|Posted by Jerrald J President on March 17, 2017 at 6:40 PM||comments (0)|
The "Hidden Hand" of the international banking cabal os specking! By JJP
Treasury Secretary Mnuchin warns Congress on debt ceiling
Treasury Secretary Steven Mnuchin sent a letter this week to Congress warning that the United States is about to reach its legal borrowing limit by next Thursday.
That's because the current debt ceiling suspension expires at the end of Wednesday, March 15.
Since Congress will almost certainly not act in time to raise the ceiling or extend the suspension, Mnuchin will have to start an official juggling act to ensure the country can continue to keep paying all its bills in full and on time. After the current suspension expires, the debt ceiling should reset a little north of $20 trillion next Thursday.
"At that time, Treasury anticipates that it will need to start taking certain extraordinary measures in order to temporarily prevent the United States from defaulting on its obligations," Mnuchin wrote in a March 8 letter to leaders in the House and Senate.
He didn't specify how long "temporarily" will last. The Bipartisan Policy Center and Congressional Budget Office, however, have recently estimated that all the measures combined are likely to be exhausted sometime this fall.
If lawmakers haven't acted by then, the Treasury Department will no longer be able to pay all the country's bills because it will have run out of borrowing authority. And there won't be enough revenue plus cash on hand to cover all legal obligations.
Those obligations -- approved over the years by both parties -- include paying bondholders, federal contractors, Social Security recipients, tax filers owed refunds and a vast array of other parties for services rendered and benefits due.
That's why it's wrong to assert, as some do, that raising the debt ceiling is a "license to spend more." It's more like a license to continue paying what the country already owes.
Defaulting on any set of obligations could hurt the economy and markets to varying degrees, depending on who gets stiffed and for how long.
Typically no party in the majority wants that kind of crisis on their watch. So it's not surprising that Senate Majority Leader Mitch McConnell on Thursday told Politico that Congress would raise the debt ceiling. "The government will not default," McConnell said.
But that doesn't mean the path will be easy. Conservatives or Democrats -- seeking leverage -- may decide to make any number of demands in exchange for their support to raise or suspend the ceiling.
In any case, lawmakers will have several opportunities between now and the fall to deal with the issue. They have to pass two budgets -- one for the rest of this fiscal year and one for next year. And, if they get far enough on health reform or tax reform, they could work in a provision in those bills.
And Mnuchin very well may prod them again.
"As I said in my confirmation hearing, honoring the full faith and credit of our outstanding debt is a critical commitment," he wrote. "I encourage Congress to raise the debt limit at the first opportunity so that we can proceed with our joint priorities."
|Posted by Jerrald J President on March 17, 2017 at 6:35 PM||comments (0)|
The clock is ticking!!!! By JJP
Debt ceiling returns, creating new headache for GOP
The legal limit on how much the United States government can borrow returns on Thursday, potentially setting up an intense political battle in Congress.
Lawmakers will have until sometime this autumn to raise the debt ceiling before the Treasury runs out of ways to make essential payments, putting the nation at risk of its first-ever debt default.
The debt limit is a major test for the Trump administration and Republican congressional leaders who’ve sought major spending cuts before previous increases in the debt ceiling.
The White House and Treasury Secretary Steven Mnuchin are pushing lawmakers to raise the ceiling as soon as possible, and Senate Majority Leader Mitch McConnell (R-Ky.) said Tuesday that Congress will “obviously” increase the limit.
But the highly charged political atmosphere, demands from fiscal conservatives, record high debt levels and the perpetual wild card that is Trump all make a quick and easy increase in the borrowing limit unlikely.
Democrats have warned that Republicans shouldn’t count on their votes.
“We're not going to get what we want. We understand that. But if they think they're going to get everything they want, then they're going to have to get it with their votes,” said House Minority Whip Steny Hoyer (D-Md.).
The debt ceiling was temporarily suspended in November 2015 through a budget deal negotiated by President Obama and then-Speaker John Boehner (R-Ohio). That deal waived the debt ceiling until March 15, retroactively approving all borrowing up to that time.
Mnuchin urged congressional leaders last week to raise the debt ceiling “at the first opportunity,” while the Treasury takes extraordinary measures to pay bills without adding to the country’s roughly $20 trillion debt. Those measures include stopping payments into certain government funds, halting certain bond sales and selling government-held securities.
“There’s some expenses associated with it,” said Maya MacGuineas, president of the nonpartisan debt watchdog Committee for a Responsible Federal Budget. “It’s a little ponzi scheme with government trust funds, but in the end, everyone remains whole.”
The Treasury can likely delay the need to raise the debt ceiling until October or November, according to the nonpartisan Congressional Budget Office. At that point, Treasury will have exhausted extraordinary measures and would need to borrow more money to pay the country’s bills.
Lawmakers have squabbled over raising the debt ceiling, with the stakes escalating in recent years. The 2011 standoff over led to the creation of the sequester: automatic cuts touching every part of the federal budget, a policy now loathed by both parties for different reasons.
Republicans have previously demanded spending cuts or entitlement reforms for raising the debt ceiling, and leaders have been mum about what they’d seek this time around.
Trump has “expressed a commitment to work with Congress to raise the debt limit and to address the growing national debt,” a White House spokesperson told The Hill on Tuesday. “The President’s team is also looking into a variety of ways in which to ensure that our commitments are kept.” The spokesperson declined to go into detail.
With meager majorities in the House and Senate, the GOP can afford few defections to pass the debt limit increase on their own. Democratic leaders have warned Republicans not to attach unreasonable or unrelated measures to the debt ceiling, or they wouldn’t support it.
"We'll cross that bridge when we come to it," said Senate Minority Leader Charles Schumer (D-N.Y.). "[But] we're going to have to have some of our Republican colleagues step up to the plate on this issue."
Hoyer said "if there is a clean debt limit extension, I think Democrats would be inclined not to vote against it. But that's a big if."
“The problem will be that the hardliners will be more inclined or as inclined as the people who shut down the government last time,” said Hoyer. "If those hardliners continue in that position, then they'll be responsible for shutting down the government."
Several fiscal hawks said they wouldn’t support raising the debt ceiling without measures to reduce spending and the debt. House Freedom Caucus Chairman Mark Meadows (R-N.C.) said he’d support a hike only “if there is a real path to balance ... but we have typically not shown the intestinal fortitude to do just that.”
Meadows’ Freedom Caucus colleague Rep. Mark Sanford (R-S.C.) called the “debt ceiling is a leverage point in forcing conversation about where do we go from here” and said he wouldn’t vote for an increase without cuts.
"If our prescription is simply to keep on doing what we've been doing, I think that we're going to see one heck of a financial storm coming,” Meadows said.
The GOP’s ideological divide could be complicated by Trump. His only formal debt relief plan is a combination of ambitious economic growth promises and budget cuts with major impacts for government agencies but minor effects on the debt.
MacGuineas said Trump “has been all over the map when it comes to debt.”
“He kind of assumed the debt as a metric of his success or failure,” MacGuineas, but “he has yet to put forth any policies that would put us on a more responsible course.”
Observers and analysts ultimately expect Congress to raise the ceiling. Moody’s Investor Services expects the federal government to raise the debt ceiling before risking a default, and Fitch Ratings said Wednesday a debt ceiling crisis is less likely this year than in years past.
A former senior Senate aide said financial markets have come to expect contentious debt ceiling showdowns and trust the government to find a deal.
“Everybody warns about the debt ceiling but nothing ever happens, and until you see some sort of impact, someone calling in the money that they owe us,” said the former aide. “Cooler heads prevail under some sort of deal.”
|Posted by Jerrald J President on February 25, 2017 at 8:05 PM||comments (0)|
Dr Alan Greenspan was Chairman
of the Federal Reserve from 1987 to
2006 and has advised government
agencies, investment banks, and
hedge funds ever since. Here, he
reveals his deep concerns about
economic prospects in the developed
world, his view on gold’s important
role in the monetary system and
his belief in gold as the ultimate
Chairman of the Federal
Reserve from 1987 to 2006
In recent months, concerns about
stagflation have been rising.
Do you believe that these concerns
We have been through a protracted period of stagnant
productivity growth, particularly in the developed world,
driven largely by the aging of the ‘baby boom’ generation.
Social benefits (entitlements in the US) are crowding out
gross domestic savings, the primary source for funding
investment, dollar for dollar. The decline in gross domestic
savings as a share of GDP has suppressed gross nonresidential
capital investment. It is the lessened investment
that has suppressed the growth in output per hour globally.
Output per hour has been growing at approximately ½%
annually in the US and other developed countries over
the past five years, compared with an earlier growth rate
closer to 2%. That is a huge difference, which is reflected
proportionately in the gross domestic product and in
people’s standard of living.
As productivity growth slows down, the whole economic
system slows down. That has provoked despair and a
consequent rise in economic populism from Brexit to
Trump. Populism is not a philosophy or a concept, like
socialism or capitalism, for example. Rather it is a cry of
pain, where people are saying: Do something. Help!
At the same time, the risk of inflation is beginning to rise.
In the United States, the unemployment rate is below 5%,
which has put upward pressure on wages and unit costs
generally. Demand is picking up, as manifested by the
recent marked, broad increase in the money supply, which
is stoking inflationary pressures. To date, wage increases
have largely been absorbed by employers, but, if costs
are moving up, prices ultimately have to follow suit. If you
impose inflation on stagnation, you get stagflation.
The Federal Reserve’s gold vault.
Gold Investor | February 2017
Gold: The ultimate insurance policy
As inflation pressures grow, do
you anticipate a renewed interest
Significant increases in inflation will ultimately increase the
price of gold. Investment in gold now is insurance. It’s not
for short-term gain, but for long-term protection.
I view gold as the primary global currency. It is the only
currency, along with silver, that does not require a counterparty
signature. Gold, however, has always been far more
valuable per ounce than silver. No one refuses gold as
payment to discharge an obligation. Credit instruments and
fiat currency depend on the credit worthiness of a counterparty.
Gold, along with silver, is one of the only currencies
that has an intrinsic value. It has always been that way. No
one questions its value, and it has always been a valuable
commodity, first coined in Asia Minor in 600 BC.
Over the past year, we have
witnessed Brexit, Trump’s election
victory, and a decisive increase in
anti-establishment politics. How
do you think that central banks
and monetary policy will adjust to
this new environment?
The only example we have is what happened in the 1970s,
when we last experienced stagflation and there were
real concerns about inflation spiraling out of control. Paul
Volcker was brought in as chairman of the Federal Reserve,
and he raised the Federal Fund rate to 20% to stem the
erosion. It was a very destabilising period and by far the
most effective monetary policy in the history of the Federal
Reserve. I hope that we don’t have to repeat that exercise
to stabilise the system. But it remains an open question.
The European Central Bank (ECB) has greater problems
than the Federal Reserve. The asset side of the ECB’s
balance sheet is larger than ever before, having grown
steadily since Mario Draghi said he would do whatever it
took to preserve the euro. And I have grave concerns about
the future of the Euro itself. Northern Europe has, in effect,
been funding the deficits of the South; that cannot continue
indefinitely. The eurozone is not working.
In the UK, meanwhile, it remains unclear how Brexit will
be resolved. Japan and China remain mired in problems as
well. So, it is very difficult to find any large economy that
is reasonably solid, and it is extremely hard to predict how
central banks will respond.
I view gold as
Gold Investor | February 2017 13
Gold: The ultimate insurance policy
Although gold is not an official
currency, it plays an important role
in the monetary system. What role
do you think gold should play in
the new geopolitical environment?
The gold standard was operating at its peak in the late
19th and early 20th centuries, a period of extraordinary
global prosperity, characterised by firming productivity
growth and very little inflation.
But today, there is a widespread view that the 19th century
gold standard didn’t work. I think that’s like wearing the
wrong size shoes and saying the shoes are uncomfortable!
It wasn’t the gold standard that failed; it was politics.
World War I disabled the fixed exchange rate parities and
no country wanted to be exposed to the humiliation of
having a lesser exchange rate against the US dollar than it
enjoyed in 1913.
Britain, for example, chose to return to the gold standard
in 1925 at the same exchange rate it had in 1913 relative
to the US dollar (US$4.86 per pound sterling). That was a
monumental error by Winston Churchill, then Chancellor of
the Exchequer. It induced a severe deflation for Britain in
the late 1920s, and the Bank of England had to default in
1931. It wasn’t the gold standard that wasn’t functioning;
it was these pre-war parities that didn’t work. All wanted
to return to pre-war exchange rate parities, which, given
the different degree of war and economic destruction
from country to country, rendered this desire, in general,
Today, going back on to the gold standard would be
perceived as an act of desperation. But if the gold standard
were in place today we would not have reached the
situation in which we now find ourselves. We cannot afford
to spend on infrastructure in the way that we should. The
US sorely needs it, and it would pay for itself eventually in
the form of a better economic environment (infrastructure).
But few of such benefits would be reflected in private cash
flow to repay debt. Much such infrastructure would have to
be funded with government debt. We are already in danger
of seeing the ratio of federal debt to GDP edging toward
triple digits. We would never have reached this position
of extreme indebtedness were we on the gold standard,
because the gold standard is a way of ensuring that fiscal
policy never gets out of line.
Today there is a
widespread view that
the 19th century gold
standard didn’t work.
I think that’s like
wearing the wrong size
shoes and saying the
shoes are uncomfortable!
Significant increases in
inflation will ultimately
increase the price of gold.
Investment in gold now
is insurance. It’s not for
short-term gain, but for
Gold Investor | February 2017 14
Do you think that fiscal policy
should be adjusted to aid monetary
I think the reverse is true. Fiscal policy is much more
fundamental policy. Monetary policy does not have the
same potency. And if fiscal policy is sound, then monetary
policy becomes reasonably easy to implement. The very
worst situation for a central banker is an unstable fiscal
system, such as we are experiencing today.
The central issue is that the degree of government
expenditure growth, largely entitlements, is destabilising
the financial system. The retirement age of 65 has changed
only slightly since President Roosevelt introduced it in
1935, even though longevity has increased substantially
since then. So, the first thing we have to do is raise the
retirement age. That could cut expenditure appreciably.
I also believe that regulatory capital requirements for banks
and financial intermediaries need to be much higher than
they are currently. Looking back, every crisis of recent
generations has been a monetary crisis. The non-financial
part of the US economy was in good shape before 2008,
for example. It was the collapse of the financial system that
brought down the non-financial part of the economy. If you
build up enough capital in the financial system, the chances
of serial, contagious default are much decreased.
