Sunday, September 18, 2011

Arrested & Convicted the Capitalist Leaders Who Committed Political And Economic Crimes Against Her. Why Didn't We Think of That?

"whatever fate befalls Iceland in the future, its people have provided an example for citizens the world over to follow. This is a way forward for the American political and economic system. As we'll see in the section of this essay on Iceland's history, Iceland has been controlled and criminally manipulated by a capitalist junta similar to the American cabal, and is still somewhat under the thumb of this junta to this day.
Despite, the depredations of the Icelandic junta, however, Icelandic citizens have been able to elect a number of more progressive leaders and reject responsibility for Icelandic capitalist debts.
The people of Iceland twice voted not to repay international debts incurred by banksters, rejecting the idea that "the people" are responsible for bankster debts.       Icelandic citizens held a first referendum in the spring of 2009 to decide whether the people should pay for the criminally incurred debts of the banksters and whether their government could impose these debts on the people without their consent. Ninety-three percent voted no!      
In April of 2011 the Icelandic citizens held a second referendum to decide whether to accept or reject a government-concocted agreement negotiated between Iceland, the Netherlands and the UK to pay back the British and Dutch governments for the money they spent to recompense savers with the failed Icesave bank. Covering the debt would have cost Iceland's 317,000 citizens around $17,000 each. Again, they voted to reject the capitalist "agreement;" this time by close to sixty percent (58.9%)."

Credit Crisis: The Result of Greatest Financial Crime in World History. Where are the Convictions?

William Black: Why Nobody Went to Jail During the Credit Crisis

The FBI is no longer chasing white collar criminals

Jim welcomes Professor of Economics and Law William Black to Financial Sense Newshour. He explains to Jim why no one has gone to jail four years after the beginning of the historic Credit Crisis. Professor Black believes that the level of corruption and fraud is so pervasive that very few of the guilty will ever be brought to justice.
Bill Black is an Associate Professor of Economics and Law at the University of Missouri – Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.

