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Amazing to me how people misunderstand this.

Mortgages aren't "moral obligations". They are simply long-term contracts. And as such, they can and should be canceled as needed, with certain penalties that occur when they are canceled.

People have this strange idea that contracts are "an absolute" obligation. They are not. They are conditional and can be canceled as needed.

Consumers should become more educated about their rights and standard business practices.

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• Morality versus Business Sense - Home Mortgages (preobserver.com)

To those foolish enough to blame the homeowner for buying over their heads:

Who has the power in the relationship with the banks?

Who developed the system for people who could not afford homes to obtain a home loan?

Who lied to the prospective homeowner, telling them that if they don't buy "now" the house will be out of their reach if they wait any longer?

Who told the prospective homeowner that after home purchase, it will be valued at $100,000 more than they paid for it in a year, allowing them to refinance?

Why blame the individual who is reaching for the American dream and at the same time being lied to by the real estate agent, as well as the loan officer whom they trusted?

You have to remember the context of the housing bubble. There was a great fear in many that at the rate that homes were rising in value, that they would be priced out of ever owning a home.

The housing bubble was pre-meditated; Investment banks in cahoots with their friends in the WH created the environment for the bubble to occur. The floodgates opened by the repeal of glass-stegall.

The housing bubble was another devised ponzi scheme for the few who created it while the masses hold the bill.

The Obama administration needs to pressure banks to reduce the principal on homes to the value they were at the time the fed lowered the prime rate to 1% in 2002.

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Walk away from your Mortgage

Image by tristam sparks via Flickr

Instead of Bush and co. giving the bankers $700BILLION, they COULD have Given EVERY homeowner (mortgage or not) about $9400 !

Then instead of the crappy stimulus Obama and the dems came up with, they could have used that $787 BILLION to do the same thing.....
at $10,500 EACH!

You have to wonder how many homeowners would be underwater if they had put $20,000 on their principals.

or how much the economy would be "stimulated" with that $20K being spent, for those that had no mortgages.


Anyone have a university computer that runs economic simulations?

I would enjoy seeing the outcome.

How many lawyers does it take to help Lloyd and his buddies cover their asses?

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How Should Goldman Sachs Cover its Ass This Bonus Season?

• Simon Johnson

  Simon Johnson

  Special Correspondent

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Sources say that Goldman Sachs’s bonuses will be announced on Monday, January 18, and actually paid sometime between February 4 and February 7. In previous years, the bonuses were paid in early January--but the financial year shifted when Goldman became a bank holding company.
For critics of the company and its fellow travelers, the timing could not be better.
Anxiety levels about the financial sector are on the increase, even on Capitol Hill. The tension between high profits in banking and stress in the rest of the economy becomes increasingly a topic of discussion across the nation.
And you are hard pressed to find any government official who has not by now woken up--in private--to the dangerous hubris of big banks. To add insult to injury (and many other insults), the Bank for International Settlements is holding a meeting to discuss excessive risk-taking in the financial sector; according to CNBC Thursday morning, Lloyd Blankfein of Goldman and Jamie Dimon of JPMorgan Chase were invited but did not show up (they really are very busy).
The smart strategy for Goldman in this context would be to pay no bonus for 2009 (in cash, stock or any other form), but this is not possible for three reasons.

(1) Goldman would need to make a credible commitment to employees to “take care of them next year.” But any legally binding commitment would be as good as a cash bonus (who knows, they could even be traded over-the-counter). And any verbal promises would be completely noncredible--among other things, Goldman cannot know for sure how the coming perfect storm will play out: the supertax on bankers in Europe, Sheila Bair’s good idea of tying deposit insurance premiums to the risk in banks’ compensation structures, Hank Paulson’s memoir on February 1, Chris Dodd’s resignation and the collapse of any meaningful Obama financial reform--allowing the Democrats to wake up to how they can run hard against Big Finance in 2010, etc. And besides, how much would you trust your boss at Goldman? The old culture there is gone.

(2) For all their communication blunders in recent months (internally they wince at “God’s work“), the responsible executives think they can hide the size of the bonuses or talk more about how stock and option grants encourage the right kind of behavior or put in some sophisticated clawback language. Some of the best lawyers in the country are working very hard on this question, but it’s all for naught. The headline bonus number will be at least $20 billion and if they try to hide this with sophisticated mumbo-jumbo, that will only bring greater attention and spread the pain over many news cycles as we run through denials, further exposures, more denials, and damning details. When you’re in a hole, stop digging--Goldman is talking with top p.r. consultants; perhaps they should bring in Tiger Woods to advise on this point.

(3) The most important reason is also Goldman’s greatest weakness: Throughout the organization, people really think they are worth the money. But remember these facts and keep track of how many times you hear them repeated: Goldman Sachs essentially failed in September 2008; it was saved by extraordinary and unprecedented government efforts at the end of September and subsequently (particularly through its conversion to a bank holding company, which gave access to the Fed’s discount window); partly this treatment was shaped by the special favor with which Hank Paulson viewed Goldman (documented in nauseating detail in Andrew Ross Sorkin’s Too Big To Fail); and the strategy of allowing Goldman to recapitalize through taking huge risk with an unconditional government guarantee in 2009 only makes sense if they use the proceeds to boost their capital--not if they pay out massive bonuses. In any reasonable economic analysis, the entire bonus pool at Goldman should be paid--with gracious thanks--to the government.

