Wednesday, December 15, 2010

Prosecuting Wall Street Fraud: The US Economy is A Giant Ponzi Scheme

Bill Gross, Nouriel Roubini, Laurence Kotlikoff, Steve Keen, Michel Chossudovsky and the Wall Street Journal all say that the U.S. economy is a giant Ponzi scheme.

Virtually all independent economists and financial experts say that rampant fraud was largely responsible for the financial crisis. See this and this.

But many on Wall Street and in D.C. - and many investors - believe that we should just "go with the flow". They hope that we can restart our economy and make some more money if we just let things continue the way they are.

But the assumption that a system built on fraud can continue without crashing is false.

In fact, top economists and financial experts agree that - unless fraud is prosecuted - the economy cannot recover.

Fraud Leads to a Break Down in Trust and Instability in the Markets

As Alan Greenspan said recently:

Fraud creates very considerable instability in competitive markets. If you cannot trust your counterparties, it would not work

Similarly, leading economist Anna Schwartz - co-author of the leading book on the Great Depression with Milton Friedman - told the Wall Street journal in 2008:

"The Fed ... has gone about as if the problem is a shortage of liquidity. That is not the basic problem. The basic problem for the markets is that [uncertainty] that the balance sheets of financial firms are credible."

So even though the Fed has flooded the credit markets with cash, spreads haven't budged because banks don't know who is still solvent and who is not. This uncertainty, says Ms. Schwartz, is "the basic problem in the credit market. Lending freezes up when lenders are uncertain that would-be borrowers have the resources to repay them. So to assume that the whole problem is inadequate liquidity bypasses the real issue."

***

Today, the banks have a problem on the asset side of their ledgers -- "all these exotic securities that the market does not know how to value."

"Why are they 'toxic'?" Ms. Schwartz asks. "They're toxic because you cannot sell them, you don't know what they're worth, your balance sheet is not credible and the whole market freezes up. We don't know whom to lend to because we don't know who is sound. So if you could get rid of them, that would be an improvement."

And economics professor and former Secretary of Labor Robert Reich wrote in 2008:

The underlying problem isn't a liquidity problem. As I've noted elsewhere, the problem is that lenders and investors don't trust they'll get their money back because no one trusts that the numbers that purport to value securities are anything but wishful thinking. The trouble, in a nutshell, is that the financial entrepreneurship of recent years -- the derivatives, credit default swaps, collateralized debt instruments, and so on -- has undermined all notion of true value.

Robert Shiller - one of the top housing experts in the United States - said recently that failing to address the legal issues will cause Americans to lose faith in business and the government:

Shiller said the danger of foreclosuregate -- the scandal in which it has come to light that the biggest banks have routinely mishandled homeownership documents, putting the legality of foreclosures and related sales in doubt -- is a replay of the 1930s, when Americans lost faith that institutions such as business and government were dealing fairly.

Nobel prize-winning economist Joseph Stiglitz says about the failure to prosecute Wall Street fraud:

The legal system is supposed to be the codification of our norms and beliefs, things that we need to make our system work. If the legal system is seen as exploitative, then confidence in our whole system starts eroding. And that's really the problem that's going on.

***

I think we ought to go do what we did in the S&L [crisis] and actually put many of these guys in prison. Absolutely. These are not just white-collar crimes or little accidents. There were victims. That's the point. There were victims all over the world.

***

Economists focus on the whole notion of incentives.
People have an incentive sometimes to behave badly, because they can make more money if they can cheat. If our economic system is going to work then we have to make sure that what they gain when they cheat is offset by a system of penalties.

Wall Street insider and New York Times columnist Andrew Ross Sorkin writes:

“They will pick on minor misdemeanors by individual market participants,” said David Einhorn, the hedge fund manager who was among the Cassandras before the financial crisis. To Mr. Einhorn, the government is “not willing to take on significant misbehavior by sizable” firms. “But since there have been almost no big prosecutions, there’s very little evidence that it has stopped bad actors from behaving badly.”

***

Fraud at big corporations surely dwarfs by orders of magnitude the shareholders’ losses of $8 billion that Mr. Holder highlighted. If the government spent half the time trying to ferret out fraud at major companies that it does tracking pump-and-dump schemes, we might have been able to stop the financial crisis, or at least we’d have a fighting chance at stopping the next one.

Economics professor James Galbraith says:
There will have to be full-scale investigation and cleaning up of the residue of that, before you can have, I think, a return of confidence in the financial sector. And that's a process which needs to get underway.

No wonder Galbraith says that economists should move into the background, and "criminologists to the forefront"

Failure to Stop Fraud and Prosecute Criminals Causes a Loss of Trust in Government, Which Makes Government Less Effective

As Shiller stated in the quote above, the failure of government officials to stop fraud and prosecute the financial fraudsters has caused a lack of trust in government itself.

Indeed, polls show that people no longer trust our economic "leaders". See this and this.

A psychologist wrote an essay published by the Wharton School of Business arguing that restoring trust is the key to recovery, and that trust cannot be restored until wrongdoers are held accountable:

According to David M. Sachs, a training and supervision analyst at the Psychoanalytic Center of Philadelphia, the crisis today is not one of confidence, but one of trust. "Abusive financial practices were unchecked by personal moral controls that prohibit individual criminal behavior, as in the case of [Bernard] Madoff, and by complex financial manipulations, as in the case of AIG." The public, expecting to be protected from such abuse, has suffered a trauma of loss similar to that after 9/11. "Normal expectations of what is safe and dependable were abruptly shattered," Sachs noted. "As is typical of post-traumatic states, planning for the future could not be based on old assumptions about what is safe and what is dangerous. A radical reversal of how to be gratified occurred."

People now feel more gratified saving money than spending it, Sachs suggested. They have trouble trusting promises from the government because they feel the government has let them down.

He framed his argument with a fictional patient named Betty Q. Public, a librarian with two teenage children and a husband, John, who had recently lost his job. "She felt betrayed because she and her husband had invested conservatively and were double-crossed by dishonest, greedy businessmen, and now she distrusted the government that had failed to protect them from corporate dishonesty. Not only that, but she had little trust in things turning around soon enough to enable her and her husband to accomplish their previous goals.

"By no means a sophisticated economist, she knew ... that some people had become fantastically wealthy by misusing other people's money -- hers included," Sachs said. "In short, John and Betty had done everything right and were being punished, while the dishonest people were going unpunished."

Helping an individual recover from a traumatic experience provides a useful analogy for understanding how to help the economy recover from its own traumatic experience, Sachs pointed out. The public will need to "hold the perpetrators of the economic disaster responsible and take what actions they can to prevent them from harming the economy again." In addition, the public will have to see proof that government and business leaders can behave responsibly before they will trust them again, he argued.

Government regulators know this - or at least pay lip service to it - as well. For example, as the Director of the Securities and Exchange Commission's enforcement division told Congress:

Recovery from the fallout of the financial crisis requires important efforts on various fronts, and vigorous enforcement is an essential component, as aggressive and even-handed enforcement will meet the public's fair expectation that those whose violations of the law caused severe loss and hardship will be held accountable. And vigorous law enforcement efforts will help vindicate the principles that are fundamental to the fair and proper functioning of our markets: that no one should have an unjust advantage in our markets; that investors have a right to disclosure that complies with the federal securities laws; and that there is a level playing field for all investors.

