Robert Paterson's Weblog

America is hungry

We start with people losing homes - then jobs - but hunger stalks the land - the Depression is here.

Obama's Pesticide-Pushing Nominee | Why does Obama love Lobbysts so much?

Fri November 13, 2009 3:00 AM PST

When Michelle Obama announced plans to plant an organic garden at the White House, nearly everybody thought it was a great idea. Everybody except for the pesticide industry. Representatives from a branch of the industry's main trade association, CropLife America (CLA), wrote to the First Lady asking her to respect the role of "conventional agriculture;" they added in a separate note to supporters that the thought of the White House's chemical-free vegetables made them "shudder." But the public swipe at the president's wife didn't stop the administration from nominating senior CLA executive Islam "Isi" Siddiqui to a key post: chief agricultural negotiator for the office of the US Trade Representative (USTR). If confirmed, Siddiqui will be responsible for, among other things, negotiating international agreements governing the use of pesticides.

CLA is the American branch of CropLife International, a powerful global lobby; its members include agriculture giants such as Dow AgroSciences, Monsanto, and DuPont. Siddiqui joined the CLA in 2001 as a registered lobbyist, and since 2003 has served as its vice president of science and regulatory affairs. In that position, he's played a critical role in setting CLA’s domestic and international agenda. 
 

via motherjones.com

Here he goes again - Obama has reached out to "Big Money", "Big Education", "Big Ag" "Big Health Insurance"

Why? Why? Why?

The end result is that the nation is being captured by Big Business - whose interests are not those of the nation.

Is it because as an African American he dare not stand for the people and chooses to identity with the elite? Was Roosevelt able to stand for the people because he was a member of the ruling elite?

There is something so wrong about these choices.

Really the only power a president has is to choose the team. This is a team that the Bush family would be proud of. Of course the Big Money Team IS THE BUSH TEAM!

Why?

Posted via web from Rob's posterous

The Boy's Club - Born Then - Warren now? Joan Of Arc?

A long time ago in France, a brave woman, stood forward when the Boy's Club of the time had failed and did the King's work and defeated the English. Her reward, the stake.

Frontline have a compelling film about how Brooklsey Born was shut up by the Boy's Club as she warned about derivatives.

Now Elizabeth Warren is widely seen as the truth speaker in the financial sector. Will she too be shut up by the SAME people who still hold the reigns of power?

Matt Taibbi suggests that Warren is the last hope - he even suggests that she runs against President Obama in the next election. Can't be easy being thought of as Joan of Arc - we all know what happened to her.

Who but her close to the centre stands for the truth? Well maybe Paul Volcker? Maybe Stiglitz and Krugman.

Switching metaphors - prosecuting the war was Job #1 for Lincoln. The Boy's Club were losing it. The people came to know that this was true. He sent them packing and replaced them with those who knew what to do - Grant and Sherman.

The new team is ready and is distinguished.

The alternative?.....

Your bank may have no claim to your home's title - Good news for you - Bad news for them

There has been a breathtaking judgment in favor of a homeowner in foreclosure. The bank lost its claim to the home - there was too much legal distance. The judge not only threw the bank out but canceled the mortgage.

I suspect that this will be a landmark case that will go all the way to the Supreme court. At issue is the way that banks have got mortgages off their books. The judge's view is that the bank had in effect got this mortgage so far off the books that it no longer had title.

The huge buckets of mortgage backed securities and the new practice of selling the mortgages to another company to keep the risk of mark to market away may come back to bite the banks. All their attempts to hide toxic assets may unwind. Then the true state of their situation will become clear.

Here are Nathan's comments:
Many assume that “the bank” owns their home, and that may simply not be true. Again, I think there’s more fraud here than meets the eye, I think this entire situation is going to come unglued. The large banks are INSOLVENT, they passed off debt (their loan origninations) to investors, but not legally, and yet they failed to carry sufficient reserves to back the loans. The entire industry was thus overleveraged, and now that home prices have collapsed, the swamp is beginning to smell…

If you have money or do business with any of the large banks, once again I would agree with other’s calls to boycott them and to immediately move your business to a local bank or credit union. (ht Glass)

Here are the details:

Hugh's Company Hierarchy Examined Further - Themis and Nemisis

This is one of mine and many others favorite cartoons. I like it because Hugh has captured a central truth that most of us recognize.

