Wednesday, March 19, 2008

Let's bring "Moral Hazard" Back To Wall Street

Update: Democracy now!

March 20, 2008

Fed Bailout of Bear Stearns First of its Kind Since Great Depression
. . . .

JUAN GONZALEZ: I’d like to ask Max Wolff, this issue of government oversight and regulation, people forget now that it was back in the Clinton—in the latter part of the Clinton years that Glass-Steagall was eliminated, and I think Rubin’s last act as—and also a former Goldman Sachs person, right?—his last act before he left the Clinton administration was achieving the end of the Glass-Steagall Act. To what degree did that have an effect on how these kinds of risky investment practices are jumping over into the regular banking system?

MAX FRAAD WOLFF: That’s a great question. I mean, there’s also a debate about whether that was his last act at the Department of Treasury or his first act at Citigroup, because it was Citigroup’s merger that would have been illegal had Glass-Steagall not been repealed.

AMY GOODMAN: Explain Glass-Steagall.

MAX FRAAD WOLFF: Glass-Steagall was a law put in place after the Great Depression that created what they call a firewall or a separation between investment banking and commercial retail banking, the idea being that you want to contain the potential breakout of problems in the financial system so that it can’t spread like wildfire and roughshod across different segments of the industry, more or less like it has across the different segments of the US financial industry in the last, say, ten to twelve months with absolutely devastating results, which is still ongoing. So we can’t sum up the damage done, because each day there’s more damage, a little bit like the war in Iraq. Getting a tally on the damage or cost of Iraq is impossible because it goes up while you’re trying to measure how much it went up the day before, the week before, the month before, the year before. So it’s a bit of a mess.

So, Glass-Steagall is part of an old regulatory framework that has been systematically torn down. The tearing down of that framework has allowed global financial markets to integrate, which has allowed vast savings to pour into the United States, new financial products to be innovated by Wall Street and all kinds of different financial firms, without regulation outside the core of the banking system, which built up and built up and built up and was celebrated and celebrated and celebrated as the efficiency and the genius of the free market, until, of course, with no brakes and no skid marks at the scene of the accident, it hit a brick wall.

The only thing I might add to that is I take a bit of an issue with the description that Bear Stearns was bailed out. Everybody Bear Stearns does business with was bailed out. Bear Stearns was taken out by the Federal Reserve and JPMorgan, which then served Bear Stearns’s still-warm remains to JPMorgan Chase. And they are now devouring them, and it’s being celebrated as a rescue. And for the 30 percent of all shares held by its employees, it is a devastating blow that has taken away retirement plans, hopes for the future, etc., etc. So they bailed out Wall Street—

AMY GOODMAN: Max Wolff, what’s going to happen? What should happen?

MAX FRAAD WOLFF: Well, I mean, I think it’s always tough to know exactly what’s going to happen. The way I like to do this in other lectures or my classes is to make the following point: there’s an epidemiology to this. And the discussion so far reminds me of the AIDS as “GAIDS” discussion, where we pathologize early victims as deviants who get some just punishment and pretend that it’s not a sort of pathogen entering a population where the sickest and most vulnerable fall first.

The sickest and most vulnerable people in the US money game are highly indebted, low-income consumers who tend to get subprime loans. In the journal—the mainstream journalist discussion, it sounds like there’s subprime people, like they’re born subprime in a special incubator with some kind of deformity. In fact, that’s a FICO credit score. And the poorest people get hit first and hardest by every economic disruption, because poverty means vulnerability in a market economy. So what we’ve seen in the beginning of a turndown of a long boom, a boom that really began in the early ’80s, is the weakest and most vulnerable with the most debt and the least income, the subprime crowd, hit—got slammed first, and then it sort of moves to the population, as “GAIDS” becomes AIDS becomes recognized.

And so, we’re—I think we’re in the early innings of this, maybe a third of the way through—half, if we’re lucky.

Whole transcript:

This article was just to good to pass up!

THE ECONOMY March 19, 2008

The Fed's Too Easy on Wall Street
The Fed should insist on its prerogative to strictly regulate financial institutions in boom times, not just to bail them out when it all goes bad
by Chris Farrell

Booms and busts are inevitable in a capitalist system. Right now, the Federal Reserve and, belatedly, the U.S. Treasury, are out to avoid facing the terrifying prospect that the credit crunch currently bedeviling Wall Street could morph into a sharp and sickening economic downturn—or even a full-fledged depression.

Think about what the Fed has done in recent months: cut its benchmark interest rate by 3 percentage points (including a 75-basis-point easing on Mar. 18), injected massive amounts of liquidity into the financial system, set up an alphabet soup of funding mechanisms for big U.S. banks (a Term Auction Facility, or TAF; a Term Security Lending Facility, or TSLF; and a Primary Dealer Credit Facility, or PDCF), and wielded extraordinary powers to engineer the rescue of investment bank Bear Stearns (BSC).

The Fed's unusual burst of activity has a clear, specific purpose. In the jargon of Wall Street rocket scientists, the Fed wants to avoid a "fat tail" catastrophe event or "regime shift." In simpler, terms, it's trying to stop a financial-system meltdown. The Fed's urgent efforts to shore up the financial system are understandable, when depression fears have shifted from society's "crackpot fringe" to the power centers of Washington and New York. For Ben Bernanke & Co., there was no real alternative.


While Fed officials scramble to contain the damage, financial markets reel, and taxpayers get ready to foot the bill for the rescue efforts, a nagging question remains: What about the Wall Street titans who got us into this mess?

"The Federal Reserve continues to bail out major financial institutions without imposing meaningful conditions to improve their conduct and performance," complains Peter Morici, professor at the Smith Business School at the University of Maryland.
Here's a staggering figure to contemplate: New York City securities industry firms paid out a total of $137 billion in employee bonuses from 2002 to 2007, according to figures compiled by the New York State Office of the Comptroller. Let's break that down: Wall Street honchos earned a bonus of $9.8 billion in 2002, $15.8 billion in 2003, $18.6 billion in 2004, $25.7 billion in 2005, $33.9 billion in 2006, and $33.2 billion in 2007.

Those years were the heyday of the hedge fund pirate, the private equity buccaneer, the 9- and 10-figure-salary quant jock, and other financial creatures who created all kinds of complex securities and highly leveraged transactions, many of which are now coming a cropper, from LBOs to CDOs.


What a deal. Financiers preached the free-market gospel and pocketed unheard-of sums of money—yet when times got tough, they called for a government bailout. "Markets work if participants are at risk to both positive and negative consequences," says Raghuram Rajan, an economist at the University of Chicago Graduate School of Business and a former chief economist at the International Monetary Fund. "But on the upside, [financial firms] said, 'Hands off, don't upset the party,' and 'Don't even think of regulating us,' yet when things go the other way they say, 'We need help.'"

To be sure, not everyone has escaped unscathed. Nine months ago, Bear Stearns stock sold for $150 share. JPMorgan Chase (JPM) bought the beleaguered investment bank for $2 a share over the weekend, wiping out much of the wealth of the firm's employees.
So far that financial hit seems to be more the exception than the rule. After all, when Stanley O'Neal lost his job as head of Merrill Lynch (MER), he retired with more than $160 million in benefits and stock while Charles Prince, former CEO of Citigroup (C), left with a walk-away package worth almost $70 million.


In our system it's impossible to insist that Wall Street cough up the vast sums earned during the go-go years. [Is it really??? Chris] That said, when the turmoil calms down regulators should sharply step up their scrutiny of the industry, demand more transparency, and require greater accountability among financiers. The pendulum had swung too far toward "anything goes."

The President's Working Group on Financial Markets—the heads of the Federal Reserve Board, the New York Federal Reserve Bank, the Securities & Exchange Commission, and other financial policymakers and regulators—recently issued recommendations for overhauling mortgage finance (, 3/13/08). The recommendations are certainly a good start. But much more needs to be done. For instance, "if the regulators now say that investment banks have a line to the Fed in bad times, then the Fed has to have monetary authority over the investment banks in good times, too," says Rajan.

Economist John Maynard Keynes described the essential dynamic of a capitalist economy as a struggle between the lure of financial safety, or "hoarding," and the entrepreneurial instinct, or "animal spirits." As in many other areas of life, a sense of balance is essential. We've all learned that too much deregulation unleashes an abundance of animal spirits that can be dangerous to our economic health. The trick for the men and women that guide the nation's financial affairs will be to create a regulatory regime that encourages innovation while discouraging bailouts. In that regard, a little moral hazard can go a long way.

Farrell is contributing economics editor for BusinessWeek. You can also hear him on American Public Media's nationally syndicated finance program, Marketplace Money, as well as on public radio's business program Marketplace. His Sound Money column appears on

Tuesday, March 18, 2008

Bailouts Are Good For You!