If we raised capital requirements for commercial banks,
for example, from the current average rate of around
11% to 20% or 30% of assets, bankers would argue
that they could not make profitable loans under such
circumstances. Office of the Controller of the Currency
data dating back to 1869 suggests otherwise. These data
demonstrate that the rate of bank net income to equity
capital has ranged between 5% and 10% for almost all
the years of the data’s history, irrespective of the level of
equity capital to assets. This suggests we could phase in
higher capital requirements overtime without decreasing
the effectiveness of the financial system. To be sure there
would likely be some contraction in lending, but, arguably,
those loans should, in all likelihood, never have been made
in the first place.
Against a background of ultra-low
and negative interest rates, many
reserve managers have been
large buyers of gold. In your view,
what role does gold play as a
When I was Chair of the Federal Reserve I used to testify
before US Congressman Ron Paul, who was a very strong
advocate of gold. We had some interesting discussions.
I told him that US monetary policy tried to follow signals
that a gold standard would have created. That is sound
monetary policy even with a fiat currency. In that regard,
I told him that even if we had gone back to the gold
standard, policy would not have changed all that much.
The very worst situation
for a central banker
is an unstable fiscal
system, such as we are
Gold: The ultimate insurance policy
Gold Investor | February 2017 15
The Central Bank of the Republic of Turkey.
|Posted by Jerrald J President on February 25, 2017 at 7:05 PM||comments (0)|
If there is only $1.5 Trillion dollars in circulation. Can anyone tell me how in the world the US government is $20Trillion dollars in debt. To a private corporation I may add. By JJP
How much U.S. currency is in circulation?
There was approximately $1.5 trillion in circulation as of January 11, 2017, of which $1.46 trillion was in Federal Reserve notes.
|Posted by Jerrald J President on February 25, 2017 at 6:55 PM||comments (0)|
Can you say "Hocus Pocus", this is crazy to think a private cartel creates money out of thin air on a printing press or computer. Yet for some strange reason we don't understand why where "BROKE"! Wake up... By JJP
How Currency Gets into Circulation
There is about $1.2 trillion dollars of U.S. currency in circulation.
The Federal Reserve Banks distribute new currency for the U.S. Treasury Department, which prints it.
Depository institutions buy currency from Federal Reserve Banks when they need it to meet customer demand, and they deposit cash at the Fed when they have more than they need to meet customer demand.
As of July 2013, currency in circulation—that is, U.S. coins and paper currency in the hands of the public—totaled about $1.2 trillion dollars. The amount of cash in circulation has risen rapidly in recent decades and much of the increase has been caused by demand from abroad. The Federal Reserve estimates that the majority of the cash in circulation today is outside the United States.
Meeting the Variable Demand for Cash
The public typically obtains its cash from banks by withdrawing cash from automated teller machines (ATMs) or by cashing checks. The amount of cash that the public holds varies seasonally, by the day of the month, and even by the day of the week. For example, people demand a large amount of cash for shopping and vacations during the year-end holiday season. Also, people typically withdraw cash at ATMs over the weekend, so there is more cash in circulation on Monday than on Friday.
To meet the demands of their customers, banks get cash from Federal Reserve Banks. Most medium- and large-sized banks maintain reserve accounts at one of the 12 regional Federal Reserve Banks, and they pay for the cash they get from the Fed by having those accounts debited. Some smaller banks maintain their required reserves at larger, "correspondent," banks. The smaller banks get cash through the correspondent banks, which charge a fee for the service. The larger banks get currency from the Fed and pass it on to the smaller banks.
When the public's demand for cash declines—after the holiday season, for example—banks find they have more cash than they need and they deposit the excess at the Fed. Because banks pay the Fed for cash by having their reserve accounts debited, the level of reserves in the nation's banking system drops when the public's demand for cash rises; similarly, the level rises again when the public's demand for cash subsides and banks ship cash back to the Fed. The Fed offsets variations in the public's demand for cash that could introduce volatility into credit markets by implementing open market operations.
The popularization of the ATM in recent years has increased the public's demand for currency and, in turn, the amount of currency that banks order from the Fed. Interestingly, the advent of the ATM has led some banks to request used, fit bills, rather than new bills, because the used bills often work better in the ATMs.
Maintaining a Cash Inventory
Each of the 12 Federal Reserve Banks keeps an inventory of cash on hand to meet the needs of the depository institutions in its District. Extended custodial inventory sites in several continents promote the use of U.S. currency internationally, improve the collection of information on currency flows, and help local banks meet the public's demand for U.S. currency. Additions to that supply come directly from the two divisions of the Treasury Department that produce the cash: the Bureau of Engraving and Printing, which prints currency, and the United States Mint, which makes coins. Most of the inventory consists of deposits by banks that had more cash than they needed to serve their customers and deposited the excess at the Fed to help meet their reserve requirements.
When a Federal Reserve Bank receives a cash deposit from a bank, it checks the individual notes to determine whether they are fit for future circulation. About one-third of the notes that the Fed receives are not fit, and the Fed destroys them. As shown in the table below, the life of a note varies according to its denomination. For example, a $1 bill, which gets the greatest use, remains in circulation an average of 5.9 years; a $100 bill lasts about 15 years.
The Federal Reserve orders new currency from the Bureau of Engraving and Printing, which produces the appropriate denominations and ships them directly to the Reserve Banks. Each note costs about four cents to produce, though the cost varies slightly by denomination.
Virtually all of currency notes in use are Federal Reserve notes. Each Federal Reserve Bank is required by law to pledge collateral at least equal to the amount of currency it has issued into circulation. The bulk of the collateral pledged is in the form of U.S. Government securities and gold certificates owned by the Federal Reserve Banks.
Making U.S. Currency More Secure
In late 1996, the Treasury began issuing a series of Federal Reserve notes containing new features that make the notes harder to counterfeit. The Treasury introduced the modified notes in order of decreasing denomination—the $100 bill appeared in March 1996, the $50 bill in October 1997, the $20 bill in September 1998, and the $10 and $5 bills in May 2000. The most noticeable modification was a larger, slightly off-center portrait that incorporates more detail, thereby making the bill harder to counterfeit. For the benefit of persons with impaired vision, the back of the modified $50, $20, $10 and $5 bills features numerals larger than those on older currency.
In October 2003, the United States issued a newly redesigned $20 note with enhanced security features and subtle background colors of blue, peach and green. A new $50 note was issued on September 28, 2004. On March 2, 2006, the new $10 note entered circulation. On March 13, 2008, the new $5 note entered circulation. The $100 note is also slated to be redesigned, but a timetable for its introduction is not yet set.
Putting Coins into Circulation
The procedures for putting coins into circulation are similar to those for currency. The U.S. Mint produces coins in Philadelphia, Denver, and San Francisco, and ships them to the Federal Reserve Banks and to authorized armored carriers, which supply banks that need coins to meet the public's demand.
The distribution of coins differs from that of currency in some respects. First, when the Fed receives currency from the Treasury, it pays only for the cost of printing the notes. However, coins are a direct obligation of the Treasury, so the Reserve Banks pay the Treasury the face value of the coins. Second, large banks in some Federal Reserve Districts participate in a Direct Mint Shipment Program, and receive coins directly from the Mint. In the New York area, there also is an arrangement under which banks that need coins buy them from banks that have a surplus. To promote the arrangement, the New York Fed stands ready to match banks that have excess coins with those that need coins.July 2013
|Posted by Jerrald J President on February 25, 2017 at 6:45 PM||comments (0)|
The wheels keep on turning, Greece continues it's plunge into the financial abyss. Stop borrowing money, and print your own fiat currency(PAPER). By JJP
‘From bad to worse’: Greece hurtles towards a final reckoning
With another bailout set to bring more cuts, quitting the euro is back on the agenda
Dimitris Costopoulos stood, worry beads in hand, under brilliant blue skies in front of the Greek parliament. Wearing freshly pressed trousers, polished shoes and a smart winter jacket – “my Sunday best” – he had risen at 5am to get on the bus that would take him to Athens 200 miles away and to the great sandstone edifice on Syntagma Square. By his own admission, protests were not his thing.
At 71, the farmer rarely ventures from Proastio, his village on the fertile plains of Thessaly. “But everything is going wrong,” he lamented on Tuesday, his voice hoarse after hours of chanting anti-government slogans.
“Before there was an order to things, you could build a house, educate your children, spoil your grandchildren. Now the cost of everything has gone up and with taxes you can barely afford to survive. Once I’ve paid for fuel, fertilisers and grains, there is really nothing left.”
Costopoulos is Greece’s Everyman; the human voice in a debt crisis that refuses to go away. Eight years after it first erupted, the drama shows every sign of reigniting, only this time in a new dark age of Trumpian politics, post-Brexit Europe, terror attacks and rise of the populist far right.
“I grow wheat,” said Costopoulos, holding out his wizened hands. “I am not in the building behind me. I don’t make decisions. Honestly, I can’t understand why things are going from bad to worse, why this just can’t be solved.”
As Greece hurtles towards another full-blown confrontation with the creditors keeping it afloat, and as tensions over stalled bailout negotiations mount, it is a question many are asking.
The country’s epic struggle to avert bankruptcy should have been settled when Athens received €110bn in aid – the biggest financial rescue programme in global history – from the EU and International Monetary Fund in May 2010. Instead, three bailouts later, it is still wrangling over the terms of the latest €86bn emergency loan package, with lenders also at loggerheads and diplomats no longer talking of a can, but rather a bomb, being kicked down the road. Default looms if a €7.4bn debt repayment – money owed mostly to the European Central Bank – is not honoured in July.
Amid the uncertainty, volatility has returned to the markets. So, too, has fear, with an estimated €2.2bn being withdrawn from banks by panic-stricken depositors since the beginning of the year. With talk of Greece’s exit from the euro being heard again, farmers, trade unions and other sectors enraged by the eviscerating effects of austerity have once more come out in protest.
From his seventh-floor office on Mitropoleos, Makis Balaouras, an MP with the governing Syriza party, has a good view of the goings-on in Syntagma. Demonstrations – what the former trade unionist calls “the movement” – are a fine thing. “I wish people were out there mobilising more,” he sighed. “Protests are in our ideological and political DNA. They are important, they send a message.”
This is the irony of Syriza, the leftwing party catapulted to power on a ticket to “tear up” the hated bailout accords widely blamed for extraordinary levels of Greek unemployment, poverty and emigration. Two years into office it has instead overseen the most punishing austerity measures to date, slashing public-sector salaries and pensions, cutting services, agreeing to the biggest privatisation programme in European history and raising taxes on everything from cars to beer – all of which has been the price of the loans that have kept default at bay and Greece in the euro.
In the maelstrom the economy has improved, with Athens achieving a noticeable primary surplus last year, but the social crisis has intensified.
For men like Balaouras, who suffered appalling torture for his leftwing beliefs at the hands of the 1967-74 colonels’ regime, the policies have been galling. With the IMF and EU arguing over the country’s ability to reach tough fiscal targets when the current bailout expires in August next year, the demand for €3.6bn of more measures has left many in Syriza reeling. Without upfront legislation on the reforms, creditors say, they cannot conclude a compliance review on which the next tranche of bailout aid hangs.
“We had an agreement,” insisted Balaouras, looking despondently down at his desert boots. “We kept to our side of the deal, but the lenders haven’t kept to their side because now they are asking for more. We want the review to end. We want to go forward. This situation is in the interests of no one. But to get there we have to have an honourable compromise. Without that there will be a clash.”
It had been hoped that an agreement would be struck on Monday at what had been billed as a high-stakes meeting of euro area finance ministers. On Friday, EU officials announced that the deadline had been all but missed because there had been little convergence between the two sides.
With the Netherlands holding general elections next month, and France and Germany also heading to the polls in May and September, fears of the dispute becoming increasingly politicised have added to its complexity. Highlighting those concerns, the German chancellor, Angela Merkel, attempted to end the rift that has emerged between eurozone lenders and the IMF over the fund’s insistence that Greece can only begin to recover if its €320bn debt pile is reduced substantially.
In talks with Christine Lagarde, the Washington-based IMF’s managing director, Merkel agreed to discuss the issue during a further meeting between the two women to be held on Wednesday. The IMF has steadfastly refused to sign up to the latest bailout, arguing that Greek debt is not only unmanageable but on a trajectory to become explosive by 2030. Berlin, the biggest contributor of the €250bn Greece has so far received, says it will be unable to disburse further funds without the IMF on board.
The assumption is that the prime minister, Alexis Tsipras, will cave in, just as he did when the country came closest yet to leaving the euro at the height of the crisis in the summer of 2015. But the 41-year-old leader, like Syriza, has been pummelled in the polls. Persuading disaffected backbenchers to support more measures, and then selling them to a populace exhausted by repeated rounds of austerity, will be extremely difficult. Disappointment has increasingly given way to the death of hope – a sentiment reinforced by the realisation that Cyprus and other bailed-out countries, by contrast, are no longer under international supervision.
In his city centre office, the former finance minister Evangelos Venizelos pondered where Greece’s predicament was now. “[We are] at the same point we were several years ago,” he joked. “The only difference is that anti-European sentiment is growing. What was once a very friendly country towards Europe is becoming increasingly less so, and with that comes a lot of danger, a lot of risk.”
When historians look back they, too, may conclude that Greece has expended a great deal of energy not moving forward at all.
The arc of crisis that has swept the country – coursing like a cancer through its body politic, devastating its public health system, shattering lives – has been an exercise in the absurd. The feat of pulling off the greatest fiscal adjustment in modern times has spawned a slump longer and deeper than the Great Depression, with the Greek economy shrinking more than 25% since the crisis began.
Even if the latest impasse is broken and a deal is reached with creditors soon, few believe that in a country of weak governance and institutions it will be easy to enforce. Political turbulence will almost certainly beckon; the prospect of “Grexit” will grow.
“Grexit is the last thing we want, but we may arrive at a point of serious dilemmas,” said Venizelos. “Whatever deal is reached will be very difficult to implement, but that notwithstanding, it is not the memoranda [the bailout accords] that caused the crisis. The crisis was born in Greece long before.”
Like every crisis government before it, Tsipras’s administration is acutely aware that salvation will come only when Greece can return to the markets and raise funds. What happens in the weeks ahead could determine if that is likely to happen at all.
Back in Syntagma, Costopoulos the good-natured farmer ponders what lies ahead. Like every Greek, he stands to be deeply affected. “All I know is that we are all being pushed,” he said, searching for the right words. “Pushed in the direction of somewhere very explosive, somewhere we do not want to be.”
|Posted by Jerrald J President on February 25, 2017 at 6:25 PM||comments (0)|
The next shoe to fall!!! By JJP
How Deutsche Bank Made a $462 Million Loss Disappear
A dubious trade leads to a criminal trial for Europe’s most important bank.
