Saturday 27 February 2010

Friday 26 February 2010

More revelations ...the `Squid`...Goldman Sachs...

On January 21st, Lloyd Blankfein left a peculiar voicemail message on the work phones of his employees at Goldman Sachs. Fast becoming America's pre-eminent Marvel Comics supervillain, the CEO used the call to deploy his secret weapon: a pair of giant, nuclear-powered testicles. In his message, Blankfein addressed his plan to pay out gigantic year-end bonuses amid widespread controversy over Goldman's role in precipitating the global financial crisis.

The bank had already set aside a tidy $16.2 billion for salaries and bonuses — meaning that Goldman employees were each set to take home an average of $498,246, a number roughly commensurate with what they received during the bubble years. Still, the troops were worried: There were rumors that Dr. Ballsachs, bowing to political pressure, might be forced to scale the number back. After all, the country was broke, 14.8 million Americans were stranded on the unemployment line, and Barack Obama and the Democrats were trying to recover the populist high ground after their bitch-whipping in Massachusetts by calling for a "bailout tax" on banks. Maybe this wasn't the right time for Goldman to be throwing its annual Roman bonus orgy.

Not to worry, Blankfein reassured employees. "In a year that proved to have no shortage of story lines," he said, "I believe very strongly that performance is the ultimate narrative."

Translation: We made a shitload of money last year because we're so amazing at our jobs, so fuck all those people who want us to reduce our bonuses.

Goldman wasn't alone. The nation's six largest banks — all committed to this balls-out, I drink your milkshake! strategy of flagrantly gorging themselves as America goes hungry — set aside a whopping $140 billion for executive compensation last year, a sum only slightly less than the $164 billion they paid themselves in the pre-crash year of 2007. In a gesture of self-sacrifice, Blankfein himself took a humiliatingly low bonus of $9 million, less than the 2009 pay of elephantine New York Knicks washout Eddy Curry. But in reality, not much had changed. "What is the state of our moral being when Lloyd Blankfein taking a $9 million bonus is viewed as this great act of contrition, when every penny of it was a direct transfer from the taxpayer?" asks Eliot Spitzer, who tried to hold Wall Street accountable during his own ill-fated stint as governor of New York.

Beyond a few such bleats of outrage, however, the huge payout was met, by and large, with a collective sigh of resignation. Because beneath America's populist veneer, on a more subtle strata of the national psyche, there remains a strong temptation to not really give a shit. The rich, after all, have always made way too much money; what's the difference if some fat cat in New York pockets $20 million instead of $10 million?

The only reason such apathy exists, however, is because there's still a widespread misunderstanding of how exactly Wall Street "earns" its money, with emphasis on the quotation marks around "earns." The question everyone should be asking, as one bailout recipient after another posts massive profits — Goldman reported $13.4 billion in profits last year, after paying out that $16.2 billion in bonuses and compensation — is this: In an economy as horrible as ours, with every factory town between New York and Los Angeles looking like those hollowed-out ghost ships we see on History Channel documentaries like Shipwrecks of the Great Lakes, where in the hell did Wall Street's eye-popping profits come from, exactly? Did Goldman go from bailout city to $13.4 billion in the black because, as Blankfein suggests, its "performance" was just that awesome? A year and a half after they were minutes away from bankruptcy, how are these assholes not only back on their feet again, but hauling in bonuses at the same rate they were during the bubble?

The answer to that question is basically twofold: They raped the taxpayer, and they raped their clients.


The bottom line is that banks like Goldman have learned absolutely nothing from the global economic meltdown. In fact, they're back conniving and playing speculative long shots in force — only this time with the full financial support of the U.S. government. In the process, they're rapidly re-creating the conditions for another crash, with the same actors once again playing the same crazy games of financial chicken with the same toxic assets as before.

That's why this bonus business isn't merely a matter of getting upset about whether or not Lloyd Blankfein buys himself one tropical island or two on his next birthday. The reality is that the post-bailout era in which Goldman thrived has turned out to be a chaotic frenzy of high-stakes con-artistry, with taxpayers and clients bilked out of billions using a dizzying array of old-school hustles that, but for their ponderous complexity, would have fit well in slick grifter movies like The Sting and Matchstick Men. There's even a term in con-man lingo for what some of the banks are doing right now, with all their cosmetic gestures of scaling back bonuses and giving to charities. In the grifter world, calming down a mark so he doesn't call the cops is known as the "Cool Off."

To appreciate how all of these (sometimes brilliant) schemes work is to understand the difference between earning money and taking scores, and to realize that the profits these banks are posting don't so much represent national growth and recovery, but something closer to the losses one would report after a theft or a car crash. Many Americans instinctively understand this to be true — but, much like when your wife does it with your 300-pound plumber in the kids' playroom, knowing it and actually watching the whole scene from start to finish are two very different things. In that spirit, a brief history of the best 18 months of grifting this country has ever seen:

CON #1 THE SWOOP AND SQUAT

By now, most people who have followed the financial crisis know that the bailout of AIG was actually a bailout of AIG's "counterparties" — the big banks like Goldman to whom the insurance giant owed billions when it went belly up.

What is less understood is that the bailout of AIG counter-parties like Goldman and Société Générale, a French bank, actually began before the collapse of AIG, before the Federal Reserve paid them so much as a dollar. Nor is it understood that these counterparties actually accelerated the wreck of AIG in what was, ironically, something very like the old insurance scam known as "Swoop and Squat," in which a target car is trapped between two perpetrator vehicles and wrecked, with the mark in the game being the target's insurance company — in this case, the government.

This may sound far-fetched, but the financial crisis of 2008 was very much caused by a perverse series of legal incentives that often made failed investments worth more than thriving ones. Our economy was like a town where everyone has juicy insurance policies on their neighbors' cars and houses. In such a town, the driving will be suspiciously bad, and there will be a lot of fires.

AIG was the ultimate example of this dynamic. At the height of the housing boom, Goldman was selling billions in bundled mortgage-backed securities — often toxic crap of the no-money-down, no-identification-needed variety of home loan — to various institutional suckers like pensions and insurance companies, who frequently thought they were buying investment-grade instruments. At the same time, in a glaring example of the perverse incentives that existed and still exist, Goldman was also betting against those same sorts of securities — a practice that one government investigator compared to "selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars."

Goldman often "insured" some of this garbage with AIG, using a virtually unregulated form of pseudo-insurance called credit-default swaps. Thanks in large part to deregulation pushed by Bob Rubin, former chairman of Goldman, and Treasury secretary under Bill Clinton, AIG wasn't required to actually have the capital to pay off the deals. As a result, banks like Goldman bought more than $440 billion worth of this bogus insurance from AIG, a huge blind bet that the taxpayer ended up having to eat.

Thus, when the housing bubble went crazy, Goldman made money coming and going. They made money selling the crap mortgages, and they made money by collecting on the bogus insurance from AIG when the crap mortgages flopped.