Transcript

Jim Puplava:    Joining me on the program is Professor William Black. He is a Lawyer and an Associate Professor of Economics and Law at the University of Missouri, Kansas City. He was a Director of the Institute for Fraud Prevention from 2005 to 2007. He taught at the LBJ School of Public Affairs at the University of Texas. He was also a Litigation Director for the Federal Home Loan Bank Board. He is also author of the book “The Best Way to Rob a Bank Is to Own One.”
And Professor, you played a critical role during the S&L crisis in exposing congressional corruption. During that period of time, a lot of corruption was exposed; a lot of people in the financial sector went to jail, including Charles Keating. I wonder if you would contrast that to the last credit crisis, let us say from 2007 to 2009 where a lot of money was lost, a lot of things went wrong, but nobody went to jail. Instead of going to jail, they walked out instead with multi-million dollar bonuses. What was the difference, what was behind this in your opinion?
William Black: Well, I say the both of them were driven by fraud. The Savings & Loan crisis was a tragedy in two parts. First part was not fraud, it was interest rate risk. But the second phase, which was vastly more expensive, was to defraud and the National Commission that looked into the causes of the crisis said that the typical large failure fraud was invariably present. And there were real regulators then. Our agency filed well over 10,000 criminal referrals that resulted in over 1,000 felony convictions and cases designated as nature. And even that understates the grade in which we went after the elite. Because we worked very closely with the FBI and the Justice Department, to prioritize cases—creating the top 100 list of the 100 worst institutions which translated into about 600 or 700 executives—and so the bulk of those thousand felony convictions were the worst fraud, the most elite frauds.
In the current crisis, of course they appointed anti-regulators. And this crisis goes back well before 2007 and of course it is continuing, it does not end at 2009. So the FBI warned in open testimony in the House of Representatives, in September 2004—we are now talking seven years ago—that there was an epidemic of mortgage fraud, their words, and they predicted that it would cause a financial crisis, crisis being their word, if it were not contained. Well no one thinks that it was contained.
All right so you have massive fraud driving this crisis, hyperinflating the bubble, an FBI warning and how many criminal referrals did the same agency do, in this crisis. Remember it did well over 10,000 in the prior crisis. Well the answer is zero. They completely shut down making criminal referrals and whichever administration you hate the most, you can hate because while most of this certainly occurred in the Bush Administration, the Obama Administration has obviously not changed it. Obviously did not see it as a priority to prosecute these elite criminals who caused this devastating injury.
Another way to look at it is, how much fraud is there and we know the following: There are no official statistics on sub prime and similar categories because there are no official definitions. So there is a little wishy-wishy in this but the best numbers we have are that by 2006, half of all the loans called sub-prime, were also liars loans. Liars loans means that there was no prudent underwriting of the loan. And total, about one-third of all the loans made in 2006, were liars loans.
Now that's an extraordinary number, especially when you look at the studies. And here I am going to quote from the Mortgage Bankers Association. That is the trade association of the perps and this is their Anti-Fraud Specialist Unit, and they reported this to every member of the Mortgage Bankers Association in 2006. So nobody can claim they did not know. They found three critical things, first they said this kind of loan where you do not do underwriting is, and I am quoting again, “an open invitation to fraudsters.” Second, they said “the best study of this found a 90% fraud incident.” In other words, if you look at 100 liars loans, 90 of them are fraudulent. And third they said, therefore these loans where the euphemism is stated income are Alt-A loans, actually deserve the title that the industry calls the Behind Closed Doors, and that is liars loans. The other thing we know from other studies and investigations, is that it was overwhelmingly lenders and their agents that put the ‘lie’ in liars loans. Now that is obvious when you look at the lies about appraisals, because homeowners cannot inflate appraisals. But lenders can and how they did it was shown in an investigation by then New York Attorney General Cuomo, now Governor, who found that Washington Mutual, which is called WAMU, and is the largest bank failure in the history of the United States, and indeed the history of the world, had a black list of appraisers. But you got on the black list if you were an honest appraiser, and refused to inflate the appraisal.
Similarly, we know that you could get, for example, a California jumbo mortgage, that’s one say the size of $800,000. As a loan broker, just one of these, you could get a fee of $20,000. If it hit certain parameters. And those parameters would have to do with what is the interest rate, but also what is the loan to value ratio, and what is the debt to income ratio. So the loan to value ratio is how big is the loan compared to the value of your house. Well that is an easy ratio to gimmick, and we have just explained why, by inflating the appraisal. If you inflate the appraisal then the loan to value ratio falls and the loan looks like it is a lot safer, and you can sell it to Wall Street for significantly more. The debt to income ratio, well that is even easier to gain. The debt is simply how much are you going to borrow to buy the house. And the income is, what is the income stated on the loan application for the borrower. Except that this is a liars loan, so the lender has agreed that it is not going to check. It is not going to verify whether the income is real. And so the loan broker can write down any income number he or she wants. And that will gimmick that ratio and again it will put it into the sweet spot, for all of these things, so that you could get your $20,000 fee. Now step back and ask yourself, many of these guys who are loan brokers, their previous job was literally flipping burgers, right. So are you going to leave it up to the borrower to come up magically with the right income and the right appraisal when they don’t even know what the magic numbers are and cannot inflate the appraisal? Of course not. You are going to do it as the loan broker. You are going to tell the borrower to write in a greatly inflated income number, or maybe you are afraid that they are too honest, so you may simply write it in yourself, which happened in many cases.
So again, we got thirty, roughly one-third of all the loans by 2006, after these warnings. They rapidly increased the number of liars loans they made. One-third of them are liars loans and 90% of them are fraudulent, which is to say, that the amount of fraud annually was well over a million fraud a year. We are talking about hundreds of billions of dollars in fraudulent instruments.
Jim Puplava:    Professor, I guess one question I would have is, did the guys at the top of the bank not know that this was going on? I mean I would find it hard to believe that if I am the CEO of a financial organization, that I don’t know that our loan standards, that we went to liar loans and that we were not documenting or verifying. I mean what happened to 20% down, two years worth of tax returns, I mean how would somebody at the top, not know this.
William Black: You mean you think liars loan might be a hint?
Jim Puplava:    Yeah, maybe just a little (sarcasm).
William Black: Yeah, we have known for centuries, that if you don’t underwrite loans, or if you don’t underwrite insurance, you’ll get something called "adverse selection". And that means you get the worse possible borrowers or people being insured and the expected value of lending to somebody, in conditions of serious adverse selection, is negative. Or to put that in English, that means if you lend this way, you lose money. And we have known this for centuries. This is like betting against the house in Las Vegas. You could win some individual bets, but you stay at the table for three years, and you are going to lose everything. And as we say, you will lose the house, to the house. And, that is exactly what is going to happen here. So yeah, the CEO’s knew all about this. Why did they do it? And the answer is, here is the recipe, it’s got four ingredients for creating what the Nobel Prize Winner in Economics, George Akerlof and his colleague Paul Romer said in 1993 was "a sure thing". And that sure thing is what in criminology we call accounting control fraud.
So control fraud is when the person who controls a seemingly legitimate entity, uses it as a weapon to fraud. In the financial sphere, the weapon of choice is accounting. So here are the four ingredients of the recipe that produce a sure thing of record accounting income.
  1. Grow like crazy
  2. Make preposterously bad loans but at a premium yield.
  3. Have extreme leverage. That means you have a ton on debt.
  4. Put aside only ridiculously low allowances for future loan losses.
You do those four things, you are mathematically guaranteed to report record, albeit fictional, profits in the short term. You are also guaranteed with modern executive compensation, to make the Senior Executives wealthy, and you are guaranteed, because after all, if you think about those four ingredients, they are the perfect recipe as well for maximizing real losses. And that’s why the title of Akerlof and Romer’s article says it all, “Looting: The Economic Underworld of Bankruptcy for Profit.” The firm fails but the executives walk away rich. This is the same concept with my book “The Best Way to Rob a Bank Is to Own One.” It is these internal people who control the seemingly legitimate entity that can get away with financial murder. And here is the really bad news. I mean that is bad news right there, but the really bad news, is that this tends to happen as the FBI warned, and again in 2004, seven years ago. So the next time you hear some moron tell you that no one could have predicted this, it was predicted by the Premiere Law Enforcement entity in the world dealing with white-collar crime.
Jim Puplava:    You know, we just talked about, with these liar loans being made, the executives at the top knew that this was going on. But it was driving record profits that they were reporting, their stock prices were going up. They were getting paid bonuses and you know their option values were worth just, you know, some of these compensation packages were just unreal. But here’s the thing that I guess some of these people did know as we mentioned the executives at the top, but some knew how to make profit from them. For example, we found out in congressional testimony that Goldman Sachs at the same time that they were selling these mortgage polls to let’s say many of it’s customers, at the same time, internal memos and e-mails said the stuff was garbage and they were shorting it, making money. Is it because they control so many of Congress that this time there was no law enforcement by the regulators coming in and looking at these guys that walked away with these bonus packages. Or the fact that you had conflicts of interest of selling bogus mortgage polls that you knew that were garbage. And at the same time you were selling them to a customer, you were taking the opposite side of the trade and shorting it.
William Black: So to just close the loop on what I was saying, if a bunch of folks follow the same strategy at the same time, they hyper-inflate a financial bubble. And when you have huge financial bubbles and they collapse, that’s when you get great recession. So your question is, so why, this is the greatest financial crime in the history of the world and no one senior, at any of the major places that drove the crisis, has gone to jail? In fact, no one has been indicted. There were some at Bear Stearns, for the real specialized stuff, but for the basic fraud we are talking about, no one has even been charged with a crime. What has happened? And the answer, the first answer is it all has to start with the regulators. The regulators have to serve as the Sherpas on something like this, in criminal prosecution. The Sherpas of course, are the folks that help you get to the top of the Himalayan Mountains. And this is a hard task, it is hard to prosecute sophisticated white-collar crimes, and they do have the best criminal defense lawyers in the world. So it is not an easy thing. And getting those thousand plus felony convictions in the Savings and Loan crisis, was a massive success for which the Department of Justice, the FBI and the agencies deserve a lot of credit. What do the Sherpas do? The Sherpas do two functions. One, they do the heavy lifting and in this context, that means they the great bulk of the investigative work. And two, they serve as the guides, they have the expertise, they’ve seen this before, they know what works and what does not. And in this context, that means they have expertise in the fraud mechanisms, the fraud schemes, identifying it and explaining it. And so a criminal referral is not just a sort of a useful thing, it is the absolutely essential thing. Criminal referral in our era might be twenty to thirty pages and have two hundred to three hundred pages of attachments of all the key documents. It would be the roadmap to continue this metaphor that says, here’s the fraud, here’s how it works, here are the key people, here is where the money moved, here are the key documents to be able to prove the case. Here are the key witnesses, this is how you contact them, right? And I told you that we went to zero criminal referrals from well over ten thousand. That has made it impossible for the FBI and the justice department to have any substantial success. But of course, this is not the question of them simply not having substantial success, they ain’t having no success. And there you have to look at what, after a brilliant start with this September 2004 warning, with no help from the regulators, well you could not get any significant number of FBI agents assigned in the Bush Administration, to investigate these cases.
Now part of what has happened is in some sense understandable, when the 9/11 attacks ten years ago occurred, we of course found that our national security FBI agents, could not infiltrate Al Qaeda. So what we could do is follow the money. And the experts at following the money are the white-collar FBI agents. So they transferred 500 white collar FBI Specialists, over to National Security. Okay, we can understand why they do that. What you cannot understand is why the Bush Administration refused to allow the FBI to replace this enormous loss of white-collar specialists. And so as a whole, white collar prosecutions fell significantly in the Bush Administration. That meant that as recently as fiscal year 2007, there were nationwide, only 120 FBI agents working all mortgage fraud cases. To give you a comparison, at the peak of the Savings and Loan Crisis, there were 1,000 FBI agents working the cases.
Jim Puplava:    Wow
William Black:  Eight times more FBI agents than were working the cases in fiscal year 2007. And this crisis is forty times bigger and worse than the Savings and Loan Crisis. So you would have required massively more people. To give you another idea of scope, to investigate Enron, and Enron was complex, but it was nowhere near as big and as complex as Washington Mutual. It took 100 FBI agents. So you can see that with 120 nationwide, at most you could have done one major case. But instead, they divided them up in what the military would call, Penny Packets, which is to say two or three agents per field office. And that means they cannot investigate anything substantial. So they were put on relatively smaller cases. And they being diligent FBI agents, they worked those cases, and that’s where they wrote the memos, okay we found this, prosecute these people, don’t prosecute these people. The FBI in late 2007 – 2008, figures out this cannot work. Remember I told you there were over a million cases of mortgage fraud a year and that overwhelmingly it’s lenders who foot the fraud, the lie in the liars loan. But the FBI couldn’t and didn’t investigate any of the major lenders. So it is looking at these relatively small folks, and that is what it reports back. The FBI decides you know, as I said, this cannot work. This is like going to a beach in San Diego and throwing handfuls of sand in the Pacific Ocean and wondering when you are going to be able to walk to Hawaii. Every year, with a million plus cases of fraud a year, if you prosecute a thousand of them or two thousand of them or three thousand of them, you are a million cases further behind every year, right. It is just insane. So the FBI says we got to start going after the big guys at which point Bush’s Attorney General Mukasey says no, he refuses to even create a National Task Force against mortgage fraud, saying famously, this is simply the equivalent of, and I am quoting again, “White Collar Street Crime,” little tiny stuff. Well of course he has assigned the FBI to only look at little cases and they report back, hey we’re finding little cases. And the Mukasey interprets from that, hey only little cases exist.
Jim Puplava:    Yeah, but you know, in the S&L Crisis, you had some high profile cases. For example Charles Keating, and that got a lot of play. So maybe if they didn’t have the manpower, maybe going after some very high profile cases, might have made the point. You are saying they backed off from that. What about the Obama Administration?
William Black: They never did it. They didn’t even back off. They never, you can tell from the numbers that they have, in how many FBI personnel it takes to do a really sophisticated, large institutional investigation. They have never done what would have been considered a real investigation in the Savings and Loan era of any, any of the major fraudulent lenders and investment banks that created the worthless financial derivates—not worthless, but not worth very much—financial derivatives.
Jim Puplava:    What about the Obama Administration? Had they came in, they continued with the same policy basically, they ignored it. Where they could have had let us say, an opportunity. Is it because Professor, that the process is you know, some have said that Congress is bought and paid for by the financial industry. I mean, is that part of the reason?
William Black: Well, it’s not just Congress of course. The President has said that he wants to raise a billion dollars in the reelection effort and despite all the press you may have heard about how the White House is despised by finance—in fact, last I read, a bigger percentage and a bigger absolute dollar amount of contributions in this effort, than in the original effort had come from finance. And so both parties are tremendously beholden to finance. That is part of it but again, the Obama Administration was better than the Bush Administration. The Obama Administration was willing to create a task force and it’s the numbers of FBI Agents have been increased, but they are still looking at relatively small cases. And they are nowhere near the numbers required and so unless something dramatic or radical changes, this is going to be the greatest case of elite fraud with impunity in the history of the world. And it is only going to change if we express our outrage as the people and demand that it is changed. Let me tell you how bad it is. The Federal Housing Finance Administration, has just last week, or about ten days ago now, filed fifteen hundred plus pages of complaints against seventeen financial entities. And about ten of them are among the biggest financial entities in the world saying, every investigation has found repeated enormous fraud at these entities. So, and there is a track record, a paper trail of that fraud. But these entities got reports saying these assets were trash and that they lied and then sold the assets to Fannie and Freddie by making acts of deceit, which is of course, the key element of fraud.
So, now that this has happened, there are really only two possibilities. Either the Federal Housing Finance Administration has gotten all those documents wrong, and there is no such record, or there is such a record in which case, where is the Justice Department, why is it not bringing criminal prosecution against most of the largest banks in the world.
Jim Puplava:    You know, there was a documentary film called “Inside Job,” which won an Oscar this year, and it ended with the Director and Producer pointing out the fact that you just brought up—not one single prosecution was brought in this entire situation, what is probably the largest fraud committed in history. And yet it still goes on Professor, we still have the financial industry contributing large amounts of money to politicians in both parties, both at the national level, the local level, and so basically, what you have is influence buying here. Because it seems to me that there were so many obviously cases, even in the hearings, where I think it was, Senator Levin, basically talking about the conflicts of interest in internal e-mails. I thought my goodness, there was enough evidence to go after but not one thing was done. And even when a lot of these firms went under, as the shareholders lost everything, the taxpayers losing everything, the guys at the top walked away with some of the biggest bonus packages I’ve seen in my investment career.
William Black: Again, Akerlof and Romer have been proven correct. Akerlof and Romer worked with us and strongly support the kind of efforts that need to be done. The title of their article again is “Looting: The Economic Underworld of Bankruptcy for Profit.” The firm failed because you followed the fraud recipe that I gave you, which causes catastrophic losses but their CEO’s and other Senior Officers can walk away incredibly rich. There is, by the way, one case and was done after the movie, the documentary that you are talking about, and it’s the proverbial exception that proves the rule. The Taylor case, and it refers to a pretty obscure mortgage-banking firm in the southeast. Ten people have been convicted who were officers. But the only reason they were convicted was because these people after thousands of acts of fraud, over a ten-year period, tried to defraud the TARP Program and the Special Inspector General to the TARP Program, which is called SIGTARP, was very good. He has since left the government service. And they found this and they made the criminal referral. What we discovered in the course of that, was that Fanny Mae discovered this fraud in 2000 but refused to make a criminal referral.
They refused to make a criminal referral because it wanted to secretly dump the paper that had been provided by this mortgage-banking firm. And so the mortgage banking firm, the fraudulent mortgage banking firm, they would have been caught red handed doing the frauds. Simply went across the street, metaphorically, and defrauded Freddie Mac for nine years. So again, if people, I do not understand who have never done this, how absolutely critical the criminal referrals are.
Jim Puplava:    Well, it seems like as we have seen here, as you pointed out, zero criminal referrals have been brought in this entire case, and you just cannot help but believe that this goes on and meanwhile, you and I as taxpayers, are going to have to front the bill for this. It is unfortunate. Let me ask you a final question, we supposedly as a result of all of this, we had Dodd Frank, that was supposed to bring in like Sarbanes-Oxley, all this financial legislation that would basically prevent this kind of thing from happening again. Will Dodd Frank help us in this way or is it just more red tape and which is useless if regulators and let’s say the FBI, aren’t allowed to do their job.
William Black: Dodd Frank has some individual components that are useful and the Republican Party unfortunately is trying to kill each of them. The Administration is not necessarily fighting strong for any, the Dodd Frank Bill was not created and designed to deal with the actual causes of the crisis. And so it most likely will not stop the next crisis. But the focus on legislation is a bit misleading. Under the existing laws and regulation, this was an easy crisis to prevent. People think of it as much more difficult and complex. But as I say, it was overwhelmingly driven by liars loans. Liars loans were easy to figure out. We, as regional regulators in 1990 and 1991, killed a wave of liars loans that was starting, especially in Orange Country Savings and Loans. And as a result, those lenders gave up their Federal Deposit Insurance precisely to escape our jurisdiction, and created mortgage banks. But the Fed, the Federal Reserve Board, had authority from 1994 on, in other words, a long time before the crisis, to regulate anybody that did home loans. And it was an easy call that something called a liars loan had to be stopped. Alan Greenspan and Ben Bernanke refused to do their statutory authority to stop them. Because they didn’t believe in regulation. Bernanke was reappointed by President Obama. You know, I tried as little, what one little person could, to stop that. We need to have a complete new crew. Geithner needs to go, Attorney General Holder needs to go, and Bernanke needs to go and we need to put people in who will make a high priority ending the ability to loot institutions with impunity.
Jim Puplava:    Yeah, that was one of the aspects that was brought out in the documentary, “Inside Job.” A lot of the people, Larry Summers who until recently was in the Obama Administration, Geithner, Alan Greenspan tried to stop Brooksley Born on derivatives. And it seems like the guys that were behind all of this are the same people that have been put in charge of fixing it. Well listen Professor, your book once again is “The Best Way to Rob a Bank Is to Own One.” And you have written several articles so if our listeners would like to follow the work that you do, I hope you keep up the good work because we do need hopefully some day we will get honest people in there that will care more about doing what is right than about their positions and the pay that they get.
William Black: We have written hundreds of articles that if folks are interested, check out “New Economic Perspectives”, the UMKC Economics blog.
Jim Puplava:    Okay, one more time?
William Black: “New Economic Perspectives”, the blog of the Economics Department at the University of Missouri at Kansas City.
Jim Puplava:    All right, well we have been speaking with Professor Black, Professor thank you for coming on the program and helping to clarify why this big crime really went unpunished, which is a real tragedy for not only most Americans but all of us as taxpayers who have paid for the bill.
William Black: Thank you sir, take care.
Jim Puplava:    Thank you

