banking regulations

Republicans Try to Convert America into Pottersville

Leo Gerard — Tue, 27 Dec 2011 08:20:41 -0500

In the iconic Christmas film, “It’s a Wonderful Life,” an angel offers the beleaguered main character, George Bailey, the stark choice between a hometown named for a cruel banker or one created by and for the middle class.

The banker’s town, Pottersville, is filled with bars, gambling dens and despair. The people’s town of Bedford Falls is made of hope, hard working middle class families, and their homes financed by the Bailey Brothers Building & Loan.

The film’s happy ending is the people of Bedford Falls banding together to rescue George Bailey and the Bailey Brothers Building & Loan that had given so many of them a leg up over the years. Republicans seek a different conclusion. They find middle class cooperation and community intolerable. They want the banker, Henry Potter, with his “every man for himself” philosophy to triumph. In the spirit of their self-centered mentor Ayn Rand, Republicans are trying to disfigure America so she resembles Pottersville.

A building and loan association, like the Bailey Brothers’, uses the savings of its members to provide mortgages to the depositors. Members essentially pool their money to give each other the opportunity to buy cars and homes. At one point in the film, George Bailey explains this concept to frightened depositors who are trying to withdraw their savings during the panic that led to bank runs in 1929.

Bailey urges the townspeople who had crowded into the building and loan office to withdraw only what they need, not empty their accounts. “We have got to stick together,” he tells them, “We have to do this together.” A building and loan doesn’t function without trust and cooperation.

It works well for Bedford Falls. The mortgages it provides help working people move out of the Potters Field slums and into Bailey Park, where homes well kept by their owners increase in value. Despite the success, Potter condemned this practice, saying it was based on “high ideals without common sense.” He criticized the Bailey Brothers Building & Loan for granting a taxi driver a mortgage after Potter’s bank had rejected his application. Potter scoffed at such practices, asking if the building and loan was a “business or a charity ward.”

This is exactly what Republicans do. They describe beloved American programs like Medicare and Social Security as charities – using the euphemism “entitlements.” Like mortgages from the Bailey Building & Loan, Medicare and Social Security are not charities. They’re the American people depositing and pooling their money for the benefit of the American community.

The GOP tries to destroy programs like these that aid the middle class, the vast majority of Americans – the 99 percent – while Republicans protect tax breaks and special perks for the rich – the one percent, the Henry Potters.

This time last year, Republicans demanded extension of tax breaks for the 1 percent, contending tax breaks stimulate the economy.

For the past three months, however, Republicans have fought extension of payroll tax cuts, contending a break benefiting 160 million middle class Americans did not stimulate the economy.

All year, Republicans have demanded an end to programs the middle class created to aid the majority, the 99 percent. The GOP wants to reverse the new banking regulations that were passed in an attempt to prevent another economic collapse caused by risky Wall Street practices. The GOP tried to to rescind the healthcare reform law that prevents insurance companies from terminating coverage when beneficiaries get sick and prohibits the practice of refusing coverage to people with pre-existing conditions.

Influential Republicans this year have called for repealing laws forbidding child labor, laws guaranteeing minimum wage and laws protecting the environment. They’ve demanded elimination of federal funding for organizations like the Public Broadcasting System that educates preschoolers, Head Start, which provides opportunity to poor children, and Planned Parenthood, which uses 97 percent of its funds to provide general, obstetrical and gynecological medical care to women, many of whom are rural and poor.

Republicans have decided to be the party of Henry Potter, the “meanest man in the county,” a man about whom George Bailey’s father said: “he's a sick man, frustrated. Sick in his mind, sick in his soul, if he has one.”

Like Potter, Republicans deride compassion and community as character defects.

In the Republican world, where greed is good, it was appropriate for Henry Potter to keep the $8,000 in Bailey Building & Loan money that George Bailey’s uncle, Billy Bailey, accidently handed him.

Republicans are attempting to impose that selfish belief system on the selfless American people, people like the citizens of Bedford Falls who rush to the rescue of neighbors.