Still, the trick for Goldman was: how to collect the insurance money. As AIG headed into a tailspin that fateful summer of 2008, it looked like the beleaguered firm wasn't going to have the money to pay off the bogus insurance. So Goldman and other banks began demanding that AIG provide them with cash collateral. In the 15 months leading up to the collapse of AIG, Goldman received $5.9 billion in collateral. Société Générale, a bank holding lots of mortgage-backed crap originally underwritten by Goldman, received $5.5 billion. These collateral demands squeezing AIG from two sides were the "Swoop and Squat" that ultimately crashed the firm. "It put the company into a liquidity crisis," says Eric Dinallo, who was intimately involved in the AIG bailout as head of the New York State Insurance Department.


It was a brilliant move. When a company like AIG is about to die, it isn't supposed to hand over big hunks of assets to a single creditor like Goldman; it's supposed to equitably distribute whatever assets it has left among all its creditors. Had AIG gone bankrupt, Goldman would have likely lost much of the $5.9 billion that it pocketed as collateral. "Any bankruptcy court that saw those collateral payments would have declined that transaction as a fraudulent conveyance," says Barry Ritholtz, the author of Bailout Nation. Instead, Goldman and the other counterparties got their money out in advance — putting a torch to what was left of AIG. Fans of the movie Goodfellas will recall Henry Hill and Tommy DeVito taking the same approach to the Bamboo Lounge nightclub they'd been gouging. Roll the Ray Liotta narration: "Finally, when there's nothing left, when you can't borrow another buck . . . you bust the joint out. You light a match."

And why not? After all, according to the terms of the bailout deal struck when AIG was taken over by the state in September 2008, Goldman was paid 100 cents on the dollar on an additional $12.9 billion it was owed by AIG — again, money it almost certainly would not have seen a fraction of had AIG proceeded to a normal bankruptcy. Along with the collateral it pocketed, that's $19 billion in pure cash that Goldman would not have "earned" without massive state intervention. How's that $13.4 billion in 2009 profits looking now? And that doesn't even include the direct bailouts of Goldman Sachs and other big banks, which began in earnest after the collapse of AIG.

CON #2 THE DOLLAR STORE

In the usual "DollarStore" or "Big Store" scam — popularized in movies like The Sting — a huge cast of con artists is hired to create a whole fake environment into which the unsuspecting mark walks and gets robbed over and over again. A warehouse is converted into a makeshift casino or off-track betting parlor, the fool walks in with money, leaves without it.

The two key elements to the Dollar Store scam are the whiz-bang theatrical redecorating job and the fact that everyone is in on it except the mark. In this case, a pair of investment banks were dressed up to look like commercial banks overnight, and it was the taxpayer who walked in and lost his shirt, confused by the appearance of what looked like real Federal Reserve officials minding the store.

Less than a week after the AIG bailout, Goldman and another investment bank, Morgan Stanley, applied for, and received, federal permission to become bank holding companies — a move that would make them eligible for much greater federal support. The stock prices of both firms were cratering, and there was talk that either or both might go the way of Lehman Brothers, another once-mighty investment bank that just a week earlier had disappeared from the face of the earth under the weight of its toxic assets. By law, a five-day waiting period was required for such a conversion — but the two banks got them overnight, with final approval actually coming only five days after the AIG bailout.

Why did they need those federal bank charters? This question is the key to understanding the entire bailout era — because this Dollar Store scam was the big one. Institutions that were, in reality, high-risk gambling houses were allowed to masquerade as conservative commercial banks. As a result of this new designation, they were given access to a virtually endless tap of "free money" by unsuspecting taxpayers. The $10 billion that Goldman received under the better-known TARP bailout was chump change in comparison to the smorgasbord of direct and indirect aid it qualified for as a commercial bank.

When Goldman Sachs and Morgan Stanley got their federal bank charters, they joined Bank of America, Citigroup, J.P. Morgan Chase and the other banking titans who could go to the Fed and borrow massive amounts of money at interest rates that, thanks to the aggressive rate-cutting policies of Fed chief Ben Bernanke during the crisis, soon sank to zero percent. The ability to go to the Fed and borrow big at next to no interest was what saved Goldman, Morgan Stanley and other banks from death in the fall of 2008. "They had no other way to raise capital at that moment, meaning they were on the brink of insolvency," says Nomi Prins, a former managing director at Goldman Sachs. "The Fed was the only shot."


In fact, the Fed became not just a source of emergency borrowing that enabled Goldman and Morgan Stanley to stave off disaster — it became a source of long-term guaranteed income. Borrowing at zero percent interest, banks like Goldman now had virtually infinite ways to make money. In one of the most common maneuvers, they simply took the money they borrowed from the government at zero percent and lent it back to the government by buying Treasury bills that paid interest of three or four percent. It was basically a license to print money — no different than attaching an ATM to the side of the Federal Reserve.

"You're borrowing at zero, putting it out there at two or three percent, with hundreds of billions of dollars — man, you can make a lot of money that way," says the manager of one prominent hedge fund. "It's free money." Which goes a long way to explaining Goldman's enormous profits last year. But all that free money was amplified by another scam:

CON #3 THE PIG IN THE POKE

At one point or another, pretty much everyone who takes drugs has been burned by this one, also known as the "Rocks in the Box" scam or, in its more elaborate variations, the "Jamaican Switch." Someone sells you what looks like an eightball of coke in a baggie, you get home and, you dumbass, it's baby powder.

The scam's name comes from the Middle Ages, when some fool would be sold a bound and gagged pig that he would see being put into a bag; he'd miss the switch, then get home and find a tied-up cat in there instead. Hence the expression "Don't let the cat out of the bag."

The "Pig in the Poke" scam is another key to the entire bailout era. After the crash of the housing bubble — the largest asset bubble in history — the economy was suddenly flooded with securities backed by failing or near-failing home loans. In the cleanup phase after that bubble burst, the whole game was to get taxpayers, clients and shareholders to buy these worthless cats, but at pig prices.

One of the first times we saw the scam appear was in September 2008, right around the time that AIG was imploding. That was when the Fed changed some of its collateral rules, meaning banks that could once borrow only against sound collateral, like Treasury bills or AAA-rated corporate bonds, could now borrow against pretty much anything — including some of the mortgage-backed sewage that got us into this mess in the first place. In other words, banks that once had to show a real pig to borrow from the Fed could now show up with a cat and get pig money. "All of a sudden, banks were allowed to post absolute shit to the Fed's balance sheet," says the manager of the prominent hedge fund.

The Fed spelled it out on September 14th, 2008, when it changed the collateral rules for one of its first bailout facilities — the Primary Dealer Credit Facility, or PDCF. The Fed's own write-up described the changes: "With the Fed's action, all the kinds of collateral then in use . . . including non-investment-grade securities and equities . . . became eligible for pledge in the PDCF."

Translation: We now accept cats.

The Pig in the Poke also came into play in April of last year, when Congress pushed a little-known agency called the Financial Accounting Standards Board, or FASB, to change the so-called "mark-to-market" accounting rules. Until this rule change, banks had to assign a real-market price to all of their assets. If they had a balance sheet full of securities they had bought at $3 that were now only worth $1, they had to figure their year-end accounting using that $1 value. In other words, if you were the dope who bought a cat instead of a pig, you couldn't invite your shareholders to a slate of pork dinners come year-end accounting time.

But last April, FASB changed all that. From now on, it announced, banks could avoid reporting losses on some of their crappy cat investments simply by declaring that they would "more likely than not" hold on to them until they recovered their pig value. In short, the banks didn't even have to actually hold on to the toxic shit they owned — they just had to sort of promise to hold on to it.

