Greg Moses : The Sound of Un-Hatched Chickens Crashing

Generation Payback:
The cash value of capitalism

By Greg Moses / The Rag Blog / May 9, 2010

Confronted on Tax Day by satellite visions of free market capitalism led by the American Tea Party, global investors began to exit the building. A 34-point drop in the Global Dow on April 16 was followed by a 42-point fall on April 27 and a plummet of 170 points during the first week of May. Now with a lavish bailout in Europe -- of the financiers, by the financiers, and for the financiers -- investors are retracing the exit steps.

As the cash value of capitalism fell from the shelf of a shaky rally, precisely in alignment with the televised prognostication of Steven Hochberg at Elliott Wave International, heavyweight voices at the Capitalism Knows Best Channel (CNBC) were pleading for a "new normal" that would allow each and every one of us the time and earnings we needed to pay back everyone we owed.

Restructuring is the magic word that signifies the best hope for the consciousness of the creditor classes that they can have their debt bubble and eat it too. Restructuring is the middle term that makes possible the conclusion of a "new normal" whenever the premise turns out to be California or Greece.

It hardly matters whether you favor the private sector or the public. As Robert Prechter has amply documented, social mania has been pervasive, and on his account it could not have been otherwise. Whether the party in power was Democrat, Republican, Conservative, Labor, Socialist, Enron, Madoff, or Lehman, everybody grabbed at least one imminent duty and placed it on the pay-later plan.

My Aunt Billie who learned her personal finance skills from the Great Depression warned me early in the 1970s that there was something wrong with the baby boom's approach to dollar bills. For better and worse, prefigured by Joplin, Hendrix, and Morrison, we winged our boom-time destiny straight into the flame.

If there is to be a process of social healing during the debt detox that lies ahead, as all the junk gets flushed down the world commode, a certain maturity will demand acceptance of the pain that comes with any withdrawal of toxic needs.

And if fortitude will be needed from debt payers, then debt collectors also should confront their complicity in a relationship that long ago showed all the symptoms of codependency. On all fronts public and private we have built a world house of debt. Not only the users of toxic assets, but the pushers, too, need to go through their social share of pain in the coming adjustment to sober living.

One annoying aspect of the Tea Party movement is how it pretends to stand apart from the history that got us here or the pain that will get us out. Scapegoats are most necessary where self-guilt is most threatening. Whose wealth have you been counting on? Whose humanity was the source of that wealth?

If the new Parthenon of the global economy is to be a project of collective restructuring, the creditor class must renounce all ideologies that apologize for debt slavery. The world became addicted to debt partly because there were pusher-men eager to get everybody hooked.

As signified on May 5 by the spinning-top candlestick on the S&P chart, we were transfixed in realization that all the debt in this life might never be repaid. Or if it could be repaid it would take so long as to be systemically demoralizing. Alienation is the word Marx used to name lives confined to other people's motives for profit. Indeed, that spinning-top candlestick appeared on the occasion of Marx's 192nd birthday -- the day of the Greek uprising.

Once a person or generation realizes they have sold themselves into slavery, are they required to keep the contract? And if the lender could foresee the whole slavery debt coming, wouldn’t we call it predatory? Therefore, in the name of a crash and recovery that shall not be the re-alienation of the debtor classes, some systematic reduction in accounts receivable is one thing the "new normal" will require.

Arcane financial instruments called the Credit Default Swaps (CDS) are finally explainable on these terms. Invention of the CDS by JP Morgan in 1995 was a symptom that the system as a whole had gone debt-aholic. The CDS was the class consciousness of debt pushers acting out, insuring each other against the prospect of their junkie clients collapsing from under the weight of delivered services. It was a scheme that presumed dollars themselves would be reality enough to sustain all value in the aftermath of a pusher economy.

Creditor classes have developed pretty good notions of what they expect the debtor classes to give up: things like retirement. In return (pun or not) debtor classes have the inalienable right to remind bond holders of something Poor Richard nearly said: never mark a chicken to market before it's hatched.

[Greg Moses is editor of the Texas Civil Rights Review and author of Revolution of Conscience: Martin Luther King, Jr. and the Philosophy of Nonviolence. He can be reached at gmosesx@gmail.com.]

A very smug pre-crash H. Dumpty. Bronze statue in Mesa, Arizona, by Kimber Fiebiger. Photo by Gerald Thurman. Image from Roadtrip America.
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Whole Foods : Investment Group Calls for John Mackey's Head

Investment group calls for Mackey's head;
Whole Foods tries damage control

CtW Investment Group calls on Whole Foods board to remove Chair and CEO John Mackey; Says damage caused by WSJ op-ed shows Mackey is a 'liability'

See full text of letter, Below.

The CtW Investment Group called on the Whole Foods Market (NYSE:WFMI) board to remove CEO John Mackey as Chairman and to begin the process of naming a new CEO in a letter to Whole Foods’ lead independent director, Dr. John Elstrott, yesterday afternoon [October 24, 2009]. Citing the risk to Whole Foods’ brand reputation caused by Mr. Mackey’s editorial opposing President Obama’s proposed healthcare reform, CtW urged the board to take immediate action to prevent continued damage in the face of a quickly-growing boycott by Whole Foods’ progressive customer base.

“Mr. Mackey attempted to capitalize on the brand reputation of Whole Foods to champion his personal political views, but has instead deeply offended a key segment of Whole Foods consumer base,” said CtW Investment Group Executive Director Bill Patterson. “This is not the first time Mr. Mackey’s unsanctioned communications have damaged Whole Foods’ image with consumers and investors. At a time when shareholders are looking for Whole Foods’ management to focus on improving operations in an uncertain economy, we can not afford the risk to our Company’s brand reputation caused by Mr. Mackey’s indiscretion. He has become a liability and the board should begin the process of identifying a suitable replacement.”

-- CtW Investment Group

Whole Foods attempts to quell boycott cries

By Alex Palmer / August 26, 2009

Protesters and unhappy customers have taken to the streets and to social networking sites to express their displeasure regarding Whole Foods chief executive John Mackey's recent Wall Street Journal op-ed column. Some are threatening to boycott the store altogether.

The column, which appeared on Aug. 12, was critical of President Obama's healthcare plan. It urged the country to embrace a more free-market healthcare system. "A careful reading of both the Declaration of Independence and the Constitution will not reveal any intrinsic right to healthcare, food or shelter. That's because there isn't any. This 'right' has never existed in America," Mackey wrote in the piece.

Today, members of the Washington, D.C.-based United Food and Commercial Workers Union demonstrated outside Whole Foods stores in two locations in Ohio and plan to continue disseminating educational materials to shoppers over the next few weeks.

The group has emphasized the incongruity between Mackey's assertions and the brand image that Whole Foods has built. "Whole Foods has attempted to wrap itself in a progressive image, but when you peel back the layers you see that it is run by an executive who repeatedly pushes extreme positions," said Scott Frotman, spokesman for the union. "Frankly, Mackey's ideology seems more in line with the radical tea baggers harassing people at town hall meetings than the men and women waiting in line to buy organic green tea in his stores."

Online, the playwright Mark Rosenthal's "Boycott Whole Foods" Facebook group now has over 26,000 members. Whole Foods' Facebook page has comments from numerous supporters stating their solidarity with Mackey and commitment to their local stores.

"While Whole Foods Market has no official company-wide position on the healthcare reform issue, we would not want our very successful and sustainable healthcare coverage to be jeopardized," said the company in a statement. "We have heard from individuals who both agree and disagree with John's ideas, as there are many opinions and emotions surrounding the ongoing healthcare reform issue, including lots of differing views here inside of Whole Foods Market. We appreciate those diverse perspectives, but it is unfortunate there is misinformation and confusion out there to cloud John's good intentions."

Whole Foods sent out letters to customers apologizing for any offense that may have been created and started a forum on its Web site for discussion of healthcare reform (Currently it has over 17,000 posts, compared to 249 on favorite recipe swaps.)

Still, consumers are likely to lump the CEO's personal opinion together with the brand. Especially considering Whole Foods has a highly engaged customer base, many of whom are deeply concerned about the issues of health and food, said Amy Shea, global director of Brand Keys. "It becomes problematic for a brand when you have the emotional side firing, and that's what [Mackey] did, he tripped that wire. It's never a good idea for a CEO to do an op-ed piece on such a volatile topic. Of all the topics he could have chosen, he chose one that is very, very close to the space in which the brand participates."

Source / Brandweek / Posted Aug. 24, 2009

Letter from the CtW Investment Group to the Whole Foods Market Board of Directors

August 24, 2009

Dr. John B. Elstrott
Lead Independent Director
c/o Director of Internal Audit
Whole Foods Market
550 Bowie Street,
Austin, TX 78703

Dear Dr. Elstrott:

Events of the past week establish yet again that John Mackey’s lack of personal discipline makes him a liability for Whole Foods Market, Inc. Despite past indications that the board needed to exercise independent oversight of Mr. Mackey and supervise his external communications closely – most notably his postings on the Yahoo! Finance bulletin board, which led to an SEC inquiry – you and your fellow directors failed to take meaningful action to prevent Mr. Mackey’s uncompensated brand and reputational risk to our Company.

