"Inside Job" Director: Wall Street Has Turned the U.S. into a "Predatory Nation"

Two years after directing the Academy Award-winning documentary, “Inside Job,” filmmaker Charles Ferguson returns with a new book, “Predator Nation: Corporate Criminals, Political Corruption, and the Hijacking of America.”

Ferguson explores why no top financial executives have been jailed for their role in the nation’s worst economic crisis since the Great Depression. We also discuss Larry Summers and the revolving door between academia and Wall Street, as well as the key role Democrats have played in deregulating the financial industry.

According to Ferguson, a "predatory elite" has "taken over significant portions of economic policy and of the political system, and also, unfortunately, major portions of the economics discipline. Read more >>

Another toothless bank “reform” from Obama

Tom Eley and Barry Grey
Flanked by former Federal Reserve Chairman Paul Volcker, President Obama on Thursday announced new proposals that he claimed would limit the ability of the major banks to profit from risky speculative investments.

The brief appearance before the press corps, replete with bank-bashing demagogy, was a transparent effort to give his persona a populist gloss, two days after the Democrats suffered a humiliating defeat in the Massachusetts Senate election to fill the vacancy left by the death of Edward Kennedy.

Obama was vague on the precise content of the regulations he was proposing, which he said would complement the bank regulatory overhaul passed last December by the House of Representatives. That bill, drafted in close consultation between the White House, Congressional Democrats and Wall Street CEOs and further diluted after heavy lobbying by the banks, does nothing to limit, let alone end, the unregulated “shadow” banking system that played a major role in bringing the US and global financial system to the brink of collapse.

Obama specifically denounced commercial banks making use of government support to engage in speculative trading on their own behalf—a practice known as proprietary trading.

He suggested that he wanted to revive some aspects of the separation between commercial and investment banking that was a cornerstone of the bank reform laid down by the 1933 Glass-Steagall Act. The law was repealed in 1999 during the Clinton administration. Clinton’s treasury secretary at the time, Lawrence Summers, is now Obama’s chief economic adviser.

The announcement, hastily organized, was little more than a public relations stunt, designed to placate mounting popular anger over the administration’s subservience to Wall Street and its refusal to take any measures to address the jobs crisis and growing social distress. Obama is well aware that any measures that might seriously rein in the banks will be blocked in Congress or watered down to the point of irrelevance. He and his political advisers calculated that a populist gesture would, in practice, commit his administration to nothing.

He demonstratively did not call for breaking up the banking giants--such as JPMorgan and Goldman Sachs--which have grown bigger and more powerful as a result of the administration’s policies.

The presence of Volcker underscored the cynicism of the announcement. In recent months Volcker, the chairman of Obama’s Economic Recovery Advisory Board, has been publicly calling for measures to limit proprietary trading and other speculative practices by commercial banks, i.e., institutions that hold the deposits of ordinary people and are therefore afforded special protections by the Federal Reserve Board and the Federal Deposit Insurance Corporation. Of the major banks, these include JPMorgan Chase, Citigroup, Bank of America and Wells Fargo.

For months, Volcker has been ignored or ridiculed by Obama administration officials for suggesting even a partial return to the limits on bank speculation imposed under Glass-Steagall. Now, in the wake of the political disaster suffered by the Democrats in Massachusetts, he has been brought forward to demonstrate the supposed “toughness” of Obama toward Wall Street.

Volcker, however, is hardly a fortuitous choice to symbolize the administration’s newfound determination to defend the public against the bankers. As Fed chairman from 1979, under Jimmy Carter, to 1987, under Ronald Reagan, he engineered a deep recession by raising interest rates as high as 20 percent. This was the centerpiece of an offensive against the working class that employed mass unemployment to beat back its militant opposition and impose wage cuts, attacks on benefits and speedup across the economy.

Volcker publicly supported the unionbusting and strikebreaking that characterized the 1980s, carried out with the collusion of the AFL-CIO. He famously declared that Reagan’s busting of the 1981 PATCO air traffic controllers’ strike and outlawing of the union was his greatest contribution to reining in inflation.

Acknowledging that the financial system is “still operating under the same rules that led to its near-collapse,” Obama declared that “never again will the American taxpayer be held hostage by a bank that is too big to fail.”

He continued: “We simply cannot accept a system in which hedge funds or private equity firms inside banks can place huge, risky bets that are subsidized by taxpayers and that could pose a conflict of interest. And we cannot accept a system in which shareholders make money on these operations if the bank wins, but taxpayers foot the bill if the bank loses.”