In listening to the corporate media yesterday, one might have gotten the impression that the Fed’s recent bailouts were just a private little affair between the Fed and Wall Street; that the only losers in Wall Street’s gambling spree are the employees of Bear Stearns and shareholders who have suffered losses, and not taxpayers and consumers; that they had to bail out the investment bank to prevent systemic economic collapse; that bailouts are good for everyone.

Whether they should or will prevent further economic collapse is an open question. There is no doubt that if more investment banks go under that the pension funds and IRA’s of the well-to-do are threatened, and that there will be further job losses and other adverse effects. The “D” word comes to mind. But what the bailouts really do is help preserve the game, the Wall Street casino, and the financial positions of the rich and relatively well off. The positions of the poor and lower economic classes in our society are largely unaffected, except that either way, their positions will likely worsen. No bailouts for them.

The bailouts at this point are not conventional taxpayer bailouts where taxes paid by average American are being directly transferred to J.P. Morgan and other banks, but the taxpayers and consumers will be affected in other ways. This is how a writer for the New York Times put it:

March 18, 2008
Rescue Puts Credibility of the Fed on the Line

If the rescue effort fails, taxpayers could indirectly wind up having to assume part of the cost. Tax revenue does not pay for the Federal Reserve’s operations, including the rescue effort, because the Fed earns income from its trading operations.
But the Fed does pay the Treasury a regular stream of money every year out of its trading profits, lowering the amount it needs to borrow from outsiders. If the new borrowers on Wall Street are unable to repay, and if the market value of the securities they pledge as collateral continues to drop, the losses will come out of the Fed’s payments to the Treasury

But much worse than that is the inflationary effect of the Fed pumping $400 billion or more dollars into the money supply and economy through the bailouts, not to mention continually cutting interest rates to banks. Here is how Bernanke himself put it way back in 2002 when the bubble economy was humming right along:

Remarks by Governor Ben S. Bernanke

Before the National Economists Club, Washington, D.C.
November 21, 2002

Deflation: Making Sure "It" Doesn't Happen Here 

But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”

Now if you are poor, unemployed, retired on a fixed income, or in any other fix where your money is unlikely to expand to keep up with inflation, your dollars are going to buy you less and less. If you couple that with the falling dollar, the rising cost of imports, and ever increasing taxes, your screwed. That’s what Wall Street, their friends at the Fed, and the government condoned deregulated economy are doing for you. Nothing. You will pay for the transgressions of the greedy financiers on Wall Street. But you already knew that—that’s standard in a system called Capitalism for the rich.

Anyway, a much more thorough examination of the situation can be found at a blog called “naked capitalism”

There is a very good list of economy related links called BLOGROLL down on the right side of the page.

Another interesting blog is Katherine Austin Fitt’s blog at:

As for whether bailouts are necessary to prevent economic collapse, read the following by Dean Baker ( ).

A Stock Transfer Tax: The Right Medicine for Wall Street
By Dean Baker

This column was posted on TPM Cafe on March 15, 2008.

Bears Stearns, the Wall Street investment banking giant, is now on life support, being kept alive only by infusions of tens of billions of taxpayer dollars courtesy of the Federal Reserve Board. In the months ahead, it is virtually certain that more of the Wall Street big boys will be pushed to the edge, victims of excessive greed and really bad judgment.

Until about six months ago, Wall Street was at the center of the world-wide neo-liberal push to eliminate government regulation and allow the market to operate unfettered. (This was always more hype than reality as I show in The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer [free download available at ].)
Things are different today. With the banks on the edge of collapse, the bankers are demanding the sort of government help they would deny to working mothers trying to provide their kids with health care, child care, and decent housing and education. Of course the situation is very different. The working mothers are looking for chump change, the Wall Street boys want real money.

While the bankers are claiming to have hostages - they say the financial system and the whole economy will be brought to its knees if we don't meet their demands - they are not telling the truth. We absolutely have an interest in keeping the banks operating in an orderly manner. This can be done without bailouts.
England gave us the model last month when the government took over Northern Rock, a major bank that managed to get itself in serious trouble with bad bets in the mortgage market. The government replaced the top management and put in new people who set about getting its books in order. Once they have this done, the bank will be resold to the private sector.

Northern Rock is still in business. Depositors can get to their money and the bank sill conducts its normal business. There have been no runs in England due to this takeover.

The difference between what happened with Bears Stearns and what happened at Northern Rock is that the managers at Bears Stearns who bankrupted the bank are still calling the shots and collecting their multi-million dollar salaries. The stockholders also have about $4 billion in wealth in a bank that would otherwise be insolvent, if not for the courtesy of the cash infusion from U.S. taxpayers.

Northern Rock gives us the model for getting through this financial crisis. We want to keep the banks operating, but we have absolutely zero interest in giving taxpayer dollars to some of the richest people in the country, who apparently weren't smart enough to handle their own affairs. No nanny state for the rich boys.

In fact, we should look to borrow another policy from the United Kingdom that can help set our financial markets in order. The U.K. imposes a modest stock transfer tax of 0.25 percent on every purchase or sale of a share of stock. This sort of tax would make almost no difference to a typical middle class shareholder. However, a tax of this size, with comparable taxes on various other financial instruments, like options and futures, would put a serious crimp in the money shuffling business that has wrecked so much havoc on the U.S. economy.

Furthermore, such a tax could raise a great deal of money, easily in the neighborhood of 1.0 percent of GDP or $150 billion a year. Imagine that we could finance national health care insurance with a financial transactions tax, or provide quality child care and pres-school education, or build up a green 21st century infrastructure, or maybe just have a nice middle class tax cut of $1,000 per family.

There is no shortage of good uses for the money that could be raised through a financial transactions tax. This is the conversation that the country should be having. Instead of funneling tens or hundreds of billions of taxpayer dollars to the failed wizards of Wall Street, we should be talking about what they can do for us.

Monday, March 17, 2008

BEAR STEARNS BAILOUT—Whatever happened to Laissez-faire and “The Free Market?”

Bailouts for Wall Street, Bankruptcy for the little guy.

As we witness the bailout of billionaires and the economy sinking into recession, or worse, Robert Kuttner’s comments on the effects of deregulation in his 2007 book, The Squandering of America, seem even more prescient:

But if some technical entrepreneurs arguably deserve large earnings, the Wall Street billionaires are a whole different story. There is a very good case that their windfall profits are actually making the economy worse off. The gains to hedge fund operators and merger-and-acquisition specialists in the newly deregulated environment are often not a case of inventing something new and valuable, but rather taking advantage of an insider position to capitalize on information that will move markets before it becomes widely known, or manipulating those markets for personal gain, or rearranging assets for the value that can be extracted from the transaction. While some Wall Street insiders do add value, spillover costs of the windfall economy frequently exceed the benefits.”

Ah, yes—the spillover costs. The fed is doing its best to shield those primarily responsible for the problem from those spillover costs. Those costs will be paid for by the taxpayer, as they often are in American special interest capitalism for the rich.

As the denial continues in some quarters, the 5 articles and the blog comments below help put the Fed’s actions in proper perspective. -Chris

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Bear Stearns Fire-sale sends Global Markets Plunging; Dollar Routed

By Mike Whitney

Bear's travails are just the beginning of Wall Street's woes. Now there's talk of Lehman Brothers going under. According to the Wall Street Journal:


Too Big to Bail

The Fed's Wall Street Dilemma

By Pam Martens

Americans learned two new truths last week from the Bush Administration's version of Life's Little Instruction Book: if you're a Wall Street miscreant you're thrown a lifeline; if you're a Wall Street crime fighter you're thrown a land mine.
See also:
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The $200 billion bail-out for predator banks and Spitzer charges are intimately linked

By Greg Palast
Reporting for Air America Radio’s Clout

Listen to Palast on Clout at

While New York Governor Eliot Spitzer was paying an ‘escort’ $4,300 in a hotel room in Washington, just down the road, George Bush’s new Federal Reserve Board Chairman, Ben Bernanke, was secretly handing over $200 billion in a tryst with mortgage bank industry speculators.

Both acts were wanton, wicked and lewd. But there’s a BIG difference. The Governor was using his own checkbook. Bush’s man Bernanke was using ours.

This week, Bernanke’s Fed, for the first time in its history, loaned a selected coterie of banks one-fifth of a trillion dollars to guarantee these banks’ mortgage-backed junk bonds. The deluge of public loot was an eye-popping windfall to the very banking predators who have brought two million families to the brink of foreclosure.

Up until Wednesday, there was one single, lonely politician who stood in the way of this creepy little assignation at the bankers’ bordello: Eliot Spitzer.

Who are they kidding? Spitzer’s lynching and the bankers’ enriching are intimately tied.

How? Follow the money.