The board must now recognize that managing reputational risk is central to building shareholder value at Whole Foods and act accordingly. Replacing Mr. Mackey as Chairman and CEO is the critical first step in this process. We first raised questions regarding Mr. Mackey’s leadership in a July 25, 2007 letter to you in which we called on the board to immediately remove him as Chairman and determine what additional steps were warranted in response to Mr. Mackey’s ill-advised Yahoo! Finance postings. As a result of the board’s inaction, Mr. Mackey’s indiscretion has continued to place our Company’s brand reputation at risk. We therefore call on the board to immediately undertake the following:

• Immediately remove Mr. Mackey as Chairman of the Board.


• Establish and disclose to shareholders a clear succession plan so that he can be removed expeditiously from his position as CEO as soon as feasible; the plan should detail how the board intends to ensure that CEO succession is a routine topic of discussion by the board, there is an emphasis on development of internal candidates while remaining open to external candidates, all board members are given exposure to internal candidates, and that there is both a long-term perspective to address expected CEO transition periods and a short-term perspective to address crisis management in the event of death, disability, or an untimely departure of the CEO.


• Quickly implement a board policy and process for supervision of executive communications in order to ensure that Mr. Mackey can cause no further damage to Whole Foods’ brand and reputation in his remaining time with the company.


• Commit to issuing a thorough and exacting annual review of all political or partisan uses of corporate resources, including a justification of any such expenditure, and make this review publically available.

The CtW Investment Group works with pension funds sponsored by unions affiliated with Change to Win, a federation of unions representing nearly 6 million members, to enhance long-term shareholder returns through active ownership. These funds are substantial long-term Whole Foods shareholders.

Whole Foods’ Unique Strength and Vulnerability

Whole Foods is the leading national provider of natural and organic foods, and as such has benefitted from growing environmental and health consciousness among affluent urban consumers. However, this leading position makes Whole Foods uniquely vulnerable to disaffection from these core customers if they perceive that the company is not managed in a manner consistent with their values. Following the publication of Mr. Mackey’s op-ed piece opposing President Obama’s health care reform proposal on August 16, 2009, Whole Foods customers have reacted with outrage: at least 26,000 have now joined a Whole Foods Boycott page on Facebook. Numerous commentators have noted that a boycott of Whole Foods by politically progressive customers could cause a significant loss of shareholder value. We note with apprehension that the Company’s letter of apology to customers – the necessity of which reinforces our concerns – appears to have done nothing to soften the backlash against Mr. Mackey, and unfortunately, Whole Foods itself.

While we respect Mr. Mackey’s First Amendment right to express his political views, as he did for instance in noting that the Constitution contains no “right” to health care, we hasten to point out that neither the First Amendment nor any other provision of the Constitution give Mr. Mackey or any other CEO the right to retain their position regardless of behavior or performance. Moreover, Mr. Mackey’s article was not a citizen’s “letter to the editor,” but a lengthy op-ed that explicitly tied him to Whole Foods by identifying him as the CEO. Given Whole Foods’ unique exposure to a key segment of the customer base, Mr. Mackey’s decision to express his views in such a public way, and on an issue of such enormous moment, seems ill-advised at best.

As noted above, we first called on the board to remove Mr. Mackey as chairman and to evaluate his suitability as director and CEO in a letter to you over two years ago. In that letter, we specifically called the board to investigate whether Mr. Mackey’s Yahoo! Finance postings violated Whole Foods’ code of conduct and to establish clear disciplinary policies for unsanctioned executive communications. Unfortunately, you failed to take any meaningful action, and now Whole Foods shareholders again face potentially damaging fallout from unmanaged and uncompensated reputational risk.

Similar inaction now is unacceptable. The board must act immediately to address the burgeoning crisis caused by Mr. Mackey’s undisciplined behavior or shareholders will have little option but to conclude that you and your fellow directors are unable or unwilling to hold management accountable.

Sincerely,

William Patterson
Director

CC: Whole Foods Market Board of Directors

Source / CTW Investment Group

Thanks to Roger Baker / The Rag Blog

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Investments : Recovery Through Pinpoint Socialism

Pinpoint Socialism:
Recovery through Equities, Tools, and Land

By Greg Moses / The Rag Blog / July 27, 2009

In a Friday morning appearance on Squawk Box at the Capitalism Knows Best Channel (CNBC) Warren Buffett promoted two things: a new cartoon where he plays himself as investor super hero -- and equities.

"I would much rather own equities at 9000 on the DOW than have a long investment in govt bonds or a continuously rolling investment in short term money. Now, again I don't know where it's going to go next week or next month," said Buffett in a quote archived at Huffington Post.

"But you still think equities is the place to be?" asked Becky Quick.

"I own them myself," chuckled Buffett, putting mouth where money is at.

For my part -- ignoring for the moment how “media savvy” the Oracle from Omaha can be -- I have been paying attention to Buffett because I think what he says can be helpful in trying to understand a way upward in the direction of job growth. Also, with my brief experience in market trading, I think he does have the more sustainable long-term view of market investment. If the market crashes next week, he will still have plenty to work with.

Although I have NO IDEA what people should do with their savings this month, I do think that whenever more people decide to truly invest in equities there will be a greater chance of a recovery based on jobs. The term "jobless recovery" to me has all the charm of fingernails scraping a blackboard. Anyone who speaks seriously about a jobless recovery is only declaring that he belongs to the class which has no Real Jobs to lose.

For the rest of us, the combination of depression and joblessness cannot suggest images of anything resembling recovery. Already the image of Skip Gates in handcuffs warns us how suddenly ugly things can get.

So I am looking for a way to think about the requirements of a recovery "with jobs" and I am following the guidance of San Francisco economist Henry George who argues that workers will create value on the spot so long as they are provided proper tools. From this cue I go looking through Google News for signs of capital expenditures and investments. What's up with tool development these days?

Notice that I did not begin my search for recovery with "consumer spending," because I think that the mainstream chatter about this is another way of capitulating to depression. In other words, please tell me why consumers are going to increase spending while they are losing jobs? A labor-centered discussion of recovery would change the language of "jobless recovery" into "capital stagnation" so that we may more forthrightly name the thing that needs to be directly confronted.

The run-up in technology-sector equities these past few months gives us something to work with. This is a prime tooling sector for advancing development along broad dimensions of opportunity. Jim Cramer makes a compelling case that the tech sector is also more free to refresh itself compared to other sectors plundered by pirates of finance. Yet the tech sector is beginning to quiver and quake upon rocking foundations.

The first item I find when looking for "capital investment" is a press release from the National Venture Capital Association announcing that the Biotech sector has attracted a 67 percent increase "in Seed and Early Stage fundings" during Q2. Clean Technology is the next fastest growing venture sector, followed by Software and Medical Devices. Although the raw numbers look hopeful because of very recent increases, the historical levels of capital at play take us back more than a decade, "close to what we saw in 1997 before the Internet bubble."

Next item on the Capital expenditure front is a pep talk by Andy Rowsell-Jones at Gartner, Inc., who is telling IT directors not to capitulate to cuts in IT budgets.

"While IT expenditure may be a small proportion -- ranging from 1.7 percent in the construction and engineering industry to 12.6 percent in the banking and finance sector -- budgets have been cut in light of the economic situation. Rowsell-Jones said IT spending has risen every year from 2003, but is being cut for this year, according to a recent Gartner survey." The banking sector is not even upgrading its own computers? Hold your expletives, and pass the subpoenas...

The third item is from Stockholm, reviewing the quarterly report from Ericsson Telephone: "Several telecom operators have announced plans to reduce investments in order to maintain cash-flow in the economic downturn, a trend that can hurt companies like Ericsson that supply network equipment."

From this short sample of findings we may draw a preliminary hypothesis that capitalism is in no great position to deliver the tools that will be needed for a speedier economic recovery. And this is why so long as Capitalism Knows Best we are staring at a chasm that is called the jobless recovery.

What is called for is something we might call pinpoint socialism where public resources are put to use injecting support for tool-making in precise contexts. In the case of IT upgrades and telecom network equipment, the needs are "shovel ready." They have been planned and budgeted. Suppliers are at hand. Only a vicious cycle of "free market cash implosion" has trickled down. If active and sensible agents of public trust were to get busy in these areas, putting our debt bubble to productive use -- instead of taking August recesses -- jobs could still be "saved or created" in the near term.