On Dec. 1, 2008, most of the world’s banks were still panicking through the financial crisis. Lehman Brothers had collapsed. Merrill Lynch had been sold. Citigroup and others had required multibillion-dollar bailouts to survive. But not every institution appeared to be in free fall. That afternoon, at the London outpost of Deutsche Bank, the stolid-seeming, €2 trillion German powerhouse, a group of financiers met to consider a proposal from a team led by a trim, 40-year-old banker named Michele Faissola.
The scion of an Italian banking family, Faissola was the head of Deutsche’s global rates unit, a division that created and sold financial instruments tied to interest rates. He’d been studying the problems of one of Deutsche’s clients, Italy’s Banca Monte dei Paschi di Siena, which, as the crisis raged, was down €367 million ($462 million at the time) on a single investment. Losing that much money was bad; having to include it in the bank’s yearend report to the public, as required by Italian law, was arguably much worse. Monte dei Paschi was the world’s oldest bank. It had been operating since 1472, not long after the invention of the printing press, when the Black Death was still a living memory. If investors were to find out the extent of its losses in the 2008 credit crisis, the consequences would be unpredictable and grave: a run on the bank, a government takeover, or worse. At the Deutsche meeting, Faissola’s team said it had come up with a miraculous solution: a new trade that would make Paschi’s loss disappear.
The bankers in the room had seen some financial sleight of hand in their day, but the maneuver that Faissola’s staffers proposed was audacious. They described a simple trade in two parts. For one half of the deal, Paschi would make a sure-thing, moneymaking bet with Deutsche Bank and use those winnings to extinguish its 2008 trading losses. Of course, Deutsche doesn’t give away money for free, so for the second half of the deal, the Italians would make a bet that was sure to lose. But while the first transaction was immediate, the second would play out slowly, over many years. No sign of the €367 million sinkhole would need to show up when Paschi compiled its yearend financial reports.
The audience for the proposal that day was Deutsche’s global market risks assessment committee, a top-level panel that reviews transactions with legal, regulatory, and reputational considerations. Respectively, that means asking: Is a given trade within the law? Is it within the looser framework of industry rules and standards? And even if so, can Deutsche pull it off without maiming its brand—its basic ability to operate as a trustworthy member of the global financial system?
To at least one member of the committee, the possibilities of Faissola’s trade seemed wondrous. “This is fantastic,” said Jeremy Bailey, Deutsche’s European chairman of global banking, according to testimony of an executive who later recounted the exchange for an internal disciplinary panel. “You can book a [profit] in front and spread losses over time?” Bailey added. “We should do it for Deutsche Bank.”
Ivor Dunbar, the meeting’s chairman, curbed Bailey’s enthusiasm. “We are not discussing [our] balance sheet here,” he said. (Bailey, through a spokesman, denies he made the remarks.)
Outside the room, one of Faissola’s longtime colleagues was raising questions about the deal. William Broeksmit, a managing director who specialized in risk optimization, was concerned about the winner-loser construction. A Chicago-born son of a United Church of Christ minister, Broeksmit had decades earlier been a pioneer in interest rate swaps, the financial instruments that had rewritten the possibilities—and profitability—of investment banking. But Broeksmit, 53, was also against reckless derivative deals, which is how he viewed Faissola’s proposal, according to a person familiar with his thinking. Eleven minutes after the meeting began, Broeksmit e-mailed one of its attendees with a warning about the Paschi trade and its “reputational risks.”
The message had no effect. When the meeting ended after almost 90 minutes, Faissola got a go-ahead—setting in motion a scandal that has resulted in a criminal trial now under way in Milan. A judge there has accused Deutsche Bank and five former executives, including Faissola and Dunbar, of colluding with Paschi to falsify its accounts in 2008. (None of Deutsche’s top managers at the time has been accused of wrongdoing. Faissola declined to comment for this article, as did both banks. Dunbar didn’t respond to requests for comment.)
Eight years after the financial crisis, the stakes could hardly be higher. Being the biggest bank in Germany makes Deutsche the most important bank in Europe, and the Paschi trial is an uncomfortable reminder that its operations, already with barely enough capital to meet industry standards, are threatened by persistent scandal. Deutsche is also facing investigations into whether it helped clients launder billions out of Russia. This month the bank agreed to pay $7.2 billion to resolve a U.S. probe into its subprime mortgage business, admitting it misled investors. Deutsche has paid more than $9 billion in further fines and settlements related to claims of tax evasion; violating sanctions against Iran, Libya, Syria, Myanmar, and Sudan; rigging the $300 trillion Libor market; and other alleged breaches of the law.
The strain has intensified concerns about Deutsche’s balance sheet, which contains one of the world’s largest pots of most-difficult-to-quantify risk. The bank says it’s trimmed some of its exposure, as John Cryan, who became chief executive officer in 2015, attempts to clean up his predecessors’ messes. But if Deutsche ever requires government help, such as a bailout, the effects could be catastrophic for more than shareholders. In recent years, as the euro community has faced one solvency problem after another in Greece, Portugal, and elsewhere, Germany’s Angela Merkel has been chief scold. She’s insisted on fiscal pain for irresponsible actors and pushed for banking rules that keep taxpayers from picking up the bills again for reckless financiers. Her government coming to the aid of Deutsche Bank after lecturing others on restraint would be the ultimate euro zone irony. In a worst-case scenario, it could trigger a furor that finally brings down the continent’s currency, already made fragile by Brexit, refugees, and the rise of nationalist politicians.
The bank’s deal with Paschi is a microcosm of how Deutsche’s embrace of derivatives, questionable accounting, and slow-walking of regulators have eroded the market’s trust to the point that no one really knows how close the company is to the edge. What exactly happened in the days surrounding the December 2008 meeting in London is key to the Italian prosecution. The German financial-markets regulator, known as BaFin, already tried to get to the bottom of the matter, commissioning an independent audit in January 2014.
The ensuing report has never been made public, but Bloomberg Businessweek obtained a copy. It shows that auditors asked Faissola what happened that afternoon in London. Other participants recalled details and dialogue, the report says, but Faissola drew a blank about the event he’d helped run. Broeksmit wasn’t interviewed. On Jan. 26, 2014, the day before the audit began, his body was found at his London home, hanging from a dog leash.
Founded in 1870, Deutsche Bank was for most of its existence content to take deposits and make loans; in the 1920s it participated in the founding of the airline Lufthansa and the merger of automakers Daimler and Benz. Then, in the 1980s and ’90s, Deutsche watched as rival lenders in London and across the U.S. turbocharged profit growth by snapping up boutique investment banks and hiring or building teams to sell higher-margin financial products. To join the bonanza, Deutsche in 1995 hired one of its leaders from Merrill Lynch: Edson Mitchell, a redheaded chain smoker from Maine who was nurturing a team of future financial leaders. His crew included Broeksmit, the swaps innovator, and Anshu Jain, a prodigy at selling such risky, fee-laden products to hedge funds. Three years later, Deutsche made an even more emphatic attempt to buy its way into investment banking’s culture and profits, acquiring Bankers Trust—a New York derivatives house notorious for its cowboy culture—for about $10 billion.
If longtime Wall Streeters gawked at first at the German interloper, they quickly recognized that Deutsche had adopted their aggression and then some: Mitchell and his deputies expanded Deutsche’s London-based investment banking operation until it made half the bank’s revenue by the turn of the century.
Mitchell didn’t live to see Deutsche complete its transformation into a financial omnivore. Three days before Christmas 2000, he was riding in a small Beechcraft Super King Air 200 plane along the coast of Maine toward his vacation home in Rangeley. The wreckage was found the next morning, not far from the summit of Beaver Mountain. He was 47. Afterward, Jain took over as head of global markets. One of his deputies was Faissola.
Faissola represented the next generation in Deutsche’s investment banking push. He was born in 1968 in Sanremo, the coastal town whose legendary song contest launched the tune Volare, and his uncle was president of the Italian banking association. While running Deutsche’s global rates division in London for Jain, Faissola built his own fortune, at times earning tens of millions of pounds a year. He drew the jealousy of British co-workers because, as a foreigner, he was able to legally avoid U.K. tax on his bonuses. Faissola’s town house in Chelsea featured an indoor pool.
In the first years of the millennium, Deutsche bankers chased new sources of riches around the globe. People who piled into uncharted areas or pushed the rules were rewarded handsomely. Starting in 2005, Deutsche traders in Europe, North America, and Asia manipulated a benchmark interest rate to benefit their own derivative bets, according to an indictment made public last year in federal court in New York City. Deutsche’s most profitable derivatives trader earned a bonus of almost £90 million (then $130 million) in 2008 alone. Deutsche bankers also increased their bonuses in the runup to the crisis by creating and selling to clients mortgage securities that were marketed as high-quality investments but were in fact loaded with home loans destined to go bust. For clients, Deutsche became a go-to bank when they wanted risk and complexity.
|Posted by Jerrald J President on February 14, 2017 at 8:15 PM||comments (0)|
Federal Reserve Policy Statement on
Rental of Residential Other Real Estate Owned Properties
In light of the large volume of distressed residential properties and the indications of
higher demand for rental housing in many markets, some banking organizations may choose to
make greater use of rental activities in their disposition strategies than in the past. This policy
statement reminds banking organizations and examiners that the Federal Reserve’s regulations
and policies permit the rental of residential other real estate owned (OREO) properties to thirdparty
tenants as part of an orderly disposition strategy within statutory and regulatory limits.1
This policy statement applies to state member banks, bank holding companies, nonbank
subsidiaries of bank holding companies, savings and loan holding companies, non-thrift
subsidiaries of savings and loan holding companies, and U.S. branches and agencies of foreign
banking organizations (collectively, banking organizations).2
The general policy of the Federal Reserve is that banking organizations should make
good-faith efforts to dispose of OREO properties at the earliest practicable date. Consistent with
this policy, in light of the extraordinary market conditions that currently prevail, banking
organizations may rent residential OREO properties (within statutory and regulatory holdingperiod
limits) without having to demonstrate continuous active marketing of the property,
provided that suitable policies and procedures are followed. Under these conditions and
circumstances, banking organizations would not contravene supervisory expectations that they
show “good-faith efforts” to dispose of OREO by renting the property within the applicable
holding period. Moreover, to the extent that OREO rental properties meet the definition of
community development under the Community Reinvestment Act (CRA) regulations, they
would receive favorable CRA consideration.3
In all respects, banking organizations that rent
OREO properties are expected to comply with all applicable federal, state, and local statutes and
|Posted by Jerrald J President on February 14, 2017 at 7:50 PM||comments (0)|
This is what America deserve's, you think your broke now? Wait till they implement this "Legislation"! By JJP
King Introduces National Right To Work Act
labor law on their citizens and their economy. However, the fact remains that Congress created this problem in the first place by making forced unionization the default position for all states. Since Congress created this problem, it is Congress’s responsibility to correct it. The National Right to Work Act does so by simply erasing the forced-dues clauses in federal statute -- without adding a single letter to federal law.”
To view the full bill text, click here.
List of Original Cosponsors:
Barr, Andy [KY-6]
Barton, Joe [TX-6]
Black, Diane [TN-6]
Blackburn, Marsha [TN-7]
Bishop, Rob [UT-1]
Blum, Rod [IA-1]
Brat, Dave [VA-7]
Brooks, Mo [AL-5]
Buck, Ken [CO-4]
Bucshon, Larry [IN-8]
Clawson, Curt [FL-19]
Collins, Doug [GA-09]
Comstock, Barbara [VA-10]
Conaway, Michael [TX-11]
Crawford, Rick [AR-1]
Cramer, Kevin [ND-AL]
Culberson, John [TX-07]
DesJarlais, Scott [TN-4]
Duncan, Jeff [SC-3]
Duncan, John [TN-2]
Fincher, Stephen [TN-08]
Fleischmann, Chuck [TN-3]
Foxx, Virginia [NC-5]
Franks, Trent [AZ-8]
Gibbs, Bob [OH-7]
Gohmert, Louie [TX-1]
Goodlatte, Bob [VA-6]
Gosar, Paul [AZ-4]
Graves, Tom [GA-14]
Griffith, Morgan [VA-9]
Harper, Gregg [MS-3]
Hartzler, Vicky [MO-4]
Hudson, Richard [NC -8]
Huizenga, Bill [MI-2]
Huelskamp, Tim [KS-1]
Jenkins, Lynn [KS-2]
Jolly, David [FL-13]
Jordan, Jim [OH-4]
Johnson, Sam [TX-3]
LaMalfa, Doug [CA-1]
Lamborn, Doug [CO-5]
Long, Billy [MO-7]
Loudermilk, Barry [GA-11]
Lummis, Cynthia [WY-AL]
Marchant, Kenny [TX-24]
Massie, Thomas [KY-4]
McHenry, Patrick [NC-10]
McClintock, Tom [CA-4]
Meadows, Mark [NC-11]
Moolenaar, John [MI-4}
Mullin, Markwayne [OK-2]
Mulvaney, Mick [SC-5]
Nunnelee, Alan [MS-1]
Nugent, Richard [FL-11]
Palmer, Gary [AL-06]
Palazzo, Steven [MS-4]
Perry, Scott [PA-4]
Pearce, Steve [NM-2]
Pittenger, Robert [NC-9]
Pitts, Joseph [PA-16]
Pompeo, Mike [KS-4]
Ratcliffe, John [TX-4]
Roby, Martha [AL-2]
Rooney, Thomas [FL-17]
Salmon, Matt [AZ-5]
Schweikert, David [AZ-6]
Scott, Austin [GA-8]
Sessions, Pete [TX-32]
Smith, Adrian [NE-3]
Tipton, Scott [CO-3]
Weber, Randy [TX-14]
Westmoreland, Lynn [GA-3]
Williams, Roger [TX-25]
Wilson, Joe [SC-2]
Womack, Steve [AR-3]
Yoho, Ted [FL-3]
|Posted by Jerrald J President on February 14, 2017 at 7:40 PM||comments (0)|
The fiduciary rule was set to take effect in April 2017. Its specific requirement is that financial advisers — who can be paid referral fees by asset managers for directing client money into their funds — must put their clients' interests ahead of theirs. This is who President Trump cares about! By JJP
Trump has signed an order that could roll back a rule intended to protect Main Street's retirement money
President Donald Trump has signed an executive order on the Obama administration's landmark retirement savings rule, setting in motion a potential repeal of a recently passed standard that would have made it harder for financial advisers to give conflicted advice.
