling this issue would be far more productive than short term fixes to the economy (though I think investment in infrastructure is a close second).

Given that one of my biggest concerns vis a vis Obama winning the Democratic Primary was his lukewarm stance on Universal Healthcare (see Krugman's critiques), I was very pleased to see Senate Finance Committee Chair Max Baucus (D-Mont.) quickly chiming in this week . This could be very good dynamic, with the Congress leading the charge rather than the Administration (as opposed to the opposite in 1992). Keeping my fingers crossed.

I also hope to see more recognition of what is at stake for women, and hope there is more visibility for the women's groups that are making it clear that women have the most to gain from Universal Healthcare.

Quote of the Day

2008-11-13T10:40:00.000-08:00

On Sarah Palin, Andrew Sullivan points out " But even if she is history, she is history that matters", and then goes on to say:

"The impulsive, unvetted selection of a total unknown, with no knowledge of or interest in the wider world, as a replacement president remains one of the most disturbing events in modern American history. That the press felt required to maintain a facade of normalcy for two months -- and not to declare the whole thing a farce from start to finish -- is a sign of their total loss of nerve."

One of the most irritating tactics of the Republicans, ever since at least Reagan, is trying to come off as being for the "common man", when in fact they are and have always been a party of, and for, the wealthy ("not that this is anything wrong with that..."). Toward that goal, they have succeeded in placing figure heads that appeal to the working class. With Reagan, they found, quite appropriately, an actor. This was a landmark in politics, a milestone representative of the culmination of the video age. Bush Sr. was an aberration for the Republicans, a result of the inconvenient settlement of the Republican primary in 1980 which resulted in Bush being picked as vice-president.

Not quite willing, perhaps out of incredulity, to pick a true "common man", the Republicans found in Bush Jr. a man of their social class that, due to his dimness, actually fit the role of the "common man" quite well. His lack of qualifications pushed the limits of the public, no, the press, even more. The envelope had been pushed and tested: yes, the press would let such a character pass their inspection.

With Palin, we had a run in with pushing that envelope even further. And I supposed in 2012 we'll see if the Republicans continue with that tactic or whether a new age is truly borne.

Our 8 Year Long National Nightmare is Near End

2008-11-05T09:45:00.000-08:00

Now, back to what I was doing in November, 2000. Where was I?

Arizona's Jeff Farias

2008-10-28T15:07:00.000-07:00

911, Have You Seen My Dog, Mr. Puddles?

2008-10-25T11:54:00.000-07:00

Sarah Palin: The First Christian Mayor

2008-10-23T16:41:00.000-07:00

I like what The Wasilla Project is producing. Here's the latest video from them:

Roundup of Recent Arizona GOP Stories

2008-10-23T16:23:00.001-07:00

Arizona's Republican Party Imploding, Plagued By Infighting And Scandal

Arizona Dems say GOP credit card found in office

Andrew Thomas attack ad pulled from TV

Frank Capra's 1958 TV Show on Global Warming

2008-10-23T11:56:00.000-07:00

Some folks are shocked to find out we knew about this phenomenon back then. I'm not.

Arizona Native American Rights Issue

2008-10-23T10:45:00.000-07:00

Apologies from the GOP

2008-10-22T13:22:00.000-07:00

Glenn Greenwald talks about something strange going on with the GOP and notes, in contrast:

In the last eight years, George Bush has apologized a grand total of twice for things he did (for Abu Grahib and when he demanded that a blind reporter remove his sunglasses -- and he only acknowledged personal responsibility in the latter case) and Dick Cheney once (when he joked about inbreeding in West Virginia).

Fiscal Conservative

2008-10-22T13:07:00.001-07:00

Can We End the American Entrepreneur Myth Yet?

2008-10-17T13:03:00.000-07:00

From Bloomberg:

Almost 95 percent of 21.5 million owners of small businesses who file as sole proprietors had receipts under $100,000 in 2007.

Joe is not a plumber, and he made up his story

2008-10-16T11:06:00.000-07:00

According to the Bureau of Labor Statistics, the mean annual wage for plumbers, pipefitters and steamfitters in the United States in 2007 was $47,350.

Biden says:

“You notice John [McCain] continues to cling to the notion of this guy Joe the plumber,” Biden said on NBC’s Today show. “I don't have any Joe the plumbers in my neighborhood that make $250,000 a year that are worried.”

“The Joe the plumbers in my neighborhood, the Joe the cops in my neighborhood, the Joe the grocery store owners in my neighborhood — they make, like 98 percent of the small businesses, less than $250,000 a year,” said the Democratic VP nominee. “And they’re going to do very well under us, and they’re going to be in real tough shape under John McCain.”

Biden is smart, because it turns out Joe is NOT, in fact, a plumber.

It also turns out Joe is one of those 75% of Americans that doesn't make more than 95% of Americans but thinks that one day he will. Some call it optimism, but mathematicians call it delusional.

COURIC: Well, he supposedly will raise taxes only on people who make over $250,000 a year. Would you be in that category?
WURZELBACHER: Not right now at presently, but, you know, question, so he's going to do that now for people who make $250,000 a year. When's he going to decide that $100,000 is too much, you know?