It won’t work, just like it didn’t in “It’s a Wonderful Life.” Republicans will fail in their attempt to make America Pottersville because the 99 percent believe avarice is a sin, not a value. The GOP will fail because greed is not the American way.

Real Story or April Fool's Joke? "Anne Berkshire-Hathaway" and 6 Other Bizarre Economic Tales

Richard Eskow — Fri, 01 Apr 2011 20:55:16 -0400

Writers love coming up with absurd stories on April Fool's Day and then trying to pass them off as real news. So let's play a game: Which of these stories are real and which are just April Fool's Day pranks?

Meet my friend Berkshire and his wife, Anne: A review of past stock performance suggested that the stock price for Warren Buffett's Berkshire Hathaway corporation goes up whenever movie star Anne Hathaway is in the news.

News reports about the release of new Anne Hathaway movies like Rachel Getting Married, or her performance co-hosting the Oscars, may have increased the value of the billionaire Sage of Omaha's stock portfolio.

Lazy Dog Millionaire: A major bank's employees had a party for everyone who received a bonus in the million dollar range - which was a lot of people.

As one employee said, million-dollar bonuses were handed out "even if a guy is really lazy and has done s***."

Und you will like it! A few weeks later that bank's Chairman of the Board stood up at a financial gathering and said - in a German accent, no less - that "populations are not ready to voluntarily discipline themselves in more work, less rewards, and less security."

In a particularly Strangelovian turn of phrase, the banker said that we must "reinvigorate ourselves."

The East Is Red: The CEO of a major American bank says that a Communist system of banking regulation would be better for his business than ours.

Law of the Jungle: In the "over-regulated" United States, people are still losing their entire life savings with what banks promise are "low-risk" investments, but which aren't really regulated at all.

And we don't need pilots because airliners are so difficult to fly: The architect of bank deregulation, which caused the financial collapse of 2008, now argues that banks shouldn't be regulated because they're too complicated to understand. He also argued that we don't need regulations because the free market is almost perfect.

What the Dickens ...? An old colonial practice is back: debtors' prison.

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So which of these reports are true and which are just April Fool's pranks? Answer: They're all true. But you knew that, didn't you?

Anne Berkshire-Hathaway: As the Huffington Post's Dan Mirvish reported last week, "When Anne Hathaway makes headlines, the stock for Warren Buffett's Berkshire-Hathaway goes up." Mirvish then provided a list of dates when Hathaway made news and Berkshire-Hathaway stocks enjoyed a boost.

Mirvish's argument is persuasive, even if it's not completely proven. Why is it even plausible? Because billions of dollars are traded every day in what is known as "algorithmic trading" - ultrafast computer transactions with no human intervention. These "terminators in the casino" played a role in last year's "flash crash" and are still a threat to market stability. Mirvish speculates that the boost comes from software programs designed to scan headlines and look for increasing mentions of a particular company. Then the programs will execute light-speed purchases of that company's stock without human intervention.

Algorithmic trading companies make their money by executing a huge number of transactions, each of which may only earn pennies. In a heavily automated stock market, even he tiniest delay in the execution of a transaction can make a big difference in earnings, so these programs are in a kind of "arms race" to automatically collect information and react to it instantaneously.

Which means the story could be true.

Reports suggest that a third of all stock market transactions are algorithmic. As much as 75 percent of global equities are traded algorithmically.The cocoa market suffered a recent near-instantaneous plunge widely believed to have been caused by algorithmic trading, during which U.S. cocoa prices fell more than 10 percent in sixty seconds.

Denials by the CEO of ICE, which operates the global futures exchange, were unconvincing. And Kurt Vonnegut readers may find themselves associating the name "ICE" with "Ice Nine," the seemingly-safe invention in Cat's Cradle which freezes all the oceans on Earth by mistake.

The point of Vonnegut's novel: Not every new technology will make things better, especially it it's used carelessly.

Even lazy guys who didn't do sh*t ... Business Insider quoted an employee of Barclays Capital in London who said that even these "lazy guys" got 600,000 pound bonuses. That's just under a million dollars ($980,000) at current exchange rates.

They also reported that some of the personal assistants at Barclay' Capital in London got bonuses in the $100,000 range. A nearby Mercedes Benz dealership observed that "it's been a busy day."