Under fascism, the rich get richer and the poor get crapped on!

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Latest Libyan News - Will A Civil War Start Now?

Bank of America's back-door TARP

Taxpayer-owned Fannie Mae just bought the servicing rights to a bunch of bad loans from the struggling Bank of America. Where does it end?

By Abigail Field, contributor
FORTUNE -- Taxpayers may not realize it, but they just bailed out Bank of America again, this time to the tune of more than a half billion dollars.
The Charlotte, NC-based bank was one of the biggest recipients of bailout funds during the financial crisis. But Bank of America (BAC) continues to face deep problems related to its troubled mortgage portfolio and investors have battered the stock, which has plunged over 40% so far this year. That's escalated concerns that the bank may need to raise more capital. Yves Smith at Naked Capitalism has even started a BofA death watch.
But apparently the federal government is determined to resurrect BofA: the Wall Street Journal reports the feds have just used Fannie Mae, which is controlled by the U.S. government, to infuse BofA with $500 million and ease one of the bank's biggest headaches.
Yesterday afternoon on CNBC, Bank of America CEO Brian Moynihan mentioned that five of BofA's six businesses were making money. The one black spot was its massive portfolio of problematic mortgages and the liabilities flowing from it. Moynihan also mentioned that BofA had just sold some "mortgage servicing rights" as part of its balance sheet strengthening efforts, but he didn't elaborate.
According to the WSJ, Fannie Mae spent $500 million to buy the servicing rights to a big chunk of the "seven million loans still causing the most problems." Although the $500 million is a paper loss to BofA, in that the rights were "originally worth more," it looks like BofA is still getting a good deal because the portfolio's "value is expected to deteriorate further."
In fact, the deal is worth much more than $500 million to BofA, because getting rid of those servicing rights lifts a huge cost burden off BofA's shoulders. And if securitized loans are involved, which they most likely are, the sale also limits the BofA's potential liability to investors for its current servicing violations. Finally, the $500 million is surely more than the servicing rights are worth in an arms-length transaction. How do we know? Beyond the comment that the loans are expected to "deteriorate further," the goal of the intervention can only be to fix Bank of America's capital structure, which is easier for the government to do if it overpays for the rights.
In short, purchasing these servicing rights was another Troubled Asset Relief Program.
Servicing defaulted loans can be good business if cheaply produced foreclosure paperwork isn't questioned, and if the foreclosures have equity and can be resold easily with lots of junk fees. But the mortgage servicing rights Fannie Mae bought are stinkers: they have a 13% delinquency rate, which means lots of foreclosures and loan modifications.
Both foreclosures and mods have been big headaches for BofA, which faces potential liability for document fraud in its foreclosures on multiple fronts. Beyond that, foreclosures are simply expensive to do well. BofA was recently punished by Treasury for failing to do modifications well, and it's also been sued for how it does them.
But the loans Fannie Mae now has to deal with are even worse than 13% delinquency rate suggests. According to the WSJ, "more than half of the loans are in troubled U.S. real-estate markets." This likely means markets where a high percentage of the houses are underwater and there's a huge oversupply, driving prices down further and making defaults more likely.
Fannie Mae is purchasing "the servicing rights in order to transfer the day-to-day management of those loans to a different company." That's another huge sign that Fannie Mae is overpaying. If the rights were really worth $500 million, wouldn't a private company pay that for them? Instead, it sounds like Fannie Mae is doing a bailout two-step, one to BofA and one to whomever takes these rights off Fannie Mae's hands.
Another thing needs to become clear: where did Fannie Mae get the money to do BofA the favor of buying these rights? Fannie Mae just asked for another bailout of its own, seeking a new $5.1 billion infusion last week.
Think about how good this deal is for BofA: it gets to stop the bleeding, or at least cauterize much of the wound in its balance sheet that lousy mortgage servicing rights and mortgage securities liabilities are creating. And it gets half a billion dollars to boot.
And taxpayers? Well, we get to own yet another good chunk of BofA's mess.