According to divorce records, Joe made about $40,000 a year as of 2006.

Oh, and it turns out Joe doesn't really worry too much about taxes, becase Joe doesn't pay his taxes. A true liberatarian hero.

Update:
This Joe the Plumber story is just falling all to pieces for McCain. It turns out Joe The Not-Really A Plumber is the possible grandson of Charles Keating, and actually lived on (no joke) Keating Drive, in Mesa, Arizona.

As I Suspected, Joe the Rich Plumber is an Anarchist

2008-10-16T10:26:00.000-07:00

Joe, I don't want to live on your island. I can fix my own damn plumbing, thank you.

Should taxpayers help Joe buy a plumbing business that someone else owns?

2008-10-16T08:32:00.000-07:00

Let's see, Joseph wants to buy a business that makes in profits $250,000 - $280,000 a year. So, the cost of purchasing must be, let me do that math:

Annual return on investment would have to be in the 5 to 15% range, let's say 10%. So, Joe can afford to shell out:
$2,500,000 - 2,800,000 dollars
He's a effing millionaire.

And he's concerned about paying 3% additional tax on the amount of profit he'll make over $250,000, anywhere between $0 and, OH MY GOD, $900!!!

UPDATE:
He is not a millionaire, but a bit confused about the difference between income and expense, or a deceptive liar:

He acknowledged that he wants to buy a plumbing company for $250,000 to $280,000. That wouldn't be how much profit he would make from the firm.

He would make much less, he said.

Yeah, like only $30,000 !!!

AHHHGGG!! Thanks McCain for bringing up this total diversion. I guess we can count on that from you.

Transcript of Obama's Talk with Joe the Rich Plumber

2008-10-16T03:29:00.000-07:00

From Spread the Wealth?

Outside Toledo, Ohio, on Sunday, Sen. Barack Obama, D-Ill., was approached by plumber Joe Wurzelbacher, a big, bald man with a goatee who asked Obama if he believes in the American dream.

"I'm getting ready to buy a company that makes 250 to 280 thousand dollars a year," Wurzelbacher said. "Your new tax plan is going to tax me more, isn't it?"

Obama said, "First off, you would get a 50% tax credit so you'd get a tax cut for your healthcare costs….. if your revenue is above 250 – then from 250 down, your taxes are going to stay the same. It is true that from 250 up – from 250 – 300 or so, so for that additional amount, you’d go from 36 to 39%, which is what it was under Bill Clinton. And the reason why we’re doing that is because 95% of small businesses make less than 250. So what I want to do is give them a tax cut. I want to give all these folks who are bus drivers, teachers, auto workers who make less, I want to give them a tax cut. And so what we’re doing is, we are saying that folks who make more than 250 that that marginal amount above 250 – they’re gonna be taxed at a 39 instead of a 36% rate.”

Responded Wurzelbacher, "the reason I ask you about the American dream, I mean I've worked hard. I'm a plumber. I work 10-12 hours a day and I'm buying this company and I'm going to continue working that way. I'm getting taxed more and more while fulfilling the American dream."

"Well," said Obama, "here's a way of thinking about it. How long have been a plumber?"

Wurzelbacher said 15 years.

Obama says, “Over the last 15 years, when you weren’t making 250, you would have been given a tax cut from me, so you’d actually have more money, which means you would have saved more, which means you would have gotten to the point where you could build your small business quicker than under the current tax code. So there are two ways of looking at it – I mean one way of looking at it is, now that you’ve become more successful through hard work – you don’t want to be taxed as much.”

“Exactly," Wurzelbacher said.

Obama continued, “But another way of looking at it is 95% of folks who are making less than 250, they may be working hard too, but they’re being taxed at a higher rate than they would be under mine. So what I’m doing is, put yourself back 10 years ago when you were only making whatever, 60 or 70. Under my tax plan you would be keeping more of your paycheck, you’d be paying lower taxes, which means you would have saved…Now look, nobody likes high taxes."

"No," said Wurzelbacher.

"Of course not," said Obama. "But what’s happened is that we end up – we’ve cut taxes a lot for folks like me who make a lot more than 250. We haven’t given a break to folks who make less, and as a consequence, the average wage and income for ordinary folks, the vast majority of Americans, has actually gone down over the last eight years. So all I want to do is – I’ve got a tax cut. The only thing that changes, is I’m gonna cut taxes a little bit more for the folks who are most in need and for the 5% of the folks who are doing very well - even though they’ve been working hard and I appreciate that – I just want to make sure they’re paying a little bit more in order to pay for those other tax cuts. Now, I respect the disagreement. I just want you to be clear – it’s not that I want to punish your success – I just want to make sure that everybody who is behind you – that they’ve got a chance at success too.”

Wurzelbacher said it seemed as though Obama might support a flat tax.