That's why the "profit" numbers of a lot of these banks are really a joke. In many cases, we have absolutely no idea how many cats are in their proverbial bag. What they call "profits" might really be profits, only minus undeclared millions or billions in losses.

"They're hiding all this stuff from their shareholders," says Ritholtz, who was disgusted that the banks lobbied for the rule changes. "Now, suddenly banks that were happy to mark to market on the way up don't have to mark to market on the way down."

CON #4 THE RUMANIAN BOX

One of the great innovations of Victor Lustig, the legendary Depression-era con man who wrote the famous "Ten Commandments for Con Men," was a thing called the "Rumanian Box." This was a little machine that a mark would put a blank piece of paper into, only to see real currency come out the other side. The brilliant Lustig sold this Rumanian Box over and over again for vast sums — but he's been outdone by the modern barons of Wall Street, who managed to get themselves a real Rumanian Box.

How they accomplished this is a story that by itself highlights the challenge of placing this era in any kind of historical context of known financial crime. What the banks did was something that was never — and never could have been — thought of before. They took so much money from the government, and then did so little with it, that the state was forced to start printing new cash to throw at them. Even the great Lustig in his wildest, horniest dreams could never have dreamed up this one.


The setup: By early 2009, the banks had already replenished themselves with billions if not trillions in bailout money. It wasn't just the $700 billion in TARP cash, the free money provided by the Fed, and the untold losses obscured by accounting tricks. Another new rule allowed banks to collect interest on the cash they were required by law to keep in reserve accounts at the Fed — meaning the state was now compensating the banks simply for guaranteeing their own solvency. And a new federal operation called the Temporary Liquidity Guarantee Program let insolvent and near-insolvent banks dispense with their deservedly ruined credit profiles and borrow on a clean slate, with FDIC backing. Goldman borrowed $29 billion on the government's good name, J.P. Morgan Chase $38 billion, and Bank of America $44 billion. "TLGP," says Prins, the former Goldman manager, "was a big one."

Collectively, all this largesse was worth trillions. The idea behind the flood of money, from the government's standpoint, was to spark a national recovery: We refill the banks' balance sheets, and they, in turn, start to lend money again, recharging the economy and producing jobs. "The banks were fast approaching insolvency," says Rep. Paul Kanjorski, a vocal critic of Wall Street who nevertheless defends the initial decision to bail out the banks. "It was vitally important that we recapitalize these institutions."

But here's the thing. Despite all these trillions in government rescues, despite the Fed slashing interest rates down to nothing and showering the banks with mountains of guarantees, Goldman and its friends had still not jump-started lending again by the first quarter of 2009. That's where those nuclear-powered balls of Lloyd Blankfein came into play, as Goldman and other banks basically threatened to pick up their bailout billions and go home if the government didn't fork over more cash — a lot more. "Even if the Fed could make interest rates negative, that wouldn't necessarily help," warned Goldman's chief domestic economist, Jan Hatzius. "We're in a deep recession mainly because the private sector, for a variety of reasons, has decided to save a lot more."

Translation: You can lower interest rates all you want, but we're still not fucking lending the bailout money to anyone in this economy. Until the government agreed to hand over even more goodies, the banks opted to join the rest of the "private sector" and "save" the taxpayer aid they had received — in the form of bonuses and compensation.

The ploy worked. In March of last year, the Fed sharply expanded a radical new program called quantitative easing, which effectively operated as a real-live Rumanian Box. The government put stacks of paper in one side, and out came $1.2 trillion "real" dollars.

The government used some of that freshly printed money to prop itself up by purchasing Treasury bonds — a desperation move, since Washington's demand for cash was so great post-Clusterfuck '08 that even the Chinese couldn't buy U.S. debt fast enough to keep America afloat. But the Fed used most of the new cash to buy mortgage-backed securities in an effort to spur home lending — instantly creating a massive market for major banks.

And what did the banks do with the proceeds? Among other things, they bought Treasury bonds, essentially lending the money back to the government, at interest. The money that came out of the magic Rumanian Box went from the government back to the government, with Wall Street stepping into the circle just long enough to get paid. And once quantitative easing ends, as it is scheduled to do in March, the flow of money for home loans will once again grind to a halt. The Mortgage Bankers Association expects the number of new residential mortgages to plunge by 40 percent this year.

CON #5 THE BIG MITT

All of that Rumanian box paper was made even more valuable by running it through the next stage of the grift. Michael Masters, one of the country's leading experts on commodities trading, compares this part of the scam to the poker game in the Bill Murray comedy Stripes. "It's like that scene where John Candy leans over to the guy who's new at poker and says, 'Let me see your cards,' then starts giving him advice," Masters says. "He looks at the hand, and the guy has bad cards, and he's like, 'Bluff me, come on! If it were me, I'd bet everything!' That's what it's like. It's like they're looking at your cards as they give you advice."

In more ways than one can count, the economy in the bailout era turned into a "Big Mitt," the con man's name for a rigged poker game. Everybody was indeed looking at everyone else's cards, in many cases with state sanction. Only taxpayers and clients were left out of the loop.

At the same time the Fed and the Treasury were making massive, earthshaking moves like quantitative easing and TARP, they were also consulting regularly with private advisory boards that include every major player on Wall Street. The Treasury Borrowing Advisory Committee has a J.P. Morgan executive as its chairman and a Goldman executive as its vice chairman, while the board advising the Fed includes bankers from Capital One and Bank of New York Mellon. That means that, in addition to getting great gobs of free money, the banks were also getting clear signals about when they were getting that money, making it possible to position themselves to make the appropriate investments.

One of the best examples of the banks blatantly gambling, and winning, on government moves was the Public-Private Investment Program, or PPIP. In this bizarre scheme cooked up by goofball-geek Treasury Secretary Tim Geithner, the government loaned money to hedge funds and other private investors to buy up the absolutely most toxic horseshit on the market — the same kind of high-risk, high-yield mortgages that were most responsible for triggering the financial chain reaction in the fall of 2008. These satanic deals were the basic currency of the bubble: Jobless dope fiends bought houses with no money down, and the big banks wrapped those mortgages into securities and then sold them off to pensions and other suckers as investment-grade deals. The whole point of the PPIP was to get private investors to relieve the banks of these dangerous assets before they hurt any more innocent bystanders.

But what did the banks do instead, once they got wind of the PPIP? They started buying that worthless crap again, presumably to sell back to the government at inflated prices! In the third quarter of last year, Goldman, Morgan Stanley, Citigroup and Bank of America combined to add $3.36 billion of exactly this horseshit to their balance sheets.

This brazen decision to gouge the taxpayer startled even hardened market observers. According to Michael Schlachter of the investment firm Wilshire Associates, it was "absolutely ridiculous" that the banks that were supposed to be reducing their exposure to these volatile instruments were instead loading up on them in order to make a quick buck. "Some of them created this mess," he said, "and they are making a killing undoing it."