The refrain that will be repeated by Goldman executives is: We need to pay the bonuses in order to keep the best people. But think about this like a stockholder for a moment--where exactly would these people go to work if this year’s bonus is set at zero?
Among the Casino Banks, Goldman is currently the best place to work and, looking forward, that’s where folks will make the most money. Hedge funds are not hiring in large numbers--most of the new financial sector jobs are at the other Too Big To Fail firms, who are now bringing people back (naturally).
Goldman’s management should come to its senses and pay no bonuses of any kind to anyone; no good people would leave. Fortunately, while the executives who run Goldman are smart, they are not that smart. The bonuses they announce on January 18 and pay in early February will become the rallying point for real reform.
[Cross-posted at The Baseline Scenario.]

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Thieves, thieves, tramps and thrives!

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The United States must come to the conclusion that the international monetary financier system is finished.

Unsustainable usury and speculation in every financial transaction, fostering irrational, unreasonable, unconditional, unlimited financial support from the Fed, guaranteed by the faith and produce of the United States, means that the system can not be fixed, regulated, resuscitated, bailed-out, etc. There is simply not enough money that can be created to satisfy the usury, created from fantastical financial products and maneuvers.

All fact-less rhetoric, verbiage, articles, causes, distractions, etc are compounding the destruction to the population's physical economy.

Statecraft demands the termination of the monetary system: put the Fed into bankruptcy protection, recover the bailout trillions, banks that qualify will join the U.S. National Bank under Glass-Steagall standards. Credits and currency will be issued into the population's economy with the executive of creating, improving, and expanding the necessary facilities that enhance our standard of living.

We have never appreciated the accomplishments of this great nation; we are about to lose it all.

Congress must drop the petty passions that foster derision of government and treason; must discover priorities in the order and defense of the nation.

The United States is the Only Cause that will serve humanity; any other cause, issue, agenda, reorientation, etc. is treason.

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The financial disaster and the criminals that created it.

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The Finance Lobby's Free-For-All

It's now been 16 months since the global banking system nearly melted down in September 2008. In the space of just a couple of weeks, Fannie Mae and Freddie Mac were nationalized, Lehman Brothers collapsed, Merrill Lynch was the target of an 11th hour rescue, AIG was bailed out, Wachovia Bank was taken into receivership, the commercial paper market froze, and the $700 billion TARP bill was rejected and then subsequently passed by a panicked Congress. And that was just over the course of two weeks.

Within the financial world, this was far more catastrophic than 9/11 was in the national security world. And yet, while 9/11 provoked a massive reorganization of our intelligence apparatus, two foreign wars, and a sweeping increase in domestic surveillance, the economic meltdown of 2008 has provoked....almost nothing.

Oh, it's provoked some talk. And there are some bills moving slowly through Congress that would reform a few aspects of our financial system. But Republicans are almost unanimously opposed to them and even Democrats are lukewarm. As a result, reforms that were mild to begin with have already been watered down even further, and by the time Congress is finished with them they're likely to be only a shadow of what they ought to be.

Serious regulation of derivatives? Probably not. Increased consumer protection? Maybe, but probably in pretty weak form. Crackdowns on debt and leverage, the dual cornerstones of the crisis? None to speak of. Serious ratings agency reform? No. Smaller banks? A financial transaction tax? An end to gambling within the regulated banking sector? No, no, and no.

Why? The short answer is that the finance industry has the biggest, richest, and most influential lobby in Washington, DC. For a few months they lost that influence, but the Wall Street bailout worked just well enough to remove the sense of crisis we all felt in 2008, and that gave the finance lobby all the room it needed to step in, regain its footing, and make sure Congress wouldn't do anything serious to threaten its profits.

But that's only the short answer. For the longer answer, check out "Capital City

 

," my piece about the finance lobby in the latest issue of Mother Jones. And today my colleague David Corn and I will be on Bill Moyers Journal

 

to talk more about the lobby and how it works. Check your local listings for the air time in your area.

Why is no-one calling this Enron instead of goldman sachs?

The Massive Ponzi Scheme at Goldman Sachs

Doug Heller

In what might as well be called a perfect ending to the year - and maybe a reasonable summation of the decade - McClatchy is reporting on newly revealed documents from Goldman Sachs that point to a massive ponzi scheme by the Wall Street titan. (Credit to Truthdig for putting it on our radar.) 
By now it's clear that Goldman played the Fed and Treasury like a fiddle to reap billions of dollars through the AIG bailout, but these new documents illustrate how Wall Street's bonus-machine also ripped off its own investors.  As Greg Gordon at McClatchy reports:

In some of these transactions, investors not only bought shaky securities backed by residential mortgages, but also took on the role of insurers by agreeing to pay Goldman and others massive sums if risky home loans nose-dived in value — as Goldman was effectively betting they would...

