A New Way Forward Blog – Restore the Economy in the Public's Interest

The WSJ has a must read piece from the currency table, which rolls 24/7. The Journal writes,

Currency trading volume around the world has hit $4 trillion a day,…the $4 trillion mark represents a 20% gain from $3.3 trillion in 2007, the last time the global foreign-exchange markets were surveyed, according to the Bank for International Settlements.

….the continued rise in trading reflects the increased globalization of investing. With the big developed economies of the U.S., Europe and Japan struggling, investors are turning toward other markets for returns and generating more foreign-exchange trading in the process.

Now small investors are increasing their foreign-currency exposure. They are piling into mutual funds which make bets on currencies as a core part of their strategy. More broadly, U.S. stock mutual funds that invest overseas have taken in $42 billion over the past year, according to Morningstar Inc.

In addition, exchange-traded mutual funds, whose shares trade like stocks, are making the currency markets more accessible to small investors. There are now 44 currency ETFs, up from 16 in April 2007, according to Morningstar. In 2004 there was only one.

But it gets better. Can you say leverage? Can you say bubble? Boy, just looking at how currency markets are operating, all you can say is thank god for Frank/Dodd, right?

Currency trading usually involves placing bets with borrowed money. That has regulators concerned about individual investors’ ability to handle large amounts of leverage, though action has been limited so far.

On Monday, federal regulators backed off a plan to place stricter limits on how much individual investors who trade currencies can borrow.

Currently, investors can borrow $100 for every dollar they invest. The Commodity Futures Trading Commission, which regulates foreign-exchange trading in the U.S., tried to cut that amount to $10.

But after a wave of protests from brokers and individuals, it settled on $50 for every dollar invested, which is the amount of borrowing many large brokers currently allow.

No, no, baby! This place is hot! You can’t cut 100 to 1 leverage down to 10 to 1, where’s the fun in that? Hell! You can’t make shit in this stock market, even with all Ben’s pumping!

Kevin Rodgers, global head of foreign-exchange derivatives at Deutsche Bank in London, says funds of all stripes—hedge funds, mutual funds and sovereign-wealth funds—are seeing the currency markets as a distinct asset class and not just a way to make an investment priced in another currency.

Trading among “nondealers,” which includes hedge funds and mutual funds, grew 42% to $1.9 trillion per day…

So, here’s the results when the Fed and other central banks started the last bubble by inflating/deflating currency with ZIRP policies, QE, and other methods of pumping money into deflating global assets markets. They are undermining the value of money itself, and more importantly the current structure of currency markets allows them much less control than they think. The question is what happens when this bubble pops? The general answer is economic carnage, what that looks like specifically is the real question, and a money maker, that is if you can figure out how to keep it in a currency with any value.

Viva! Viva! Viva!

Cross-posted from

Viva La$ Vega$

However effective you think “markets” are at pricing, one thing you can say is bubbles completely distort pricing mechanisms to the point of being valueless. When you add into that a corrupt political process using government to further distort costs, you get a system that is completely dysfunctional and incapable of meeting the challenges of the times. Here’s two good examples. The first is a piece in the Post about the establishment environmental groups lamenting the fate of climate legislation in DC. Any legislation to increase fossil fuels price was doomed with the financial crisis and resulting economic slowdown, though in return, the slowing economy gave you the greatest reduction in fossil fuel use in 30 years, certainly much greater than any proposed legislation at this point. Much, certainly not all, of the established environmental movement has propagated the notion that the mechanisms, culture, and practices that led us to environmental breakdown are going to be the same ones offering solutions. Let’s look at one, the idea that a broken politics, without first being repaired, can get us needed change. The Post has a piece with one of the most ludicrous quotes I’ve seen in 30 years following politics:

“The oil industry has tremendous reach and control in the United States Senate,” said David Di Martino, a spokesman for Clean Energy Works, a coalition of more than 60 groups that includes big names such as the Sierra Club, the Natural Resources Defense Council and the Environmental Defense Fund. “Our mistake was miscalculating . . . how far into the Senate it went.”

