Update no.520

Update from the Heartland

No.520

28.11.11 – 4.12.11

Blog version: http://heartlandupdate.blogspot.com/

To all,

No news is good news. Progress continues.

With the thought of hearing another opinion from a qualified citizen, I urge everyone to watch the video via the following link:
http://www.youtube.com/watch?v=yMLZO-sObzQ
University of Iowa Student Zach Wahls, 19, spoke about the strength of his family during a public forum in the Iowa House of Representatives on House Joint Resolution 6. He concluded, “The sexual orientation of my parents has had zero effect on the content of my character.” We can all learn from young Zach.

On Monday, United States District Judge Jed Saul Rakoff, Southern District of New York, rejected a US$285M Securities and Exchange Commission (SEC) Consent Judgment against Citigroup Global Markets Inc., in the case of SEC v. Citigroup [USDC NY SD case 1:11-cv-07387-JSR (2011)]. The judge had some choice words for both the offenders and the regulators. He condemned the SEC’s practice and penchant of seeking out-of-court settlements, to avoid trial, which in turn hides the truth from We, the People. To paint the background . . . in early 2007, as the mortgage-backed securities market weakened, Citigroup created a billion-dollar Fund (known as “Class V Funding III”) that allowed it to dump some dubious assets on misinformed investors. They accomplished this by misrepresenting the Fund's assets as attractive investments rigorously selected by an independent investment adviser. Then, at the pinnacle of deceit, cynicism, hypocrisy and arrogance, Citigroup took a short position against those very assets it had helped select; in essence, the supposedly stalwart bank bet on the failure of the instruments they created and duped their customers into buying. To quote the judge, “Citigroup realized net profits of around US$160M, whereas the investors, as the S.E.C. later revealed, lost more than US$700M.” This is not capitalism; it is fraud, conspiracy, and theft (or more accurately, highway robbery with a transaction rather than pistols). I am certain the wizards at Citigroup saw nothing unethical or immoral about their Class V Funding III brain-fart. Judge Rakoff concluded, “[T]he proposed Consent Judgment is neither fair, nor reasonable, nor adequate, nor in the public interest.” Other than that Missus Lincoln, how did you like your investment? The judge went on to note, “An application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous. The injunctive power of the judiciary is not a free roving remedy to be invoked at the whim of a regulatory agency, even with the consent of the regulated. If its deployment does not rest on facts – cold, hard, solid facts, established either by admissions or by trials – it serves no lawful or moral purpose and is simply an engine of oppression.” I suspect the evidence to be presented in court will be far more damning than anything our vivid imaginations could possibly conjure up. If convicted of their crimes, I expect the wrath of the Judiciary will be far more punitive than the paltry US$285M offered up by the SEC – supposedly the regulators empowered to protect us from the connivance of greedy men. I would like to see more of these damnable bank executives join their buddy Bernie for three hot’s and a cot, and a lengthy stay as our guest to contemplate the error of their ways. Thank you, Judge Rakoff. Let the facts speak for themselves.

How timely . . . on Sunday, CBS News 60 Minutes program broadcast two segments titled: “Prosecuting Wall Street.” The first segment was a virtual Press indictment of the former CEO of Countrywide Financial, Angelo R. Mozilo [358]. The second segment was like a background piece about the Citigroup mortgage situation and indirectly reflects upon the court case noted above.
Part 1:
http://www.cbsnews.com/video/watch/?id=7390540n&tag=contentBody;storyMediaBox
Part 2:
http://www.cbsnews.com/video/watch/?id=7390542n&tag=contentBody;storyMediaBox
There is hope the bastards will pay the price for their crimes.

On Tuesday, 29.November, 20 Iranian “students” “overwhelmed” the local police “guarding” the British embassy in Tehran to protest tightening sanctions against their country. As Yogi said, “It's déjà vu all over again” – 32 years hence, 4.Nov.1979. None of the British diplomats or support staff were harmed or detained. The British did not take kindly to the violation of their international sovereignty as they ordered their embassy personnel to evacuate and also ordered the Iranian diplomatic personnel to leave the United Kingdom within 48 hours. Various intelligence sources indicate the “protesters” were actually plain-clothes members of the Basij militia task force. The paramilitary Basij (formally, Basij-e Mostaz'afin = “Mobilization of the Oppressed”) is a sister unit of the Quds Force under the command of the Revolutionary Guards, all under the direct authority of Supreme Leader Ayatollah Khamenei. There is little doubt in my little pea brain that the attack on the British embassy was approved, sanctioned and ordered by the Iranian religious hierarchy. Iran continues its inexorable journey toward the precipice of the abyss. So be it!