The press has swallowed Wall Street’s line that millions of US families are about to lose their homes because they bought homes they couldn’t afford or took loans too big for their wallets. Ba-LON-ey. That’s blaming the victim.

Here’s what happened. Since the Bush regime came to power, a new species of loan became the norm, the ‘sub-prime’ mortgage and it’s variants including loans with teeny “introductory” interest rates. From out of nowhere, a company called ‘Countrywide’ became America’s top mortgage lender, accounting for one in five home loans, a large chuck of these ‘sub-prime.’

Here’s how it worked: The Grinning Family, with US average household income, gets a $200,000 mortgage at 4% for two years. Their $955 a month payment is 25% of their income. No problem. Their banker promises them a new mortgage, again at the cheap rate, in two years. But in two years, the promise ain’t worth a can of spam and the Grinnings are told to scram - because their house is now worth less than the mortgage. Now, the mortgage hits 9% or $1,609 plus fees to recover the “discount” they had for two years. Suddenly, payments equal 42% to 50% of pre-tax income. Grinnings move into their Toyota.

Now, what kind of American is ‘sub-prime.’ Guess. No peeking. Here’s a hint: 73% of HIGH INCOME Black and Hispanic borrowers were given sub-prime loans versus 17% of similar-income Whites. Dark-skinned borrowers aren’t stupid – they had no choice. They were ‘steered’ as it’s called in the mortgage sharking business.

‘Steering,’ sub-prime loans with usurious kickers, fake inducements to over-borrow, called ‘fraudulent conveyance’ or ‘predatory lending’ under US law, were almost completely forbidden in the olden days (Clinton Administration and earlier) by federal regulators and state laws as nothing more than fancy loan-sharking.

But when the Bush regime took over, Countrywide and its banking brethren were told to party hardy – it was OK now to steer’m, fake’m, charge’m and take’m.

But there was this annoying party-pooper. The Attorney General of New York, Eliot Spitzer, who sued these guys to a fare-thee-well. Or tried to.

Instead of regulating the banks that had run amok, Bush’s regulators went on the warpath against Spitzer and states attempting to stop predatory practices. Making an unprecedented use of the legal power of “federal pre-emption,” Bush-bots ordered the states to NOT enforce their consumer protection laws.

Indeed, the feds actually filed a lawsuit to block Spitzer’s investigation of ugly racial mortgage steering. Bush’s banking buddies were especially steamed that Spitzer hammered bank practices across the nation using New York State laws.

Spitzer not only took on Countrywide, he took on their predatory enablers in the investment banking community. Behind Countrywide was the Mother Shark, its funder and now owner, Bank of America. Others joined the sharkfest: Goldman Sachs, Merrill Lynch and Citigroup’s Citibank made mortgage usury their major profit centers. They did this through a bit of financial legerdemain called “securitization.”

What that means is that they took a bunch of junk mortgages, like the Grinnings, loans about to go down the toilet and re-packaged them into “tranches” of bonds which were stamped “AAA” - top grade - by bond rating agencies. These gold-painted turds were sold as sparkling safe investments to US school district pension funds and town governments in Finland (really).

When the housing bubble burst and the paint flaked off, investors were left with the poop and the bankers were left with bonuses. Countrywide’s top man, Angelo Mozilo, will ‘earn’ a $77 million buy-out bonus this year on top of the $656 million - over half a billion dollars – he pulled in from 1998 through 2007.

But there were rumblings that the party would soon be over. Angry regulators, burned investors and the weight of millions of homes about to be boarded up were causing the sharks to sink. Countrywide’s stock was down 50%, and Citigroup was off 38%, not pleasing to the Gulf sheiks who now control its biggest share blocks.

Then, on Wednesday of this week, the unthinkable happened. Carlyle Capital went bankrupt. Who? That’s Carlyle as in Carlyle Group. James Baker, Senior Counsel. Notable partners, former and past: George Bush, the Bin Laden family and more dictators, potentates, pirates and presidents than you can count.

The Fed had to act. Bernanke opened the vault and dumped $200 billion on the poor little suffering bankers. They got the public treasure – and got to keep the Grinning’s house. There was no ‘quid’ of a foreclosure moratorium for the ‘pro quo’ of public bail-out. Not one family was saved – but not one banker was left behind.

Every mortgage sharking operation shot up in value. Mozilo’s Countrywide stock rose 17% in one day. The Citi sheiks saw their company’s stock rise $10 billion in an afternoon.

And that very same day the bail-out was decided – what a coinkydink! – the man called, ‘The Sheriff of Wall Street’ was cuffed. Spitzer was silenced.

Do I believe the banks called Justice and said, “Take him down today!” Naw, that’s not how the system works. But the big players knew that unless Spitzer was taken out, he would create enough ruckus to spoil the party. Headlines in the financial press – one was “Wall Street Declares War on Spitzer” - made clear to Bush’s enforcers at Justice who their number one target should be. And it wasn’t Bin Laden.

It was the night of February 13 when Spitzer made the bone-headed choice to order take-out in his Washington Hotel room. He had just finished signing these words for the Washington Post about predatory loans:

“Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.”

Bush, said Spitzer right in the headline, was the “Predator Lenders’ Partner in Crime.” The President, said Spitzer, was a fugitive from justice. And Spitzer was in Washington to launch a campaign to take on the Bush regime and the biggest financial powers on the planet.

Spitzer wrote, “When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners the Bush administration will not be judged favorably.”

But now, the Administration can rest assured that this love story – of Bush and his bankers - will not be told by history at all – now that the Sheriff of Wall Street has fallen on his own gun.

A note on “Prosecutorial Indiscretion.”

Back in the day when I was an investigator of racketeers for government, the federal prosecutor I was assisting was deciding whether to launch a case based on his negotiations for airtime with 60 Minutes. I’m not allowed to tell you the prosecutor’s name, but I want to mention he was recently seen shouting, “Florida is Rudi country! Florida is Rudi country!”

Not all crimes lead to federal bust or even public exposure. It’s up to something called “prosecutorial discretion.”

Funny thing, this ‘discretion.’ For example, Senator David Vitter, Republican of Louisiana, paid Washington DC prostitutes to put him in diapers (ewww!), yet the Senator was not exposed by the US prosecutors busting the pimp-ring that pampered him.
Naming and shaming and ruining Spitzer – rarely done in these cases - was made at the ‘discretion’ of Bush’s Justice Department.

Or maybe we should say, 'indiscretion.'

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March 17, 2008

Bailing Out Billionaires

Ward Sloane is a CBS News producer based in Washington.

“. . . . Over the weekend, the Federal Reserve Board's Ben Bernanke announced another billionaire bail-out. This time he has decided the American people should take on $30 billion in potentially and likely bad mortgage debt so that JP Morgan could then assume the other assets of the formerly venerable Bear Stearns investment house. We get $30 billion in bad debt; JP Morgan gets Bear Sterns at two dollars per share.
. . . .
What seems to be happening before our eyes is the evolution of a national economic policy that puts the full faith and credit of the United States government behind Wall Street at the expense of the United States taxpayer.
. . . .
Here's what the Federal Reserve and the economic gurus of the administration think about the average homeowner facing sky-rocketing mortgage increases or worse, foreclosure: Too bad. Those folks made bad decisions and now should have to live with them.
. . . .
The current economic crisis can be boiled down to this – the big bad boys and girls on Wall Street sold to a willing public the idea that it's possible to get something for nothing.
. . . .
I generally don't have much sympathy for people who buy into this, but let's be real. Everyone bought into it and the economic boom times rolled merrily along.

The only difference, it seems, is that when Wall Street billionaires live beyond their means, they never have to pay the consequences when the house of cards comes tumbling down. The have the full faith and credit of the United States Government to back them. For everyone else it's just tough noogies.

And here is the endgame. The fat cats are reaping their rewards for the millions and millions of dollars they've pumped into the political system. Money talks, everybody else walks

Read the entire article:
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Bear Stearns in Bankruptcy: Can You Feel Their Pain?

By Dean Baker

Monday 17 March 2008

According to the current plans being crafted in Washington, you will. Bear Stearns, one of the longstanding giants of Wall Street investment banking, is now on life support, the victim of its own excessive greed and bad judgment. Apparently, the wizards who run the show at Bear Stearns (I will resist the temptation to use initials) somehow couldn't see an $8 trillion housing bubble in the US economy. They made highly leveraged bets on assets backed by mortgages.

These bets have turned bad in a big way. Bear Stearns would now have less value than a corner lemonade stand, if not for the generosity of the Federal Reserve Board. The Fed lent money to Bear Stearns under terms no private lender would have agreed to. The risk it will end up with a substantial loss on its loans to Bear Stearns is quite large, with no prospect for any real return on its investment.

