She calls the Volcker Rule and Dodd-Frank a failure, and calls for a regime in which transactions should be Federally protected or not, and we "should return to Glass-Steagall in all its 32-page simplicity." The link:
Can you identify all 4 portraits? (send to: pappajohn15@gmail.com)
FDIC'S Bair: Not Volcker Rule, But Glass-Steagall Principle Needed
A column by former FDIC head Sheila Bair in Forbes and CNN Money, deceptively headlined "We need a new Volcker rule for banks," actually calls for the principle of Glass-Steagall. Bair calls the Volcker rule -- "a 300-page Rube Goldberg contraption" that has failed in separating depository commercial banking from speculation and gambling.
Occupy Loves Glass Steagall
Luke Rosseel, from the Occupy Movement has a new video out:
Zombie Glass–Steagall [Pseudo Glass-Steagall?]
by Glyn A. Holton, author and consultant with twenty years experience managing financial risk.
October 13, 2011
Zombie Glass-Steagall will soon be stalking the land.On Tuesday, the FDIC released proposed rules for implementing Section 619 of the Dodd-Frank Act—the so-called Volcker Rule. On Wednesday, the SEC did the same. This is a joint effort of the FDIC, Federal Reserve Board, SEC and OCC. Their—largely identical—proposed rules are based on a 79 page study released by Tim Geithner’s Department of Treasury in January 2011.
The Volcker Rule was, of course, an attempt to restore some of the safeguards that were lost in 1999, when Congress scrapped the 1933 Glass–Steagall Act’s separation of commercial and investment banking. In its original form—as Paul Volcker first proposed it in early 2009—the Volcker Rule would:
We ought to have some very large institutions whose primary purpose is a kind of fiduciary responsibility to service consumers, individuals, businesses and governments by providing outlets for their money and by providing credit. They ought to be the core of the credit and financial system. Those institutions should not engage in highly risky entrepreneurial activity. Barack Obama ignored Volckers proposal for a year, but with frustration over his coddling of Wall street near a boil, on January 21, 2010, he publicly endorsed it. With Volcker gleaming by his side, he dubbed it the “Volcker Rule.”
The actual rule he sent to Congress was weak. Senators Jeff Merkley (Democrat of Oregon) and Carl Levin (Democrat of Michigan) strengthened it, and it was their version that made its way into the Dodd-Frank Act. The Treasury Department’s January report weakened it, proposing that, instead of prohibiting banks from investing in hedge funds, that they be allowed to invest up to 3% of their capital in them. The document just released by the FDIC embraces that proposal.
Volcker was unhappy with what happened to his rule, even before Treasury did their hatchet job. We should probably rename it. One possible name would be “Zombie Glass-Steagall”. The rule doesn’t bring any of Glass-Steagall back to life. At best, it disturbs the grave of Glass-Steagall. It makes Glass-Steagall not alive, but undead. And the 298 pages of proposed regulations just released by the FDIC are an abomination—onerous, convoluted and riddled with loopholes.I have always opposed Zombie Glass-Steagall in any form because, fundamentally, it is flawed. While Glass-Steagall prohibited commercial banks from trading certain instruements, Zombie Glass-Steagall prohibits only the proprietary trading of those instruments. Proprietary trading can be indistinguishable from trading related to market making, hedging, underwriting, price discovery, liquidity management, asset-liability matching or a host of other practices. If a trader wants to disguise proprietary trading as one off these, believe me, he can.
Let me give you an example. It is called “trading around order flow”. Suppose a bank makes markets in certain bonds. They are negative on a particular bond, so, when a client places an order to buy that bond, they sell it without purchasing an offsetting position in the same bond. Selling the bond was “market making” but, by doing nothing at all, the bank now has a proprietary short position in the bond. The mere fact that the bank has that short position doesn’t make this proprietary trading. The bank will tell you that it is ineficient to hedge positions transaction-by-transaction—that they look at their portfolio overall and hedge its net exposures. Fair enough, but analyzing whether a trading book is hedged can be devilishly difficult. The trading book might have tens of thousands of positions in equities, bonds, derivatives, repos, you name it. Do you remember the debate over whether Goldman Sachs had shorted the mortgage market heading into the 2008 crisis? They smugly claim they were market neutral. How do you argue with something like that? It is all posturing.
October 13, 2011
Zombie Glass-Steagall will soon be stalking the land.On Tuesday, the FDIC released proposed rules for implementing Section 619 of the Dodd-Frank Act—the so-called Volcker Rule. On Wednesday, the SEC did the same. This is a joint effort of the FDIC, Federal Reserve Board, SEC and OCC. Their—largely identical—proposed rules are based on a 79 page study released by Tim Geithner’s Department of Treasury in January 2011.
The Volcker Rule was, of course, an attempt to restore some of the safeguards that were lost in 1999, when Congress scrapped the 1933 Glass–Steagall Act’s separation of commercial and investment banking. In its original form—as Paul Volcker first proposed it in early 2009—the Volcker Rule would:
- prohibit banks from engaging in proprietary trading, and
- prohibit them from investing their own capital in hedge funds or similar speculative funds.
We ought to have some very large institutions whose primary purpose is a kind of fiduciary responsibility to service consumers, individuals, businesses and governments by providing outlets for their money and by providing credit. They ought to be the core of the credit and financial system. Those institutions should not engage in highly risky entrepreneurial activity. Barack Obama ignored Volckers proposal for a year, but with frustration over his coddling of Wall street near a boil, on January 21, 2010, he publicly endorsed it. With Volcker gleaming by his side, he dubbed it the “Volcker Rule.”
The actual rule he sent to Congress was weak. Senators Jeff Merkley (Democrat of Oregon) and Carl Levin (Democrat of Michigan) strengthened it, and it was their version that made its way into the Dodd-Frank Act. The Treasury Department’s January report weakened it, proposing that, instead of prohibiting banks from investing in hedge funds, that they be allowed to invest up to 3% of their capital in them. The document just released by the FDIC embraces that proposal.
Volcker was unhappy with what happened to his rule, even before Treasury did their hatchet job. We should probably rename it. One possible name would be “Zombie Glass-Steagall”. The rule doesn’t bring any of Glass-Steagall back to life. At best, it disturbs the grave of Glass-Steagall. It makes Glass-Steagall not alive, but undead. And the 298 pages of proposed regulations just released by the FDIC are an abomination—onerous, convoluted and riddled with loopholes.I have always opposed Zombie Glass-Steagall in any form because, fundamentally, it is flawed. While Glass-Steagall prohibited commercial banks from trading certain instruements, Zombie Glass-Steagall prohibits only the proprietary trading of those instruments. Proprietary trading can be indistinguishable from trading related to market making, hedging, underwriting, price discovery, liquidity management, asset-liability matching or a host of other practices. If a trader wants to disguise proprietary trading as one off these, believe me, he can.
Let me give you an example. It is called “trading around order flow”. Suppose a bank makes markets in certain bonds. They are negative on a particular bond, so, when a client places an order to buy that bond, they sell it without purchasing an offsetting position in the same bond. Selling the bond was “market making” but, by doing nothing at all, the bank now has a proprietary short position in the bond. The mere fact that the bank has that short position doesn’t make this proprietary trading. The bank will tell you that it is ineficient to hedge positions transaction-by-transaction—that they look at their portfolio overall and hedge its net exposures. Fair enough, but analyzing whether a trading book is hedged can be devilishly difficult. The trading book might have tens of thousands of positions in equities, bonds, derivatives, repos, you name it. Do you remember the debate over whether Goldman Sachs had shorted the mortgage market heading into the 2008 crisis? They smugly claim they were market neutral. How do you argue with something like that? It is all posturing.
The proposed rules that the FDIC and SEC just released envision banks implementing elaborate reporting and compliance systems to help senior executives and regulators spot proprietary trading. Banks will also have to calculate and track five categories of metrics:
- Risk-management measurements – VaR, Stress VaR, VaR Exceedance, Risk Factor Sensitivities, and Risk and Position Limits;
- Source-of-revenue measurements – Comprehensive Profit and Loss, Portfolio Profit and Loss, Fee Income and Expense, Spread Profit and Loss, and Comprehensive Profit and Loss Attribution;
- Revenues-relative-to-risk measurements – Volatility of Comprehensive Profit and Loss, Volatility of Portfolio Profit and Loss, Comprehensive Profit and Loss to Volatility Ratio, Portfolio Profit and Loss to Volatility Ratio, Unprofitable Trading Days based on Comprehensive Profit and Loss, Unprofitable Trading Days based on Portfolio Profit and Loss, Skewness of Portfolio Profit and Loss, and Kurtosis of Portfolio Profit and Loss;
Customer-facing activity measurements – Inventory Turnover, Inventory Aging, and Customer-facing Trade Ratio; and - Payment of fees, commissions, and spreads measurements – Pay-to-Receive Spread Ratio.
All this is staggeringly complex. Larger banks could spend millions of dollars a year complying with this mess. Smaller banks will receive exemptions from much of the reporting—Zombie Glass-Steagall isn’t intended for them.
What are regulators going to do with all the data they receive on the various metrics? No matter how much data there is, any determination on its meaning will be subjective. Regulatory agencies are under budgetary pressure, so it is not clear how they will afford additional enforcement. With Congress and the White House beholden to Wall Street, so are the heads of those regulatory agencies. How much career risk are their employees going to take to enforce Zombie Glass-Steagall? It isn’t going to happen.
What is really sad is the fact that the objectives of Zombie Glass-Steagall could easily be achieved by merely prohibiting banks from trading non-exempt instruments, as was the case under Glass-Steagall before it was repealed. That solution would be simple, inexpensive and objective. We didn’t need commercial banks trading mortgage-backed securities or credit default swaps prior to 1999. We don’t need them doing so now.
Don’t blame the FDIC, Federal Reserve Board, SEC or OCC for this mess. The regulators are doing the best they can with an impossible legislative mandate. It was Congress and the White House who imposed that mandate. Zombie Glass-Steagall will soon be stalking the land. Call your elective representatives and tell them to repeal the monster.from BoldProgressives.org
When asked about why no Wall Street executives have gone to jail for crashing our economy, President Obama said Wall Street behavior "wasn’t necessarily illegal, it was just immoral."
Wasn't illegal?!
It's well established that Wall Street banks resorted to forgeries and phony paperwork to kick families out of their homes. State prosecutors like New York Attorney General Eric Schneiderman are currently investigating other fraud and illegal activity -- after federal prosecutors dropped the ball.
It's time for the 99% of us to speak out loudly -- and tell our political leaders: Wall Street bankers who broke the law must go to jail. Let's make this message go viral over the weekend.
Matt Taibbi knows Glass-Steagall works!