On Monday, the Pakistani Telecommunications Authority (PTA) banned a list of 1,600 “obscene” words, most in English, from being used in text-messages and ordered the nation’s wireless service providers to block texts with these words. So much for privacy. Further, if the government can do this, what is the next step in their intrusion on the lives of individual citizens? Further, what public purpose is served by such an action? This is one of myriad reasons we must defend freedom with our lives, if necessary. We must also remain ever vigilant for those forces who seek to impose upon our Liberty and private affairs.

News from the economic front:
-- The People's Bank of China announced their intention to cut its reserve requirement ratio by half a percentage point, the first such cut since December 2008, after raising the ratio six times this year. The cut will take effect Dec. 5, and is aimed at raising liquidity amid global market turmoil.
-- The European Central Bank, the Bank of Canada, the Bank of England, the Bank of Japan, the Swiss National Bank, and the U.S. Federal Reserve agreed to lower the pricing on the U.S. dollar overnight index swap instrument by 50 basis points, to shore up the global financial system as Europe's rolling debt crisis continues to trouble markets. The public announcement of the U.S. Federal Reserve stated, “The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.” World markets liked the move.
-- The Labor Department reported non-farm payrolls rose by 120,000 last month, with private companies adding 140,000 jobs, while the public sector -- federal, state and local governments -- shrank by 20,000 jobs. The unemployment rate, obtained by a separate survey of U.S. households, fell to 8.6% from 9.0%, the lowest level since March 2009. October's payrolls figure was revised upward to show a gain of 100,000 from a previously reported 80,000, while September was revised up to a 210,000 gain from 158,000.