Obama says, “you know, I would be open to it except here’s the problem with a flat tax is that if you actually put a flat tax together, in order for it to work and replace all the revenue that we’ve got, you’d probably end up having to make it like about a 40% sales tax. I mean that’s the value added, making it up. Now some people say 23 or 25, but in truth when you add up all the revenue that would need to be raised, you’d have to slap on a whole bunch of sales taxes on. And I do believe for folks like me who have worked hard, but frankly also been lucky, I don’t mind paying just a little bit more than the waitress that I just met over there who’s things are slow and she can barely make the rent."

Obama said, "My attitude is that if the economy’s good for folks from the bottom up, it’s gonna be good for everybody. If you’ve got a plumbing business, you’re gonna be better off if you’re gonna be better off if you’ve got a whole bunch of customers who can afford to hire you, and right now everybody’s so pinched that business is bad for everybody and I think when you spread the wealth around, it’s good for everybody."

That's the key moment McCain is jumping out…"when you spread the wealth around it's good for everybody."

"But listen," Obama said, shaking Wurzelbacher's hand, "I respect what you do and I respect your question, and even if I don’t get your vote, I’m still gonna be working hard on your behalf, because small businesses are what creates jobs in this country and I want to encourage it.”

"Guys I gotta get out of here and go prepare for the debate," Obama said, "but that was pretty good practice right there."

You Just Might Be Surprised: WSJ Defends Bill Ayers

2008-10-15T12:52:00.000-07:00

Lots of attention today about how McCain will be bringing up the Ayers connection tonight in the debate. Well, Thomas Frank was given space on the Wall Street Journal opinion page to say "Republican campaign masterminds have sought to plunge [Obama] back into " a time and place he that predates him "in the most desperate and grotesque manner yet."

It's refreshing to hear some pride taken in Bill Ayers.

Bill's got lots of friends, and that's because he is today a dedicated servant of those less fortunate than himself; because he is unfailingly generous to people who ask for his help; and because he is kind and affable and even humble. Moral qualities which, by the way, were celebrated boisterously on day one of the GOP convention in September.

Mr. Ayers is a professor of education at the University of Illinois at Chicago (UIC), where his work is esteemed by colleagues of different political viewpoints. Herbert Walberg, an advocate of school vouchers who is a visiting fellow at the Hoover Institution, told me he remembers Mr. Ayers as "a responsible colleague, in the professional sense of the word." Bill Schubert, who served as the chairman of UIC's Department of Curriculum and Instruction for many years, thinks so highly of Mr. Ayers that, in response to the current allegations, he compiled a lengthy résumé of the man's books, journal articles, guest lectures and keynote speeches. Mr. Ayers has been involved with countless foundation efforts and has received various awards. He volunteers for everything. He may once have been wanted by the FBI, but in the intervening years the man has become such a good citizen he ought to be an honorary Eagle Scout.

And finally:

There are a lot of things to call this tactic, but "country first" isn't one of them. The nation wants its hope and confidence restored, and Republican leaders have chosen instead to wave the bloody shirt. This is their vilest hour.

Bernstein: Again With the Trickle Down!?!

2008-10-15T12:06:00.001-07:00

Over at Huffington Post:

If your only tool is a hammer, everything looks like a nail. That's what came to mind this AM when I read that John McCain's plan to address the ailing economy includes a big cut in the capital gains tax rate, from 15% to 7.5% for the next two years.

How wrongheaded is this? Let me count the ways.

First, the McCain folks may have missed this, but asset values have been falling, big time. Remember, John?... That whole financial mess that folks have been talking about? When capital assets, like stocks or bonds, lose value, that's a capital loss, and it's already deductible from your taxes.

Further on:

If you want to provide income and job opportunities to people who are hurting, your best bet is to do so directly, through tax cuts targeted at them, and through infrastructure investment designed to create new, quality jobs. That's what Obama aims for in his recently announced package.

Finally, and this is important, does anyone really believe that this allegedly temporary cut will really sunset in two years? Like Dr. Phil says, "this ain't my first rodeo!" That's the tripwire in the Bush cuts. They end in 2011, but anyone who wants to let them do so is accused of supporting the "largest tax increase in history."

And finally

So we are yet again left with John McCain getting it wrong on economic policy. There is absolutely a need to help struggling families right now, but if this is the best he can come up with, we'd all be much better off if he put the hammer back in the tool shed and left the policy construction to others.

read the entire article

Who Among You Will Not Vote? The Weight of a Snowflake

2008-10-14T10:22:00.000-07:00

The Weight of a Snowflake by Noni Mausa at AngryBear:

Vote.

I was taught, by example, how to vote. My parents got up in the
morning and dressed as though for church. The day was somehow quieter
than other days, even in a household with five kids.

We drove to the polling site and while one parent went in to vote, the
other would ride herd on us in the car, but it never took much effort
to keep us quiet. It was voting day.

Formal, sober, quietly determined, everyone in my hometown migrated to
the polls, and we kids were taught that the actual voting was both a
purely personal choice, and a secret. The secret might be shared, but
it was uncouth to ask "How did you vote?"

It was never said outright, I think, but we were shown that the vote
was sacred: "set apart for a special purpose". My parents treasured
their vote, it was at once a right, and a privilege, and an
obligation.