Such statements have no credibility coming from a president who has presided over a vast expansion of the multi-trillion-dollar bailout of the banks and has opposed any restraints on bankers’ pay. If the banks are “still operating under the same rules” as before the crash of 2008, that is because his administration has refused to change the rules.

Obama’s phony bank-bashing was for public consumption. Next Tuesday, Treasury Secretary Timothy Geithner, who as president of the Federal Reserve Bank of New York played a key role in the bank bailout, will meet behind closed doors with more than 40 chief executives of financial institutions to reassure them and give them the real dope on Obama’s proposals.

Wall Street struck back at the mere suggestion of new regulations, driving down bank stocks and ending the trading day with the Dow down 213 points.

Talk of Recovery is a Shameless Lie

Mission Not Accomplished
Peter Schiff
Although Barack Obama has refrained, at least for now, from delivering triumphant speeches in a naval flight suit, there is nevertheless a strong tone of accomplishment emanating from the President and his deputies. Over the weekend, top White House economic adviser Lawrence Summers even pronounced that the recession is now over. Without hedging his bets, Summers declared that thanks to the Obama Administration's wise stewardship, economic stimuli, and emergency bailouts, another Great Depression, set up by the prior Administration, had been narrowly averted. Summers saw no impediments to the return of sustainable growth. He may as well have delivered these remarks from the deck of an aircraft carrier.

I hate to shoot down these high-flying expectations, but the economy is not improving. All that has changed is that we are now more indebted to foreign creditors, with even less to show for it. Washington's current policies have once again deferred the fundamental, market-driven reforms needed to redirect us onto a sustainable path. Instead, through aggressive monetary and fiscal stimuli, we are trying to re-inflate a balloon that is full of holes. This was the Bush Administration's exact response to the 2002 recession. It's shocking how few observers note the repeating pattern, especially the fact that each crash is worse than the last.

Obama's claim of success largely derives from the slowing tally of job losses, the seemingly renewed strength in the financial system, the pickup in home sales and home prices, and the positive GDP figures. But these 'achievements' fall apart under close examination.

First, a closer look at the jobs numbers shows that employment improved in sectors that benefited most directly from monetary or fiscal stimulus: government, healthcare, financial services, education and retail sales. Meanwhile, sectors such as manufacturing continued to shed jobs at an alarming rate. These dynamics actually exacerbate our economic imbalances. Recent trade deficit figures (in which the deficit-reduction trend of early 2009 has sharply reversed) show how this employment growth is preventing needed rebalancing. Essentially, the Administration is nurturing firms that cannot survive without subsidies and support.

Once stimulus is removed, the "saved" jobs will be among the first to go. If the President has not figured this out yet, I am sure Fed Chairman Bernanke has. As a result, the market should discount as pure bluff any claims from the Fed about an eventual "exit strategy" from current stimuli. Such an "exit" would bring about Bernanke's greatest fear — spiking unemployment.

Second, major investment and commercial banks are not back on their feet, but remain fundamentally insolvent. Their current business model of risk-free speculation depends upon the maintenance of government backstops, the continued availability of cheap money from the Fed, and the use of accounting gimmicks that allow them to conceal losses behind phony assumptions.

Third, while it is true that home prices have stopped falling, this represents failure, not victory. True success would be a drop in home prices to a level that homebuyers could actually afford. Instead, we have maintained artificially high prices with tax credits, subsidized mortgage rates, low down payments, and foreclosure relief. With 96% of new mortgages now insured by federal agencies, market forces have been completely removed from the housing equation. With so many government programs specifically designed to maintain artificially high home prices, devastating long-term consequences for our economy are inevitable.

Finally, it is true that the GDP yardstick shows an economy returning to growth. However, as I have often repeated, this measure has deep flaws that render it almost useless for judging the soundness of an economy. Currently, the figures are merely reporting increasing indebtedness as growth. Using GDP as the main financial indicator is equivalent to judging a man's success by the cost of his house, car, and wristwatch. Rather than gauging income, these figures merely indicate a level of spending and have nothing to do with earning power.

Paul Volcker, the only independent voice in the Administration, has not been deceived by his colleagues' sunny claims. He recently noted that our economy still evidences "too much consumption, too much spending relative to our capacity to invest and export" and that the problem is "involved with the financial crisis but in a way [is] more difficult than the financial crisis because it reflects the basic structure of the economy." Yet, President Obama has chosen not to address these concerns.