CON #6 THE WIRE

Here's the thing about our current economy. When Goldman and Morgan Stanley transformed overnight from investment banks into commercial banks, we were told this would mean a new era of "significantly tighter regulations and much closer supervision by bank examiners," as The New York Times put it the very next day. In reality, however, the conversion of Goldman and Morgan Stanley simply completed the dangerous concentration of power and wealth that began in 1999, when Congress repealed the Glass-Steagall Act — the Depression-era law that had prevented the merger of insurance firms, commercial banks and investment houses. Wall Street and the government became one giant dope house, where a few major players share valuable information between conflicted departments the way junkies share needles.

One of the most common practices is a thing called front-running, which is really no different from the old "Wire" con, another scam popularized in The Sting. But instead of intercepting a telegraph wire in order to bet on racetrack results ahead of the crowd, what Wall Street does is make bets ahead of valuable information they obtain in the course of everyday business.

Say you're working for the commodities desk of a big investment bank, and a major client — a pension fund, perhaps — calls you up and asks you to buy a billion dollars of oil futures for them. Once you place that huge order, the price of those futures is almost guaranteed to go up. If the guy in charge of asset management a few desks down from you somehow finds out about that, he can make a fortune for the bank by betting ahead of that client of yours. The deal would be instantaneous and undetectable, and it would offer huge profits. Your own client would lose money, of course — he'd end up paying a higher price for the oil futures he ordered, because you would have driven up the price. But that doesn't keep banks from screwing their own customers in this very way.

The scam is so blatant that Goldman Sachs actually warns its clients that something along these lines might happen to them. In the disclosure section at the back of a research paper the bank issued on January 15th, Goldman advises clients to buy some dubious high-yield bonds while admitting that the bank itself may bet against those same shitty bonds. "Our salespeople, traders and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research," the disclosure reads. "Our asset-management area, our proprietary-trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research."

Banks like Goldman admit this stuff openly, despite the fact that there are securities laws that require banks to engage in "fair dealing with customers" and prohibit analysts from issuing opinions that are at odds with what they really think. And yet here they are, saying flat-out that they may be issuing an opinion at odds with what they really think.

To help them screw their own clients, the major investment banks employ high-speed computer programs that can glimpse orders from investors before the deals are processed and then make trades on behalf of the banks at speeds of fractions of a second. None of them will admit it, but everybody knows what this computerized trading — known as "flash trading" — really is. "Flash trading is nothing more than computerized front-running," says the prominent hedge-fund manager. The SEC voted to ban flash trading in September, but five months later it has yet to issue a regulation to put a stop to the practice.

Over the summer, Goldman suffered an embarrassment on that score when one of its employees, a Russian named Sergey Aleynikov, allegedly stole the bank's computerized trading code. In a court proceeding after Aleynikov's arrest, Assistant U.S. Attorney Joseph Facciponti reported that "the bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways."

Six months after a federal prosecutor admitted in open court that the Goldman trading program could be used to unfairly manipulate markets, the bank released its annual numbers. Among the notable details was the fact that a staggering 76 percent of its revenue came from trading, both for its clients and for its own account. "That is much, much higher than any other bank," says Prins, the former Goldman managing director. "If I were a client and I saw that they were making this much money from trading, I would question how badly I was getting screwed."

Why big institutional investors like pension funds continually come to Wall Street to get raped is the million-dollar question that many experienced observers puzzle over. Goldman's own explanation for this phenomenon is comedy of the highest order. In testimony before a government panel in January, Blankfein was confronted about his firm's practice of betting against the same sorts of investments it sells to clients. His response: "These are the professional investors who want this exposure."

In other words, our clients are big boys, so screw 'em if they're dumb enough to take the sucker bets I'm offering.

CON #7 THE RELOAD

Not many con men are good enough or brazen enough to con the same victim twice in a row, but the few who try have a name for this excellent sport: reloading. The usual way to reload on a repeat victim (called an "addict" in grifter parlance) is to rope him into trying to get back the money he just lost. This is exactly what started to happen late last year.

It's important to remember that the housing bubble itself was a classic confidence game — the Ponzi scheme. The Ponzi scheme is any scam in which old investors must be continually paid off with money from new investors to keep up what appear to be high rates of investment return. Residential housing was never as valuable as it seemed during the bubble; the soaring home values were instead a reflection of a continual upward rush of new investors in mortgage-backed securities, a rush that finally collapsed in 2008.

But by the end of 2009, the unimaginable was happening: The bubble was re-inflating. A bailout policy that was designed to help us get out from under the bursting of the largest asset bubble in history inadvertently produced exactly the opposite result, as all that government-fueled capital suddenly began flowing into the most dangerous and destructive investments all over again. Wall Street was going for the reload.


A lot of this was the government's own fault, of course. By slashing interest rates to zero and flooding the market with money, the Fed was replicating the historic mistake that Alan Greenspan had made not once, but twice, before the tech bubble in the early 1990s and before the housing bubble in the early 2000s. By making sure that traditionally safe investments like CDs and savings accounts earned basically nothing, thanks to rock-bottom interest rates, investors were forced to go elsewhere to search for moneymaking opportunities.

Now we're in the same situation all over again, only far worse. Wall Street is flooded with government money, and interest rates that are not just low but flat are pushing investors to seek out more "creative" opportunities. (It's "Greenspan times 10," jokes one hedge-fund trader.) Some of that money could be put to use on Main Street, of course, backing the efforts of investment-worthy entrepreneurs. But that's not what our modern Wall Street is built to do. "They don't seem to want to lend to small and medium-sized business," says Rep. Brad Sherman, who serves on the House Financial Services Committee. "What they want to invest in is marketable securities. And the definition of small and medium-sized businesses, for the most part, is that they don't have marketable securities. They have bank loans."

In other words, unless you're dealing with the stock of a major, publicly traded company, or a giant pile of home mortgages, or the bonds of a large corporation, or a foreign currency, or oil futures, or some country's debt, or anything else that can be rapidly traded back and forth in huge numbers, factory-style, by big banks, you're not really on Wall Street's radar.

So with small business out of the picture, and the safe stuff not worth looking at thanks to the Fed's low interest rates, where did Wall Street go? Right back into the shit that got us here.

One trader, who asked not to be identified, recounts a story of what happened with his hedge fund this past fall. His firm wanted to short — that is, bet against — all the crap toxic bonds that were suddenly in vogue again. The fund's analysts had examined the fundamentals of these instruments and concluded that they were absolutely not good investments.

So they took a short position. One month passed, and they lost money. Another month passed — same thing. Finally, the trader just shrugged and decided to change course and buy.

"I said, 'Fuck it, let's make some money,'" he recalls. "I absolutely did not believe in the fundamentals of any of this stuff. However, I can get on the bandwagon, just so long as I know when to jump out of the car before it goes off the damn cliff!"

This is the very definition of bubble economics — betting on crowd behavior instead of on fundamentals. It's old investors betting on the arrival of new ones, with the value of the underlying thing itself being irrelevant. And this behavior is being driven, no surprise, by the biggest firms on Wall Street.

The research report published by Goldman Sachs on January 15th underlines this sort of thinking. Goldman issued a strong recommendation to buy exactly the sort of high-yield toxic crap our hedge-fund guy was, by then, driving rapidly toward the cliff. "Summarizing our views," the bank wrote, "we expect robust flows . . . to dominate fundamentals." In other words: This stuff is crap, but everyone's buying it in an awfully robust way, so you should too. Just like tech stocks in 1999, and mortgage-backed securities in 2006.