To add one voice to the larger voice of the nation, and together say
in some mystical way what path the nation will take, is in its own way
a religious action, full of faith and determination and patience in
the face of a flurry of mere arithmetic.

To choose not to vote is an act of negligence or even despair – both
of them equally undermine our shared nation.

I vote for meat on my neighbour's plate, not mine. For the health of
my neighbour's children, the peace of our streets, the knowledge in
our libraries and the significance and beauty of our images and songs.
I vote for the strength of the whole, not the benefit of one walled
garden at the cost of a wilderness outside.

Arithmetic is the enemy of the vote. The vote is more than a grain of
sand on a scale, it is an action in which citizens make themselves
manifest as a part of the whole. To neglect it is to become a
political ghost, moving voiceless through the world.

An old woman who told stories, who was prisoner of the Nazis, who left
her Dutch home for a new home and language and land, told this story:

"Tell me the weight of a snowflake," a mouse asked a wild dove.

"Nothing more than nothing," the dove answered.

"In that case I must tell you a marvelous story," the mouse said.
"I sat on the branch of a fir, close to its trunk, when it began to
snow. Not heavily, not a raging blizzard, no -- just like in a dream
without any violence the snow silently fell.

Since I had time, I counted the snowflakes setting on the twigs
and needles of my branch. Their number was exactly 3,741,952 when the
next snowflake dropped onto the branch - "nothing more than nothing"
as you say - the branch broke off."

Having said that the mouse went away.

Vote.

John Cleese on Sarah Palin

2008-10-14T09:34:00.001-07:00

The Last of the Couric Interviews

2008-10-13T16:31:00.000-07:00

I love Katie Couric's response to the claim it was Gotchya Journalism!

Paul Krugman Wins Nobel Prize!

2008-10-13T11:00:00.000-07:00

Today's news, that Paul Krugman won the Nobel Prize in Economics is going to send shockwaves through the Economics profession.

I have been following Paul Krugman for 15 years now, and this is just amazing news. I have great admiration and respect for him.

Has Anyone Seen My Dog? - McCain

2008-10-10T16:20:00.000-07:00

I. CANT. STOP. LAUGHING.

MWLFD
by Hishighness

I Know How to Win Wars

2008-10-10T15:33:00.000-07:00

Please help me out. When Grampy McNuggets keeps saying "I know how to win wars", what the @#$!&@ is he talking about? Have I missed a war? Was he involved in the planning of Desert Storm and we just didn't know?

Republican Rage: McCain = Paul von Hindenburg

2008-10-10T12:31:00.000-07:00

From CNN:

...
One member of the Palin audience in Jacksonville, Florida, Tuesday shouted out "treason." And at another rally in the state Monday, Palin's mention of the Obama-Ayers tie caused one member to yell out: "kill him" -- though it was unclear if it was targeted at Obama or Ayers.

At several recent rallies, Palin has stirred up crowds by mentioning the "liberal media." Routinely, there are boos at every mention of The New York Times and the "mainstream media," both of which are staples of Palin's stump speech.

Some audience members are openly hostile to members of the traveling press covering Palin; one crowd member hurled a racial epithet at an African-American member of the press in Clearwater, Florida, on Monday.

And at a McCain rally in New Mexico on Monday, one supporter yelled out "terrorist" when McCain asked, "Who is the real Barack Obama?" McCain didn't respond.

So far, neither Palin nor McCain have explicitly called on their supporters to tamper down the attacks.

...

Also, the McCains said months ago they didn't wanted their son Jimmy -- a Marine serving in Iraq -- dragged into the campaign.

But on Thursday, Cindy McCain brought up her son.

She criticized the Illinois senator for voting against a bill to fund troops in Iraq, a regular line of attack from her husband's campaign.

"The day that Sen. Obama cast a vote not to fund my son when he was serving sent a cold chill through my body, let me tell you," she told a Pennsylvania crowd before introducing her husband and his No. 2.

The vote Cindy McCain is referencing came in May 2007, when Obama was one of 14 senators who voted against a war-spending plan that would have provided emergency funds for American troops overseas.

A CNN fact check deemed the charge that Obama voted against troop funding "misleading."

Update:

McCain Faces Backlash Over Rabid Crowds frighteningly demonstrates that McCain is unable to contain the crowds that Palin has unleashed. Let me be the first to compare Palin to Hitler in 1932. McCain = Paul von Hindenburg.

Update 2:
I'm not the only one who sees this:

Is John McCain our Paul von Hindenburg?

McCain is a weak figure, the Hindenberg to Palin's Hitler.

Update 3:
WSJ comment:

People are conflicted about what they want. They want activist liberal government but they also want muscular American foreign policy and a dynamic capitalist system. So, logically, the only way to go forward is National Socialism.

Vote McCain/Palin, our version of Hindenburg/Hitler ticket, an aging war hero and a revolutionary who “speaks” to women and the great middle….

You know the next step of the pirouette… the war hero dies and there is a new terror attack resulting in a new Enabling Act….

Some things never change.