The $2 Billion UBS Incident: 'Rogue Trader' My Ass
by Matt Taibbi, Rolling Stone
The news that a "rogue trader" (I hate that term – more on that in a moment) has soaked the Swiss banking giant UBS for $2 billion has rocked the international financial community and threatened to drive a stake through any chance Europe had of averting economic disaster. There is much hand-wringing in the financial press today as the UBS incident has reminded the whole world that all of the banks were almost certainly lying their asses off over the last three years, when they all pledged to pull back from risky prop trading. Here’s how the WSJ put it:
The Swiss banking giant has been struggling to rebuild trust after running up vast losses in the original financial crisis. Under Chief Executive Oswald Grubel, the bank claimed to have put in place new risk management practices, pulled back from proprietary trading and focused on a low-risk client-driven model.
All the troubled banks, remember, made similar promises in the wake of the financial crisis. In fact, some of them used the exact same language. Some will recall Goldman’s executive summary from earlier this year in which the bank pledged to respond to a "challenging period" in its history by making changes.
"We reviewed the governance, standards and practices of certain of our firmwide operating committees," the bank wrote, "to ensure their focus on client service, business standards and practices and reputational risk management."
But the reality is, the brains of investment bankers by nature are not wired for "client-based" thinking. This is the reason why the Glass-Steagall Act, which kept investment banks and commercial banks separate, was originally passed back in 1933: it just defies common sense to have professional gamblers in charge of stewarding commercial bank accounts.
Investment bankers do not see it as their jobs to tend to the dreary business of making sure Ma and Pa Main Street get their $8.03 in savings account interest every month. Nothing about traditional commercial banking – historically, the dullest of businesses, taking customer deposits and making conservative investments with them in search of a percentage point of profit here and there – turns them on.
In fact, investment bankers by nature have huge appetites for risk, and most of them take pride in being able to sleep at night even when their bets are going the wrong way. If you’re not a person who can doze through a two-hour foot massage while your client (which might be your own bank) is losing ten thousand dollars a minute on some exotic trade you’ve cooked up, then you won’t make it on today’s Wall Street.
Nonetheless, thanks to the Gramm-Leach-Bliley Act passed in 1998 with the help of Bob Rubin, Larry Summers, Bill Clinton, Alan Greenspan, Phil Gramm and a host of other short-sighted politicians, we now have a situation where trillions in federally-insured commercial bank deposits have been wedded at the end of a shotgun to exactly such career investment bankers from places like Salomon Brothers (now part of Citi), Merrill Lynch (Bank of America), Bear Stearns (Chase), and so on.
These marriages have been a disaster. The influx of i-banking types into the once-boring worlds of commercial bank accounts, home mortgages, and consumer credit has helped turn every part of the financial universe into a casino. That’s why I can’t stand the term "rogue trader," which is always tossed out there when some investment-banker asshole loses a billion dollars betting with someone else’s money.
They’re not "rogue" for the simple reason that making insanely irresponsible decisions with other peoples’ money is exactly the job description of a lot of people on Wall Street. Hell, they don’t call these guys "rogue traders" when they make a billion dollars gambling.
The only thing that differentiates a "rogue" trader like Barings villain Nick Leeson from a Lloyd Blankfein, Dick Fuld, John Thain, or someone like AIG’s Joe Cassano, is that those other guys are more senior and their lunatic, catastrophic decisions were authorized (and yes, I know that Cassano wasn’t an investment banker, technically – but he was in financial services).
In the financial press you're called a "rogue trader" if you're some overperspired 28 year-old newbie who bypasses internal audits and quality control to make a disastrous trade that could sink the company. But if you're a well-groomed 60 year-old CEO who uses his authority to ignore quality control and internal audits in order to make disastrous trades that could sink the company, you get a bailout, a bonus, and heroic treatment in an Andrew Ross Sorkin book.
In other words, "rogue traders" are treated like bad accidents and condemned everywhere from the front pages to Ewan McGregor films. But rogue companies are protected at every level of the regulatory structure and continually empowered by dergulatory legislation giving them access to our bank accounts.
There is a movement in the UK for a thing called “ringfencing” that would separate investment bankers from commercial bankers. Some people think this UBS incident will aid that movement, even though UBS can apparently absorb the loss without necessitating a bailout or endangering client accounts.
The U.S. missed its own chance for ringfencing when a proposal for a full repeal of Gramm-Leach-Bliley was routed during the Dodd-Frank negotiations.
That means we’re probably stuck here in the states with companies like Bank of America, JP Morgan Chase and Citigroup, giant commercial banks in charge of stewarding trillions in client bank accounts and consumer credit accounts who also behave like turbocharged gamblers via their investment banking arms.
Sooner or later, this is going to blow up in our faces, and it won't be one lower-level guy with a $2 billion loss we'll be swallowing. It'll be the CEO of another rogue firm like Lehman Brothers, and it'll cost us trillions, not billions.
by Matt Taibbi, Rolling Stone
The news that a "rogue trader" (I hate that term – more on that in a moment) has soaked the Swiss banking giant UBS for $2 billion has rocked the international financial community and threatened to drive a stake through any chance Europe had of averting economic disaster. There is much hand-wringing in the financial press today as the UBS incident has reminded the whole world that all of the banks were almost certainly lying their asses off over the last three years, when they all pledged to pull back from risky prop trading. Here’s how the WSJ put it:
The Swiss banking giant has been struggling to rebuild trust after running up vast losses in the original financial crisis. Under Chief Executive Oswald Grubel, the bank claimed to have put in place new risk management practices, pulled back from proprietary trading and focused on a low-risk client-driven model.
All the troubled banks, remember, made similar promises in the wake of the financial crisis. In fact, some of them used the exact same language. Some will recall Goldman’s executive summary from earlier this year in which the bank pledged to respond to a "challenging period" in its history by making changes.
"We reviewed the governance, standards and practices of certain of our firmwide operating committees," the bank wrote, "to ensure their focus on client service, business standards and practices and reputational risk management."
But the reality is, the brains of investment bankers by nature are not wired for "client-based" thinking. This is the reason why the Glass-Steagall Act, which kept investment banks and commercial banks separate, was originally passed back in 1933: it just defies common sense to have professional gamblers in charge of stewarding commercial bank accounts.
Investment bankers do not see it as their jobs to tend to the dreary business of making sure Ma and Pa Main Street get their $8.03 in savings account interest every month. Nothing about traditional commercial banking – historically, the dullest of businesses, taking customer deposits and making conservative investments with them in search of a percentage point of profit here and there – turns them on.
In fact, investment bankers by nature have huge appetites for risk, and most of them take pride in being able to sleep at night even when their bets are going the wrong way. If you’re not a person who can doze through a two-hour foot massage while your client (which might be your own bank) is losing ten thousand dollars a minute on some exotic trade you’ve cooked up, then you won’t make it on today’s Wall Street.
Nonetheless, thanks to the Gramm-Leach-Bliley Act passed in 1998 with the help of Bob Rubin, Larry Summers, Bill Clinton, Alan Greenspan, Phil Gramm and a host of other short-sighted politicians, we now have a situation where trillions in federally-insured commercial bank deposits have been wedded at the end of a shotgun to exactly such career investment bankers from places like Salomon Brothers (now part of Citi), Merrill Lynch (Bank of America), Bear Stearns (Chase), and so on.
These marriages have been a disaster. The influx of i-banking types into the once-boring worlds of commercial bank accounts, home mortgages, and consumer credit has helped turn every part of the financial universe into a casino. That’s why I can’t stand the term "rogue trader," which is always tossed out there when some investment-banker asshole loses a billion dollars betting with someone else’s money.
They’re not "rogue" for the simple reason that making insanely irresponsible decisions with other peoples’ money is exactly the job description of a lot of people on Wall Street. Hell, they don’t call these guys "rogue traders" when they make a billion dollars gambling.
The only thing that differentiates a "rogue" trader like Barings villain Nick Leeson from a Lloyd Blankfein, Dick Fuld, John Thain, or someone like AIG’s Joe Cassano, is that those other guys are more senior and their lunatic, catastrophic decisions were authorized (and yes, I know that Cassano wasn’t an investment banker, technically – but he was in financial services).
In the financial press you're called a "rogue trader" if you're some overperspired 28 year-old newbie who bypasses internal audits and quality control to make a disastrous trade that could sink the company. But if you're a well-groomed 60 year-old CEO who uses his authority to ignore quality control and internal audits in order to make disastrous trades that could sink the company, you get a bailout, a bonus, and heroic treatment in an Andrew Ross Sorkin book.
In other words, "rogue traders" are treated like bad accidents and condemned everywhere from the front pages to Ewan McGregor films. But rogue companies are protected at every level of the regulatory structure and continually empowered by dergulatory legislation giving them access to our bank accounts.
There is a movement in the UK for a thing called “ringfencing” that would separate investment bankers from commercial bankers. Some people think this UBS incident will aid that movement, even though UBS can apparently absorb the loss without necessitating a bailout or endangering client accounts.
The U.S. missed its own chance for ringfencing when a proposal for a full repeal of Gramm-Leach-Bliley was routed during the Dodd-Frank negotiations.
That means we’re probably stuck here in the states with companies like Bank of America, JP Morgan Chase and Citigroup, giant commercial banks in charge of stewarding trillions in client bank accounts and consumer credit accounts who also behave like turbocharged gamblers via their investment banking arms.
Sooner or later, this is going to blow up in our faces, and it won't be one lower-level guy with a $2 billion loss we'll be swallowing. It'll be the CEO of another rogue firm like Lehman Brothers, and it'll cost us trillions, not billions.
Matt Taibbi: Corporate Tax Holiday in Debt Ceiling Deal: Where's the Uproar?
Have been meaning to write about this, but I’m increasingly amazed at the overall lack of an uproar about the possibility of the government approving another corporate tax repatriation holiday.
I’ve been in and out of DC a few times in recent weeks and one thing I keep hearing is that there is a growing, and real, possibility that a second “one-time tax holiday” will be approved for corporations as part of whatever sordid deal emerges from the debt-ceiling negotiations.
I passed it off as a bad joke when I first saw news of this a few weeks ago, when it was reported that Wall Street whipping boy Chuck Schumer was seriously considering the idea. Then I read later on that other Senators were jumping on the bandwagon, including North Carolina’s Kay Hagan.
This is what Hagan’s spokesperson said:
Senator Hagan is looking closely at any creative, short-term measures that can get bipartisan support and put people back to work. One such potential initiative is a well-crafted and temporary change to the tax code that encourages American companies to bring money home and put it towards capital, investment, and–most importantly–American jobs.
For those who don’t know about it, tax repatriation is one of the all-time long cons and also one of the most supremely evil achievements of the Washington lobbying community, which has perhaps told more shameless lies about this one topic than about any other in modern history – which is saying a lot, considering the many absurd things that are said and done by lobbyists in our nation’s capital.