This raises the obvious question: Why is the Fed, an agency of the government, using our tax dollars to keep Bear Stearns and its rich managers and shareholders above water? After all, the government supposedly doesn't have enough money to provide kids with health care and childcare, to guarantee families decent housing or to meet a long list of other needs. Why do we have the money to lend tens of billions of dollars to Bear Stearns at below market interest rates?

There are two points about this bailout that should be clear. First, this is a bailout - we are handing money to Bear Stearns. Second, we don't have to hand tens of billions of dollars to the country's richest people to save the financial system.

The politicians will try to do their best to obscure the first point. They say, "we aren't giving them money - we're lending money and we're getting interest, so the government can make a profit."

This is what politicians tell people who they think are stupid. No private bank would lend money to Bear Stearns at the same interest rate and under the same terms as the Fed. (We know this for certain; otherwise, Bear Stearns would not have run to the Fed.) When the government makes a loan at below market interest rates, it is giving away money. People on Wall Street know this very well, that is how they got to be fabulously rich: They borrow money at a lower interest rate than they lend it out.

If they can't get away with the "no bailout" nonsense, the Wall Street welfare boys will then try the route of claiming we have to bail them out in order to prevent the whole financial system from collapsing. Such a collapse could turn the recession into a depression leaving millions unemployed for years.

This is also nonsense. We know how to keep banks operating even as they go into bankruptcy. England just did this with Northern Rock, a major bank that managed to get itself into huge trouble because of its holding of bad mortgage debt. After it was clear the bank was insolvent, the Bank of England stepped in and essentially took over the bank. It replaced the incompetent managers who had ruined the bank and brought in a new team to straighten out the books. The plan is to resell the bank to the private sector once the books are in order.

In the meantime, the bank keeps operating. The depositors can continue to make deposits and withdrawals just as before. This prevents any chain reaction from bringing down the financial system.

The difference between the Northern Rock route and what happened with Bear Stearns last week is that in the Northern Rock, the highly paid managers that ruined the bank are sent packing. Similarly, the shareholders will get little or nothing. They own a bankrupt company; why should the government give them money?

As the financial crisis deepens, it is important the public realize the distinction between what the Bank of England did with Northern Rock and the handout from the Fed to Bear Stearns. There are other banks in serious trouble that are also looking to the Fed for help.

The best thing the Fed can do is to go the Northern Rock route. Instead of giving more money to troubled banks, it should give less. It should end the Term Auction Facility and other special mechanisms for injecting money into banks. The economy will recover quickest if we let the banks and the bankers get the full benefit of their own bad judgment. When they have written down their bad debts and are taken over by new management, the banks will again be able to play a productive role in financing growth.

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Robert Rubin Still Doesn't Know
Dean Baker and others have been alerting people to the housing bubble and the enormity of the problems associated with it for some time. Robert Rubin, who was head of the Treasury Department in the Clinton Administration and who even today is a Democratic policy advisor, is still pretending otherwise.

March 14, 2008

Robert Rubin Still Doesn't Know that People Warned About the Bubble

"Former Treasury Secretary Robert Rubin was at a session at the Brookings Institution this morning at which said that "few, if any" people anticipated the sort of meltdown that we are seeing in the credit markets at present.
This should be newsworthy. Mr. Rubin is not only a former Treasury Secretary, he is in the top management at Citigroup and he is one of the top Democratic policy advisers. The failure to recognize the housing bubble and the danger it posed was an act of extraordinary negligence that would get people fired in most lines of work. The fact that he still doesn't recognize the enormity of this oversight even after the fact (economists did recognize the housing bubble and the dangers its collapse would pose to the financial system) is remarkable.
There were several reporters from major media outlets at this event. It would have been appropriate to note that Mr. Rubin is apparently still does not recognize that the collapse of the bubble and the resulting financial chaos was both predictable and predicted by economists who did understand the financial crisis that it would create
--Dean Baker

The NYT Hides the Bailout of Bear Stearns From Readers

"The NYT told readers why the Fed had to use tens of billion of taxpayer dollars to kep Bear Stearns in business. It explained that letting the bank go under would lead to a chain reaction of collapses throughout the financial system.
This is not true. The Fed could have followed the example of the Bank of England in its takeover of Northern Rock. Northern Rock continues to function paying off depositors and honoring other commitments. The major difference is that the incompetent managers who drove Northern Rock into bankruptcy were thrown out on the street. At Bear Stearns they are still collecting multi-million dollar salaries.
The other big difference is that Northern Rock's shareholders essentially lost all their money. That's what happens when you buy stock in a company that goes bankrupt. (It is possible that when the company is resold to the public there will be some money from the sales to kick back to shareholders.) By contrast, stockholders in Bear Stearns still have $4 billion in equity, courtesy of U.S. taxpayers
--Dean Baker

See all of Dean Baker’s Blog at:

Thursday, March 13, 2008

CRIME AND PUNISHMENT? Justice Oregon Style


- The War and the Recession


Not too long ago, the Herald ran an op-ed from the Sacramento Bee, questioning why the Congress was holding very public hearings about steroid use by famous ball players. My thought at the time was why is Congress holding hearings on steroid use when they can’t find the courage to end the illegal and immoral war or impeach known war criminals like George W. Bush and Dick Cheney?

A few more questions: Why are we this week witnessing the targeting, ruination, and humiliation of a New York Governor, who has a record of going after Wall Street scamsters and holding them responsible, just because he consorted with prostitutes, when we have a President on the loose who has lied repeatedly to the American people and who is responsible for the deaths of thousands of young Americans and hundreds of thousands of innocent Iraqis? Why aren’t the bankers, Wall Street cons and realtors in the dock for deceptively promoting speculative and inflated home sales to an American public eager for home ownership and a way to survive? Why does our City Council develop a plan to buy an over-priced building for the police department largely in secret before springing it on the citizens. Why are our water and sewer rates expanding so rapidly, if not to accommodate the new and future development that should be paying system development charges now to cover their new demands on the system? Why does Oregon spend more of its general fund on imprisoning people than it spends on higher education? Why is our expanding police bureaucracy parading their drug dog around at local sporting events? The answers vary, but are related to the need to distract us from our real problems, the tendency of bureaucracies to always expand their wealth and power, and the tendency of some politicians to serve their own interests instead of those of the community or country they represent. At its roots, it is about money and the powerful advancing their own interests. It is about elite politics—the privileged feathering their own nest at the expense of ordinary people.

A few pertinent quotes about the situation from a recent Information Clearing House newsletter (see links list for ICH):

"Politics is a means of preventing people from taking part in what properly concerns them." Paul Valery (1871-1945)

"The more corrupt the state, the more numerous the laws." -- Tacitus, Roman senator and historian (A.D. c.56-c.115)

"The more prohibitions there are, the poorer the people will be. The more laws are promulgated, the more thieves and bandits there will be." -- Lao-tzu, The Tao Te Ching

"Overload the police with victimless crimes and other minutiae, and eventually only creeps and bullies remain cops." -- Rick Gaber

"The State is the coldest of all cold monsters, and coldly it tells lies, and this lie drones on from its mouth: 'I, the State, am the people'." -- Friedrich Nietzsche, Thus spoke Zarathustra, 1883

"Government, when it is examined, turns out to be nothing more nor less than a group of fallible men with the political force to act as though they were infallible." -- Robert LeFevre, in his essay, Aggression is Wrong

Which reminds me of Baker City citizen Vickie Valenzuela's trouble in complaining to the city about the lack of public process in the police building purchase. In tonight's Herald article about her interaction with the city (Baker City woman files complaint against city manager, by Jayson Jaycoby), the article states that "in a Feb. 29 e-mail to Valenzuela which he wrote after their meeting, Brocato suggested: "If you have issues with this process, city staff, or the city manager, you may approach the council at any meeting." Taking Brocato at his word, Ms. Valenzuela did exactly that. After admonishing her for not following their arcane procedural rules the first time she tried to speak during discussion of the police building purchase, Brocato and vice mayor Andrew Bryan had her "'refrain from personal comments' until citizens participation." Then later, according to the article, when addressing her concerns about her "insulting" treatment by Brocato and the shabby "public process," mayor Petry 'told Valenzuela he would not allow her to recite a litany of accusations against Brocato.' 'This isn't a forum for accusations or hearsay,' Petry said. '(Brocato) has no chance to defend himself.'" [Wasn't he right there responding to her earlier?]

Ah, yes, the proverbial, mind-numbing, catch-22. Broacato tells her to approach the council with her complaints and the council tells her that isn't allowed. This is how some on the council treat the citizens of Baker City. Adverse comments about the city manager aren't allowed in public meetings. Better kept under control and cover--like many other aspects of the "public process" here. Just another reason why people don't go to council meetings, why the "good old boys" remain in control, and why "democracy" remains the domain of economic and social elites.