Miscalculating? Really? The oil industry has power in DC? Don’t misunderstand, this kind of political thinking is rampant in environmental circles. Many think they don’t need to educate the public and can just pull the levers of a broken system. Try to get money from the big non-profit funders for public education on taxing oil. You can start with Pew founded by Sun Oil, then go to the Rockefeller Foundation, or if both of them don’t work try the Ford Foundation. There’s few funders who believe in public education, after all its expensive, and well, who wants to deal with the great unwashed. And don’t worry, they won’t react when the price of energy goes up, Al Gore has told them the world’s ending.

Anyway, right now on energy there’s two viable things to push, money for renewables and efficiency/conservation.

The environmental movement is simply about looking at the human impact on natural resources and natural systems. Energy of course is fundamental, but even more so is food, you can go without energy a lot longer than without food. Now, there’s been a growing number of stories about potash(potassium) appearing in the news, since BHP is attempting to take over one of the world’s largest producers. Mined potash is a necessary element to modern agriculture practices. Limited increasingly by area, that is Canada and Russia dwarf all other known reserves, the price of potash, like many other agriculture commodities went through a massive price spike before the financial crisis. Here’s an interesting BBC discussion on the entire global agriculture issue(tx zerohedge). Pay attention to Hugh Hendry’s quote near the end. He states,

“For thirty-years, the price of agriculture has collapsed, fallen 90% in real terms. So, we haven’t invested in this sector. As a society, as a world society we acutely vulnerable to the business of feeding ourselves.”

Agriculture prices have been falling for a couple hundred years. Modern agriculture practices developed in the last hundred years are totally tied to fossil fuels, and no doubt, the last three decades precipitous fall is also tied to the preceding great rise in commodity prices caused by the oil crisis of the 1970s. But Mr. Hendry’s point is well taken, we haven’t invested in agriculture, in large part because our bubble financial system of the past quarter-century has not accurately priced its importance. If you want to bet which of the great environmental threats will be the first to bite us, I’d put money on our completely unsustainable agriculture practices.

The most important point of both these stories is what got us here isn’t going to get us out.

A couple years ago, Naomi Klein wrote a book called, The Shock Doctrine. Basically, she documented the global pattern of the last few decades where a nation hit with a crisis — natural, financial, political — would become open game for Randian, Friedmanite, University of Chicago sociopaths, who would insist on fire sales for public assets, placing the society further under the control of mega-corporations and the local looting class. Asia, Russia, South America, and Africa the paradigm and documentation was distressing. Today’s Wall Street Journal article on the fire sale of local government assets across the US demonstrates the Shock Doctrine remains alive and well, while the dominant economic doctrine of the past three decades, the worship of sociopaths, remains firmly entrenched.

The Journal’s story begins:

Cities and states across the nation are selling and leasing everything from airports to zoos—a fire sale that could help plug budget holes now but worsen their financial woes over the long run.

California is looking to shed state office buildings. Milwaukee has proposed selling its water supply; in Chicago and New Haven, Conn., it’s parking meters. In Louisiana and Georgia, airports are up for grabs.

About 35 deals now are in the pipeline in the U.S., according to research by Royal Bank of Scotland’s RBS Global Banking & Markets. Those assets have a market value of about $45 billion—more than ten times the $4 billion or so two years ago, estimates Dana Levenson, head of infrastructure banking at RBS. Hundreds more deals are being considered, analysts say.

Let’s not forget who is in the middle of all these deals — Wall Street. Here you have a list drawn-up by the Royal Bank of Scotland, one of the biggest pigs in the pen, recipient of one of the largest bailouts in history, now listing US public assets on the block for cheap. Follow the whole story-line folks. Wall Street, with a great deal of criminal fraud, tanks the US and global economy, gets bailed out by your tax dollars, and continues to survive largely through Fed cheap money and other public subsidies. Instead of anyone going to jail, they go on a shopping-spree, using your money, buying your public assets made cheap by the economic collapse they engineered. There you go folks, that is the US economy 2010. If you can tell me how its any different than Mob activity, aside no one goes to jail and it’s much much more lucrative, let me know. Don’t forget, all this is aided and abetted by YOUR elected officials.