and

The documents obtained by McClatchy also reveal that:
--Goldman's Caymans deals were riddled with potential conflicts of interest, which Goldman disclosed deep in prospectuses that typically ran 200 pages or more. Goldman created the companies that oversaw the deals, selected many of the securities to be peddled, including mortgages it had securitized, and in several instances placed huge bets against similar loans.
--Despite Goldman's assertion that its top executives didn't decide to exit the risky mortgage securities market until December 2006, the documents indicate that Goldman secretly bet on a sharp housing downturn much earlier than that.
--Goldman pegged at least 11 of its Caymans deals in 2006 and 2007 on swaps tied in some cases to the performance of a bundle of securities that it neither owned nor sold, but used as markers to coax investors into covering its bets on a housing downturn...
[Financial Services consultant Gary] Kopff said, Goldman appears to have created "mini-AIGs in the Caymans," arranging for investors to post the money that would cover the bets up front.
Kopff charged that Goldman inserted the credit-default swaps into CDO deals "like a Trojan Horse — secret bets that the same types of bonds that they were selling to their clients would in fact fail."

It's an elaborate game of taking securities overseas and creating shells that look like legitimate, if complex, investment vehicles that Goldman knew couldn't sustain themselves and was privately betting to fail.  Except for that last part - the hedging against the products it was selling to investors - Goldman's scheme brings back memories of Enron's "partnerships."  But Goldman's twist, essentially betting on their investors to lose money, is what makes these revelations a scary capstone to the 2000s. 
A decade that began with the collosal failure of Enron's indescribably complex, greed-driven and self-destructive schemes that cost taxapyers and investors billions ended with revelations of Goldman's indescribably complex, greed-driven and hugely profitable schemes that cost taxpayers and investors billions. 
So is that it?  Is Wall Street's big lesson of the The decade of the Oughts that you ought a bet against the people you're telling to trust you?  You can't win just by suckering people to follow you down your perverted path; you also have to avoid being suckered by your own scam.

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Perhaps we need a new vocabulary, one that helps us describe a society that promotes the accumulation of vast riches, bails out the rich when they take too many chances, and avoids responsibility for the common good. Even Milton Friedman would have trouble calling that capitalism.

How about the Billionaire Bailout Society?

Here are its salient features:

1. We promote accumulation of vast fortunes without limits.
2. We shun progressive income taxes that could narrow the gap.
3. We keep most of finance deregulated even after it has collapsed so spectacularly.
4. We let the minimum wage atrophy.
5. We discourage unionization.
6. We let middle class jobs disappear.
7. We allow a revolving door between public office and high paying private sector jobs.
8. We let our public infrastructure deteriorate.
9. We belittle government and public service.
10. We promote private gain as the best way to promote the common good.
11. We force our children to pile up debt in order to get an education.
12. We live with a porous safety net.
13. We encourage health care to be a profit maximizing enterprise.
14. We allow institutions to become too big to fail.
15. We bail out the largest financial institutions when they do fail, even if that means transferring trillions to Wall Street.
16. We allow Wall Street to use its bailout money to lobby against the public interest.
17. We let Wall Street keep its bailout-created "profits" and bonuses.
18. We have no clue if the financial sector provides any real value to our economy.
19. We permit financial hucksters to buy up solid companies, load them up with debt, take the cash, and then drive them into the ground.
20. We bad-mouth as protectionist all efforts to keep jobs in this country.
21. We don't have any serious plan for returning to a full-employment economy.
22. We live in awe of billionaires.

Of course, it takes a billionaire to help us understand how the billionaire bailout society really works. Here's what George Soros said recently about Wall Street's latest profit binge:

"Those earnings are not the achievement of risk-takers. These are gifts, hidden gifts, from the government, so I don't think that those monies should be used to pay bonuses. There's a resentment which I think is justified." (Reuters)

Yes, there's resentment, but most of the action has come from the tea-baggers who are the foot soldiers for our new social order. Although the vast majority of Americans are upset about the financial casino, the bailouts and the loss of jobs, we need a progressive infrastructure to mobilize it. Perhaps the recent demonstrations at the American Bankers Association meetings in Chicago signal the start of labor and community mobilizations. It's long overdue.

It would be easy to give up. Apathy is Wall Street's best friend. But we've been here before. It took the populists several generations before they were able to bust the trusts when Teddy Roosevelt rode to office. It took decades of labor agitation and the organization of the Progressive movement before its ideas became the core of the New Deal. It took even longer for African-Americans to build a successful civil rights movement to end Jim Crow. We shouldn't expect it to be easy to build an alternative to the billionaire bailout society.

We drank the cool aid of deregulated markets and private gain as supreme values. We got drunk on its bubbles until they burst. Now we're bailing out the super-wealthy while 29 million of us need work.

Turning that around is going to take hard work and planning for the long haul. It's going to take years of education and organizational development. Twitter is a great tool, but it can't substitute for organizational structures. Most of all, it's going to take a new vision that focuses on the common good, on what ties us together, on something more precious than private gain.

What does that mean? Imagine what we could do if we had the courage to institute steep progressive taxes. Today, the top 400 wealthiest Americans have a combined net worth of about $1.5 trillion. Had progressive taxes reduced their wealth to "only" $100 million each, we would be able to endow every public college and university, two-year, four-year and graduate school, so that all of our children could go to school free, in perpetuity.