If people don't trust their government to enforce the law, government will become more and more impotent in addressing our economic problems. If government leaders take action, the market will not necessarily respond as expected. When government leaders make optimistic statements about the economy, people will no longer believe them.

Trying to Cover Up the Truth Extends Financial Crises

Elizabeth Warren, William Black and others say that attempting to cover up the truth extended Japan's financial problems into an entire "Lost Decade".

As Joseph Stiglitz said about Wall Street fraud:

So the whole strategy of the banks has been to hide the losses, muddle through and get the government to keep interest rates really low.

***
As long as we keep up this strategy, it's going to be a long time before the economy recovers ....

Pam Martens - who worked on Wall Street for 21 years - writes:

The massive losses by big Wall Street firms, now topping those of the Great Depression in relative terms, have yet to be adequately explained. Wall Street power players are obfuscating and Congress is too embarrassed or frightened to ask, preferring to just throw money at the problem and hope it goes away. But as job losses and foreclosures mount and pensions and 401(k)s shrink, public policy measures to address the economic stresses require a full set of unembellished facts...

It was four years after the crash of 1929 before the major titans of Wall Street were forced to give testimony under oath to Congress and the full magnitude of the fraud emerged. That delay may well have contributed to the depth and duration of the Great Depression. The modern-day Wall Street corruption hearings in Congress ... must now resume in earnest and with sworn testimony if we are to escape a similar fate.
To the extent that the government tries to cover up - instead of openly discuss - financial fraud, it will only extend America's economic malaise.

Failing to Prosecute Fraud Encourages Financial Players to Take Bigger and More Blatantly Illegal Actions

Nobel prize winning economist George Akerlof has demonstrated that failure to punish white collar criminals - and instead bailing them out- creates incentives for more economic crimes and further destruction of the economy in the future. Joseph Stiglitz, Professor Black, and many others agree. See this, this and this.

It was largely fraud which brought down the financial system in 2008. Unless we prosecute the fraudsters, they will do even bigger, stupider and more blatantly illegal things in the future which will lead to even bigger crises.

Failure to Prosecute Fraud Exacerbates the Sovereign Debt Crisis

The governments of the world have spent trillions trying to paper over the fraud and prop up the big, insolvent banks, instead of forcing them to restructure and forcing bondholders and shareholders to take a haircut.

A study of 124 banking crises by the International Monetary Fund found that propping banks which are only pretending to be solvent drives up the costs to the country:

Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.

Cross-country analysis to date also shows that accommodative policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions’ liabilities and forbearance from prudential regulations) tend to be fiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery.

***

All too often, central banks privilege stability over cost in the heat of the containment phase: if so, they may too liberally extend loans to an illiquid bank which is almost certain to prove insolvent anyway. Also, closure of a nonviable bank is often delayed for too long, even when there are clear signs of insolvency (Lindgren, 2003). Since bank closures face many obstacles, there is a tendency to rely instead on blanket government guarantees which, if the government’s fiscal and political position makes them credible, can work albeit at the cost of placing the burden on the budget, typically squeezing future provision of needed public services.

The American banks and government have certainly pretended that all of the big banks are solvent. As ABC wrote in October 2009:

The Treasury Department and the Federal Reserve lied to the American public last fall when they said that the first nine banks to receive government bailout funds were healthy, [the special inspector general for the Troubled Asset Relief Program] states in a new report released today.
Similarly, the stress tests were a complete and utter sham.

The government has given the giant banks huge amounts in loans and guarantees based upon their false representations about their financial health. The Fed has larded up its balance sheet with toxic assets from the banks.

Debt levels are also getting dangerously close to the level that they become a drag on the economy. See this and this. When Keynesian economists argue that debt does not harm the economy, they are talking about debt incurred to pay for stimulus and productive things for the economy. But throwing trillions at the giant banks - who are mainly using the money to gamble - is not stimulus. It helps the executives of the big banks and their shareholders and bondholders, but not the broader economy.

Indeed, attempting to prop up big, insolvent banks is preventing stimulus from getting out into the economy.

Fraud Causes Growing Inequality, Which Undermines the Economy

Growing inequality is very harmful to our economy. Indeed, if wealth is concentrated in too few hands, the "poker game" ends, as only too few fat cats are left with all of the chips. See this, this, this and this.

Fraud benefits the wealthy more than the poor, because the big banks and big companies have the inside knowledge and the resources to leverage fraud into profits. Joseph Stiglitz noted in September that giants like Goldman are using their size to manipulate the market. The giants (especially Goldman Sachs) have also used high-frequency program trading (making up between 40- 70% of all stock trades) which not only distorts the markets, but which also lets the program trading giants take a sneak peak at what the real traders are buying and selling, and then trade on the insider information. See this, this, this, this and this.

Similarly, JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley together hold 80% of the country's derivatives risk, and 96% of the exposure to credit derivatives. They use their dominance in the market to manipulate the market.

Fraud disproportionally benefits the big players (and helps them to become big in the first place), increasing inequality and warping the market.

Fraud Increases the Severity of Boom-Bust Cycles

More and more people - such as the Bank of International Settlements and Barons - are saying that bubbles inevitably lead to busts, thus destabilizing the economy.

Professor Black says that fraud is a large part of the mechanism through which bubbles are blown.

Without strong laws against fraud, bubble after bubble will be blown, guaranteeing that the financial system cannot be stabilized in a fundamental sense.

Failure to Prosecute Fraud Is Worsening the Housing Crisis

Finally, failure to prosecute mortgage fraud is arguably worsening the housing crisis. See this and this.

WHO’S LYING?

Have you noticed the latest sound bites coming from the punditry in the corporate mainstream media? Here is the latest wisdom flowing from the lying mouthpieces of the ruling oligarchy (Wall Street, Washington DC, Mega-corporations):

The economy is recovering and employment is growing.

Consumers are deleveraging, saving and using cash for purchases.

Retailers are doing fantastic as consumers increase spending.

These are the three themes being proclaimed simultaneously by the mainstream media. Every time I hear these themes proclaimed, I want to shout out like Joe Wilson – “YOU LIE!!!”

How can consumers be deleveraging, saving and increasing spending at the same time? Let’s examine the facts to see who is lying.

The fallacy that the economy is recovering and employment is growing can be put to rest by an examination of the BLS data accessed here: ftp://ftp.bls.gov/pub/suppl/empsit.cpseea1.txt.

The number of Americans employed over the last few years is as follows:

  • 2007 – 146.0 million
  • 2008 – 145.5 million
  • 2009 – 139.9 million
  • 2010 – 138.9 million

It seems there are 7.1 million less employed people than there were three years ago. Contrary to the spin from the White House, there are 1 million less people employed today than during the horrific 2009 year. Luckily, another 6 million people left the work force, or we’d really have a problem. The truth is that if the government actually counted everyone in the country who wants a job, the unemployment rate is not 9.8%, but 23% and it continues to rise.

The economic recovery lie can be refuted by examining the data from the BEA located HERE and HERE.