But I digress. I wonder if George W. Bush, Bill Clinton, or Barack Obama would have been able to run for President if they had encountered a drug sniffing dog in their youth. George would have probably been OK, given his family’s wealth and power, but poor boy Bill, and half white Barack, would likely have acquired a ruinous record. Better to use alcohol or nicotine, some of the most destructive, but legal, drugs available, than get caught experimenting with the rather more innocuous marijuana, which results in around a million arrests a year. (I don’t use illegal drugs—I have enough problems with the legal ones.) This, even though alcohol users are far more likely to be involved in assault, theft, burglary, robbery, or driving under the influence.

Baker School District, 5J buys alcohol for a staff get together with school funds, a violation of district policy with no apparent legal sanction, but God help the errant young person who plays around with marijuana, or who wears a headband in violation of school policy. Label and humiliate the latter, ignore the indiscretions of powerful local public officials. Mixed messages and dual standards--That’s “justice.”

On March 6th, The Record Courier’s Brian Addison mentioned in an editorial that the Baker City police canine drug enforcement unit was parading their drug sniffing dog through our school gym that at the time was loaded with locals and out of town visitors. It was suggested that it could be a violation of the 4th Amendment to the Constitution, which is intended to protect privacy and outlaw warrant-less or otherwise unreasonable searches and seizures. Debby Schoeningh made clear in today’s Courier that, “The Department was acting well within the scope of the law.” It’s still an interesting question, one that is often settled on a case by case basis, a process which, as Brian noted, has, in recent decades, seemingly resulted in an erosion of our rights under the 4th Amendment. Those trying to justify and expand the practice of using drug sniffing dogs, including the courts, seem to have engaged in some legal sophistry by saying that having a dog sniff you or your vehicle is not really a search—its just a dog sniffing and alerting police officers of the presence of an odor that the policeman can’t smell. In doing so, the dog’s reaction gives the officer “reasonable grounds” or “probable cause” to suspect a crime has occurred and to make a search of the person or vehicle. As long as the ensuing search is limited to areas where the dog indicates the presence of drugs, the search is judged reasonable.

Interestingly, the US Supreme Court has ruled in KYLLO v. UNITED STATES (99-8508) 190 F.3d 1041 June 11, 2001, that the use of infrared imaging scanners by police to detect suspicious activity, in this case the use of heat lamps to grow marijuana in a home, is unconstitutional without a warrant. In the majority opinion, Justice Scalia (who was joined by some liberals) wrote "The question we confront today is what limits there are upon this power of technology to shrink the realm of guaranteed privacy. To withdraw protection of this minimum expectation would be to permit police technology to erode the privacy guaranteed by the Fourth Amendment." The majority opinion also offered a standard for determining weather detection technology is constitutional:

“We think that obtaining by sense-enhancing technology any information regarding the interior of the home that could not otherwise have been obtained without physical ‘intrusion into a constitutionally protected area’, (Silverman, 365 U.S., at 512), constitutes a search-at least where (as here) the technology in question is not in general public use.”

Why then, should the police be able to use a sense-enhancing drug dog to scan people and vehicles for evidence of drug crimes? Both infrared technology and dogs are methods that go beyond ordinary human powers to search for evidence of a possible crime in order to provide probable cause for a more intrusive search. Both are used to search for information that could not otherwise have been obtained without physical "intrusion into a constitutionally protected area.” Both “shrink the realm of guaranteed privacy.” That looks like an erosion of the rights guaranteed by the 4th Amendment. That’s “justice.”

Oregon culture, especially conservative Republican oriented culture, is infatuated with authoritarianism and punishment, especially punishment of the wayward poor. B.F, Skinner explained decades ago (see "About Behaviorism") that punishment results in many more dysfunctional behaviors than positive ones for the punished, and otherwise may not be effective, but we persist in the practice. In Oregon we currently spend $28,389.70 annually per inmate, not including debt service or the cost of new construction (ODOC personal communication). Would not the money be better spent on these young people before they get in trouble?

According to an April 22, 2007 article in the Oregonian, experts, like the “Vera Institute of Justice in New York said in a recent report: ‘Analysts are nearly unanimous in their conclusion that continued growth in incarceration will prevent considerably fewer, if any, crimes -- and at substantially greater cost to taxpayers.’
Such findings have spurred states such as Washington to study alternatives to building more prisons. In a report last year commissioned by the Legislature, the Washington State Institute for Public Policy concluded that expansion of proven treatment and prevention programs would reduce the need for new prison beds. Steve Aos, associate director of the institute, estimates such programs would save taxpayers as much as $2.6 billion in prison construction and operations between now and 2030

But arresting illegal drug users is big business. The prison industrial complex is one of the few booming sectors of the economy. Many leaders in small communities, like Baker City, see prisons as an economic boon, pumping money into the local economy with the “multiplier effect” and more housing sales for the realtor class. Following that logic, we need to expand the number of crimes and the length of prison sentences, which is what Kevin Mannix, the Republican candidate for Governor wants to do with his new ballot measure, Initiative 40 (noteworthy for not offering any minimum sentences for white-collar crimes), a follow-up to Measure 11 that apparently didn’t raise mandatory minimums enough. Never mind that the cost of all our new prisons is driving taxpayer costs through the roof. That doesn’t count the expanding probation and social service sector, which is tasked with tracking, judging, and supposedly improving the lives of these violators. If it was about helping people before they find trouble, they wouldn’t need to be spending so much money on them when they get in trouble later—but it is not—its about things like finding jobs for rural economies and the luckier than though, police, probation, and prison punishment bureaucracies. Isn’t it time we looked to a more humane and caring model—putting money, where it belongs, into financial support, early intervention and training for families? (Not to mention unlimited access to birth control.)

Garrison Keeler’s view in 2005:

a marijuana
 grower can land in prison for life without parole while
 a murderer might be in for eight years. No rational 
person can defend this; it is a Dostoevskian nightmare
 and it exists only because politicians fled in the face
of danger. That includes Bill Clinton, under whose 
administration the prosecution of Americans for 
marijuana went up hugely, so that now there are more
 folks in prison for marijuana than for violent crimes. 
More than for manslaughter or rape. This only makes 
sense in the fantasy world of Washington, where 
perception counts for more than reality. To an old 
Democrat, who takes a ground view of politics˜What is
 the actual effect of this action on the lives of real
 people?˜it is a foul tragedy that makes you feel guilty
 about enjoying your freedom. . . . .
People who 
chose marijuana, a more benign drug than alcohol, and
 got caught in the religious war that we Democrats in a 
weak moment signed onto. God help us if we form alliance
 with such bullies as would destroy a kid's life for
 raising cannabis plants

See Also: One in 100: Behind Bars in America 2008

For the first time in history more than one in every 100 adults in America are in jail or prison—a fact that significantly impacts state budgets without delivering a clear return on public safety. According to a new report released today by the Pew Center on the States’ Public Safety Performance Project, at the start of 2008, 2,319,258 adults were held in American prisons or jails, or one in every 99.1 men and women, according to the study. During 2007, the prison population rose by more than 25,000 inmates. In addition to detailing state and regional prison growth rates, Pew’s report, One in 100: Behind Bars in America 2008, identifies how corrections spending compares to other state investments, why it has increased, and what some states are doing to limit growth in both prison populations and costs while maintaining public safety. As prison populations expand, costs to states are on the rise. Last year alone, states spent more than $49 billion on corrections, up from $11 billion 20 years before. However, the national recidivism rate remains virtually unchanged, with about half of released inmates returning to jail or prison within three years. And while violent criminals and other serious offenders account for some of the growth, many inmates are low-level offenders or people who have violated the terms of their probation or parole. . . . . As a result, states’ corrections costs have risen substantially. Twenty years ago, the states collectively spent $10.6 billion of their general funds—their primary discretionary dollars—on corrections. Last year, they spent more than $44 billion in general funds, a 315 percent jump, and more than $49 billion in total funds from all sources. Coupled with tightening state budgets, the greater prison expenditures may force states to make tough choices about where to spend their money. For example, Pew found that over the same 20-year period, inflation-adjusted general fund spending on corrections rose 127 percent while higher education expenditures rose just 21 percent.”

And See: Burgeoning prison populations strain state budgets:

"The United States now holds the distinction of imprisoning more of its own citizens, both in total number and share of the adult population, than any other country in the world. In 2007, the United States had a record-breaking one out of every 100 adults in prison. Policy changes in sentencing and parole revocation, rather than increases in crime, have largely driven the increase in incarceration rates. 