Wouldn't that be worth it?

Goldman Sachs is the global leader of social interference, selfish indulgance and lack of moral conviction and standards. They care not who they harm to earn incomes based on no social or economic benefits to anyone. They manufacture nothing, they produce nothing they contribute nothing to society.

They subscribe to the quote of Meyer Rothschild - the creator of the Central Banking System - who said:

"Let me control the money of a nation and I care not who makes its' laws"

This is from GS666.com

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If you read between the lines of my previous two posts, you will easily detect a person who believes that the only way to prevent abuse is the rule of law.

In finance, we need to re-enact old laws (Glass Steagal, etc) and outlaw again behavior that was illegal up to 2000. We need to pass new laws to deal with the modern reality of world financial markets.

All of our laws should be aimed at protecting the common good. The common good is not being served by a financial industry that is, right now, totally out of control and being run by what are really sociopaths.

Our financial systems work. They are, however, delicate and full of nuance. We lack restraints with teeth to keep the systems upon which we all depend from being abused by a few.

When I say a few, let's be very clear about this. We now know that the catastrophe in CDS was caused by less than 20 people. If you gather all top executives of all major financial institutions in the U.S., you would have less than 10,000 people. There are a little over 300 million people in the U.S.

Whose interests should be served?

We need tough laws and even tougher enforcement.

Lastly, it is widely known that the favorite expression at Bear Sterns was "F...k you!" yelled as loudly as possible even to customers.

People playing with big amounts of OPM cannot be trusted.

Read more at: http://www.huffingtonpost.com/2009/10/20/wall-street-bonuses-vs-no_n_324281.html

We the people have to do two things:

-- disengage from corporate America, no more Walmart, no Chinese goods, no big banks, no Wall Street 401k investments. Buy things from your neighbors, trade, barter, reuse, re-purpose anything that can be made to work again. Find the community banks and credit unions and start moving your business there. Buy local food, no imports.

-- vote out all incumbents in all offices from the local to state to national level. They have ceased to work for the taxpayer, they are owned and operated by business interests. Getting elected has become an industry that has perverted the process of running for office.

If we do not rise up and walk away, we will be diminished serfs in a modern version of feudalism.

Our children will not be proud of us.
Our freedom is at stake here, a freedom that the wealthy elites have not wanted bestowed on us for hundreds of years. If there is a chance to squash this grand experiment called the United States of America and the freedom that the middle class and lower class have enjoyed during its brief existence, I fear that they will make that move.

Read more at: http://www.huffingtonpost.com/robert-l-borosage/where-will-the-jobs-come_b_328022.html

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photo

“I believe that banking institutions are more dangerous than standing armies.
If the American people ever allow private banks to control the issues of currency...the banks and the corporations that grow up around them will deprive the people of their property until their children wake up homeless on the continent their fathers conquered.” ~ Thomas Jefferson ~


Read more at: http://www.huffingtonpost.com/2009/10/15/czar-blocks-bank-of-ameri_n_323137.html

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Goldman Sachs will announce its giant bonuses today. The SEIU has been researching the bank and this summary of its service to humanity:

GOLDMAN SACHS

Federal taxpayer bailout funds received: $63.6 billion
Profits for the years 1998-2008: $46.8 billion
Profits for the first half of 2009: $5.2 billion
2007 Goldman CEO Lloyd Blankfein pay: $70.3 million
2008 bonus pool: $4.8 billion
First half 2009 bonus and compensation pool: $11.4 billion
Bonuses (top 5 execs) last 10 years: $543.4 million
Effective tax rate in 2008: 0.6%
Offshore subsidiaries in tax havens: 29
Lobbying fees in first 9 months after bailout: $1.8 million.
Campaign contributions in 2008 federal elections: $7.1 million

Role in subprime crisis:

• Goldman Sachs had a hand in the worst of the subprime lending excesses, providing financing to three of the five largest subprime lenders: #3 New Century Financial Corp., #4 First Franklin, and #5 Long Beach Mortgage Co. This financing provided the companies with the capital they needed to originate subprime mortgages. Together, these firms issued more than $200 billion in subprime loans from 2005-2007.
• Goldman Sachs played a major role in underwriting and selling the exotic financial instruments like credit default obligations or CDOs that fueled the subprime machine through mortgage backed securities. Just before the housing bust, Goldman was ranked third by Bloomberg in the underwriting and sale of CDOs, earning $239 million. The CDO market was further fueled by other exotic financial instruments called credit default swaps, a form of insurance against possible mortgage defaults. Here again Goldman was a major player, getting bailed out on its bad bets when the government saved AIG from tanking.

• When the housing bubble burst, Goldman was hit with a series of lawsuits, including one by New York state regulators; after being subject to another investigation in Massachusetts for misrepresenting the quality of their mortgage backed securities, Goldman eventually agreed to pay a $60 million settlement.