Here’s how it works: the tax laws say that companies can avoid paying taxes as long as they keep their profits overseas. Whenever that money comes back to the U.S., the companies have to pay taxes on it.
Think of it as a gigantic global IRA. Companies that put their profits in the offshore IRA can leave them there indefinitely with no tax consequence. Then, when they cash out, they pay the tax.
Only there’s a catch. In 2004, the corporate lobby got together and major employers like Cisco and Apple and GE begged congress to give them a “one-time” tax holiday, arguing that they would use the savings to create jobs. Congress, shamefully, relented, and a tax holiday was declared. Now companies paid about 5 percent in taxes, instead of 35-40 percent.
Money streamed back into America. But the companies did not use the savings to create jobs. Instead, they mostly just turned it into executive bonuses and ate the extra cash. Some of those companies promising waves of new hires have already committed to massive layoffs..
It was bad enough when lobbyists managed to pull this trick off once, in 2004. But in one of the worst-kept secrets in Washington, companies immediately started to systematically “offshore” their profits right after the 2004 holiday with the expectation that somewhere down the road, and probably sooner rather than later, they would get another holiday.
Companies used dozens of fiendish methods to keep profits overseas, including such scams as “transfer pricing,” a technique in which profits are shifted to overseas subsidiaries. A typical example might involve a pharmaceutical company that licenses the rights or the patent to one of its more successful drugs to a foreign affiliate, which in turn manufactures the product and sells it back to the U.S. branch, thereby shifting the profits overseas.
Companies have been doing this for years, to incredible effect. Bloomberg’s Jesse Drucker estimated that Google all by itself has saved $3.1 billion in taxes in the past three years by shifting its profits overseas. Add that to the already rampant system of loopholes and what you have is a completely broken corporate tax system.
And the whole thing is predicated on that dirty little secret – the notion, long known to all would-be major corporate taxpayers, that there would come a day when there would be another tax holiday.
That time, they hope, is now. According to Drucker, lobbyists met with President Obama last December to ask for another holiday. And now the drumbeats are rolling on the Hill for a new holiday to be included in the debt-ceiling deal.
Senator Carl Levin of Michigan, the same Senator who produced the damning report of corruption on Wall Street, has been trying to fight the problem, introducing a measure that would prevent companies from accessing offshored money through correspondent accounts and branches of offshore banks.
Levin’s Permanent Subcommittee on Investigations has also been investigating how companies might use the cash they save from a tax holiday, surveying companies like DuPont, presumably to find out just how many of these firms really intend to create new jobs with their tax savings.
I’m shocked there isn’t more of an uproar about this. Could you imagine what the Tea Party would be saying right now if there was a law on the books that allowed immigrants to indefinitely avoid taxes on income sent back to family members in the old country, in Mexico and Venezuela and India?
Imagine the uproar if Barack Obama, in the middle of this historic revenue crunch and "We're so broke the world is going to end tomorrow!" debt-ceiling hystgeria, decided to declare a second “one-time tax holiday” for, say, unwed single mothers, or recipients of public assistance? Middle America would be running through the streets, firing shotguns out its truck window, waving chainsaws in mall lobbies, etc.
As it is, leading members of the Senate are seriously considering giving the most profitable companies in the world a total tax holiday as a reward for their last seven years of systematic tax avoidance. Hundreds of billions of potential tax dollars would disappear from the Treasury. And there isn’t a peep from anyone, anywhere, on this issue.
We’re seriously talking about defaulting on our debt, and cutting Medicare and Social Security, so that Google can keep paying its current 2.4 percent effective tax rate and GE, a company that received a $140 billion bailout en route to worldwide 2010 profits of $14 billion, can not only keep paying no taxes at all , but receive a $3.2 billion tax credit from the federal government. And nobody appears to give a shit. What the hell is wrong with people? Have we all lost our minds?
I’ve been in and out of DC a few times in recent weeks and one thing I keep hearing is that there is a growing, and real, possibility that a second “one-time tax holiday” will be approved for corporations as part of whatever sordid deal emerges from the debt-ceiling negotiations.
I passed it off as a bad joke when I first saw news of this a few weeks ago, when it was reported that Wall Street whipping boy Chuck Schumer was seriously considering the idea. Then I read later on that other Senators were jumping on the bandwagon, including North Carolina’s Kay Hagan.
This is what Hagan’s spokesperson said:
Senator Hagan is looking closely at any creative, short-term measures that can get bipartisan support and put people back to work. One such potential initiative is a well-crafted and temporary change to the tax code that encourages American companies to bring money home and put it towards capital, investment, and–most importantly–American jobs.
For those who don’t know about it, tax repatriation is one of the all-time long cons and also one of the most supremely evil achievements of the Washington lobbying community, which has perhaps told more shameless lies about this one topic than about any other in modern history – which is saying a lot, considering the many absurd things that are said and done by lobbyists in our nation’s capital.
Here’s how it works: the tax laws say that companies can avoid paying taxes as long as they keep their profits overseas. Whenever that money comes back to the U.S., the companies have to pay taxes on it.
Think of it as a gigantic global IRA. Companies that put their profits in the offshore IRA can leave them there indefinitely with no tax consequence. Then, when they cash out, they pay the tax.
Only there’s a catch. In 2004, the corporate lobby got together and major employers like Cisco and Apple and GE begged congress to give them a “one-time” tax holiday, arguing that they would use the savings to create jobs. Congress, shamefully, relented, and a tax holiday was declared. Now companies paid about 5 percent in taxes, instead of 35-40 percent.
Money streamed back into America. But the companies did not use the savings to create jobs. Instead, they mostly just turned it into executive bonuses and ate the extra cash. Some of those companies promising waves of new hires have already committed to massive layoffs..
It was bad enough when lobbyists managed to pull this trick off once, in 2004. But in one of the worst-kept secrets in Washington, companies immediately started to systematically “offshore” their profits right after the 2004 holiday with the expectation that somewhere down the road, and probably sooner rather than later, they would get another holiday.
Companies used dozens of fiendish methods to keep profits overseas, including such scams as “transfer pricing,” a technique in which profits are shifted to overseas subsidiaries. A typical example might involve a pharmaceutical company that licenses the rights or the patent to one of its more successful drugs to a foreign affiliate, which in turn manufactures the product and sells it back to the U.S. branch, thereby shifting the profits overseas.
Companies have been doing this for years, to incredible effect. Bloomberg’s Jesse Drucker estimated that Google all by itself has saved $3.1 billion in taxes in the past three years by shifting its profits overseas. Add that to the already rampant system of loopholes and what you have is a completely broken corporate tax system.
And the whole thing is predicated on that dirty little secret – the notion, long known to all would-be major corporate taxpayers, that there would come a day when there would be another tax holiday.
That time, they hope, is now. According to Drucker, lobbyists met with President Obama last December to ask for another holiday. And now the drumbeats are rolling on the Hill for a new holiday to be included in the debt-ceiling deal.
Senator Carl Levin of Michigan, the same Senator who produced the damning report of corruption on Wall Street, has been trying to fight the problem, introducing a measure that would prevent companies from accessing offshored money through correspondent accounts and branches of offshore banks.
Levin’s Permanent Subcommittee on Investigations has also been investigating how companies might use the cash they save from a tax holiday, surveying companies like DuPont, presumably to find out just how many of these firms really intend to create new jobs with their tax savings.
I’m shocked there isn’t more of an uproar about this. Could you imagine what the Tea Party would be saying right now if there was a law on the books that allowed immigrants to indefinitely avoid taxes on income sent back to family members in the old country, in Mexico and Venezuela and India?
Imagine the uproar if Barack Obama, in the middle of this historic revenue crunch and "We're so broke the world is going to end tomorrow!" debt-ceiling hystgeria, decided to declare a second “one-time tax holiday” for, say, unwed single mothers, or recipients of public assistance? Middle America would be running through the streets, firing shotguns out its truck window, waving chainsaws in mall lobbies, etc.
As it is, leading members of the Senate are seriously considering giving the most profitable companies in the world a total tax holiday as a reward for their last seven years of systematic tax avoidance. Hundreds of billions of potential tax dollars would disappear from the Treasury. And there isn’t a peep from anyone, anywhere, on this issue.
We’re seriously talking about defaulting on our debt, and cutting Medicare and Social Security, so that Google can keep paying its current 2.4 percent effective tax rate and GE, a company that received a $140 billion bailout en route to worldwide 2010 profits of $14 billion, can not only keep paying no taxes at all , but receive a $3.2 billion tax credit from the federal government. And nobody appears to give a shit. What the hell is wrong with people? Have we all lost our minds?
Reinstate Glass-Steagall – Now
[Another contribution from Seeking Alpha]
by: Joseph L. Shaefer December 29, 2009
Once upon a time, banks did banking and brokers made people broker and ne’er the twain did meet. Ditto for insurers and S&Ls and all the other sub-sectors Wall Street has now euphemistically titled the “financial services” industry, an oxymoron akin to “airline food” or “Congressional ethics.”
Sometimes I find a particularly well-written article on a subject and say, “I couldn’t have written it any better myself.” Such was the case with a recent article by Sy Harding of Street Smart Report (see his free daily blog at www.streetsmartpost.com). I’ve quoted much of it below, followed by my comments and ideas for possible purchases…
The Glass-Steagall Act was passed in the 1930’s to help prevent a recurrence of the 1929 market crash and the Great Depression. It provided strict separation of the activities of various types of financial firms, the overlapping of which had been significantly responsible for creating the late 1920’s market bubble and subsequent crash.
Under Glass-Steagall financial firms had to divest themselves of over-lapping operations and focus on their core business.
Basically, savings banks could take in deposits from customers and loan the money out in home mortgages, auto loans and other types of personal lending.
Commercial banks could handle deposits and checking accounts of businesses and make commercial loans.
Investment banks could provide investment banking services, including arranging for companies to go public, merger and acquisition activities, making bridge loans, etc.
Brokerage firms could handle investment services for investors.
Insurance companies provided insurance and annuities.
Real estate brokerage firms provided real estate services on a commission basis.
Mutual funds invested in stocks, bonds, or other assets and sold shares to the public to provide them with diversified portfolios.
The financial sector screamed and yelled, but the separations were made fairly quickly and enforced. And none of the dire consequences Wall Street firms warned would be the result if government set up such restrictions took place. All sectors of the financial system managed to flourish very well for the next 60 years under the separations and restrictions.