The so-called fiduciary rule, which is slated to go into effect in April and will likely now be delayed, requires advisers to put their clients' interests ahead of theirs. The rule has long drawn rebuke from Wall Streeters and some of those who are close to Trump.
"The rule is a solution in search of a problem," White House press secretary Sean Spicer said Friday in a televised news conference.
"We're directing the Department of Labor to review this rule," Spicer added, saying that the department, which passed the rule, had "exceeded its authority" and represented a type of government overreach the president intended to stop.
Trump signed the executive order around 1:30 p.m. Eastern on Friday. (You can read a full copy of the order here.)
Earlier on Friday, White House National Economic Council Director Gary Cohn told CNBC in a TV interview that the fiduciary rule limited customers' choices in financial products.
"I don't think you protect investors by limiting choices," said Cohn, who previously was Goldman Sachs' COO.
"We think it is a bad rule. It is a bad rule for consumers," Cohn told The Wall Street Journal. "This is like putting only healthy food on the menu, because unhealthy food tastes good but you still shouldn't eat it because you might die younger."
Those who supported the rule have come out against Trump's move.
Massachusetts Sen. Elizabeth Warren took aim at the executive order, saying it would "make it easier for investment advisers to cheat you out of your retirement savings."
Nancy LeaMond, executive vice president at AARP, a nonprofit representing retirees with nearly 38 million members, said in a statement, "For many Americans, today's executive order means they will continue to get conflicted financial advice that costs more and reduces what they are able to save for retirement."
What's the fiduciary rule?
It's a simple enough concept: A financial adviser should be legally required to put their clients' best interests ahead of their own.
But it's actually not the law. The Department of Labor — which concerns itself with such matters because of its oversight of workers' welfare and retirement — decided last year to change that by establishing the fiduciary rule over retirement accounts. That drew rebukes from Wall Street lobbyists and one of Trump's most flamboyant backers, financier Anthony Scaramucci.
Former President Barack Obama speaking during his last press conference at the White House.REUTERS/Joshua Roberts
The fiduciary rule was set to take effect in April 2017. Its specific requirement is that financial advisers — who can be paid referral fees by asset managers for directing client money into their funds — must put their clients' interests ahead of theirs.
Currently, brokers, financial advisers, and other finance professionals don't legally have to act in a client's best interest, with few exceptions, such as those who are registered as investment advisers with the Securities and Exchange Commission or in individual states. Those who are registered in this way often advertise it — it's seen as good business.
Those who aren't registered, like brokers, just have to prove that the investment is suitable, not necessarily the best option, for their client — no matter that that fund might be more expensive and provide a better commission for the adviser.
"It's kind of like if you let doctors be part of the drug companies directly and prescribe their own medicine," Blaine Aikin, executive chairman of fi360, a fiduciary consultancy in Pittsburgh, told Business Insider last year. "Unfortunately, we have a system where we've not established clarity between the sales side of financial services and the profession of financial advice."
A summary of the kinds of conflicted payments advisers can receive, according to an Obama White House report.Obama administration
The conflicts of interest inherent in using advisers who aren't serving in clients' best interests may go unnoticed by those who use them and are unaware they are signing into a conflicted relationship.
Conflicted advice costs retirement savers about $17 billion a year, according to a 2015 report from the Obama administration. Despite objections, the administration pushed ahead with a rule change in April 2016, giving fund managers a year to figure out how they would comply.
Advisers could still receive commissions under the new rule, but they have to provide a contract promising to put a client's interests first — the "best-interest contract exemption" — and receive no more than reasonable compensation. Firms would also have to clearly disclose all their compensation and incentive arrangements.
Wall Street firms worried about this exemption because it opens them up to litigation if their clients believe their advisers have not acted in their best interest. "Retirement investors will have a way to hold them accountable," the Labor Department says.
To be clear, this rule applies only to retirement accounts like 401(k)s and individual retirement accounts, not to regular taxable accounts, with which advisers can rely on the weaker suitability standard. Still, there's big money at stake. Americans invest $7 trillion in 401(k)s and $7.8 trillion in IRAs, according to the industry's lobby group, ICI.
When it was first raised, the rule prompted rebuttals from the financial industry. Some argued that they would face increased compliance costs and that those costs would price out smaller brokers who wouldn't be able to service smaller accounts.
Scaramucci, now one of Trump's advisers, has been one of the rule's most vocal critics. He also had a lot at stake. SkyBridge Capital, a fund-of-hedge-funds he founded and recently sold, would likely have been hurt by the rule since the firm oversees retirement money, and gets a bulk of its assets via financial advisers at banks.
The fiduciary rule could put this very model of using a bank's army of financial advisers as a sales force for hedge funds at risk, especially at funds-of-funds that often end up in retirement accounts, industry lawyers previously told Business Insider.
Wall Street firms have also been fearful of another secondary effect that would hit them where they are already hurting. The rule was expected to accelerate a shift toward passively managed funds, like exchange-traded and index funds, because it's easier to prove that such products, which are much cheaper, are in a retirement saver's best interest. That has already been a big issue for Wall Street, as index funds have eaten into the share of actively managed funds.
The fiduciary rule may live on anyway
For all the concerns about what Trump could do to the rule, it might be too late for him to do much to undercut the change. That's because Wall Street firms have already made the move to comply with the new standard, creating an industry shift unlikely to bend, experts say.
"Pragmatically, it's very difficult to step back from a rule that's so obviously needed," Jack Bogle, founder of the index provider Vanguard Group, which is known for its low-cost offerings and is likely to benefit from the change, previously told Business Insider.
|Posted by Jerrald J President on February 14, 2017 at 7:30 PM||comments (0)|
Gangster Capitalism on Steroids! By JJP
Wall Street, America’s New Landlord, Kicks Tenants to the Curb
On a chilly December afternoon in Atlanta, a judge told Reiton Allen that he had seven days to leave his house or the marshals would kick his belongings to the curb. In the packed courtroom, the truck driver, his beard flecked with gray, stood up, cast his eyes downward and clutched his black baseball cap.
The 44-year-old father of two had rented a single-family house from a company called HavenBrook Homes, which is controlled by one of the world’s biggest money managers, Pacific Investment Management Co. Here in Fulton County, Georgia, such large institutional investors are up to twice as likely to file eviction notices as smaller owners, according to a new Atlanta Federal Reserve study.
“I’ve never been displaced like this,” said Allen, who said he fell behind because of unexpected childcare expenses as his rent rose above $900 a month. “I need to go home and regroup.”
The Colony home previously occupied by Juliana Spence.Photographer: Melissa Golden/Redux for Bloomberg
Hedge funds, large investment firms and private equity companies helped the U.S. housing market recover after the crash in 2008 by turning empty foreclosures from Atlanta to Las Vegas into occupied rentals.
Read More: How Homeowner Pain Became Wall Street’s Rental Empire
Now among America’s biggest landlords, some of these companies are leaving tenants like Allen in the cold. In a business long dominated by mom-and-pop landlords, large-scale investors are shifting collections conversations from front stoops to call centers and courtrooms as they try to maximize profits.
“My hope was that these private equity firms would provide a new kind of rental housing for people who couldn’t -- or didn’t want to -- buy during the housing recovery,” said Elora Raymond, the report’s lead author. “Instead, it seems like they’re contributing to housing instability in Atlanta, and possibly other places.”
American Homes 4 Rent, one of the nation’s largest operators, and HavenBrook filed eviction notices at a quarter of its houses, compared with an average 15 percent for all single-family home landlords, according to Ben Miller, a Georgia State University professor and co-author of the report. HavenBrook -- owned by Allianz SE’s Newport Beach, California-based Pimco -- and American Homes 4 Rent, based in Agoura Hills, California, declined to comment.
Colony Starwood Homes initiated proceedings on a third of its properties, the most of any large real estate firm. Tom Barrack, chairman of U.S. President-elect Donald Trump’s inauguration committee, and the company he founded, Colony Capital, are the largest shareholders of Colony Starwood, which declined to comment.
Diane Tomb, executive director of the National Rental Home Council, which represents institutional landlords, said her members offer flexible payment plans to residents who fall behind. The cost of eviction makes it “the last option,” Tomb said. The Fed examined notices, rather than completed evictions, which are rarer, she said.
“We’re in the business to house families -- and no one wants to see people displaced,” Tomb said.
According to a report last year from the Harvard Joint Center for Housing Studies, a record 21.3 million renters spent more than a third of their income on housing costs in 2014, while 11.4 million spent more than half. With credit tightening, the homeownership rate has fallen close to a 51-year low.
In January 2012, then-Federal Reserve Chairman Ben Bernanke encouraged investors to use their cash to stabilize the housing market and rehabilitate the vacant single-family houses that damage neighborhoods and property values.
Now, the Atlanta Fed’s own research suggests that the eviction practices of big landlords may also be destabilizing. An eviction notice can ruin a family’s credit and make it more difficult to rent elsewhere or qualify for public assistance.
In Atlanta, evictions are much easier on landlords. They are cheap: about $85 in court fees and another $20 to have the tenant ejected, according to Michael Lucas, a co-author of the report and deputy director of the Atlanta Volunteer Lawyers Foundation. With few of the tenant protections of places like New York, a family can find itself homeless in less than a month.
In interviews and court filings, renters and housing advocates said that some investment firms are impersonal and unresponsive, slow to make necessary repairs and quick to evict tenants who withhold rent because of complaints about maintenance. The researchers said some landlords use an eviction notice as a “routine rent-collection strategy.”
Aaron Kuney, HavenBrook’s former executive director of acquisitions, said the companies would rather keep their existing tenants as long as possible to avoid turnover costs.
But “they want to get them out quickly if they can’t pay,” said Kuney, now chief executive officer of Piedmont Asset Management, a private equity landlord in Atlanta. “Finding people these days to rent your homes is not a problem.”
The Atlanta Fed research, based on 2015 court records, marks an early look at Wall Street’s role in evictions since investment firms snapped up hundreds of thousands of homes in hard-hit markets across the U.S.
Researchers found that evictions for all kinds of landlords are concentrated in poor, mostly black neighborhoods southwest of the city. But the study found that the big investors evicted at higher rates even after accounting for the demographics of the community where homes were situated.
Tomb, of the National Rental Home Council, said institutional investors at times buy large blocks of homes from other landlords and inherit tenants who can’t afford to pay rent. They also buy foreclosed homes whose occupants may refuse to sign leases or leave.
Those cases make the eviction rates appear higher than for smaller landlords, according to Tomb, whose group represents Colony Starwood, American Homes 4 Rent and Invitation Homes. The largest firms send notices at rates similar to apartment buildings, which house the majority of Atlanta renters.
Not all investment firms file evictions at higher rates. Invitation Homes, a unit of private equity giant Blackstone Group LP that is planning an initial public offering this year, sent notices on 14 percent of homes, about the same as smaller landlords, records show. In Fulton County, Invitation Homes works with residents to resolve 85 percent of cases, and less than 4 percent result in forced departures, according to spokeswoman Claire Parker.
The Fed research doesn’t say why many institutional investors evict at higher rates. It could be because their size enables them to negotiate less expensive legal rates and replace renters more quickly than mom-and-pop operators.
“Lots of small landlords, when they have good tenants who don’t cause trouble, they’ll work with someone who has lost a job or can’t pay for the short term,” said David Reiss, a Brooklyn Law School professor who specializes in residential real estate.
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After a two-year acquisition frenzy that ended in 2014, companies shifted their focus to reining in expenses related to maintaining and managing thousands of homes spread out across many states. In November, Colony Starwood told analysts it had reduced property-management costs by 25 percent in the third quarter from a year earlier. For example, about a quarter of the 26,000 service calls received at the company’s national service-dispatch center were resolved using troubleshooting or “robust self-help tools.”
Juliana Spence tangled with Colony over the cost of maintaining her house in DeKalb County, Georgia, where she also operated a small daycare center. A broken pipe under her dishwasher pushed her monthly water charge over $400, she said, and a faulty air-conditioner resulted in an $800 electric bill.
Juliana SpencePhotographer: Melissa Golden/Redux for Bloomberg
The company gave her an $1,800 credit, Spence said, but she still fell behind on her rent. Colony evicted her last year. It made “Band-Aid” repairs, leaving underlying problems to fester, she said. Colony declined to discuss individual customers.
“They do makeup work,” said Spence, 41, who has five kids. “They made the walls look nice. They put some new appliances in. But the gut of the house is the same.”
In Fulton County, Georgia, the focus of the Fed’s study, evictions are so common that tenants arrive every Tuesday and Thursday to plead their cases. Few have lawyers. They file into the courtroom, many holding their children’s hands as they wait to hear from a judge.
The unluckiest show up for late afternoon sessions. Legal-aid lawyers call it “the calendar of death.” These renters have run out of options. A judge tells them, en masse, they will have seven days to leave their homes.
The notorious AC unit of the Colony home previously occupied by Juliana Spence.Photographer: Melissa Golden/Redux for Bloomberg
On a December weekday afternoon, April Brooks tried to work out a deal with Colony Starwood, her landlord. Raising her three young children on her own, she lived in a boxy, brick house on top of a hill, near the Hartsfield-Jackson Atlanta International Airport. A toy train and school bus lay on her front stoop.
Brooks took off time from her warehouse job and, in a sweatshirt and dreadlocks, arrived at Fulton County’s Magistrate Court for her mediation session. She didn’t know why Colony wanted her to leave. A Section 8 housing voucher, sent directly to her landlord, paid her $1,000-a-month rent.
Court papers gave a cryptic reason for Brooks’ removal: “Landlord seeks possession. Tenant holdover.”
“This is super hard,” said Brooks, who couldn’t find another landlord willing to accept her housing voucher.
She feared the next stop for her and her three kids: the streets.
|Posted by Jerrald J President on February 14, 2017 at 7:15 PM||comments (0)|
Do you really think the collapse of 2008 wasn't an "Inside Job"? This was theft to the 10th power. By JJP
Wall Street is evicting Americans from their homes
The housing collapse during the Financial Crisis keeps on giving. On Friday, Invitation Homes, a creature of private-equity firm Blackstone, and largest landlord of single-family rental homes in the US, filed with the SEC to raise up to $1.5 billion in an IPO. Deutsche Bank, JP Morgan, BofA Merrill Lynch, Goldman Sachs, Wells Fargo, Credit Suisse, Morgan Stanley, and RBC Capital Markets are the joint bookrunners and get to cash in on the fees.