Profiteering off the bailout and gambling with taxpayers’ money:

• Goldman Sachs put taxpayers on the hook for up to $63.6 billion in bailout funds and programs plus an unknown amount from the Federal Reserve’s $8 trillion in emergency programs. While Goldman has since repaid its $10 billion in TARP money, allowing it to avoid government oversight on executive compensation, it doesn’t have to repay the $12.9 billion received through the AIG bailout, which is even larger than the $10 billion it repaid.

• In order to access these billions of taxpayer bailout money, in September 2008, Goldman Sachs sought and received approval to become a bank holding company. As a bank holding company, Goldman should be subject to much stricter regulations and oversight. However, Goldman sought and obtained a Federal Reserve waiver from Market Risk rules required of commercial banks.

• Instead of using the bailout funds to shore up its capital base or expand lending, Goldman has issued its highest dividends to shareholders since 2003, shopped for acquisitions internationally, lavished bonuses on the same financial personnel who contributed to the crisis, and increased the amount of capital it’s put at risk. According to the company’s CFO, Goldman’s “model really never changed.” In fact, 78% of the company’s most recently reported revenues came from high-risk trading and investments, and potential trading losses on any given day were at an all time high of $245 million, up (75%) from the $139 million held at risk before becoming a holding company. In response, ten legislators sent a letter to the Federal Reserve accusing Goldman of “officially gambling with government money,” and requesting justification for their exemption. Two and a half weeks later, the Fed authorized Goldman to morph into a Financial Holding Company, which basically allows it to continue these high risk practices at taxpayer expense.

• Goldman literally gambled with California taxpayer money, advising its investor clients to take advantage of the state government’s financial crisis by betting against state bonds that Goldman itself had helped sell, pocketing millions in fees. The giant investment firm did not inform the office of California Treasurer Bill Lockyer that it was proposing a way for investment clients to profit from California’s deepening financial misery. In Sacramento, officials said they were concerned that Goldman’s strategy could raise the interest rate the state would have to pay to borrow money, thus harming taxpayers.

• Goldman’s bailout money has gone little to help struggling homeowners. Goldman’s loan servicing operation, Litton Loan Servicing LP, has started trial mortgage modifications for only 3% of its 103,871 borrowers who are eligible for the Obama Administration’s Making Home Affordable Program (and are at least 60 days past due).

• Moreover, Goldman is back in the mortgage securitization business, repackaging the mortgages that have been stuck on their books since the housing bubble burst and now selling them as a new product. Known as “re-remics”, they simply pull out the worst of the bonds to boost the credit rating to make the sale, kind of like what brought on the financial crisis in the first place.

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For some of us.

It's time to recognize what it means to be part of the billionaire-bailout nation. Citizenship comes in three distinct flavors.

If you are wealthy, it's fantastic to take part in the resurgent Wall Street boom. You are thrilled to see the trillions in taxpayer dollars successfully prop up the financial sector. After all it's not really your money -- your tax shelters take care of that. You love the rise in the markets. You are now reaping the rewards of investing in a sector that rests firmly upon government welfare, and in which the largest institutions are guaranteed from failure. It feels good to see double-digit returns again, which you feel you truly deserve. The gap between your wealth and the average American's is utterly fantastic. Life is good.

If you have a job, you are feeling better than a year ago. Your 401k is coming back from the dead. The stimulus program seems to be helping with your employment. You may even get some relief from health care reform. But you are not seeing your wages increase. (Overall the average production workers real wages are down more than 18 percent since the mid-1970s.) It's not easy to maintain a middle-class existence or get anywhere near one if you're not already there. Layoffs might be slowing down but you are still petrified that your job will soon disappear. You are unsure you can provide for your children's education and your own retirement. The future seems much less secure than it did for your parents' and grandparents' generations.

If you don't have a job you're in deep trouble. You are a "lagging indicator." You are one of the 29 million who are without work or forced into part-time jobs (the BLS U6 Jobless rate stands at 17 percent). You are gobbling up what savings you have or already digging a deep hole of debt. You are hoping other family members can keep the ship afloat until you find employment. You've worked hard all your life only to watch your industry pack up and leave or shut down all together. You've drawn the short straw.

Well so what: life is unfair. And maybe there's nothing we can or should do about it. Then again it's very hard to make the case that we've tried all that hard. Here's the scorecard:

Too big too Fail? The top 20 or so financial institutions got even bigger. No effort is being made or even being contemplated to break them up so that they are small enough to fail.

Risky Derivatives? Still totally deregulated and poised to re-emerge. Bank lobbyists are working hard to block serious reforms. Keep your eye on high fee, high profit specialty derivatives which are likely to remain deregulated forever.

Executive Pay? The Pay Czar has limited powers and seems ineffective. He's even having a tough time reigning in AIG's Financial Product group's bonuses, even though that group was responsible for sinking AIG and costing the taxpayer more than $150 billion in bailout funds. (See New York Times and Wall Street Journal "Wall Street on Track to Award Record Pay.")

Shrink the size of Wall Street? President Obama said last May that he wanted a smaller Wall Street with lower pay so that the best and the brightest would be lured into science, medicine and education rather than into concocting new casino games. Fat chance. Record profits will lead to higher pay, which in turn will draw more talent into fantasy finance. PS. Andrew J. Hall, the oil speculator, will get his $100 million payday.