The GDP of the US peaked at $14.5 trillion in the 3rd quarter of 2008. Today it stands at $14.8 trillion, two years later. GDP has gone up for one reason and one reason only – the Federal Government has borrowed trillions from future generations in order to artificially prop up a system already crumbling from the weight of too much debt. Highlights from the GDP calculation are:

  • Private investment is $216 billion lower today than it was in the 3rd quarter of 2008.
  • Exports are $80 billion lower today than they were in the 3rd quarter of 2008.

You may ask yourself how can GDP be higher if private businesses are investing less and exporting less. The answer of course is your friendly neighborhood Feds. The Federal government is spending $128 billion more today than it was in 2008. The last piece to the puzzle is the beloved consumer, who accounts for 70% of GDP. Good old Joe Sixpack has ramped up his spending by a good $470 billion since the 1st quarter of 2009. With this figure, we must be in a strong recovery. Larry Kudlow says so.

A little more digging on the BEA website reveals some interesting data:

  • Personal income has risen by $300 billion since the 1st quarter of 2008.
  • Strangely, private industry wages have DECLINED by $213 billion since the 1st quarter of 2008.

It seems that personal income has risen due to two major items. You will be glad to know that government wages have risen by $58 billion and drum roll please: government entitlement transfers have increased by $523 billion since the 1st quarter of 2008. The Federal government has borrowed hundreds of billions from future generations and paid it out in the form of unemployment benefits and other social programs so that consumers would spend it today. This is how you generate a positive GDP, without generating a real recovery. And, of course, if the government used an honest CPI rate, GDP would still be negative, just as it has been for most of the past decade.

The great consumer deleveraging lie has been ongoing for the last six months. The savings rate has “surged” from 4.8% in the 2nd quarter of 2008 to 5.8% today. The savings rate is calculated as what is left over when you subtract personal consumption expenditures from disposable personal income. The surge in saving is the result of the Federal government borrowing from the Chinese and handing it to consumers to spend. If the government wasn’t transferring these funds from future generations to current generations, the savings rate would be 1.2%.

Revolving consumer debt (credit cards) has declined by $173 billion in the last two years. This must mean that consumers are deleveraging.

Total consumer credit peaked at $13.9 trillion in the 1st quarter of 2008 and currently stands at $13.4 trillion. It sure looks like consumer deleveraging. Consumers must have paid off $500 billion of debt. But, the facts obliterate this fallacy. The Wall Street banks have written off in excess of $600 billion since the 1st quarter of 2008, as reported by the Wall Street Journal. This means that consumers are actually charging more on their credit cards than they were in 2008. Having your debt written off, rather than paying it off says much about the great economic recovery of 2010.

The false reports circulating on network news programs is that Americans are paying cash, rather than using credit cards. This is completely false, as both Visa and Mastercard reported increases in transaction volumes in their last quarters. Having worked for a big box retailer, I know that the average credit card transaction is 50% to 70% higher than the average cash transaction. If people were truly charging less, the average ticket at the major retailers would be plunging. Retail sales would be plunging. They are not plunging, as the major US retailers report decent comparable store sales in the 2% to 5% range.

The National Retail Federation has forecast November- December holiday sales will rise by 2.3 percent from a year ago, the most since 2006. A Bloomberg survey taken Dec. 2 to Dec. 8 showed economists raised projections for consumer purchases, the biggest part of the economy, to 2.6 percent for next year, up from their 2.3 percent estimate the prior month.

A little reality check about retail sales is in order. According to the US Census Bureau, total retail sales over the last few years are as follows:

  • 2007 – $4.5 trillion
  • 2008 – $4.4 trillion
  • 2009 – $4.1 trillion
  • 2010 – $4.4 trillion (estimated)

The fact is that there are thousands more retail outlets today than there were in 2007, and total sales are still below the level reached in 2007. Not only that, but even using the government manipulated CPI, inflation has risen 8% since 2007. On an inflation adjusted basis, 2007 retail sales in today’s dollars would be $4.9 trillion. Using the real inflation rate of 20% over this time frame would generate an inflation adjusted retail sales figure of $5.4 trillion. As you can see, the great retail recovery of 2010 is a sham. Comparable store sales increases of 3% are inflation adjusted decreases of 5%. If you drive around with your eyes open, you would think the hot new retailer in America is called SPACE AVAILABLE.

I hate to be a wet blanket during this festive holiday season, but the truth is that there is no self sustaining recovery happening. The powers that be, with the help of their lackeys in the mainstream media are desperately trying to convince you that everything is alright. It is not alright. It is getting worse by the day. The only people spending are Lloyd Blankfein and his ilk, while middle class Americans sink further into despair and debt.

Who’s lying? You know.

RULING ELITE

MIDDLE CLASS

Retailer's closings to cost 725 jobs in South Bend

Plans to close down the chain of A.J. Wright retail stores nationwide will cost the jobs of 725 workers for the company in Northern Indiana.

Documents filed with the state Department of Workforce Development and posted by the state online late Monday confirm that all of the workers in an A.J. Wright warehouse in South Bend will be let go as of Feb. 8.

The parent TJX Companies announced plans last week to shutter the 162 stores and two distribution centers of its A.J. Wright division effective by February.

Company officials said that 71 of those stores would remain closed permanently while 91 would be refitted and reopened as other TJX brands including TJMaxx, Marshalls or HomeGoods stores.

About 4,400 workers nationwide, including those at Wright distribution centers in South Bend and Fall River, Mass., will be laid off when the buildings are closed.

The Framingham, Mass.-based TJX Companies said the A.J. Wright division is being closed because it has been an inconsistent contributor to the company’s bottom line. Money invested in the chain can be shifted to more profitable stores and locations of the other divisions, company officials told Wall Street analysts last Friday.

The A.J. Wright retail store in Highland also will be closed, but the other 7 stores in Indiana, including four in the Indianapolis metro region, will be converted to other TJX stores.

In South Bend, TJX Companies owns the 540,000-square-foot building that opened in 2004 with great fanfare, a $41 million investment and $2.8 million in property tax abatements granted by the city. Four years remain on that 10-year tax break.

The company has already repaid $400,000 in penalties for missing projected targets for jobs to be created in the plant and a second building that was once proposed in South Bend.

In those days, TJX projected up to 1,000 stores for A.J. Wright, but it peaked at 162.

South Bend Mayor Stephen J. Luecke said this is the second large job loss suffered recently by the city. Robert Bosch Corp. will phase out its operations by 2011.

“They’re both terrible, Luecke said. “It’s the failure of retail that has caused the closing of this distribution center, and it’s a loss for the community and for families counting on those incomes.”

Get the latest business news and updates at " IndyStar.com/business ":http://www.indystar.com/butler .

The growing chasm between rich and poor in America

Latest data shows that 500,000 people were added to the food assistance program in one month. 6 million Americans added over the last year. Those that buy diamonds versus those that barely have enough to buy soup


The shrinking of the American middle class is painful to watch. Shopping at the grocery store I’ve noticed more and more people with unique debit cards that don’t look like your typical debit or credit card. These are actually the modern day food stamps and help to take away the stigma of pulling out a pile of paper coupons. My anecdotal observations are confirmed by the data. Since September of 2009 we have added a stunning 6,000,000 Americans to the nationwide food assistance program. In fact, even as some are touting how great things are in the last month we added 521,000 more Americans to the food assistance program. Let me reiterate, we added half a million Americans to the food assistance program in the latest month of data. Is this really what we have in mind as a recovery? The latest data shows 43,000,000 Americans now receive food assistance. When we chart this data out it is rather startling.