Comment by Only way to go forward now! - September 12, 2008 at 1:07 pm

This YouTube video has been out since Palin was announced as McCain's running mate, but it kind of fits in here:

Officially Worse Than 1929

2008-10-10T11:51:00.000-07:00

In October of 1929 the Dow fell from about 350 to 200. By the end of today you'll probably be able to say it fell from 14,000 to 7,000.

Dow at 7,882

Wall Street Crash of 1929

TAX and spend on infrastructure, or CUT TAXES and spend on military: Responsible versus Irresponsible Budget Management

2008-10-10T10:28:00.000-07:00

The National Debt now exceeds 10 Trillion Dollars.

You might be surprised to see the following, so please click to enlarge:

US NATIONAL DEBT BY PRESIDENT

Tom Brokaw Stinks

2008-10-09T15:14:00.000-07:00

The future of Social Security is not agreed upon by economists. NYT Columnist and Princeton Economist Paul Krugman thinks its fine, and all the whoopla in the 90's scaring college students into thinking it won't be there for them was a Republican scare tactic to usher in an era of privatizing it. So it was pretty bizarre to see Brokaw state in his question that Social Security is in jeopardy.

Not much has been made about this, at least from the Democratic side and with good reason at this point ("I've never seen anyone who thought they won the baseball game walk off the field complaining about the last call by the umpire," Howard Kurtz quotes an Obama spokesman). But I do want to express my own annoyance with Brokaw. To do so, I'll share these quotes from the Wash Post blog, with which I agree:

National Review's Byron York reports the anti-Brokaw sentiment from the GOP side:

" 'This was the worst-moderated debate in the history of presidential debates,' one McCain campaign insider told me just moments after John McCain and Barack Obama left the stage at Belmont University in Nashville. 'The audience and the American people should feel robbed -- that the one opportunity they had to ask questions of the presidential candidates was taken from them by Tom Brokaw.' . . .

"For much of the night Brokaw seemed to ask a question of his own for every question that came from the audience or from the Internet. If McCain's advisers were hoping for a genuine New Hampshire voter-interaction town hall experience, they didn't get it. Of course, neither did Obama, but after the debate Camp Obama didn't seem nearly as unhappy. They didn't see the debate as a true town hall -- the kind of event Obama has declined to participate in with McCain -- but they weren't particularly bothered."

At Power Line, Paul Mirengoff also tut-tuts Tom:

"Brokaw was a dreadful moderator. Instead of inviting the candidates to debate the answers their opponent gave in response to the audience questions, Brokaw interposed his own (often lame) questions. This was an impediment to real debate as well as an unwarranted intrusion by Brokaw into the 'townhall.'

"Naturally, the candidates at times brushed aside Brokaw's question and did what they were there to do -- debate each other in response to audience questions. This was one reason why the candidates kept exceeding the time limit. Brokaw should have (1) realized what was going on and stopped asking his own questions and/or (2) enforced the time limit. He did neither."

Note to McCain: Overhead projector != Planetarium projector

2008-10-08T18:48:00.001-07:00

During last night's presidential debate, McCain took Obama to task for approving funding for an "overhead projector." Howard Covitz, who used to work at Chicago's Adler Planetarium, prepared this helpful graphic for McCain to show the difference between a simple overhead projector and a Zeis Mark IX planetarium projector.

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McCain Hates Science Education And Is an Idiot: OVERHEAD PROJECTOR? NOT!

2008-10-08T09:37:00.000-07:00

Based on what McCain said in last night's debate, he thinks this is an OVERHEAD PROJECTOR (like the kind your teacher had in your classroom):

Planetarium Projector

What an asshole.

UPDATE:
Adler Responds

From my former boss there from 15 years ago:

Adler president to McCain: Sky machine not an overhead projector

October 8, 2008

BY ANDREW HERRMANN Staff reporter/aherrmann@suntimes.com
The president of the Adler Planetarium lifted a black cloth off a familiar schoolroom device Wednesday and declared, "That’s an overhead projector.’’

Behind Paul H. Knappenberger Jr. was an automobile-sized machine. That, he said, is a "planetarium projection system.’’

The overhead, "you can probably get for $10 or so on eBay,’’ said Knappenberger.

But to replace the Adler’s sky machine, which creates stars on a domed ceiling, would cost $3 million to $5 million.

Knappenberger felt obligated to distinguish the two after Sen. John McCain, during Tuesday night’s presidential candidate debate, criticized Obama for trying to win federal support for a new star device, calling it a "$3 million overhead projector" and dismissing it as a "pork barrel earmark.’’

Knappenberger said the mention put the Adler "in front of the American public as having been frivolous or foolish in asking for $3 million for an overhead projector.’’

"I just wanted to clarify that is not the case," he said.

Obama’s efforts to secure the $3 million have been unsuccessful. But Knappenberger said the Adler would try again.

The current star system — a Mark VI Zeiss Projector — was installed in 1967. The manufacturer no longer makes replacement parts, and the inside is disintegrating, so errant, escaping light projects onto the dome.

"New stars are appearing in our sky almost daily, [and] not where they belong,’’ said Knappenberger.

Some 80,000 school children, mostly from the Chicago area but also from all 50 states, visited the Adler in 2007, officials said.