As a preliminary parameter for public injections of funds to make new tools, there could be a simple baseline requirement that qualifying companies must state the need in their SEC filings. If the companies are caught lying about their capital investment needs, theoretically there is an agency that could send in the Cambridge Police.

Along a second line of analysis offered by Henry George, successful experiments are taking place in Pennsylvania and Michigan regarding a different approach to land policy. Wikipedia has a good orientation to Land Value Tax (LVT) that gives brief credit to Henry George. The basic idea is to shift the burden of taxation away from capital (capital gains) and labor (income tax) -- both of which we need more of -- and place the taxation onto land (which is ever in fixed supply).

According to reports archived at earthrights.net:

"Any non-Genesee County residents may acquire LBA property only with an enforceable plan to place the property into immediate productive use (meaning the property is to be occupied immediately or with the immediate commencement of some form of development project that fits our stated mission). This applies to vacant lots as well as properties with structures, residential and commercial properties."

The LBA principle of land liberation is right out of "Progress and Poverty" by Henry George, which argues at length that labor and capital will keep each other more productive if all unused land is set free. Need we remind ourselves there will never be a cheaper time in our lives to liberate the land monopolists?

Finally, while we're at it, may I venture to suggest, that wherever today you find people complaining about "Mexican illegals" -- tomorrow -- with fresh tools and liberated land -- everybody will marvel at the rise of cities of gold.

[Greg Moses is editor of the Texas Civil Rights Review and author of Revolution of Conscience: Martin Luther King, Jr. and the Philosophy of Nonviolence. He can be reached at gmosesx@prodigy.net.]

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Lifeguard on Duty : Swimming with the Investor Class

Photo from donsafer.com.
Whose Recovery?: Swimming with the Investor Class

'Never was a rich man who didn't get his money off a poor man's back,' is what Paul would say. Which is another way of claiming that all Real Value comes from labor.

By Greg Moses / The Rag Blog / July 21, 2009

Another less-bad week is in the making for corporate earnings, housing sales, and unemployment trends -- perhaps less bad enough to say that corporate capital is on the mend -- less bad enough to keep the markets from driving the price of all things down. But if the weekly rate of less-badness holds steady at "only about" a half-million newly unemployed and half a dozen banks closed down we will be sliding that much closer to Real Hard Times.

This week may give us a chance to put some big questions onto the table about the way things work and the Real Meaning of the stresses we're about to undergo, together. Let's talk about the Real Market, shall we? And the Real Deal that we're all in the process of cutting.

For five months I've been cramming market analysis the way I used to cram geometry the week before college boards. And for strictly educational purposes I have taken some advice from John Dewey by making my study "hands on" by putting a few hundred bucks into an online trading account. Thirty nine trades later, my portfolio is outperforming the dollar, so I haven't lost any Real Money yet, but I've learned a few things.

Dewey was correct. What you learn is different depending on whether you are watching or participating. Put just a little money in an active market account and suddenly things go pop and start dancing all around you. Right away you lose your sense of what's really up or down.

An abstract lesson that the market teaches you is the distinction between judgment and theory. You take or sell a position at so-and-so a price. That's judgment. You base the decision on what? After your first few killer trades you begin to feel a gut-level desire for some theory that will help you to keep your head from spinning and your palms dry. Yes, a few hundred dollars means that much to me. So you have to go looking for market theory.

One of my early favorites in market theory was Investor's Business Daily, because it identified a fairly consistent set of criteria for buying and selling, and then was considerate enough to remind me to breathe. IBD offers advice you would expect to hear from Ben Franklin. One rule that stuck with me is to never take more loss than eight percent.

Gradually I have become less interested in individual stocks and more interested in Exchange Traded Funds (ETFs) which allow me to make a little money from China or India while losing money in Real Estate or the Middle East. Websites such as Google Finance, MarketWatch, and stockta.com allow you to track stocks through online portfolios. Another nice free service is investmenttools.com. For a quick glance at overall trends, I also like the market overview page at stockcharts.com or some of the "view all funds" lists available at ETF providers such as iShares or PowerShares. Of course, the Wall Street Journal offers an excellent market data page.

In the hard times that are coming, newspapers will likely continue their downsizing and dispersion. But I don't think this will affect investors very much. Outfits like Standard and Poors, Thomson-Reuters, Bloomberg, and Murdoch seem like they will be able to continue delivering robust information to premium customers. When you go looking for information that has cash value, you discover that the information sector is booking plenty of first class seats.

Plato's Republic teaches that justice is a matter of everyone minding their own business, because each occupation has its urgencies. So let's clear up first things first. Real Investing is a full-time occupation. If the market calls, you'd better be there to answer. Meanwhile, you'd better keep watching out. Once you get a taste for the daily risk of the market life you can see why so many people with Real Money still prefer to take out U.S. Treasury notes. When someone says China is buying U.S. bonds for chiefly political reasons please ask them where they'd find a less risky place for Real Big Money today.

Therefore, anyone who wants to make a national policy of retirement funding via personal market accounts is simply asking everyone to drop what they do best, because you cannot expect everyone to be an excellent investor on the side. Retirement funding is a craft unto itself. Besides, imagine your tax dollars going into someone else's market bets.

There are three basic families of market theory. The first one is represented by Jim Cramer, the bouncing host of Mad Money. I like the guy, because there is something pleasing about anyone enjoying his work that much. Plus, if you actually have "skin in the game," his daily presence on television is a kind of exorcism against the dread-mongering that fills so much market chatter. He didn't succumb to the great "head and shoulders scare" of early July.

As for market scares in general, I started this story on a Friday evening when all was quiet. Now that I'm doing final revisions on Monday morning, I find myself thinking, who knows? A crash could come any day. Or a pop. Or a bomb somewhere. Or a bad number out of Korea. So as of this minute in time it appears that Cramer's short-term bullishness has been vindicated. Right now, Cramer's keel is still attached.

Cramer's theoretical model is "fundamentals." For the most part, he likes to buy stocks in individual companies. He likes to study the balance sheets, read the SEC docs, listen to the conference calls, and figure out if there is really a productive business priced at a bargain level. Sometimes he gets it wrong, but mostly he wraps his recommendations inside reasons that help you to think about the way the market is working. Like a good teacher, Cramer presents his own choices in ways that help you to think on your own. He offers a market theory.

Along with the other two families of market theory that I will discuss below, the "fundamentals" camp assumes the perspective of the investment class. Cramer can discourage wage raises for Wal-Mart workers because they would raise the price of goods for customers, which will drive down store sales, which will, you guessed it, hurt the stock price that investors need most. We'll come back to this problem later.

Fundamental analysts such as Cramer, Peter Schiff, H.S. Dent, or Warren Buffett have market theories grounded in the study of earnings, demographics, economic, and yes, investment trends in the Real World.

The second family of theorists can be called "chart technicians." What they study is the price and volume action as it can be pictured in hundreds of ways. The vintage form of technical analysis -- the candlestick chart -- is attributed to an 18th Century rice trader in Japan.

The classic school of modern-day chart technicians goes under the name of Dow Theory because it was founded by the first editor of the Wall Street Journal, Charles H. Dow, who became the Dow of Dow-Jones. In its classical form, Dow Theory compares the movements if two indexes, the Dow Industrials and the Dow Transportations, which according to Jack Schannep and the editors of thedowtheory.com, yields a buy or sell signal about once a year. To catch more short-term trends, all kinds of charting devices have been invented.

I think the most popular technical tool of the modern trader is the Moving Average Convergence/Divergence indicator or MACD (pronounced Mac-D). At the Wall Street Journal for example the MACD is a default feature of every dynamic chart, reflecting market movements into a graph that helps gauge probable short-term trends in price.

During the head-and-shoulders scare of early July, technical analysis dominated market chatter. Investors have plenty of fundamental reasons to worry about another downturn, so technical signals can really spook the herd. The head-and-shoulders pattern was a pure technical signal that things could get very bad quickly. It spooked me. As it turned out, either there was no head-and-shoulders or the pattern was more of a signal that something big was about to happen up OR down.

The head-and-shoulders pattern, if it was one, actually signaled a breakout or sudden uptrend -- which is not the first opportunity I have missed (in the market as in life) because of caution poorly timed.

This week the technical question becomes whether the breakout has established a new floor for a short-term trading range. The fundamental school seems cautiously optimistic that data will continue to come in "less bad." And many of the technical chart analysts -- including the ones who spooked us before--seem to think we're going to be trading a new level up, at least for the near term. Technical signals don't take all the chaos out of the market, but they do help you to feel as if you are not gambling on absolute randomness.

The third great family of market theory, The Elliott Wave, could be placed under technical analysis as a subset of Dow Theory, but I'm going to place Elliott Wave Theory in its own camp, because it seems like another order of technical analysis altogether.