You will notice that from 2000 onward the growth in food assistance participation has shot directly up:

food stamp chart

Source: SNAP

To put this in context, 13.8 percent of all Americans (1 out of 7) are now on some sort of food assistance. If we go back to the deep recession of the 1980s the rate was slightly above 10 percent. We are in all-time record territory here and the numbers just keep on expanding. What is more troubling is many more Americans that were once in the middle class are being thrown out of their homes, losing their jobs, and finding themselves in the unfortunate spot of needing to seek food assistance. An almost seamless transition from the American Dream to being one paycheck away from living in a car. It isn’t for want of working. Delta Airlines recently was hiring 1,000 flight attendants and had over 100,000 people apply:

“(ABC) All this for a job where passengers are often rude, hours can be unpredictable and the starting salary is in the upper $20,000s. But flight attendants say they wouldn’t trade it in for any other job. (Delta’s flight attendants recently voted down a push to unionize.)”

As we’ve noted before, the chasm between the very rich and the poor has never been this big. We would have to go back to the Great Depression to find similar income inequality. 72,000,000 wage earning Americans make between $0 and $25,000 per year. The top 72 wage earners in the US in 2009 made an average of $84 million. The stock market has certainly recovered but how much of an impact has this had on improving the economic prospects of typical Americans? What we are seeing is a rather common attribute of many Latin American countries. A stunningly wealthy upper crust of society and the large working poor majority. The middle class is virtually non-existent. Clearly we are nowhere near that given we are still the number one global economy. Yet we have now put the car in reverse and the above chart of food stamp participation shows you where we are heading if we do not change course.

We can even see this split in purchasing behavior this holiday season:

“(WaPo) This holiday season, those two worlds have been thrown into stark relief: At Tiffany’s, executives report that sales of their most expensive merchandise have grown by double digits. At Wal-Mart, executives point to shoppers flooding the stores at midnight every two weeks to buy baby formula the minute their unemployment checks hit their accounts. Neiman Marcus brought back $1.5 million fantasy gifts in its annual Christmas Wish Book. Family Dollar is making more room on its shelves for staples like groceries, the one category its customers reliably shop.”

So you have the top of the top doing well once again and we have seen this with a resurgence of banking profits thanks to the generous taxpayer bailouts. At the lower end, organizations like Family Dollar are doing well in a market that is finding many new customers. Customers that may have once shopped at say a Target are going to lower priced places either out of necessity or out of a new sense of austerity. In fact, we have seen the debt burden Americans carry decrease because of bankruptcies, foreclosures, and simply paying down debts:

household debt obligations

The above would be better news if the major decrease was due to paying down already accumulated debts. Yet the problem of course is much of this is happening via debts being written off (i.e., foreclosures). But you have to ask what is happening at a deeper level here. The once standard of the American Dream, owning a home is now being retracted and the blanket is being pulled slowly back. Many Americans cannot afford to own a home because of an employment market that has been sold off to the global market over the past few decades. Some of it is inevitable but a lot isn’t. It is naïve to think that there was truly a need to bailout the banking industry instead of actual employment sectors that can give jobs to the 15 million unemployed Americans or the other 9 million who are working part-time but want full-time work. It was also a giant banking pretense regarding toxic mortgages because Wall Street knew full well of the junk they were selling but wanted to milk the game as long as possible and once it blew up, it would hand over the hot potato to taxpayers.

The employment situation for households making less than $50,000 (aka half the population) is still deep in a recession:

“Economists say the biggest obstacle to a robust recovery is the high unemployment rate, which has hit workers with little education and low household income the hardest. The jobless rate for workers without a high school diploma is 15.7 percent – well above the national average and triple the rate for college graduates, according to government data. Meanwhile, the unemployment rate among households that had been making less than $50,000 is 15 percent, well above the national average of 9.8 percent, according to consulting firm Bain & Co.”

And this is reflected in the unemployment charts:

unemployment unemployed

Where is the recovery? It isn’t happening for working and middle class Americans. The bailouts in fact where a methodical mechanism that shifted resources and money from the vast majority to the few at the top. Many extremely wealthy organizations have earned their keep by fair competition. Yet the banking sector has created the biggest moral hazard in this country with outrageous profits and bonuses that only exist because of the cronyism between Wall Street and D.C. The fact that we are adding hundreds of thousands of Americans to the food assistance program on a monthly basis shows us the disappearing middle class. That is why you don’t hear any economists or “analysts” on CNBC talking about the booming middle class. You don’t hear about it because it isn’t happening. In fact, they are too busy to look at how many of their fellow Americans are paying for daily necessities.

Audit the Fed in 2011

Since the announcement last week that I will chair the congressional subcommittee that oversees the Federal Reserve, the media response has been overwhelming. The groundswell of opposition to Fed actions among ordinary citizens is reflected not only in the rhetoric coming out of Capitol Hill, but also in the tremendous interest shown by the financial press. The demand for transparency is growing, whether the political and financial establishment likes it or not. The Fed is losing its vaunted status as an institution that somehow is above politics and public scrutiny. Fed transparency will be the cornerstone of my efforts as subcommittee chairman.

Thanks to public pressure earlier this year, Congress did pass legislation that requires the Fed to disclose some information about its bailout of select industries and companies following the 2008 financial crisis. So two weeks ago the Fed released data concerning more than $3 trillion of assistance it offered to banks through its bailout facilities. After reviewing this data, however, we are left with many more questions about the Fed's "lending".

In the "Term Securities Lending Facility", the Fed was supposed to have loaned against AAA-rated securities-- yet over half of the collateral put up by banks to obtain loans had no listed credit rating. Should we assume that the Fed accepted absolute junk rated securities as collateral for loans? Presumably these securities were so bad that they wouldn’t even publicize their credit rating. So why should our central bank, backed up by your taxes, accept such collateral?

On another note, of the $1.25 trillion purchased under the Fed’s "Mortgage-Backed Securities Purchase Program," only $877 billion in purchases have been publicized. What happened to the remaining $400 billion?

These kinds of limited disclosures by the Fed only underscore the need for a full and complete audit of the Fed’s financial books. This audit should be done by an independent third party, in the same manner that public companies are audited. The Fed should make public its balance sheet, income statement, and perhaps most importantly its cash flow statement. It also should publicize the notes explaining those financial statements.

We seem to forget sometimes that Congress created the Fed-- it is a government-created banking monopoly, and its top decision-makers are appointed by the President and confirmed by the Senate. If the Fed does not perform satisfactorily in the eyes of these politicians and their constituents, the Chairman and Governors may not be re-nominated.

In theory, Congress could even repeal the Federal Reserve Act altogether since it has the authority to do so. Obviously Congress is within its authority to audit an organization it created by statute, and it is time to assume that responsibility.

With 320 Members of Congress cosponsoring my legislation to fully audit the Fed in the 111th Congress, my hope is that we can build on our broad bipartisan coalition in 2011 and continue the push for greater Fed transparency going forward.

When Will America Collapse?

Click this link ......