Windfall Profits Taxes on Wall Street? Forgetaboutit. Now that we've given Wall Street upwards of $13 trillion in taxpayer funds and guarantees, they are keeping the profits. Neither the White House nor Congress has the stomach for taxing it away.

Progressive income taxes on the super-rich? Off the table. We have the worst income distribution since 1929. The Eisenhower era 91 percent marginal tax rate on incomes over $3 million (today's dollars) is far too radical for our billionaire-bailout nation.

Programs to employ our people after the stimulus ends? Nada. The unemployed will have to fend for themselves in the marketplace, while the super-rich feast on the Wall Street bailout bonanza. We could go a decade before we come near full-employment again. In fact look for the economics profession to redefine full employment as 7 percent rather than 4.5 percent.

Won't it all work out as long as the markets keep improving?

I think we played that song again and again over the past thirty years. It's a mirage. We deregulated just about everything, crushed the middle class and crashed the whole shebang.

But, complaining about the billionaires and the bailouts (which perhaps was greatest transfer of wealth since slavery) just isn't good enough. We need to recognize that underlying all of these problems is the lack of a progressive response.

Unless I'm missing something, almost all the pressure on Congress and the White House is coming from the right: from banking community and from those who detest government intervention in the economy (which is easy to do, now that such intervention seems to have saved it).

The progressive community has developed no coherent voice, no national movement, no effective lobbying. We are tied up in a myriad of important, yet isolated issues, and seem to have forgotten what a movement looks like. Populism belongs to the tea baggers, not the populists of old. When it comes to finance, the very heart of our economy, we seem to be waiting for Obama to do it all for us. No such luck.

Yet most Americans understand that something has gone terribly wrong. They truly sense that Wall Street is running away with our nation's wealth. It's a precious organizing moment.

We're at the fork in the road: Either we build on this moment to dramatically change the way the super-rich dominate our economy or we'll be leaving to our children a billionaire-bailout nation with a hollowed-out middle class.

Hopefully, we still have a little moxie left in us.

Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.



Read more at: http://www.huffingtonpost.com/les-leopold/stop-whining-wall-streets_b_321964.html

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Enough is Enough: Let's Stop Wall Street Loan-Sharking

by Bernie Sanders

The "Masters of the Universe" on Wall Street - through their greed, recklessness and illegal behavior - have plunged this country into a deep recession causing millions of Americans to lose their jobs, their homes, their savings and their hope for the future. In order to fully understand the cause of this fiasco, I have introduced legislation calling for a thorough investigation of the financial meltdown and the prosecution of those CEOs who broke the law. The culture of greed, fraud and excessive speculation must come to an end.

In the midst of this financial disaster, one of the great frustrations that I hear from my constituents is that while taxpayers are spending hundreds of billions bailing out major financial institutions, and while these big banks are getting near-zero interest rate loans from the Fed, these very same financial institutions are now charging Americans 20 percent or 30 percent interest rates on their credit cards. In fact, one-third of all credit card holders in this country are now paying interest rates above 20 percent and as high as 41 percent - more than double what they paid in interest in 1990. Recently, some major institutions such as Bank of America have informed responsible cardholders that their interest rates would be doubled to as high as 28 percent, without explaining why the increase was taking place.

Let's be clear. At a time when many Americans in the collapsing middle class use credit cards for groceries, gas and college expenses, what Wall Street and credit card companies are doing is not much different from what gangsters and loan sharks do when they make predatory loans. While the bankers wear three-piece suits and don't break the knee caps of those who can't pay back, they are still destroying people's lives.

The Bible has a term for this practice. It's called usury. And in The Divine Comedy, Dante Alighieri's epic poem, there was a special place reserved in the Seventh Circle of Hell for sinners who charged people usurious interest rates.

Today, we don't need the hellfire and pitch forks, we don't need the rivers of boiling blood, but we do need a national usury law. We need a national law because state laws no longer work. States used to protect consumers from predatory lenders, but strong state usury laws were obliterated by a 1978 U.S. Supreme Court decision. Justices allowed national banks to charge whatever interest rate they wanted if they moved to a state without an interest rate cap like South Dakota or Delaware. That is why I have introduced legislation to require any lender in this country to cap all interest rates on consumer loans at 15 percent, including credit cards. Why did I select 15 percent as the appropriate rate to deal with the usury which is going on in this country? The reason is that 15 percent is the maximum that Congress imposed on credit union loans almost 30 years ago when it amended the Federal Credit Union Act. And that approach has worked! Under current law, credit unions are allowed to charge higher interest rates only if their regulator, the National Credit Union Administration (NCUA), determines that it is necessary to maintain the safety and soundness of these institutions. Right now, while most credit unions charge lower rates, the NCUA allows credit unions to charge an interest rate as high as 18 percent.

Unlike their counterparts at the big banks, credit unions are not lining up for hundreds of billions in bailouts. In fact, they're doing quite well. As Chris Collver, legislative and regulatory analyst for the California Credit Union League recently stated; "It hasn't been an issue. Credit unions are still able to thrive." In my view, if these rules have worked well for credit unions for decades they can work for all financial institutions.