I have been thinking a lot about this. Last week I had a great conversation about it with Harold Jarche and wonder if you see what we saw in here?

Let's start with the "Losers".  Most here know that the game is rigged. They are not stupid. They know that it is not about them, not about customer service. They know that people are not our greatest resource. They know that it not about performance. They know the truth - it is all about THE MAN.

So they support their union if they have one. They get excited about sports, hobbies, their families, life outside work. They do their time at work.

The saddest group, and the most foolish are the managers - the Clueless.

They think that if they work hard, if they get results, if they sacrifice, they will get to join the club at the top and participate in the pot. This is why they are Clueless. That was once true. But has not been so since at least the mid 1980's. They are the most vulnerable because of the price of their misguided aspirations. They send their kids to private daycare and kindergarten. They own homes. They send their kids to university. They buy health care insurance. They expect a pension. All the costs of these items have gone up way above inflation and their real wages. They have borrowed the difference. They are going to wake up in a few years and see the truth. They have been suckered.

For the club at the top is very small. Less than 1% of America owns most of the wealth.

This is now a hereditary system. Where more gets more. Where more marries more. This is France of 1780.

Back in the day, those who ran America could and did rise. But this is rare today. There is an elite channel all the way to the top. The right everything costs more than any aspiring middle class person can afford. The financial world is like the old church. Here the tiny number of the really aggressive can also find their way in.

As in France, it is all about them. They laugh at the idea of paying taxes, participating in the life of the larger nation. Look how many children of the elite serve in the military compared to 50 years ago!

So Hugh's cartoon is not really funny after the first laugh of recognition. It represents a tragedy.

It represents what the Greeks call Themis. Themis was the Goddess of all that is naturally right. We all know what this "right" is. It is the obligation of those in power, parents, politicians, business leaders to ultimately act for the larger good. So this is why incest is so terrible and why children never get over the betrayal. This is why so many vets from Vietnam could never get their lives back - they had been betrayed by their officers' careerism and their nation's disdain.

Themis will be the issue when the American middle class see they they have been taken for a ride. That they have been suckered and manipulated by the Sociopaths.

And when that happens, Themis' sister will arrive. And her name? Nemisis.

When the middle class sees clearly what has happened, watch out.

Nobody Knows Anything - Dave Pollard at his very best

Nobody Knows Anything

It's been forty years since I graduated from high school, and I've spent most of that forty years in the business world. Now I'm about to retire and I'm thinking back on what I've learned that will be useful as I begin my nine intentional practices that I hope will really make a difference in the world. I think the most important thing I've learned is captured in Charles Barsotti's cartoon above: Nobody knows anything. Because of our horrific overpopulation and exhaustion of our planet and its resources, we have entered into a period of chronic, massive, global stress, and it's made us all crazy, like rats in a lab fighting over the last few scraps of food. We've stopped listening to ourselves and started looking for saviours -- 'leaders' and 'experts' to show us and tell us what to do. The so-called 'leaders' and 'experts' I've met are mostly very intelligent people, but they haven't a clue. They're buoyed by their own press and by sycophants fighting their way up from the bottom or desperate to believe that someone is in charge, in control, and knows what needs to be done. These 'leaders' hang out with other people just like themselves, and their groupthink persuades them that they're right, they're important, that what they say and do and decide really matters. But it's all fraud, papered with self-delusion, self-aggrandization and hubris. What gets done in large organizations (corporations, non-profits, governments) is the sum of what everyone in those organizations does. The people at the top generally have no more real impact, and no more useful knowledge with which to make decisions, than the people at the bottom. The 'leaders' are responsible neither for the organization's successes, nor its failures -- a few people just don't make that much difference, except when they make some hugely expensive, incompetent decision or rip the company off so it goes bankrupt. Economists, financial 'experts', psychologists, consultants, pundits, celebrities, policy wonks, advisors, barons of industry, doctors -- none of these people really know what they're doing. They want you to believe they know what they're doing, so that they can justify what they're taking out of the system in salaries, bonuses, perks, commissions and fees. But they're making it up as they go along. They have come to expect bailouts when they fail financially, and indemnity from prosecution when they screw up, or get caught breaking the law. And they get away with it. ....... No one is in control. Obama isn't getting anything done, despite being the most powerful person on the planet, because he can't. The 'leaders' aren't going to deal with climate change or peak oil or pandemic disease or unsustainable debts, because no one has the power or authority to do anything, and because it would be political suicide to admit that the only solutions that might work will be radical, painful, and require a lot of sacrifice from everyone. So all you get is posturing, and it's just going to get worse. This is what unsustainable means.

via blogs.salon.com

Thank you Dave. This is just a snip  - the full post is here

Posted via web from Rob's posterous

Regulating Shit still leaves it as shit - Bring Back Glass Steagall

Mr. Volcker’s proposal would roll back the nation’s commercial banks to an earlier era, when they were restricted to commercial banking and prohibited from engaging in risky Wall Street activities.