UPDATE 1-A&P seen using bankruptcy to shut about 100 stores

Industry analysts expect store closings

* Grocery business under intense pressure

* Bankruptcy to be used to overhaul business (Updates with approval of loan in third paragraph)

By Tom Hals

WILMINGTON, Del., Dec 13 (Reuters) - Grocery store chain A&P, which filed for bankruptcy on Sunday, may have to shutter a quarter or more of its stores if it hopes to survive, analysts say.

In bankruptcy, the company officially known as The Great Atlantic and Pacific Tea Co GAPTQ.PK will get a chance to perform radical surgery on itself as it faces growing pressure in the low-margin supermarket business.

The company received interim approval from a bankruptcy judge on Monday for an $800 million bankruptcy loan, which analysts said could give it 18 months for an overhaul.

"It's a tough workout," said Joe Stauff, who analyzes distressed companies for Susquehanna International Group.

Stauff said the company could close more than 100 of its 395 stores, which operate under the names of A&P, Waldbaum's, SuperFresh, Pathmark, Food Basics and The Food Emporium in the northeastern United States.

"As we said when we announced our turnaround plan in October, we continue to analyze our store portfolio and will do so in Chapter 11," A&P spokesman Eric Andrus said.

A&P rushed into bankruptcy as its cash was dwindling and a debt payment was looming this week. Unlike most big bankruptcies, the grocery chain does not have a prearranged plan for coming out of court protection.

The company has been squeezed by cut-rate operators of warehouse stores such as Costco Wholesale Corp (COST.O), as well as Wal-Mart Stores Inc (WMT.N) and Target Corp (TGT.N), which have expanded into groceries. At the same time, wealthier shoppers have been lured away by higher-end stores such as Whole Foods Market Inc (WFMI.O).

Unable to pass along rising wholesale costs at the checkout, supermarkets have been forced to gain scale through size or by tightly controlling costs such as leases.

Several other regional supermarkets have gone through bankruptcy in recent years, including Bruno's, Bi-Lo, Penn Traffic Co and Bashas'.

BLUNDER AFTER BLUNDER?

Analysts expect A&P to take a hard look at its vendor contracts, leases and other operational costs, as well as its balance sheet and finances.

TJX Plans to Close A.J. Wright Stores, Cut 4,400 Positions, Most Part-Time

TJX Cos. plans to cut 4,400 jobs as it converts 91 A.J. Wright stores into T.J. Maxx, Marshalls or HomeGoods stores and closes the brand’s remaining 71 locations.

The goal is to concentrate management and financial resources on larger, more profitable businesses, the Framingham, Massachusetts-based discount retailer said today in a statement. Almost half of the positions to be eliminated are part-time.

TJX anticipates that all 162 A.J. Wright stores, concentrated in the northeastern U.S., will be shut by mid- February, at a cost of about $150 million to $170 million, including asset impairment and severance expenses. The company said it expects that converting the 91 stores will take about eight weeks after the Wright closing.

T.J. Maxx and Marshalls attracted moderate-income shoppers during the recession, giving TJX confidence that those two chains can win sales from consumers who shopped at A.J. Wright, Chief Executive Officer Carol Meyrowitz told analysts today on a conference call.

“Management may want to focus its energy on the core businesses and Europe, and viewed A.J. Wright as a distraction,” Howard Tubin, an RBC Capital Markets analyst in New York, wrote today in a note to clients. He rates TJX as “outperform.”

The shares rose 7 cents to $45.03 at 12:58 p.m. in New York Stock Exchange composite trading. The stock had gained 23 percent this year before today.

Less Affluent Consumers

TJX is shutting A.J. Wright 12 years after starting the chain to attract consumers less affluent than its T.J. Maxx and Marshalls shoppers. The brand generated sales of $779.8 million in the year that ended in January. The company is closing the Wright distribution centers in Indiana and Massachusetts.

The unit that operates T.J. Maxx and Marshalls locations has the potential for 2,300 to 2,400 stores, 300 to 400 more than TJX previously estimated, Meyrowitz said in today’s statement.

The Marmaxx division operated 1,751 stores in the U.S. as of Oct. 30, including 919 T.J. Maxx and 832 Marshalls venues, according to a Nov. 16 statement.

Gold May Beat Silver, Lifting Ratio by as Much as 20%: Technical Analysis

Gold may outperform silver, lifting the ratio between the two metals by as much as 20 percent, according to technical analysis by Societe Generale SA.

The attached chart shows the ratio of gold to silver steadied after dropping as low as 46.6 last week, near a two- year channel support line and the lows of 2008 and 1999. The second chart shows the ratio may climb to between about 56 and 58, which are retracement levels of the decline from June that are singled out in so-called Fibonacci analysis.

“The gold-silver ratio reached an important support at 47.5/46,” said Stephanie Aymes, a cross-commodity technical analyst with Societe Generale in London. “Gold will outperform silver to 56/58.”

An ounce of gold bought as little as 46.6 ounces of silver in London on Dec. 7, the least in almost four years. Precious metals gained this year on demand for a protection of wealth and an alternative to currencies. Some investors betting that silver may benefit from an economic recovery pushed the metal’s 2010 advance to 70 percent, outperforming gold’s 26 percent gain. Silver is used more in industry than gold.

Read Full Article

In pushing Obama health care, Nancy Pelosi dismisses authority of US Constitution

(NaturalNews) Yesterday, U.S. District Judge Henry Hudson ruled that a key provision in Obama's health care plan violates the US Constitution. The "minimum essential coverage provision," Judge Hudson ruled, would force American consumers to buy a government-mandated insurance product whether they wish to buy it or not. There is no provision in the US Constitution that grants Congress the power to force consumers to buy into such a monopoly -- the very idea seems ludicrous.

But not to House Speaker Nancy Pelosi. She believes that her power to force Americans to purchase whatever products and services the government wants them to buy is somehow granted by the Constitution.

In what is now seen as a curiously instructive question-and-answer exchange, one year ago Nancy Pelosi engaged in the following dialog with CNS News:

CNSNews.com: "Madam Speaker, where specifically does the Constitution grant Congress the authority to enact an individual health insurance mandate?

Pelosi: "Are you serious? Are you serious?"

CNSNews.com: "Yes, yes I am."

CNS News goes on to report: (http://cnsnews.com/news/article/fla...)

Pelosi then shook her head before taking a question from another reporter. Her press spokesman, Nadeam Elshami, then told CNSNews.com that asking the speaker of the House where the Constitution authorized Congress to mandated that individual Americans buy health insurance as not a "serious question."

"You can put this on the record," said Elshami. "That is not a serious question. That is not a serious question."


Absolute power need not explain itself

What's clear from this exchange is that Nancy Pelosi believes Congress has absolute power over the people to simply invent whatever mandates, requirements or restrictions it wants, regardless of what powers were actually granted to the Congress under the US Constitution.

It is the Constitution, after all, to which Congress owes its existence in the first place. Certain, specific powers are granted to the Congress under the Constitution, with the remainder of powers being reserved to the People or the States. Nowhere in the Constitution do the founding fathers of our nation grant Congress the power to force the American people to spend their money on government-favored monopoly service providers -- and that's precisely what Obamacare mandates.

The question of where Congress gets its authority to enact such mandates is an intelligent and reasonable question that any lawmaker should be willing to answer. But instead of answering this question, Nancy Pelosi simply dismisses it as ridiculous.