Escort girls 'left bank chief to hang in mock execution'

A bank chief died in a hanging after paying two escort girls to take part in an "execution role play" to punish him for being a "loser".
Colin Birch, 44, the former assistant vice-president of Deutsche Bank, had ordered the escorts to kick away a step ladder on which he was standing with a noose round his neck tied to a tree.
The married father of two had reassured the women he was wearing a safety harness that would save his life, an inquest heard today.
On his orders, the pair walked away laughing without looking back.
Concerned for his safety, one of the escorts returned and found him turning blue. She and an escort agency driver cut Mr Birch down and tried to resuscitate him but he died at the scene. The inquest, at Gravesend, heard Mr Birch had been made redundant in September 2009 and had not been able to find a new job.
On July 30, the day of his death, he heard that he had not been given a job for which he had a second interview.
Louise Howard, who ran escort agency Katie's Lovely Escorts, told the hearing Mr Birch, who had previously had seven of its girls "attend to him" called and asked for two to meet him on Dartford Heath to perform "an execution".
Ms Howard told the hearing she was "somewhat apprehensive" and had trouble getting the girls to agree but eventually arranged for two escorts, Alex Sturley and Marie Laurent, to attend the scene.
Miss Sturley cried as she told the court she and Ms Laurent had arrived with the driver at about 7pm and they followed Mr Birch into the woods.
When she saw the noose hanging from a tree she asked Mr Birch to see his safety harness and he showed her a clip coming out the back of his jumper.
As Ms Sturley climbed the steps and gave him a kiss on the cheek, Miss Laurent said she could see "tears in his eyes as if he was getting overwhelmed".
Although Miss Sturley said it "didn't feel right" she kicked the ladder away and she "laughed loudly" as she had been ordered as she and Ms Laurent left.
Det Sgt Lee Neiles told the court there were two possible conclusions, that Mr Birch had tried to commit suicide or that he had "manufactured a situation intending that it be a role play scenario and had miscalculated it".
The coroner Roger Hatch, recorded an open verdict, saying: "I am satisfied having heard the evidence that there was nothing to suggest Mr Birch intended to take his own life.

The Democratization of Banking? California Legislature Passes Bill to Study State-owned Bank

AB 750, California’s bill to study the feasibility of establishing a state-owned bank that would receive deposits of state funds, has passed both houses of the legislature and is now on the desk of Governor Jerry Brown awaiting his signature.

It could be the governor’s chance to restore the state to its former glory. As noted in Time Magazine:

[I]n the 1950s and ‘60s, California was a liberal showcase. Governors Earl Warren and Pat Brown responded to the population growth of the postwar boom with a massive program of public infrastructure—the nation’s finest public college system, the freeway system and the state aqueduct that carries water from the well-watered north to the parched south.

But that was before Proposition 13, a California constitutional amendment enacted by voter initiative in 1978. Prop 13 limited real property taxes to one percent of the full cash value of the property and required a two-thirds majority in both legislative houses for future increases of any state tax rates.

Prop 13 radically reduced the tax base, and as economist Michael Hudson observes, it is too late to raise property taxes now. The tax savings simply drove property prices up, getting capitalized into additional debt service to the banks. Today, he says, “so much urban property is sinking into negative equity territory that a rise in property taxes will lead to even more foreclosures and abandonments, and hence even lower fiscal returns.”

Meanwhile, the state is struggling to meet its budget with a vastly shrunken tax base. What it needs is a new source of revenue, something that won’t squeeze consumers, homeowners, or local business.

A state-owned bank can provide that opportunity. North Dakota, the one state that currently has its own bank, is the only state to be in continuous budget surplus since the banking crisis began. North Dakota’s balance sheet is so strong that it recently reduced individual income taxes and property taxes by a combined $400 million and is debating further cuts. It also has the lowest unemployment rate, lowest foreclosure rate and lowest credit card default rate in the country, and it hasn’t had a bank failure in at least the last decade.

Revenues from the Bank of North Dakota (BND) have been a major boost to the state budget. The bank has contributed over $300 million in revenues over the last decade to state coffers, a substantial sum for a state with a population less than one-tenth the size of Los Angeles County. North Dakota is an oil state, but according to a study by the Center for State Innovation, from 2007 to 2009 the BND added nearly as much money to the state’s general fund as oil and gas tax revenues did. Over a 15-year period, according to other data, the BND has contributed more to the state budget than oil taxes have.        

North Dakota is a conservative red state, not the sort you would expect to be engaging in government enterprise. But the conservative justification for a state-owned bank is that it preserves state sovereignty, allowing the state to be independent of Wall Street and the Feds. The BND is not a business competitor of the local banks but partners with them, helping with capital and liquidity requirements. It participates in loans, provides guarantees, and acts as a sort of mini-Fed for the state.

According to the annual BND report for 2010:

Financially, 2010 was our strongest year ever. Profits increased by nearly $4 million to $61.9 million during our seventh consecutive year of record profits. . . . We ended the year with the highest capital level in our history at just over $325 million. The Bank returned a healthy 19 percent ROE, which represents the state’s return on its investment.

A 19 percent return on equity beats the 170 billion dollars LOST by CalPERS and CalSTRS, California’s two public pension funds, by the time the stock market hit bottom in March 2009. The BND was making record profits all through that period.

The BND augments state revenues in other ways besides just returning its profits to the general fund. It helps build the tax base by providing the funding needed by local businesses, and by financing the infrastructure that attracts them. Among other resources, it has a loan program called Flex PACE that allows a local community to provide assistance to borrowers in areas of jobs retention, technology creation, retail, small business, and essential community services.

The BND also furnishes a credit line to the state itself, one that is effectively interest-free, since the state owns the bank. Credit lines are extended in times of emergency or whenever state departments or municipalities face unforeseen circumstances, such as the recent flooding in the state. Having a credit line to the state’s own bank allows state and local governments to avoid extortionate interest rates from Wall Street and pressure to privatize and reduce services in order to avoid downgrades from rating agencies.

Timothy Canova is Professor of International Economic Law at Chapman University School of Law in Orange, California. In a June 2011 paper called “The Public Option: The Case for Parallel Public Banking Institutions,” he compared North Dakota’s comfortable financial situation to California’s:

. . . California is the largest state economy in the nation, yet without a state-owned bank, is unable to steer hundreds of billions of dollars in state revenues into productive investment within the state. Instead, California deposits its many billions in tax revenues in large private banks which often lend the funds out-of-state, invest them in speculative trading strategies (including derivative bets against the state’s own bonds), and do not remit any of their earnings back to the state treasury. Meanwhile, California suffers from constrained private credit conditions, high unemployment levels well above the national average, and the stagnation of state and local tax receipts.

California was once the nation’s leader in technology, industry, entertainment and public education. Under Governor Pat Brown, tuition at UC campuses was free, making higher education available to all. Today tuition is about $13,000 a year, and the state has an unemployment rate hovering at 12%.

California, like North Dakota, is resource-rich. A state-owned bank will allow it to capitalize on its resources to full advantage, by providing the credit needed to realize its potential.  As the bank was described by Assembly Member Ben Hueso of San Diego, who authored AB 750, "It's not the fad of the moment, a pair of tight fitting jeans; it's a pair of construction boots."