In one of the better notes of our public officials’ culpability, a must watch interview(tx zerohedge) with former Fed Governor Fred Mishkin, who was paid $124,000 to write a paper on how Iceland was the picture of financial stability a year before the whole thing crashed — good work if you can get it.

Finally, Doug Noland has a good piece in the Asia Times on the last bubble, sovereign debt. John Hussman has good piece on whether the Fed can tank the dollar with their next round of QE, remember the Royal Bank of Scotland said a couple months ago, it needed to be ten trillion dollars. That should do it! My advise, hold-off on purchasing US public assets, the deals haven’t even started.

Let it Rock.

Well, they had a meeting in DC yesterday and the Treasury Secretary, Wall Street, banks, and MBS bondholders all agreed something should be done with Fannie and Freddie, as long as no one, except maybe homeowners, incurred any losses. Fannie and Freddie represent a lot that’s wrong with our government. It became a bipartisan cesspool of corruption, jobbery and incompetence over the past decade, for which every public revelation only led to expressions of surprise by DC officialdom. Most recently Fannie and Freddie became dumping grounds for the worst of the real estate dreck, and that’s saying something.
Fannie and Freddie played a role in the housing bubble. The last couple months the housing market, let’s leave out the commercial market which is worse, has stalled. All the Fed and Treasury blowing couldn’t reflate the bubble, and prices will continue their slow movement down for a very long time. Remember the NASDAQ ten years on is at 40% of its bubble peak, while Japanese real estate, 20 years on, is just over 20% of its peak value, so that leaves at lot downward room for US housing, depending on how big you think the bubble was.

Most interesting of course is how all the thinking remains quite bubbly. Bill Gross of PIMCo came out and warned last week that without any gov guarantee PIMCO would quit the mortgage market. Mr. Gross’ fund sits on $36 billion in MBS, so he has a definite interest. Even more bubbly was Mr. Gross’ suggestion yesterday that the US government back refinance of all mortgages currently paying over five percent:

Massive refinancing of the nearly 60% of mortgages backed by the government that are one full percentage point above today’s 4.5% mortgage rates would provide quick stimulus “as well as a potential lift of 5-10% in terms of housing prices,” he said.

I suppose a chunk of that is now held by PIMCO and the implicit government guarantee would then be explicit, or better you could just get it off your books, plus free money right? I guess that’s win-win-win. I didn’t hear any idea on what would be done with the 25% of the people underwater in their mortgages. It will be a long long time before real estate in this country heads up, bet on it.

Cross-posted from Archein:

housing

So, in 2010, the trajectory of an American life is you grow up a Republican in Cincinnati, attend Princeton, and eventually become a big-shot editor at the Washington Post, and finally end up giving speeches to the Democratic Socialists of America, to which the only immediate response is, “Are they still around?” The next question, how does one get there? Well that’s easy, you quit the Post, write the seminal book on the Fed, Secrets of the Temple, follow that up five years later with Who Will Tell the People, a documenting of the corporate take over of Washington DC, and then just to make sure you’re never invited to another bigwig dinner party, you write One World Ready or Not, a scathing indictment of corporate globalization in the middle of the “high” Clinton years, where the Democratic party became a wholly owned subsidiary of Global INC and Wall Street. Such is the American life of Bill Greider.

Greider’s speech is excellent. It is a shot against way too much pessimism and despair currently gripping this republic. It is a reminder, that this country is a very wealthy place and we need to embrace our history, and more importantly embrace the opportunities to meet the challenges of this era. We need to change, we can change, and it can be better. We can have, as Greider puts it, “larger lives.” But we need to rethink many many things and simultaneously we need to begin to act. Let us first and foremost embrace our heritage of self-government — the democratic idea — as a reconstructed foundation. What is the democratic idea, “Every person has the ability to participate in the decision makings that affect their lives.” Reforming our political economy to the realities of the 21st century, based on this fundamental principle, will get us a very long way.
Cross-posted from Greider