Her aide says, "That is not a serious question." But I disagree. I believe it is the most serious question of all. Because if the US Congress is now acting outside its limited powers and simply rewriting the Constitution to match whatever political whims it fancies at the moment, then the freedom of our Republic is lost and we already live under tyrannical rule.

Tyrants do not answer pesky questions from the little people

Time and time again, we now see modern bureaucrats dismissing the very notion that even asking about the source of their authority is a legitimate question. To question the authority of Congress now seems to be regarded as something of an act of terrorism. How dare you question your King?

Remember, it is the duty of all free citizens to slap the hands of government when it threatens to overreach its limited authority. With yesterday's ruling, U.S. District Judge Henry Hudson slapped the hands of both Nancy Pelosi and President Obama, sending them a clear message that you cannot simply steamroll over the Constitution and mandate whatever laws and rules you'd like to see realized in your own megalomaniacal fantasies.

There are protections in the Constitution that were put there precisely to protect the People from tyrants. That is, in fact, the primary purpose of the Bill of Rights -- to protect the People from the inevitably expansion of power by bureaucrats who always seek to control more, regulate more, and accumulate more power in taking over more and more areas of everyday life that should be left up to free people.

Your decision of what kind of doctor you wish to choose -- conventional versus naturopathic or complementary, for example -- is your decision, not the government's decision. For Big Government to mandate that all people must spend thousands of dollars a year to support a failed, disastrously harmful conventional medical system that actually kills over half a million Americans a year is extremely unethical if not downright illegal.

And yet that's exactly what Obama's health care law attempts to do. It seeks to force you to participate in a government-protected sick-care monopoly. And if you choose not to participate, you'll get a little visit from IRS agents who will simply extract the required money from your bank account... by force if necessary.

That such a scheme could be advocated by Nancy Pelosi and other bureaucrats in Washington tells you just how far they've already marched down the seductive path of government tyranny.

It is up to people like you and me to resist this tyranny and stand up for our Constitutional protections so that we may live as free citizens, with our free choice intact, and without the government forcing us to participate in a failed health care system that, statistically speaking, harms far more people than it helps.

Let us hope that the US Supreme Court will also have the wisdom to recognize the constitutional violations in this health care legislation and strike it down.

We'll keep you updated on this story here at NaturalNews.com, where the US Constitution remains alive and well in our minds, hearts and souls. We will defend liberty here on NaturalNews, even if we're the last ones left standing who dare to question the King.

Sources for this story include:
http://www.naturalnews.com/030716_O...
http://cnsnews.com/news/article/fla...


Failing to Prosecute Wall Street Fraud Is Extending Our Economic Problems

Bill Gross, Nouriel Roubini, Laurence Kotlikoff, Steve Keen, Michel Chossudovsky and the Wall Street Journal all say that the U.S. economy is a giant Ponzi scheme.

Virtually all independent economists and financial experts say that rampant fraud was largely responsible for the financial crisis. See this and this.

But many on Wall Street and in D.C. - and many investors - believe that we should just "go with the flow". They hope that we can restart our economy and make some more money if we just let things continue the way they are.

But the assumption that a system built on fraud can continue without crashing is false.

In fact, top economists and financial experts agree that - unless fraud is prosecuted - the economy cannot recover.

Fraud Leads to a Break Down in Trust and Instability in the Markets

As Alan Greenspan said recently:

Fraud creates very considerable instability in competitive markets. If you cannot trust your counterparties, it would not work

Similarly, leading economist Anna Schwartz - co-author of the leading book on the Great Depression with Milton Friedman - told the Wall Street journal in 2008:

"The Fed ... has gone about as if the problem is a shortage of liquidity. That is not the basic problem. The basic problem for the markets is that [uncertainty] that the balance sheets of financial firms are credible."

So even though the Fed has flooded the credit markets with cash, spreads haven't budged because banks don't know who is still solvent and who is not. This uncertainty, says Ms. Schwartz, is "the basic problem in the credit market. Lending freezes up when lenders are uncertain that would-be borrowers have the resources to repay them. So to assume that the whole problem is inadequate liquidity bypasses the real issue."

***

Today, the banks have a problem on the asset side of their ledgers -- "all these exotic securities that the market does not know how to value."

"Why are they 'toxic'?" Ms. Schwartz asks. "They're toxic because you cannot sell them, you don't know what they're worth, your balance sheet is not credible and the whole market freezes up. We don't know whom to lend to because we don't know who is sound. So if you could get rid of them, that would be an improvement."

And economics professor and former Secretary of Labor Robert Reich wrote in 2008:

The underlying problem isn't a liquidity problem. As I've noted elsewhere, the problem is that lenders and investors don't trust they'll get their money back because no one trusts that the numbers that purport to value securities are anything but wishful thinking. The trouble, in a nutshell, is that the financial entrepreneurship of recent years -- the derivatives, credit default swaps, collateralized debt instruments, and so on -- has undermined all notion of true value.

Robert Shiller - one of the top housing experts in the United States - said recently that failing to address the legal issues will cause Americans to lose faith in business and the government:

Shiller said the danger of foreclosuregate -- the scandal in which it has come to light that the biggest banks have routinely mishandled homeownership documents, putting the legality of foreclosures and related sales in doubt -- is a replay of the 1930s, when Americans lost faith that institutions such as business and government were dealing fairly.

Nobel prize-winning economist Joseph Stiglitz says about the failure to prosecute Wall Street fraud:

The legal system is supposed to be the codification of our norms and beliefs, things that we need to make our system work. If the legal system is seen as exploitative, then confidence in our whole system starts eroding. And that's really the problem that's going on.

***

I think we ought to go do what we did in the S&L [crisis] and actually put many of these guys in prison. Absolutely. These are not just white-collar crimes or little accidents. There were victims. That's the point. There were victims all over the world.

***

Economists focus on the whole notion of incentives.
People have an incentive sometimes to behave badly, because they can make more money if they can cheat. If our economic system is going to work then we have to make sure that what they gain when they cheat is offset by a system of penalties.

Wall Street insider and New York Times columnist Andrew Ross Sorkin writes:

“They will pick on minor misdemeanors by individual market participants,” said David Einhorn, the hedge fund manager who was among the Cassandras before the financial crisis. To Mr. Einhorn, the government is “not willing to take on significant misbehavior by sizable” firms. “But since there have been almost no big prosecutions, there’s very little evidence that it has stopped bad actors from behaving badly.”

***

Fraud at big corporations surely dwarfs by orders of magnitude the shareholders’ losses of $8 billion that Mr. Holder highlighted. If the government spent half the time trying to ferret out fraud at major companies that it does tracking pump-and-dump schemes, we might have been able to stop the financial crisis, or at least we’d have a fighting chance at stopping the next one.

Economics professor James Galbraith says:
There will have to be full-scale investigation and cleaning up of the residue of that, before you can have, I think, a return of confidence in the financial sector. And that's a process which needs to get underway.

No wonder Galbraith says that economists should move into the background, and "criminologists to the forefront".

Failure to Stop Fraud and Prosecute Criminals Causes a Loss of Trust in Government, Which Makes Government Less Effective

As Shiller stated in the quote above, the failure of government officials to stop fraud and prosecute the financial fraudsters has caused a lack of trust in government itself.

Indeed, polls show that people no longer trust our economic "leaders". See this and this.