The Obama team, in contrast, would let the giants survive, but would regulate them extensively, so they could not get themselves and the nation into trouble again. While the administration’s proposal languishes, giants like Goldman Sachs have re-engaged in old trading practices, once again earning big profits and planning big bonuses.

Mr. Volcker argues that regulation by itself will not work. Sooner or later, the giants, in pursuit of profits, will get into trouble. The administration should accept this and shield commercial banking from Wall Street’s wild ways.

“The banks are there to serve the public,” Mr. Volcker said, “and that is what they should concentrate on. These other activities create conflicts of interest. They create risks, and if you try to control the risks with supervision, that just creates friction and difficulties” and ultimately fails.

The only viable solution, in the Volcker view, is to break up the giants. JPMorgan Chase would have to give up the trading operations acquired from Bear Stearns. Bank of America and Merrill Lynch would go back to being separate companies. Goldman Sachs could no longer be a bank holding company. It’s a tall order, and to achieve it Congress would have to enact a modern-day version of the 1933 Glass-Steagall Act, which mandated separation.

via nytimes.com

I was part of the process of unwinding Glass Steagall. At the time I thought that this was THE thing to do. In retrospect, I see the division of investment banking and banking as essential.

The critical issues are these:

Deposit taking and conventional lending are activities that exist in the "Real Economy". This kind of banking depends on confidence. The depositors must be assured. This kind of banking is also what lends prudently to us as home owners and as small business. Here there must be rules that drive prudence. A mortgage has to have at least a 15% deposit. A loan has to have real earnings and a balance sheet behind it. Most importantly, a bank has to "Know the client". As my old chairman of CIBC told me "Robert you have to know not only if he can pay us back but also if he will." This kind of banking is all about character. All sides have to know each other.

Both sides of this equation are natural partners and depend on local knowledge. This business cannot safely be leveraged beyond a low threshold. Why? Because with an ROI of over 11%, you are taking too much risk by definition. You also cannot remove yourself too far from the reality of knowing the client. In cities like Cleveland, where the fall out has been terrible, a survey shows that the local banks were not the source of the sub prime mess. They made real loans based on sound principles. The process of securitization and derivatives has removed this from reality. This disconnect is a major part of the systemic weakness of the system.

The banks now are so big that they MUST FAIL. This failure is in the design now. They break the key rule of stability in any system - they are not diverse enough and they try and yield too high a return.

Traditionally the bigger banks specialized in the larger corporate customers. But now they own the individual depositor - the key to the stability of the smaller regional banks. Their size and being too big to fail - ensures the failure of the smaller banks because they have taken away their stable funding.

Today the top five banks account for nearly 40% of all deposits in America. This is outrageous. What is happening is that they have kidnapped the public - for the too big to fail card is now also real. In so doing they have hijacked the FDIC and Washington.

There is an old saying in banking that applies here - "If you owe the bank 10,000 You have a problem. If you owe the banks 1 billion, The American people has the problem.

To protect nearly half the deposits in America, the government has the problem. This will only get more acute as concentration increases.

For here is the rub. The mechanism of FDIC etc was designed to protect the confidence of a very widely distributed system where the natural diversity would assist. This situation does not exist anymore. You will see an acceleration of small bank failure and more concentration. This has to happen now that the few have cornered the deposits of the nation.

The new concentrated system takes advantage of this support system.

It enables the so called risk takers to have a I win you lose deal. They use the name and the balance sheet of the mega bank to do trades that they could never do, in terms of size and risk, because if it all goes wrong, you and I pay not them.

Human nature being what it is, they will do this. They cannot help themselves.

Compensation is a downstream issue as is regulation. The core idea is that the traders have hijacked the banks name, its FDIC protection, your deposits, its balance sheet and the government.