"The national surveys have shown that U.S. students are falling further behind each year in math and science compared to other countries around the world,’’ said Knappenberger. "It’s not comforting to hear somebody who’s running for the presidency not support efforts to improve math and science."

McCain supporters charge that the planetarium earmark was a way for Obama to reward ComEd executive Frank Clark, who serves as the Adler board chairman and is also a major fund-raiser for Obama.

Knappenberger said the planetarium started asking local congressmen for federal help in 2005, before Obama declared his candidacy for president.

UPDATE 2:
And from the Wall Street Journal:

Paul Knappenberger was watching the presidential debate Tuesday night when the planetarium he runs was suddenly turned into a political football. “My phone started ringing,” he says. “My computer went berserk.”

Paul Knappenberger with an ordinary projector and a star projector at Chicago’s

Alder Planetarium. (WSJ Photo/Joe Barrett)

The transformation of the Adler Planetarium, a 78-year-old cultural landmark on the shore of Lake Michigan, occurred when GOP presidential hopeful John McCain was making a dig at Democratic rival Barack Obama’s spending habits. “While we were working to eliminate pork-barrel earmark projects, he voted for nearly $1 billion in pork-barrel earmarks, including $3 million for an overhead projector at a planetarium in Chicago, Ill.,” the Arizona senator said. “My friends, do we need to spend that kind of money?”

Wednesday morning, Knappenberger called a news conference under the domed roof of the facility’s Sky Theater to argue that that kind of money is indeed worth spending. The planetarium has offered millions of students a chance to see something they normally can’t in Chicago—a dark, night sky—“an inspiring opportunity to get students interested in science, interested in math, he said.

He said McCain’s comment “doesn’t sit well” with someone who has dedicated his career to that pursuit.

He also pulled out an old overhead projector—the kind found in classrooms—to clarify the difference between it and the Mark VI Zeiss Projector that has been recreating a view of the stars and planets since it was installed in 1967. It is only the second projector for the planetarium, which was the first of its kind in the Western Hemisphere when it was founded in 1930.

Today, the instrument—which consists of two large blue balls that shine pinpoints of light on the ceiling–is in dire need of replacement. Parts are wearing out and replacements are no longer available. “New stars are appearing almost daily,” he joked.

Knappenberger said the cost of replacing the projector will run between $3 million and $5 million as part of a $10 million project to renovate the entire theater. Last year, the planetarium requested help from Illinois Sens. Obama and Dick Durbin and the area’s six congressman, all of whom backed the federal earmark request. At some point in the budget process, though, the funding was turned down.

The planetarium has received pledges of between $3 million and $4 million from private sources and will try again for federal help—as well as state and city funding—during the next budget cycle, Knappenberger said.

McCain pounced on the projector project again Wednesday, telling an audience in Bethlehem, Pa. that he had mentioned the projector at the debate and added: “Coincidentally, the chairman of that planetarium pledged to raise more than $200,000 for Sen. Obama’s campaign. We don’t know if they ever discussed the money for the planetarium, and no one has asked Sen. Obama. But even the appearance of this kind of insider-dealing disgusts Americans. I’m going to put a stop to that, my friends, if I’m president.”

Update 3:

University of Chicago Professor says:

The way Sen. McCain has phrased it suggests that Sen. Obama approved spending $3 million on an old-fashioned piece of office equipment (overhead projector).
...
I find it appalling that Sen. McCain would call a science education tool for public (largely children) for a historic planetarium with millions of visitors a year a wasteful earmark. The planetarium's focus, as stated on their website (http://adlerplanetarium.org) is "on inspiring young people, particularly women and minorities, to pursue careers in science." Is an investment in such public facility at the time when US competitiveness in math and sciences is a constant source of alarm a waste?

McCain's Health Care Plan

2008-10-07T11:12:00.001-07:00

Good column by Paul Krugman on McCain's Health Care Plan.

Basically, McCain wants to remove the tax benefit companies get for providing health insurance to their employees, and instead have people buy it for themselves with a tax credit. On the surface this sounds enticing and modern because it removes the need to stay at a company just because of health insurance benefits, which is indeed a problem facing employees in today's loyalty-free workplace.

The removal of the tax incentive for employers will surely result in employers dropping health insurance coverage as a benefit for their employees. I remember being puzzled in college as to why employers are so depended on for health coverage. Well, I was in college during the great DOWNSIZING of corporations, so you can see why it seemed so illogical for both employees and employers...employers were the last persons you wanted to be reliant on, and what's in it for the employer? Well, once upon a time, employers strove to attract employees, who were seen as a LONG TERM INVESTMENT, and offering health insurance was a sweet benefit. But at some point it became the norm, and thereafter, the culture changed so employees became disposable and interchangeable.

(By the way, universal health coverage takes care of this problem)

But the major flaw, if not deception, in McCain's "let the free market work" plan is that insurance is not, as economists would call it, a normal good. Insurance is peculiar in that the more folks that are in a SINGLE PLAN, the more risk is diversified, and the more affordable it is overall. This, by the way, is why UNIVERSAL COVERAGE makes so much sense, because you are broadening the pool way larger than any private insurer could...to include the entire COUNTRY.