Waste forces within him, and a desert all around, this man stood still on his way across a silent terrace, and saw for a moment, lying in the wilderness before him, a mirage of honorable ambition, self-denial, and perseverance. In the fair city of this vision, there were airy galleries from which the loves and graces looked upon him, gardens in which the fruits of life hung ripening, waters of Hope that sparkled in his sight. A moment, and it was gone. — Charles Dickens

Here is a tale of three cities best illustrating our times. The first city is New York. Gretchen Morgenson has a piece digging further into the back door bailout of the banks accomplished with Washington DC’s, our second city, funneling billions through AIG. Morgenson shows despite Wall Street denials, some of the largest banks were saved from great losses, if not insolvency, by our government’s backdoor largess. Continuing in Washington, our so-called pay czar, Kenneth Feinberg, announced that using tax-payer bailouts, the banks lavished themselves with bonuses, claiming $1.6 billion in bonuses the most egregious, but also stating the government would do nothing about it, as, it was “not contrary to the public interest.” Some Czar. Some public interest.

But these are old stories and the machinations of New York and DC really come to full flower in our third city Detroit. The Post has an excellent must read story about the results of the GM bailout concocted by our two other cities. Most interesting is the fact wages for new hires were cut 50% under the deal, making a two-tier labor system, with half making $28 an hour and the other $14. No bonuses for GM workers, instead pay is cut by half. The story reveals DC doing New York’s dirty work:

The administration proposal also called for all new production employees to be paid the $14 rate, expanding a 2007 labor agreement that set up the lower rate, though only for some “non-core” jobs. In doing so, the administration went well beyond the pay cuts the automakers had envisioned, sources said…. The government didn’t say $28 an hour was overpaying people,” the source said. “But they saw the $14 rate as a way to lower overall labor costs to be competitive.”

In the middle of the collapse of corporate global finance and all it represented, the Democratic administration, the so-called socialists, argued the same tripe used for the last three decades to decimate the American middle class. Most unpalatable is agreement of the UAW to whole mess, though at the very least there was some dissent,

The two-tier agreement “effectively ends many of the principles established 70 years ago in the UAW’s birth,” Bill Parker, a negotiating committee leader, wrote in an unusual dissent. “For years, the UAW embodied industrial unionism and the gains of the New Deal. So goes the UAW, so goes the American middle class.”

This pretty much states it all. The UAW just another crumbling component of the New Deal, and understand, one of the most important elements of the New Deal, and its greatest small “d” democratic element, was the establishment of a strong labor movement. But that as they say is history, organized labor is a dead force in economic matters in this country, and with its decline the American middle class has become subjugated to the looting of New York and DC. This story has been running for over three decades now, and it will continue until the American people say enough. “Which side are you on?” was a rallying cry for working people in the 1930s, it would do us well to re-ask the question. You can start in November. Dylan Ratigan has done a service by giving us a voters guide, reminding us of all the people who voted for the bank bailouts, begin rewriting the story, vote them out.

Cross-posted from A Tale of Three Cities

The Wall Street Journal has a good piece on the growing reliance of European banks on the European Central Bank:

As such, ECB lending to the banking systems of Portugal, Ireland, Greece and Spain rose by €126 billion ($162.45 billion) in the first half of the year, accounting for almost all of an overall increase of €141 billion. Overall ECB lending volumes have fallen since June, with the repayment of €442 billion in 12-month funds. But by the end of June, these four countries accounted for 42% of the ECB’s total lending of €870 billion, up from 33% at the start of the year. By contrast, those countries contribute only 13% of the ECB’s capital.

To some degree, that development reflects a fear of country risk, rather than bank-specific risks. The public-debt dynamics of Greece and Portugal in particular have convinced many that a default or restructuring will be necessary before long. But it also reflects the fear that even sovereigns themselves won’t be strong enough to save and recapitalize national banking systems that have suffered massive losses as real-estate bubbles exploded in their countries.