A psychologist wrote an essay published by the Wharton School of Business arguing that restoring trust is the key to recovery, and that trust cannot be restored until wrongdoers are held accountable:

According to David M. Sachs, a training and supervision analyst at the Psychoanalytic Center of Philadelphia, the crisis today is not one of confidence, but one of trust. "Abusive financial practices were unchecked by personal moral controls that prohibit individual criminal behavior, as in the case of [Bernard] Madoff, and by complex financial manipulations, as in the case of AIG." The public, expecting to be protected from such abuse, has suffered a trauma of loss similar to that after 9/11. "Normal expectations of what is safe and dependable were abruptly shattered," Sachs noted. "As is typical of post-traumatic states, planning for the future could not be based on old assumptions about what is safe and what is dangerous. A radical reversal of how to be gratified occurred."

People now feel more gratified saving money than spending it, Sachs suggested. They have trouble trusting promises from the government because they feel the government has let them down.

He framed his argument with a fictional patient named Betty Q. Public, a librarian with two teenage children and a husband, John, who had recently lost his job. "She felt betrayed because she and her husband had invested conservatively and were double-crossed by dishonest, greedy businessmen, and now she distrusted the government that had failed to protect them from corporate dishonesty. Not only that, but she had little trust in things turning around soon enough to enable her and her husband to accomplish their previous goals.

"By no means a sophisticated economist, she knew ... that some people had become fantastically wealthy by misusing other people's money -- hers included," Sachs said. "In short, John and Betty had done everything right and were being punished, while the dishonest people were going unpunished."

Helping an individual recover from a traumatic experience provides a useful analogy for understanding how to help the economy recover from its own traumatic experience, Sachs pointed out. The public will need to "hold the perpetrators of the economic disaster responsible and take what actions they can to prevent them from harming the economy again." In addition, the public will have to see proof that government and business leaders can behave responsibly before they will trust them again, he argued.

Government regulators know this - or at least pay lip service to it - as well. For example, as the Director of the Securities and Exchange Commission's enforcement division told Congress:

Recovery from the fallout of the financial crisis requires important efforts on various fronts, and vigorous enforcement is an essential component, as aggressive and even-handed enforcement will meet the public's fair expectation that those whose violations of the law caused severe loss and hardship will be held accountable. And vigorous law enforcement efforts will help vindicate the principles that are fundamental to the fair and proper functioning of our markets: that no one should have an unjust advantage in our markets; that investors have a right to disclosure that complies with the federal securities laws; and that there is a level playing field for all investors.

If people don't trust their government to enforce the law, government will become more and more impotent in addressing our economic problems. If government leaders take action, the market will not necessarily respond as expected. When government leaders make optimistic statements about the economy, people will no longer believe them.

Trying to Cover Up the Truth Extends Financial Crises

Elizabeth Warren, William Black and others say that attempting to cover up the truth extended Japan's financial problems into an entire "Lost Decade".

As Joseph Stiglitz said about Wall Street fraud:

So the whole strategy of the banks has been to hide the losses, muddle through and get the government to keep interest rates really low.

***
As long as we keep up this strategy, it's going to be a long time before the economy recovers ....

Pam Martens - who worked on Wall Street for 21 years - writes:

The massive losses by big Wall Street firms, now topping those of the Great Depression in relative terms, have yet to be adequately explained. Wall Street power players are obfuscating and Congress is too embarrassed or frightened to ask, preferring to just throw money at the problem and hope it goes away. But as job losses and foreclosures mount and pensions and 401(k)s shrink, public policy measures to address the economic stresses require a full set of unembellished facts...

It was four years after the crash of 1929 before the major titans of Wall Street were forced to give testimony under oath to Congress and the full magnitude of the fraud emerged. That delay may well have contributed to the depth and duration of the Great Depression. The modern-day Wall Street corruption hearings in Congress ... must now resume in earnest and with sworn testimony if we are to escape a similar fate.
To the extent that the government tries to cover up - instead of openly discuss - financial fraud, it will only extend America's economic malaise.

Failing to Prosecute Fraud Encourages Financial Players to Take Bigger and More Blatantly Illegal Actions

Nobel prize winning economist George Akerlof has demonstrated that failure to punish white collar criminals - and instead bailing them out- creates incentives for more economic crimes and further destruction of the economy in the future. Joseph Stiglitz, Professor Black, and many others agree. See this, this and this.

It was largely fraud which brought down the financial system in 2008. Unless we prosecute the fraudsters, they will do even bigger, stupider and more blatantly illegal things in the future which will lead to even bigger crises.

Failure to Prosecute Fraud Exacerbates the Sovereign Debt Crisis

The governments of the world have spent trillions trying to paper over the fraud and prop up the big, insolvent banks, instead of forcing them to restructure and forcing bondholders and shareholders to take a haircut.

A study of 124 banking crises by the International Monetary Fund found that propping up banks which are only pretending to be solvent drives up the costs to the country:

Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.

Cross-country analysis to date also shows that accommodative policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions’ liabilities and forbearance from prudential regulations) tend to be fiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery.

***

All too often, central banks privilege stability over cost in the heat of the containment phase: if so, they may too liberally extend loans to an illiquid bank which is almost certain to prove insolvent anyway. Also, closure of a nonviable bank is often delayed for too long, even when there are clear signs of insolvency (Lindgren, 2003). Since bank closures face many obstacles, there is a tendency to rely instead on blanket government guarantees which, if the government’s fiscal and political position makes them credible, can work albeit at the cost of placing the burden on the budget, typically squeezing future provision of needed public services.

The American banks and government have certainly pretended that all of the big banks are solvent. As ABC wrote in October 2009:

The Treasury Department and the Federal Reserve lied to the American public last fall when they said that the first nine banks to receive government bailout funds were healthy, [the special inspector general for the Troubled Asset Relief Program] states in a new report released today.
Similarly, the stress tests were a complete and utter sham.

The government has given the giant banks huge amounts in loans and guarantees based upon their false representations about their financial health. The Fed has larded up its balance sheet with toxic assets from the banks.

Debt levels are also getting dangerously close to the level that they become a drag on the economy. See this and this. When Keynesian economists argue that debt does not harm the economy, they are talking about debt incurred to pay for stimulus and productive things for the economy. But throwing trillions at the giant banks - who are mainly using the money to gamble - is not stimulus. It helps the executives of the big banks and their shareholders and bondholders, but not the broader economy.

Indeed, attempting to prop up big, insolvent banks is preventing stimulus from getting out into the economy.

Fraud Causes Growing Inequality, Which Undermines the Economy

Growing inequality is very harmful to our economy. Indeed, if wealth is concentrated in too few hands, the "poker game" ends, as one or two fat cats are left with all of the chips. See this, this, this and this.

Fraud benefits the wealthy more than the poor, because the big banks and big companies have the inside knowledge and the resources to leverage fraud into profits. Joseph Stiglitz noted in September that giants like Goldman are using their size to manipulate the market. The giants (especially Goldman Sachs) have also used high-frequency program trading (representing up to 70% of all stock trades) and high proportions of other trades as well). This not only distorts the markets, but which also lets the program trading giants take a sneak peak at what the real traders are buying and selling, and then trade on the insider information. See this, this, this, this and this.