In 1991 former Senator Al D'Amato offered an amendment to cap credit card interest rates at 14 percent. The amendment passed the Senate by a vote of 74-19, but never became law. Now is the time to return to that debate.

Incredible as it may seem, over the last decade the financial sector has invested more than $5 billion in political influence purchasing in Washington. This includes funding some 3,000 lobbyists and huge amounts in campaign contributions.

The American people are thoroughly disgusted with the behavior of Wall Street and they want their elected officials to respond to the greed of major financial institutions. A cap on interest rates would be a good start. Do we have the courage?
Bernie Sanders was elected by Vermont to the US Senate in 2006 after serving 16 years in the House of Representatives. He is the longest serving independent member of Congress in American history.

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I just read in a news articles that AIG's executives slated for another round of mind-numbing bonuses were pointing to laws as reasons why the bonuses could not be interfered with by legislators or regulators. OK - suppose one agrees with them. I find such executives' as well as many other executives' throughout the financial industry respect for law admirable. I find their selective respect for law despicable--and it has also proven to be demonstrably hazardous to the health of the country.

Inevitably legislators and regulators will back off because they do not want to be seen as trifling with laws. What's puzzling to me however is why these legislators and regulators recognizing that such bonuses are outrageous and also corrosive of the financial and social system do not utilize other relevant laws which would be effective in controlling heedless and in many cases criminal executive behavior.

Executives in the financial sector who were oblivious to laws in amassing their fortunes now try to rely on laws to protect these fortunes and also to increase them. There are laws against fraud, unfair trade practices, and other germane matters. As the executives loudly now call for respect for the law, the legislators and regulators play along with them--while both groups concertedly look away from other laws. Thus the charade of the equitable application of the law goes on.


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What exactly is the function of the financial sector in our society? Simply this: Its sole function is supplying capital efficiently to aid the real economy. The financial sector is a tool to help those that make real tools, not an end in itself. But five fatal flaws in the financial sector's current structure have created a monster that drains the real economy, promotes fraud and corruption, threatens democracy, and causes recurrent, intensifying crises.

1. The financial sector harms the real economy.

Even when not in crisis, the financial sector harms the real economy. First, it is vastly too large. The finance sector is an intermediary -- essentially a "middleman". Like all middlemen, it should be as small as possible, while still being capable of accomplishing its mission. Otherwise it is inherently parasitical. Unfortunately, it is now vastly larger than necessary, dwarfing the real economy it is supposed to serve. Forty years ago, our real economy grew better with a financial sector that received one-twentieth as large a percentage of total profits (2%) than does the current financial sector (40%). The minimum measure of how much damage the bloated, grossly over-compensated finance sector causes to the real economy is this massive increase in the share of total national income wasted through the finance sector's parasitism.

Second, the finance sector is worse than parasitic. In the title of his recent book, The Predator Statehttp://books.simonandschuster.com/Predator-State/James-Galbraith/9781416566830, James Galbraith aptly names the problem. The financial sector functions as the sharp canines that the predator state uses to rend the nation. In addition to siphoning off capital for its own benefit, the finance sector misallocates the remaining capital in ways that harm the real economy in order to reward already-rich financial elites harming the nation. The facts are alarming:

• Corporate stock repurchases and grants of stock to officers have exceeded new capital raised by the U.S. capital markets this decade. That means that the capital markets decapitalize the real economy. Too often, they do so in order to enrich corrupt corporate insiders through accounting fraud or backdated stock options.

• The U.S. real economy suffers from critical shortages of employees with strong mathematical, engineering, and scientific backgrounds. Graduates in these three fields all too frequently choose careers in finance rather than the real economy because the financial sector provides far greater executive compensation. Individuals with these quantitative backgrounds work overwhelmingly in devising the kinds of financial models that were important contributors to the financial crisis. We take people that could be conducting the research & development work essential to the success of our real economy (including its success in becoming sustainable) and put them instead in financial sector activities where, because of that sector's perverse incentives, they further damage both the financial sector and the real economy. Michael Moore makes this point in his latest film, Capitalism: A Love Story.

• The financial sector's fixation on accounting earnings leads it to pressure U.S manufacturing and service firms to export jobs abroad, to deny capital to firms that are unionized, and to encourage firms to use foreign tax havens to evade paying U.S. taxes.

• It misallocates capital by creating recurrent financial bubbles. Instead of flowing to the places where it will be most useful to the real economy, capital gets directed to the investments that create the greatest fraudulent accounting gains. The financial sector is particularly prone to providing exceptional amounts of funds to what I call accounting "control frauds". Control frauds are seemingly-legitimate entities used by the people that control them as a fraud "weapons." In the financial sector, accounting frauds are the weapons of choice. Accounting control frauds are so attractive to lenders and investors because they produce record, guaranteed short-term accounting "profits." They optimize by growing rapidly like other Ponzi schemes, making loans to borrowers unlikely to be able to repay them (once the bubble bursts), and engaging in extreme leverage. Unless there is effective regulation and prosecution, this misallocation creates an epidemic of accounting control fraud that hyper-inflates financial bubbles. The FBI began warning of an "epidemic" of mortgage fraud in its congressional testimony in September 2004. It also reports that 80% of mortgage fraud losses come when lender personnel are involved in the fraud. (The other 20% of the fraud would have been impossible had these fraudulent lenders not suborned their underwriting systems and their internal and external controls in order to maximize their growth of bad loans.)