States shoulder the vast majority of the costs associated with these policies. While states struggle with gaping budget shortfalls (see the recent report by the Center on Budget and Policy Priorities), incarceration rates and costs continue to escalate, consuming growing portions of state general funds. As corrections costs increase, states are forced to make cuts in other programs, such as transportation and education. In the past 20 years, total state spending on higher education has increased 21% (from $60.3 billion to $72.9 billion, in 2007 dollars), while corrections spending has more than doubled, increasing 127% (from $19.4 billion to $44.1 billion). Since 1997, however, the growth in corrections spending has outpaced higher education by only 18 percentage points, compared with the previous gap of 66 percentage points."
More at


FROM “Extension of The Tragedy of the Commons

“Individualism is cherished because it produces freedom, but the gift is conditional: The more the population exceeds the carrying capacity of the environment, the more freedoms must be given up. As cities grow, the freedom to park is restricted by the number of parking meters or fee-charging garages. Traffic is rigidly controlled. On the global scale, nations are abandoning not only the freedom of the seas, but the freedom of the atmosphere, which acts as a common sink for aerial garbage. Yet to come are many other restrictions as the world's population continues to grow.
The reality that underlies all the necessary curtailments is always the same--population growth. Yet the slightest attempt to limit this freedom is promptly denounced with cries of Elitism! Big-Brotherism! Despotism! Fascism! and the like. We are slow to mend our ways because ethicists and philosophers of the past generally did not see that numbers matter. In the language of 20th-century commentators, traditional thinking was magnificently verbal and deplorably non-numerate.”



“Why does an unregulated market economy produce extremes? For one thing, its most successful winners can abuse their power. The usual story is that the big winners ‘must have’ made enormous contributions to the economy and therefore have earned their rewards. But in reality, many big winnings are the result of insiders taking advantage of privileged positions to reap excessive gains. Today’s CEOs earn astronomical pay packages not because they suddenly became ten times more productive but because crony boards of directors enable them to cash in. Today’s investment bankers and hedge fund operators make so much money because the rules have been changed to encourage more purely financial engineering and manipulation of paper. Many other big winnings are the result of abuses of monopoly positions. The drug companies and their executives would not be cashing in so exorbitantly at public expense if their lobbyists and allies in Congress hadn’t rewritten the patent laws to discourage the use of cheaper generic drugs.
From “The Squandering of America: how the Failure of Our Politics Undermines Our Prosperity” by Robert Kuttner, Published by Alfred A. Knopf, 2007


March 12, 2008, AlterNet 

"A free press is supposed to function as our democracy's immune system against... gross errors of fact and understanding," wrote Al Gore in his book, The Assault on Reason. But it doesn't - as Gore explains - and that is what makes the mass media one of the most important obstacles to social and economic progress in the 21st century.
How the media treats repeated falsehoods is a key issue. For example, when the New York Times reports on the allegation – spread by his enemies – that presidential candidate Barack Obama is a Muslim, there is a sentence that follows immediately: "In fact, he is a Christian. . ."
The media didn't do this kind of "immune system" work when it reported on the run-up to the Iraq war. As a result, more than 70 percent of Americans were convinced that Saddam Hussein was involved in the massacre of September 11. More than 4,000 Americans and over one million Iraqis have been killed in the violence that perhaps could have been averted with better journalism.
A 2008 study by the Center for Public Integrity, "The War Card: Orchestrated Deception on the Path to War," documents 935 false statements by President Bush and seven top officials of his administration. The report notes that "much of the wall-to-wall media coverage provided additional, 'independent' validation of the Bush administration's false statements about Iraq."
Filmmaker Michael Moore told CNN's Wolf Blitzer, "We're in the 5th year of this war because you, and CNN... didn't do your jobs back then and now here we are in this mess."
The mass media fails us on many issues other than war and peace. Most Americans under 50 think they are never going to see their Social Security benefits. In fact, the probability that they won't get their Social Security benefits is about the same as the chance that there won't be a U.S. government when they retire – pretty close to zero. The media could correct this widespread false belief by merely inserting a few undisputed facts about Social Security when reporting false statements from politicians and interest groups. For example: "Social Security is more financially sound than it has been throughout most of its 71-year history"; or "Social Security's projected shortfall over the next 75 years is less (as a percent of national income) than what was fixed in each of the following decades: 1950s, 1960s, 1970s, and 1980s


While it is too early to assess the effectiveness of the Fed's latest bailout efforts, the basic intent should be clear. It allows banks in financial trouble more time to try to find less informed investors who will buy their devalued assets. This benefits the banks' managers and stockholders; it is less clear how it benefits the economy as a whole.”
From “Ratio of Home Equity to Value Plunges to Record Low

I might add, that the lowered interest rates that the Fed has given banks, etc., have not been passed on to buyers or mortgage holders. Easy to see where this helps banks, hard to figure how it helps the average buyer or innocent bystander. -Chris

"it all depends on whether rates go down and whether that will rev-up the moribund housing market again. Of course, that is predicated on the false assumption that consumers are too stupid to know that housing is in its biggest decline since the Great Depression. This is just another slight miscalculation by the blinkered Fed. Housing will not be resuscitated anytime in the near future, no matter what the conditions; and you can bet on that. The last time Bernanke cut interest rates by 75 basis points mortgage rates on the 30-year fixed actually went up a full percentage point. This had a negative affect on refinancing as well as new home purchases. The cuts were a total bust in terms of home sales."

A Vicious Circle Ending In A Systemic Financial Meltdown
By Mike Whitney


The world’s largest prison—Gaza prison with 1.5 million inmates, many of them starving, sick and penniless—is receiving more sympathy and protest by Israeli citizens, of widely impressive backgrounds, than is reported in the U.S. press.
In contrast, the humanitarian crisis brought about by Israeli government blockades that prevent food, medicine, fuel and other necessities from coming into this tiny enclave through international relief organizations is received with predictable silence or callousness by members of Congress, including John McCain, Hillary Clinton and Barack Obama. The contrast invites more public attention and discussion.
Israel has militarily occupied Gaza for forty years. It pulled out its colonials in 2005 but maintained an iron grip on the area controlling all access, including its airspace and territorial waters. Its F-16s and helicopter gunships regularly shred more and more of the areas—public works, its neighborhoods and inflict collective punishment on civilians in violation of Article 55 of the Fourth Geneva Convention. As the International Red Cross declares, citing treaties establishing international humanitarian law, “Neither the civilian population as a whole nor individual civilians may be attacked.”
According to The Nation magazine, the great Israeli human rights organization B’Tselem, reports that the primitive rockets from Gaza, have taken thirteen Israeli lives in the past four years, while Israeli forces have killed more than 1,000 Palestinians in the occupied territories in the past two years alone. Almost half of them were civilians, including some 200 children.
The Israeli government is barring most of the trucks from entering Gaza to feed the nearly one million Palestinians depending on international relief, from groups such as the United Nations Relief and Works Agency (UNRWA). The loss of life from crumbling health care facilities, disastrous electricity cutoffs, gross malnutrition and contaminated drinking water from broken public water systems does not get totaled. These are the children and their civilian adult relatives who expire in a silent violence of suffering that 98 percent of Congress avoids mentioning while extending billions of taxpayer dollars to Israel annually. UNRWA says “we are seeing evidence of the stunting of children, their growth is slowing.” Cancer patients are deprived of their chemotherapy, kidney patients are cut off from dialysis treatments and premature babies cannot receive blood-clotting medications.
The misery, mortality and morbidity worsens day by day

Rest of article:
The War and the Recession
by Dean Baker

With the release of the February jobs numbers, everyone except for the economists now acknowledges we are in a recession. The economy is shedding jobs at a rapid pace and it is only a matter of time until we see the unemployment rate rising. In addition to greater difficulty finding jobs, workers can look forward to falling wages and reduced access to health care insurance and pension coverage.
Naturally, people are looking for an explanation for the cause of the recession, and many have turned to the Iraq War. This view is wrong. The war is a drain on the economy, but it is not the cause of the recession. The recession is due to the collapse of the $8 trillion ($110,000 per homeowner) housing bubble.
It is understandable people would look to the war as the villain in this story. After all, the war is costing around $180 billion a year (at 1.2 percent of GDP). This is a substantial drain on the federal budget and the economy. This money could have gone to productive uses that would have benefited people and made the economy stronger.
For example, the proposed expansion of the state children’s health insurance program (SCHIP) would have cost $7 billion a year, an amount equal to what we spend on the war in two weeks. A proposed $2 billion a year increase in childcare subsidies is equal to four days of spending on the war. The hundreds of millions of dollars each year the federal government devotes to energy conservation amounts to less than a day’s spending on the war.
In short, there is a nearly endless list of areas that can be identified in which the money spent on the war could have been spent in ways that would have made the economy stronger. Since the money was diverted from better uses, the war spending has hurt the economy.
There is another way in which war spending hurts the economy: We have to pay for the war. We could have paid for the war with tax increases, but instead, President Bush chose to pay for it by borrowing, making the deficit considerably larger than it would otherwise be. This additional borrowing makes interest rates somewhat higher than they would be otherwise. Higher interest rates can raise the value of the dollar, which makes the trade deficit larger. (A high dollar makes US-made goods relatively more expensive both here and abroad.) Higher interest rates can also reduce investment and homebuilding.
However, the increase in borrowing associated with the war is actually not very large relative to the size of the economy. It can be expected to have a negative effect, but it is relatively modest and only begins to be felt over time. Last year, the Center for Economic and Policy Research commissioned Global Insight, one of the country’s leading economic forecasting firms, to project the impact of the war on the economy.
Their model projected the impact would be initially positive (war spending generates demand), but eventually the effect of higher interest rates imposes a drag on growth. By the sixth year, the effect is negative; and by the tenth year, the economy was projected to have lost about half a million jobs, mostly in manufacturing and construction.
This is bad news, but it is not the recession that we are seeing now. This recession has a different group of villains. First and foremost on this list is Alan Greenspan, who at least ignored the housing bubble, if he didn’t actively promote it. The list also includes regulators at both the state and federal level who tolerated abuses in the mortgage industry that were completely visible at the time they took place. And there is a long list of politicians and community leaders who encouraged low- and moderate-income families to buy homes in the middle of a housing bubble. And, of course, there are the incompetent economic forecasters (is that redundant?), who could not see an $8 trillion housing bubble in front of their face.
These are the people who deserve the blame for what is likely to be the most severe recession in the post-war period. The public’s wrath should be focused on the Fed, the regulators, the Wall Street crooks, and the others responsible for letting a housing bubble wreck havoc on the economy