But in the late 1990’s, banks and insurance companies began looking over their walls in envy at the big profits that brokerage firms and mutual funds were making from the booming stock market. Brokerage firms looked over their wall at the profits that could be made from packaging home mortgages, auto loans, etc. into leveraged investment derivatives…
…in 1998 they began lobbying Congress, and bombarding the media with articles and interviews aimed at having the public accept the idea of tearing down the walls… Overnight the walls disappeared. Banks were suddenly in the brokerage business, introduced their own mutual funds, were neck deep in investment banking, had huge trading departments trading for their own profits, etc. Brokerage firms were providing home mortgages, packaging the mortgages of other lenders and selling them to investors, etc.
And we soon saw the results with the stock market bubble in 2000, and the subsequent real estate bubble just a few years later, and the near collapse of the entire financial system last year under the weight of all the toxic assets that had mushroomed on the balance sheets of all types of financial firms…
…Wall Street of course claims that the abolishment of Glass-Steagall in 1999 was a good thing, that it resulted in innovative investment changes that strengthened the economy and markets.
Huh? We’ve had two recessions and two severe bear markets since 1999, with buy and hold investors still way underwater over the last 10 years, consumers in worse trouble than they’ve been in since the great Depression, and the financial system near total collapse for the first time since the 1929 crash and its aftermath…
In the late 1990s, Congress and President Clinton embraced the campaign spearheaded by Sandy Weill, then head of Citicorp (C), to rescind Glass-Steagall. Weill and his ilk paid $200 million in lobbying fees for this endeavor in the 1997-98 election cycle alone (and contributed another $150 million directly to various Congressmen and other politicians during those months). That was chump change to Wall Street – and, in fact, it came out of the pockets of Citicorp and other shareholders, without Weill or his cabal of cohorts having to put up a penny of their own to pull off this taxpayer heist. No matter the source, it was enough to buy respect, votes, or whatever. And we are still paying for it today.
(According to PBS's "Frontline," just days after the Treasury Department agreed to support the repeal, Treasury Secretary Robert Rubin accepted the job as Weill's chief lieutenant at Citigroup. Weill and co-boss John Reed thanked President Clinton, whom Weill called in the middle of the night to keep the deal going, personally.)
There are only two times our elected representatives give a damn what we think – the first Tuesday in November in the years we elect our President and the first Tuesday in November two years hence. In fact, they still don’t care what we “think” even on these dates but they sure as hell worry about how we’ll vote. If enough of us tell them we will vote them out of office unless they restore Glass-Steagall, this is the year – these are the key months in which they will listen. Not because they care what we think, but because if we vote them out, they’ll have to find honest work somewhere (or become lobbyists, of course) and they’ll then be saddled with the same health care system and pension system they voted for the rest of us.
If we are successful in restoring Glass-Steagall, I would look at a number of regional banks like Wilmington Trust (WL), Bank of Marin (BMRC), Bank of Hawaii (BOH), United Bankshares (UBSI), Trustmark (TRMK), Heartland Financial (HTLF), Sterling Bancshares (SBIB) and Capital City Bank Group (CCBG) to do exceedingly well and recommend them for your further research. If we fail to reinstate Glass-Steagall, these banks might still do quite well, but more as takeover candidates by money-center banks Too Big Too Fail, Too Stupid to Succeed Without Regularly Reaching Into Our Pockets.
Write your Congresspersons, every one. Tell them you will vote them out in a flash if they don’t immediately reinstate Glass-Steagall. I live at Lake Tahoe in Nevada, 10 minutes from the People’s Republic border. If I believe we can vote out Harry Reid, the man who gave Congressional ethics its standing as an oxymoron – and I do – and his cohorts to the far left of us on the map – and I do -- your representatives should be easy!
Author's Disclosure: We and/or clients for whom it is appropriate are currently long WL, BOH, UBSI and CCBG, and are buyers of all the others at the right price as we free up funds from other sectors.
The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as personalized investment advice.
Also, past performance is no guarantee of future results, rather an obvious statement if you review the records of many alleged gurus, but important nonetheless – for example, our Investors Edge ® Growth and Value Portfolio beat the S&P 500 for 10 years running but will not do so for 2009. We plan to be back on track on 2010 but then, “past performance is no guarantee of future results”!
It should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.
by: Joseph L. Shaefer December 29, 2009
Once upon a time, banks did banking and brokers made people broker and ne’er the twain did meet. Ditto for insurers and S&Ls and all the other sub-sectors Wall Street has now euphemistically titled the “financial services” industry, an oxymoron akin to “airline food” or “Congressional ethics.”
Sometimes I find a particularly well-written article on a subject and say, “I couldn’t have written it any better myself.” Such was the case with a recent article by Sy Harding of Street Smart Report (see his free daily blog at www.streetsmartpost.com). I’ve quoted much of it below, followed by my comments and ideas for possible purchases…
The Glass-Steagall Act was passed in the 1930’s to help prevent a recurrence of the 1929 market crash and the Great Depression. It provided strict separation of the activities of various types of financial firms, the overlapping of which had been significantly responsible for creating the late 1920’s market bubble and subsequent crash.
Under Glass-Steagall financial firms had to divest themselves of over-lapping operations and focus on their core business.
Basically, savings banks could take in deposits from customers and loan the money out in home mortgages, auto loans and other types of personal lending.
Commercial banks could handle deposits and checking accounts of businesses and make commercial loans.
Investment banks could provide investment banking services, including arranging for companies to go public, merger and acquisition activities, making bridge loans, etc.
Brokerage firms could handle investment services for investors.
Insurance companies provided insurance and annuities.
Real estate brokerage firms provided real estate services on a commission basis.
Mutual funds invested in stocks, bonds, or other assets and sold shares to the public to provide them with diversified portfolios.
The financial sector screamed and yelled, but the separations were made fairly quickly and enforced. And none of the dire consequences Wall Street firms warned would be the result if government set up such restrictions took place. All sectors of the financial system managed to flourish very well for the next 60 years under the separations and restrictions.
But in the late 1990’s, banks and insurance companies began looking over their walls in envy at the big profits that brokerage firms and mutual funds were making from the booming stock market. Brokerage firms looked over their wall at the profits that could be made from packaging home mortgages, auto loans, etc. into leveraged investment derivatives…
…in 1998 they began lobbying Congress, and bombarding the media with articles and interviews aimed at having the public accept the idea of tearing down the walls… Overnight the walls disappeared. Banks were suddenly in the brokerage business, introduced their own mutual funds, were neck deep in investment banking, had huge trading departments trading for their own profits, etc. Brokerage firms were providing home mortgages, packaging the mortgages of other lenders and selling them to investors, etc.
And we soon saw the results with the stock market bubble in 2000, and the subsequent real estate bubble just a few years later, and the near collapse of the entire financial system last year under the weight of all the toxic assets that had mushroomed on the balance sheets of all types of financial firms…
…Wall Street of course claims that the abolishment of Glass-Steagall in 1999 was a good thing, that it resulted in innovative investment changes that strengthened the economy and markets.
Huh? We’ve had two recessions and two severe bear markets since 1999, with buy and hold investors still way underwater over the last 10 years, consumers in worse trouble than they’ve been in since the great Depression, and the financial system near total collapse for the first time since the 1929 crash and its aftermath…
In the late 1990s, Congress and President Clinton embraced the campaign spearheaded by Sandy Weill, then head of Citicorp (C), to rescind Glass-Steagall. Weill and his ilk paid $200 million in lobbying fees for this endeavor in the 1997-98 election cycle alone (and contributed another $150 million directly to various Congressmen and other politicians during those months). That was chump change to Wall Street – and, in fact, it came out of the pockets of Citicorp and other shareholders, without Weill or his cabal of cohorts having to put up a penny of their own to pull off this taxpayer heist. No matter the source, it was enough to buy respect, votes, or whatever. And we are still paying for it today.
(According to PBS's "Frontline," just days after the Treasury Department agreed to support the repeal, Treasury Secretary Robert Rubin accepted the job as Weill's chief lieutenant at Citigroup. Weill and co-boss John Reed thanked President Clinton, whom Weill called in the middle of the night to keep the deal going, personally.)
There are only two times our elected representatives give a damn what we think – the first Tuesday in November in the years we elect our President and the first Tuesday in November two years hence. In fact, they still don’t care what we “think” even on these dates but they sure as hell worry about how we’ll vote. If enough of us tell them we will vote them out of office unless they restore Glass-Steagall, this is the year – these are the key months in which they will listen. Not because they care what we think, but because if we vote them out, they’ll have to find honest work somewhere (or become lobbyists, of course) and they’ll then be saddled with the same health care system and pension system they voted for the rest of us.
If we are successful in restoring Glass-Steagall, I would look at a number of regional banks like Wilmington Trust (WL), Bank of Marin (BMRC), Bank of Hawaii (BOH), United Bankshares (UBSI), Trustmark (TRMK), Heartland Financial (HTLF), Sterling Bancshares (SBIB) and Capital City Bank Group (CCBG) to do exceedingly well and recommend them for your further research. If we fail to reinstate Glass-Steagall, these banks might still do quite well, but more as takeover candidates by money-center banks Too Big Too Fail, Too Stupid to Succeed Without Regularly Reaching Into Our Pockets.
Write your Congresspersons, every one. Tell them you will vote them out in a flash if they don’t immediately reinstate Glass-Steagall. I live at Lake Tahoe in Nevada, 10 minutes from the People’s Republic border. If I believe we can vote out Harry Reid, the man who gave Congressional ethics its standing as an oxymoron – and I do – and his cohorts to the far left of us on the map – and I do -- your representatives should be easy!
Author's Disclosure: We and/or clients for whom it is appropriate are currently long WL, BOH, UBSI and CCBG, and are buyers of all the others at the right price as we free up funds from other sectors.
The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as personalized investment advice.
Also, past performance is no guarantee of future results, rather an obvious statement if you review the records of many alleged gurus, but important nonetheless – for example, our Investors Edge ® Growth and Value Portfolio beat the S&P 500 for 10 years running but will not do so for 2009. We plan to be back on track on 2010 but then, “past performance is no guarantee of future results”!
It should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.
Why QE2 Failed: The Money Went Offshore
[blatantly stollen from Ellen Brown, Seeking Alpha, an investor website]
On June 30, QE2 ended with a whimper. The Fed’s second round of “quantitative easing” involved $600 billion created with a computer keystroke for the purchase of long-term government bonds. But the government never actually got the money, which went straight into the reserve accounts of banks, where it still sits today. Worse, it went into the reserve accounts of FOREIGN banks, on which the Federal Reserve is now paying 0.25% interest.
Before QE2 there was QE1, in which the Fed bought $1.25 trillion in mortgage-backed securities from the banks. This money too remains in bank reserve accounts collecting interest and dust. The Fed reports that the accumulated excess reserves of depository institutions now total nearly $1.6 trillion.