You can contact Governor Brown's office to urge him to sign AB 750 by writing or calling:

Governor Jerry Brown
c/o State Capitol, Suite 1173
Sacramento, CA 95814
Phone: (916) 445-2841
Fax: (916) 558-3160
Email:  http://gov.ca.gov/m_contact.php


First posted on YES! Magazine. Ellen Brown is an attorney, president of the Public Banking Institute, and the author of eleven books, including Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free. Her websites are http://WebofDebt.com and http://PublicBankingInstitute.org.

“This Is The Greatest Financial Crime In The History Of The World And No One Senior, At Any Of The Major Places That Drove The Crisis, Has Gone To Jail”

Largest Financial Crime In History

William K. Black – professor of law and economics, and the senior S&L prosecutor – said yesterday:
This is the greatest financial crime in the history of the world and no one senior, at any of the major places that drove the crisis, has gone to jail?
***
Unless something dramatic or radical changes, this is going to be the greatest case of elite fraud with impunity in the history of the world. And it is only going to change if we express our outrage as the people and demand that it is changed.
For background, see this, this, this and this.

30,000 children face destitution from welfare cut in Michigan

On September 6, Republican Governor Rick Snyder signed into law a new lifetime limit of 48 months for receiving cash welfare benefits in the state of Michigan.
It is estimated that 12,600 families, including 11,188 adults and 29,707 children, will be affected immediately. These families will lose an average of $515 a month beginning October 1.
“Since cash assistance is the source of income for some families and is how they pay for rent, they will have to find a different place to live,” Judy Putnam, communications director for the Michigan League for Human Services, told the media. “We’re very fearful that many families will be left homeless.”
She stressed that now, at the beginning of the school year, kids are just getting settled into classrooms. “If they are uprooted, it will disrupt their school year,” Putnam emphasized. The average age of children in families receiving cash benefits is 7.
Putnam also stressed, “A lot of these folks are working,” she said. “They just don’t make enough money to even leave the cash assistance rolls.” In order to qualify for the assistance, families of three have to earn less than $814 a month, or 44% below the government’s already impossibly low federal poverty level. “So a lot of people are trying. We know that there are a lot of low-paying jobs out there.”
The new 48-month lifetime limit is the most draconian welfare statute in the hard-hit US Midwest. According to the Detroit News, there are five-year limits in Illinois, Iowa, Minnesota, Missouri, Ohio and Wisconsin. Indiana has a two-year limit for adults—but none for children.
The president and CEO of the Michigan League for Human Services, Gilda Jacobs, warned that the state would be unprepared to deal with the thousands left destitute as a result of the measure. Jacobs said it is hard to see how 11,000 adults will find a job when Michigan’s July unemployment rate was 10.9 percent, tied with South Carolina for third highest in the nation.
“We still have to preserve a safety net for people who, through no fault of their own, can’t find a job,” said Jacobs. Several Michigan counties face more than 25 percent unemployment including Wayne County—which includes Detroit—where 6,500 families will lose cash assistance October 1.
The original four-year-limit in Michigan was enacted in 2007 by former Democratic Governor Jennifer Granholm but provided an exemption for families whose caseworkers stated they were making progress finding employment or in counties where the unemployment rate is 25% above the state average. The new law will reduce the number of children and adults receiving cash assistance by nearly a fifth, from more than 221,000 to around 180,000.
A spokesperson for Republican House Speaker Jase Bolger said, “This [bill] has been a priority of our caucus since day one.” The new law, however, only reduces state costs by a minuscule $60 million. Its importance lies in being part of a battery of legislation, which dismantles the already shredded safety net and accomplishes a general restructuring of state finances.
The overall shift in the Michigan policy is breathtakingly crude—the keys to the state treasury are being handed over to business interests. As of 2012, Michigan business taxes are due to be reduced by a whopping $1.7 billion. The changes amount to a sweeping revision of tax code and state policy that directly transfers wealth to the state’s elite.
The Michigan Business Tax (MBT), just three years old, has been precipitously eliminated and is being replaced by a far less onerous income tax, which will only be levied on certain types of corporations. This fall, the state legislature will debate the elimination of the personal property tax, another business tax, which provides between $800 million and $1.4 billion to local government and libraries.
To pay for this handout to business, Michigan residents are facing cuts in every social service. For the first time pensions will be taxed, costing seniors an estimated $300 million. Education is being reduced by $908 million, a 15 percent reduction across the board to universities and devastating funding cuts between $470 and $1,000 per pupil depending upon the district.
In other attacks on those least able to afford it, Michigan will:
• Reduce a back-to-school clothing allowance (cutting 12,400 needy children from eligibility to receive new set of clothes for school).
• Slash the Earned Income Tax Credit (EITC) for 800,000 working families from 20 percent to 6 percent of the federal credit. The EITC is a refundable income tax credit designed for the working poor.
• Reduce unemployment benefits from 26 weeks to 20 weeks. More than half of Michigan’s unemployed adults of prime working age (25-54) spend a half-year or longer looking for work.
Michigan already has one of the largest percentages, 36%, of children living in families where no parent had a full-time year-round job. It is presently ranked 47th among 50 states.
As a consequence of the unremitting growth of unemployment, child poverty has increased by an unprecedented 64 percent since 2000. The new census data, released this week, shows fully one in seven people in Michigan live in poverty, a 50 percent jump in the decade. Michigan’s decline in median household income, more than $12,000 per family, over the decade is the biggest drop in the nation.
Michigan’s cash assistance program is part of the federal Temporary Assistance for Needy Families (TANF) block grant. It is estimated that 700,000 low-income families, including 1.3 million children, will be affected by cuts in the 2012 budget year as 44 states and the District of Columbia project budget shortfalls totaling $112 billion.
California, Washington, South Carolina, New Mexico and the District of Columbia all join Michigan in cutting monthly cash assistance benefits for families this year. For fiscal year 2012, Arizona reduced its TANF time limit to 24 months, one of the shortest in the country. Oregon is considering reducing its time limit to 18 months. As of July 2010, TANF benefits for a family of three were less than half of the poverty line in all states and below 30 percent of the poverty line in more than half the states.

UBS rogue trader: Investigations focus on fictitious hedges

Investigations into a $2bn (£1.3bn) trading loss at UBS have focused on the use of fictitious hedges that enabled an alleged rogue trader to hide losses for several years. 

 

A major internal inquiry is under way at the Swiss bank's London office to understand how its control systems failed to pick up unauthorised trades by its "Delta One" trading desk as long ago as 2008.
Investigators are understood to be reaching the conclusion already that the fraudulent activity was almost identical to that discovered at French bank Societe Generale three years ago.
"This isn't just spookily similar to Soc Gen. It is exactly the same," said one source with knowledge of the situation.
It is thought a trader was able to circumvent UBS's risk-management systems by creating fictitious trades that made the bank's computer systems believe that the positions taken had been "hedged" to mitigate potential losses when in fact they had not been.
Senior managers across the City have been scrambling to double-check their own systems to make sure they could not have been tampered with in a similar way.

"It looks like real postions that were hedged with fictitious trades. These trades had forward settlement dates so they hadn't failed yet. Everyone is looking at their own controls in this area. Normally there are very strict rules around long settlement contracts," said one manager at a major investment bank.
The Financial Services Authority and the Swiss Financial Market Supervisory Authority have launched their own joint investigation into the trading losses at UBS. One of the "Big Four" accounting firms is expected to be hired to help the regulators with their enquiries.
The review will look at how such a large fraud was able to go undetected and will include a complete assessment of UBS's risk-management systems in its investment bank.
The serious failures already identified at UBS have led major credit agencies to warn that the bank's rating is under threat. Fitch Ratings, Moody's and Standard & Poor's have all put the bank on watch with a view to downgrading its credit rating.
"Apart from damaging its IB [investment banking] franchise, the announced trading loss could also have negative repercussions for UBS's wealth-management activities," said Fitch in a statement, pointing out it took the bank several years to stem the outflows of clients' money. "If this incident unsettles wealth management clients and leads to renewed outflows, this would put significant downward pressure on UBS's viability rating."
UBS has already said it expects to make a loss for the third quarter as a result of the money it lost on the unauthorised trades. Shares in UBS fell nearly 11pc on Thursday with the revelation of the losses, however they rallied on Friday to close up 5.2pc at Sfr10.26.
UBS trader Kweku Adoboli has been charged with two counts of false accounting and one count of fraud, following his arrest at his central London home in the early hours of Thursday by City of London Police. Mr Adoboli was remanded in custody until next Thursday after an appearance at City of London Magistrates' Court. He spoke only to confirm his name, address and date of birth.
UBS declined to comment.