IRAN: 'Fox' Fallon Fired--And we're f*cked...

By Justin Raimondo

"Do I really need to draw you a picture to get you to imagine what's coming next? This is as clear a signal as any that the Bush administration intends to go out with a bang - one that will shake not only the Middle East but this country to its very foundations."

John Pilger Video Documentary

"The film tells a universal story," says Pilger, "analysing and revealing, through vivid testimony, the story of great power behind its venerable myths. It allows us to understand the true nature of the so-called war on terror".


Most people don’t even know my blog exists. Many are happy about that. Three rather prominent Baker City citizens have told me not to communicate with them after labeling my views and my sometimes rather direct behavior disgusting. The pattern for some old-timers here is to disagree with and insult someone (like me, in response to my pointing out some facts or putting forth a strongly worded opinion) and then immediately cut off any dialogue with me. It’s the sort of behavior reminiscent of intellectual cowards. Such cowardice is like a destructive socially transmitted disease that is not easily cured, being supported as it is by their narrowness of vision and defensive self-interest.

I don’t even have time to work on my blog, as I am spending all my spare time on an environmental issue that I’m not really at liberty to write much about. Given my current situation, the blog is reduced to hurried comments on a few issues that fly by as our depressing history proceeds. So it is tonight, but I persist.

Thursday, March 6, 2008

Did We Have An Open Public Process For Purchase Of New Police Building?

In This Issue:

New Police Building?
Speed Trap on 17th Street
Charley Reese: Cut Israel Loose
Former Governor Kitzhaber On Medical Care

All This Public Space Isn't Enough For the Public Employees Serving the 10,000 Or So People In Baker City?
Our population had remained fairly constant over the years, but our tax burden and the needs of City bureaucracies grow.

Buy a new police building for over $700,000 or perhaps $1 million with interest?

I am told the building above has been on the market for some time. Two years? Councilor Calder says “the current price we are looking at is more than double the assessed value . . . and $200,000 more than what the assessor says the real market value of that building is. That is a real concern. We have to live within the budget of the citizens of Baker City. . . . . the building across the street that’s the same size sold for. . . less than $200,000. This is Baker City and we have to look at the real numbers.”

And What About A Democratic Public Process?

There were lots of interesting articles in the papers tonight that relate to the purchase of a new police department building. Brian Addison had an interesting and valuable editorial in The Record Courier about the 4th Amendment that deserves further comment, but he also had an editorial that was at odds with the facts. Brian's claims run counter to an earlier article by Jayson Jacoby in the Herald, and my own statements, that dealt with the finality of the purchase of the police building and the not so public process that surrounded it. Given the seeming vagueness of the comments and final motion at the February 26th Council meeting, I can understand the differing interpretations that have been offered concerning Council autorization of the purchase, but the lack of a public process is clearly evident in the public record.

In tonight’s March 6th edition of The Record Courier, Brian ran a headline that said “City Council Has Not Passed Final Authorization for New Police Building.” The Herald ran an article on the front page, by Jayson Jaycoby, on February 27th with the headline: “City to buy building.” My understanding of the basis for Jayson’s comments is that all that remained was for the Council to approve a resolution that would amend the budget so as to allow the purchase to proceed. After asking around and viewing the tape, that was my understanding too. Back in 2006, I asked the Council to provide video tapes of Council meetings to the Baker County Public Library so that those who don’t get cable or are unable/unwilling to attend the meeting would be able to view the proceedings. After a reminder that they had not provided the library a tape for eight months, the City Manager started providing them again beginning with the February 26th meeting. The tape provides a second, separate, objective record of what occurs at the meetings. I must admit, after reviewing the tape, that the transcript leaves the question open to interpretation, but there should be little doubt about whether the Council authorized a purchase of the building on Auburn Street.

Early in the February 26th discussion, Sam Bass said that the Council would “still have to approve the price. We are only giving him permission to go forward with the purchase—what he brings us back—price—we have to approve that price.” To me, that sounds like approval to purchase the building with the price to be approved by the Council.

Later, Brocato says “There is a time essence issue here. . . . . council is then not deciding to buy the building or not, but Council is looking at the budget resolution to pay for it. And that would be the next step that Councilor Bass is referring to.” OK, looks like Brocato thinks he has the authority to buy the building with only the final price to be approved by the Council.

The final resolution, offered by Councilor Schumacher, was “Well, I make a motion that we proceed with negotiating an earnest money agreement [I.e., a legally binding offer to purchase the building] to come back for Council approval whenever you [Brocato] come back with it.” It would appear that authorization was given to purchase the building with the only remaining issue needing approval being the price. So you look at the record in the library and then tell me what happened—perhaps we will need fired ex-City Attorney David Fine to unravel this one.

Technically, I think that Brian Addison’s statement about “Final Authorization” could be seen as correct, if you only consider that Council has to approve the price, but the authorization to purchase the building has been approved, and as long as the Council approves the price, which they seem more than willing to do, the police have a new building. If they don’t approve the first price Brocato brings back, he could always go back for a second or third, etc. (It will be interesting to see how this develops.)

But then Brian says in the editorial that “Those citizens currently crying foul and claiming that not enough public process has been allowed during the city’s consideration of purchasing a new building for the police station, should realize that they are involved in a very public process they are claiming doesn’t exist.” Say what?

Councilor Schumacher made similar statements at the February 26th meeting:
You cannot grab the people and make them come and learn. They are going to react after we make a decision and say ‘Why didn’t you consult with me when they had the opportunity to be at this meeting’—they could have been at other meetings, and you have voted me in as your representative, until you vote me out, to make those decisions for you. . . . . This is always the way it comes out. . . you make a decision and then there is a reaction as a result of a decision you made, and why didn’t you consult me?

Mr. Schumacher, are you referring to the meetings where the purchase was considered in executive sessions that excluded the public and was added to the agenda at the last minute? Does someone have to come down to the intimidating council chamber and stand before you for their views to be considered? Do you dismiss opinions submitted in writing via snail-mail or e-mail?

As Jayson Jaycoby relayed to the public in an editorial on March 4th (Why not wait 2 weeks?):

What bothers us is that the City Council voted to buy the building at 1768 Auburn Ave. just 2 months after councilors first discussed the possible purchase.
Neither that discussion, nor a second one that took place during the Council's Feb. 12 meeting, was listed on the meeting agenda, so residents who are interested in the topic had no way to know councilors would be talking about it.
In fact, most of the Dec. 12 discussion, and the whole of the Feb. 12 discussion, took place during an executive session, from which the public is excluded as allowed under Oregon's public meetings law.
Then, during the public portion of the Council's Feb. 26 meeting, city officials laid out their case for buying the Auburn Avenue building.
Until then, the city had said so little, publicly, about its proposal that residents could hardly have formed well-considered opinions about the city's plan to buy the building.
And unfortunately, they never had the chance to do so.
Less than half an hour after city officials finished their presentation on Feb. 26, the Council voted 3-2 to authorize City Manager Steve Brocato to negotiate a deal with the building's owners

Jayson’s statements are accurate, as an examination of the publicly available agendas and minutes will substantiate. Further, I have been unable to find any mention of the need for the purchase in Chief Lohner’s columns appearing in The Record Courier from early December to present. The first substantive article about the purchase didn't appear until the Herald featured it on February 22nd, 4 days before the Council meeting where Brocato was told to bring back an earnest money agreement. Do we deserve the steam roll/ “dog & pony show” treatment?