This is also why small companies cannot afford group health insurance, compared to large corporations. Large corporations have lots of employees in their plan, so it is less riskier for insurance companies...the risk is diversified.

If small businesses are paying through the roof for group health insurance, what do you think will happen when the plans are now made up of INDIVIDUALS?

So, what will happen in McCain's plan is that private insurance companies will offer really inexpensive plans to those who are young, male and healthy. And VERY EXPENSIVE plans (or more likely, plans that disguise the fact that they don't cover much at all) for everyone else.

History of Commercial Paper

2008-10-06T17:26:00.000-07:00

Some Nice Radio Journalism on Finance

2008-10-06T16:16:00.001-07:00

I recommend:

Rene Gutel's radio blogs

and

This American Life's Another Frightening Show About the Economy, October 3, 2008

Keating 5 and the S&L Debacle

2008-10-06T13:09:00.001-07:00

On the Efficiency of Finance

2008-10-05T04:50:00.001-07:00

From Michael Perelman:

Capitalism is the most efficient system known to mankind. Central to this efficiency is the ability of markets to channel capital where it is most effective. The current financial crisis might be expected to throw some doubts on this dogma, but I do not expect that to be the case.

For example, in 2001, in the wake of dot.com bubble, 2, the New York Times reported on one of the many excesses of the period:

"In the last two years, 100 million miles of optical fiber -- more than enough to reach the sun -- were laid around the world as companies spent $35 billion to build Internet-inspired communications networks. But after a string of corporate bankruptcies, fears are spreading that it will be many years before these grandiose systems are ever fully used."

The response was not to rethink the system, but to double down lowering interest rates to reignite the stock market. Investors, the government, and even ordinary people applauded the decision Federal Reserve Chairman Greenspan, who appeared to be the wisest man in the universe at the time.

Greenspan's manipulation of the interest rate appeared to be so beneficial, because it occurred without any direct effect on the proverbial taxpayer. Peripherally, why is it that this taxpayer ranks so much higher in our concern relative to the workers who make everything possible?

In retrospect, Greenspan's policy provided the fuel that helped to make the crisis possible, if for no other reason that falling interest rates reduce the payment on mortgages. So, for the same payments, people can afford to buy more expensive housing. Once housing prices begin to rise, housing becomes an investment as well as the source of shelter. In addition, people who suffered losses during the dot.com bust, saw housing is a safer investment than the stock market.

Just as the solution to the dot.com crisis produce the current crisis, the present bailout, if it works at all, will create the preconditions for the next one. The purpose of the bailout is to create confidence. Back in the 19th-century, the governor of Illinois gave an excellent analysis of the way confidence worked in financial markets. He said that confidence "could only exist when the bulk of the people were under a delusion. According to their views, if the banks owed five times as much as they were able to pay and yet if the whole people could be persuaded to believe this incredible falsehood that all were able to pay, this was 'confidence'."

His words may perhaps be the most succinct analysis of fictitious capital that I have read.

Derivatives

2008-10-05T03:33:00.000-07:00

I learned about Derivatives way, way back in 1989 when I worked at the Chicago Board of Trade. Although at first I was a bit overwhelmed at their very existence and seemingly unfathomable potential for complexity, I took it that they were well understood by the mainstream business class. So, it still seems bizarre to me these days when financial reporters seem to have to instruct the audience about them. Anway, I like how Warren Buffet put it:

"The range of derivatives contracts is limited only by the imagination of man (or sometimes, so it seems, madmen)."

Back in 1989, these class of investments seemed to just simply be called Derivatives (ocassionally Shorts, Forwards, etc), but perhaps nowadays the jargon has expanded. They served a useful purpose for commodities markets, protecting the farmer (I posess no objective lens on this, I was exposed to the CBOT just out of High School) from the vagaries of weather. I'm supposing now that the real problem that eventually sprung up was the application of these hedge strategies to inappropriate lengths... insuring against nature is one thing, but insuring against man-made calamities is another.

Anyway, be sure you understand Derivatives.

Your Wikipedia Reading for Today

2008-10-05T02:52:00.000-07:00

List of Notable Business Failures

Wow, 2008 has so many they had to be included in their own separate section.

On the Bailout, or Your Wikipedia Assignment

2008-10-02T02:55:00.000-07:00

I still have conflicting opinions on the bailout (not, however, on the Paulson bailout plan, which is clearly reckless). I think it behooves anyone hoping to formulate an opinion to brush up on the following:

Federal Reserve

Federal Reserve Act (I think the resulting compromise legislation effectively debunks conspiracy theories propounded by Libertarians)

Shadow Banking System

Extra credit:
Commercial Paper

Money Fund

In any case, I think opinions necessarily have to fall into the Practical and the Ideal, so keep that in mind when you hear people talk about the bailout.

David Letterman Reacts to John McCain Suspending Campaign

2008-09-26T12:13:00.001-07:00

Sarah Palin like a talking points machine gone out of control

2008-09-26T10:12:00.000-07:00

The Christian Science Monitor reports on the Couric interview:

[Sarah Palin] on whether the $700 billion bailout of the U.S. financial sector is a good idea.