Interestingly, $1.6 trillion is also the size of the federal deficit – a deficit so large that some members of Congress are threatening to force a default on the national debt if it isn’t corrected soon.
So here we have the anomalous situation of a $1.6 trillion hole in the federal budget, and $1.6 trillion created by the Fed that is now sitting idle in bank reserve accounts. If the intent of “quantitative easing” was to stimulate the economy, it might have worked better if the money earmarked for the purchase of Treasuries had been delivered directly to the Treasury. That was actually how it was done before 1935, when the law was changed to require private bond dealers to be cut into the deal.
The one thing QE2 did for the taxpayers was to reduce the interest tab on the federal debt. The long-term bonds the Fed bought on the open market are now effectively interest-free to the government, since the Fed rebates its profits to the Treasury after deducting its costs.
But QE2 has not helped the anemic local credit market, on which smaller businesses rely; and it is these businesses that are largely responsible for creating new jobs. In a June 30 article in the Wall Street Journal titled “Smaller Businesses Seeking Loans Still Come Up Empty,” Emily Maltby reported that business owners rank access to capital as the most important issue facing them today; and only 17% of smaller businesses said they were able to land needed bank financing.
How QE2 Wound Up in Foreign Banks
Before the Banking Act of 1935, the government was able to borrow directly from its own central bank. Other countries followed that policy as well, including Canada, Australia, and New Zealand; and they prospered as a result. After 1935, however, if the U.S. central bank wanted to buy government securities, it had to purchase them from private banks on the “open market.”
Former Fed Chairman Marinner Eccles wrote in support of an act to remove that requirement that it was intended to keep politicians from spending too much. But all the law succeeded in doing was to give the bond-dealer banks a cut as middlemen.
Worse, it caused the Fed to lose control of where the money went. Rather than buying more bonds from the Treasury, the banks that got the cash could just sit on it or use it for their own purposes; and that is apparently what is happening today.
In carrying out its QE2 purchases, the Fed had to follow standard operating procedure for “open market operations”: it took secret bids from the 20 “primary dealers” authorized to sell securities to the Fed and accepted the best offers. The problem was that 12 of these dealers – or over half — are U.S.-based branches of foreign banks (including BNP Paribas, Barclays, Credit Suisse, Deutsche Bank, HSBC, UBS and others); and they evidently won the bids.
The fact that foreign banks got the money was established in a June 12 post on Zero Hedge by Tyler Durden (a pseudonym), who compared two charts: the total cash holdings of foreign-related banks in the U.S., using weekly Federal Reserve data; and the total reserve balances held at Federal Reserve banks, from the Fed’s statement ending the week of June 1. The charts showed that after November 3, 2010, when QE2 operations began, total bank reserves increased by $610 billion. Foreign bank cash reserves increased in lock step, by $630 billion — or more than the entire QE2.
In a June 27 blog, John Mason, Professor of Finance at Penn State University and a former senior economist at the Federal Reserve, wrote:
In essence, it appears as if much of the monetary stimulus generated by the Federal Reserve System went into the Eurodollar market. This is all part of the “Carry Trade” as foreign branches of an American bank could borrow dollars from the “home” bank creating a Eurodollar deposit. . . .
Cash assets at the smaller [U.S.] banks remained relatively flat . . . . Thus, the reserves the Fed was pumping into the banking system were not going into the smaller banks. . . .[B]usiness loans continue to “tank” at the smaller banking institutions. . . .
The real lending by commercial banks is not taking place in the United States. The lending is taking place off-shore, underwritten by the Federal Reserve System and this is doing little or nothing to help the American economy grow.
Tyler Durden concluded:
. . . [T]he only beneficiary of the reserves generated were US-based branches of foreign banks (which in turn turned around and funnelled the cash back to their domestic branches), a shocking finding which explains . . . why US banks have been unwilling and, far more importantly, unable to lend out these reserves . . . .
. . . [T]he data above proves beyond a reasonable doubt why there has been no excess lending by US banks to US borrowers: none of the cash ever even made it to US banks! . . . This also resolves the mystery of the broken money multiplier and why the velocity of money has imploded.
Well, not exactly. The fact that the QE2 money all wound up in foreign banks is a shocking finding, but it doesn’t seem to be the reason banks aren’t lending. There were already $1 trillion in excess reserves sitting idle in U.S. reserve accounts, not counting the $600 billion from QE2.
According to Scott Fullwiler, Associate Professor of Economics at Wartburg College, the money multiplier model is not just broken but is obsolete. Banks do not lend based on what they have in reserve. They can borrow reserves as needed after making loans. Whether banks will lend depends rather on (a) whether they have creditworthy borrowers, (b) whether they have sufficient capital to satisfy the capital requirement, and (c) the cost of funds – meaning the cost to the bank of borrowing to meet the reserve requirement, either from depositors or from other banks or from the Federal Reserve.
Setting Things Right
Whatever is responsible for causing the local credit crunch, trillions of dollars thrown at Wall Street by Congress and the Fed haven’t fixed the problem. It may be time for local governments to take matters into their own hands. While we wait for federal lawmakers to get it right, local credit markets can be revitalized by establishing state-owned banks, on the model of the Bank of North Dakota (BND). The BND services the liquidity needs of local banks and keeps credit flowing in the state. For more information, see here and here.
Concerning the gaping federal deficit, Congressman Ron Paul has an excellent idea: have the Fed simply write off the federal securities purchased with funds created in its quantitative easing programs. No creditors would be harmed, since the money was generated out of thin air with a computer keystroke in the first place. The government would just be canceling a debt to itself and saving the interest.
As for “quantitative easing,” if the intent is to stimulate the economy, the money needs to go directly into the purchase of goods and services, stimulating “demand.” If it goes onto the balance sheets of banks, it may stop there or go into speculation rather than local lending — as is happening now. Money that goes directly to the government, on the other hand, will be spent on goods and services in the real economy, creating much-needed jobs, generating demand, and rebuilding the tax base. To make sure the money gets there, the 1935 law forbidding the Fed to buy Treasuries directly from the Treasury needs to be repealed.
On June 30, QE2 ended with a whimper. The Fed’s second round of “quantitative easing” involved $600 billion created with a computer keystroke for the purchase of long-term government bonds. But the government never actually got the money, which went straight into the reserve accounts of banks, where it still sits today. Worse, it went into the reserve accounts of FOREIGN banks, on which the Federal Reserve is now paying 0.25% interest.
Before QE2 there was QE1, in which the Fed bought $1.25 trillion in mortgage-backed securities from the banks. This money too remains in bank reserve accounts collecting interest and dust. The Fed reports that the accumulated excess reserves of depository institutions now total nearly $1.6 trillion.
Interestingly, $1.6 trillion is also the size of the federal deficit – a deficit so large that some members of Congress are threatening to force a default on the national debt if it isn’t corrected soon.
So here we have the anomalous situation of a $1.6 trillion hole in the federal budget, and $1.6 trillion created by the Fed that is now sitting idle in bank reserve accounts. If the intent of “quantitative easing” was to stimulate the economy, it might have worked better if the money earmarked for the purchase of Treasuries had been delivered directly to the Treasury. That was actually how it was done before 1935, when the law was changed to require private bond dealers to be cut into the deal.
The one thing QE2 did for the taxpayers was to reduce the interest tab on the federal debt. The long-term bonds the Fed bought on the open market are now effectively interest-free to the government, since the Fed rebates its profits to the Treasury after deducting its costs.
But QE2 has not helped the anemic local credit market, on which smaller businesses rely; and it is these businesses that are largely responsible for creating new jobs. In a June 30 article in the Wall Street Journal titled “Smaller Businesses Seeking Loans Still Come Up Empty,” Emily Maltby reported that business owners rank access to capital as the most important issue facing them today; and only 17% of smaller businesses said they were able to land needed bank financing.
How QE2 Wound Up in Foreign Banks
Before the Banking Act of 1935, the government was able to borrow directly from its own central bank. Other countries followed that policy as well, including Canada, Australia, and New Zealand; and they prospered as a result. After 1935, however, if the U.S. central bank wanted to buy government securities, it had to purchase them from private banks on the “open market.”
Former Fed Chairman Marinner Eccles wrote in support of an act to remove that requirement that it was intended to keep politicians from spending too much. But all the law succeeded in doing was to give the bond-dealer banks a cut as middlemen.
Worse, it caused the Fed to lose control of where the money went. Rather than buying more bonds from the Treasury, the banks that got the cash could just sit on it or use it for their own purposes; and that is apparently what is happening today.
In carrying out its QE2 purchases, the Fed had to follow standard operating procedure for “open market operations”: it took secret bids from the 20 “primary dealers” authorized to sell securities to the Fed and accepted the best offers. The problem was that 12 of these dealers – or over half — are U.S.-based branches of foreign banks (including BNP Paribas, Barclays, Credit Suisse, Deutsche Bank, HSBC, UBS and others); and they evidently won the bids.
The fact that foreign banks got the money was established in a June 12 post on Zero Hedge by Tyler Durden (a pseudonym), who compared two charts: the total cash holdings of foreign-related banks in the U.S., using weekly Federal Reserve data; and the total reserve balances held at Federal Reserve banks, from the Fed’s statement ending the week of June 1. The charts showed that after November 3, 2010, when QE2 operations began, total bank reserves increased by $610 billion. Foreign bank cash reserves increased in lock step, by $630 billion — or more than the entire QE2.
In a June 27 blog, John Mason, Professor of Finance at Penn State University and a former senior economist at the Federal Reserve, wrote:
In essence, it appears as if much of the monetary stimulus generated by the Federal Reserve System went into the Eurodollar market. This is all part of the “Carry Trade” as foreign branches of an American bank could borrow dollars from the “home” bank creating a Eurodollar deposit. . . .
Cash assets at the smaller [U.S.] banks remained relatively flat . . . . Thus, the reserves the Fed was pumping into the banking system were not going into the smaller banks. . . .[B]usiness loans continue to “tank” at the smaller banking institutions. . . .
The real lending by commercial banks is not taking place in the United States. The lending is taking place off-shore, underwritten by the Federal Reserve System and this is doing little or nothing to help the American economy grow.
Tyler Durden concluded:
. . . [T]he only beneficiary of the reserves generated were US-based branches of foreign banks (which in turn turned around and funnelled the cash back to their domestic branches), a shocking finding which explains . . . why US banks have been unwilling and, far more importantly, unable to lend out these reserves . . . .
. . . [T]he data above proves beyond a reasonable doubt why there has been no excess lending by US banks to US borrowers: none of the cash ever even made it to US banks! . . . This also resolves the mystery of the broken money multiplier and why the velocity of money has imploded.
Well, not exactly. The fact that the QE2 money all wound up in foreign banks is a shocking finding, but it doesn’t seem to be the reason banks aren’t lending. There were already $1 trillion in excess reserves sitting idle in U.S. reserve accounts, not counting the $600 billion from QE2.