They live like parasites off the host of the banking system.

For Investment Banking is by nature more risky and should earn about 15 - 25% ROI to compensate for the risk. It is an entirely different business to regular banking and should have a very different culture. Its activities should have NO impact on banking.

It traditionally limits its risk for the nation by being diverse and by having to raise its own capital.

The partnership effect limited the risk. When you took a bet, you not only took a real riak with your money but with your partners' money too. This is a healthy way of taking risk. A real upside and downside. I can assure you that your partners took what you did very seriously. Such a design is healthy and real.

The overall capacity of the street was large because there were so many firms. Now there is Goldman almost alone.

The death of Bear and Lehman mean that Goldman has the field to itself really as Morgan has been swallowed. Goldman has to get the business. This is an incredibly bad situation. People are people and Goldman will not be able to help itself - the Scorpion and the Frog story.

Traditionally investment banks had relatively small capital. Most of their real business was raising money for large companies and governments. They did this by being clever. They knew where the investors were and could "place" the paper as agents. But with access to vast sums of capital, the "bought deal" took over where the bank bought the whole thing onto their own balance sheet.

Being clever, knowing the clients went away as the most prized skill. Then "Bankers" lost power in the firms. The new men? The traders.

What then happened was that the action moved from the real economy to the trading room. Since 1980, banks pay attention most to the financialization of the world rather than to the world.

Regulating shit - still makes it shit. There is no point regulating a system that is wrongly coupled, that is over concentrated and that relies on the trading room.

The folks in the 1930's were not stupid. They had the fix then. Mr Volker knows that this is the right thing to do.

Time for the President to do a Lincoln and give up on the establishment and send for General's Grant and Sherman. Mr Volcker, Mr Stiglitz, Mr Krugman - there are plenty of Grants and Shermans out there.

What if he does not do this?

I think that a lot of people now can see the old man behind the green curtain. By 2010 most will. God help the Democrats then. God help American and all of us.

Posted via web from Rob's posterous

Chalmers Johnson - Signs of Decay and even Collapse

Chalmers Johnson is riveting - A thoughtful, quietly spoken analysis of the likelihood for the end of the American Empire - Made in 2003 and all the more compelling for that. Thanks to Nathan Martin

Gravity always takes WileCoyote to the canyon floor - so will the real economy take the market

From Bloomberg: Roubini Says Stocks Have Risen ‘Too Much, Too Soon, Too Fast’

“I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U- shaped. That might be in the fourth quarter or the first quarter of next year.” [Roubini said in an interview in Istanbul on Oct. 3.]
...
“The real economy is barely recovering while markets are going this way,” Roubini said. If growth doesn’t rebound rapidly, “eventually markets are going to flatten out and correct to valuations that are justified. I see a growing gap between what markets are doing and the weaker real economic activities.”

via calculatedriskblog.com

It's only a matter of time before mainstreet catches up with Wall Street again - remember folks the people who pumped and pimped last summer are the ones doing the pumping and pimping now.

Remember 1933 - when the reality of the economy finally took away all confidence in the market. Market prices did not return until 1954.

Then as now EMPLOYMENT is the deal. It's no lagging indicator - it is the cancer that eats away at the society.

Posted via web from Rob's posterous

Financial Regulation - The Gordian Knot

No one had been able to untangle the Gordian Knot. It was so complex. Just like our financial system today. How to come up with a new approach that would legitimately make the system healthier? Is it pay? Is it capital? Is it leverage? All? More?

Alexander the Great, when confronted with the Knot, thought for a bit and then pulled out his sword and cut the knot open in one thrust. I think that such an approach may work here. I speak not as an outsider but as a person who was in the forefront of deregulation in the 1980's. I was part of the effort to tear down the architecture that had preserved the system and the world since the 1930's.

Here is the hint. The great break between a productive financial system, one that bridges the world's savings into the worlds projects and an unproductive one - where most of the financial activity is "playing with money" happens of course in the 1980's when deregulation took place.

Of all the steps taken the sword is found in just one area.

Up to the "Big Bang" the only capital that the investment banks had was their own. So the risk that a single trader might take was limited by his share of the capital and his partners' willingness to support the trade. In the UK partners were exposed to unlimited liability. So they could lose everything.