To sum up, this is what Lloyd Blankfein meant by "performance": Take massive sums of money from the government, sit on it until the government starts printing trillions of dollars in a desperate attempt to restart the economy, buy even more toxic assets to sell back to the government at inflated prices — and then, when all else fails, start driving us all toward the cliff again with a frank and open endorsement of bubble economics. I mean, shit — who wouldn't deserve billions in bonuses for doing all that?

Con artists have a word for the inability of their victims to accept that they've been scammed. They call it the "True Believer Syndrome." That's sort of where we are, in a state of nagging disbelief about the real problem on Wall Street. It isn't so much that we have inadequate rules or incompetent regulators, although both of these things are certainly true. The real problem is that it doesn't matter what regulations are in place if the people running the economy are rip-off artists. The system assumes a certain minimum level of ethical behavior and civic instinct over and above what is spelled out by the regulations. If those ethics are absent — well, this thing isn't going to work, no matter what we do. Sure, mugging old ladies is against the law, but it's also easy. To prevent it, we depend, for the most part, not on cops but on people making the conscious decision not to do it.

That's why the biggest gift the bankers got in the bailout was not fiscal but psychological. "The most valuable part of the bailout," says Rep. Sherman, "was the implicit guarantee that they're Too Big to Fail." Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures. And what should really freak everyone out is the fact that Wall Street immediately started skimming off its own rescue money. If the bailouts validated anew the crooked psychology of the bubble, the recent profit and bonus numbers show that the same psychology is back, thriving, and looking for new disasters to create. "It's evidence," says Rep. Kanjorski, "that they still don't get it."

More to the point, the fact that we haven't done much of anything to change the rules and behavior of Wall Street shows that we still don't get it. Instituting a bailout policy that stressed recapitalizing bad banks was like the addict coming back to the con man to get his lost money back. Ask yourself how well that ever works out. And then get ready for the reload.

[From Rolling Stone, Issue 1099 — March 4, 2010]

Saturday 20 February 2010

Webster Tarpley ..WCR ..21/02/10...8 parts..

Brian Haw ...legend.

5 parts ...

1
http://www.youtube.com/watch?v=b489ygSBN5c

2
http://www.youtube.com/watch?v=O5Zy9uRc370

3
http://www.youtube.com/watch?v=wb4A1eFHjQA

4
http://www.youtube.com/watch?v=Fc2QUKM1hDI

5
http://www.youtube.com/watch?v=ZFPX1D-awok

Tuesday 16 February 2010

Saturday 13 February 2010

Webster Tarpley ....US/China Relations....3/02/10

NATO Expansion, Missile Deployments & The New Russian Military Doctrine.

Global Reasearch Feb 13 2010

Developments related to military and security matters in Europe and Asia have been numerous this month and condensed into less than a week of meetings, statements and initiatives on issues ranging from missile shield deployments to the unparalleled escalation of the world’s largest war and from a new security system for Europe to a new Russian military doctrine.

A full generation after the end of the Cold War and almost that long since the breakup of the Soviet Union, the past week’s events are evocative of another decade and another century. Twenty or more years ago war in Afghanistan and controversial missile placements in Europe were current news in a bipolar world.

Twenty years afterward, with no Soviet Union, no Warsaw Pact and a greatly diminished and truncated Russia, the United States and NATO have militarized Europe to an unprecedented degree – in fact subordinating almost the entire continent under a Washington-dominated military bloc – and have launched the most extensive combat offensive in South Asia in what is already the longest war in the world.

Of 44 nations in Europe and the Caucasus (excluding microstates and the NATO pseudo-state of Kosovo), only six – Belarus, Cyprus, Malta, Moldova, Russia and Serbia – have escaped having their citizens conscripted by NATO for deployment to the Afghan war front. That number will soon shrink yet further.

Of those 44 countries, only two – Cyprus and Russia – are not members of NATO or its Partnership for Peace transitional program and Cyprus is under intense pressure to join the second.

On February 4 and 5 all 28 NATO defense chiefs met for two days of deliberations in Istanbul, Turkey which concentrated on the war in Afghanistan, the bloc’s military deployment in Kosovo and accelerated plans for expanding a world-wide interceptor missile system to Eastern Europe and the Middle East. That gathering followed by eight days a two-day meeting of the NATO Military Committee in Brussels which included 63 military chiefs from NATO nations and 35 Troop Contributing Nations, as the bloc designates them, including the top military commanders of Israel and Pakistan. That conference focused on the Afghan war and NATO’s new Strategic Concept to be officially formalized at an Alliance summit later this year.

The commander of all 150,000 U.S. and NATO troops in Afghanistan, General Stanley McChrystal, attended both two-day meetings. Pentagon chief Robert Gates presided over the second and “Afghanistan and missile defense are examples of the new priorities that Gates wants NATO to focus on.” [1]

As indicated by the number of Chiefs of Defense Staff in attendance at the Brussels meetings – 63 – NATO’s reach has been extended far beyond Europe and North America over the past decade. Troops serving under the bloc’s command in Afghanistan come from every inhabited continent, the Middle East and Oceania: Australia has the largest non-member contingent with over 1,500 soldiers, and other non-European nations like Armenia, Azerbaijan, Bahrain, Colombia, Egypt, Georgia, New Zealand, Singapore, South Korea and the United Arab Emirates have troops in Afghanistan or on the way there.

On the day the Istanbul NATO defense ministers meeting began Romanian President Traian Basescu announced that he had granted the Obama administration’s request to base U.S. interceptor missiles in his nation, following by five weeks the news that U.S. Patriot anti-ballistic missiles would be stationed in a part of Poland a half hour drive from Russia’s westernmost border.

The next day, February 5, which marked two months since the Strategic Arms Reduction Treaty (START) between the U.S. and Russia regulating the reduction of nuclear weapons and delivery systems expired, [2] the Russian Interfax news agency announced that “President Dmitry Medvedev has endorsed Russia’s military doctrine and basic principles of its nuclear deterrence policy in the period up to 2020….” [3]

The same source cited Security Council Deputy Secretary and former Chief of the General Staff of the Armed Forces Yury Baluyevsky commenting on the new doctrine: “It is planned to develop the ground, sea, and aerial components of the nuclear triad….Russia needs to guarantee its consistent democratic development using such a stability guarantor as nuclear weapons, as a form of strategic deterrence….Russia reserves the right to use nuclear weapons only if its very existence as a state is endangered.” [4]

Commentary in the Indian daily The Hindu specified that “The doctrine details 11 external military threats to Russia, seven of which are traced to the West. NATO´s eastward expansion and its push for a global role are identified as the number one threat to Russia.”

The feature added: “The U.S. is the source of other top threats listed in the doctrine even though the country is never mentioned in the document. These include attempts to destabilise countries and regions and undermine strategic stability; military build-ups in neighbouring states and seas; the creation and deployment of strategic missile defences, as well as the militarisation of outer space and deployment of high-precision non-nuclear strategic systems.”

Regarding the timing of the authorization of Russia’s new military strategy, the report connected it with recent U.S. missile shield decisions and the START talks between Washington and Moscow still dragging on.