According to Scott Fullwiler, Associate Professor of Economics at Wartburg College, the money multiplier model is not just broken but is obsolete. Banks do not lend based on what they have in reserve. They can borrow reserves as needed after making loans. Whether banks will lend depends rather on (a) whether they have creditworthy borrowers, (b) whether they have sufficient capital to satisfy the capital requirement, and (c) the cost of funds – meaning the cost to the bank of borrowing to meet the reserve requirement, either from depositors or from other banks or from the Federal Reserve.
Setting Things Right
Whatever is responsible for causing the local credit crunch, trillions of dollars thrown at Wall Street by Congress and the Fed haven’t fixed the problem. It may be time for local governments to take matters into their own hands. While we wait for federal lawmakers to get it right, local credit markets can be revitalized by establishing state-owned banks, on the model of the Bank of North Dakota (BND). The BND services the liquidity needs of local banks and keeps credit flowing in the state. For more information, see here and here.
Concerning the gaping federal deficit, Congressman Ron Paul has an excellent idea: have the Fed simply write off the federal securities purchased with funds created in its quantitative easing programs. No creditors would be harmed, since the money was generated out of thin air with a computer keystroke in the first place. The government would just be canceling a debt to itself and saving the interest.
As for “quantitative easing,” if the intent is to stimulate the economy, the money needs to go directly into the purchase of goods and services, stimulating “demand.” If it goes onto the balance sheets of banks, it may stop there or go into speculation rather than local lending — as is happening now. Money that goes directly to the government, on the other hand, will be spent on goods and services in the real economy, creating much-needed jobs, generating demand, and rebuilding the tax base. To make sure the money gets there, the 1935 law forbidding the Fed to buy Treasuries directly from the Treasury needs to be repealed.
Connie Morris, John Miller Address Louisville Metro Council on Glass-Steagall
Two Members of our group addressed the Metro Council last night. Their comments were well received and, thanks to Carol Smith and Connie, all council members got a packet of information on the importance of Glass-Steagall. Everyone should call John Yarmuth today and let him know it's time to become the 21st co-sponsor of HR 1489.
Connie Morris:
First I’d like to thank the Metro Council members for this opportunity to speak tonight. I am asking for your support on a matter that affects everyone in Louisville Metro, our proud Commonwealth and our beloved country.
That issue is the financial stability of our country.
You are the leaders of our community, and I am asking you to take action in the form of a resolution urging the U.S. Congress to pass H.R. 1489, “The Return to Prudent Banking Act.” This legislation languishes in committee while our country’s economy continues in a downward spiral.
In spite of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act last summer, the five largest financial institutions are 20 percent larger than they were before the bailouts. They control $8.6 trillion in financial assets – the equivalent of nearly 60 percent of gross domestic product. These firms will still claim that they are too big to fail.
The plain truth is that these financial institutions are too big to succeed when prudent banking is overruled by greed. American tax payers know that something is still wrong and they are angry. Angry that our leaders lack the political will to do what has to be done.
American taxpayers continue to be at risk for the next round of banking failures with enormous risks undertaken by the same too big to fail conglomerates.
The Banking Act of 1933, commonly known as the Glass-Steagall Act, was law for 66 years. It was passed to raise the confidence of the U.S. public in the banking system. This legislation separated commercial banking from investment banking and prevented financial institutions from becoming too big to fail.
John Miller:
The past 3 or 4 years our country has seen some of the greatest human suffering in our lifetimes. Millions of homes foreclosed upon, tens of millions facing unemployment, growing homeless populations, state and local governments forced to cut essential services due to crushing deficits, rising gas prices contributing to stifling inflation on food and fuel hitting our poorest citizens the hardest.
Why? What happened? Did we have an earthquake, a famine, a world war, a drought, a pandemic disease?
No, this was all man-made, and according the federal Financial Crisis Inquiry Commission, totally avoidable. It was a banking tsunami of our own creation!
We merely deregulated our banking system in 1999, and allowed banks, insurance companies and investment brokerages to merge, creating ‘too big to fail’ financial institutions that gambled away our savings and equity in a mad rush for unrealistic profits and unsustainable get-rich-quick schemes that left our country essentially bankrupt and, according to the head of the world’s largest bond fund “in worse financial shape than Greece.”
We repealed Glass-Steagall, the depression-saving Act that protected citizens' deposits and kept the "banksters" from using their depositors' money as a "casino" bankroll. Glass-Steagall included the establishment of the Federal Deposit Insurance Corporation, insuring deposits and in turn, maintaining stability and confidence in the system and avoiding runs on banks.
We repealed the Glass-Steagall investment restrictions while retaining the FDIC; the worst of all possible scenarios! Not only were banks permitted to delve into investments, insurance, hedge funds, and derivatives using federally insured deposits, but insurance companies and investment firms were suddenly able to become banks and do the same in reverse. “Mega-banks" and investment companies grew to unmanageable sizes and had undue influence on the economy and the government regulators charged with keeping this risk-taking in check.
Interestingly, despite many allegations of multi-billion dollar accounting fraud, few if any of the ‘banksters’ have faced any consequences of their actions, let alone jail time.
Wise members of both parties are signing on to the latest version of the Glass-Steagall restoration bill, HR 1489, introduced by Ohio Representative Marcy Kaptur. There are numerous cosigners, from all parts of the country and all political stripes, with another added yesterday. Many local governments have passed resolutions requesting Congress, and their representatives, to sign on.
National endorsements have come from The National Farmers Union, Housing Predictor, National AFL-CIO, International Association of Machinists and Aerospace Workers, and many others.
In the Louisville area, we have State Senators Perry Clark, Joey Pendleton, Walter Blevins, Representatives Tom Burch, Ron Crimm, Kelly Flood The Greater Louisville Building Trades and Construction Trades Council, Louisville Labor Council, AFL-CIO retirees and more coming all the time.
So far, Congressman John Yarmuth has not joined in the fight.
It is time for Louisville Metro Council to pass a resolution to give him the encouragement to become a supporter and co-sponsor of this vital legislation that will get our economy headed back in the right direction.
We have a resolution for your consideration, a resolution that Louisville Metro Council should pass to move Representative Yarmuth and the nation back toward solvency. Thank you.
-- John Miller, Louisville, KY
Connie Morris:
First I’d like to thank the Metro Council members for this opportunity to speak tonight. I am asking for your support on a matter that affects everyone in Louisville Metro, our proud Commonwealth and our beloved country.
That issue is the financial stability of our country.
You are the leaders of our community, and I am asking you to take action in the form of a resolution urging the U.S. Congress to pass H.R. 1489, “The Return to Prudent Banking Act.” This legislation languishes in committee while our country’s economy continues in a downward spiral.
In spite of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act last summer, the five largest financial institutions are 20 percent larger than they were before the bailouts. They control $8.6 trillion in financial assets – the equivalent of nearly 60 percent of gross domestic product. These firms will still claim that they are too big to fail.
The plain truth is that these financial institutions are too big to succeed when prudent banking is overruled by greed. American tax payers know that something is still wrong and they are angry. Angry that our leaders lack the political will to do what has to be done.
American taxpayers continue to be at risk for the next round of banking failures with enormous risks undertaken by the same too big to fail conglomerates.
The Banking Act of 1933, commonly known as the Glass-Steagall Act, was law for 66 years. It was passed to raise the confidence of the U.S. public in the banking system. This legislation separated commercial banking from investment banking and prevented financial institutions from becoming too big to fail.
After 12 attempts in 25 years, Congress finally repealed Glass-Steagall in 1999 with the passage of the Financial Services Modernization Act, thus rewarding financial companies for more than 20 years and $300 million dollar’s worth of lobbying efforts.
The repeal of the Glass-Steagall Act and a lack of sound leadership have facilitated a new form of capitalism called financialization in which financial markets dominate over the traditional industrial economy. Jobs and financial stability have been sacrificed on the altar of financialization, global risk taking and ill-gained profits.
Today, I am asking Metro Council to join the growing number of co-signers on both sides of the isle and others who are asking for the passage of H.R. 1489. Please stand with other City Councils, State Senators and Representatives, labor & professional organizations and individuals.
I ask that Metro Council please join Councilman Dan Johnson in urging 3rd Congressional District Representative John Yarmuth to join the growing number of co-signers of H.R. 1489 and demand that Congress bring forth this legislation and identical legislation in the Senate.
Please act now. There is no time to waste. Passing H.R. 1489 is the crucial first step in preventing another financial crisis.
-- Connie Morris, West Point, KY
The repeal of the Glass-Steagall Act and a lack of sound leadership have facilitated a new form of capitalism called financialization in which financial markets dominate over the traditional industrial economy. Jobs and financial stability have been sacrificed on the altar of financialization, global risk taking and ill-gained profits.
Today, I am asking Metro Council to join the growing number of co-signers on both sides of the isle and others who are asking for the passage of H.R. 1489. Please stand with other City Councils, State Senators and Representatives, labor & professional organizations and individuals.
I ask that Metro Council please join Councilman Dan Johnson in urging 3rd Congressional District Representative John Yarmuth to join the growing number of co-signers of H.R. 1489 and demand that Congress bring forth this legislation and identical legislation in the Senate.
Please act now. There is no time to waste. Passing H.R. 1489 is the crucial first step in preventing another financial crisis.
-- Connie Morris, West Point, KY
John Miller:
The past 3 or 4 years our country has seen some of the greatest human suffering in our lifetimes. Millions of homes foreclosed upon, tens of millions facing unemployment, growing homeless populations, state and local governments forced to cut essential services due to crushing deficits, rising gas prices contributing to stifling inflation on food and fuel hitting our poorest citizens the hardest.
Why? What happened? Did we have an earthquake, a famine, a world war, a drought, a pandemic disease?
No, this was all man-made, and according the federal Financial Crisis Inquiry Commission, totally avoidable. It was a banking tsunami of our own creation!
We merely deregulated our banking system in 1999, and allowed banks, insurance companies and investment brokerages to merge, creating ‘too big to fail’ financial institutions that gambled away our savings and equity in a mad rush for unrealistic profits and unsustainable get-rich-quick schemes that left our country essentially bankrupt and, according to the head of the world’s largest bond fund “in worse financial shape than Greece.”
We repealed Glass-Steagall, the depression-saving Act that protected citizens' deposits and kept the "banksters" from using their depositors' money as a "casino" bankroll. Glass-Steagall included the establishment of the Federal Deposit Insurance Corporation, insuring deposits and in turn, maintaining stability and confidence in the system and avoiding runs on banks.