Once upon a time a fellow named Ralph Nelson Elliott became so ill that he did nothing but study stock charts. He came up with astonishing results. He found a wave with a complex construction in which advances were related systematically to declines. He theorized that each wave was a wave of waves in which the basic structure was repeated in fractal form. The closer you get to the shorter time frames the tinier the waves become.

The contemporary master of the Elliott Wave Theory is Robert Prechter, who does not offer much advice for free. If you want Prechter's analysis in detail you will have to pay for it. I think of him as the modern-day Pythagoras. As a market trader, I'm paying for his opinion and glad about it.

Well let me qualify that. To know Prechter's approach is to know a vision of the next decade that is not gladdening in outline. The long-term wave we seem to be on right now is the yin to that yang we were riding during the good times. If Elliott was correct about the underlying form of market waves, and if Prechter is correct in the application, then prices are really deep disclosures of a psychic life that buoys our collective consciousness. And no, dear reader, you are not reading a Pynchon novel just now.

The Elliott Wave school strikes me as Jungian in flavor, so it will be an acquired taste for most. Something about Jungian archetypes runs counter to mainstream thinking, so we shall soon see who teaches whom the greater lesson. For my part, the older I get the more sense Jung makes. And the Elliott Wave has a serious following among Real Investors.

Related to market theory is an emerging trend in "social investing." A visit to the KLD website will give you the essential orientation to social consciousness as it has been monetized by the investment classes. Also, a brand new ETF trading under the ticker symbol JVS brings a new style of valuation to the American investor by way of principles mandated by Sharia Law. I have written a little more about these items under a project called abetterorder.com. I own some JVS.

Even with only a few hundred bucks in play these are the things you begin to learn as if your fortune depended upon it. The market is a game -- and you want to win. Which brings us back to something that I promised to discuss -- the perspective of the investing class. This is a class of folks that for the most part have saved money that they are trying to grow and protect. They appear to be very smart and decent people, even downright likeable. And they have some very practical experience in how the market game works and how to win it. But I used to have a neighbor named Paul who worked all his life for the city parks department.

"Never was a rich man who didn't get his money off a poor man's back," is what Paul would say. Which is another way of claiming that all Real Value comes from labor. If we extend Paul's intuition to the investment classes as such we might say that all great wealth is already a kind of redistribution.

On the one hand I wonder if Paul could have done better in the wealth department if he had applied his eighth-grade education and not assumed that investment potential belonged to other people. No doubt there are a billion people asking that question right about now. Better choices are always possible. Nobody can say they weren't warned. So I can see how value belongs not only to those who produce it but also to those who treat it best.

Therefore, I can understand why so many smart investors take a hard line when it comes to the kind of respect we should pay for value. I can see why they have a passion for gold as a standard. A devotion to standards of valuation has allowed many of them to see clearly how our loose regards would steer us into the ditch we're in. When you start watching your money closely in a trading market, these perspectives accrue practical value.

On the other hand, market trends are thoroughly social if not absolute manifestations of collective (un)consciousness. The problems of market cycles have dimensions that exceed the sum of individuals. As my neighbor Paul implied, strictly speaking there is no such thing as individual wealth. All wealth in some sense is held in trust. Likewise, individuals don't create market cycles, it takes a market to go boom and bust.

I can understand why some of the great artists of the market are outraged by our social responses to market crisis. They call it socialism. Yet, no matter which family of theory you belong to -- whether fundamental, technical, or E-wave -- you are dealing directly with a social movement.

At some level each and every individual choice gets subsumed into a dynamic relation to other choices such that "the market" comes to exist with a life of its own. Every investor wants to know, what will the market do today? So there is something that troubles me about investor perspectives that seem to take for granted that "the market" is the only motive force worth respecting, as if the social reality of our lives could be so one-dimensional.

The investment-class perspective shows through when Cramer discourages higher wages at Wal-Mart. This is a perspective that overvalues existing savings to the detriment of new savings that could be made possible if "the market" were enabling more opportunity for all. If existing savings accounts were willing to take a little less return, perhaps new savings accounts could be more easily started downstream.

In the case of my old neighbor Paul, why shouldn't a worker expect a social order in which every productive life is rewarded with decent wages, benefits, and pensions? But Frederick Douglass long ago advised Americans not to gnash our teeth at spectacles of unfairness. Struggle is the Real Cure.

As corporate capital rebuilds its structure from the current bust to the next boom, why shouldn't some higher expectations of performance be costed in right now? I think I understand how these labor costs will make additional demands upon the structure of recovery, but if decent health benefits and pensions are made a universal condition of corporate earnings perhaps the regeneration of corporate health this time will help to raise up a new generation of investors who understand that money not budgeted toward labor's livelihood is at risk of being gambled away.

Finally, I have an intuition that the bias of the investor class leads to a skewed desire for a gold standard, but I'm not altogether sure about this. It may be that my impression is colored by a context in which most of the talk about gold is by people who are thinking chiefly of wealth in individual terms. In five months of investing I too have gone from "gold, what's it good for" to "give me thirty shares of silver trust please." I'm up eleven dollars thanks to that call on SLV.

In thinking about gold, I have drawn the distinction made by San Francisco economist Henry George who talked about the difference between wealth for personal use and capital that is put back into new tools. The good people at Lew Rockwell point out that if I hold my personal wealth in a Real Bank it will be leveraged into Real Capital, therefore there is no Real Difference between wealth and capital. Yet even if this were also true for holdings in Real Gold, I think we can still distinguish between wealth and capital. But I'm willing to grant that Real Gold held by a Real Bank may be somewhat more productive than fear itself.

As for the assumption that Real Banks will take Real Savings and turn them into Real Capital, I think this is the problem. From what I understand, banks are not producing capital investments at any kind of usual rate. And they are not doing it because of the damage done by the great evil that Henry George warned against-land speculation. Therefore, the dramatic increase in American savings is not now being leveraged into new tools for American workers. The pressures of the current economy will keep labor compensation low on one side while disrupting on the other side the assumption that increased savings by labor should be leveraged into capital investment. Instead, Real Banks are gouging labor further on the debt front. Prechter has more to say about what has happened to Real Banks in his July newsletter.

Which brings us to the last word in successful investing, Warren Buffett. No doubt his influence has sometimes weighed down upon wages from time to time as he seeks to maximize earnings from Dairy Queen or Geico. Last week he admitted that he had to cut the jobs of 500 people. Yet Buffett says that it may be time to think about a second stimulus which would be a Real Stimulus this time. What interests me about Buffett's position -- all puns intended -- is that he speaks as an exceptionally engaged investor who follows carefully how his wealth, and therefore his capital, has effects on precise productive labors.

If Buffett can stomach the idea of a stimulus then we should raise the question of costing into the new generation of investment a better life for labor in long-term salaries, benefits, and pensions. We are the workers upon whose labor the power of U.S. Treasury notes depends--and we have been valued in this crisis as worthy enough to carry the world's savings accounts on our backs. Therefore cost us in at the full value of a whole life.

Maybe there is nothing that can be done about a future that is already written by the finger of God. Just save yourself if you can. But when it comes to the problems faced by the investor classes and their personal wealth preservation in this sick economy, at least Buffett still talks as if the investor classes are in the same boat with the rest of us and how we need to pull together and share some of the risks. While we're at it, we should not be afraid to discuss the opportunities that this crisis holds out for labor. Discussing it today will be cheaper than discussing it tomorrow.

Based on what I've learned after five months as an active trader, I don't think it's a question of whether hard times are coming. The question is how can we best work on this social trauma individually AND together to address risks and opportunities system-wide? The thing that strikes me about Buffett's position on the second stimulus is this. If the ship's going down, Captain Buffett talks as if he's prepared to go down with it. Any Real Captain would surely toss Real Gold overboard now in order to bring more Real Lives safely to port later.

[Greg Moses is author of Revolution of Conscience: Martin Luther King, Jr. and the Philosophy of Nonviolence.]

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Who's Minding the Store? $9 Trillion in Mystery Money!

This single class of mystery money isn't a lot less than the entire US yearly GNP, commonly cited as being about $14 trillion.

By Roger Baker / The Rag Blog / May 15, 2009

In this video, we have the top Federal Reserve Inspector General, the federal watchdog responsible for big bank oversight. She is admitting under oath before Congress that she has no idea of just what to think about a mysterious $9 trillion worth of off-balance-sheet bank transactions. This is a figure cited by a Bloomberg article, and information that one would imagine a person in her position would soon know about. This single class of mystery money isn't a lot less than the entire US yearly GNP, commonly cited as being about $14 trillion.

That being the case, her testimony describes federal oversight over some of the most important issues that any official could ever deal with, since it could put every US citizen on the hook for something close to $30,000 per person. But we have no idea of what these federally sanctioned taxpayer guarantees are actually propping up.
Given the current bottomless pit credit situation, the biggest investment banks probably don't want anyone examining their total debt risk too closely. Meaning they are never going to permit the Federal inspectors they hire to operate very independently, without prior orders to audit or inspect.