Invitation Homes, founded in 2012, now owns 48,431 single-family homes, according to the filing. It bought them out of foreclosure and turned them into rental properties, concentrated in 12 urban areas. Revenues for the nine months through September 30 rose 11.4% to $655 million, producing a net loss of $52 million. It lists $9.7 billion in single-family properties and $7.7 billion in debt.
Blackstone was a pioneer in the post-Financial Crisis buy-to-rent scheme, including issuing the first rent-backed structured securities in November 2013. The collateral for the $479-million deal was rental income from 3,207 homes. Blackstone paid rating agencies Moody’s, Kroll, and Morningstar to rate the bonds; so nearly 60% of the debt was rated AAA. Other tranches carried lower ratings. The overall cost of capital to Blackstone from the securitization of these rents was about 2.01%. Cheap money! Thank you hallelujah QE and ZIRP.
Rent-backed securities have since become a common funding mechanism.
Other players in the buy-to-rent scheme have already gone public. American Homes 4 Rent, which owns about 48,000 rental houses in 22 states, went public in August 2013. It has produced a net loss every year since, sports negative EPS of -25 cents and a negative PE ratio of -84.
Starwood Waypoint Residential Trust was spun off from Starwood Property Trust Inc. and started trading in February 2014. In 2016, it merged with Thomas Barrack’s Colony Capital and changed its name to Colony Starwood Homes. Colony is now the third-largest single-family landlord. It too has lost money every year since going public, has negative EPS of -47 cents and a negative PE ratio of -62. Colony founder Barrack is now chairman of Trump’s inauguration committee.
But there’s a drawback: 32% of Colony’s properties in Atlanta and adjacent suburbs have eviction filings, by far the highest rate among the Wall Street landlords, according to a study by the Atlanta Fed on the impact of Wall Street landlords on surging “housing instability.”
The report doesn’t name names, but Ben Miller, co-author of the report, filled in the blanks for Bloomberg. Next in line in eviction rates: American Homes 4 Rent, HavenBrook, owned by Pimco, and Invitations Homes. The percentage of properties with eviction filings in Atlanta by the largest Wall-Street landlords:
Screen Shot 2017 01 09 at 11.15.20 AM
The report indicated that eviction rates in some other cities are lower. But this being the Atlanta Fed, it focused on Atlanta, one of the hotbeds of the buy-to-rent scheme. And it focused on single-family rentals because Wall Street’s muscling into this space is new and perhaps a generational shift in the US housing market.
So how did this Wall Street landlord nirvana – and the ensuing “housing instability” – come about after the housing bust? The report blames the Fed, and Fed Chairman Ben Bernanke:
In unwinding their bank-owned properties, the GSEs [Fannie Mae, Freddy Mac, etc.], U.S. Treasury, and Federal Reserve innovated new structured transactions for disposing of hundreds of thousands of bank-owned homes, also known as real estate owned (REO). The Federal Reserve was the first to suggest that private equity firms were the one group with cash on hand to invest in foreclosed homes (Bernanke, 2012).
In 2012, the Federal Housing Finance Agency (FHFA), conservator of the GSEs, issued a pilot to develop structured transactions that could be used to sell its REO homes in bulk. The private market followed by developing and standardizing financial instruments to allow broader market investment in converting foreclosed homes into single-family rentals. Rental housing, traditionally the purview of mom-and-pop landlords, caught the attention of large financial firms.
Nationwide, an estimated 350,000 homes were purchased by institutional investors from 2011 to 2013, and these were spatially concentrated in cities like Atlanta with high numbers of bank-owned homes and the prospect of future home price appreciation. Today there is high concentration in the single-family rental business, with an estimated 170,000 single-family rental homes owned by the seven largest firms.
“My hope was that these private equity firms would provide a new kind of rental housing for people who couldn’t – or didn’t want to – buy during the housing recovery,” Elora Raymond, the report’s lead author, told Bloomberg. “Instead, it seems like they’re contributing to housing instability in Atlanta, and possibly other places.”
Evictions are cheap in Atlanta: about $85 in court fees and another $20 to have the tenant ejected, report co-author Michael Lucas told Bloomberg, which added: “With few of the tenant protections of places like New York, a family can find itself homeless in less than a month.”
The report points at the broader implications beyond poor neighborhoods: While “evictions are highly correlated with neighborhood characteristics such as education levels, change in the employment-population rate, and racial composition,” Wall Street landlords still filed for evictions at higher rates than smaller landlords after accounting for “property and neighborhood characteristics.” Why? The report:
One possible reason large corporate landlords backed by institutional investors may have higher eviction filing notices is that they may routinely use eviction notices as a rent collection strategy.
In interviews and court filings, renters and housing advocates said that some investment firms are impersonal and unresponsive, slow to make necessary repairs and quick to evict tenants who withhold rent because of complaints about maintenance.
“They want to get them out quickly if they can’t pay,” explained Aaron Kuney, a former executive of HavenBrook and now CEO of PE landlord Piedmont Asset Management in Atlanta. “Finding people these days to rent your homes is not a problem.”
Then there’s the expense of housing, which has soared, thanks to the Fed’s efforts to “heal” the housing market. According to the report, 53.4% of renters were “cost burdened in Atlanta” in 2014. More generally, homeownership has declined to a 51-year low, and “demand for rentals has caused urban rents to increase sharply”:
During the 2010 to 2014 period, low-cost rentals in Atlanta declined by more than 15%. Gentrification, or the influx of wealthier residents accompanied by rising property prices and the displacement of existing, lower-income residents, can be a factor in evictions.
The effect of evictions is “housing instability or insecurity”:
Families with insecure or unstable housing may move frequently, suffer eviction, or otherwise be at increased risk of homelessness.
Evictions can result in personal loss of property, trigger job loss, and lead to underperforming schools and poor student outcomes. Even an eviction filing that is resolved can mar a tenant’s credit record and bar that person from renting elsewhere or accessing public assistance.
At the neighborhood level, high eviction rates are associated with poor housing conditions, high rates of school turnover, and neighborhood and community instability.
But it’s not just Atlanta, according to the Atlanta Fed: “There is increasing documentation of an ensuing high rate of evictions in U.S. cities, partly due to tenants’ inability to afford higher rents.”
So is the Fed having second thoughts about its efforts to encourage Wall Street to muscle into the single-family home market in big urban areas, drive up housing costs around the country, and turn rents in to a finanzialized product? I doubt it. Bernanke, the engineer of all this, has moved on; and the Fed, credited with “healing” the housing market, never has second thoughts about its actions.
|Posted by Jerrald J President on February 14, 2017 at 5:50 PM||comments (0)|
In President Obama’s last year in office, the United States dropped 26,172 bombs in seven countries. Don't forget Nobel Peace Prize Winner.. How many people do you think "DIED" from these "Humanitarion BOMBS"! By JJP
How Many Bombs Did the United States Drop in 2016?
As President Obama enters the final weeks of his presidency, there will be ample assessments of his foreign military approach, which has focused on reducing U.S. ground combat troops (with the notable exception of the Afghanistan surge), supporting local security partners, and authorizing the expansive use of air power. Whether this strategy “works”—i.e. reduces the threat posed by extremists operating from those countries and improves overall security and governance on the ground—is highly contested. Yet, for better or worse, these are the central tenets of the Obama doctrine.
In President Obama’s last year in office, the United States dropped 26,172 bombs in seven countries. This estimate is undoubtedly low, considering reliable data is only available for airstrikes in Pakistan, Yemen, Somalia, and Libya, and a single “strike,” according to the Pentagon’s definition, can involve multiple bombs or munitions. In 2016, the United States dropped 3,028 more bombs—and in one more country, Libya—than in 2015.
Most (24,287) were dropped in Iraq and Syria. This number is based on the percentage of total coalition airstrikes carried out in 2016 by the United States in Operation Inherent Resolve (OIR), the counter-Islamic State campaign. The Pentagon publishes a running count of bombs dropped by the United States and its partners, and we found data for 2016 using OIR public strike releases and this handy tool.* Using this data, we found that in 2016, the United States conducted about 79 percent (5,904) of the coalition airstrikes in Iraq and Syria, which together total 7,473. Of the total 30,743 bombs that the coalition dropped, then, the United States dropped 24,287 (79 percent of 30,743).
To determine how many U.S. bombs were dropped on each Iraq and Syria, we looked at the percentage of total U.S. OIR airstrikes conducted in each country. They were nearly evenly split, with 49.8 percent (or 2,941 airstrikes) carried out in Iraq, and 50.2 percent (or 2,963 airstrikes) in Syria. Therefore, the number of bombs dropped were also nearly the same in the two countries (12,095 in Iraq; 12,192 in Syria). Last year, the United States conducted approximately 67 percent of airstrikes in Iraq in 2016, and 96 percent of those in Syria.
Sources: Estimate based upon Combined Forces Air Component Commander 2011-2016 Airpower Statistics; CJTF-Operation Inherent Resolve Public Affairs Office strike release, December 31, 2016; New America (NA); Long War Journal (LWJ); The Bureau of Investigative Journalism (TBIJ); Department of Defense press release; and U.S. Africa Command press release.
|Posted by Jerrald J President on January 30, 2017 at 9:35 PM||comments (0)|
13th Amendment to the U.S. Constitution
The 13th Amendment to the Constitution declared that "Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction." Self Explanatory By JJP
Massachusetts sheriff offers prison inmates to build Trump's wall
A Massachusetts county sheriff has proposed sending prison inmates from around the United States to build the proposed wall along the Mexican border that is one of U.S. President-elect Donald Trump's most prominent campaign promises.
"I can think of no other project that would have such a positive impact on our inmates and our country than building this wall," Bristol County Sheriff Thomas Hodgson said at his swearing-in ceremony for a fourth term in office late Wednesday.
"Aside from learning and perfecting construction skills, the symbolism of these inmates building a wall to prevent crime in communities around the country, and to preserve jobs and work opportunities for them and other Americans upon release, can be very powerful," he said.
Hodgson, who like Trump is a Republican, said inmates from around the country could build the proposed wall, described by Trump as a powerful deterrent to illegal immigration.
Trump, who will be sworn in on Jan. 20, insisted during his campaign that he would convince the Mexican government to pay for the wall, though Mexican officials have repeatedly said they would not do so.
The United States has a long history of prison labor, with advocates of the idea saying that putting inmates to work can help them learn skills that prepare them for their return to society after completing their sentences. Opponents contend that inmates are not fairly compensated.
The federal prisons system operates some 53 factories around the United States that produced about $500 million worth of clothing, electronics, furniture and other goods in the fiscal year ended Sept. 30, according to its financial statements.
Still, an attorney for the American Civil Liberties Union in Massachusetts said Hodgson's proposal could violate prisoners' rights.
"The proposal is perverse, it's inhumane and very likely unconstitutional," ACLU staff counsel Laura Rotolo said in a phone interview. "It certainly has nothing to do with helping prisoners in Massachusetts or their families. It's about politics."
In response to a request by the Trump transition office, the Department of Homeland Security last month identified more than 400 miles (644 km) along the U.S.-Mexico border where new fencing could be erected, according to a document seen by Reuters.
The document contained an estimate that building that section of fence would cost more than $11 billion.
|Posted by Jerrald J President on January 30, 2017 at 9:25 PM||comments (0)|
Yet some in America think the guy elected President will change course and do something different are crazy. The hats his supportes wore were made in Bangladesh, Vietnam and China. make America great again LOL. By JJP
Chinese billionaire Jack Ma says the US wasted trillions on warfare instead of investing in infrastructure
Jack Ma, Chairman of Alibaba Group at the World Economic Forum in Davos, Switzerland. Alibaba's Jack Ma: Today technology can empower small businesses
Wednesday, 18 Jan 2017 | 12:30 PM ET | 02:31
Alibaba founder Jack Ma fired a shot at the United States in an interview at the World Economic Forum in Davos, Switzerland.
Ma was asked by CNBC's Andrew Ross Sorkin about the U.S. economy in relation to China, since President-elect Donald Trump has been talking about imposing new tariffs on Chinese imports.
Ma says blaming China for any economic issues in the U.S. is misguided. If America is looking to blame anyone, Ma said, it should blame itself.
"It's not that other countries steal jobs from you guys," Ma said. "It's your strategy. Distribute the money and things in a proper way."
He said the U.S. has wasted over $14 trillion in fighting wars over the past 30 years rather than investing in infrastructure at home.
To be sure, Ma is not the only critic of the costly U.S. policies of waging war against terrorism and other enemies outside the homeland. Still, Ma said this was the reason America's economic growth had weakened, not China's supposed theft of jobs.
In fact, Ma called outsourcing a "wonderful" and "perfect" strategy.
"The American multinational companies made millions and millions of dollars from globalization," Ma said. "The past 30 years, IBM, Cisco, Microsoft, they've made tens of millions — the profits they've made are much more than the four Chinese banks put together. ... But where did the money go?"
He said the U.S. is not distributing, or investing, its money properly, and that's why many people in the country feel wracked with economic anxiety. He said too much money flows to Wall Street and Silicon Valley. Instead, the country should be helping the Midwest, and Americans "not good in schooling," too.
"You're supposed to spend money on your own people," Ma said. "Not everybody can pass Harvard, like me." In a previous interview, Ma said he had been rejected by Harvard 10 times.
Along those lines, Ma stressed that globalization is a good thing, but it, too, "should be inclusive," with the spoils not just going to the wealthy few.
"The world needs new leadership, but the new leadership is about working together," Ma said. "As a business person, I want the world to share the prosperity together."
|Posted by Jerrald J President on January 30, 2017 at 9:20 PM||comments (0)|
He followed the same script that every President has read from. The hidden hand AKA the global privately owned banking system that resides in Spain(Vatican Bank) London(Bank of London, Basil Switzerland(Bank of International Settlements) and New Yotk(Federal Reserve Bank). By JJP
Democrats can’t win until they recognize how bad Obama’s financial policies were
He had opportunities to help the working class, and he passed them up.
During his final news conference of 2016, in mid-December, President Obama criticized Democratic efforts during the election. “Where Democrats are characterized as coastal, liberal, latte-sipping, you know, politically correct, out-of-touch folks,” Obama said, “we have to be in those communities.” In fact, he went on, being in those communities — “going to fish-fries and sitting in VFW halls and talking to farmers” — is how, by his account, he became president. It’s true that Obama is skilled at projecting a populist image; he beat Hillary Clinton in Iowa in 2008, for instance, partly by attacking agriculture monopolies .