Comments and contributions from Update no.519:
“I’m glad for your good medical news, and I hope you continue healing with all possible speed.
“The ‘Super Committee’ was nonsense from the beginning. Those draconian cuts, if they take place, will undoubtedly do more harm than good because of their untargeted nature, but they put off any politically unwelcome decisions until after the elections. Same old same old.
“The article on teaching good sex is a welcome breath of reality in a debate that seems to be largely based on paranoid nonsense. I certainly believe that sex is an important part of life and, thus, should be taught as more than fear of disease or unplanned pregnancy. The idea of not actually teaching anything at all (“abstinence”) scares me. If schools taught us nothing about work or about government, people would rise up in arms. Yet this equally important area of living gets no attention. Al Vernacchio is a brave man and an excellent teacher. I hope for all of our sakes that he is not the only one.
“I see the economic situations in Europe and the U.S. as largely a function of the fact that ‘too big to fail’ has yet to be addressed either here or there. Investors are not as stupid as governments and those who finance campaigns seem to think they are. Modern communication has reduced the ability of those people to lie and to distort facts unchallenged. I doubt they have adapted to that.”
My response:
Improvement continues; the pace is frustrating. Nonetheless, in comparison to what could have been, I’m in high cotton.
The Super Committee probably would have worked 70 years ago, but given the intransigent political polarization of Stoday’s Congress, perhaps you are correct. The indiscriminate nature of cross-the-board cuts will generate a whole new level of political infighting. If we thought we had political gridlock and irresponsibility before, we ain’t seen nothin’ yet.
The Victorian-era notion that sex is a duty, for procreation only, and strictly for adult, heterosexual, monogamous-for-life couples in church-sanctioned marriage continues to dictate our socially conservative laws and zealous enforcement. Until we mature as a society regarding sex, we will continue to struggle with the proper teaching of our children. I certainly agree with you with respect to Vernacchio.
I just finished reading Judge Rakoff’s ruling in SEC v. Citigroup [USDC NY SD case 1:11-cv-07387-JSR (2011)], which is a backhanded indictment of both the SEC and Citigroup; more in this week’s Update. “To big to fail” is certainly a significant symptom; however, there are much larger forces involved. It will be interesting to see what Judge Rakoff yields from the Citigroup case. There is hope, however tenuous that hope may be.
. . . round two:
“The only follow-up I have is that few economic forces are larger than “too big to fail” banks in the world’s economies. The combined size of the six largest banks dwarfs almost anything else.”
. . . my response to round two:
Valid point. However, the larger forces include the globalization of world markets and financial interaction, the tragedy of the European debt crisis, the impact of the Federal government and intransigent political situation, et cetera. There is no doubt the banks are a major part of the problem. My point is, the difficulties cannot be placed at the doorsteps of the big banks; it is just not that simple.
. . . round three:
“The biggest banks brought about financial globalization and the European debt crisis pretty much by themselves working through their tame politicians, and they have as large a hand in political polarization as anyone other than, perhaps, the Koch Brothers. The European debt crisis is less a ‘tragedy’ than a crime, even though it will probably never be prosecuted.”
. . . my response to round three:
Whoa, now, dawg! That is like saying the bank is criminally at fault because I max’ed out my credit card and cannot pay the bill; yes, they provided the rope, but I hung myself. The bank’s responsibility rests upon understanding risk and return, to protect lender assets; they are not the adult supervision for a borrower, albeit an individual or a nation-state. This is not to say that the big banks are not culpable for aspects of the crisis, but the root cause was borrowing beyond one’s ability to pay; that’s true to the home mortgage borrower in California or Florida, just as it is true for Greece, Portugal, et al.
Thank goodness Judge Rakoff ordered a trial in SEC v. Citigroup. The results derived from evidence presented in a court of law should give us a glimpse into how at least one of those banks operated prior to the crash. I suspect, based on the judge’s opinion, that the picture will not be pretty and will most likely be very ugly and disgusting. Nonetheless, let’s call a spade a spade; greed is not limited to the big banks.
. . . round four:
“The history of financial-market globalization involves bankers re-writing or repealing regulations that are passed by legislators whose campaigns are financed by bankers. The ‘too big to fail’ bankers specifically caused the crashes in the U.S. and Europe by knowingly taking far too much risk in the certainty they would be bailed out. The people selling the mortgages must take a large share of the blame for the housing mess; many of those mortgages were sold deceptively to people the mortgage bankers knew very well would be unable to pay the mortgage. Such financial creations as ‘interest only’ mortgages are proof of that. People who make a living by their expertise must take responsibility for the abuse of that expertise. What people failed to acknowledge was that many billions of dollars in mortgages were created for the sole purpose of packaging into high-risk derivatives. When all that risk caused the crash, almost every American was harmed to some extent by the bailout, by the drop in all housing values, and by the economic ripples. The important exception to that harm is most of the bankers who caused the crash, who are still making big money. A fairly similar situation is now in the ‘crash’ stage in Europe.
“The bank is not at fault if you knowingly maxed out your credit card, but if the banker made a great effort to sell you twice the mortgage you could afford and you trusted his expertise and his honesty, he has abused his expertise and your trust. He should be liable to a reasonable degree in a civil matter at the very least. And as a group, the ‘too big to fail’ banks should be held accountable to national governments for their knowing destruction of the economies of multiple countries.”
. . . my response to round four:
We are not in disagreement; “too big to fail” is an anathema in any free or even regulated market society. I still believe the Sherman Antitrust Act [PL 51-190; 26 Stat. 209; 2.July.1890] should be used to break up the “too big to fail” banks . . . at least the separation of the banking, investment and underwriting segments. No commercial venture should be beyond the reach of market forces.
I believe you are implying that banks should be the financial nannies for ill-informed, incompetent, ignorant, greedy or wishful borrowers. If so, then we shall respectfully disagree. The law requires lenders to inform borrowers of the terms & conditions, and their rights regarding any lending instrument. Were their banks or mortgage lenders who violated those laws? Yes! Many of those lenders do not exist anymore. Some are those very same “too big to fail” banks, as noted in various Press exposés on fraudulent loan papers. They should be prosecuted to the fullest extent of the law. Some have been or are being prosecuted. The reason I keep returning to Judge Rakoff . . . it is first instance I am aware of that those banking practices will be examined under judicial rules of evidence in a public court room. Nonetheless, I cannot make that jump . . . this is all the fault of the big banks. Individual contribution, responsibility and accountability must be included in any culpability discussion / debate, in my humble opinion.

My very best wishes to all. Take care of yourselves and each other.
Cheers,
Cap :-)