Are the investment banks better termed 'robber banks', gorging themselves on public bailout guarantees because they're too big to fail? If so, what happens when Obama finds out?

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David Zeiger : Open Letter to Michael Moore from a Madoff Victim

Bernie Madoff and his investors: of an ilk? Photo by Don Emmert / AFP / Getty Images.
An Open Letter to Michael Moore

I was stunned to see you take a broad, uninformed swipe at everyone who invested money with [Bernie] Madoff. You say he 'stole $65 billion from some already quite wealthy people,' referring to his victims as his 'own kind.'

By David Zeiger / The Rag Blog / May 11, 2009

See 'Bernie Madoff, Scapegoat,' by Michael Moore, Below.

Dear Mike,

I read with much interest your piece "Bernie Madoff, Scapegoat" for Time Magazine. While I welcomed your main premise -- that Madoff is a scapegoat and not more than a scab on the open, puss-filled, legal wound called the "American Financial System" -- I was stunned to see you take a broad, uninformed swipe at everyone who invested money with Madoff. You say he "stole $65 billion from some already quite wealthy people," referring to his victims as his "own kind." Then you go on to make the incredible claim that most of these supposedly very rich people knew full well (or at least suspected) that they were part of a fraud and, essentially, hoped it would just go on forever. So they should stop their whining and just give all their stolen luchre back.

That's quite an argument. Let me say first of all, for full disclosure, that most of my family was among those supposedly "already quite wealthy people" who lost everything to Madoff. In our case, it was Stan Chais, one of his top "feeders," who gave over all of our life savings to him. But somehow I don't quite see us fitting your definition of people on his "side of the tracks," as you so casually claim. Yes, like the vast majority of the thousands of Madoff's investors, we weren't poor. Far from it. My father was a businessman who manufactured parts for airplanes and did quite well with his small company that he started in the fifties (as I always joked, he was the white man for the white time). He was a lifelong progressive liberal, who took great pride in hiring blacklisted writer friends in the fifties, fighting against the Vietnam War in the sixties, and leading the campaign for Pete Seeger to receive the Kennedy Center Honor in the nineties.

And yes, back in the late eighties he quite willingly joined Stan Chais's "investment" group-seeking stability and good, not massive profits. And that's what he got for over twenty years, in the hands of a man who he, a smart businessman, trusted completely. And he brought all of his family and many of his friends into the fold because it was just too good to pass up. That included school teachers, artists, writers, doctors, lawyers, and one struggling documentary filmmaker (you remember what that was like). Maybe not the salt of the earth, but a far cry from the "one percenters" you have thrown us in with.

And if you go to the New York Times web site, you will find the letters from several hundred of Madoff's victims to the judge hearing the case -- all with very similar stories, often with quite progressive backgrounds, mostly elderly people who had invested all of their retirement savings with him, many now penniless.

But, you claim, it should have been obvious to all of these supposedly intelligent people that the interest they were receiving was impossibly high and they were part of a fraud. Why, according to you, "Some have admitted they did have an inkling 'something was up.'" But you fail to mention that the people who didn't have an inkling "something was up" were the very ones most "intelligent" people look to for guidance-the SEC, who as recently as 2006 were telling the world that Madoff was right as raindespite the compelling evidence that they alone were privy to. Blaming Madoff's victims for not seeing what was being denied by every available source is absurd.

But whether they knew or not, if they took any money out they should give it back, right? "If I buy a stolen car from the guy down the street, the police will take that car from me regardless of whether I knew it was stolen." That's logical, but what if that guy was in my garage stealing my other car at the same time? That's how Ponzi schemes work, and the relatively few who made huge profits from it don't negate that reality.

Let's be honest and take your argument a step further. Hundreds of thousands of people over the last 20 years were conned into buying homes with sub-prime mortgages, all of which were pumped up and turned into massive boondoggles by the schemes called derivatives and credit default swaps (which make Madoff look like a rank amateur). They were, in essence, built on stolen "profits." So now should the people who bought those houses be made to give them back? You know full well that there are those making that argument, and in fact thousands are today being forced out of their houses by foreclosure. Are they getting their just deserts?

Of course you would never say that, but what's the difference here? Yes, there is an economic gap between people who invested with Madoff and people who bought houses with sub-prime mortgages, but the con is essentially the same, is it not?

Here's a thought: Given the quite liberal bent of many of Madoff's investors, I'd be willing to bet the little money I have left that somewhere, somehow, funds that had gone through Bernie's hands and came out bigger helped finance one of your films. I'm not being facetious here. I'm a big fan. But as you so cogently point out, in the Alice in Wonderland world of American finance the veil between "legal" and illegal is infinitely porous. And after all, if you buy a stolen car!

In hindsight, every argument my father made in defense of this fund was glaringly and horrendously wrong. But that's easy to say now. I think I'm a pretty smart guy, and I wasn't even the one who got us into this thing, but even after Madoff was exposed I was still claiming it was impossible for Stan Chais to be part of such a scheme. Stan, and the man he was serving, turned out to be con men of the highest order, and my dad had huge blinders on that led him to the slaughter. Yes, we all "benefited" -- for a while and to varying degrees -- from this scheme (that is, before we lost everything). But putting us up there with the head of Goldman Sachs and Bank of America? Please!

Yours in the spirit of healthy debate,
David Zeiger

P.S. I am producing a film about my family's situation, titled Ponzi & Me (catchy title, don't you think?). If you would like to invest in it, I can guarantee a return of 15-20%.

Filmaker Michael Moore says Bernie Madoff's victims were, in essence, in on the con.
Michael Moore's Article:

Bernie Madoff, Scapegoat

Elie Wiesel called him a "God." His investors called him a "genius." But, proving correct that old adage from the country and western song, you never really know what goes on behind closed doors.

Bernie Madoff, for at least 20 years, ran a Ponzi scheme on thousands of clients, among them the people you and I would consider the best and brightest. Business leaders, celebrities, charities, even some of his own relatives and his defense attorney were taken for a ride (this has to be the first time a lawyer was hosed by the client).

We're clearly in one of those historic, game changing years: up is down, red is blue and black is president. Aside from Obama himself, no person will provide a more iconic face of this end-of-capitalism-as-we-know-it year than Bernard Lawrence Madoff.

Which is too bad. Yes, he stole $65 billion from some already quite-wealthy people. I know that's upsetting to them because rich guys like Bernie are not supposed to be stealing from their own kind. Crime, thievery, looting - that's what happens on the other side of town. The rules of the money game on Park Avenue and Wall Street are comprised of things like charging the public 29% credit card interest, tricking people into taking out a second mortgage they can't afford, and concocting a student loan system that has graduates in hock for the next 20 years. Now that's smart business! And it's legal. That's where Bernie went wrong - his scheming, his trickery was an outrage both because it was illegal and because he preyed on his side of the tracks.

Had Mr. Madoff just followed the example of his fellow top one-percenters, there were many ways he could have legally multiplied his wealth many times over. Here's how it's done. First, threaten your workers that you'll move their jobs offshore if they don't agree to reduce their pay and benefits. Then move those jobs offshore. Then place that income on the shores of the Cayman Islands and pay no taxes. Don't put the money back into your company. Put it into your pocket and the pockets of your shareholders. There! Done! Legal!

But Bernie wanted to play X-games Capitalism, run by the mantra that's at the core of all capitalistic endeavors: Enough Is Never Enough. You have the right to make as much as you can, and if people are too stupid to read the fine print of their health insurance policy or their GM "100,000-mile warranty," well, tough luck, losers. Buyers beware!

It would be too easy - and the wrong lesson learned - to put Bernie on TIME's list all by himself. If Ponzi schemes are such a bad thing, then why have we allowed all of our top banks to deal in credit default swaps and other make-believe rackets? Why did we allow those same banks to create the scam of a sub-prime mortgage? And instead of putting the people responsible in the cell block in Lower Manhattan, where Bernie now resides, why did we give them huge sums of our hard-earned tax dollars to bail them out of their self-inflicted troubles? Bernard Madoff is nothing more than the scab on the wound. He's also a most-needed and convenient distraction. Where's the photo on this list of the ex-chairmen of AIG, Merrill Lynch and Citigroup? Where's the mug shot of Phil Gramm, the senator who wrote the bill to strip the system of its regulations, or of the President who signed that bill? And how 'bout those who ran the fake numbers at the ratings agencies, the lobbyists who succeeded in making sleazy accounting a lawful practice, or the stock market itself - an institution that's treated like the Holy Sepulchre instead of the casino that it is (and, like all other casinos, the house eventually wins).

And what of Madoff's clients themselves? What did they think was going on to guarantee them incredible returns on their investments every single year - when no one else on planet Earth was getting anything like that? Some have admitted they did have an inkling "something was up," but no one really wanted to ask what it was that was making their money grow on trees. They were afraid they might find out it had nothing to do with gardening. Many of Madoff's victims have told investigators that, over the years, they have made much more than the original investment they gave Bernie. If I buy a stolen car from the guy down the street, the police will take that car from me regardless of whether I knew it was stolen. If I knew it was stolen, then I go to jail for receiving stolen property. Will these "victims" give back their gains that were fraudulently obtained? Will the head of Goldman Sachs reveal what he was doing at the meetings with the Fed chairman and the Treasury secretary before the bailout? Will Bank of America please tell us what they've spent $45 billion of our TARP money on?

That's probably going too far. Better that we just put Bernie on this list.

[David Zeiger, a contributor to The Rag Blog, is an award-winning film producer and director whose highly–acclaimed film Sir! No Sir! documented the little-known GI resistance to the Vietnam War. His production company is Displaced Films.]

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Roger Baker : AIG and the 'Adverse Feedback Loop'

Image from nextlogics

Bernanke hates to call our current situation a deflationary spiral despite its close resemblance to one. Perhaps because of the association of that term with the Great depression, Bernanke chooses to call our current crisis an 'adverse feedback loop.'

By Roger Baker / The Rag Blog / March 2, 2009

American International Group (AIG) is in big trouble, its stock having fallen from $50 a few years ago to less than 50 cents today. Why is this so important?

AIG is a sort of deregulated non-bank global securities insurance "group" that has specialized in insuring securities deals, through credit default swaps, etc. This insurance was deemed smart and profitable, unless there is a world economic crisis. Such a crisis was known to be to be theoretically impossible because of readiness of the US treasury and the Fed to do whatever it takes (even dispatching helicopters full of money if needed) to stimulate the US economy enough to pull the USA out of a deflationary spiral.

Bernanke hates to call our current situation a deflationary spiral despite its close resemblance to one. Perhaps because of the association of that term with the Great depression, Bernanke chooses to call our current crisis an "adverse feedback loop."

The adverse feedback loop and how Ben Bernanke is trying to loosen it

"...On a day when more dismal housing price data and record-low consumer confidence highlighted the continuing plight of the U.S. economy, Mr. Bernanke warned that a full recovery could take more than two to three years and that recent economic forecasts could prove optimistic. "I believe that, over all, the downside risks probably outweigh those on the upside," the central bank chief said in his semi-annual appearance before lawmakers..."

However, before we blame AIG too harshly for risking the whole global economy by pledging too many trillions of dollars in now-failing security insurance policies, we should recall that these institutions were poorly informed by those who should know better. There were scholarly assurances from brilliant mathematicians who calculated the risk on the credit swaps, which were much of the basis for much of AIG's business (although AIG knew how to insure anything).

It was mathematically determined that the kind of securities insurance deals that AIG sought to do could, at the same time, be highly profitable and carry a low risk.

Enough retroactive finger pointing. It is now considered vital for the U.S.A to bail out AIG's securities’ bad insurance deals. If not, a huge amount of supposedly rock solid deals around the globe will go up in smoke, leaving the biggest players in the global economy feeling cheated, suspicious, unwilling to lend, buy treasury debt, etc.

Whether or not to admit that the biggest banks are broke, and then to nationalize them, is something else Bernanke may need to figure out fairly soon. The bank solvency problem is a related issue involving domestic investor confidence.

"...nationalisation is not an end in itself, but a consequence of the policy that most rapidly returns the banking system to health. It is a heavy cost, but there is no alternative. If taxpayers own a bank, pretending that they don’t only exacerbates the harm..."

Meanwhile, the AIG deals need our immediate attention. Bailing out the AIG deals (and perhaps similar assurances spread throughout the "shadow banking system” – see the link above) through a series of emergency cash injections is deemed absolutely necessary, no matter what the cost, as the following article indicates. The main problem is the U.S. treasury funded bailouts needed to paper over the global bad debt shortfalls seem to keep getting bigger and bigger.

AIG failure would still be disastrous for global mkts
By Lilla Zuill and Kristina Cooke / March 1, 2009

NEW YORK -- A revised bailout of American International Group Inc (AIG.N) may be just another "band-aid" solution, but more than five months after it was first rescued by the government the option of letting the insurer fail would still be considered too big a shock to already fragile global markets..."The government really does not have the option of letting AIG totally blow up," said Robert Haines, senior insurance analyst at CreditSights. AIG's foray into the roughly $28.5 trillion credit default swap market left it heavily exposed to losses on toxic mortgage assets that it had guaranteed against default....

"European banks are about two-third of the problem... it would be a domino effect across the globe. "The ensuing panic would be disastrous," he said...

Moody's Investors Service and Standard & Poor's both have AIG on review for downgrade from the seventh highest investment grade, and have said that only government support was keeping ratings from being cut to "junk" status. "If AIG is allowed to fail -- many banks holding CDS paper from AIG could also fail," said Mark Keenan, insurance partner at law firm Anderson Kill & Olick. "In other words, I don't think the U.S. government can afford to allow AIG to fail -- no matter how many bandaids may be needed," he added. Over time, however, some analysts say the U.S. government may find that an orderly failure of AIG is the only way to stop the financial bleeding.

"The whole thing is ridiculous. How much longer are we going to do this? This is another bandaid, and we'll be having this discussion again," said Christopher Whalen, co-founder of Institutional Risk Analytics, a provider of analysis and ratings for banks..."

Source / Reuters, UK

The dollar value of global securities deals AIG has insured against default is fairly astronomical. The article above mentions $28 trillion. Whatever the dollar amount needed to stabilize the global economy, it apparently could dwarf the few trillion dollars in Obama's budget and or his stimulus package. Perhaps China will decide that our US treasury bonds have, for some reason, regained their previous appeal.

However, if cutting the interest rate to zero, plus the stimulus package, plus all the bailouts so far all put together can't seem to do the job, and if all else fails, there are always the US Treasury Department printing presses.

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Bernie Madoff : Ponzi Man and the Nonsense of Self-Regulation

Surrounded by members of the media, Bernard Madoff -- the man who has taken the Ponzi scheme to new heights -- walks down Lexington Ave to his New York City apartment on Dec. 17, 2008. Photo by Don Emmert / AFP / Getty Images.
'Now comes Madoff. Same self-regulation song, this time taking down charities, synagogues, and sometimes it looks like half the retired people in Florida.'
By Steve Russell / The Rag Blog / December 21, 2008

See 'Good Regulation Requires Good Regulators' by Mark Sunshine, Below.

Mark Sunshine posted the following article on Seeking Alpha, a website for investors with no political leanings I can discern. Lots of folks post there with differing views and the readers get to pick what will help them play the markets.

Texans will remember when Governor Bush turned Clean Air Act enforcement in Texas over to self-regulation and we wound up with "ozone days" where we never had them before.

Those who follow politics will see the perverted genius of Richard Nixon, who had the mandate to destroy the Great Society programs but often could not get the votes. His solution, copied by every Republican President since, was to appoint people to the bureaucracy who did not believe it the bureaucratic mission.

I was in Wisconsin when Nixon was elected and a local Repug named Jerris Leonard ran a tough campaign against the liberal Dem Gaylord Nelson. That race gave me many political stories, but this one has a sad ending. One of the controversies that arose in the race was Leonard's membership in a "white's only" club.

After Leonard lost the Senate race, President Nixon gave him a plum appointment in the Justice Department: heading the Civil Rights Division!

Christopher Cox, Bush's Chair of the SEC, has made the world safe for hedge funds in every way available to him. He allowed naked short-selling of stock never owned or borrowed by the seller, enabling hedge funds to drive down stock with bogus short sales and profit from real ones. He repealed the uptick rule, making it easier to drive down stock with a purposeful "bear raid." These lapses, as much as any real financial weakness, led to the collapse of the big investment banks. Maybe they were doomed, but thanks to the SEC their stock died first.

Now comes Madoff. Same self-regulation song, this time taking down charities, synagogues, and sometimes it looks like half the retired people in Florida.

The international aspect of this debacle is that the exotic securites that are dragging down balance sheets in the European Union were sold on the basis that they were good enough to be publicly marketed in the United States. And everyone knows the U.S. has had the strongest securities regulations in the world ever since the New Deal, right?

Thank you once again, Mr. Bush. You brought us from the strongest securities regulation in the world to showing ourselves literally unable to protect widows and orphans from scam artists.

But you kept your word. You left the market to rule itself and you did not get caught copping blow jobs in the White House. History will judge the results; the voters already have.

'Good Regulation Requires Good Regulators'
By Mark Sunshine / December 20, 2008

As the SEC comes to grips with the Bernie Madoff scandal, I am reminded of a law school course that I took 25 years ago where I was taught that good regulation requires good regulators. Unfortunately, the SEC has turned into a bad regulator and has lost the respect of the public it is supposed to protect.

The SEC leadership doesn’t understand or acknowledge why the SEC exists or what its role is supposed to be. Missionless and confused, the SEC is currently a lost agency that needs to be refocused and remotivated.

The SEC used to know its mission. On the SEC web-site, it still articulate why it exists when it states that “First and foremost, the SEC is a law enforcement agency.” (bold, italic and underline for emphasis). That means, first and foremost Chris Cox is the “Chief of the SEC Enforcement Police.” Unfortunately, Mr. Cox appears never to have embraced or understood his enforcement responsibilities or the SEC’s role to protect the public.

Instead, the SEC indirectly encouraged scamsters and fraud artists through lax enforcement standards. Crime prevention is the most important role of any law enforcement agency and prevention takes place because potential criminals know that they will be caught and prosecuted by a tough but fair cop.

Instead of being a cop, Chris Cox had a nonsensical theory of law enforcement that primarily relied upon self regulation and enforcement. The invisible hand of capitalism was supposed to ferret out frauds and act as the main barrier to illegal and dishonest behavior. However, real criminals don’t self regulate and enforcement usually means economic intimidation and extortion.

In the Madoff scandal, the SEC’s performance as a law enforcement agency is beyond horrible. I was hoping that Cox’s statement that Madoff “lied” to the staff when he was asked if he stole from investors was a misprint or a bad joke. But it wasn’t. Of course Madoff lied to the staff. But then again, what law enforcement organization takes the word of the person that they are investigating?

I have watched enough Law and Order to know that very few people confess unless they have to, and then it is as a result of vigorous investigations and vigilant prosecutions. And I am pretty sure self regulation and market enforcement never entered into Bernie Madoff’s mind when he stole $50 billion. Madoff confessed because he ran out of money to keep on perpetuating his lies. Until the end, Madoff was trying to keep the Ponzi scheme going and was actively marketing for new investors by promising “special deals” for those that he could rip off.

Cox and his immediate subordinates are responsible for not investigating Madoff. Cox was in charge and clearly didn’t have an internal reporting system to keep track of open investigations, cases and clearance. After all, if he did he would have noticed a $50 billion fraud tip that had credibility and might have asked questions. Instead of taking responsibility for the scandal, Cox threw his staff under the bus and blamed them for the mess. He is an out of touch leader who showed little courage or backbone.

I think that most of the SEC staff are good hard working Americans who don’t like being humiliated in public. If they are like most people they also can’t wait to get rid of Cox and get a real leader.

Fortunately, the SEC won’t have Chris Cox much longer. President Elect Obama is nominating Mary Schapiro to be the new Chairman of the SEC. She is known to be a tough and effective regulator who understands the role of law enforcement. Ms. Schapiro has a big job ahead of her but her reputation suggests she is up to the challenge. Her staff will need strong leadership and rebuilding. Ms. Schapiro is going to be a fixer, leader and good regulator.

After all, good regulation requires good regulators.

Source / Seeking Alpha

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Hedge-Fund Defector Thanks 'Prep School Idiots' ; Says 'Legalize Pot'

Lahde says pot illegal because corporate America addicted to pharmaceutical profits.
'All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other sides of my trades.'
By Katherine Burton / October 17, 2008

Andrew Lahde, the hedge-fund manager who quit after posting an 870 percent gain last year, said farewell to clients in a letter that thanks stupid traders for making him rich and ends with a plea to legalize marijuana.

Lahde, head of Santa Monica, California-based Lahde Capital Management LLC, told investors last month he was returning their cash because the risk of using credit derivatives -- his means of betting on the falling value of bonds and loans, including subprime mortgages -- was too risky given the weakness of the banks he was trading with.

"I was in this game for money," Lahde, 37, wrote in a two-page letter today in which he said he had come to hate the hedge-fund business. "The low-hanging fruit, i.e. idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government.

"All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other sides of my trades. God Bless America."

Lahde, who managed about $80 million, told clients he'll be content to invest his own money, rather than taking cash from wealthy individuals and institutions and trying to amass a fortune worth hundreds of millions or even billions of dollars.

"I do not understand the legacy thing,'' he wrote. ``Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life."

Request for Soros

He said he'd spend his time repairing his health "as well as my entire life -- where I had to compete for spaces at universities, and graduate schools, jobs and assets under management -- with those who had all the advantages (rich parents) that I did not."

He also suggested that billionaire George Soros sponsor a forum in which "great minds" would come together to create a new system of government, as the current system "is clearly broken."

Lahde ended his letter with a plea for the increased use of hemp as an alternative source of food and energy that segued into a call for the legalization of marijuana.

"Hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products,'' he wrote. ``Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term."

'Innocuous Plant'

He added, "The evil female plant -- marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country."

Lahde said the only reason marijuana remains illegal is because "Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other addictive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers."

Lahde graduated from Michigan State University with a degree in finance and holds an MBA from the University of California, Los Angeles. He worked at Los Angeles-based hedge fund Dalton Investments LLC before founding his own firm two years ago with about $10 million.

Lahde wasn't available for comment. A woman at his firm, who asked not to be identified, confirmed the authenticity of the letter.

Source / Bloomberg

Thanks to Jesse James Retherford and Duncan Echelson / The Rag Blog

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William Greider : Economic Free Fall

Avenging Angels. Illustration courtesy of The Nation.
'In their haste to do anything the financial guys seem to want, Congress and the lame-duck President are, I fear, sowing far more profound troubles for the country'
By William Grieder

This article appears in the August 18, 2008 edition of The Nation.

Washington can act with breathtaking urgency when the right people want something done. In this case, the people are Wall Street's titans, who are scared witless at the prospect of their historic implosion. Congress quickly agreed to enact a gargantuan bailout, with more to come, to calm the anxieties and halt the deflation of Wall Street giants. Put aside partisan bickering, no time for hearings, no need to think through the deeper implications. We haven't seen "bipartisan cooperation" like this since Washington decided to invade Iraq.

In their haste to do anything the financial guys seem to want, Congress and the lame-duck President are, I fear, sowing far more profound troubles for the country. First, while throwing our money at Wall Street, government is neglecting the grave risk of a deeper catastrophe for the real economy of producers and consumers. Second, Washington's selective generosity for influential financial losers is deforming democracy and opening the path to an awesomely powerful corporate state. Third, the rescue has not succeeded, not yet. Banking faces huge losses ahead, and informed insiders assume a far larger federal bailout will be needed--after the election. No one wants to upset voters by talking about it now. The next President, once in office, can break the bad news. It's not only about the money--with debate silenced, a dangerous line has been crossed. Hundreds of billions in open-ended relief has been delivered to the largest and most powerful mega-banks and investment firms, while government offers only weak gestures of sympathy for struggling producers, workers and consumers.

The bailouts are rewarding the very people and institutions whose reckless behavior caused this financial mess. Yet government demands nothing from them in return--like new rules for prudent behavior and explicit obligations to serve the national interest. Washington ought to compel the financial players to rein in their appetite for profit in order to help save the country from a far worse fate: a depressed economy that cannot regain its normal energies. Instead, the Federal Reserve, the Treasury, the Democratic Congress and of course the Republicans meekly defer to the wise men of high finance, who no longer seem so all-knowing.

Let's review the bidding to date. After panic swept through the global financial community this spring, the Federal Reserve and Treasury rushed in to arrange a sweetheart rescue for Bear Stearns, expending $29 billion to take over the brokerage's ruined assets so JPMorgan Chase, the prestigious banking conglomerate, would agree to buy what was left. At the same time, the Fed and Treasury provided a series of emergency loans and liquidity for endangered investment firms and major banks. Investors were not persuaded. Their panic was not "mental," as former McCain adviser Phil Gramm recently complained. The collapse of the housing bubble had revealed the deep rot and duplicity within the financial system. When investors tried to sell off huge portfolios of spoiled financial assets like mortgage bonds, nobody would buy them. In fact, no one can yet say how much these once esteemed "safe" investments are really worth.

The big banks and investment houses are also stuck with lots of bad paper, and some have dumped it on their unwitting customers. The largest banks and brokerages have already lost enormously, but lending portfolios must shrink a lot more--at least $1 trillion, some estimate. So wary shareholders are naturally dumping financial-sector stocks.

Most recently, the investors' fears were turned on Fannie Mae and Freddie Mac, the huge quasi-private corporations that package and circulate trillions in debt securities with implicit federal backing. Treasury Secretary Henry Paulson (formerly of Goldman Sachs) boldly proposed a $300 billion commitment to buy up Fannie Mae stock and save the plunging share price--that is, save the shareholders from their mistakes. So much for market discipline. For everyone else, Washington recommends a cold shower.

Talk about warped priorities! The government puts up $29 billion as a "sweetener" for JP Morgan but can only come up with $4 billion for Cleveland, Detroit and other urban ruins. Even the mortgage-relief bill is a tepid gesture. It basically asks, but does not compel, the bankers to act kindlier toward millions of defaulting families.

A generation of conservative propaganda, arguing that markets make wiser decisions than government, has been destroyed by these events. The interventions amount to socialism, American style, in which the government decides which private enterprises are "too big to fail." Trouble is, it was the government itself that created most of these mastodons--including the all-purpose banking conglomerates. The mega-banks arose in the 1990s, when a Democratic President and Republican Congress repealed the New Deal-era Glass-Steagall Act, which prevented commercial banks from blending their business with investment banking. That combination was the source of incestuous self-dealing and fraudulent stock valuations that led directly to the Crash of 1929 and the Great Depression that followed.

Even before Congress and Bill Clinton repealed the law, the Federal Reserve had aggressively cleared the way by unilaterally authorizing Citigroup to cross the line. Wall Street proceeded, with accounting tricks described as "modernization," to re-create the same scandals from the 1920s in more sophisticated fashion. The financial crisis began when these gimmicky innovations blew up.

Democrats who imagine they can reap partisan advantage from this crisis don't know the history. The blame is bipartisan; so also is the disgrace. In 1980, before Ronald Reagan even came to town, Democrats deregulated the financial system by repealing federal interest-rate ceilings and other regulatory restraints--a step that doomed the savings and loan industry and eliminated a major competitor for the bankers. Democrats have collaborated with Republicans on behalf of their financial patrons every step of the way.

The same legislation also repealed the federal law prohibiting usury--the predatory practices that ruin debtors of modest means by lending on terms that ensure borrowers will fail. Usurious lending is now commonplace in America, from credit cards and "payday loans" to the notorious subprime mortgages. The prohibition on usury really involves an ancient moral principle, one common to Judaism, Christianity and Islam: people of great wealth must not be allowed to use it to ruin others who lack the same advantages. A decent society cannot endure it.

The fast-acting politicians may hope to cover over their past mistakes before the public figures out what's happening (that is, who is screwing whom). But the Federal Reserve has a similar reason to move aggressively: the Fed was a central architect and agitator in creating the circumstances that led to the collapse in Wall Street's financial worth. The central bank tipped its monetary policy hard in one direction--favoring capital over labor, creditors over debtors, finance over the real economy--and held it there for roughly twenty-five years. On one side, it targeted wages and restrained economic growth to make sure workers could not bargain for higher compensation in slack labor markets. On the other side, it stripped away or refused to enforce prudential regulations that restrained the excesses of banking and finance. In The Nation a few years back, I referred to Alan Greenspan as the "one-eyed chairman" [September 19, 2005] who could see inflation in the real economy--even when it didn't exist--but was blind to the roaring inflation in the financial system.

The Fed's lopsided focus on behalf of the monied interests, combined with its refusal to apply regulatory laws with due diligence, eventually destabilized the overall economy. Trying to correct for previous errors, the Fed, with its overzealous free-market ideology, swung monetary policy back and forth to extremes, first tightening credit without good reason, then rapidly cutting interest rates to nearly zero. This erratic behavior encouraged a series of financial bubbles in interest-sensitive assets--first the stock market, during the late 1990s tech-stock boom, then housing--but the Fed declined to do anything or even admit the bubbles existed. The nation is now stuck with the consequences of its blindness.

The Federal Reserve's dereliction of duty is central to the financial failures. It betrayed the purpose for which the central bank was first created, in 1913, abandoning the sense of balance the Fed had long pursued and that Congress requires. Most politicians, not to mention the press, are too intimidated to question the Fed's daunting power, but their ignorance is about to compound the problem. Instead of demanding answers, the political system is about to expand the Fed's governing powers--despite its failure to protect us. Treasury Secretary Paulson proposed and Democratic leaders have agreed to make the insulated Fed the "supercop" that oversees not only commercial banks and banking conglomerates but also the largest investment houses or anyone else big enough to destabilize the system. This "reform" would definitely reassure club members who are already too cozy with the central bankers. Everyone else would be left deeper in the dark.

The political system, once again, is rewarding failure. The Fed is an unreliable watchdog, ideologically biased and compromised by its conflicting obligations. Is it supposed to discipline the big money players or keep them afloat? Putting the secretive central bank in charge, with its unlimited powers to prop up troubled firms, would further eviscerate democracy, not to mention economic justice.

If Congress enacts this concept early next year, the privileged group of protected financial interests is sure to grow larger, because other nonfinancial firms could devise ways to reconfigure themselves so they too would qualify for club membership. A very large manufacturing conglomerate--General Electric, for instance--might absorb elements of banking in order to be covered by the Fed's umbrella (GE Capital is already among the largest pools of investment capital). Private-equity firms, with their buccaneer style of corporate management, are already trying to buy into banking, with encouragement from the Fed (the Service Employees International Union has mounted a campaign to stop them). A new President could stop the whole deal, of course, but John McCain has surrounded himself with influential advisers who were co-architects of this financial disaster. For that matter, so has Barack Obama.

The nation, meanwhile, is flirting with historic catastrophe. Nobody yet knows how bad it is, but the peril is vastly larger than previous episodes, like the savings and loan bailout of the late 1980s. The dangers are compounded by the fact that the United States is now utterly dependent on foreign creditors--Japan and China lead the list--who have been propping us up with their lending. Thanks to growing trade deficits and debt, foreign portfolio holdings of US long-term debt securities have more than doubled since 1994, from 7.9 percent to 18.8 percent as of June 2007. If these countries get fed up with their losses and pull the plug, the US economy will be a long, long time coming back.

The gravest danger is that the national economy will weaken further and spiral downward into a negative cycle that feeds on itself: as conditions darken, people hunker down and wait for the storm to pass--consumers stop buying, banks stop lending, producing companies cut their workforces. That feeds more defaulted loan losses back into the banking system's balance sheets. This vicious cycle is essentially what led to the Great Depression after the stock market crash of 1929. I offer not a prediction but a warning. The comparison may sound farfetched now, but US policy-makers and politicians are putting us at risk of historic deflationary forces that, once they take hold, are very difficult to reverse.

A more aggressive response from Washington would address the real economy's troubles as seriously as it does Wall Street's. Financial firms have lost capital on a huge scale--more of them will fail or be bought by foreign investors. But Wall Street cannot get well this time if the economy remains stuck in the ditch. Washington needs to revive the "animal spirits" of the nation at large. The $152 billion stimulus package enacted so far is piddling and ought to be three or four times larger. Instead of sending the money to Iraq, we should be spending it here on getting people back to work, building and repairing our tattered infrastructure, investing in worthwhile projects that can help stimulate the economy in rough weather.

An agenda of deeper reforms can boost public confidence even as it undoes a lot of the damage caused by the financiers and bankers. Some suggestions:

§ Nationalize Fannie Mae and other government-supported enterprises instead of coddling them. Restore them to their original status as nonprofit federal agencies that provide a valuable service to housing and other markets. Make the investors eat their losses. Buy the shares at 2 cents on the dollar. Without a federal guarantee, these firms are doomed anyway.

§ Resolve the democratic contradiction of "too big to fail" bailouts by dismantling the firms that are too big to fail--especially the newly created banking conglomerates that have done so much harm. Restore the boundaries between commercial banking and investment banking. In any case, market pressures are likely to shrink those behemoths as banks sell off their parts to survive. For the remaining big boys, revive antitrust enforcement. Set stern new conditions for emergency lending from government--supervised receivership, stricter lending rules to prevent recidivism and severe penalties for greed-crazed shareholders and executives.

§ Assign the Federal Reserve's regulatory role to a new public agency that is visible and politically accountable. Make the Fed a subsidiary agency of the Treasury Department and reform its decision-making on money and credit to restore an equitable balance between competing goals and interests--seeking full employment but also stable money and moderate inflation.

§ Begin the hard task of re-creating a regulated financial system Americans can trust, one that recognizes its obligations to the broad national interest. This requires regulatory reforms to cover moneypots like private-equity funds and to clear away the blatant conflicts of interest and double-dealing on Wall Street, and also to give responsible shareholders, workers and other interests a greater voice in corporate management and greater protection against rip-offs of personal savings.

§ Re-enact the federal law against usury. The details are difficult and can follow later, but this would be a meaningful first step toward restoring moral obligations in the financial sector. People would understand it, and so would a lot of the money guys. Maybe in the deepening crisis, Washington will begin to grasp that money is also a moral issue.

[The Nation's national affairs correspondent William Greider has been a political journalist for more than thirty-five years. A former Rolling Stone and Washington Post editor, he is the author of the national bestsellers One World, Ready or Not, Secrets of the Temple, Who Will Tell The People, The Soul of Capitalism (Simon & Schuster) and--due out in February from Rodale--Come Home, America.]

Source / The Nation

Thanks to Diane Pontius / The Rag Blog

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