But Obama can’t place the blame for Clinton’s poor performance purely on her campaign. On the contrary, the past eight years of policymaking have damaged Democrats at all levels. Recovering Democratic strength will require the party’s leaders to come to terms with what it has become — and the role Obama played in bringing it to this point.
Two key elements characterized the kind of domestic political economy the administration pursued: The first was the foreclosure crisis and the subsequent bank bailouts. The resulting policy framework of Tim Geithner’s Treasury Department was, in effect, a wholesale attack on the American home (the main store of middle-class wealth) in favor of concentrated financial power. The second was the administration’s pro-monopoly policies, which crushed the rural areas that in 2016 lost voter turnout and swung to Donald Trump.
Obama didn’t cause the financial panic, and he is only partially responsible for the bailouts, as most of them were passed before he was elected. But financial collapses, while bad for the country, are opportunities for elected leaders to reorganize our culture. Franklin Roosevelt took a frozen banking system and created the New Deal. Ronald Reagan used the sharp recession of the early 1980s to seriously damage unions. In January 2009, Obama had overwhelming Democratic majorities in Congress, $350 billion of no-strings-attached bailout money and enormous legal latitude. What did he do to reshape a country on its back?
Warren grills Yellen on Dodd-Frank Play Video1:05
During a banking committee hearing, Sen. Elizabeth Warren (D-Mass.) questioned Federal Reserve Chair Janet Yellen about the central bank’s actions regarding provisions of the Dodd-Frank reform law. (C-SPAN)
First, he saved the financial system. A financial system in collapse has to allocate losses. In this case, big banks and homeowners both experienced losses, and it was up to the Obama administration to decide who should bear those burdens. Typically, such losses would be shared between debtors and creditors, through a deal like the Home Owners Loan Corporation in the 1930s or bankruptcy reform. But the Obama administration took a different approach. Rather than forcing some burden-sharing between banks and homeowners through bankruptcy reform or debt relief, Obama prioritized creditor rights, placing most of the burden on borrowers. This kept big banks functional and ensured that financiers would maintain their positions in the recovery. At a 2010 hearing, Damon Silvers, vice chairman of the independent Congressional Oversight Panel, which was created to monitor the bailouts, told Obama’s Treasury Department: “We can either have a rational resolution to the foreclosure crisis, or we can preserve the capital structure of the banks. We can’t do both.”
Second, Obama’s administration let big-bank executives off the hook for their roles in the crisis. Sen. Carl Levin (D-Mich.) referred criminal cases to the Justice Department and was ignored. Whistleblowers from the government and from large banks noted a lack of appetite among prosecutors. In 2012, then-Attorney General Eric Holder ordered prosecutors not to go after mega-bank HSBC for money laundering. Using prosecutorial discretion to not take bank executives to task, while legal, was neither moral nor politically wise; in a 2013 poll, more than half of Americans still said they wanted the bankers behind the crisis punished. But the Obama administration failed to act, and this pattern seems to be continuing. No one, for instance, from Wells Fargo has been indicted for mass fraud in opening fake accounts.
Third, Obama enabled and encouraged roughly 9 million foreclosures. This was Geithner’s explicit policy at Treasury. The Obama administration put together a foreclosure program that it marketed as a way to help homeowners, but when Elizabeth Warren, then chairman of the Congressional Oversight Panel, grilled Geithner on why the program wasn’t stopping foreclosures, he said that really wasn’t the point. The program, in his view, was working. “We estimate that they can handle 10 million foreclosures, over time,” Geithner said — referring to the banks. “This program will help foam the runway for them.” For Geithner, the most productive economic policy was to get banks back to business as usual.
Reckoning with Obama’s legacy won’t be easy for Democrats. But it has to be done. (Michael Reynolds/European Pressphoto Agency)
Nor did Obama do much about monopolies. While his administration engaged in a few mild challenges toward the end of his term, 2015 saw a record wave of mergers and acquisitions, and 2016 was another busy year. In nearly every sector of the economy, from pharmaceuticals to telecom to Internet platforms to airlines, power has concentrated. And this administration, like George W. Bush’s before it, did not prosecute a single significant monopoly under Section 2 of the Sherman Act. Instead, in the past few years, the Federal Trade Commission has gone after such villains as music teachers and ice skating instructors for ostensible anti-competitive behavior. This is very much a parallel of the financial crisis, as elites operate without legal constraints while the rest of us toil under an excess of bureaucracy.
With these policies in place, it’s no surprise that Thomas Piketty and others have detected skyrocketing inequality, that most jobs created in the past eight years have been temporary or part time, or that lifespans in white America are dropping . When Democratic leaders don’t protect the people, the people get poorer, they get angry, and more of them die.
Yes, Obama prevented an even greater collapse in 2009. But he also failed to prosecute the banking executives responsible for the housing crisis, then approved a foreclosure wave under the guise of helping homeowners. Though 58 percent of Americans were in favor of government action to halt foreclosures, Obama’s administration balked. And voters noticed. Fewer than four in 10 Americans were happy with his economic policies this time last year (though that was an all-time high for Obama). And by Election Day, 75 percent of voters were looking for someone who could take the country back “from the rich and powerful,” something unlikely to be done by members of the party that let the financiers behind the 2008 financial crisis walk free.
This isn’t to say voters are, on balance, any more thrilled with what Republicans have to offer, nor should they be. But that doesn’t guarantee Democrats easy wins. Throughout American history, when voters have felt abandoned by both parties, turnout has collapsed — and 2016, scraping along 20-year turnout lows, was no exception. Turnout in the Rust Belt , where Clinton’s path to victory dissolved, was especially low in comparison to 2012.
Trump, who is either tremendously lucky or worryingly perceptive, ran his campaign like a pre-1930s Republican. He did best in rural areas, uniting white farmers, white industrial workers and certain parts of big business behind tariffs and anti-immigration walls. While it’s impossible to know what he will really do for these voters, the coalition he summoned has a long, if not recent, history in America.
Democrats have long believed that theirs is the party of the people. Therefore, when Trump co-opts populist language, such as saying he represents the “forgotten” man, it seems absurd — and it is. After all, that’s what Democrats do, right? Thus, many Democrats have assumed that Trump’s appeal can only be explained by personal bigotry — and it’s also true that Trump trafficks in racist and nativist rhetoric. But the reality is that the Democratic Party has been slipping away from the working class for some time, and Obama’s presidency hastened rather than reversed that departure. Republicans, hardly worker-friendly themselves, simply capitalized on it.
There’s history here: In the 1970s, a wave of young liberals, Bill Clinton among them, destroyed the populist Democratic Party they had inherited from the New Dealers of the 1930s. The contours of this ideological fight were complex, but the gist was: Before the ’70s, Democrats were suspicious of big business. They used anti-monopoly policies to fight oligarchy and financial manipulation. Creating competition in open markets, breaking up concentrations of private power, and protecting labor and farmer rights were understood as the essence of ensuring that our commercial society was democratic and protected from big money.
Bill Clinton’s generation, however, believed that concentration of financial power could be virtuous, as long as that power was in the hands of experts. They largely dismissed the white working class as a bastion of reactionary racism. Fred Dutton, who served on the McGovern-Fraser Commission in 1970 , saw the white working class as “a major redoubt of traditional Americanism and of the antinegro, antiyouth vote.” This paved the way for the creation of the modern Democratic coalition. Obama is simply the latest in a long line of party leaders who have bought into the ideology of these “new” Democrats, and he has governed likewise, with commercial policies that ravaged the heartland.
As a result, while our culture has become more tolerant over the past 40 years, power in our society has once again been concentrated in the hands of a small group of billionaires. You can see this everywhere, if you look. Warren Buffett, who campaigned with Hillary Clinton, recently purchased chunks of the remaining consolidated airlines, which have the power not only to charge you to use the overhead bin but also to kill cities simply by choosing to fly elsewhere. Internet monopolies increasingly control the flow of news and media revenue. Meatpackers have re-created a brutal sharecropper-type system of commercial exploitation. And health insurers, drugstores and hospitals continue to consolidate, partially as a response to Obamacare and its lack of a public option for health coverage.
Many Democrats ascribe problems with Obama’s policies to Republican opposition. The president himself does not. “Our policies are so awesome,” he once told staffers. “Why can’t you guys do a better job selling them?” The problem, in other words, is ideological.
Many Democrats think that Trump supporters voted against their own economic interests. But voters don’t want concentrated financial power that deigns to redistribute some cash, along with weak consumer protection laws. They want jobs. They want to be free to govern themselves. Trump is not exactly pitching self-government. But he is offering a wall of sorts to protect voters against neo-liberals who consolidate financial power, ship jobs abroad and replace paychecks with food stamps. Democrats should have something better to offer working people. If they did, they could have won in November. In the wreckage of this last administration, they didn’t.
|Posted by Jerrald J President on January 18, 2017 at 8:00 PM||comments (0)|
Happy New Year America. By JJP
World's eight richest people have same wealth as poorest 50%
A new report by Oxfam warns of the growing and dangerous concentration of wealth
Indian migrant daily wage workers bath at a public well
Indian migrant daily wage workers bath at a public well in New Delhi. New information shows that poverty in China and India is worse than previously thought. Photograph:
The world’s eight richest billionaires control the same wealth between them as the poorest half of the globe’s population, according to a charity warning of an ever-increasing and dangerous concentration of wealth.
In a report published to coincide with the start of the week-long World Economic Forum in Davos, Switzerland, Oxfam said it was “beyond grotesque” that a handful of rich men headed by the Microsoft founder Bill Gates are worth $426bn (£350bn), equivalent to the wealth of 3.6 billion people.
The development charity called for a new economic model to reverse an inequality trend that it said helped to explain Brexit and Donald Trump’s victory in the US presidential election.
Oxfam blamed rising inequality on aggressive wage restraint, tax dodging and the squeezing of producers by companies, adding that businesses were too focused on delivering ever-higher returns to wealthy owners and top executives.
The World Economic Forum (WEF) said last week that rising inequality and social polarisation posed two of the biggest risks to the global economy in 2017 and could result in the rolling back of globalisation.
Oxfam said the world’s poorest 50% owned the same in assets as the $426bn owned by a group headed by Gates, Amancio Ortega, the founder of the Spanish fashion chain Zara, and Warren Buffett, the renowned investor and chief executive of Berkshire Hathaway.
The others are Carlos Slim Helú: the Mexican telecoms tycoon and owner of conglomerate Grupo Carso; Jeff Bezos: the founder of Amazon; Mark Zuckerberg: the founder of Facebook; Larry Ellison, chief executive of US tech firm Oracle; and Michael Bloomberg; a former mayor of New York and founder and owner of the Bloomberg news and financial information service.
Last year, Oxfam said the world’s 62 richest billionaires were as wealthy as half the world’s population. However, the number has dropped to eight in 2017 because new information shows that poverty in China and India is worse than previously thought, making the bottom 50% even worse off and widening the gap between rich and poor.
With members of the forum due to arrive on Monday in Switzerland, where guests will range from the Chinese president Xi Jinping, to pop star Shakira, the WEF released its own inclusive growth and development report in which it said median income had fallen by an average of 2.4% between 2008 and 2013 across 26 advanced nations.
Norway, Luxembourg, Switzerland, Iceland and Denmark filled the top five places in the WEF’s inclusive development index, with Britain 21st and the US 23rd. The body that organises the Davos event said rising inequality was not an “iron law of capitalism”, but a matter of making the right policy choices.
The WEF report found that 51% of the 103 countries for which data was available saw their inclusive development index scores decline over the past five years, “attesting to the legitimacy of public concern and the challenge facing policymakers regarding the difficulty of translating economic growth into broad social progress”.
Basing its research on the Forbes rich list and data provided by investment bank Credit Suisse, Oxfam said
the vast majority of people in the bottom half of the world’s population were facing a daily struggle to survive, with 70% of them living in low-income countries.
It was four years since the WEF had first identified inequality as a threat to social stability, but that the gap between rich and poor has continued to widen, Oxfam added.
“From Brexit to the success of Donald Trump’s presidential campaign, a worrying rise in racism and the widespread disillusionment with mainstream politics, there are increasing signs that more and more people in rich countries are no longer willing to tolerate the status quo,” the report said.
The charity said new information had shown that poor people in China and India owned even fewer assets than previously thought, making the wealth gap more pronounced than it thought a year ago, when it announced that 62 billionaires owned the same wealth as the poorest half of the global population.
Mark Goldring, chief executive of Oxfam GB, said: “This year’s snapshot of inequality is clearer, more accurate and more shocking than ever before. It is beyond grotesque that a group of men who could easily fit in a single golf buggy own more than the poorest half of humanity.
Eight men own more than 3.6 billion people do: our economics is broken
“While one in nine people on the planet will go to bed hungry tonight, a small handful of billionaires have so much wealth they would need several lifetimes to spend it. The fact that a super-rich elite are able to prosper at the expense of the rest of us at home and overseas shows how warped our economy has become.”
Mark Littlewood, director general at the Institute of Economic Affairs thinktank, said: “Once again Oxfam have come out with a report that demonises capitalism, conveniently skimming over the fact that free markets have helped over 100 million people rise out of poverty in the last year alone.”
The Oxfam report added that since 2015 the richest 1% has owned more wealth than the rest of the planet. It said that over the next 20 years, 500 people will hand over $2.1tn to their heirs – a sum larger than the annual GDP of India, a country with 1.3 billion people. Between 1988 and 2011 the incomes of the poorest 10% increased by just $65, while the incomes of the richest 1% grew by $11,800 – 182 times as much.
Oxfam called for fundamental change to ensure that economies worked for everyone, not just “a privileged few”.
|Posted by Jerrald J President on January 18, 2017 at 7:55 PM||comments (0)|
2014 the number was 85. 2016 62 is the magic number. By JJP
Richest 62 people as wealthy as half of world's population, says Oxfam
Charity says only higher wages, crackdown on tax dodging and higher investment in public services can stop divide widening
The vast and growing gap between rich and poor has been laid bare in a new Oxfam report showing that the 62 richest billionaires own as much wealth as the poorer half of the world’s population.
Timed to coincide with this week’s gathering of many of the super-rich at the annual World Economic Forum in Davos, the report calls for urgent action to deal with a trend showing that 1% of people own more wealth than the other 99% combined.
Oxfam said that the wealth of the poorest 50% dropped by 41% between 2010 and 2015, despite an increase in the global population of 400m. In the same period, the wealth of the richest 62 people increased by $500bn (£350bn) to $1.76tn.