“The new defence doctrine was signed into law and published a day after Romania announced plans to deploy U.S. interceptor missiles as part of a global missile shield fiercely opposed by Russia. Earlier reports said the Kremlin had been holding back the doctrine, prepared last year, because it did not want to jeopardise talks with the U.S. on a new nuclear arms pact that are still going on.” [5]

A similar observation was made in a report from China’s Xinhua News Agency:

“Analysts say the Romanian decision came at a crucial moment when Washington and Moscow are about to sign a successor document to the expired Strategic Arms Reduction Treaty (START-1). Therefore, the move may upset the thawing Russia-U.S. relations and put their bilateral ties to test.” [6]

The new Russian Military Doctrine (in Russian at http://news.kremlin.ru/ref_notes/461) listed under the heading of “Main external threats of war” the following concerns, with the most pressing first:

- The goal of NATO to arrogate to itself the assumption of global functions in violation of international law, and to expand the military infrastructure of NATO nations to Russia’s borders including through expansion of the bloc

- Attempts to destabilize the situation in individual states and regions and the undermining of strategic stability

- The deployment of military contingents of foreign states (and blocs) on territories neighboring Russia and its allies, as well as in adjacent waters

- The establishment and deployment of strategic missile defense systems that undermine global stability and violate the balance of forces in the nuclear field, as well as the militarization of outer space and the deployment of strategic non-nuclear systems precision weapons

- Territorial claims against Russia and its allies and interference in their internal affairs

- The proliferation of weapons of mass destruction, missiles and missile technology, increasing the number of states possessing nuclear weapons

- The violation by a state of international agreements, and failure to ratify and implement previously signed international treaties on arms limitation and reduction

- The use of military force in the territories of states bordering Russia in violation of the UN Charter and other norms of international law

- The escalation of armed conflicts on territories neighboring Russia and allied nations

At the 46th annual Munich Security Conference held on February 6 and 7 NATO Secretary General Anders Fogh Rasmussen said “I have to say that this new doctrine does not reflect the real world,” though any impartial perusal of the above nine points it addresses would confirm that it portrays the world exactly as it is. Regrettably.

For example, after Romania’s president revealed that U.S. missiles would be deployed in the country, a statement by the nation’s Foreign Affairs Ministry said “Romania was and continues to be a consistent promoter in NATO of the project regarding the gradual-adaptive development of the anti-missile defence system in Europe….The decision to take part in the U.S. system is in full agreement with what the NATO summits in Bucharest in 2008 and in Strasbourg-Kehl in 2009 decided in this respect.” [7]

On the first day of the Munich Security Conference Russian Foreign Minister Sergei Lavrov said in his address that “With the disintegration of the Soviet Union and the Warsaw Treaty Organization a real opportunity emerged to make the OSCE [Organization for Security and Co-operation in Europe] a full-fledged organization providing equal security for all states of the Euro-Atlantic area. However, this opportunity was missed, because the choice was made in favor of the policy of NATO expansion, which meant not only preserving the lines that separated Europe during the Cold War into zones with different levels of security, but also moving those lines eastward. The role of the OSCE was, in fact, reduced to servicing this policy by means of supervision over humanitarian issues in the post-Soviet space.”

He continued with a review of the failure of post-Cold War security measures in Europe:

“That the principle of indivisibility of security in the OSCE does not work doesn’t take long to prove. Let’s recall the bombing of the Federal Republic of Yugoslavia in 1999, when a group of OSCE countries, bound by this political declaration, committed aggression against another OSCE country, which was also covered by this principle.

“Everyone also remembers the tragedy of August 2008 in Transcaucasia, where a member country of the OSCE which is bound by various commitments in the sphere of nonuse of force used this force, including against peacekeepers of another member country of the OSCE, in violation not only of the Helsinki Final Act, but also of the concrete peacekeeping agreement devoted to the Georgian-South Ossetian conflict, which excludes use of force.” [8]

He was followed the next day by NATO chief Rasmussen, who not only failed to respond to the accusation that peace and security in Europe were endangered by his military organization’s relentless drive toward Russia’s borders, but advocated NATO involvement beyond the continent to encompass the world.

In claiming “that in an age of globalised insecurity, our territorial defence must begin beyond our borders,” Rasmussen urged “that NATO should become a forum for consultation on worldwide security issues.”

His address also included the demand to “take NATO’s transformation to a new level – by connecting the Alliance with the broader international system in entirely new ways.”

Russia cannot propose a common security system for Europe, but NATO can dictate an international one.

Rasmussen boasted that the NATO-led International Security Assistance Force in Afghanistan “will further grow in strength this year, with more than 39,000 extra troops,” in the sanguinary killing field the West has created in the long-suffering country.

Not only did he not express a single reservation about a war that is now in its tenth calendar year and growing deadlier by the day, but he celebrated it as a model for the world: “Our Afghanistan experience…leads me to [another] point: the need to turn NATO into a forum for consultation on worldwide security issues….NATO is a framework which has already proven to be uniquely able to combine security consultation, military planning and actual operations for more than just NATO members themselves. Again, look at Afghanistan.” [9]

Konstantin Kosachev, chairman of the Russian Duma’s International Affairs Committee, also spoke at the Munich Security Conference and said “I believe the problem of NATO today is that NATO develops in reverse order – it tries to act globally more and more but continues to think locally….As soon as NATO starts to reach beyond its borders this is no longer just an internal matter for NATO.”

He also “accused the alliance of provoking the Georgia-Russia conflict by promising Tbilisi eventual membership….” [10]

Current Russian deputy prime minister and former defense minister Sergei Ivanov spoke at Munich too and in regard to the stalled START talks said “It is impossible to talk seriously about the reduction of nuclear capabilities when a nuclear power is working to deploy protective systems against vehicles to deliver nuclear warheads possessed by other countries,” reminding conference participants that “Russia unilaterally cut its tactical nuclear arsenals by 75% in the early 1990s, but the United States did respond with a similar move and even failed to withdraw its weapons from Europe.” [11]

Two days after the Munich Security Conference the secretary of the Security Council of Russia, Nikolai Patrushev, reiterated Lavrov’s and Kosachev’s earlier concerns, stating “We have grave doubts [that Russia will be more secure due to NATO expansion.] NATO represents a rather serious threat to us.”

A major Russian news agency wrote that “Patrushev criticized NATO for its continued enlargement efforts, including its encouragement of Georgia’s and Ukraine’s bids to join the alliance.

“He also blamed NATO for arming and preparing Georgia for an attack on South Ossetia and Abkhazia, and said NATO countries continued to supply Tbilisi with weaponry despite Russia’s protests.” [12]

To substantiate those concerns, the 10th annual NATO Week began in Ukraine on February 9 and at the same time the government of Georgia “endorsed the Annual National Program of cooperation with NATO [ANP] for 2010,” [13] an initiative launched by NATO shortly after Georgia’s invasion of South Ossetia and war with Russia in August of 2008.

War in the Balkans, war in South Asia, war in the Caucasus. This is the model NATO calls for replicating on a world scale. And as the bloc moves further eastward it brings in his wake troops and military equipment, air and naval bases, and missile shield installations.