"That’s why I say I, like every American I’m speaking with, we’re ill about this position that we have been put in where it is the taxpayers looking to bail out. But ultimately what the bailout does is help those who are concerned about the healthcare reform that is needed to help shore up our economy. Helping the—it’s got to be all about job creation too, shoring up our economy and putting it back on the right track. So health care reform and reducing taxes and reining in spending has got to accompany tax reductions and tax relief for Americans and trade—we’ve got to see trade as opportunity, not as competitive, scary thing, but one in five jobs being created in the trade sector today—we’ve got to look at that as more opportunity."

If you didn’t quite catch the meaning of the above, don’t bother re-reading it. It doesn’t get any clearer. U.S. News and World Report columnist Robert Schlesinger called the statement a “talking points machine gone out of control.”

Barack Obama Responds to McCain Wanting to Cancel Debate

2008-09-25T15:59:00.001-07:00

Obama on the Wall Street Bailout

2008-09-25T15:53:00.001-07:00

Rep. Paul Kanjorski - Remarks at House Financial Services Committee

2008-09-25T00:36:00.001-07:00

D-PA Rep. Paul Kanjorski

Chris Dodd, Senate Banking Committee

2008-09-25T00:20:00.000-07:00

Dodd's Plan versus Paulsen's Plan

2008-09-23T16:17:00.000-07:00

Compare and contrast:

Bush Administration or Paulsen's Plan

Democratic Senator Chris Dodd's Plan in PDF in HTML

Senator Chris Dodd is my hero

2008-09-23T15:32:00.001-07:00

The Bush Admin presented a disingenous proposal that would have given unprecedented powers to the Treasury Secretary. Probably was only Chris Dodd that stood between the Administration's juggernaut and the welfare of Americans, as he stopped it in its tracks. Here are exerpts from his opening statement.

Less than six months ago, our Committee held a hearing in this very room on what at the time seemed an inconceivable event – the government’s 30 billion dollar intervention in the sale of Bear Stearns to JP Morgan. Now – after spending hundreds of billions more to prop up, bail out, and wind down a multitude of institutions – the U.S. government effectively runs, supports, or outright owns vast swaths of the financial sector.

...

Barely 72 hours ago, Secretary Paulson presented a proposal that he believes is urgently needed to protect our economy. This proposal is stunning and unprecedented in its scope and lack of detail. It would allow him to intervene in the economy by purchasing at least $700 billion of toxic assets. It would allow him to hold onto those assets for years, and to pay millions of dollars to hand-picked firms to manage those assets. It would do nothing to help even a single family save a home. It would do nothing to stop even a single CEO from dumping billions of dollars of toxic assets on the backs of taxpayers – and walking away with a bonus and a golden parachute. And it would allow him to act with utter and absolute impunity – without review by any agency or court of law. After reading this proposal, I can only conclude that it is not just our economy that is at risk, Mr. Secretary, but our Constitution, as well.

Nevertheless, in our efforts to restore financial security to American families and stability to our markets, this Committee has a responsibility to examine this proposal carefully and in a timely manner.

In my view, any plan to address this crisis must embody three principles. First, American taxpayers must have some assurance that their hard-earned money is being used correctly and responsibly. Second, we must put in place proper oversight so that the executors of this plan are accountable and their actions transparent. Finally, we must address the root cause of this crisis by putting an end to the rising number of foreclosures sweeping across the nation.

In the longer term, it is clear that our current economic circumstances demand that we rethink, reform, and modernize supervision of the financial services industry. Certain basic principles should form the foundation for reform.

We need a leader in the White House who will ensure that regulators are strong cops on the beat, and do not turn a blind eye to reckless lending practices.

We need to remove incentives for regulators to compete against each other for bank and thrift “clients” by weakening regulation.

We need to ensure that all institutions that pose a risk to our financial system and taxpayers are carefully and sensibly supervised.

And we need to accept the premise that consumer protection and economic growth are not in conflict, but inextricably linked. If we learn nothing else from this crisis, it is that the failure to protect consumers can cause the collapse of our largest financial institutions, the loss of hundreds of thousands of jobs, and the draining of hundreds of billions of dollars of wealth from hardworking Americans.

See:

http://dodd.senate.gov/index.php?q=node/4572

A NRA site called "Shoot the Liberal"

2008-09-19T13:28:00.001-07:00

Need I say more?

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Palin's e-mail secrecy an open secret in Alaska

2008-09-17T16:01:00.001-07:00

Palin routinely uses a private Yahoo e-mail account to conduct state business. Others in the governor's office sometimes use personal e-mail accounts, too. The practice raises questions about backdoor secrecy in an administration that vowed during the 2006 campaign to be "open and transparent."

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Palin, Using Personal Email for Government Business, Gets Hacked

2008-09-17T14:31:00.001-07:00

The reason Administrations and Governors are supposed to use government email systems for governing is that it is secure. But if they want to do something illegal, they use non-Government accounts. Palin, however, was so backwards that she used unsecure email accounts that were easily hacked. Do we really want this person in control of this country?

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