The really big deals were both done as agents - meaning that you had to have a really great sales team who were really plugged into the buyers. Being done as agents, the price could not be guaranteed up front. Which meant that the firms who got the deal were the ones that knew and worked best with the clients. Really big deals were also always syndicated among many other firms. This also promoted good behavior. For firms that could not place were punished.

At Goldman Sachs, and many other firms like my old one Wood Gundy, the big payout was made not with annual bonuses but in partners shares that were accumulated over the active working life of the person and then sold in the last 5 years. The loans were serviced by the dividends. So again, the risk of the firm was tied into its long term health.

Because investment banking was prohibited in deposit taking banks, Investment banks were small. Goldman would have had less than a 1,000 people in 1980. If one failed it would be bad but not the end of the world.

This was a ecosystem that did not need outside regulation - it defaulted to being sensible. Sensible in every area.

Post Big Bang - the Investment Bankers had access to vast sums of capital. They raised it themselves such as Goldman or they borrowed it from large commercial banks who either became their "Owners" or who had themselves set up investment banking operations. 

The Risk and the Penalty for failure was removed from the Investment Banker. Now Trading, that had been the Barrow Boy Service to the Elite Client Men on both the Buy and the Sell Side, became the key power men in the firms. Again the key was the Balance Sheet.

Now instead of acting as an agent - with leadership resting on knowledge and relationships on both sides - every deal was now only a big trade. The "Bought" deal, where the bank bought it all from the client at a fixed price came into play. Soon, if you could not play here, you were left behind. Capital and Trading were it.

So Investment banks became huge. Huge in capital, in people and in impact. They became the dominant activity in business - sucking up the best people and creating a financial sector that was no longer the servant of the economy but its master. Many became too big to fail just as the risk that they were taking would ensure that they would fail.

With the vast resources of capital under pinning the trading, a trader now could take huge bets that he could never have taken before. When they worked out, he could claim to have made the money. But of course the real money was in the size of the deal and that was only possible because of the access to capital.

There was also no downside for the trader. Bonuses are paid no matter what as we are seeing. To attract and to keep "talent". If you had a bad year, you were fired but most, like pro athletes, would find another job somewhere else soon. No one would be wiped out by a bad trade.

All the discipline of real and shared risk has gone. 

Worse, Banks no longer served the real interests of the client. The populace were sucked into being sucker investors - like the slot machine players at the Casino. They were "sold" worthless paper by hucksters. Engineering rather than legitimate investments was the rule on the other side. No Suez Canals only Credit Card Backed Securities.

Worse, in the bailout, the government now is the lender of last resort. There is no way that these firms can fail now. Huge before, the survivors are massive.

Traditional attempts to regulate will either be watered down or gamed.

The only thing that will work is to reset the system to the Glass Steagall rules. Separate the two types of banking.

Regular banking should be boring. Our money as depositors is at risk. If you make more than 15% ROI over time, the bank's management is taking too much risk. A safer number might be 11%. A bank that is doing that is doing a good job - being the bridge between people who have deposits and regular borrowers.

Investment Banking should, be what it has always been, for the riskier and larger stuff that largely finances large capital projects - say a new high speed rail system in the US or new green energy projects - or governments.

Trading should serve all of this and provide liquidity in real things.

What all the derivatives have done is to create a gigantic bubble that has nothing to do with life as it is lived in the real world. This type of "Innovation" has only been a distraction and a destructive thing.

But how will this be regulated you ask? If you limit the capital of those who play, you have regulated it! It has only been the availability of endless capital that has created all of this.

Banking is the world's second oldest profession. The principles of sound practice have been known for millenia.

The thinking that created Glass Steagall was born of the mess that was the 1920's. It was sound then and is sound now.

Sadly my bet is that we will have to wait until a cataclysmic event that mirrors 1933, until we have the political will to impose it back. For those that do not know. The market roared back after the crash in 1929. Green Shoots were seen all over the place. The Hoover administration talked up all the sensible things they were doing. But unemployment and ongoing bank failure - the reality - caught up in the second blow. The second blow that made any sense of muddling through impossible.

We get confused. Roosevelt took office not in 1929 or 1930 - but in 1933. All the earlier efforts by a very clever man, Hoover - the man who had saved Europe from starvation after WWI - had failed.

In the end we will get our 1933 - maybe sooner than we think.

Then only cutting the Gordian Knot will do.