The European response to the financial mess has been entirely made in America, and our response was borrowed from the Japanese. Remember as the Greek problem hit critical mass, Mr. Geithner flew over to Europe to get them to release “stress tests” to show all was fine. Now the “stress tests” conducted in the Spring of 09 in the US were a charade, as has been pointed out repeatedly by Yves Smith and others. They were the foundation to the Fed/Treasury’s “extend and pretend” policy which allowed the banks to not account the massive loses still on their books, in the hope of some fine day values would once again rise to their bubble heights. From repeatedly leaks, it seems the Europeans are having a problem with “extend and pretend”, as several banks are rumored to not having passed the “stress test”, meaning, Mr. Geithner must be on the phone late at night explaining if they don’t pass that test, give them another one they can pass.

We’re a year and half into our “extend and pretend” policy, the Japanese tried it for seven years until realizing they needed to do something else, that is, make the banks take the losses. There’s many problems with “extend and pretend”, I’ll give two. First, it doesn’t matter how much the banks make trading, see Morgan Stanley’s latest results, the problem is the banks don’t want to do what’s necessary for the real economy, because they’re sitting on piles of garbage. We can all pretend the banks aren’t insolvent, however, the banks understand they very well are.

Secondly, bubbles cause tremendous malinvestment in the economy, and this bubble was a duzy. Keeping the bad loans on the books, focuses the banks on trying to make them good, it encourages the wrong-headed idea that the bubble can be re-inflated, thus keeping the economy itself in check. Further, keeping alive the bad loans creates bad money, gradually undermining currencies themselves. Simply throwing more and more good money at bad debt, increasingly devalues money itself.

The first step we need to take is write-off the bad loans, a massive restructuring of global debt. It is a first step, and really a small first step to begin the restructuring of the economy necessary for future economic health.

Cross-posted from on banks and bubbles

An unusual word crept into the lexicon of the New York Times op-ed page, the arbiter of approved thought in the age of economic collapse. The new conservative columnist Ross Douthat dusted off a key phrase associated with Marxism, “class war.”

Of course, as you would expect, Karl was spinning again in his resting place at London’s Highgate cemetery by the Timesman’s spin. But in a country where, officially at least, the only classes are found in schools, the very idea of class war is not something you read about every day, even if the person writing about it is certainly on the wrong side.

In fact, the current “war on Wall Street” seems all but over even before the President signs the financial “reform” bill. We have seen very few criminal prosecutions coming out of Obamaland. The recent settlement with Goldman Sachs was limited to one transaction, and quite affordable for the bank that’s been called a “vampire squid on the face of humanity.” Their shares went up when the slimy deal was done, and in any event, that $550 million they paid just represented 15 days of profit taking.

This “war” had been notched up by the passage of laws that offended the sensibilities and modestly threatened the bottom lines of mega companies that rely on government as an enabler of their profitability, not an obstacle to it.

Already the big health care companies are coming up with new “affordable” plans that limit benefits and choice despite the Administration’s promises when it was passed. The banks are slithering around the financial regulations with their usual fear campaigns, now pressing international regulators in Basel Switzerland to give them ten years to satisfy proposed new requirements,

The New York Times reports “Wall Street is already working around the new regulations,” and “the ink is not even dry on the new rules, and the already, the bankers are a step ahead of everyone else.” The newspaper of record characterized the bill as a plumbing operation, “a catalog of repairs and additions to the rusted infrastructure of a regulatory system that has failed to keep up with the expanding scope and complexity of modern finance.”

(Huh?) Weren’t they coping with the aftereffects of a deliberate scheme to deregulate and decriminalize a marketplace in the name of “modernization” and “innovation?”

The Wall Street Journal explains: “The legislation empowers 10 regulatory agencies with the ability to write new rules governing all aspects of the financial industry — from the types of trades banks can conduct to the standards for mortgages, credit cards, and ATM fees. Many of these decisions will be made by regulators, and this has lawmakers on both the right and the left worried: Those on the right worry about government overreach, while those on the left worry about regulators becoming cozy with lobbyists. Indeed, the banking industry has been reaching out to regulators for months, and JP Morgan Chase has more than 100 teams studying the legislation.”