We repealed the Glass-Steagall investment restrictions while retaining the FDIC; the worst of all possible scenarios! Not only were banks permitted to delve into investments, insurance, hedge funds, and derivatives using federally insured deposits, but insurance companies and investment firms were suddenly able to become banks and do the same in reverse. “Mega-banks" and investment companies grew to unmanageable sizes and had undue influence on the economy and the government regulators charged with keeping this risk-taking in check.
Interestingly, despite many allegations of multi-billion dollar accounting fraud, few if any of the ‘banksters’ have faced any consequences of their actions, let alone jail time.
Wise members of both parties are signing on to the latest version of the Glass-Steagall restoration bill, HR 1489, introduced by Ohio Representative Marcy Kaptur. There are numerous cosigners, from all parts of the country and all political stripes, with another added yesterday. Many local governments have passed resolutions requesting Congress, and their representatives, to sign on.
National endorsements have come from The National Farmers Union, Housing Predictor, National AFL-CIO, International Association of Machinists and Aerospace Workers, and many others.
In the Louisville area, we have State Senators Perry Clark, Joey Pendleton, Walter Blevins, Representatives Tom Burch, Ron Crimm, Kelly Flood The Greater Louisville Building Trades and Construction Trades Council, Louisville Labor Council, AFL-CIO retirees and more coming all the time.
So far, Congressman John Yarmuth has not joined in the fight.
It is time for Louisville Metro Council to pass a resolution to give him the encouragement to become a supporter and co-sponsor of this vital legislation that will get our economy headed back in the right direction.
We have a resolution for your consideration, a resolution that Louisville Metro Council should pass to move Representative Yarmuth and the nation back toward solvency. Thank you.
-- John Miller, Louisville, KY
Bill Clinton on Glass Steagall: I was wrong!
Watch the video:
And the scariest thing is that Obama has depended on the same group of advisors as Clinton (Larry Summers, Robert Ruben, Tim Geithner and the rest of the gang from good ol' Goldman Sachs!)
MoveOn.org hosting an even NEWER online petition!!
This is hosted on the petition site:
Online Petition Link
Sign on and sign the petition. We need to overwhelm our elected leaders with calls for Glass-Steagall!
Online Petition Link
Sign on and sign the petition. We need to overwhelm our elected leaders with calls for Glass-Steagall!
Oil Speculation Raising Gas and Commodity Prices!
As documented here, oil prices have nothing to do with supply and demand. And there are no controls on the speculators without Glass-Steagall.
Who's manipulating the price of oil? (And they hate to use the M-word!)
From MSNBC's The Ed Show, May 26, 2011
New online Glass-Steagall petition!
Our friend Tama has started a petition for Glass-Steagall!
The link:Glass Steagall Petition
Check it out and sign it online!
The link:Glass Steagall Petition
Check it out and sign it online!
Ohio Rep. Kaptur sends letter to ALL her colleagues (see text below)
DON’T SIT ON THE SIDELINES! JOIN THE FIGHT!
It is time we cancelled Wall-Street’s bailout and got the taxpayer’s money back. Just impose Glass-Steagall and get $15-17 TRILLION back—so that we can start rebuilding our nation, starting with saving the cities and states.
The bailout started in 2008 has never stopped. The Federal Government, including the Federal Reserve, is still pouring trillions of dollars into supporting a bankrupt banking system and its extensive gambling debts. The Fed is providing money to the banks in exchange for worthless toxic assets, dispensing money thru “quantitative easing,” guaranteeing virtually every mortgage issued through Fannie and Freddie, and providing essentially no-interest loans to the banks! THIS MUST STOP! Get your Representative to join Marcy Kaptur and her bipartisan co-sponsors in bringing back the Glass-Steagall law.
Text of Rep. Marcy Kaptur's 'Dear Colleague' letter on Glass-Steagall
April 26th, 2011 • 8:29 PM Reinstate Glass-Steagall
Cosponsor H.R. 1489, “The Return to Prudent Banking Act”
Dear Colleague:
I am writing to request your support for H.R. 1489, “The Return to Prudent Banking Act.” I recently reintroduced this legislation to strengthen our financial system by reinstating Glass-Steagall.
In response to the failure of thousands of banks across the country, Congress enacted the Banking Act of 1933, commonly known as Glass-Steagall, during the height of the Great Depression. This statute safeguarded the American economy for decades by legally separating commercial and investment banking. Such a common sense system provided greater security to banking deposits in commercial banks. Additionally, investment banks were only able to leverage their own funds, limiting the systemic risks of the American citizenry. For decades, Glass-Steagall was a cornerstone of the U.S. financial system, until the Gramm Leach Bliley Act unwisely completely ended this important financial regulation in 1999.
With the repeal of the Glass-Steagall Act over a decade ago, the U.S. economy was exposed to an intolerable level of risk, and the recent financial crisis was certainly exacerbated by the removal of these safeguards. I believe that we must limit the potential for future economic collapses by returning to a more prudent banking system in which banks must once again choose between investment activities or commercial lending. If you would like more information or would like to become a co-sponsor of H.R. 1489, please contact John Brodtke in my office at john.brodtke@mail.house.gov.
Sincerely,
MARCY KAPTUR
Member of Congress
It is time we cancelled Wall-Street’s bailout and got the taxpayer’s money back. Just impose Glass-Steagall and get $15-17 TRILLION back—so that we can start rebuilding our nation, starting with saving the cities and states.
The bailout started in 2008 has never stopped. The Federal Government, including the Federal Reserve, is still pouring trillions of dollars into supporting a bankrupt banking system and its extensive gambling debts. The Fed is providing money to the banks in exchange for worthless toxic assets, dispensing money thru “quantitative easing,” guaranteeing virtually every mortgage issued through Fannie and Freddie, and providing essentially no-interest loans to the banks! THIS MUST STOP! Get your Representative to join Marcy Kaptur and her bipartisan co-sponsors in bringing back the Glass-Steagall law.
Text of Rep. Marcy Kaptur's 'Dear Colleague' letter on Glass-Steagall
April 26th, 2011 • 8:29 PM Reinstate Glass-Steagall
Cosponsor H.R. 1489, “The Return to Prudent Banking Act”
Dear Colleague:
I am writing to request your support for H.R. 1489, “The Return to Prudent Banking Act.” I recently reintroduced this legislation to strengthen our financial system by reinstating Glass-Steagall.
In response to the failure of thousands of banks across the country, Congress enacted the Banking Act of 1933, commonly known as Glass-Steagall, during the height of the Great Depression. This statute safeguarded the American economy for decades by legally separating commercial and investment banking. Such a common sense system provided greater security to banking deposits in commercial banks. Additionally, investment banks were only able to leverage their own funds, limiting the systemic risks of the American citizenry. For decades, Glass-Steagall was a cornerstone of the U.S. financial system, until the Gramm Leach Bliley Act unwisely completely ended this important financial regulation in 1999.
With the repeal of the Glass-Steagall Act over a decade ago, the U.S. economy was exposed to an intolerable level of risk, and the recent financial crisis was certainly exacerbated by the removal of these safeguards. I believe that we must limit the potential for future economic collapses by returning to a more prudent banking system in which banks must once again choose between investment activities or commercial lending. If you would like more information or would like to become a co-sponsor of H.R. 1489, please contact John Brodtke in my office at john.brodtke@mail.house.gov.
Sincerely,
MARCY KAPTUR
Member of Congress
S&P Did the Same Thing to the UK, To Help the Tories Impose Cuts
April 19, 2011 (LPAC) -- S&P's downgrade of the United States'
sovereign credit is a repeat of the game the firm played in the
UK to help the Tories get elected and implement the vicious
budget cuts once in power. On May 21, 2009, S&P announced that
the outlook on the UK's long-term sovereign credit rating had
been lowered to a negative outlook, warning that the AAA credit
rating may also be lowered -- just as S&P did to the U.S. on
Monday. The Tories and candidate David Cameron used this
downgrade to get themselves elected, in good "Tea Party" style,
promising to cut the budget to "save the UK." As soon as Cameron
became Prime Minister, he announced sweeping and deep budget
cuts, and S&P immediately lifted the rating cut.
A spokesman for Chancellor of the Exchequer George Osborne
today bragged of this dirty deal. "S&P did the same to the UK
before the election but revised us back to stable following the
spending review, because we had a credible deficit plan," Osborne
said, adding that "Labour's more cautious approach to cutting the
UK's deficit was way out of step with world opinion." [MOB]
sovereign credit is a repeat of the game the firm played in the
UK to help the Tories get elected and implement the vicious
budget cuts once in power. On May 21, 2009, S&P announced that
the outlook on the UK's long-term sovereign credit rating had
been lowered to a negative outlook, warning that the AAA credit
rating may also be lowered -- just as S&P did to the U.S. on
Monday. The Tories and candidate David Cameron used this
downgrade to get themselves elected, in good "Tea Party" style,
promising to cut the budget to "save the UK." As soon as Cameron
became Prime Minister, he announced sweeping and deep budget
cuts, and S&P immediately lifted the rating cut.
A spokesman for Chancellor of the Exchequer George Osborne
today bragged of this dirty deal. "S&P did the same to the UK
before the election but revised us back to stable following the
spending review, because we had a credible deficit plan," Osborne
said, adding that "Labour's more cautious approach to cutting the
UK's deficit was way out of step with world opinion." [MOB]
'Thieving and connivance'
In response to the letter “Left vilifies rich” in Sunday's Forum, the writer was correct about one thing — and only one. He stated, “I don't get it.” And truly, he doesn't.
It was hedge fund managers (and other Wall Street executives) who ruined the lives of millions of American taxpayers and nearly caused the total collapse of the world economy through their thieving and connivance.
These people aren't simply denying food and shelter to widows and children; they're stealing it from them.
It would take a pure idiot to wish for more of the same — unless, of course, you were one of them.
SCOTT B. PULLIAM
Taylorsville, Ky. 40071
published in the Louisville Courier-Journal, April 19, 2011
It was hedge fund managers (and other Wall Street executives) who ruined the lives of millions of American taxpayers and nearly caused the total collapse of the world economy through their thieving and connivance.
These people aren't simply denying food and shelter to widows and children; they're stealing it from them.
It would take a pure idiot to wish for more of the same — unless, of course, you were one of them.
SCOTT B. PULLIAM
Taylorsville, Ky. 40071
published in the Louisville Courier-Journal, April 19, 2011
Glass-Steagall Reintroduced in Congress
April 13, 2011 (EIRNS)—Three Members of Congress—Reps. Marcy Kaptur (D-Ohio), Walter Jones (R-N.C.), and James Moran (D-Va.)—today took the lead and re-introduced into the U.S. Congress the most important piece of legislation possible—a reimposition of the Glass-Steagall principles enacted by President Franklin D. Roosevelt in 1933.