Hollywood Reporter Called a Serial Plagiarist

 LOS ANGELES (CN) - Penske Media, which specializes in Internet reporting, claims The Hollywood Reporter plagiarizes Penske material "with alarming regularity, indeed on an almost daily basis," and does business through "outright theft of intellectual property, including but not limited to whole articles, content, software, source code and designs."
     Penske demands $5 million from The Hollywood Reporter, for copyright violations.
     Penske Media dba PMC owns a string of news sites, including Entertainment News Television, Deadline.com (Deadline Hollywood), Movieline.com, TVLine.com, and sponsors the Young Hollywood Awards.
     Penske claims The Hollywood Reporter (THR) not only steals its stories "within minutes" of publication but tried to poach Nikki Finke, the president and editor of Deadline Hollywood, and filched TVLine's website source code.
     Penske claims that "copying, mimicking, and/or altering of others' content and design" in online publishing "unfortunately occurs intermittently."
     "However, The Hollywood Reporter ('THR') has differentiated itself from other companies within the media industry by not only carrying out this unethical practice with alarming regularity, indeed on an almost daily basis, but also by resorting to the outright theft of intellectual property, including but not limited to whole articles, content, software, source code and designs.
     "In an industry where a company's brand is largely defined and dictated by the value of its originally created intellectual property, it is absolutely essential that intellectual property rights and assets be mightily protected from thievery, such as that exhibited by THR," according to the federal complaint.
     Penske says that the Reporter's "theft and piracy" of its breaking news and original content damages Penske brands and "its value and position in the marketplace."
     "Among other reasons, PMC is filing this lawsuit to protect its content creation and development, and to finally put an end to THR websites' misappropriation of PMC's hard-earned product and intellectual property. Enough is enough.
     "PMC is taking a stand against desperate and copycat news organizations and media outlets such as THR that constantly monitor PMC's websites for the sole purpose of copying and imitating PMC websites' news stories and original content within minutes after online publication. These copycat media outlets such as THR, rather than conducting their own independent reporting and investigation, developing their own sources and insiders, and generating their own leads and stories, simply steal PMC's content and pawn it off as their own.
     "In truth, THR, faced with the harsh reality that it had become a second-rate entertainment industry news source unable to attract insiders' attention anymore, changed ownership and re-launched its website. ... When consumer, retail and other related advertising failed to appear, THR began trying attracting Hollywood trade advertising again. It has become abundantly clear that part of THR's turnaround strategy was to engage in an unprecedented campaign of theft and misappropriation of PMC's intellectual property and content to accomplish that."
     Penske claims the Reporter also "attempted to poach PMC's key employees" including Deadline founder and editor Nikki Finke. Penske claims the Reporter offered Finke a $450,000 base salary, a $1 million Malibu home and a share of the Reporter's cable TV revenue, but Finke did not take up the offer.
     Penske claims the Reporter also tried to lure Deadline's television editor, Nellie Andreeva, and Penske's senior director of entertainment sales, Nic Paul, and successfully poached PMC's publisher, Lynne Segall - now the Reporter's senior vice president and publisher.
     "THR then began its incessant campaign of misappropriating wholesale content from Deadline's website," the complaint states. "As if that were not bad enough, THR then egregiously and flagrantly stole integral source code and intellectual property from PMC's www.tvline.com ('TVLine') website in a blatant act of copyright infringement.
     "In fact, THR was so incompetent and careless in its theft, that it actually copied the original source code labels exactly as they existed on TVLine, and did not even attempt to rename them. Many of TVLine's source code labels, which are created for organizational purposes, contain the initials MMC, the acronym for PMC's former name Mail.com Media Corporation (MMC). THR, in copying and pasting PMC's TVLine source code, are still utilizing the 'MMC' initials within their labels. These initials act as a clear set of digital fingerprints that further demonstrate the glaringness of THR's theft. THR did not even make an effort to correct typographical errors contained in PMC's source code. As of the date of this complaint's filing, any individual can go to THR's website and, with the simple click of a mouse, discover THR's blatant infringement." (Underlining as in complaint.)
     Penske's attorney Bryan Freedman told Courthouse News that just hours after he filed this lawsuit, The Hollywood Reporter removed TVLine's source code from its site.
     "If you did nothing wrong, then why remove it?" Freeman said. "Blaming it on a third party vendor hardly takes responsibility and certainly will not absolve them from legal responsibility. In an industry where we all fight piracy and infringement at every turn, it is disappointing that The Hollywood Reporter would engage in the same behavior we are all fighting."
     Penske seeks disgorgement of profits from plagiarized stories, statutory damages for copyright violations, $5 million in actual damages, costs and an injunction.