Number of female billionaires increases sevenfold in 20 years
The charity said that, in 2010, the 388 richest people owned the same wealth as the poorest 50%. This dropped to 80 in 2014 before falling again in 2015.
Mark Goldring, the Oxfam GB chief executive, said: “It is simply unacceptable that the poorest half of the world population owns no more than a small group of the global super-rich – so few, you could fit them all on a single coach.
“World leaders’ concern about the escalating inequality crisis has so far not translated into concrete action to ensure that those at the bottom get their fair share of economic growth. In a world where one in nine people go to bed hungry every night, we cannot afford to carry on giving the richest an ever bigger slice of the cake.”
Leading figures from Pope Francis to Christine Lagarde, the managing director of the International Monetary Fund, have called for action to reverse the trend in inequality, but Oxfam said words had not been translated into action. Its prediction that the richest 1% would own the same wealth as the poorest 50% by 2016 had come true a year earlier than expected.
The World Economic Forum in Davos comes amid fears that the turmoil in financial markets since the turn of the year may herald the start of a new phase to the global crisis that began eight years ago – this time originating in the less-developed emerging countries.
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Oxfam said a three-pronged approach was needed: a crackdown on tax dodging; higher investment in public services; and higher wages for the low paid. It said a priority should be to close down tax havens, increasingly used by rich individuals and companies to avoid paying tax and which had deprived governments of the resources needed to tackle poverty and inequality.
Three years ago, David Cameron told the WEF that the UK would spearhead a global effort to end aggressive tax avoidance in the UK and in poor countries, but Oxfam said promised measures to increase transparency in British Overseas Territories and Crown Dependencies, such as the Cayman Islands and British Virgin Islands, had not been implemented.
Goldring said: “We need to end the era of tax havens which has allowed rich individuals and multinational companies to avoid their responsibilities to society by hiding ever increasing amounts of money offshore.
“Tackling the veil of secrecy surrounding the UK’s network of tax havens would be a big step towards ending extreme inequality. Three years after he made his promise to make tax dodgers ‘wake up and smell the coffee’, it is time for David Cameron to deliver.”
Oxfam cited estimates that rich individuals have placed a total of $7.6tn in offshore accounts, adding that if tax were paid on the income that this wealth generates, an extra $190bn would be available to governments every year.
The charity said as much as 30% of all African financial wealth was thought to be held offshore. The estimated loss of $14bn in tax revenues would be enough to pay for healthcare for mothers and children that could save 4 million children’s lives a year and employ enough teachers to get every African child into school.
To see true inequality just look to the north
Letters: There are incredible numbers of rough sleepers around Manchester city centre. Surely it is time to take stock of the type of society we are creating in this country
Oxfam said it intended to challenge the executives of multi-national corporations in Davos on their tax policies. It said nine out of 10 WEF corporate partners had a presence in at least one tax haven and it was estimated that tax dodging by multinational corporations costs developing countries at least $100bn every year. Corporate investment in tax havens almost quadrupled between 2000 and 2014.
The Equality Trust, which campaigns against inequality in the UK, said Britain’s 100 richest families had increased their wealth by at least £57bn since 2010, a period in which average incomes declined.
Duncan Exley, the trust’s director, said: “Inequality, both globally but also in the UK, is now at staggering levels. We know that such a vast gap between the richest and the rest of us is bad for our economy and society. We now need our politicians to wake up and address this dangerous concentration of wealth and power in the hands of so few.”
|Posted by Jerrald J President on January 18, 2017 at 7:45 PM||comments (0)|
Don't you just love (CAPITALISM)??? By JJP
85 richest now have as much money as poorest 3.5B
"There's been class warfare going on for the last 20 years, and my class has won."
Billionaire investor Warren Buffett made that remark more than three years ago and it still holds true today — only the gap between the richest and the poorest has gotten even wider.
Here's how bad it is: Oxfam now calculates that the 85 richest billionaires on the planet, including the likes of Carlos Slim, Bill Gates and Mark Zuckerberg, have as much money as the 3.5 billion poorest people.
And for all the talk about the urgent need to address income inequality, the mega-rich just keep on getting richer.
How much richer?
Oxfam estimates that between March 2013 and March 2014, those same 85 billionaires saw their wealth grow by $668 million every day.
These people are so grotesquely rich that if Bill Gates, for example, spent $1 million every day, it would take him 218 years to exhaust his funds.
That, of course, would never happen because Gates would be earning millions of dollars a day in interest on the rest of his wealth.
When you have more money than you could possibly spend in several lifetimes, you can afford to do some pretty crazy things.
Like spend $95,000 on a 4 lb white truffle that looks like a turd because when your name is Vladimir Potanin, the Russian mining tycoon, and you have a net worth of $13.9 billion, $95,000 is pocket change.
Much ink has been spilled about the widening gap between the richest and the poorest, and about what it means for the global economic outlook, and yet, extreme inequality persists.
And while some argue that more should be done to help people at the bottom, rather than attack those at the top, former US Department of Health and Human Services assistant secretary Peter Edelman said it was time for the rich to pay up.
"I used to believe," Edelman said in his book "So Rich, So Poor," "that the debate over wealth distribution should be conducted separately from the poverty debate, in order to minimize the attacks on antipoverty advocates for engaging in 'class warfare.' But now we literally cannot afford to separate the two issues."
The "economic and political power of those at the top," Edelman said, is "making it virtually impossible to find the resources to do more at the bottom.
"The only way we will improve the lot of the poor, stabilize the middle class, and protect our democracy is by requiring the rich to pay more of the cost of governing the country that enables their huge accretion of wealth."
Don't hold your breath.
|Posted by Jerrald J President on December 29, 2016 at 9:15 AM||comments (0)|
The Swaps Crisis
Interest rate swap deals have allowed the big banks to hold
local governments and agencies hostage for tens of millions of dollars.
BY DARWIN BONDGRAHAM
In 2002 a little-known but powerful state agency in California and Wall Street titans Morgan Stanley, Citigroup, and Ambac consummated one of the biggest deals to date involving a type of financial derivative called an “interest rate swap.” A year later the executive director of the Bay Area’s Metropolitan Transportation Commission, Steve Heminger, proudly described these historic deals to a visiting contingent of Atlanta policymakers as a model to be emulated. Swaps were opening up a brave new world in public finance by extending the MTC’s purchasing power by $200 million, making a previously impossible bridge construction schedule achievable in a shorter timeframe. The deal would also protect the MTC from future volatile swings in variable interest rates. To top it off, the banks would make a neat little profit too. Everybody was winning.
Then in 2008 it all came crashing down. The financial system’s near collapse, the federal government’s unprecedented bailouts, and global economic stagnation mean that the derivative products once touted as prudent hedges against uncertainty have instead become toxic assets, draining billions from the public sector.
The MTC was forced to pay $104 million to cancel its interest rate swap with Ambac when the company went bankrupt in 2010. Whereas once the Commission’s swaps portfolio was saving it money, now it must pay millions yearly to a wolf pack of banks including Wells Fargo, JPMorgan Chase, Morgan Stanley, Citibank, Goldman Sachs, and the Bank of New York. The MTC’s own analysts now estimate that the Commission’s swaps have a net negative value of $235 million. This money all ultimately comes from tolls paid by drivers crossing the San Francisco Bay Area’s bridges, toll money that not too long ago was supposed to purchase bridge upgrades. Now it’s just a free lunch for the banks.
The MTC is only one example. Local governments and agencies across the United States have been caught in a perfect storm that has turned their “brilliant” hedging instruments into golden handcuffs. The result is something of a second bailout for the Wall Street banks on the other sides of these deals.
Perhaps worst of all has been the double standard set by the federal government. In 2008 when the world’s biggest banks stumbled toward insolvency, the U.S. Treasury stepped in to inject capital through the Troubled Asset Relief Program (TARP). TARP allowed the banks to offload or restructure their most toxic holdings, including many derivatives like interest rate swaps.
Four years later no such relief has been mobilized for cities, counties, and public agencies suffering from the toxic interest rate swaps they have been forced to hold. In its size and severity, the rate swap crisis rivals other discrete financial injustices related to the global economic meltdown of 2008. Unlike these other crises that have received enormous attention from the media and reform-minded officials, the foreclosure crisis for example, the rate swap crisis has remained hidden from public scrutiny, left to fester.
Some signs of resistance are appearing, however. Slowly, but surely, nascent coalitions of civic activists are exposing these swap deals and demanding that banks refund the cities. In doing so they are challenging more than just unfair financial deals. By contesting injustices caused by financial derivatives embedded in the budgets of local governments, activists are in fact criticizing a core instrument of globalizing capital.
Swaps: Scams, or the New Capitalism?
Contrary to popular opinion, financial derivatives are not simply esoteric instruments designed for gambling in the new so-called “casino capitalism.” Nor are they simply manipulative scams used by cynical traders to skim cream from the “real economy.” This isn’t to say that derivatives contracts and trading are “good,” or “fair,” but simply that they are not just tricks used by Wall Street to “game the system.” Certainly fraud and predation takes place, made possible by the asymmetrical information advantages of elite banks, and also by lax regulations and an opaque market dominated by a handful of firms. Even so, the bulk of derivatives contracts and trading represents a legal activity that is integral to the operation of the contemporary capitalist economy.
Derivatives are the new real global economy in all its frightening scope and purpose. As Dick Bryan and Michael Rafferty explain in their important study Capitalism with Derivatives: A Political Economy of Financial Derivatives, Capital, and Class, the most central function of derivatives is “the commensuration of values across time and space.” The most important value Bryan and Rafferty are referring to is the value of money itself.
After the abandonment of the Gold Standard in 1971, there was no anchor for the values of different currencies. There was no easy way, therefore, to price money (across currencies and over time) except in relational terms, and doing so was full of risk. By extension there was no neat way to price all other commodities with any certainty, because currency exchange rates and interest rates were constantly in flux. Initially this was only a problem for a few nations, and only for a handful of American, European, and Japanese corporations that operated on a truly global level and therefore had to worry about how revenues or debts generated or owed in one market would translate into another. Then came stagflation, the oil price shocks of the early 1970s, and other periods of instability.
The IBM-World Bank Interest Rate and Currency Swap of 1981
One of the first swap deals was the famous IBM-World Bank currency and interest rate swap of 1981. The World Bank wanted to borrow funds in German deutsche marks and Swiss francs to finance its operations, but had borrowed its limit in these two countries and was blocked by authorities. At the same time, IBM had already borrowed large sums of Swiss and German currencies, and also sought to borrow dollars in the United States, but was hesitating because lending rates were very high for companies there. The solution, invented by bankers at Solomon Brothers, was to have the World Bank and IBM swap their debts. IBM deposited its borrowed deutsche marks and francs with the World Bank, and the World Bank borrowed U.S. dollars and then deposited them with IBM. This example shows what swaps and other derivatives could accomplish for global corporations: the deal circumvented national capital controls and shielded IBM from changes in the value of the franc and deutsche mark, while allowing the World Bank to borrow Swiss and German currency, as it sought. This specific derivative contract transcended national regulatory barriers, creating a cohesive global market mechanism where before nothing had existed. It was the globalization of capital in one dramatic, if mind-numbingly complex, swoop. Similar “over the counter” (OTC) derivative deals between parties have proliferated since, boosting trillions in capital to a truly transnational level.
By the 1980s, capital was demanding a solution. The project of globalization hinged upon transcending these barriers. Derivatives, especially interest rate and currency swaps, were the answer. Swaps create a mechanism by which global corporations can protect themselves from, or take advantage of, the flux that threatens to undermine the value of their capital�changes in interest rates and currency prices. They allow firms and even governments to choose which currencies and interest rates they expose themselves to, and under what terms. On the level of individual firms, it’s this hedging function that is most responsible for the enormous growth in swaps transactions, as companies attempt to fix and reduce the value of their debts, while protecting and even increasing the value of their income streams from devaluations caused by inflation, changes in exchange rates, or changes in benchmark and central bank interest rates.
Interest rate swaps are today the single largest type of derivative in existence, making up more than 80% of the value of all derivative contracts signed by U.S. commercial banks. Measured by their notional amounts (the “notional” of a swap is a fictive sum of money corresponding to an actual principle on real debt), U.S. banks have an outstanding $202 trillion in interest rate derivative contracts. In other words, U.S. banks are using swaps to transform interest rate payments on $202 trillion in debt, owed by corporations, governments, and other banks, so that these entities can switch from variable rates to fixed, or vice versa, and so that they can peg their debt payments to any number of global rates.
On a global level the total notional amount of interest rate swaps was most recently estimated at $441 trillion by the International Swaps and Derivatives Association. These trillions of dollars represent the debts of virtually all major corporations and governments. More than any other development in the last thirty years, this new derivatives regime creates the globalized economy.
Magical Solutions for Municipal Finance
So why did local governments in the United States jump on the swap-wagon? The big-picture transformation of global capitalism engendered by derivatives was the last thing on the minds of local leaders as they signed rate swap agreements over the last two decades. They were feeling globalization’s local effects, however.
The post-Gold Standard era for local and state governments has also been characterized by volatile interest rates. Many local governments have been stung by wild swings in variable interest rates on bond debt. Conversely, many public entities found themselves locked into high long-term rates, unable to refinance during periodic dips. In other words, they incorrectly guessed what the price of borrowing money would be over a given time frame, and they were forced to pay the difference. In an age of chronic municipal budget shortfalls produced by tax rebellions and capital flight, a few million burned on rising interest rates, or the inability to refund debt at lower levels, is a big political deal.
Seeking to hedge against this risk, and still deliver the goods voters want, local governments eagerly signed contracts for a particular variety of swap, the floating-to-fixed contract in which cities would issue long-term debt pegged to variable rates, and then swap payments with a bank counterparty that offered the surety of a low “synthetic” fixed rate.
There was another reason for the rise in popularity of municipal swaps though. As illustrated in the case of California’s Metropolitan Transportation Commission, the promise of extending a government’s purchasing power by reducing its overall debt payments enticed many CFOs to ink swap deals. The means by which swaps could lower the cost of borrowing money for public entities hinges on the way that derivatives, as they have for global corporations, promised to create larger integrated debt markets where before there were barriers.