"Submit to our voluntary discipline ..." This story's also true, although we cheated a little: The banker spoke in a German accent because he's German.

Another story from Business Insider reported that Hans-Jörg Rudloff, Chairman of the Board at Barclays Capital, told the Forum of Economic News that the European Union should cut social benefits in half, require longer working hours, and delay retirements even further than is currently being planned.

Red Dimon. According to Bloomberg News, JPMorgan Chase CEO Jamie Dimon told a U.S. Chamber of Commerce conference that American banks are at a competitive disadvantage because "India, China, Japan and South Korea don't have the same restrictions on financial firms that are found in the U.S." All of China's major banks are owned by the state and managed by Communist Party leaders.

Dimon also said that "Singapore is licking its chops, hoping that a lot of the business goes over there." An analyst summarized the findings of the conservative Heritage Foundation by noting that "as much as 60 percent of Singapore's national output ... came from partially state-owned companies."

The architect of bank deregulation ... That would be Alan Greenspan, who has descended to new lows of incoherence in attempting to defend both his failed record and his failed deregulatory philosophy. Felix Salmon, who's a pretty judicious and fair-minded guy, said that "Greenspan could hardly have made himself look like more of an idiot if he'd tried."

Alex Eichler's review of Greenspan's editorial in the Financial Times was entitled "Why Everybody Is Laughing At Alan Greenspan Today."

I could almost feel sorry for the old gent, if it weren't for his almost sociopathic disregard for the consequences of his own actions. Much sport was made of the fact that Greenspan said the free market works "with notably rare exceptions (2008, for example)." Write your own joke, as Ed McMahon would say.

Over-Regulated America From The Nation's Investigative Fund: "Structured products must be registered with the Securities and Exchange Commission, but that's about it. No regulator reviews them before they're sold. When Congress enacted the 2010 Dodd-Frank financial-reform law, these complex products were ignored. The law created a new Consumer Financial Protection Bureau, which will investigate deceptive marketing practices (among other duties), but the new agency won't oversee the securities industry."

The Nation told several stories like that of Rob Brunhild of West Bloomfield , MI, who lost $275,000 after investing in Lehman structured notes through UBS Bank. "The broker implied that the notes were like U.S. Treasuries," said Brunhild.

Wall Street sold more than $51 billion of these investments last year. Investors have already lost $164 billion in these and similar products - and both sales and losses are expected to increase. Welcome to your "super-overregulated" nation.

Debtors' Prison: The Wall Street Journal reports on the increasing use of the criminal justice system to arrest and jail people for owing money - sometimes before they've even been notified that they do owe money. The Journal cites the growing backlash to "sloppy, incomplete or even false documentation that can result in borrowers having no idea before being locked up that they were sued to collect an outstanding debt."

This is not from a report in the Nation, Rolling Stone, or even (God forbid) the Huffington Post. This is from the Wall Street Journal - Rupert Murdoch's Wall Street Journal.

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In other news: Senior executives at NASDAQ and the New York Stock Exchange announced most stock transactions will now be executed at faster-than-light speed through a random number-generation process that will, in their words, "combine the high-speed efficiency of a cascading power failure with the predictive accuracy of chicken-entrail reading."

CEOs at the country's five largest banks announced they will be turned into workers' collectives. Management decisions will be made by a workers' Soviet comprised of unionized clerical employees, drivers, maintenance workers, and other members of the staff who are untainted by excessively capitalistic tendencies. In recognition of the "Anne Hathaway" phenomenon, the CEOs also announced that each of their banks will be re-named after celebrities. JPMorgan Chase will henceforth be known as the "Bank of Snooki."

It was also reported that ... ahh, forget it. I'm not going to come up with anything as strange or funny as these real stories. That is, they would be funny - if they weren't causing so much real-world pain and difficulty.

There's still a staggeringly high unemployment rate, we're still at risk of another recession, and a guy can't even write a stranger-than-fiction economics piece anymore. Some April Fool's Day this turned out to be.
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This post was produced as part of the Curbing Wall Street project.