Eisenhower Wouldn't Have Stood for This

Remarks at MIC-50 Conference http://mic50.org
So, here we are 50 years and 8 months tomorrow from the day on which President Dwight Eisenhower, on his way out of office, warned: "In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist." I don't think we're here to propose Eisenhower or anyone else as a perfect model of all virtues.  But what he said that day 50 years ago, in a very flawed and imperfect speech, was one of the most prescient predictions and potentially valuable warnings ever offered on the face of this earth.  I say potentially because we have yet to heed it.
Yesterday the Dean of Arts and Sciences at the University of Virginia Meredith Woo posted on her blog that our new war in Libya was admirable and Jeffersonian.  In fact, she compared it to Jefferson's war in the same location, which she held up as "a pristine example" of a "just war."  In her descriptions of that long ago war and the current one she devoted not one word to the killing, maiming, or traumatizing of innocent people.  She made no case for the necessity of either war, except to claim that the first one was fought in self-defense several thousand miles away against a band of pirates who had never approached U.S. shores and whom Woo scornfully mocked as unworthy adversaries.  Woo's entire case is that our Libyan wars have not yet been as bad as our Afghanistan and Iraq wars.  Well those are sure high standards!  What a proud UVA alumnus I am today!  And wouldn't it have been nice to see a little opposition to the Iraq and Afghanistan wars from UVA's administration prior to this cheerful celebration of the Libya War as not being as bad as the other ones, which -- by the way -- are still raging?
This past Sunday the Charlottesville Daily Progress printed a column called "A Stimulus Package Conservatives Could Support," but there was nothing conservative, and nothing Eisenhower would have tolerated, in the column.  I tried to find some points in this column that I could say the author got right, but the best I could come up with was this: giving her the benefit of the doubt, I suspect that the author, Amity Shlaes, spelled her own name correctly.
Her idea for improving our economy is to increase military spending, including in particular through the Defense Advanced Research Projects Agency (DARPA).
DARPA is the same agency that has moved on from mechanical killer elephants and telepathic warfare to exploding frisbees, cyborg wasps, and Captain America no-meals and no-sleep soldiers, as well as far more useful things that could have been developed outside the military, like the internet and GPS.  But DARPA has 240 employees.  Let's double it.  Heck, let's triple it.  We've still got statistically the exact same unemployment rate we started with.  Or let's add a half a million employees to the military, as Shlaes proposes.  If we could afford to do that, we could afford to add many more employees elsewhere, because the military is the least efficient way to create jobs.  In fact, we could scale back military spending to a level higher than 10 years ago, put that money into non-military industries and tax cuts, and see a net gain of 30 million jobs, even after finding new jobs for everyone who lost one in the military industrial complex.  We could have full employment and it wouldn't cost us a dime.  That fact only seems startling if we lose touch with how much we're spending on the military and what a waste it is.
But Shlaes has other arguments.  First of all, the military knows how to manage youth, she says.  But does it?  The leading cause of death in the U.S. military right now is suicide.  I understand that once you're dead you're no longer unemployed, but surely that can't be what Shlaes had in mind as a solution to youth unemployment.  We tried to bring to this conference a young widow of a soldier whose pleas for help after seven tours in our current wars went unanswered by the military.  He took his life, and his wife publicly described the lengthy process that had led to that tragedy.  She was then so viciously harassed that she canceled her conference participation and went into hiding.  I suppose that's one way to manage young people.
Secondly, Shlaes argues, the military is already on all the campuses.  That's certainly true in Charlottesville.  Recruiting offices are already open everywhere, she explains.  True enough.  The military can spend tons of money quickly, she assures us.  Well, that's as true as anything could be.  But it doesn't change the fact that you could have many more jobs just as quickly by other means.  Feeding the military industrial complex because it's large and hungry is how Congress Members think; it's not how we need to think.
Oh, but it's not large, says Shlaes.  It's only 5 percent of gross domestic product, less than President Reagan managed, and less than during Vietnam, Korea, or World War II.
But think about this argument.  If the country becomes wealthier (I know it doesn't seem wealthier, but 400 billionaires have as much money as half the country; there's wealth, it's just concentrated), Anyway, as I was saying, if a country becomes wealthier it should spend more money, at a steady percentage of GDP, on its military, not because it needs to, but because it can, and because -- even though almost anything else would produce more jobs -- this will produce some jobs.
Shlaes' statistics are debatable as well.  Chris Hellman recently compiled all the U.S. national security spending through various departments, including the so-called "intelligence" agencies, Homeland Security, etc., and arrived at $1.2 trillion per year.  According to the National Priorities Project we're dumping 59% of discretionary spending into the military each year.  According to the St. Petersburg Times this week, U.S. troops are in 148 countries.  We could cut 80% of this madness and still be the world's top military spender.  In the process we could avoid all of the damage we are going to hear about during this conference not only to our economy, but also in terms of weapons proliferation, foreign relations, civil liberties, the natural environment, the rule of law, and -- lest we forget -- the killing of large numbers of human beings.
Shlaes asserts without argument that an ever larger military deters wars.  Eisenhower warned, and the evidence is extensive, that a larger military creates wars.  And that larger military is all over Charlottesville and Virginia.  The Daily Progress, which does a far better than average job of covering peace advocacy, nonetheless willingly prints propaganda for the military industrial complex.  It also carries a lot of advertisements for the military industrial complex.  And those advertisements are purchased with our tax dollars, funneled through the Congress, into the Pentagon, and on over to so-called private corporations taking no-bid, uncompeted contracts to enjoy what for some are booming economic times.  BAE Systems, which often runs a green full-page ad in the Daily Progress, paid a $400 million fine last year to the U.S. government to settle charges of having bribed Saudi Arabia to buy its weapons.  The U.S. government, however, continued dumping billions into BAE.
Charlottesville, as many of you may know, is home to the National Ground Intelligence Center (NGIC), now north of town but previously downtown in what became the SNL Financial building. The new location for the center also accommodates units of the National Geo-Spatial Intelligence Agency and the DIA, the Defense Intelligence Agency. The University of Virginia has built a research park next door.
Ray McGovern was just reminding me of the role the NGIC played in selling the Iraq War.  When the experts at the Department of Energy refused to say that aluminum tubes in Iraq were for nuclear facilities, because they knew they could not possibly be and were almost certainly for rockets, and when the State Department's people also refused to reach the "correct" conclusion, a couple of guys down here at NGIC were happy to oblige.  Their names were George Norris and Robert Campus, and they received "performance awards" (cash) for the service.  Colin Powell used their claims in his U.N. speech despite the warning of his own staff that they weren't true.  NGIC also hired MZM to assist with war lies for a good chunk of change, and MZM then gave a well-paid job to MZM's deputy director Bill Rich Jr, and for good measure Bill Rich III too.  MZM was far and away the top "contributor" to former Congressman Virgil Goode's campaigns, and he got them a big contract in Martinsville before they went down in the Duke Cunningham scandal.   Rich then picked up a job with a company called Sparta, which, like MZM, was conveniently located in the UVA research park.
There's a Judge Advocate General's Legal Center attached to UVA Law School as well. Then there's the Virginia National Guard, which does tend to guard nations, just not this one.
Local want ads offer jobs "researching biological and chemical weapons" at Battelle Memorial Institute (located in the UVA Research Park).  As you may know, researching such weapons is rarely if ever done without producing or at least possessing them.  Other jobs are available producing all kinds of weaponry for all kinds of governments at Northrop Grumman. Then there's Teksystems, Pragmatics, Wiser, and many others with fat Pentagon contracts.  Employers also recruit here for jobs in Northern Virginia with Concurrent Technologies Corporation, Ogsystems, the Defense Logistics Agency, and many more.
From 2000 to 2010, 161 military contractors in Charlottesville pulled in $919,914,918 through 2,737 contracts from the federal government. Over $8 million of that went to Mr. Jefferson's university, and three-quarters of that to the Darden Business School. And the trend is ever upward.  The 161 contractors are found in various industries other than higher education, including nautical system and instrument manufacturing; blind and shade manufacturing; printed circuit assembly; real estate appraisers; engineering services; recreational sports centers; research and development in biotechnology; new car dealers; internet publishing; petroleum merchant wholesalers; and a 2006 contract with Pig Daddy's BBQ.
Piedmont Virginia Community College, which has been good enough to allow our conference to rent its facilities tomorrow and Sunday, has a new program aimed at qualifying more students for military so-called intelligence work.
And Charlottesville is relatively military-free as areas of Virginia go.  Were the state of Virginia to ban participation in wars of aggression, weapons sales to brutal dictatorships, and the manufacture of aggressive and illegal weapons, the Military Industrial Complex would be obliged to help itself to many billions of public dollars just to cover the cost of moving operations to the other 49 states or abroad.
I think Shepherd Johnson is here tonight.  If you give him a ride through Virginia he'll point out current and former, public and secret, military facilities behind just about every hill.  With his help, I've compiled a list of highlights.
The Pentagon and all of its surrounding weapons corporation headquarters are in Virginia. The Chairman of the Joint Chiefs of Staff lives in Quarters Six at Fort Myer in Arlington. The Army and Air Force chiefs of staff live on "Generals Row," also in Fort Myer.
Norfolk is home to the world's largest naval base. NATO is there too. And until last month, so was the United States Joint Forces Command.
The Army maintains major commands in Virginia as well, including the United States Army Combined Arms Support Command at Fort Lee, and the United States Army Training and Doctrine Command at Fort Eustis.
The Air Force has its Air Combat Command at Langley Air Force Base. Langley and Eustis combine to form the Joint Base Langley–Eustis.
The Port of Hampton Roads is a Sea Port of Embarkation (SPOE). Also in Tidewater, Va., is Lamberts Point at Norfolk. So are two large shipyards, found in Newport News (Northrop Grumman) and Portsmouth, there to service the aforementioned largest Naval Base in the world.
But the military is spread throughout the state. Out in Radford is a major munitions plant. Up in Warrenton are four military sites, at least one of them used by the CIA.
Let's not forget the Navy. There are SEAL teams at Little Creek and (team 6) at Dam Neck. These are military forces operating at the secret command of the President.
In Peter's Mountain near Gordonsville, is an AT&T site that many believe the military used to use and probably still does.
The Defense Intelligence Agency used to train "psychic spies" (men who'd stare at goats if they were smart enough to recognize one) at a place in Nelson county called the Monroe Institute.
The Army prepares for war in Virginia at Fort Belvoir, Fort Eustis, Fort Lee, Fort Monroe, Fort Myer, and Fort Story, the Navy at the Navy Amphibious Base Little Creek, the Naval Surface Warfare Center Dahlgren, Naval Station Norfolk, Norfolk Naval Shipyard, Oceana Naval Air Station (the cause of all that noise pollution in the air at Virginia Beach), and the Naval Weapons Station Yorktown. Meanwhile, the Marines are based in Quantico, as is the FBI Academy.
The NSA is in Chesapeake and just across the West Virginia line.  The CIA is at Camp Peary, a.k.a. the Farm, right next to Colonial Williamsburg, where CIA warriors and foreign warriors are trained.  The "intelligence community" may not have much intelligence or community, but it has a lot of Virginia real estate, including the Office of the Director of National Intelligence at Tyson's Corner, right next to the National Counter-Terrorism Intelligence Center, which is not far from the headquarters of the Central Intelligence Agency, which has additional offices in the Reston-Herndon area. Then there's the National Reconnaissance Office in Chantilly, the National Geo-Spatial Intelligence Agency in Springfield, and the U.S. Army Intelligence and Security Command (INSCOM) National Ground Intelligence Center here in Charlottesville (the command is headquartered at Fort Belvoir).  The DIA is headquartered at Bolling Air Force Base in Washington, D.C., but has an office building in Clarendon.
The U.S. Marine Corps' so-called "intelligence" activity (and its prison for whistleblowers from Smedley Butler to Bradley Manning) is at Quantico.  The Office of Naval Intelligence is located in Suitland, Md., but has a training center located at Dam Neck and known as the Navy Marine Maritime Intelligence Center.  And over at Langley Air Force Base is the 480th Intelligence, Surveillance and Reconnaissance Wing.  The Virginia National Guard (emphasis on "National") is located all over Virginia, including just down Avon Street.  The National Geospatial Intelligence Agency is in Herndon.
Mount Weather in Northern Virginia is set up to host our federal government underground in times of emergency, as was its predecessor across the West Virginia line, the Greenbrier, which now offers tours of Congress's potential second-home underground or let’s you rent the space out for parties with "a James Bond, M.A.S.H., or spy theme."
The "private" military corporations in Virginia are legion.  Down in Lynchburg, Areva manufactures fuel rods for nuclear reactors. Virginia is home to SAIC, Dyncorp, Mantech, MPRI, and CACI. Xe (Blackwater) is moving to Arlington from its location just across the North Carolina line, a location at which the Virginia Beach Police train, and from which many Blackwater employees commute to live in Virginia Beach. L3 Flight International Aviation is in Newport News.  A company called American Type Culture Collection in Manassas supplied the biological materials for anthrax to Saddam Hussein.  And then, of course, when it was clear Iraq had no more anthrax, the pretense that it did was somehow a justification to bomb a nation full of human beings, 99.9 percent of whom had never shaken hands with Donald Rumsfeld.
Then there's Virginia's congressional delegation, which splits its time between Virginia and D.C.
Eisenhower was talked out of saying "military industrial congressional complex," but the meaning nonetheless came through.  The Fifth District has flip-flopped between the two big political parties in the last two elections without the slightest impact on its representation in terms of war and military spending. In the midst of this hysterical debate over debt and deficits in Washington this summer the House passed a bigger military spending bill than ever, with almost no comment, and the Senate is working on passing it right now with no notice in the news and not a single outraged rally from the tea party.
We are drawn almost irresistibly to imagining that whatever harm all this military activity does to the world or to our future safety, at the very least it means jobs, it brings money into Virginia from Washington, D.C.  And in fact, unlike many states, Virginia does get back more federal money than it puts in.  But it puts in a heck of a lot, and gets it back in the least economically beneficial manner possible.
At costofwar.com you can find a number ticking ever upwards showing what the nation has spent thus far on its two largest current wars, both of which a majority of Americans have favored ending for some time now.  The figure is now over $1.2 trillion.  If you click on Virginia and then Charlottesville, you get $105 million as the amount in taxes that Charlottesville has paid for the wars in Afghanistan and Iraq.  That doesn't include future costs of interest, veterans care, the impact on fuel prices, or lost opportunities.
But our wars are a small part of the $1.2 trillion we spend each year on the military. We've spent $1.2 trillion on these two wars over a decade, but we spend $1.2 trillion each and every year on the military.  So, each year, Charlottesville dumps $105 million into the military industrial complex.  Sure, it gets some of it back.  But the City of Charlottesville has a budget of $130 million.  I bet the mayor could think of some useful things that could be done with an extra $105 million or even a little bit of it.  Federal funding for block grants and other programs is being cut all the time.  Don't let anybody tell you military spending is not a local issue.  It would be hard to do worse, morally or economically, than handing that money over to the war machine.
Nations with less wealth than ours have higher standards of living, life expectancies, infant survival rates, education levels, vacation days, retirement security, and progress toward green energy.  There's no technological reason we can't run everything in this country on clean energy.  There's no law of physics preventing us from providing free top-quality education for all who want it from pre-school through college.  There's no medical reason we can't have universal health coverage.  What's standing in the way is a broken political system, and what is breaking it is in large part the military industrial complex.  We'll be discussing alternatives on Sunday.  And we'll be organizing efforts to change things, including http://october2011.org