Oakland’s “Plain Vanilla” Rate Swap
“Plain vanilla” swap agreements proliferated in the late 1990s and mid-2000s as the U.S. economy heated up and interest rates climbed. Many local officials believed that locking themselves into long-term fixed interest rates as high as 6% would be wise to hedge against being stuck in variable rates that could climb further. Perhaps it would have been, had the global economy not staggered after 9-11, and then come to a screeching halt in 2008, causing central bankers to slash interest rates to virtually zero. It was this historic near-collapse of the capitalist system that turned most floating-to-fixed swap deals into toxic junk. Unfortunately, these are exactly the type of swaps local governments signed up for to hedge billions of dollars. In 2008 the variable rates that the banks use to calculate their payments to the cities, such as the London Interbank Offered Rate (LIBOR), followed the Federal Funds rate to virtually zero, while the fixed rates local governments were obliged to calculate their payments with stayed the same. The net difference means local governments pay the banks.
In the case of Oakland, California, in 1997 the city agreed to pay Goldman Sachs a fixed 5.6% rate in exchange for a payment equivalent to 65% of LIBOR until 2021 on a notional amount beginning at $170 million, and reducing over time as the principle on bond debt it mirrors is paid off. As the chart below shows, it was never a good deal for the city over the long-run since the net balance of payments, the difference between Oakland’s constant 5.6% obligation and whatever LIBOR happened to be on any payment date, was always in the bank’s favor. When LIBOR dropped to less than 1% in 2008 Oakland, however, was stuck with a toxic swap contract requiring millions in payments to Goldman Sachs each year, with no meaningful hedging function against climbing variable rates.
What swaps allowed many governments to do was to replace a floating rate with a synthetic fixed rate that was often significantly lower than would otherwise be possible if the local government itself directly issued a fixed-rate debt. Local governments tend to be able to issue slightly lower initial variable-rate debt than other sorts of borrowers (mostly large business corporations) can in other debt markets. Conversely, many banks and corporations can issue fixed rate debt at significantly lower rates than local governments have been able to. Big banks figured out how to profit from these differences with rate swaps. By issuing debt in the most favorable terms and then swapping interest-rate payments, a local government could transform its relatively low but risky variable-rate debt payment into a higher fixed-rate obligation that is lower than it would have otherwise been had the government gone straight to the market to sell fixed-rate bonds. The same in reverse would be true for the bank counterparty, but with a variable rate. This transaction, according to neoclassical economic theory, capitalizes on the “comparative advantages” of each party in different debt markets. At least in theory, everyone was supposed to gain access to cheaper money through markets that had been made more efficient by Wall Street’s wizards.
Swaps Conquer America
In March, 2010, the Service Employees International Union released one of the most comprehensive studies to date calculating how much toxic interest rate swaps have cost communities during the Great Recession. Combing through the financial reports of major cities, states, and public agencies from New York to California, SEIU researchers estimated that $28 billion had already been paid by governments to the banks, and that for 2010 alone, public entities would have to pay at least another $1.25 billion.
More recently, researchers in New York and Pennsylvania have dissected specific swap deals that have drained millions from local school systems, transit agencies, and the budgets of cities and counties. New York state and its local governments were forced to pay $236 million last year to fulfill the terms of swap agreements signed with Wall Street, according to a December, 2011 report prepared by United NY, a union-supported advocacy group. These swap payments are ultimately drawn from taxes, fees, and other sources of public revenues, diverted away from crucial services that have been cut back during the Great Recession.
Like California’s MTC, managers of New York’s Metropolitan Transit Authority got into the swap market to free up money and expand, but now New York bus and train riders are among the biggest victims of the rate swap crisis. As described in United NY’s report:
...like other public entities, the MTA issues variable-rate bonds in search of lower interest rates to reduce the cost of borrowing; and like other public entities, the MTA believed swap agreements would protect it against interest rate market volatility and provide stability to its operating budget, all the while providing the necessary financing to maintain and upgrade New York’s transit system.
Because of the economic collapse, and the decline of interest rates in 2008 to virtually zero, the MTA has been forced to pay the amazing sum of $658 million in net swap payments so far. “These expenditures feed bank profits and ransack the MTA’s ability to provide safe and reliable service and make needed improvements to the transit system,” United NY concludes.
In Pennsylvania the situation is arguably worse given that the state’s largest city, Philadelphia, is in a much weaker fiscal position than New York City. According to a study prepared by the Pennsylvania Budget and Policy Center in January 2012, Philadelphia and its schools have lost $331 million in swap payments made to Wells Fargo, Morgan Stanley, Goldman Sachs, and other banks. Among the most damaging agreements were nine separate swaps between the Philadelphia School District and Morgan Stanley, Goldman Sachs, and Wells Fargo that were terminated in 2010 and 2011 for a combined penalty of $89.6 million. Like many of the public entities hit hard by rate swap payments, Philadelphia’s public schools serve a student body that is primarily Black and Latino, making up 56% and 18% of the district’s students respectively. In April, the “chief recovery officer” of the district announced that the school system would essentially be dissolved and dozens of schools closed.
Other enormous transfers of public revenues to the banks include a loss of $10 million by the Bethlehem Area School District after the system was forced to cancel one particularly toxic swap. Then there’s a case that is similar to California’s MTC boondoggle. The Delaware River Port Authority, the public entity that operates and maintains toll bridges linking Philadelphia with New Jersey, lost $65 million on swap deals. As of 2010 these swaps have a negative value of $199 million for the Port Authority.
Back in California, virtually every other government and public agency has been hit by costly rate swap payments or termination fees. Oakland, a city of roughly 400,000 with a Black, Latino, and Asian majority, faced a $58 million budget deficit last year, forcing layoffs and cuts to many departments and services. At the same time Oakland has been paying millions yearly to Goldman Sachs under the terms of a swap signed in 1997. The local community college system in Oakland had to pay Morgan Stanley approximately $1.6 million last year, even while the board of trustees discusses the need to make an additional $11.7 million in budget cuts.
Because swaps have counterparties, that is, parties that take opposing positions in the stream of interest rate payments, it’s only logical to assume that if one of the parties is drowning, the other must be high above the waves. Unfortunately there isn’t much data available to gauge just how much the handful of banks that dominate the rate swaps market have benefited from the artificial conditions that have caused the municipal rate swap crisis.
Interest Rate Scams
Even though the swap crisis is largely a structural injustice that hasn’t required any legal wrongdoing to harm local communities, it has been punctuated by several high-profile criminal cases in which the banks and corrupt municipal leaders purposefully defrauded the public:
In the most infamous swap fiasco of all, upwards of 20 officials in Jefferson County, Alabama, including a County Commissioner, were bribed by JPMorgan Chase bankers to refinance a troubled $3.2 billion sewer project. JPMorgan replaced the county’s fixed-rate bonds with variable-rate bonds hedged with swaps. When the market crashed in 2008, the swaps became onerous debts in and of themselves. By late 2011, Jefferson County filed for the largest municipal bankruptcy in U.S. history. JPMorgan was ordered to drop $647 million in expected payments from the county while refunding $50 million, in addition to a $25 million SEC fine.
Depfa, UBS, Deutsche Bank, and JPMorgan were sued by Milan, Italy, in 2010 for their roles in a $2 billion dollar swap fraud harming the city. Once on the brink of financial ruin, today the litigiously proactive Milan is in settlement talks with the banks, which will reportedly pay $526 million to the city.
Also in Italy, the town of Cassino agreed to a rate swap in 2003 with Bear Stearns. The investment bank (later acquired by JPMorgan Chase) convinced Cassino’s officials to swap a relatively modest fixed-rate debt on 22 million euros for the variable LIBOR rate. LIBOR at the time was hovering at 1%. By 2007 LIBOR peaked at 5.7%. According to a Bloomberg report, “Cassino started losing money on the swap with the third half-yearly payment, paying about 2 million euros after LIBOR soared.”
To be sure, Wall Street’s biggest banks are reaping huge returns on municipal interest rate swaps. The U.S. Office of the Comptroller of the Currency has explained that “derivatives activity in the U.S. banking system is dominated by a small group of large financial institutions. Five large commercial banks represent 96% of the total industry notional amount.” Within this monopolized finance sector, derivatives “are dominated by swaps contracts, which represent 66% of total notionals.” Five banks make the market: JPMorgan Chase, Citibank, Bank of America, Goldman Sachs, and HSBC. Together they control $150 trillion of the $154 trillion notional amounts of interest rate swaps sold by U.S. banks. A large chunk of this business is made up of “over the counter” (OTC) swap contracts with local governments.
Drop the Swaps
On an unseasonably warm February day this year, several dozen activists including members of the Association of Californians for Community Empowerment, Riders for Transit Justice, union members of SEIU 1021 and Transit Workers Union 250A, along with community college students, gathered in front of San Francisco’s old Bank of America Building. Locals have long derided the edifice as a “Darth Vader hat” because of its shape, but the ominous nickname also hints at the tenants inside, mostly elite investment banks and private equity firms. Goldman Sachs has offices perched high above the ground floor.
The activists were roaming the financial district, entering bank branches and attempting to penetrate security cordons to enter express elevators, thereby gaining access to the offices of senior bank executives. Once inside they would demand an audience with management, explain the problem of how rate swaps are putting enormous financial burdens on already-strapped public schools, transit authorities, and cities, and then demand the branch fax a letter to headquarters. Activists responded to uncooperative bank staff with chants of “drop the swaps,” and “make banks pay!” The letter’s message: cancel the swaps. Refund public goods.
While resistance against the rate swap crisis has developed slowly and unevenly, it may now be gaining steam in some important places. In Pennsylvania the problem was identified early on by officials like the state’s auditor general Jack Wagner. Since 2009 Wagner has been imploring local and state leaders to ban their agencies from entering into interest rate swaps. Wagner’s office conducted one of the earliest (and maybe the only) official audits of swaps in the United States after the financial crisis, finding that Pennsylvania governments had entered into 626 individual interest rate swap agreements with a mere thirteen banks, linked to $14.9 billion in public debt.
the use of swaps amounts to gambling with public money. The fundamental guiding principle in handling public funds is that they should never be exposed to the risk of financial loss. Swaps have no place in public financing and should be banned immediately.
His office has so far succeeded in convincing the Delaware River Port Authority to ban itself from using rate swaps in the future, while also introducing a bill in the state legislature to ban future swap agreements by Pennsylvania governments.
Wagner’s efforts have been bolstered by the Pennsylvania Budget and Policy Center’s statewide study of swaps, referenced above. Most recently the Philadelphia City Council has convened hearings to investigate how interest rate swaps affecting the city’s agencies and school system were created. The resolution calls for the city to assess “whether corrective actions, including legal remedies, should be pursued.” Philadelphia is considering litigation to determine if banks, government employees, or advisers misrepresented or otherwise fraudulently put taxpayers on the hook for millions by obscuring the risks involved, or purposefully structuring them to implode to the banks’ benefit.
Back in California, it’s been harder to convince officials to take action. Oakland’s City Council has told activists that they would like to drop the swap, but that termination by the city would result in a roughly $16 million fee. Nevertheless City Council members say they’re negotiating with Goldman Sachs to end the deal. California’s Metropolitan Transportation Commission has rebuffed the entreaties of transit advocates to seek renegotiation of their astronomically expensive swap liabilities. The Peralta Community College system has reportedly been discussing renegotiation of its rate swap with Morgan Stanley since at least last December, to no avail. But even with these detours and roadblocks, community activists keep pressing the issue.
Confronting Swaps, Confronting Capital
One of the traps that activists who are beginning to address the rate swap crisis can fall into is framing the problem solely as one of “greedy banks” that used “esoteric” derivatives to “hoodwink” public officials. In some cases this does seem to be what happened. In Milan, Italy, for example, JPMorgan Chase, Depfa, UBS, and Deutsche Bank were brought to trial in 2010. Bank and city employees have been accused of fraud in connection with rate swaps that were attached to over $2 billion in municipal debt. Today Milan is reportedly in talks with the banks to settle the case, with the banks set to pay $526 million to the city.
The vast majority of swap agreements, however, are not the product of fraud. Framing the issue as one of greedy banks that conned the public has led so far to reformist proposals that will neither create pressure to systematically repair the financial injustice of the rate swap crisis, nor address the deeper structural problems associated with the rise of derivatives.
Rather than defining derivatives as scams, or as esoteric instruments used in a make believe world of finance capital, we should recognize them as central instruments of contemporary capitalism. Doing so leads to a more comprehensive explanation of why the rate swap crisis happened, and what should be done about it. It also connects the problem to wider struggles against capitalist globalization and avoids diverting energy into shallow reformist laws and regulations that will only be circumvented.
As instruments designed to allow local governments to reduce their risks in a world of global capital flows and floating interest rates, swaps seemed to work perfectly fine for over a decade. During this “normal” run of the economy, individual governments were able to reduce their exposure to interest-rate volatility, and even save money. What this obscured, however, was the systemic risk that was building up through the entire financial sector. By pursuing their own individual security as agents in the neoliberal global marketplace, organizations of all kinds, including business firms and governments, actually created mass insecurity. Along with systemic risk, the new globalizing economy powered by derivatives was characterized by more intense and widespread forms of corporate predation across the globe, from the U.S. housing market, to the currencies of Thailand and Indonesia.
When the system’s own contradictions finally became too much, the vast global web of derivatives that spread risk to every corner of the earth became the toxic germ that threatened to wipe out capital. In response, the architects of this system bailed out the largest banks directly with public funds. No similar bailout was offered to local governments, however. The public has been left holding derivative contracts that are currently not much more than agreements to subsidize banks further with taxpayer dollars. Meanwhile the global financial system made possible through swaps and other derivatives is being tweaked, slightly, so that it can proceed to expand if and when a new cycle of global investment kicks off.
This blatantly unjust, but perfectly legal, outcome reveals several things about the rate swap crisis. First, the crisis is caused by an inherent contradiction in the project of capitalist globalization. The management of inter-market risks at the individual firm or consumer level causes a heightened level of social risk at the global level. Second, in response to this crisis, the architects of this system have revealed that the true goal of globalization through derivatives is to expand and protect private capital, not public wealth and local communities. By bailing out banks and protecting the debt held by hedge funds and private equity, while offering no similar assistance to local governments, the elites who occupy positions of power in the central banks and global financial corporations displayed the logic of the system for all to see. Finally, derivatives are not being dropped, but instead subjected to regulations that will attempt to prevent the buildup of systemic risks. These regulations, however, will do nothing to check the global predation of corporations, empowered as they are with derivative instruments.
In confronting derivatives by demanding a just solution to the rate swap crisis, we are doing more than just contesting one aspect of the larger economic crisis that began in 2008. We are in fact confronting the dangerous instruments that have facilitated globalization of capital over the past three decades by socializing risks and privatizing profits. In this respect the rate swap crisis, and community responses to it, can be contextualized in capital’s push toward globalization, and the ongoing resistance of communities to this project.