H.R. 1489's official summary reads: "To repeal certain provisions of the Gramm-Leach-Bliley Act and revive the separation between commercial banking and the securities business, in the manner provided in the Banking Act of 1933, the so-called 'Glass-Steagall Act,' and for other purposes." Its short title is "Return to Prudent Banking Act of 2011." Section 2 of the bill is headlined "Glass-Steagall Revived," and reads "...wall between commercial banks and securities activities re-established."
This long-overdue action sets the stage for a dramatic escalation of the battle to restore Glass-Steagall, which has been led by Lyndon LaRouche and Lyndon LaRouche PAC over the last three years. On the eve of the reintroduction, LaRouche said that if we can ram the bill through, "this will rout the enemy! Even threatening to do it, will put the enemy off balance. If we don't do it, we're finished."
The 'enemy,' of course, is the British imperial financial system, which successfully threatened the Obama Administration in May 2010, to prevent a pending vote on restoring Glass-Steagall at that time. The British see the reimposition of Glass-Steagall, which will effectively wipe trillions of dollars of gambling debts off the account of the Federal government, as a death blow to their system—and, LaRouche argues, it will be. But that will be no loss. The U.S. population doesn't need Wall Street—nor should it continue to suffer under an insane President who serves Wall Street, Barack Obama.
H.R. 1489's official summary reads: "To repeal certain provisions of the Gramm-Leach-Bliley Act and revive the separation between commercial banking and the securities business, in the manner provided in the Banking Act of 1933, the so-called 'Glass-Steagall Act,' and for other purposes." Its short title is "Return to Prudent Banking Act of 2011." Section 2 of the bill is headlined "Glass-Steagall Revived," and reads "...wall between commercial banks and securities activities re-established."
This long-overdue action sets the stage for a dramatic escalation of the battle to restore Glass-Steagall, which has been led by Lyndon LaRouche and Lyndon LaRouche PAC over the last three years. On the eve of the reintroduction, LaRouche said that if we can ram the bill through, "this will rout the enemy! Even threatening to do it, will put the enemy off balance. If we don't do it, we're finished."
The 'enemy,' of course, is the British imperial financial system, which successfully threatened the Obama Administration in May 2010, to prevent a pending vote on restoring Glass-Steagall at that time. The British see the reimposition of Glass-Steagall, which will effectively wipe trillions of dollars of gambling debts off the account of the Federal government, as a death blow to their system—and, LaRouche argues, it will be. But that will be no loss. The U.S. population doesn't need Wall Street—nor should it continue to suffer under an insane President who serves Wall Street, Barack Obama.
Don’t Be Distracted!
All you hear on the news is that the budget must be cut at every level --local, state and federal. But the only reason the government coffers are empty is that the “too big to fail” banks have gambled away hundreds of billions and the federal government foolishly bailed them out …. with taxpayer dollars.
The same Wall Street financial elite that financed , orchestrated and profited from the lack of regulation and oversight that lead up to the crash, are now financing the distraction – blaming unions, police, firefighters, students, teachers or anyone else they can find for the mess that Wall Street created! We are all the victims of the problem, not the cause!
The Glass-Steagall Act, passed in 1933 at the height of the Great Depression, was an instrumental tool of the recovery, and worked to keep the ‘banksters’ out of our system for 65 years. It was repealed in 1999, allowing speculators to invade the system, ballooning the derivatives market, inflating the giant bubble until the 2007-2008 crash that brought the United States and the world to the brink of financial collapse.
It is past time to reinstate this common-sense solution to the banking mess, getting speculative ‘casino’ investors out of commercial banking and returning to a system of productive banking that supports and enhances our standard of living, instead of stealing the savings & jobs of millions of Americans.
Federal and state officials from both sides of the aisle are reluctant to confront the powerful elite that paid for the repeal, but many are starting to understand how important the legislation was and will be to our recovery. In Kentucky, Louisville state Senator Perry Clark again introduced a Glass-Steagall reinstatement resolution in the 2011 session of the General Assembly. And, on the federal level there are six LaRouche Democrats running for Congress on the vital Glass-Steagall issue. Check out their information at LaRouchePAC.com.
And visit Glass-SteagallNow.com for more information and breaking news on the regional campaign to reinstitute this vital solution to the financial challenge facing the nation.
Don’t Sit on the Sidelines! Join the Fight!
Call:
Peter Visclosky 202/225-2461
Andre Carson 202/225-0411
Todd Rokita 202/225-5037
Dan Burton 202/225-2276
Mike Pence 202/225-3021
The same Wall Street financial elite that financed , orchestrated and profited from the lack of regulation and oversight that lead up to the crash, are now financing the distraction – blaming unions, police, firefighters, students, teachers or anyone else they can find for the mess that Wall Street created! We are all the victims of the problem, not the cause!
The Glass-Steagall Act, passed in 1933 at the height of the Great Depression, was an instrumental tool of the recovery, and worked to keep the ‘banksters’ out of our system for 65 years. It was repealed in 1999, allowing speculators to invade the system, ballooning the derivatives market, inflating the giant bubble until the 2007-2008 crash that brought the United States and the world to the brink of financial collapse.
It is past time to reinstate this common-sense solution to the banking mess, getting speculative ‘casino’ investors out of commercial banking and returning to a system of productive banking that supports and enhances our standard of living, instead of stealing the savings & jobs of millions of Americans.
Federal and state officials from both sides of the aisle are reluctant to confront the powerful elite that paid for the repeal, but many are starting to understand how important the legislation was and will be to our recovery. In Kentucky, Louisville state Senator Perry Clark again introduced a Glass-Steagall reinstatement resolution in the 2011 session of the General Assembly. And, on the federal level there are six LaRouche Democrats running for Congress on the vital Glass-Steagall issue. Check out their information at LaRouchePAC.com.
And visit Glass-SteagallNow.com for more information and breaking news on the regional campaign to reinstitute this vital solution to the financial challenge facing the nation.
Don’t Sit on the Sidelines! Join the Fight!
Call:
Peter Visclosky 202/225-2461
Andre Carson 202/225-0411
Todd Rokita 202/225-5037
Dan Burton 202/225-2276
Mike Pence 202/225-3021
Glass-Steagall Goes to Indy!
Carol Smith, Scotty Pulliam, Cletus Gibson and Jerry Jansing from the American System Society, joined thousands of their union brothers & sisters in Indianapolis on Thursday. The four rode the bus up and stood in the windy cold along with a large turnout from the UAW and many other labor organizations in opposition to the union-busting strategies in Indiana, Wisconsin and other places around the country. Below is a brief video of the protest to give you an idea of the strong turnout the of the mass strike phenomenon the unions were able to harness.
The government is using the financial crisis caused by the repeal of Glass-Steagall to justify the dismantling of unions in an attack on the middle class to lower wages.
Of course, lower wages and less government spending (austerity!) is exactly the wrong thing to do when keeping and creating all kinds of jobs and increased economic activity is the only way out of this recession. And of course, we need to re-institute Glass-Steagall and write off the gambling debt, to fix the problem and be sure it doesn't happen again!
The government is using the financial crisis caused by the repeal of Glass-Steagall to justify the dismantling of unions in an attack on the middle class to lower wages.
Of course, lower wages and less government spending (austerity!) is exactly the wrong thing to do when keeping and creating all kinds of jobs and increased economic activity is the only way out of this recession. And of course, we need to re-institute Glass-Steagall and write off the gambling debt, to fix the problem and be sure it doesn't happen again!
Bills introduced in Congress to restore Glass-Steagall
Ok, it's not breaking news, but there have been at least 3 bills and a couple admendments introduced or proposed lately to restore the Glass Steagall Act that had a direct consequence of the recent financial crisis (see FCIC report). To the right is the text of HR 4375 (introduced by New York Representative Maurice Hinchey).
Why Glass-Steagall? Why Now?
As signs in Wisconsin announce support for Egypt, and as new nations daily add their voice to the call for justice, it is clear that each of these protests is no local phenomenon. Humanity as a one is reacting against the last four decades of globalization, against food prices artificially increased due to the hyper-inflationary bailout of Paulson, Bernanke and Obama, which has distributed trillions of dollars to the bankrupt, casino-style financial system recently identified by the Financial Crisis Inquiry Commission report to have been a fraud, and to have caused the financial crisis we are now deeply engaged in.
Governors, city councils, public service employees, and citizens in general are turning on each other, blaming one another as the cause of "excess spending;" but these attacks are missing the point. What the FCIC report details, which British-puppet President Obama has refused to acknowledge, is that this crisis was caused by the decades-long process of eliminating critical banking regulations, which separated the worthwhile functions of the economy from the speculation of financial predators, as seen especially in the deregulation of financial derivatives, and the 1999 repeal of Glass-Steagall. Now cities and states are bankrupt, drowning in a state of collapsing revenue and increased demands for aid, with no hope of change in sight.
Glass-Steagall, if reinstated last year, would have prevented this condition. President Obama opposed it then, as now, because the reinstatement of Glass-Steagall will destroy the entire system of the London-centered empire, as not only hedge funds and other financial institutions are forced into bankruptcy, but as governments everywhere, led by the United States, will have reasserted the priority of their citizens' welfare, and the integrity of their national economies, over the failed bets of Wall Street whores and their British imperial mother. Once reinstated, and the trillions of dollars of worthless gambling debts are wiped off the books, the Federal government can issue credit towards productive projects such as NAWAPA , to reverse the collapse of physical production, and give emergency aid to the states.
Governors, city councils, public service employees, and citizens in general are turning on each other, blaming one another as the cause of "excess spending;" but these attacks are missing the point. What the FCIC report details, which British-puppet President Obama has refused to acknowledge, is that this crisis was caused by the decades-long process of eliminating critical banking regulations, which separated the worthwhile functions of the economy from the speculation of financial predators, as seen especially in the deregulation of financial derivatives, and the 1999 repeal of Glass-Steagall. Now cities and states are bankrupt, drowning in a state of collapsing revenue and increased demands for aid, with no hope of change in sight.
Glass-Steagall, if reinstated last year, would have prevented this condition. President Obama opposed it then, as now, because the reinstatement of Glass-Steagall will destroy the entire system of the London-centered empire, as not only hedge funds and other financial institutions are forced into bankruptcy, but as governments everywhere, led by the United States, will have reasserted the priority of their citizens' welfare, and the integrity of their national economies, over the failed bets of Wall Street whores and their British imperial mother. Once reinstated, and the trillions of dollars of worthless gambling debts are wiped off the books, the Federal government can issue credit towards productive projects such as NAWAPA , to reverse the collapse of physical production, and give emergency aid to the states.
Buy, Buy American Pie!
Here's a video about just one of the effects of globalization. But, then, without any jobs, what does it matter??
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