On February 9 Chief of the General Staff of the Armed Forces of Russia Nikolai Makarov warned “The development and establishment of the (U.S.) missile shield is directed against the Russian Federation.” [14]

He also said “that differences with the United States over plans for a missile defense shield were holding up a nuclear arms reduction treaty” between Washington and Moscow, that “the differences had so far prevented the signing of the arms treaty.” [15]

In further reference to the START negotiations, he stated “U.S. missile defense plans are a threat to Russian national security and have slowed down progress on a new arms control treaty with Washington.”

In Makarov’s own words, “The treaty on strategic offensive weapons we are currently working on must take into account the link between defensive and offensive strategic weapons. This link is very close, they are absolutely interdependent. It would be wrong not to take the missile defense into account.” [16]

Earlier in the week spokesman for the Russian Foreign Ministry Andrei Nesterenko reiterated his nation’s demand that U.S. tactical nuclear arms should be removed from Europe. He said that the “withdrawal of American tactical weapons from Europe back to the United States would be welcome. It should be accompanied by complete and irreversible demolition of the entire infrastructures supporting the deployment of such weapons in Europe,” and reaffirmed his nation’s position that “nuclear arms should be deployed only in the territory of the states possessing such weapons.” [17]

Six days afterward, to add to Russia’s foreboding and to demonstrate Western recalcitrance on the issue, the insufferable ex-NATO secretary general George Robertson was quoted in the Turkish press acknowledging that the U.S. has from 40 to 90 nuclear weapons at Turkey’s Incirlik Air Base. Lord Robertson made the statement in the context of demanding U.S. warheads remain in Germany. He is of course neither a German nor an American but is a former NATO chieftain and as such considers himself entitled to determine matters of this grave nature.

Also on February 10 a top Polish presidential aide, Wladyslaw Stasiak, was in Washington to discuss the imminent deployment of American Patriot Advanced Capability-3 theater anti-ballistic missiles. He met with members of the U.S. National Security Council and with “experts at the conservative-leaning Heritage Foundation and the Center for International and Strategic Studies.”

Afterward he stated “We talked about the future of NATO in the context of a new strategic concept, as well as present day NATO, especially concerning Article 5 and its practical implementation,” referring to the Alliance’s military intervention provision. [18]

On the same day a spokesman for the Ukrainian Foreign Ministry expressed concerns over U.S. missiles being deployed in its fellow Black Sea nation Romania. “As a neighboring country with Romania, we cannot let U.S. plans for a missile shield deployment in close proximity to our border go unnoticed, especially since some elements are expected to be based in the Black Sea.” [19]

Vladimir Voronin, until last September president of Moldova, which borders both Romania and Ukraine, recently warned that U.S. missile deployments in and off the coast of Romania “could turn neighboring Moldova into a front-line area” and that “Romania’s position on the U.S. missile shield and also open support for it from the Moldovan current leadership could have disastrous consequences for security in the region.” [20]

In doing so he echoed Russian ambassador to NATO Dmitry Rogozin who two days before said “U.S. plans to base a missile-defense system in eastern Europe are a pretext to encroach on Russia’s borders” and “The U.S. is using Iran’s actions to globalize its system of missile defense.” [21]

Four days after his previous comments, Moldova’s Voronin said that “The US ABM deployment in Romania is bringing Europe back to the ‘Cold War’” and that he “doubts that US ABMs are targeted against Iran’s threat only.” [22]

The Pentagon opened a missile radar base in Israel’s Negev Desert in 2008, manned by over 100 military personnel, which has a range of 2,900 miles, almost three times the distance between the Israeli and Iranian capitals. The forward-based X-band radar at the Nevatim Air Base can monitor all of eastern and much of southern Russia.

The more the U.S. and its NATO allies thunder against alleged Iranian threats, the tighter the Western interceptor missile cordon is secured around Russia.

On February 10 the local press wrote that “the Czech Republic is in discussions with the Obama administration to host a command center for the United States’ altered missile defense plan.” [23]

The following day the Chinese ambassador to Russia, Li Hui, spoke with one of his host country’s main news agencies and “reiterated Beijing’s concerns that [U.S. missile shield] plans might disturb the current strategic balance and stability and escalate tensions” and correctly characterizing the true scope of the American interceptor missile project “said the creation of a global missile defense undermined international efforts to bring nuclear proliferation to a halt.” [24]

His warnings, like those of Russia’s, went unheeded in Washington and among its NATO allies. On February 12 Poland approved a Status of Forces Agreement (SOFA) with the United States for “100 US soldiers to be stationed in Poland as part of the shield, which will include Patriot missiles and SM-3s.” [25] This may be the first confirmation that American ship-based (and/or land-based adaptations of) Standard Missile-3 longer-range interceptors will be deployed along with Patriot Advanced Capability-3 missiles near Russia’s western border.

Also on February 12 Bulgarian Prime Minister Boiko Borisov revealed that the U.S. will hold talks with his government to station potential first strike-related interceptor missile components in the Black Sea nation. U.S. Ambassador James Warlick confirmed that preliminary discussions have already occurred. The Bulgarian head of state explained the rationale for his willingness to take the risky move: “My opinion is that we have to show solidarity. When you are a member of NATO, you have to work for the collective security.”

Saturday 6 February 2010

Webster Tarpley WCR 6/02/09...8 parts....

The NHS IT Economic Black Hole.

To illustrate how much a billion pounds was by equating it to a man on the median wage—about £23,500 at the time. I pointed out that—even were he allowed to keep 100% of his earnings—it would take such a man 44 years to earn a million pounds and thus 44,000 years to earn a billion.

Via Question That, here is a CiF comment that puts it another way.

The NHS IT programme is a complete, utter fucking mess. It doesn't work and it never will work. It will eventually be scrapped, and if Liebour were still in power it would promptly be replaced by something even more useless and expensive.

It will end up costing the taxpayer twenty billion pounds. Do you understand what twenty billion pounds are? Let me help you:

On the day that Queen Victoria died, I put half a million pounds in used fivers in a suitcase, took it out into the woods, and burnt it in a bonfire. There wasn't any good reason for doing this—in much the same way as there isn't any good reason for much of Liebour's 'public spending'—but I did it anyway.

Then I did the same thing the next day. And the next. And the next. Every day of every week of every month of every year since the day that Queen Victoria died I have been burning half a million pounds in used fivers in a suitcase in a bonfire in the woods.

And I'm still not at twenty billion. I've still got nearly two years to go.

That's the sum of taxpayers' money that Liebour have spunked down the drain on one single foul-up in one single Department. If you're genuinely stupid enough to want them to carry on, then use your own money. Give them all of it. Tell them they can spend it on whatever they like.

They'll be delighted.—Cloutman

Queen Victoria died on the 22 January 1901.

It is worth pointing out that the state, in its multifarious forms, will be spending some £650 billion of our money this year.

Were I to take the steps that Cloutman suggests—burning half a million pounds a day—it would take me just under 3,572 years to burn what the state is spending this year alone. In other words, were I to start burning half a million pounds a day from the date of Queen Victoria's death, I would be done sometime in the year 5473 (roughly).

The trouble with such enormous sums of money is that even when you attempt to put them into some sort of perspective, the numbers end up so huge as to be as meaningless as the number that you started with.

Wednesday 3 February 2010

Goldman Sachs....