One question those opposed to the “below the radar” approach for buying a new police building have raised, concerns information sharing about our city’s needs and priorities (Calder’s & Duman’s statements, Vickie Valenzuela’s letters, etc). Why haven't the Council and City Manager communicated their plans, and the need for them, to the public far in advance of a meeting where they authorize a purchase? One concern of mine, in addition to finding money for water and sewer infrastructure, is the condition of our city’s roads after the snowy winter of 2007-2008. Tonight, Jayson Jaycoby had a very informative article about how our roads have deteriorated in the last two decades, even prior to the effects caused by our severe winter. You have no doubt noticed, especially if you travel down Grove, Resort, 15th, or any number of other streets. Fixing those roads won’t be cheap. The article points out that if we fix those streets on a twenty four year cycle, it will cost about a million dollars a year, and that we are spending less than half that. We aren’t keeping up with the maintenance and increased taxes are being considered. We still haven't resolved the expensive issue of providing adequate facilities for Baker City's school children--can't the police department building wait? Do we need to spend three quarters of a million to a million dollars, going into a recession, on a new police building when many pressing and basic needs are currently unmet?

As I, and others, have implied in statements on this subject, a new police building might be nice, but we can all think of things we’d be better off for having. The question we all face is can we afford them right now in the face of other pressing needs, and are we willing to pay a premium for things we would like, but don’t absolutely need to have? Can we give our citizens time to offer creative alternative solutions or are we subject to the dictates of a few self-interested parties working behind a veil of secrecy?

And as citizen Vickie Valenzuela has said, “Baker City is not a private business, it is a government business—the difference is public dollars.” And I would add, the difference is that this is not a corporation, it is supposed to be a responsive democracy that allows for and truly considers all of the public’s input.

Speed Trap on 17th Street

Back on November 19, 2007, I sent the following message to Chief Lohner about seeming inconsistencies in the way speed is handled in different parts of the city, as well as some concerns about a stoplight and stop signs at uncontrolled intersections. Specifically:

"Hello Chief Lohner,

Saw your column in the Record Courier so sending these concerns along.

Myself and others have noticed that the traffic light at 10th and
Campbell seems to change without regard to existing traffic. It seems
to have a very short time period set for allowing Campbell vehicles to
cross 10th, and will turn red even when there are no vehicles in sight
on 10th Street. This, of course, wastes the time, brakes and gasoline
of the vehicles seemingly stopped for no reason on Campbell. Campbell
is a pretty busy route for traffic to and from the west side of town
and the recycle center so this situation affects a lot of people.
Would it be possible to get this light to remain green for vehicles on
Campbell when there is no approaching traffic on 10th Street (and

Additionally, the posted speed limit on Elm Street (Old Hwy. 30) from
the south end of town has a 35 MPH speed limit even though it is in a
fairly crowded residential area. 17th Street north of Campbell has a
25 MPH speed limit even though it passes through low density
residential and then industrial/vacant industrial areas. I have
noticed that many people exceed the speed limit on 17th, probably
because they see no safety related reason to go 25 MPH. Would you
consider advocating for a change in the speed limits for these two
streets? Seems like 35 would be better for 17th and 25 better for

Lastly, a friend requested that I also ask you about the possibility
of controlling all the intersections in town with either stop or yield
signs. His observation was that too many people are going through
these intersections at a pretty decent clip without checking for cross

Please consider these situations and let me know what the police
department thinks about them.


Chief Lohner responded with:

"Mr. Christie,

Thank you for writing to me with your traffic safety concerns. I will be copying this response to our Department's traffic safety coordinator for follow up to include presenting the concerns to the Traffic Safety Committee.

With regard to the traffic light at 10th and Campbell and the speed limit on Elm Street (Old Hwy. 30), we'll have to leave those decisions up to ODOT, who has a representative on the Traffic Safety Committee. The City has little or no authority over those roadways, because 10th Street and Elm Street (Old Hwy. 30) are both State Highways. As for 17th Street, the City Council could make a recommendation to ODOT to change the speed, which would be at their discretion after an "engineering and traffic investigation indicates that the statutory speed for the highway is greater or less than is reasonable or safe under conditions the department finds to exist" (ORS 810.180).

As for your intersection question, I can tell you that we do have a unique community with so many uncontrolled intersections. However, even though we have considerably more uncontrolled intersections than controlled intersections in Baker City, we have far more traffic crashes at the controlled intersections than at the uncontrolled. Therefore, at this point and time I would have a hard time advocating for more intersection controls.

If the Traffic Safety Committee decides to recommend action on any of your concerns, I will let you know. Until then, if you have any further questions or concerns please let me know.

Chief Wyn Lohner

A reasoned and polite reply. It turned out though that the officer who was going to transmit my concerns to the Traffic Safety Committee was on vacation at the time of the meeting, but I was told in February that he would see if he would transmit my concerns to the committee. OK.

Then in mid February, I was out early on a raptor count with a friend. We were traveling down 17th Street after turning right off of the new Settler's Loop Road. A woman in a Jeep Cherokee like vehicle had just passed the intersection, also traveling south at about 35 MPH. She was apparently oblivious of a police car parked facing north on the east side of the street just past Settler's Park. It was tucked away off the street in a large open area between the street and the warehouse-like building. Just after she passed, the police car turned on the flashing lights and flipped a u-turn, stopping her about two blocks south. As I had seen a police car there before, this incident gave weight to my belief that the Police Department was using the unusual situation as a speed trap. When I asked a friend who travels that section of road on a regular basis about that time of day (7:30-8:30 AM when people are going to work), he told me that the police use that location to catch unaware drivers on a fairly regular basis.

Speed Trap On 17th Street
Black line points to area where the police car is normally waiting.

I can see why they like that spot. Most people would assume that a safe speed limit would be 35 to 45 MPH due to the large industrial and unoccupied road frontage from around the Sheriff's office down to near Campbell. I'm guessing that is why many people travel around 35 MPH on that section. Plus, there are few signs to let them know about the low speed limit. If they miss the one in front of D&B up by Hughes Lane, they won't see another one going south until they hit a 20 MPH warning sign way down at the curve onto Auburn Avenue. Going north from Auburn, there is one sign at 'A' Street and another up at the Sheriff's office. That's it. If you come on to 17th from Settler's Loop, you won't find any sign to tell you what the speed limit is until you gat past Auburn. (Interestingly, Settler's Loop, which is completely vacant south of OTEC, has a new 25 MPH speed limit sign.

According to The Speed Trap Exchange,
"The worst kind of speed trap is the one that is set up to deliberately entrap motorists and extort money for the benefit of police agencies or local governments. These speed traps employ absurdly low speed limits, intense enforcement, deliberately confusing signage (or no signage), and dishonest and or abusive local courts." 17th Street sure seems to fit.

All this said, I haven't seen police cars at that spot for the last week or so--ever since I mentioned it in an e-mail that was copied to Chief Lohner. But a word to the wise when traveling down 17th--exceeding the speed limit there, as unreasonable as that limit seems, could cost you some of your hard-earned money.

Charley Reese: Cut Israel Loose

"Sometimes President Bush sounds like an idiot. The most recent example is his statement that he still believes the Palestinians and Israelis can reach a peace agreement before the end of his term.

This comes on the heels of an Israeli attack against Gaza that killed more than 100 people, most of them innocent civilians. It was a reprisal attack for a few rockets fired into Israel by some Hamas hotheads. In World War II, when the Germans killed civilians as a reprisal for an attack on their forces, it was called a war crime.
. . . . If the Palestinian rockets were slaughtering Israelis, no one could complain. Even an occupying power has a right to defend itself. But these rockets, unguided, more often than not land where people aren't. According to a recent story in the Los Angeles Times, only 13 Israelis have been killed by these rockets in the past seven years. Hamas says the rockets are in response to Israeli attacks; the Israelis say the reprisal raid is in response to the rocket attacks.

Such circular action-reactions remind one of the wisecrack that if the world practices the old Hebrew "eye for an eye and tooth for a tooth" philosophy, the world would soon be blind and toothless. Unless the Israelis are willing to do as the Romans did and exterminate every Palestinian man, woman and child, they can't kill their way to peace. And neither can the Palestinians. . . . .

The United States should stop the $3 billion annual gift to the Israelis and tell them that as of now, the U.S. will no longer protect them from United Nations sanctions or criticism with our veto. Israel is quick to say it is a sovereign and independent country; well, it's time the U.S. put that to the test."

Whole Article:


Former Governor Kitzhaber On Medical Care

In this must-see video, ex-governor Kitzhaber explains why our medical care system doesn't work.

Kitzhaber talking points on our broken US health care system: