Eric Holder Takes $77 Million Job With JPMorgan Chase

Via the Daily Currant

holderdimonJust after announcing his resignation as U.S. attorney general, Eric Holder has accepted a top job with Wall Street finance giant JPMorgan Chase.

Starting in early November, Holder will serve as JPMorgan Chase’s chief compliance officer, where his responsibilities will include lobbying Congress on the company’s behalf and ensuring it “gets the best deal possible” from any new proposed financial regulations. Holder will also fetch morning coffee and breakfast orders for CEO Jamie Dimon and board members.

For his efforts, Holder will earn an annual salary of $77 million plus bonuses for a job well done.

In a statement, Holder said taking a job at JPMorgan Chase was the logical next step in his career, given the revolving door between financial companies and the government officials who are supposed to regulate these companies.

“By joining JPMorgan Chase, I’m simply cutting out the middleman — the U.S. Justice Department — and going to work directly for the great Jamie Dimon,” he said. “Plus, when Jamie Dimon calls you, or one of his many secretaries calls you, you pick up the phone immediately. Seriously, that’s what we do here in Washington.”

“We are extremely pleased to have Eric Holder, a dear friend and and tireless advocate for the interests of Wall Street, join our prestigious financial services firm where he belongs,” Dimon said in a press release. “Considering the awful s**t we did — and boy did we do a lot of sleazy, ugly, ethically insidious s**t — Mr. Holder always stood in our corner and defended us no matter what. Hell, I even got a 74 percent raise out of it!

“We know any of our fellow financial firms would have been happy to have Mr. Holder on staff, yet he chose us. We are sure he will fit right in with our company culture.”

Cowardly Lion of Wall Street

Before President Obama appointed him as attorney general, Holder was a corporate attorney at law firm Covington & Burling, which represented too-big-too-fail banks.

Despite serving as the United States’ top law enforcement official for for six years following the 2007-08 financial crisis and having the budget, Holder failed to hold anyone accountable and declined to prosecute banking executives who played a role in the meltdown. Instead the banks, including JPMorgan Chase, were bailed out and received miniscule fines that often weren’t collected, while the Justice Department went after the mortgage borrowers.

The news that Holder was resigning as attorney general was met with mixed responses from the public.

Reginald Cousins, a construction worker in Baltimore who lost his job and home after the housing bubble burst through fraudulent lending practices, said he was sorry to see Holder go.

“Eric Holder did what he had to do in order to save this country’s economy,” he said as he rummaged through some trash cans for scrap metal and food.

Johnny Weeks, who lost his house shortly after DOJ agents raised his marijuana dispensary, said Holder was a self-serving hypocrite.

“Oh well. At least he was cool with gay marriage.”

THE ROMANS WERE AMATEURS

The US Is Now 50% More Unequal Than Ancient Rome (And That Includes Slaves)

Tyler Durden's picture

As we previously noted, only the highest income earners have seen any gains in compensation since the crisis began around 2007 to the current ‘recovery’ tops. It is perhaps not entirely surprising then that, the total income controlled by the Top 1% is drastically above that of the slave-included times of Ancient Rome and as high as the peak in the roaring 20s.

 

Current inequality is almost 50% worse than in Ancient Rome and as large as the end of the roaring 20s…

 

Source: @ConradHackett

 

Which is hardly surprising given that since 2007, incomes have only risen for highest wage-earners…

 

We leave it to the following 139 words by Elliott’s Paul Singer to conclude – which in two short paragraphs explains everything one needs to know about America’s record class inequality, including precisely who is the man responsible:

Inequality in the U.S. today is near its historical highs, largely because the Federal Reserve’s policies have succeeded in achieving their aim: namely, higher asset prices (especially the prices of stocks, bonds and high-end real estate), which are generally owned by taxpayers in the upper-income brackets. The Fed is doing all the work, because the President’s policies are growth-suppressive. In the absence of the Fed’s moneyprinting and ZIRP, the economy would either be softer or actually in a new recession.

 

The greatest irony is that the President is railing against inequality as one of the most important problems of the day, despite the fact that his policies are squeezing the middle class and causing the Fed – with the President’s encouragement – to engage in the radical monetary policy, which is exacerbating inequality. This simple truth cannot be repeated often enough.

Pentagon War Plans in 2001: Iraq, Syria, Lebanon, Libya, Somalia, Sudan, & Iran

Everything is going according to plan. The military industrial complex must feed continuously like a shark, or it will die. When there are no real enemies, we just create them out of thin air (ISIS, Russia). It’s all part of the game plan. We don’t need no stinkin Constitution.

Via Police State USA

U.S. General Wesley Clark (ret.) revealed that he was informed following 9/11 of a dramatic plan of aggressive war.

General Wesley Clark (Source: YouTube / Democracy Now

U.S. General Wesley Clark (ret.) revealed that he was informed, in the days following 9/11/2001, that the Department of Defense was planning wars with Iraq, Syria, Lebanon, Libya, Somalia, Sudan, & Iran.

Clark was regarded as an esteemed commander during his service from 1966 to 2000, and obtained the rank of 4-star general. He discussed the matter in an interview with Amy Goodman of Democracy Now on March 2, 2007.

Here is the transcript of Gen. Clark’s account.

CLARK: About 10 days after 9/11, I went to the Pentagon, and I saw [Defense] Secretary [Donald] Rumsfeld and Deputy Secretary [Paul] Wolfowitz. I went downstairs to say hello to some of the people on the joint staff that used to work for me.

One of the generals called me in and said, “Sir, you gotta come in and talk to me.” I said, “Sir, you’re too busy.” And he said, “No, no! We’ve made the decision — we’re going to war with Iraq!” This is on or about the 28th of September. I said, “We’re going to war with Iraq? Why!?” He said, “I don’t know!” He said, “I guess they don’t know what else to do.” So I said, “Did they find some information connecting Saddam to al Qaeda?” He said, “No, no, there’s nothing new that way. They just made the decision to go to war with Iraq.” He said, “I guess its like we don’t know what to do about terrorists, but we’ve got a good military and we can take down governments.”

So I came back to see him a few weeks later, and by that time, we were bombing in Afghanistan. And I said, “Are we still going to war with Iraq?” And he said, “Oh, its worse than that.” He said– he reached over on his desk and he picked up a piece of paper, and he said, “I just got this from upstairs,” meaning the Secretary of Defense’s office. And he said, “This is a memo that describes how we’re going to take out seven countries in five years. Starting with Iraq, and then Syria, Lebanon, Libya, Somalia, Sudan, and finishing off Iran.”

What can be made of this?

One explanation, as some suggest, is that it is not unexpected for the Pentagon to maintain ongoing contingency plans; keeping ready to pursue various far-fetched wars at all times. But even if that much is true, why would this seven-country invasion plan be put into official memos in the weeks following the 9/11/2001 attack? Those countries had nothing to do with the hijackings — yet American generals were being briefed about serious plans to attack. Why?

The proposed plan obviously did not pan out exactly as written, but it may have very well given us a look at the agenda of some very bloodthirsty policy-makers, as they tried to exploit the anguish felt following the collapse of the Twin Towers.

Disturbingly, we cannot even be sure that “the plan” is not still being pursued. The Pentagon has maintained a steady course of aggressive foreign interventionism throughout both the Bush and Obama administrations. As we have witnessed, much of what General Clark revealed has ultimately moved forward, albeit with a modified timeline.

Iraq’s government was toppled by the U.S. during the bloody full-scale invasion in 2003. U.S. commandos have been operating clandestinely in Sudan since at least 2005. The U.S. has been operating Somalia since 2007, clandestinely and through missile strikes. Libya’s government was toppled with the help of U.S. missile support in 2009. The U.S. began its bombing campaign in Syria in 2014. Iran’s fate remains yet to be determined, but was a frequent target of pro-war rhetoric in the ’12 election cycle.

If one subscribes to the idea that it is the U.S. military’s proper role (and the U.S. taxpayers’ economic burden) to clean up every undemocratic cesspool on the planet, then this brand of foreign policy might make sense or seem appealing. But even if that much is accepted, one must acknowledge that the leaders and policymakers clamoring for war are the same folks who gave us the Patriot Act, the NDAA, the ACA, the TSA, mass domestic spying, giant bailouts, exponential debt growth, and so many other harmful policies.

Americans’ patriotism and support of democracy have long been exploited by leaders with a far less altruistic foreign policy agenda. The country is not being kept in a state of perpetual conflict because it is good for the USA, good for the world, or destined to promote freedom.

Could it be that the purpose of pursuing war is to be at war? War is the perfect tool to centralize and expand government, degrade civilian liberties, suppress dissenting voices, maintain high levels of state secrecy, unaccountably disperse large sums of taxpayer money, militarize law enforcement, spy on the people, among other things. As Randolph Bourne famously wrote, “War is the health of the state.”

We’ll Become ISIS

Guest Post by Jim Kunstler

I played fiddle at a small-town, country dance last night with several other musicians and it was a merry enough time because that kind of self-made music has the power to fortify spirits. About half the dancers were over 40 and the rest were teenage girls. The absence of young men was conspicuous. Toward the end of the evening, it was just girls dancing with girls. A wonderful and fundamental tension was not present in the room.

The young men are out there somewhere in the country towns, but this society increasingly has no use or no place for them, except in the army. There is absolutely no public conversation about the near total devaluation of young men in the economic and social life of the USA, though there is near-hysterical triumphalism about the success of young women in every realm from sports to politics to business, and to go with that an equal amount of valorization for people who develop an ambiguous sexual identity.

There really is no local forum for public discussion in the flyover regions of the USA. The few remaining local newspapers are parodies of what newspapers once were, and the schools maintain a fog of sanctimony that penalizes thinking outside the bright-side box. Television and its step-child, the internet, offer only the worst temptations of hyper-sexual stimulation, artificial violence, and grandiose wealth-and-power fantasies. There aren’t even any taverns where people can gather for casual talk.

Many of the remaining jobs “out there” are jobs that can be done by anyone — certainly the office work, but also the jobs with near-zero meaning, minimal income, and no status in the national chain burger shacks and box stores — and young women are more reliably subject to control than young men jacked on testosterone, corn syrup, and Grand Theft Auto.

Of course, the idea that higher education can lift a population out of this vortex of anomie is a cruel joke, especially now with the college loan racket parasitizing that flickering wish to succeed, turning young people into debt donkeys. The shelf-life of that particular set of lies and swindles will hit its sell-by date soon in a massive debt repudiation — and the nation will come to marvel at the mendacious system it allowed itself to get sucked into. But this still only begs the question of what young men will do in such a deceitful system.

My guess is that they will shift their attention and activity from the mind-slavery of the current Potemkin economy to the very monster we find ourselves fighting overseas: a domestic ISIS-style explosion of wrath wrapped in an extreme ideology of one kind or another replete with savagery and vengeance-seeking. The most dangerous thing that any society can do is invalidate young men. When the explosion of youthful male wrath occurs in the USA, it will come along at exactly the same time as all the other benchmarks of order become unmoored — especially the ones in money and politics — which will shatter the faith of the non-young and the non-male, too. Also, just imagine for a moment the numbers of young men America has trained with military skills the past 20 years. Not all of them will be disabled with PTSD, or mollified with rinky-dink jobs at the Wal-Mart, or lost in the transports of heroin and methedrine.

The authorities will have no way to understand what is happening and we are certain to endure a long season of violence and social chaos as a result. The re-set from that will be an economy and a society that few now yammering in the HuffPo or the Tea Party will recognize. That society emerging from the ashes of the current matrix of rackets will desperately need young men to rebuild, and there will be plenty of opportunity for them — though it won’t feature fast cars, Kanye West downloads, or bottle service.

There are other ways for young men to find a useful and valued place in a society, but these are too far beyond the ken of our current meager narratives.

The new World Made By Hand novel
!! Is now available !!

Kunstler skewers everything from kitsch to greed, prejudice, bloodshed, and brainwashing in this wily, funny, rip-roaring, and profoundly provocative page- turner, leaving no doubt that the prescriptive yet devilishly satiric A World Made by Hand series will continue.” — Booklist

HistoryoftheFuture_Thumb

My local indie booksellers… Battenkill Books (Autographed by the Author) … or Northshire Books
or Amazon

America’s Dirty Little Secret: Sex Trafficking Is Big Business

Guest Post by John W. Whitehead

“For every 10 women rescued, there are 50 to 100 more women are brought in by the traffickers. Unfortunately, they’re not 18- or 20-year-olds anymore. They’re minors as young as 13 who are being trafficked. They’re little girls.”25-year-old victim of trafficking

“Children are being targeted and sold for sex in America every day.”John Ryan, National Center for Missing & Exploited Children

The mysterious disappearance of 18-year-old Hannah Graham on September 13, 2014, has become easy fodder for the media at a time when the news cycle is lagging. After all, how does a young woman just vanish without a trace, in the middle of the night, in a town that is routinely lauded for being the happiest place in America, not to mention one of the most beautiful?

Yet Graham is not the first girl to vanish in America without a trace—my hometown of Charlottesville, Va., has had five women go missing over the span of five years—and it is doubtful she will be the last. I say doubtful because America is in the grip of a highly profitable, highly organized and highly sophisticated sex trafficking business that operates in towns large and small, raking in upwards of $9.5 billion a year in the U.S. alone by abducting and selling young girls for sex.

It is estimated that there are 100,000 to 150,000 under-aged sex workers in the U.S. The average age of girls who enter into street prostitution is between 12 and 14 years old, with some as young as 9 years old. This doesn’t include those who entered the “trade” as minors and have since come of age. Rarely do these girls enter into prostitution voluntarily. As one rescue organization estimated, an underaged prostitute might be raped by 6,000 men during a five-year period of servitude.

This is America’s dirty little secret.

You don’t hear much about domestic sex trafficking from the media or government officials, and yet it infects suburbs, cities and towns across the nation. According to the FBI, sex trafficking is the fastest growing business in organized crime, the second most-lucrative commodity traded illegally after drugs and guns. It’s an industry that revolves around cheap sex on the fly, with young girls and women who are sold to 50 men each day for $25 apiece, while their handlers make $150,000 to $200,000 per child each year.

In order to avoid detection by police and cater to male buyers’ demand for sex with different women, pimps and the gangs and crime syndicates they work for have turned sex trafficking into a highly mobile enterprise, with trafficked girls, boys and women constantly being moved from city to city, state to state, and country to country. The Baltimore-Washington area, referred to as The Circuit, with its I-95 corridor dotted with rest stops, bus stations and truck stops, is a hub for the sex trade.

With a growing demand for sexual slavery and an endless supply of girls and women who can be targeted for abduction, this is not a problem that’s going away anytime soon. Young girls are particularly vulnerable, with 13 being the average age of those being trafficked. Yet as the head of a group that combats trafficking pointed out, “Let’s think about what average means. That means there are children younger than 13. That means 8-, 9-, 10-year-olds.”

Consider this: every two minutes, a child is exploited in the sex industry. In Georgia alone, it is estimated that 7,200 men (half of them in their 30s) seek to purchase sex with adolescent girls each month, averaging roughly 300 a day. It is estimated that at least 100,000 children—girls and boys—are bought and sold for sex in the U.S. every year, with as many as 300,000 children in danger of being trafficked each year. Some of these children are forcefully abducted, others are runaways, and still others are sold into the system by relatives and acquaintances.

As one news center reported, “Finding girls is easy for pimps. They look on MySpace, Facebook, and other social networks. They and their assistants cruise malls, high schools and middle schools. They pick them up at bus stops. On the trolley. Girl-to-girl recruitment sometimes happens.” Foster homes and youth shelters have also become prime targets for traffickers.

With such numbers, why don’t we hear more about this? Especially if, as Ernie Allen of the National Center for Missing and Exploited Children insists, “this is not a problem that only happens in New York and Los Angeles and San Francisco. This happens in smaller communities. The only way not to find this in any American city is simply not to look for it.”

Unfortunately, Americans have become good at turning away from things that make us uncomfortable or stray too far from our picture-perfect images of ourselves. In this regard, we’re all complicit in contributing to this growing evil which, for all intents and purposes, is out in the open: advertising on the internet, commuting on the interstate, operating in swanky hotels, taking advantage of a system in which the police, the courts and the legislatures are more interested with fattening their coffers by targeting Americans for petty violations than actually breaking up crime syndicates.

Writing for the Herald-Tribune, reporter J. David McSwane has put together one of the most chilling and insightful investigative reports into sex trafficking in America. “The Stolen Ones” should be mandatory reading for every American, especially those who still believe it can’t happen in their communities or to their children because it’s mainly a concern for lower income communities or immigrants.

As McSwane makes clear, no community is safe from this danger, and yet very little is being done to combat it. Indeed, although police agencies across the country receive billions of dollars’ worth of military equipment, weapons and training that keeps them busy fighting a losing battle against marijuana, among other less pressing concerns, very little time and money is being invested in the fight against sex trafficking except for the FBI’s annual sex trafficking sting, which inevitably makes national headlines for the numbers of missing girls recovered.

For those trafficked, it’s a nightmare from beginning to end. Those being sold for sex have an average life expectancy of seven years, and those years are a living nightmare of endless rape, forced drugging, humiliation, degradation, threats, disease, pregnancies, abortions, miscarriages, torture, pain, and always the constant fear of being killed or, worse, having those you love hurt or killed. A common thread woven through most survivors’ experiences is being forced to go without sleep or food until they have met their sex quota of at least 40 men. One woman recounts how her trafficker made her lie face down on the floor when she was pregnant and then literally jumped on her back, forcing her to miscarry.

Holly Austin Smith was abducted when she was 14 years old, raped, and then forced to prostitute herself. Her pimp, when brought to trial, was only made to serve a year in prison. Barbara Amaya was repeatedly sold between traffickers, abused, shot, stabbed, raped, kidnapped, trafficked, beaten, and jailed all before she was 18 years old. “I had a quota that I was supposed to fill every night. And if I didn’t have that amount of money, I would get beat, thrown down the stairs. He beat me once with wire coat hangers, the kind you hang up clothes, he straightened it out and my whole back was bleeding.”

As McSwane recounts: “In Oakland Park, an industrial Fort Lauderdale suburb, federal agents in 2011 encountered a brothel operated by a married couple. Inside ‘The Boom Boom Room,’ as it was known,  customers paid a fee and were given a condom and a timer and left alone with one of the brothel’s eight teenagers, children as young as 13. A 16-year-old foster child testified that he acted as security, while a 17-year-old girl told a federal judge she was forced to have sex with as many as 20 men a night.”

One particular sex trafficking ring that was busted earlier in 2014 caters specifically to migrant workers employed seasonally on farms throughout the southeastern states, especially the Carolinas and Georgia, although it’s a flourishing business in every state in the country. Traffickers transport the women from farm to farm, where migrant workers would line up outside shacks, as many as 30 at a time, to have sex with them before they were transported to yet another farm where the process would begin all over again.

What can you do?

Call on your city councils, elected officials and police departments to make the battle against sex trafficking a top priority, more so even than the so-called war on terror and drugs and the militarization of law enforcement.

Insist that law enforcement agencies in the country at all levels, local, state and federal, funnel their resources into fighting the crime of sex trafficking. Stop prosecuting adults for victimless “crimes” such as growing lettuce in their front yard and focus on putting away the pimps and buyers who victimize these young women.

Educate yourselves and your children about this growing menace in our communities. The future of America is at stake. As YouthSpark, a group that advocates for young people points out, sex trafficking is part of a larger continuum in America that runs the gamut from homelessness, poverty, and self-esteem issues to sexualized television, the glorification of a pimp/ho culture—what is often referred to as the pornification of America—and a billion dollar sex industry built on the back of pornography, music, entertainment, etc.

Stop feeding the monster. This epidemic is largely one of our own making, especially in a corporate age where the value placed on human life takes a backseat to profit. The U.S. is a huge consumer of trafficked “goods,” with national sporting events such as the Super Bowl serving as backdrops for the sex industry’s most lucrative seasons. Each year, for instance, the Super Bowl serves as a “windfall” for sex traffickers selling minors as young as 13 years old. As one sex trafficking survivor explained, “They’re coming to the Super Bowl not even to watch football. They’re coming to the Super Bowl to have sex with women and/or men or children.”

Finally, as the Abell Foundation’s report on trafficking advises: the police need to do a better job of training on, identifying and responding to these issues; communities and social services need to do a better job of protecting runaways, who are the primary targets of traffickers; legislators need to pass legislation aimed at prosecuting traffickers and “johns,” the buyers who drive the demand for sex slaves; hotels need to stop enabling these traffickers, by providing them with rooms and cover for their dirty deeds; and “we the people” need to stop hiding our heads in the sand and acting as if there are other matters more pressing.

Those concerned about the police state in America, which I document in my book A Government of Wolves: The Emerging American Police State, should be equally concerned about the sex trafficking trade in America. It is only made possible by the police state’s complicity in turning average Americans into suspects for minor violations while letting the real criminals wreak havoc on our communities. No doubt about it, these are two sides of the same coin.

THE INSANITY OF SELF-SUBJUGATION

If as Einstein once noted, the definition of insanity is doing the same thing over and over again expecting different results rings true, then voting has to be one of the looniest follies ever created by mankind. There is no left versus right,only freedom versus tyranny.

Statism: The Most Dangerous Religion (feat. Larken Rose)

[youtube http://www.youtube.com/watch?v=N6uVV2Dcqt0&w=560&h=315]

 

“To be governed is to be watched, inspected, spied upon, directed, law-driven, numbered, regulated, enrolled, indoctrinated, preached at, controlled, checked, estimated, valued, censured (and) commanded, by creatures who have neither the right nor the wisdom nor the virtue to do so.” – Pierre Joseph Prouhon

“The duty of a patriot is to protect his country from its government.” – Thomas Paine

“Surely by now there can be few here who still believe the purpose of government is to protect us from the destructive activities of corporations. At last most of us must understand that the opposite is true: that the primary purpose of government is to protect those who run the economy from the outrage of injured citizens.” – Derrick Jensen

“If voting made any difference they wouldn’t let us do it.” – Mark Twain

“Those who can make you believe absurdities can make you commit atrocities” – Voltaire

“Giving money and power to government is like giving whiskey and car keys to teenage boys.” –  P. J. O’Rourke

“Governments constantly choose between telling lies and fighting wars, with the end result always being the same. One will always lead to the other.” – Thomas Jefferson

“A nation of sheep will beget a government of wolves.” – Edward R Murrow

“The more corrupt the state, the more numerous the laws.” – Tacitus

“The most dangerous man to any government is the man who is able to think things out for himself, without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane, and intolerable…” – H.L Mencken

“Free election of masters does not abolish the masters or the slaves.” – Herbert Marcuse

“Government is not reason, it is not eloquence – it is force. Like fire, it is a dangerous servant and fearful master.” -George Washington

A government big enough to give you everything you want, is strong enough to take everything you have.-Thomas Jefferson

That government is best which governs not at all; and when men are prepared for it, that will be the kind of government which they will have.” – Henry David Thoreau

Government is the great fiction, through which everybody endeavors to live at the expense of everybody else.
-Frederic Bastiat

“There is no worse tyranny than to force a man to pay for what he does not want merely because you think it would be good for him.”

― Robert A. Heinlein, The Moon Is a Harsh Mistress

“In every age it has been the tyrant, the oppressor and the exploiter who has wrapped himself in the cloak of patriotism, or religion, or both to deceive and overawe the People.” (Canton, OH, Anti-War Speech, June 16, 1918)”
― Eugene V. Debs, Voices of a People’s History of the United States

“Those who are capable of tyranny are capable of perjury to sustain it.” ― Lysander Spooner

“The wisest thing in the world is to cry out before you are hurt. It is no good to cry out after you are hurt; especially after you are mortally hurt. People talk about the impatience of the populace; but sound historians know that most tyrannies have been possible because men moved too late. it is often essential to resist a tyranny before it exists.” ― G.K. Chesterton, Eugenics and Other Evils: An Argument Against the Scientifically Organized Sta

“The welfare state is the oldest con game in the world. First you take people’s money away quietly and then you give some of it back to them flamboyantly.”- Thomas Sowell

The happiness of society is the end of government.
John Adams

 

‘Wire’ creator David Simon: Corporations ‘the cancer’ that are slowly killing American middle-class

Hat tip Jon

Via Raw Story

 David Simon (John D. and Catherine T. MacArthur Foundation)

The writer’s next show, Show Me a Hero, is the true story of a battle over public housing that convulsed New York in the 80s. Here, on location in Manhattan, he talks about how money corrupts US politics, the erosion of the working class, why it’s a crime to be poor in America – and why he likes to argue

At the end of a long day scouting locations for his new TV miniseries, David Simon is sitting in his Upper West Side office in New York describing the type of person who needn’t bother tuning in to his new show. He’s speaking as a TV writer but also as a citizen angered by a political system that he thinks fails many of his fellow countrymen.

“People who think we’re being well governed at the moment… well, there’s no reason for them to watch. People who look at the inertia of Washington, at the partisanship, at the divisive and polarised discourse… people who think that’s the way to build a just society, well, don’t watch the show, because I got nothin’ for you.”

If, on the other hand, “You’re starting to believe that even the vernacular we’re using to argue about solutions to problems is dysfunctional, watch this show because I think it’s a perfect metaphor for what the American government is no longer capable of doing – addressing problems in a utilitarian fashion for the good of most people. American politics has left the room when it comes to finding solutions for our problems.”

Show Me a Hero, which will appear on screens late next year or in spring 2016, is based on a non-fiction book of the same name by former New York Times writer Lisa Belkin. It marks the time, says Simon, when American politics left the room.

The 1999 book’s subtitle, “a tale of murder, suicide, race and redemption” hints at the drama involved. Belkin documents the story through a series of interviews with many of the principals involved. It’s a tale of political and personal destruction that convulsed Yonkers, a city of 200,000 people just 40 minutes’ drive north of Manhattan. At its heart was a row about public housing for low-income residents being built in a part of Yonkers almost exclusively reserved for the wealthy.

Show Me a Hero shows how the fallout engulfed the New York body politic and ultimately brought unwanted national attention to Yonkers. When the dispute was finally settled the New York Times noted how the bitter row “had opened an ugly chapter in the city’s history, tearing apart neighbourhoods, building and destroying political careers and unleashing a heated court battle that nearly drove Yonkers to bankruptcy”.

On a bright, sunny morning last week the Schlobohm housing project, in west Yonkers, the largest low-income public housing site in the city and one of the principal locations for Show Me a Hero, is quiet. Except, that is, for Simon, his director Paul Haggis and other crew members who are here to scrutinise backgrounds, visualise scenes and figure out what angle offers the best view of the Hudson river in the near distance. Schlobohm is one of half a dozen stops they will make as they crisscross the city to finalise locations before four months of filming, which starts this week.

As the crew sweeps through a communal space that doubles as a car park, they pass by a mural. Painted on the side of a low wall that circles the area are five words in large, childlike lettering. They add colour to an urban landscape dominated by the red brick of the low- and high-rises. Spaced about a metre apart, they read “Unity”, “Harmony”, “Peace”, “Pride”, “Safe”.

But when the FBI’s New York field office writes about Schlobohm, it uses a different set of words. One of the most recent entries on its website is headed: “Three charged in connection with December 2013 homicide”. It lays bare the cycle of violence that is visited on places such as this when it notes that the arrest of two dozen gang members two years before had paved the way for a rival to thrive in their absence.

“In late June and early July 2012, federal authorities arrested 20 members of the Strip Boyz on charges of narcotics distribution and/or firearm offences… the arrests of the Strip Boyz left GMF [rival gang the Grimy Motherfuckers] dominant in the Schlobohm housing project.”

If the FBI’s reports were reduced to five words they might read “Narcotics”, “Gangs”, “Murder”, “Shooting”, and “Trafficking”.

The story of Schlobohm to be told by David Simonstarts in 1980, when the local Yonkers branch of the National Association for the Advancement of Coloured People (NAACP), backed by the US justice department, sued the city of Yonkers. The lawsuit alleged that the city’s housing and school policies had, over a period of 40 years, purposely segregated black and Hispanic residents from its more affluent white neighbours. It claimed that Yonkers deliberately placed its poorer (non-white) residents in the west of the city, while the east side remained predominantly white.

In 1985, US federal court judge Leonard Sand ruled in favour of the NAACP and instructed Yonkers to build 200 units of public housing on the east side. That’s when the trouble started.

The six-part miniseries will follow what happened from 1987 to 1994 as local residents and politicians defied the court order in a series of increasingly vocal and public demonstrations that brought the issues of race, housing and deprivation in Yonkers on to the national agenda.

An ABC news report broadcast at the time gives a glimpse of how divisive the dispute was. It features one of the residents at a Save Yonkers meeting (a man named Jack Tracy) making his position clear: “I lived with blacks, I delivered newspapers to blacks, but I can’t live next to what the government has in these projects. If the government wants to put criminals and dope-pushers in the projects I can’t live next to them. The federal judge can find me guilty, the supreme court can find me guilty… but if they think they’re going to integrate with Jack Tracy and his family, they’re going to have to build projects 60 miles north, 80 miles north, they can build them in Maine or wherever they want but I will not live next to a project. And if it means going to Canada, or back to Ireland that is what I will do. That ain’t why I am living in this country.”

In the fury and noise that engulfed Yonkers’s east side, what Jack Tracy and others failed to hear was that the judge’s proposal was not for old style “projects” (ie large-scale, densely populated, high-rise public housing) but for 200 two-storey houses to be distributed in small groups across the east side.

Later in the morning, after we have left Schlobohm and passed on to the noticeably more affluent (and white) east side of Yonkers, Simon and his crew stop at another location. Simon points to a small row of innocuous two-storey houses on this pleasant, leafy street. He says: “Look. That’s them, those are some of the houses. That’s what Yonkers tore itself apart over. And you wouldn’t even know they were public housing.”

What attracted Simon to this story was not the issues of housing or race or deprivation but something more fundamental – the dysfunction of the American political system. The story, Simon says, is tailor-made for showing how US politics now runs on fear and money, two forces that are slowly corroding American society.

“What intrigued me about the story was that it’s an almost perfectly allegorical argument about how our political processes are no longer equipped to recognise or solve problems. You have this mid-size American city, Yonkers, that didn’t have terrifying racial dynamics before the controversy. It had problems like any city but there was no reason that fear should be such an effective currency in the political process. And yet fear and money are the only currencies in the American political process that get their due any more. Nothing makes people more stupid and foolish than money and fear.”

The effect was to split the city in half. The east side set about protecting the value of its homes, livelihoods, children and way of life from the perceived threat from the west side. Looking now at the small clusters of neat, low-rise homes that were eventually built on the east side, its difficult to understand why the fury reached such a pitch.

For Simon, the answer is clear. “Politicians can gain so much by invoking fear and because money is at the core of that fear and the people who are the most frightened were looking towards their real-estate values, the values of their neighbourhoods and what they might personally lose if the neighbourhood went south. Money and fear paralysed Yonkers politically, and caused untold damage to the city’s reputation.”

For Simon, the story of Yonkers is telling for another reason – its timing marks the period in American history when a consensus fractured. The social compact between capital and labour was starting to break. From the 1980s onwards capital won virtually all of its battles with the labour unions in America.

This is a point forcefully made by ex-Clinton labour secretary Robert Reich in his recent film, Inequality for All. He dates the busting of the labour unions and the rupture of the social compact to Ronald Reagan’s firing of 11,000 air traffic controllers in 1981. From then on, the idea that a market-driven society would mutually benefit those who held the capital and those who provided the labour was no longer in place, he says. For Simon, this is the point at which the shared community of interests that walked side by side as the American economy surged after the second world war came apart. The collective will that bound together communities, cities and, ultimately, America started to erode.

“What was required in Yonkers was to ask: ‘Are we all in this together or are we not all in this together?’ Is there a society or is there no society, because if there is no society, well, that’s the approach that says ‘Fuck ’em, I got mine’. And Yonkers coincides with the rise of ‘Fuck ’em I got mine’ in America.

“That’s the notion that the markets will solve everything. Leave me alone. I want maximum liberty, I want maximum freedom. Those words have such power in America. On the other hand ‘responsibility’ or ‘society’ or ‘community’ are words that are increasingly held in disfavour in the United States. And that’s a recipe for cooking up a second-rate society, one that does not engage with the notion of collective responsibility. We’re only as good a society as how we treat those who are most vulnerable and nobody’s more vulnerable than our poor. To be poor is not a crime, except in America.”

These are not new themes in Simon’s work. The Wire was a grand tour of the institutions that were failing Americans, from politics to journalism, and from education to the criminal justice system. It was also an indictment of how capital had decisively won its war against American labour, with enduring consequences for America’s working class. This is the issue that most exercises Simon.

In his long and brilliant introductory essay to the 2009 book The Wire: Truth Be Told (a collection of essays by people involved in the making of the series), Simon wrote: “The Wire depicts a world in which capital has triumphed completely, labour has been marginalised and moneyed interests have purchased enough political infrastructure to prevent reform. It is a world in which the rules and values of the free market and maximised profit have been mistaken for a social framework, a world where institutions themselves are paramount and everyday human beings matter less.

“Unemployed and under-employed, idle at a west Baltimore soup kitchen or dead-ended at some strip-mall cash register – these are the excess Americans. The economy staggers along without them, and without anyone in this society truly or sincerely regarding their desperation. Ex-steelworkers and ex-longshoremen, street dealers and street addicts, and an army of young men hired to chase and jail the dealers and addicts, whores and johns and men to run the whores and coerce the johns – and all of them unnecessary and apart from the new millennium economic model that long ago declared them irrelevant.

“This is the world of The Wire, the America left behind.”

But Simon acknowledges that this wider message may have been lost on some of those who watched the highly acclaimed series, set among the politicians, police, press and drug dealers of Baltimore.

“Sure, there’s people who watch The Wire and go ‘Man I love all these fuckin’ characters but I hate it when the politics comes on… I just want to see the badasses shoot each other.’ And it’s like yeah, well, OK, I get it, you know, I get it, but I didn’t leave journalism to write fuckin’ television for you because that’s just horrific.”

He expresses relief, and some amusement, that the cable channel HBO continues to commission his work in spite of the relatively low ratings his TV work attracts (The Wire, belatedly through word of mouth, drew in a healthy audience. Subsequent series, though highly acclaimed, including Generation Kill and Treme, fared less well).

He jokes about “getting a 2% share” of audience, but appears untroubled about how long his shelf life as a TV writer might be. “You got to commit to something. If you’re a writer you got to write something. You might as well believe in it.”

HBO seems to believe in it too. That much is clear the next day when Simon and co-writer Bill Zorzi (who has been working on Show Me a Hero, on and off, for 10 years) are the star attractions at a start of production meeting in HBO’s Manhattan headquarters. There are close to 50 people here, and another 10 are looped in on a screen from LA. Haggis jokes that “he’s never seen this many people in a room before”.

Before Simon addresses the room, senior HBO executive Kary Antholis steps forward to speak. One of the executives closest to Simon’s projects, he is wholehearted in his praise. “This project is among the most meaningful that David has ever done. In its reflections on race, politics and community, I think it will be a powerful story and will make an important contribution to this country’s social dialogue. It’s one of the great legacies of HBO that we make these contributions to our social dialogue… I believe that Treme lives in that legacy, so does Generation Kill, and The Wire. I am very proud and grateful that David is doing these series for HBO.”

When Simon speaks he emphasises why Show Me a Hero is so prescient. But he goes further too, in pointing out precisely what it is that has gummed up the US political machine. “The most dysfunctional part of the government is Congress, the most loathed institution in America (with approval ratings of 7%), but they are unrepentant about that. The reason to do this project is that it speaks exactly to what is wrong with our country. It happens that this story is about 200 houses that needed to be built, but substitute any other issue… immigration, budgetary issues, almost any foreign policy or environmental issue that requires any systematic action, or thought, and you see it. This is a country that can get nothing done.”

Simon argues forcefully that it’s the US Congress which smothers the body politic and destroys its capacity for action. Money has tilted the balance of power by inserting itself into the political system and now has the power to influence Congress – and the legislation that governs how society organises itself.

“You can buy congressmen so fast. Ideas have nothing to do with it. And that’s the part that’s broken. And that was the part that was broken in Yonkers.

“It has to change. When capital also is entitled to buy the government, that same government that might in some way create the basic standards of behaviour, everything from child labour to environmental protection, to workplace safety, to minimum wages that are consistent with the cost of living… Well eventually it’s going to get to the point where it’s so fuckin’ bad that people are going to throw a brick.”

Simon, at 54, is driven. Driven to write about the issues that exercise him. And driven to engage in intellectual combat. He relishes argument, and thrives on the mental exercise that debate provides. You get a strong sense that, left to his own devices and left all alone, it wouldn’t be long before he was picking a fight with himself. It’s a thirst for intellectual friction, and appetite for a dialectic, that drives all of his work. Plots, characters and narrative are all very well, but only in that they are part of a toolkit needed to construct an argument. Simon is never going to sit down and write a TV drama about people per se: his work will always be about something more elemental, more structural.

Writing in 2009 about the impulses that drove The Wire, he said: “The Wire had ambitions elsewhere. Character is essential for all good drama, and plotting is just as fundamental. But ultimately, the storytelling that speaks to our current condition, that grapples with the basic realities and contradictions of our immediate world – these are stories that, in the end, have some chance of presenting a social, and even political, argument. And to be honest, The Wire was not merely trying to tell a good story or two. We were very much trying to pick a fight.”

Simon has been picking fights since he was a young kid growing up in Washington. He learned his way around an argument at an early age while sitting at his family dinner table. It was how you gained your spurs (your “moxie”) in the Simon family: by holding your own in intellectual fisticuffs. “I lived in a house where argument was sport. Dinner discussions were about what was going on in the world. Not everybody was expected to agree, because then you couldn’t have a good argument, but if people didn’t agree, then you could have a good argument.”

Simon remembers the day he came of age intellectually. In his telling, it sounds like a duel, a rite-of-passage moment. “I was having an argument in my uncle Hank’s house in New York, and I would stake myself out against my father and two of my uncles. I must have been 17 and I just knew they were wrong. And I held them off to a draw for about an hour and a half in my uncle’s den. And I remember my uncle Hank turning to my father and saying, “Who knew he had a brain?” It was the biggest thing for my uncle Hank; it was how you earned moxie in my house.”

The web has given Simon another place to pick fights. Having lain dormant and then only been used for professional announcements, davidsimon.com has now become a place where Simon has, over the last few years, written occasional often coruscating posts on anything from the NSA to the policing of the Ferguson riots. Given time he will engage at length with some of those who post comments. The engagement is robust. He pushes, and is willing to be pushed, if he thinks contributors (and he himself) will learn, develop and mature their argument. It’s the family dinner table again.

When he was setting out what davidsimon.com would become, he wrote, with unerring honesty: “Those who know me understand that while it’s refreshing to meet people with no opinions, I’m not that fellow – I like to argue. I don’t like to argue personally, but rather I like pursuing a good ranging argument.”

Although limited by time and a work schedule that, alongside Show Me a Hero, sees Simon wrestling with three other development projects for HBO, including one about the New York sex industry in the 70s (not to mention a theatre project involving the songs of the Pogues), he still finds time for occasional posts. What he relishes is the opportunity to write in long-form and to develop an argument, see a thought grow, mature and ripen. “I guess what you’re hoping, the equivalent of what often resulted at my family’s dinner table, was that the argument goes somewhere, that it has legs. This is why you engage with people on ideas. At its best ideas can build, arguments can develop.”

The fight that David Simon has most often picked in recent years – and one he will address when he delivers the keynote talk at the Observer Ideas festival next month – is how the power of the market has trumped all other priorities in his country, and destroyed the values that brought America together.

“My conviction is that what made us great as an economic power was transforming our working class into a middle class and making them this economic engine that not only bought all the shit that they needed, but a lot of stuff they didn’t. By the middle of the century, or a little later, the American workforce had been launched into middle-class status and had discretionary income and the ability to construct a future that allowed the next generation to maintain that upward mobility and even advance further on it. That’s a pretty good dream. That’s more than a dream. But it’s no longer true. We’ve been disassembling that middle class slowly by degrees.”

For typical middle-class Americans, the squeeze is on. The certainties they had come to expect no longer exist. Late capitalism is unable to provide the generation-on-generation wealth advances that many had come to assume was normal. The new normal is something very different.

“Now you have an existing upper middle class or upper class that is politically powerful, quite moneyed and is larger than at any time. It’s not just the 1%, it’s the 10%, the 20% that have been carried higher up on the pyramid and who are in those industries that have caught the wave of the information age and for them the American dream seems uninterrupted. What they’re not noticing is that the people who used to be able to send their kids to college and hold down a mortgage on a factory wage or on a mid-level administrative [job] or on a civil servant’s salary, that they’re being crushed.”

Simon is not an outlier in his criticism of the American body politic or in his reflections on unfettered capitalism and the rise of inequality. What is marked is how many voices have joined this debate in the US.

For the last two years the New York Times has been running a series on inequality, curated by the venerable economist Joseph Stiglitz, entitled The Great Divide. It has featured contributions from academics, business people and politicians.

Stiglitz recently wrote about the fracturing of the same postwar consensus, and how it came about. “Corporate interests argued for getting rid of regulations, even when those regulations had done so much to protect and improve our environment, our safety, our health and the economy itself.

“But this ideology was hypocritical. The bankers, among the strongest advocates of laissez-faire economics, were only too willing to accept hundreds of billions of dollars from the government in the bailouts that have been a recurring feature of the global economy since the beginning of the Thatcher-Reagan era of ‘free’ markets and deregulation.

“The American political system is overrun by money. Economic inequality translates into political inequality, and political inequality yields increasing economic inequality.”

More recently, Robert Reich contributed an essay to Salon.com entitled “American democracy is diseased – how we can wrest back power from our corporate overlords”, in which he addresses the same issue. “We entered a vicious cycle in which political power became more concentrated in moneyed interests that used the power to their advantage – getting tax cuts, expanding tax loopholes, benefiting from corporate welfare and free-trade agreements, slicing safety nets, enacting anti-union legislation, and reducing public investments. These moves further concentrated economic gains at the top, while leaving out most of the rest of America.”

Simon is not sanguine about what it will take for corporate and political America (increasingly one and the same) to recognise that if the story continues in this vein it will not end well.

“I think in some ways the cancer is going to have to go a little higher. It’s going to start crawling up above the knee and people are going to have to start looking around and thinking ‘I thought I was exempt. I didn’t know they were coming for me’.

“It’s happened to the manufacturing class, it’s happened to the poor. Now it’s happening to reporters and schoolteachers and firefighters and cops and social workers and state employees and even certain levels of academics. And that’s new. That’s not the American dream.”

Simon reserves particular contempt for the forces in America that have helped strip labour of its dignity, who refuse to see the benefits, or necessity, of people collectively organising in order to protect their interest.

“Unions are part of the equation. They’re not the whole equation – the unions needed to lose as many battles as they won, but they needed to win some. And the demonisation of them has been an astonishing achievement of political disrepute in the west, and particularly in my country.”

Back in his Upper West Side office, Simon is now starting to seem fatigued by a long day of scouting locations, of being photographed, of being interviewed and, frankly, of being angry. It’s time to bring a close to the interview. But Simon’s sense of humour and self-deprecation is still very much intact.

When, at the very close of the conversation, he is asked how, or when, this TV career ends, he replies: “Well, I have enough to keep writing these miniseries nobody will watch for as long as HBO will allow nobody to watch them.” When it’s put to him that the story in development about New York’s sex industry is a sure winner, he retorts: “Just watch that one not get made either.”

In his 2009 introduction to The Wire: Truth Be Told, Simon concluded his essay by referring to The Wire as “an angry show, but that anger comes honestly”.

It’s difficult to think of a more fitting way to describe David Simon.

Thoughts from the Frontline: The End of Monetary Policy

Thoughts from the Frontline: The End of Monetary Policy

By John Mauldin

 

We are the hollow men
We are the stuffed men
Leaning together
Headpiece filled with straw. Alas!
Our dried voices, when
We whisper together
Are quiet and meaningless
As wind in dry grass
Or rats’ feet over broken glass
In our dry cellar…

This is the way the world ends
This is the way the world ends
This is the way the world ends
Not with a bang but a whimper.

–  T. S. Eliot, “The Hollow Men

What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of postwar history, but the end of history as such: that is, the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government. This is not to say that there will no longer be events to fill the pages of Foreign Affairs‘ yearly summaries of international relations, for the victory of liberalism has occurred primarily in the realm of ideas or consciousness and is as yet incomplete in the real or material world. But there are powerful reasons for believing that it is the ideal that will govern the material world in the long run.

– Francis Fukuyama, The End of History and the Last Man

Francis Fukuyama created all sorts of controversy when he declared “the end of history” in 1989 (and again in 1992 in the book cited above). That book won general applause, and unlike many other academics he has gone on to produce similarly thoughtful work. A review of his latest book, Political Order and Political Decay: From the Industrial Revolution to the Globalisation of Democracy, appeared just yesterday in The Economist. It’s the second volume in a two-volume tour de force on “political order.”

I was struck by the closing paragraphs of the review:

Mr. Fukuyama argues that the political institutions that allowed the United States to become a successful modern democracy are beginning to decay. The division of powers has always created a potential for gridlock. But two big changes have turned potential into reality: political parties are polarised along ideological lines and powerful interest groups exercise a veto over policies they dislike. America has degenerated into a “vetocracy”. It is almost incapable of addressing many of its serious problems, from illegal immigration to stagnating living standards; it may even be degenerating into what Mr. Fukuyama calls a “neopatrimonial” society in which dynasties control blocks of votes and political insiders trade power for favours.

Mr. Fukuyama’s central message in this long book is as depressing as the central message in “The End of History” was inspiring. Slowly at first but then with gathering momentum political decay can take away the great advantages that political order has delivered: a stable, prosperous and harmonious society.

While I am somewhat more hopeful than Professor Fukuyama is about the future of our political process (I see the rise of a refreshing new kind of libertarianism, especially among our youth, in both conservative and liberal circles, as a potential game changer), I am concerned about what I think will be the increasing impotence of monetary policy in a world where the political class has not wisely used the time that monetary policy has bought them to correct the problems of debt and market-restricting policies. They have avoided making the difficult political decisions that would set the stage for the next few decades of powerful growth.

So while the title of this letter, “The End of Monetary Policy,” is purposely provocative, the longer and more appropriate title would be “The End of Effective and Productive Monetary Policy.” My concern is not that we will move into an era of no monetary policy, but that monetary policy will become increasingly ineffective, so that we will have to solve our social and physical problems in a much less friendly economic environment.

In today’s Thoughts from the Frontline, let’s explore the limits of monetary policy and think about the evolution and then the endgame of economic history. Not the end of monetary policy per se, but its emasculation.

The End of Monetary Policy

Asset classes all over the developed world have responded positively to lower interest rates and successive rounds of quantitative easing from the major central banks. To the current generation it all seems so easy. All we have to do is ensure permanently low rates and a continual supply of new money, and everything works like a charm. Stock and real estate prices go up; new private equity and credit deals abound; and corporations get loans at low rates with ridiculously easy terms. Subprime borrowers have access to credit for a cornucopia of products.

What was Paul Volcker really thinking by raising interest rates and punishing the economy with two successive recessions? Why didn’t he just print money and drop rates even further? Oh wait, he was dealing with the highest inflation our country had seen in the last century, and the problem is that his predecessor had been printing money, keeping rates too low, and allowing inflation to run out of control. Kind of like what we have now, except we’re missing the inflation.

Let’s Look at the Numbers

The Organization for Economic Cooperation and Development has a marvelous website full of all sorts of useful information. Let’s start by looking at inflation around the world. This table is rather dense and is offered only to give you a taste of what’s available.

What we find out is that inflation is strikingly, almost shockingly, low. It certainly seems so to those of us who came of age in the ’60s and ’70s and who now, in the fullness of time, are watching aghast as stupendous amounts of various currencies are fabricated out of thin air. Seriously, if I had suggested to you back in 2007 that central bank balance sheets would expand by $7-8 trillion in the next half-decade but that inflation would be averaging less than 2%, you would have laughed in my face.

Let’s take a quick world tour. France has inflation of 0.5%; Italy’s is -0.2% (as in deflation); the euro area on the whole has 0.4% inflation; the United Kingdom (which still includes Scotland) is at an amazingly low 1.5% for the latest month, down from 4.5% in 2011; China with its huge debt bubble has 2.2% inflation; Mexico, which has been synonymous with high inflation for decades, is only running in the 4% range. And so on. Looking at the list of the major economies of the world, including the BRICS and other large emerging markets, there is not one country with double-digit inflation (with the exception of Argentina, and Argentina is always an exception – their data lies, too, because inflation is 3-4 times what they publish.) Even India, at least since Rajan assumed control of the Reserve Bank of India, has watched its inflation rate steadily drop.

Japan is the anomaly. The imposition of Abenomics has seemingly engineered an inflation rate of 3.4%, finally overcoming deflation. Or has it? What you find is that inflation magically appeared in March of this year when a 3% hike in the consumption tax was introduced. When government decrees that prices will go up 3%, then voilà, like magic, you get 3% inflation. Take out the 3% tax, and inflation is running about 1% in the midst of one of the most massive monetary expansions ever seen. And there is reason to suspect that a considerable part of that 1% is actually due to the ongoing currency devaluation. The yen closed just shy of 110 yesterday, up from less than 80 two years ago.

I should also point out that, one year from now, this 3% inflation may disappear into yesteryear’s statistics. The new tax will already be factored into all current and future prices, and inflation will go back to its normal low levels in Japan.

Inflation in the US is running less than 2% (latest month is 1.7%) as the Fed pulls the plug on QE. As I’ve been writing for … my gods, has it really been two decades?! – the overall trend is deflationary for a host of reasons. That trend will change someday, but it will be with us for a while.

Where’s my GDP?

Gross domestic product around the developed world ranges anywhere from subdued to anemic to outright recessionary:

The G-20 itself is growing at an almost respectable 3%, but when you look at the developed world’s portion of that statistic, the picture gets much worse. The European Union grew at 0.1% last year and is barely on target to beat that this year. The euro area is flat to down. The United Kingdom and the United States are at 1.7% and 2.2% respectively. Japan is in recession. France is literally at 0% for the year and is likely to enter recession by the end of the year. Italy remains mired in recession. Powerhouse Germany was in recession during the second quarter.

Let’s put those stats in context. We have seen the most massive monetary stimulation of the last 200 years in the developed world, and growth can be best described as faltering. Without the totally serendipitous shale oil revolution in the United States, growth here would be about 1%, or not much ahead of where Europe is today.

Demographics, Debt, Bond Bubbles, and Currency Wars

Look at the rest of the economic ecology. Demographics are decidedly deflationary. Every country in the developed world is getting older, and with each year there are fewer people in the working cohort to support those in retirement. Government debt is massive and rising in almost every country. In Japan and many countries of Europe it is approaching true bubble status. Anybody who thinks the current corporate junk bond market is sustainable is smoking funny-smelling cigarettes. (The song from my youth “Don’t Bogart That Joint” pops to mind. But I digrass.)

We are seeing the beginnings of an outright global currency war that I expect to ensue in earnest in 2015. My co-author Jonathan Tepper and I outlined in both Endgame and Code Red what we still believe to be the future. The Japanese are clearly in the process of weakening their currency. This is just the beginning. The yen is going to be weakening 10 to 15% a year for a very long time. I truly expect to see the yen at 200 to the dollar somewhere near the end of the decade.

ECB head Mario Draghi is committed to weakening the euro. The reigning economic philosophy has it that weakening your currency will boost exports and thus growth. And Europe desperately needs growth. Absent QE4 from the Fed, the euro is going to continue to weaken against the dollar. Emerging-market countries will be alarmed at the increasing strength of the dollar and other developed world currencies against their currencies and will try to fight back by weakening their own money. This is what Greg Weldon described back in 2001 as the Competitive Devaluation Raceway, which back then described the competition among emerging markets to maintain the devaluation of their currencies against the dollar.

Today, with Europe and Japan gunning their engines, which have considerable horsepower left, it is a very competitive race indeed – and one with far-reaching political implications for each country. As I have written in past letters, it is now every central banker for him- or herself.

To continue reading this article from Thoughts from the Frontline – a free weekly publication by John Mauldin, renowned financial expert, best-selling author, and Chairman of Mauldin Economics – please click here.

Important Disclosures

COLORS

Another Hardscrabble Farmer picture postcard of words.

We met in the parking lot of the old village church. Everyone was on time and after exchanging pleasantries we made our way over to the cemetery for the service. Our veterans group is small, there may be a dozen men in all, most of them Viet Nam era vets, a few guys from the Korean war and myself, although middle aged the youngest of the group. We have taken on the maintenance of the local Veterans Hall, a simple yet stately building that went up after the Civil War that serves as a gathering place for community wide functions. We see to it that there is an annual service for both Memorial Day and Veterans Day, that the flag is always flown and serviceable and when a local veteran is laid to rest, like today, that they are honored for their service. Old men with quaint ideas about community and loyalty marking rituals and traditions with their presence.

It was a quintessential Indian Summer day; deep blue skies, a soft warm breeze from the south, white fluffy clouds moving leisurely across the earl Autumn sky making their way to some other place like the flocks of birds that have passed through all week. Saturday marked the peak of leaf season, bright swaths of forest set alight with crimson, pumpkin orange and blinding yellow foliage. Today marked a re-interment of two local men, a father who served in the First World War and a son who served in the next. They had been laid to rest in a family plot years before, but the property had sold and now the family was moving them to the local cemetery for their final resting place. The site is situated between two small mountains in one of the few flats in the area. By the time we arrived the family had gathered near the gates dressed in funereal colors and due to the nature of the day there was lack of gravity. Sorrow had been replaced by reflection and time and in its place there was a sense of respectfulness and honor.

The color guard was formed, those with rifles took their place, the bugler wiped the brass bell of his horn and when the command was given men who hadn’t been in the military for over half a century snapped on command like young recruits. We marched into the cemetery, took our places and as the minister read his words of remembrance the family stood together, generations of relatives bound by blood and love clustered around the graves.

It’s been a while since I have been to church. There are parts that I miss and the passage that the minister read- the 23rd psalm- is one of them. He made a special point of reference to the line, “He maketh me to lie down in green pastures…” stating that it was in fact a command. That all of us are limited by our mortality to a specific amount of time here on Earth and that when our time is over, our service complete, we find a final rest in a place evocative of tenderness and warmth. Green pastures. As I stood there at parade rest, in ranks with men who would at some time in the not too distant future be on the other side of our formation, I felt like I could see it all. The great sweep of my life, from playing army as a little boy to serving my country as a soldier, all the way to the grave beneath a headstone marked by a small American flag that represented a time of service. Time sped up, compacted into a singular moment that all of us share. The brilliant hues of fall foliage contrasted against the azure sky, the caress of sweet breezes reminiscent of a Summer that was already gone, the sound of the flag snapping methodically against itself and at last after the pastor had finished, the cracking report of rifles fired three times on command echoing between those mountains…

When the bugler began to play taps those first three notes welled up inside of me a flood of memories. The brassy sound played with solemn precision as a coda to the lives of real men with loyal families, forever absent from the world filled the air with a sadness I cannot explain. The final note carried for a moment and then was gone. We were called once more to attention, marched past the family gathering and were dismissed back into our lives.

Later, as I walked back up the driveway to the house my youngest son caught sight of me and with the dogs came running down to meet me. The joy of that moment filled my heart back up and we went about our day- and it was an exceptionally beautiful one- with all the ardor and enthusiasm we could muster. We split wood, pulled carrots, grilled steaks, painted the pickets on the fence between the house and the barn and by nightfall we drifted indoors to find rest, albeit temporary, from the service of living.

I wonder how much longer it will continue, these rituals, the small flags adorning the graves of those who gave of themselves for something greater, the men gathering in solemn remembrance of other men bound by a brotherhood not of blood but of common beliefs when the transformation is complete. There will never be a final demarcation between one country and another just as there is no definitive border between seasons- one thing slowly becomes another until the past is but a memory. I do know that somewhere out there that final note of taps has yet to become completely silent even as I lay my head down to sleep. As long as someone remembers, nothing is ever really gone.

Washington’s Secret Agendas

Guest Post by Paul Craig Roberts

One might think that by now even Americans would have caught on to the constant stream of false alarms that Washington sounds in order to deceive the people into supporting its hidden agendas.

The public fell for the lie that the Taliban in Afghanistan are terrorists allied with al Qaeda. Americans fought a war for 13 years that enriched Dick Cheney’s firm, Halliburton, and other private interests only to end in another Washington failure.

The public fell for the lie that Saddam Hussein in Iraq had “weapons of mass destruction” that were a threat to America and that if the US did not invade Iraq Americans risked a “mushroom cloud going up over an American city.” With the rise of ISIS, this long war apparently is far from over. Billions of dollars more in profits will pour into the coffers of the US military security complex as Washington fights those who are redrawing the false Middle East boundaries created by the British and French after WW I when the British and French seized territories of the former Ottoman Empire.

The American public fell for the lies told about Gaddafi in Libya. The formerly stable and prosperous country is now in chaos.

The American public fell for the lie that Iran has, or is building, nuclear weapons. Sanctioned and reviled by the West, Iran has shifted toward an Eastern orientation, thereby removing a principal oil producer from Western influence.

The public fell for the lie that Assad of Syria used “chemical weapons against his own people.” The jihadists that Washington sent to overthrow Assad have turned out to be, according to Washington’s propaganda, a threat to America.

The greatest threat to the world is Washington’s insistence on its hegemony. The ideology of a handful of neoconservatives is the basis for this insistence. We face the situation in which a handful of American neoconservative psychopaths claim to determine the fate of countries.

Many still believe Washington’s lies, but increasingly the world sees Washington as the greatest threat to peace and life on earth. The claim that America is “exceptional and indispensable” is used to justify Washington’s right to dictate to other countries.

The casualties of Washington’s bombings are invariably civilians, and the deaths will produce more recruits for ISIS. Already there are calls for Washington to reintroduce “boots on the ground” in Iraq. Otherwise, Western civilization is doomed, and our heads will be cut off. The newly created propaganda of a “Russian threat” requires more NATO spending and more military bases on Russia’s borders. A “quick reaction force” is being created to respond to a nonexistent threat of a Russian invasion of the Baltics, Poland, and Europe.

Usually it takes the American public a year, or two, three, or four to realize that it has been deceived by lies and propaganda, but by that time the public has swallowed a new set of lies and propaganda and is all concerned about the latest “threat.” The American public seems incapable of understanding that just as the first, second, third, fourth, and fifth, threat was a hoax, so is the sixth threat, and so will be the seventh, eighth, and ninth.

Moreover, none of these American military attacks on other countries has resulted in a better situation, as Vladimir Putin honestly states. Yet, the public and its representatives in Congress support each new military adventure despite the record of deception and failure.

Perhaps if Americans were taught their true history in place of idealistic fairy tales, they would be less gullible and less susceptible to government propaganda. I have recommended Oliver Stone and Peter Kuznick’s The Untold History of the US, Howard Zinn’s A People’s History of the US, and now I recommend Stephen Kinzer’s The Brothers, the story of the long rule of John Foster and Allen Dulles over the State Department and CIA and their demonization of reformist governments that they often succeeded in overthrowing. Kinzer’s history of the Dulles brothers’ plots to overthrow six governments provides insight into how Washington operates today.

In 1953 the Dulles brothers overthrew Iran’s elected leader, Mossadegh and imposed the Shah, thus poisoning American-Iranian relations through the present day. Americans might yet be led into a costly and pointless war with Iran, because of the Dulles brothers poisoning of relations in 1953.

The Dulles brothers overthrew Guatemala’s popular president Arbenz, because his land reform threatened the interest of the Dulles brothers’ Sullivan & Cromwell law firm’s United Fruit Company client. The brothers launched an amazing disinformation campaign depicting Arbenz as a dangerous communist who was a threat to Western civilization. The brothers enlisted dictators such as Somoza in Nicaragua and Batista in Cuba against Arbenz. The CIA organized air strikes and an invasion force. But nothing could happen until Arbenz’s strong support among the people in Guatemala could be shattered. The brothers arranged this through Cardinal Spellman, who enlisted Archbishop Rossell y Arellano. “A pastoral letter was read on April 9, 1954 in all Guatemalan churches.”

A masterpiece of propaganda, the pastoral letter misrepresented Arbenz as a dangerous communist who was the enemy of all Guatemalans. False radio broadcasts produced a fake reality of freedom fighter victories and army defections. Arbenz asked the UN to send fact finders, but Washington prevented that from happening. American journalists, with the exception of James Reston, supported the lies. Washington threatened and bought off Guatemala’s senior military commanders, who forced Arbenz to resign. The CIA’s chosen and well paid “liberator,” Col. Castillo Armas, was installed as Arbenz’s successor.

We recently witnessed a similar operation in Ukraine.

President Eisenhower thanked the CIA for averting “a Communist beachhead in our hemisphere,” and Secretary of State John Foster Dulles gave a national TV and radio address in which he declared that the events in Guatemala “expose the evil purpose of the Kremlin.” This despite the uncontested fact that the only outside power operating in Guatemala was the Dulles brothers.

What had really happened is that a democratic and reformist government was overthrown because it compensated United Fruit Company for the nationalization of the company’s fallow land at a value listed by the company on its tax returns. America’s leading law firm or perhaps more accurately, America’s foreign policy-maker, Sullivan & Cromwell, had no intention of permitting a democratic government to prevail over the interests of the law firm’s client, especially when senior partners of the firm controlled both overt and covert US foreign policy. The two brothers, whose family members were invested in the United Fruit Company, simply applied the resources of the CIA, State Department, and US media to the protection of their private interests. The extraordinary gullibility of the American people, the corrupt American media, and the indoctrinated and impotent Congress allowed the Dulles brothers to succeed in overthrowing a democracy.

Keep in mind that this use of the US government in behalf of private interests occurred 60 years ago long before the corrupt Clinton, George W. Bush, and Obama regimes. And no doubt in earlier times as well.

The Dulles brothers next intended victim was Ho Chi Minh. Ho, a nationalist leader, asked for America’s help in freeing Vietnam from French colonial rule. But John Foster Dulles, a self-righteous anti-communist, miscast Ho as a Communist Threat who was springing the domino theory on the Western innocents. Nationalism and anti-colonialism, Foster declared, were merely a cloak for communist subversion.

Paul Kattenburg, the State Department desk officer for Vietnam suggested that instead of war, the US should give Ho $500 million in reconstruction aid to rebuild the country from war and French misrule, which would free Ho from dependence on Russian and Chinese support, and, thereby, influence. Ho appealed to Washington several times, but the demonic inflexibility of the Dulles brothers prevented any sensible response. Instead, the hysteria whipped-up over the “communist threat” by the Dulles brothers landed the United States in the long, costly, fiasco known as the Vietnam War. Kattenburg later wrote that it was suicidal for the US “to cut out its eyes and ears, to castrate its analytic capacity, to shut itself off from the truth because of blind prejudice.” Unfortunately for Americans and the world, castrated analytic capacity is Washington’s strongest suit.

The Dulles brothers’ next targets were President Sukarno of Indonesia, Prime Minister Patrice Lumumba of Congo, and Fidel Castro. The plot against Castro was such a disastrous failure that it cost Allen Dulles his job. President Kennedy lost confidence in the agency and told his brother Bobby that after his reelection he was going to break the CIA into a thousand pieces. When President Kennedy removed Allen Dulles, the CIA understood the threat and struck first.

Warren Nutter, my Ph.D. dissertation chairman, later Assistant Secretary of Defense for International Security Affairs, taught his students that for the US government to maintain the people’s trust, which democracy requires, the government’s policies must be affirmations of our principles and be openly communicated to the people. Hidden agendas, such as those of the Dulles brothers and the Clinton, Bush and Obama regimes, must rely on secrecy and manipulation and, thereby, arouse the distrust of the people. If Americans are too brainwashed to notice, many foreign nationals are not.

The US government’s secret agendas have cost Americans and many peoples in the world tremendously. Essentially, the Foster brothers created the Cold War with their secret agendas and anti-communist hysteria. Secret agendas committed Americans to long, costly, and unnecessary wars in Vietnam and the Middle East. Secret CIA and military agendas intending regime change in Cuba were blocked by President John F. Kennedy and resulted in the assassination of a president, who, for all his faults, was likely to have ended the Cold War twenty years before Ronald Reagan seized the opportunity.

Secret agendas have prevailed for so long that the American people themselves are now corrupted. As the saying goes, “a fish rots from the head.” The rot in Washington now permeates the country.

Un-Common, Not Core

Via American Thinker

I became a math teacher by a circuitous route.  My degree is in engineering.  I spent five and a half years refurbishing nuclear submarines, and then I quit work to bear, rear, and eventually homeschool our three children.

As a homeschool mom, I participated in co-ops, taking turns teaching groups of homeschooled children subjects such as nature study and geography. As our children entered their teen years, I began teach to teach algebra, trig, and calculus to small classes of homeschoolers at my kitchen table.  And as our children left home for their four-year universities, two to major in engineering and one in art, I began teaching in small private schools known as classical academies.

This last year, I have also been tutoring public-school students in Common Core math, and this summer I taught a full year of Common Core Algebra 2 compressed into six weeks at an expensive, ambitious private school. 

I’ve taught and tutored the gamut of textbooks and curricula: Miquon and Saxon to my own kids and whenever the choice of curriculum was mine to make; Foerster, Saxon, Jacobs, or Holt when hired to teach at a school.  I’ve tutored out of the California state adopted texts: CPM, Everyday Math, Mathland, Houghton Mifflin Harcourt, McGraw Hill, Addison Wesley, and Holt.  I’ve had students come to me from all of the above plus Teaching Textbooks, Singapore, and Math U See.

This last year was my first experience first tutoring, then teaching Common Core, and I was curious.  I had read the reports of elementary-school children crying over their homework and staying up past midnight to complete it, so I expected Common Core to be like Everyday Math, Mathland, and CPM: poorly explained, abstruse, confusing.  I was correct on those counts.

What surprised me was that Common Core was also hard.

Now, I like rigor.  I have high standards.  My goal for my students is that they will become competent and confident mathematicians.  But I was stunned to see that my tutoring student’s pre-algebra work incorporated about a third of a year of algebra 1.  The algebra 2 text incorporated about a third of the topics I would expect to find in a precalculus course.  And so forth.

This did not mesh with the reports from Pennsylvania, Wisconsin, Utah, or New York, where Common Core is alleged to lower standards – in one case, specifically, to move multiplication tables from third grade to fifth grade.  It appears that Common Core is not being implemented in a consistent (or common) way across the United States.  But I can only address pre-algebra through calculus in texts claiming to be Common Core in California.  These texts are shoveling about a third of the subsequent year’s topics into the current year.

This problem is exacerbated by the recent fad for accelerating students through their math classes.  Fifty years ago, algebra 1 was a ninth-grade course for fourteen-year-olds.  Now it is routinely taught in eighth grade, sometimes in seventh.  Algebra 1 in seventh grade means that pre-algebra is taught in sixth grade to eleven-year-olds, and few eleven-year-olds have achieved the cognitive development necessary to master the abstract logic of one third of a year of algebra.

Cognitive development proceeds not in a smooth curve, but in jumps and plateaus.  Just as most babies learn to walk at twelve months, so most adolescents become capable of logical operations such as algebra at twelve years.  And just as whether a baby walks at nine months or fifteen months has no bearing on whether he plays football in college, so whether a student learns algebra in 7th or 9th grade has no bearing on whether she becomes a National Merit Scholar…save that a child who is pushed and flounders and fails is unlikely to love an activity.

That is what I am seeing with my tutoring students: the math-bright ones are being encouraged to take honors pre-algebra at age eleven.  In prior years, this would have meant that they first had a thorough, final review of arithmetic: adding, subtracting, multiplying, and dividing whole numbers, decimals, and fractions; long division; changing fractions to decimals to percents and back.  Then for a treat, they would be introduced to the glories of algebra, the fun stuff: Rene Descartes’ brilliant invention, with plenty of lists of points that, if properly executed, form an outline of a fish or a dinosaur.  They would be taught signed numbers, order of operations, distributive property, and how to solve for x, and that would be about it.  They would finish the year happily aware that math is fun and that they are good at it.  If they were fortunate enough to be taught from Jacobs’s Mathematics: a Human Endeavor, they would learn about sequences and mosaics and logarithms and even networks, but all with a very concrete development, suited to the emergent logical thinker.

The reform mathematicians who put together Common Core are ignoring cognitive development.  My Common Core pre-algebra students are hurried through the arithmetic review and taught the coordinate system.  They graph lines and parabolas.  They do transformations, exponents (including zero and negative exponents), and a truly horrendous percentage of percentage problems.  The homework can be finished in an hour if the student’s parents can afford to hire a BS mechanical engineer to sit at his elbow and remind him when he takes a wrong turn.  Otherwise, he is up ’til midnight.  Students work hard at tasks beyond their strength; they flounder; they fail; they learn that math is no fun.

This isn’t education. This is child abuse.

Another aspect of Common Core that surprised me was the emphasis given to parent functions and transformations. People over forty years of age, even techies such as physicists, chemists, engineers, and mathematicians, won’t know what parent functions are.  People under thirty-five who have been educated in reform mathematics textbooks will be surprised that is possible to learn mathematics without learning about transformations.

Fifty years ago, transformations were not taught, although math-bright students would figure them out for themselves in analytic geometry (second-semester pre-calculus).  Today, they are taught systematically beginning in elementary school.

The treatment of transformations reminds me of the New Math debacle of the 1960s.  The reform mathematicians of the day decided that they were going to improve mathematical education by teaching all students what the math-bright children figured out for themselves.

In exactly the same way, the current crop of reform math educators has decided that transformations are an essential underlying principle, and are teaching them: laboriously, painfully, and unnecessarily.  They are tormenting and confusing the average student, and depriving the math-bright student of the delight of discovering underlying principles for herself.

One aspect of Common Core that did not surprise me was a heavy reliance on calculators.

The main problem I see with my algebra students is that they have poor number sense.  They can’t tell whether the answer their calculator shows is reasonable or not.  They cling to the notion that 1.41 is somehow more precise than square root of two.  They also can’t add fractions or do long division, which puts them at a severe disadvantage when they must add rational expressions or divide polynomials.

Common Core exacerbates this problem.  At every level, the problems are designed to be too hard to solve by hand.  A calculator is necessary even in elementary school – unless a child is to spend 5 hours a night on homework.  A graphing calculator is necessary for algebra – calculating correlation coefficients by hand is not a viable option.  My students are whizzes with their calculators.  But they reach for them to square 1/3…then write it as 0.11.

Common Core advocates claim that they are avoiding that boring, rote drill in favor of higher-order thinking skills.  Nowhere is this more demonstrably false than in their treatment of formulas.  An old-style text would have the student memorize a few formulas and be able to derive the rest.  Common Core loads the student down with more formulas than can possibly be memorized.  There is no instruction on derivation; the formulas are handed down as though an archangel brought them down from heaven.  Since it is impossible to memorize all the various formulas, students are permitted – nay, encouraged – to develop cheat sheets to use on the tests.

The second-biggest problem with Common Core is the problem of Big Mistakes.  Pretend for a moment that a homeschool family did something as asinine as giving their eight-year-old a calculator instead of teaching him his times tables.  That child would be a calculator cripple.

But that would be a small mistake, affecting one child.  Now consider what happens when a state made such a mistake.  We don’t even have to pretend.  In 1986, California adopted Whole Language Arts, which proved to be a disaster.  Within a decade, California plunged to 49th out of 50 in reading performance.  Millions of children were affected.  Big mistake.

If different states have different curricula, we can observe what works and what does not, and improve thereby.  But Common Core is being pushed nationwide.  This could be the Biggest of all possible Mistakes.

But the worst problem with Common Core is its likely effect on the educational gap between rich and poor in this country.  The students I tutor have parents who would describe themselves as “comfortable.”  No one likes to admit to being rich.  But the middle class and poor cannot afford to pay a tutoring company $50 to $100 per hour so that someone will sit with their children and explain trig identities.

The oft-repeated goal of Common Core is that every child will be “college or career ready.”  Couple that slogan with the oft-expressed admiration for the European system of education – in European countries, students are slotted for university or a dead-end job at age fourteen, based ostensibly on their performance on high-stakes tests, but that performance almost inevitably matches the student’s socioeconomic class.  Do we really want to destroy upward mobility and implement a rigid class structure in the United States of America?

To recapitulate: Common Core teaches about a third of algebra 1 in pre-algebra, a third of pre-calculus in algebra 2, et cetera.  Common Core teaches unnecessary abstractions as essential principles.  Common Core creates calculator cripples.  Common Core fails to derive mathematical expressions, instead presenting them as Holy Writ.

I predict that if we continue implementing Common Core, average students will drop out of math as early as they are allowed.  Even math-bright students will hate math.  Tutoring companies will proliferate to serve wealthy families.  The educational gap between rich and poor will widen.  If we want to destroy math and science education in this country, keep Common Core.

QUOTE OF THE DAY

“The truth is, although both incidents do reveal something about the way the powerful and famous get away with more stuff than the rest of us, there’s no real comparison. The Segarra Tapes actually reveal little or nothing that was not already known, assuming you have a shred of understanding how the Federal Reserve banks actually work. Nor is William Dudley, the president of the Federal Reserve Bank of New York, about to get pilloried in public like NFL Commissioner Roger Goodell.

Sorry, folks, but this is simply the way the New York Fed was designed to behave. The system of 12 Federal Reserve banks, established about 100 years ago by an act of Congress following secret meetings presided over by J.P. Morgan himself at an island off the coast of Georgia, has always existed for the benefit of the commercial and investment banks that created the system, that own the banks and that control their boards of directors. To think that these banks exist for any other reason than to serve their Wall Street masters is complete folly. It has never been so and it will never be so – as long as the current system remains intact – despite what Segarra captured her bosses talking about on tape, without their knowledge.”

William D. Cohan, Why the Fed Will Always Wimp Out On Goldman

“I Am Putting Everything In Goldman Sachs Because These Guys Can Do Whatever The Hell They Want”

Tyler Durden's picture

When we first covered the Carmen Segarra lawsuit alleging the capture of the NY Fed by Goldman Sachs back in October 2013, we didn’t have much hope for justice to get done. We said that “while her allegations may be non-definitive, and her wrongful termination suit is ultimately dropped, there is hope this opens up an inquiry into the close relationship between Goldman and the NY Fed. Alas, since the judicial branch is also under the control of the two abovementioned entities, we very much doubt it.”

Sure enough, the lawsuit was dropped (and no inquiry was opened) but not before it became clear that the very judge in charge of the case, U.S. District Judge Ronnie Abrams, was herself conflicted, after it was revealed that her husband, Greg Andres, a partner at Davis Polk & Wardwell, was representing Goldman in an advisory capacity. Curiously, before she assumed her current office in March 2013, back in 2008 Abrams returned to Davis Polk herself as Special Counsel for Pro Bono. She had previously worked at the firm from 1994 to 1998. For the full, and quite amazing, story of how the “Judge” steamrolled Segarra’s objections reads this Reuters piece.

As a result of this fiasco, some wondered just how far do Goldman’s tentacles stretch not only at the money-printing (i.e., NY Fed) level, not only at the legislative level (see “With Cantor Down, Which Other Politicians Has Goldman Invested In?”), but at the judicial as well.

And then, on Friday, the Segarra case against the Federal Reserve branch of Goldman Sachs got a second wind, when as a result of another disclosure, ProPublica revealed “How Goldman Controls The New York Fed in 47.5 Hours Of “The Secret Goldman Sachs Tapes.” That is to say, nothing new was revealed per se, because as anyone who has read this website for the past 6 years knows just how vast Goldman’s network is not only at the Fed, but in that all important other continent too, Europe.

Sadly, just like a year ago, so this time too, we are reluctant to say anything will change. In fact, there is too much at stake, for Goldman to drop the reins and disassociate from the NY Fed: for pete’s sake, the president of the NY Fed is a former Goldman employee – does it get any more conflicted than that?!

But, wait, Goldman will do penance by “prohibiting its bankers from buying stocks“… the horror. Luckily at least purchasing politicians and Fed presidents is still perfectly allowed.

In fact, what has become clear to everyone is that aside from yet another dog and pony show (led by, you guessed, it the head dog and ponier herself, Elizabeth Warren), not only will nothing change, but in fact the best way to take advantage of a broken, corrupt, sinking system, is to join it. And the best summary of just that sentiment was released over the weekend by Nanex’ Eric Hunsader as follows:

After listening to http://www.thisamericanlife.org/radio-archives/episode/536/the-secret-recordings-of-carmen-segarra  I’m putting everything in – because these guys can do whatever the hell they want

Curious what made up Eric’s mind? Then fast forward to minute 24 to hear what it sounds like when a top Fed official “questions” Goldman Sachs:

 

But before we put this topic to bed, here is Raúl Ilargi Meijer explaining why “The US Has No Banking Regulation, And It Doesn’t Want Any

* * *

It is, let’s say, exceedingly peculiar to begin with that a government – in this case the American one, but that’s just one example – in name of its people tasks a private institution with regulating not just any sector of its economy, but the richest and most politically powerful sector in the nation. Which also happens to be at least one of the major forces behind its latest, and ongoing, economical crisis.

That there is a very transparent, plain for everyone to see, over-sized revolving door between the regulator and the corporations in the sector only makes the government’s choice for the Fed as regulator even more peculiar. Or, as it turns out, more logical. But it is still preposterous: regulating the financial sector is a mere illusion kept alive through lip service. Put differently: the American government doesn’t regulate the banks. They effectively regulate themselves. Which inevitably means there is no regulation.

The newly found attention for ProPublica writer Jake Bernstein’s series of articles, which date back almost one whole year, about the experiences of former Fed regulator Carmen Segarra, and the audio files she collected while trying to do her job, leaves no question about this.

What’s going on is abundantly clear, because it is so simple. The intention of the New York Fed as an organization is not to properly regulate, but only to generate an appearance – or illusion – of proper regulation. That is to say, Goldman will accept regulation only up to the point where it would cut into either the company’s profits or its political wherewithal.

What the ‘Segarra Files’ point out is that the New York Fed plays the game exactly the way Goldman wants it played. Ergo: there is no actual regulation taking place, and Goldman will comply only with those requests from the New York Fed that it feels like complying with.

In the articles, the term ‘regulatory capture’ pops up, which means – individual – regulators are ‘co-opted’ by the banks they – are supposed to – regulate. But the capture runs much larger and wider. It’s not about individuals, it’s a watertight and foolproof system wide capture.

The government picks a – private – regulator which has close ties to the banks. The government knows this. It also knows this means that its chosen regulator will always defer to the banks. And when individual regulators refuse to comply with the system, they are thrown out.

In one of the cases Segarra was involved in during her stint at the Fed, the Kinder Morgan-El Paso takeover deal, Goldman advises one party, has substantial stock holdings in the other, and appoints a lead counsel who personally has $340,000 in stock involved. Conflict of interest? Goldman says no, and the Fed complies (defers).

The lawsuit Segarra filed against the NY Fed and three of its executives was thrown out on technicalities by a judge whose husband was legal counsel for Goldman in the exact same case. No conflict of interest, the judge herself decides.

This is not regulation, it’s a sick and perverted joke played on the American people, which it has been paying for it through the nose for years, and will for many years to come. Sure, Elizabeth Warren picks it up now and wants hearings on the topic in Congress, but she’s a year late (it’s been known since at least December 2013 that Segarra has audio recordings) and moreover, it was Congress itself that made the NY Fed the regulator of Wall Street. Warren has as much chance of getting anywhere as Segarra did (or does, she’s appealing the case).

The story: In October 2011, Carmen Segarra was hired by New York Fed to be embedded at Goldman as a risk specialist, and in particular to investigate to what degree the company complied with a 2008 Fed Supervision and Regulation Letter, known as SR 08-08, which focuses on the requirement for firms like Goldman, engaged in many different activities, to have company-wide programs to manage business risks, in particular conflict-of-interest. Some people at Goldman admitted it did not have such a company-wide policy as of November 2011. Others, though, said it did.

Let’s take it from there with quotes from the 5 articles Bernstein wrote on the topic over the past year. To listen to the Segarra files, please go to The Secret Recordings of Carmen Segarra at This American Life.

One last thing: Jake Bernstein’s work is of high quality, but I can’t really figure why he says things such as the audio files show: “a New York Fed that is at times reluctant to push hard against Goldman and struggling to define its authority”. Through his work, and the files, it should be clear that just ain’t so. Both the Fed’s policy and authority are crystal clear and ironclad.

OPEN CAN OF GASOLINE NEXT TO YOUR FIREPLACE

John Hussman’s latest article references his actual warnings in 2000, 2007, and 2014. Today’s article is as close to a warning of an imminent stock market collapse as you are going to get. The market is now so overvalued that it doesn’t even need a negative shock to fall. It will collapse under its own weight.

Here is the first part of his weekly letter, detailing his previous prescient warnings. They were unheeded in 2000 and 2007 by the momentum crowd. He was ridiculed then and he is ridiculed today. He was right then and he’s right now.

“The information contained in earnings, balance sheets and economic releases is only a fraction of what is known by others. The action of prices and trading volume reveals other important information that traders are willing to back with real money. This is why trend uniformity is so crucial to our Market Climate approach. Historically, when trend uniformity has been positive, stocks have generally ignored overvaluation, no matter how extreme. When the market loses that uniformity, valuations often matter suddenly and with a vengeance. This is a lesson best learned before a crash rather than after one. Valuations, trend uniformity, and yield pressures are now uniformly unfavorable, and the market faces extreme risk in this environment.”

Hussman Investment Research and Insight, October 3, 2000

“One of the best indications of the speculative willingness of investors is the ‘uniformity’ of positive market action across a broad range of internals. Probably the most important aspect of last week’s decline was the decisive negative shift in these measures. Since early October of last year, I have at least generally been able to say in these weekly comments that ‘market action is favorable on the basis of price trends and other market internals.’ Now, it also happens that once the market reaches overvalued, overbought and overbullish conditions, stocks have historically lagged Treasury bills, on average, even when those internals have been positive (a fact which kept us hedged). Still, the favorable market internals did tell us that investors were still willing to speculate, however abruptly that willingness might end. Evidently, it just ended, and the reversal is broad-based.”

Market Internals Go Negative, Hussman Weekly Market Comment, July 30, 2007

“The worst market return/risk profiles we estimate are associated with an early deterioration in market internals following severely overvalued, overbought, overbullish conditions. This is what we observe at present. In contrast, the strongest market return/risk profiles we estimate are associated with a material retreat in valuations coupled with early improvement in market internals. I have every expectation that we will observe this combination over the completion of the present market cycle. So I expect that, perhaps to the surprise of many who don’t understand this approach, we will be quite bullish and aggressively invested as market conditions shift over the completion of the present market cycle. But now is emphatically not that time.”

A Hint of Advance Warning, Hussman Weekly Market Comment, August 4, 2014

The most hostile subset of market conditions we identify couples overvalued, overbought, overbullish extremes with a breakdown in market action: deterioration of breadth, leadership and other market internals, along with a shift toward greater dispersion and weakening price cointegration across individual stocks, sectors and security types (what we sometimes call “trend uniformity”). The outcomes are particularly negative, on average, when that shift is joined by a widening of credit spreads. That’s a shift we observed in October 2000. It’s a shift we observed in July 2007. It’s a shift that we observe today.

Remember that severe market losses are not by their nature broadly announced by obvious catalysts. As I noted approaching the 2007 peak: “Once certain extremes are clear in the data, the main cause of a market plunge is usually the inevitability of a market plunge. That’s the reason we sometimes have to maintain defensive positions in the face of seemingly good short-term market behavior.” Asking what particular news event will trigger a market loss “is like having an open can of gasoline next to your fireplace and blaming the particular spark that sets it off. We need not investigate the personality, life history or future career path of that particular spark.”

Present market conditions comprise an environment where risk-premiums are thin and are being pressed higher. See Low and Expanding Risk Premiums are the Root of Abrupt Market Losses for more on why this matters. The current shift does not ensure that the market will decline over the short-term, nor that it will crash in this instance. It’s also worth noting that we don’t rely on a crash, and that we can certainly allow for the possibility that valuations and market internals will improve in a way that reduces or relieves our concerns without severe market losses.

Still, what we are concerned about here and now is the steeply negative average behavior of the market in historical periods that match present conditions, as well as the decided skew of that probability distribution, which features extreme negative observations far more often than would be expected under a “normal” bell-shaped distribution. Interestingly, the 3-day average implied skew embedded in S&P 500 index option prices surged last week to the highest level on record. The potential for a “fat-tail” event should be taken seriously here.

The arrogant Wall Street pricks who think they have it all figured out will eventually get what they deserve. They are all following the same strategy – buy the dips because grandma Yellen has their back. They don’t invest in stocks based on valuations, growth, or value. They use the same HFT supercomputers programmed by the same Ivy League douchebag MBAs with the same lemming strategies. They all think they can exit before the other douchebags. They are all wrong. The time to panic is before everyone else panics. The attempted exit should be extremely entertaining. The bankers and their politicians will again demand a bailout or they will take down the financial system. Will the American people fall for it again?

Our concerns at present mirror those that we expressed at the 2000 and 2007 peaks, as we again observe an overvalued, overbought, overbullish extreme that is now coupled with a clear deterioration in market internals, a widening of credit spreads, and a breakdown in our measures of trend uniformity. These negative conditions survive every restriction that we’ve implemented in recent years that might have reduced our defensiveness at various points in this cycle.

My sense is that a great many speculators are simultaneously imagining some clear exit signal, or the ability to act on some “tight stop” now that the primary psychological driver of speculation – Federal Reserve expansion of quantitative easing – is coming to a close. Recall 1929, 1937, 1973, 1987, 2001, and 2008. History teaches that the market doesn’t offer executable opportunities for an entire speculative crowd to exit with paper profits intact. Hence what we call the Exit Rule for Bubbles: you only get out if you panic before everyone else does.

Market crash dead ahead. You’ve been warned.

I should be clear that market peaks often go through several months of top formation, so the near-term remains uncertain. Still, it has become urgent for investors to carefully examine all risk exposures. When extreme valuations on historically reliable measures, lopsided bullishness, and compressed risk premiums are joined by deteriorating market internals, widening credit spreads, and a breakdown in trend uniformity, it’s advisable to make certain that the long position you have is the long position you want over the remainder of the market cycle. As conditions stand, we currently observe the ingredients of a market crash.

See the rest of John Hussman’s Weekly Letter