When they say “studying” the legislation, they don’t mean studying in any academic sense. They mean figuring out how to game it, undercut it undermine it and sabotage it, for starters, by imposing new fees and restructuring to evade the law. They are masters of playing this game. So far they spent an estimated $600 million fighting the bill so they have a big investment in assuring a business climate they can dominate’

Economist Gerald Epstein told Real News. “It’s like a world cup game where one team only has a goalie with his hands tied.”

While Republicans drool about the prospects of taking back the Congress and repealing laws they don’t like, Wall Street is hardly out of the picture. They have cut back on donations to Democrats while industry groups like the Chamber of Congress mount a major campaign to defend fat cats. Their lobbyists are in the trenches diluting what they can, revising what they must. James Kwak of Baseline Scenario thinks the bill was better than nothing, but adds, “it’s still a missed opportunity. And over the next couple years, as regulators (lobbyists) write the rules necessary to implement the bill, we’ll find out if anything really has changed.”

What’s your guess?

Leave it to Bill Gross, a top bond salesman to tell the Wall Street Journal bluntly, “Wall Street still owns Washington.” What do other majordomos on the Street think about the bill? Former Republican Treasury Secretary and bailout king Henry Paulson supported it. Most of the opposition comes from demagogues characterizing it as a Soviet-style “takeover.” Please! Lenin would have laughed at this watered down half-measure.

And what about prosecutions? Goldman Sachs agreed to a settlement in just one transaction, a civil, not criminal action, while not admitting guilt. The Republicans on the SEC were against going after Goldman, natch, although it appears that Goldman was singled out not only because it was a symbol of public disgust with Wall Street but because it could afford to play the role of evil symbol.

That play may have closed. A Times headline on Saturday gave that away: “Goldman Was Regulators First Prize and It May Be the Last.”

Wall Street veteran Larry Chin asked,

“Are we to think that the Goldman Abacus-CDO transaction is the only ABS-backed CDO that employed improper marketing? Do not be so naive. In fact, if Goldman employed improper marketing in one deal, are we to believe they did not do the same in many others? Do you ever find just one mouse? (Emphasis mine.)
The Goldman Abacus deal was a $2 billion transaction. A sizable transaction, correct? Yes and no. We truly need to look at the Abacus deal in terms of the overall ABS-CDO market. How big was that market? Slightly more than $1 trillion in ABS-CDOs were underwritten by Wall Street from the beginning of 2006 until the market froze in early 2008

That seems like too much money to mess with. And that’s not all. Goldman has yet to be held accountable for many of other dangerous investment practices. A new report in Harper’s examines the role Goldman played in escalating the food crisis of 2008 when the ranks of the world’s hungry increased by 250 million.

While the government doesn’t appear to have the fortitude to clean up more crime on Wall Street, the Supreme Court is trying to insure that prosecutors will not have the tools they need to jail wrong doers if and when they do. The Washington Post reports, “A Supreme Court ruling last month that gutted an anti-corruption tool favored by federal prosecutors is jeopardizing high-profile investigations into politicians and business executives…”

So there you go, Wall Street has wriggled off the hook with a little help from their friends, and is winning the new “class war.” 2.1 million Americans — that’s the new number — can’t even get unemployment benefits extended.

Why are no anti-war activists talking about stopping this war and “withdrawing” from Wall Street?

The political environment seems grim, not only for Obama, but for all progressive change. That moment may have passed. This does not mean the public is not angry, only that’s its anger is deliberately being channeled by our media in a false direction, into bashing deficits and Dems, not the men in the shadows who are calling the shots.

Let’s realize: The financial “spill” is just as devastating as the oil spill. And it has yet to be contained.

So if you want to “fight the power,” the time for organizing and educating is here, with a vengeance. Don’t let it slip away.

News Dissector Danny Schechter made the DVD “Plunder the Crime of our Time,” a film on the financial crisis as a crime story, now showing on LINK TV, (Plunderthecrimeofourtime.com) Comments to dissector@mediachannel.org