Similarly, JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley together hold 80% of the country's derivatives risk, and 96% of the exposure to credit derivatives. They use their dominance to manipulate the market.

Fraud disproportionally benefits the big players (and helps them to become big in the first place), increasing inequality and warping the market.

Fraud Increases the Severity of Boom-Bust Cycles

More and more people - such as the Bank of International Settlements and Barons - are saying that bubbles inevitably lead to busts, thus destabilizing the economy.

Professor Black says that fraud is a large part of the mechanism through which bubbles are blown.

Without strong laws against fraud, bubble after bubble will be blown, guaranteeing that the financial system cannot be stabilized in any fundamental sense.

Failure to Prosecute Fraud Is Worsening the Housing Crisis

Finally, failure to prosecute mortgage fraud is arguably worsening the housing crisis. See this and this.

So trying to ignore the fraud will not work.

The New American Dream: Sprawling Tent Cities Filled With Tents Made In China

What would you do if you had your job suddenly ripped away from you and you ended up losing your home? Well, that is exactly what hundreds of thousands of families across America have found themselves facing during this economic downturn. So what would you do? Would you move in with relatives? Would you join the ranks of those living in the tent cities that are popping up all over the nation? Would you live in a van down by the river? The truth is that with each passing month even more Americans find themselves pushed to the brink of absolute desperation. For many of our fellow citizens, the American Dream has been reduced to finding some way to keep the rain off of them each night and finding someone who will be kind enough to give them some food during the day.

So why are so many Americans hurting? Where did all the good jobs go? Well, over the past couple of decades our new "global economy" has encouraged big corporations to move thousands of factories and millions of jobs out of the United States. Many of the good jobs that these homeless and unemployed Americans used to do are now done on the other side of the world. The ironic thing is that many of the tent cities that have bloomed in communities across the United States are filled with tents that were made in China.

Unfortunately, the tent cities that have grown up all over the nation are just a foretaste of what is coming in the future. When the economy really collapses, millions more Americans are going to be living in conditions just like this....

One of the saddest things about all of this is what is happening to older Americans. There are large numbers of older Americans that have worked hard all of their lives but that now find everything just slipping away.

A reader of this column named William recently left the following comment....

I thought I would try to start things rolling here. I am a 46 year old 99er, who just found out last week that unemployment is done. I was making $283/week which I am very thankful for, but was not enough to pay the mortgage on our small 2 bedroom, 1941 cape, ( mostly because of increasing taxes). I have been doing misc. barter jobs in trade for others services or food, etc. I have been sending resumes all around, but no bites. I am a 25 year veteran, high end woodworker. I even have some AutoCad and CNC experience, but evidently not enough experience in this economy to land me a job.

We are on the edge of not being able to pay mortgage, even though our cars are paid off, we have no phone, no cable, and the wife cooks all the meals, and I did not mention, we don’t have kids either. Just two people trying to make ends meet.

At least William and his wife still have a home (for now) and are hanging in there. There are countless others that have not been so fortunate. In fact, in the three counties surrounding Disney World, it is estimated that there are approximately 8000 people living in the woods. What some of those people have to face on a daily basis is absolutely horrifying....

Can you imagine living that way?

Sadly, many local communities across the United States are cracking down on homeless people because they simply do not want to deal with them.

In Venice, California the police are actually arresting people that are living in RVs and are towing away their vehicles. The following is an excerpt from an article that recently appeared on the Daily Kos website....

They took Eric while he was changing his battery in his car. Claimed he lived in his car. A few days later they went to 3th Street and took his RV because he was in jail and no one moved it for 72 hours. Saturday they did a sweep of 7th and took Bear and his RV. They also took Elizabeth's RV but do not know if they took Elizabeth but can not find her. The police went to 6th and took the white RV that always parks by Broadway on 6th. Everyday they take 1 to 4 RVs. Very soon there will be no one left.

If you lost your home would you try to live in your vehicle?

Well, the truth is that it is not so easy. In fact, just on Friday a 56-year-old homeless man in northwestern Montana that was living in his car froze to death after his car battery died.

Once you have been kicked out of your home it is not easy to survive.

That is why so many Americans are so desperate to hang on to their homes.

But what do you do when you can't find a job and your money has dwindled away to almost nothing? What do you tell your children when there is not enough money for food?

The following quote from a Huffington Post article comes from a 99er named Toni. It kind of sums up the frustration and anger that so many unemployed Americans are feeling right now....

"How does someone explain to their child that they can have a place to live and maybe stay warm in the winter, but in order to do that they won't have any food to eat? Or they can eat, but may not have a secure place to live? Just try to explain those adult decisions to a child and see how much they understand!"

Unfortunately, many Americans respond to such suffering by saying that people like this "should just get a job". But as I wrote about recently, the truth is that there are not nearly enough jobs for everyone who wants one anymore.

In fact, in the United States today there are over 6 million Americans that have been out of work for 6 months or longer. In such an environment, "black market industries" such as drug dealing and prostitution are thriving as desperate Americans look to survive any way that they can.

But there are many Americans that will never stoop to a life of crime. There are many Americans who feel like they have done everything that they were "supposed" to do all these years and now they feel like they are being tossed aside by society like a piece of trash.

A woman identified only as "oldandtired" recently posted the following very sad message on the Unemployed-Friends website....

How did I get here? I have donated, volunteered, etc. for those in need for decades. Now, I have $2.34 to my name. I have lost my home, filed bankruptcy, and have been separated from my daughter. I have not seen a doctor in three years. I keep looking for work, but it is like a cruel joke - and the joke is on me. I exist day to day on the charity of family and I try to keep in mind that so many of you don’t have that option.

My eyesight has been bad for most of my life. I am -8.25 and -8.50 for vision. For those of you who know the eyes, you realize that I am so near-sighted that I am legally blind when not corrected. However, I am corrected with contacts or glasses - neither of which I can afford. Contacts ran out last year and my glasses are almost 10 years old (my fault for not getting new ones when I had a job). Don’t you know? The f#$%ing things broke. No chance of fixing. No contacts. How the heck am I supposed to get work when I can‘t see????? There is no social services available without an address, and I am homeless. A PO box doesn’t cut it.

Okay, the eternal optimist isn’t being so optimistic, eh? I catch myself thinking the word ‘hate’ lately. It is a word that was never in my vocabulary before. I hate politicians. I hate the economy. I have even begun to resent and hate people who have jobs. Sometimes, tears just fall from my cheeks and I can only think of those two words…..”I hate”.

If any of you knew me, you would know how bizarre this is for me. My spirit needs a boost, but I hate to even try anymore. Anyone got a good joke? One that will make me laugh until I cry instead of me just crying.

The president and I are the same age. Retirement is so far off. Why is my life over already?

So what can the rest of us do about all of this?

Well, first of all we can all reach out and help those we know that are in need.

Secondly, we can all start preparing for the hard times that are coming. Instead of maxing out our monthly budgets, we should all be setting aside some extra money in case we lose our jobs or businesses. In addition, we should be storing up extra food and supplies for when the U.S. economy totally collapses.

Unfortunately, the U.S. economy is not going to be getting better in the long-term. We are living in the greatest debt bubble in the history of the world, and when it bursts things are going to get far worse than they are now.

So don't look down on the millions of Americans that are really suffering right now, because one day you might be the one that is suffering.