As Summers and Obama like to point out, the vast majority of economists take it on faith that, with the right finesse, the stimulus can be withdrawn without pushing the economy back into recession. But based on the distortive effects of stimuli and bailouts, our economy has adapted to a climate where cheap credit is not only plentiful but critical.

Eventually, the cheap credit will dry up. Not because the Fed decides it should, but because our foreign creditors stop lending. When that happens, this Administration will look as clueless about economics as the last one was about the pitfalls of nation-building.

But for now, the chattering classes believe strong government action has delivered us from calamity. For them, at least, it's "mission accomplished!"

GLD ETF WARNING

Image via Wikipedia

Before It's News
This is potentially chilling news for the gold markets -- word of tungsten filled gold bars coming from the Market Oracle site. As Before It's News has warned, there are many issues with "owning" any gold that is a paper product, as opposed to physical gold and if this story is true, you could see a huge spike in the price of gold in the near future as people scramble to own the real thing. Two issues have come to the forefront, according to Rob Kirby at Kirby Analytics...

1] - irregularities in the publication of the gold ETF - GLD’s bar list from Sept. 25 – Oct.14 where the length of the bar list went from 1,381 pages to under 200 pages and then back up to 800 or so pages.

2] - reports of 400 oz. “good delivery” bricks of gold found gutted and filled with tungsten within the confines of LBMA approved vaults in Hong Kong.

The reason to use tungsten to fill bars, as opposed to say lead or silver is based entirely on Physics and Economics 101. Tungsten, density of 19.35 g/cm³ is a near perfect match for the density of gold at 19.32 g/cm³. A bar of tungsten coated with gold would be very close to the same size and weight as a real solid gold bar. The main reason to use tungsten is the cost, which at $20 per pound is a small fraction of gold's $16,000 per pound. Large 400 ounce cast bars are easiest to fake because they can be cast, but coins would need to be stamped, something difficult to achieve with tungsten owing to its legendary hardness -- it's got a very high melting point and is difficult to work. Gold is soft, malleable and ductile, which is why it has been treasured for millennia. It will be difficult to spot the fake gold bars without sophisticated assaying equipment.

Here's where the story gets fun...

The amount of “salted tungsten” gold bars in question was allegedly between 5,600 and 5,700 – 400 oz – good delivery bars [roughly 60 metric tonnes].

This was apparently all highly orchestrated by an extremely well financed criminal operation.

Within mere hours of this scam being identified – Chinese officials had many of the perpetrators in custody.

And here’s what the Chinese allegedly uncovered:

Roughly 15 years ago – during the Clinton Administration [think Robert Rubin, Sir Alan Greenspan and Lawrence Summers] – between 1.3 and 1.5 million 400 oz tungsten blanks were allegedly manufactured by a very high-end, sophisticated refiner in the USA [more than 16 Thousand metric tonnes]. Subsequently, 640,000 of these tungsten blanks received their gold plating and WERE shipped to Ft. Knox and remain there to this day. I know folks who have copies of the original shipping docs with dates and exact weights of “tungsten” bars shipped to Ft. Knox.

The balance of this 1.3 million – 1.5 million 400 oz tungsten cache was also plated and then allegedly “sold” into the international market.

Apparently, the global market is literally “stuffed full of 400 oz salted bars”.

If the market is stuffed full of 400 oz. salted bars, what are the chances that the GLD ETF has more than their share? Their prospectus contains this legal out...

Gold bars allocated to the Trust in connection with the creation of a Basket may not meet the London Good Delivery Standards and, if a Basket is issued against such gold, the Trust may suffer a loss. Neither the Trustee nor the Custodian independently confirms the fineness of the gold bars allocated to the Trust in connection with the creation of a Basket. The gold bars allocated to the Trust by the Custodian may be different from the reported fineness or weight required by the LBMA’s standards for gold bars delivered in settlement of a gold trade, or the London Good Delivery Standards, the standards required by the Trust. If the Trustee nevertheless issues a Basket against such gold, and if the Custodian fails to satisfy its obligation to credit the Trust the amount of any deficiency, the Trust may suffer a loss.

...it's buyer beware in the gold market, no question. Work with a reputable dealer and own physical coins. Should you intend to take delivery of COMEX 400 ounce bars, send them directly to a trustworthy assay lab to verify you are getting what you paid for. If even half of this turns out to be true, the price of real, physical gold could rocket.

UPDATE: The Central Bank in Ethiopia discovered a fake gold bar problem a couple of years ago, as this article in the Museum of Hoaxes attests.