The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

- Matt Tabbi, “Inside the Great American Bubble Machine”


The Great Vampire Squid



For years, it was hard for many of us to fathom the psychopathic nature of our financial elites, or to expand the meaning of Matt Tabbi’s


marvelous description of Goldman Sachs, the great vampire squid. Squid seems a fitting name for the financial cartel that drives what I have traditionally called the Tapeworm.

marvelous description of Goldman Sachs, the great vampire squid. Squid seems a fitting name for the financial cartel that drives what I have traditionally called the Tapeworm.









There were some who saw the danger immediately and tried to warn us, like Sir James Goldsmith. There were some, like myself, who tried to prevent the housing bubble and find alternatives to investing our life savings in it.

While those efforts did not stop the squid, they certainly made it clear that the squid take down of the planet was, indeed, part of a plan. That’s all documented now.

The Squid Shifts the Money

I often tell the story of my meeting with a group of pension fund leaders in 1997 in which the President of the CalPERs pension fund— the largest in the country—said, “You don’t understand. It’s too late. They have given up on the country. They are moving all the money out in the fall (of 1997). They are moving it to Asia.”

Sure enough, in the fall of 1997 trillions of dollars began to shift out of North America and into the emerging markets, including Asia and China. This included over $4 trillion that went missing from the US government, which I have referred to for years as “the missing money.”

My back-of-the-envelope estimate was that approximately $10 trillion was moved out legally and illegally between that fall of 1997 and 9-11. Given the implications to US pension funds and retirement savings, I have said for years that perhaps the most important question of our generation is where did the money go and how do we get it back?

To the squid’s credit, shifting investment from places with aging populations to places with younger, more dynamic populations makes sense. Problem is that oftentimes the money left by sneaky means, leaving many high and dry to the benefit of the few engineering the moves. Equity owned by the many disappeared out the back door, and turned up in Asia owned by the few.

It is likely that not all the money went to Asia. There are, of course, offshore accounts for all those involved indicated by the extraordinary growth of private banking and offshore havens. It would appear that significant funds went to the black budget, including the high tech weaponry capable of providing enforcement of investment terms and conditions in foreign lands without a friendly legal infrastructure. There are also questions about space investment and whether corporations are not just mining the natural resources around the globe but on other globes as well.

Squid Crime Pays

The criminality of this massive capital shift was extensive. If there was any doubt of the profound and growing influence of narco dollars, the European Union’s lawsuit against RJR (under the ownership and control of leveraged buyout firm KKR) for global money laundering in partnership with the Russian mafia, Latin American drug cartels and Saddam Hussein’s family told the tale. Economic warfare tactics were used to drain money from those we most feared, such as Russia. (See Financial Coup d’ Etat.)

The squid would justify its actions by saying that consensus in a democracy for forward thinking investment moves was not possible. The reality was that global “pumps and dumps” produced phenomenal returns. The “strong dollar policy,” made possible by the suppression of the gold price, lifted the value of the dollar while convenient “credit crisis” ensured that equity positions could be bought up cheap on the other side of the globe. The genetic reengineering of the seed supply and the industrialization of agriculture would permit central control of the most politically powerful market in the world - one that would support a global digital currency in the way that oil and gas have supported the U.S. dollar.

The US Housing and Derivatives Bubble

However, the most important source of capital was the theft of U.S. retirement savings through the engineering of the U.S. housing and debt bubbles. This involved issuing trillions of securities and derivatives, secured by shoddy or non-existent collateral, representing fraudulent inducement on a massive scale.

In the process, the great vampire squid sold trillions in fraudulently overvalued securities to US investors and pension funds as well as retail and institutional investors around the world.

The Squid Hits the Fan

In 2008, global investors finally realized that they had been stuck with fraudulently issued securities by the great vampire squid. The nature of the collateral fraud and questionable practices in the US mortgage and derivatives markets had been understood. However, millions of investors assumed the squid could be counted on to maintain the global ponzi scheme.

By early 2009, the squid was facing a global financial bloodbath that could potentially cook them into little bits of calamari. Those stuck with bum paper were threatening to pull their money out of the squid and worse.

The squid panicked.

Best Investment Performance of 2009: $1 Billion to Elect Obama

Riding to the rescue was Barack Obama. Based on what was clearly extensive domestic and global profiling, the great vampire squid spent approximately $1 billion (and likely more covertly) to get Obama elected in November 2008 and adored globally. The squid’s returns make this the single best performing investment of 2009 and the decade, if not the last century.



Chart: Opensecrets.org

Bloomberg recently announced that gold was the best performing investment for the decade. They failed to mention that gold’s near 300% rise of the decade could not compare to the exponential multiplication achieved in a much shorter period by the squid’s financing their Presidential candidate into the White House. Electing a Harvard lawyer who inspired the hopes and dreams of those who had been most brutally drained by the housing bubble and drug wars clearly was a stroke of financial genius. While gold had passed the $1,200 per oz. level before the end of the 2009, its performance still did not compare to the $10,000 plus per oz. the squid was realizing on the opium flowing from the fields in Afghanistan.

This is not in any way to diminish the importance of the squid’s investment in governmental and private intelligence agencies. However, at times like this, you can’t kill everyone. Although, we admit there were moments in 2009 when it started to look like someone was trying. (See 1, 2, 3, 4, 5, 6, 7)

From the Revolutionary War through 2009, the U.S. government accumulated $12 trillion in debt. And then, in one year, President elect and President Obama restored to office the very people who had engineered the fraud. With the squid’s preferred team in place in the White House, at the US Treasury and at the Department of Defense, President Obama led the gifting and lending of an additional $12 Trillion to the great vampire squid.

Let me underscore the enormity of this number again. An amount equivalent to all the debt we had accumulated in 252 years and numerous wars we gave or lent to the squid in one year.

And so it was that the banks of Europe were relieved of their fraudulent paper while the Federal Reserve balance sheet ballooned with toxic assets. No doubt in profound gratitude and appreciation for President Obama’s extraordinary political achievement, a grateful Europe bestowed upon him the Nobel Peace Prize.

In the meantime, with strong support from the Federal Reserve and U.S Treasury, the great vampire squid was able to engineer extraordinary profits on high-risk speculative investments by an amount sufficient to “pay back” bailout loans, fund dividends to shareholders and pay their leaders huge and hideous year-end bonuses.

The Squid to Main Street: “Drop Dead!”

Capital it would seem is available only for squid speculation. The real economy is a source of capital for the squid. It is no longer a use of capital. Hence, drain on communities and the failure to reinvest in serious innovation and long term U.S. growth accelerated during 2009.

The political reality is that the U.S. government is deeply dependent on the squid to finance growing deficits, engineer global economic warfare and manage markets in the precious metals, oil, commodities and financial markets. So with U.S. unemployment over 10% (says the government) or 20% (says John Williams at www.shadowstats.com, a far more reliable source) and significant unemployment around the globe, the great vampire squid couldn’t care less what the man in the street thinks.

As Dick Cheney said about deficits, “they don’t matter.”

The Squid Bottom Line

In 2009, the great vampire squid finished engineering the single greatest financial shift in the history of the planet. It took two decades and constituted a financial coup d’ etat. Even our hero Congresswoman Kaptur said so.

The year finished with the field commanders within the squid congratulating themselves and paying themselves richly for a “job well done.”

Without a doubt, 2009 was the year of the great vampire squid.