California Legislature Passes Bill to Study State-owned Bank

AB 750, California's bill to study the feasibility of establishing a state-owned bank that would receive deposits of state funds, has passed both houses of the legislature and is now on the desk of Governor Jerry Brown awaiting his signature.
It could be the governor's chance to restore the state to its former glory. As noted in Time magazine:
[I]n the 1950s and '60s, California was a liberal showcase. Governors Earl Warren and Pat Brown responded to the population growth of the postwar boom with a massive program of public infrastructure -- the nation's finest public college system, the freeway system and the state aqueduct that carries water from the well-watered north to the parched south.
But that was before Proposition 13, a California constitutional amendment enacted by voter initiative in 1978. Prop 13 limited real property taxes to 1 percent of the full cash value of the property and required a two-thirds majority in both legislative houses for future increases of any state tax rates.
Prop 13 radically reduced the tax base, but it is probably too late to raise property taxes now. The tax savings simply drove property prices up, getting capitalized into additional debt service to the banks. Today, a rise in property taxes would lead to even more foreclosures and abandonments, reducing tax revenues even more.

Meanwhile, the state is struggling to meet its budget with a vastly shrunken tax base. What it needs is a new source of revenue, something that won't squeeze consumers, homeowners, or local business.

A state-owned bank can provide that opportunity. North Dakota, the one state that currently has its own bank, is the only state to be in continuous budget surplus since the banking crisis began. North Dakota's balance sheet is so strong that it recently reduced individual income taxes and property taxes by a combined $400 million and is debating further cuts. It also has the lowest unemployment rate, lowest foreclosure rate and lowest credit card default rate in the country, and it hasn't had a bank failure in at least the last decade.
Revenues from the Bank of North Dakota (BND) have been a major boost to the state budget. The bank has contributed over $300 million in revenues over the last decade to state coffers, a substantial sum for a state with a population less than one-tenth the size of Los Angeles County.
North Dakota is an oil state, but according to a study by the Center for State Innovation, from 2007 to 2009 the BND added nearly as much money to the state's general fund as oil and gas tax revenues did. Over a 15-year period, according to other data, the BND has contributed more to the state budget than oil taxes have.
North Dakota is a conservative red state, not the sort you would expect to be engaging in government enterprise. But the conservative justification for a state-owned bank is that it preserves state sovereignty, allowing the state to be independent of Wall Street and the Feds. The BND is not a business competitor of the local banks but partners with them, helping with capital and liquidity requirements. It participates in loans, provides guarantees, and acts as a sort of mini-Fed for the state.
According to the annual BND report for 2010:
Financially, 2010 was our strongest year ever. Profits increased by nearly $4 million to $61.9 million during our seventh consecutive year of record profits. . . . We ended the year with the highest capital level in our history at just over $325 million. The Bank returned a healthy 19 percent ROE, which represents the state's return on its investment.
A 19 percent return on equity beats the 170 billion dollars LOST by CalPERS and CalSTRS, California's two public pension funds, by the time the stock market hit bottom in March 2009. The BND was making record profits all through that period.

The BND augments state revenues in other ways besides just returning its profits to the general fund. It helps build the tax base by providing the funding needed by local businesses, and by financing the infrastructure that attracts them. Among other resources, it has a loan program called Flex PACE that allows a local community to provide assistance to borrowers in areas of jobs retention, technology creation, retail, small business, and essential community services.
The BND also furnishes a credit line to the state itself, one that is effectively interest-free, since the state owns the bank. Credit lines are extended in times of emergency or whenever state departments or municipalities face unforeseen circumstances, such as the recent flooding in the state. Having a credit line to the state's own bank allows state and local governments to avoid extortionate interest rates from Wall Street and pressure to privatize and reduce services in order to avoid downgrades from rating agencies.
Timothy Canova is Professor of International Economic Law at Chapman University School of Law in Orange, California. In a June 2011 paper called "The Public Option: The Case for Parallel Public Banking Institutions," he compared North Dakota's comfortable financial situation to California's:
. . . California is the largest state economy in the nation, yet without a state-owned bank, is unable to steer hundreds of billions of dollars in state revenues into productive investment within the state. Instead, California deposits its many billions in tax revenues in large private banks which often lend the funds out-of-state, invest them in speculative trading strategies (including derivative bets against the state's own bonds), and do not remit any of their earnings back to the state treasury. Meanwhile, California suffers from constrained private credit conditions, high unemployment levels well above the national average, and the stagnation of state and local tax receipts.
California was once the nation's leader in technology, industry, entertainment and public education. Under Governor Pat Brown, tuition at UC campuses was free, making higher education available to all. Today tuition is about $13,000 a year, and the state has an unemployment rate hovering at 12 percent.
California, like North Dakota, is resource-rich. A state-owned bank will allow it to capitalize on its resources to full advantage, by providing the credit needed to realize its potential. As the bank was described by Assembly Member Ben Hueso of San Diego, who authored AB 750, "It's not the fad of the moment, a pair of tight-fitting jeans; it's a pair of construction boots."
First posted on Yes! Magazine.
 
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