• Because the financial sector cares almost exclusively about high accounting yields and "profits", it misallocates capital away from firms and entrepreneurs that could best improve the real economy (e.g., by reducing short-term profits through funding the expensive research & development that can produce innovative goods and superior sustainability) and could best reduce poverty and inequality (e.g., through microcredit finance that would put the "Payday lenders" and predatory mortgage lenders out of business).

• It misallocates capital by securing enormous governmental subsidies for financial firms, particularly those that have the greatest political power and would otherwise fail due to incompetence and fraud.

2. The financial sector produces recurrent, intensifying economic crises here and abroad.

The current crisis is only the latest in a long list of economic crises caused by the financial sector. When it is not regulated and policed effectively, the financial sector produces and hyper-inflates bubbles that cause severe economic crises. The current crisis, absent massive, global governmental bailouts, would have caused the catastrophic failure of the global economy. The financial sector has become far more unstable since this crisis began and its members used their lobbying power to convince Congress to gimmick the accounting rules to hide their massive losses. Secretary Geithner has exacerbated the problem by declaring that the largest financial institutions are exempt from receivership regardless of their insolvency. These factors greatly increase the likelihood that these systemically dangerous institutions (SDIs) will cause a global financial crisis.

3. The financial sector's predation is so extraordinary that it now drives the upper one percent of our nation's income distribution and has driven much of the increase in our grotesque income inequality.

4. The financial sector's predation and its leading role in committing and aiding and abetting accounting control fraud combine to:

• Corrupt financial elites and professionals, and

• Spur a rise in Social Darwinism in an attempt to justify the elites' power and wealth. Accounting control frauds suborn accountants, attorneys, and appraisers and create what is known as a "Gresham's dynamic" -- a system in which bad money drives out good. When this dynamic occurs, honest professionals are pushed out and cheaters are allowed to prosper. Executive compensation has become so massive, so divorced from performance, and so perverse that it, too, creates a Gresham's dynamic that encourages widespread accounting fraud by both financial firms and firms in the real economy.

As financial sector elites became obscenely wealthy through predation and fraud, their psychological incentives to embrace unhealthy, anti-democratic Social Darwinism surged. While they were, by any objective measure, the worst elements of the public, their sycophants in the media and the recipients of their political and charitable contributions worshiped them as heroic. Finance CEOs adopted and spread the myth that they were smarter, harder working, and more innovative than the rest of us. They repeated the story of how they rose to the top entirely through their own brilliance and willingness to embrace risk. All of their employees weren't simply above average, they told us, but exceptional. They hated collectivism and adored Ayn Rand.

5. The CEOs of the largest financial firms are so powerful that they pose a critical risk to the financial sector, the real economy, and our democracy.

The CEOs can directly, through the firm, and by "bundling" contributions of its officers and employees, easily make enormous political contributions and use their PR firms and lobbyists to manipulate the media and public officials. The ability of the financial sector to block meaningful reform after bringing the world to the brink of a second great depression proves how exceptional its powers are to corrupt nearly every critical sector of American public and economic life. The five largest U.S. banks control roughly half of all bank assets. They use their political and financial power to provide themselves with competitive advantages that allow them to dominate smaller banks.

This excessive power was a major contributor to the ongoing crisis. Effective financial and securities regulation was anathema to the CEOs' ideology (and the greatest danger to their frauds, wealth, and power) and they successfully set out to destroy it. That produced what criminologists refer to as a "criminogenic environment" (an atmosphere that breeds criminal activity) that prompted the epidemic of accounting control fraud that hyper-inflated the housing bubble.

The financial industry's power and progressive corruption combined to produce the perfect white-collar crimes. They successfully lobbied politicians, for example, to legalize the obscenity of "dead peasants' insurance" (in which an employer secretly takes out insurance on an employee and receives a windfall in the event of that person's untimely death) that Michael Moore exposes in chilling detail. State legislatures changed the law to allow a pure tax scam to subsidize large corporations at the expense of their taxpayers.

Caution: Never Forget the Need to Fix the Real Economy

Economic reform efforts are focused almost entirely on fixing finance because the finance sector is so badly broken that it produces recurrent, intensifying crises. The latest crisis brought us to the point of global catastrophe, so the focus on finance is obviously rational. But the focus on finance carries a grave risk. Remember, the sole purpose of finance is to aid the real economy. Our ultimate focus needs to be on the real economy, which creates goods and services, our jobs, and our incomes. The real economy came off the rails at least three decades ago for the great majority of Americans.

We need to commit to fixing the real economy by guaranteeing that everyone willing to work can work and making the real economy sustainable rather than recurrently causing global environmental crises. We must not spend virtually all of our reform efforts on the finance sector and assume that if we solve its defects we will have solved the other fundamental reasons why the real economy has remained so dysfunctional for decades. We need to be work simultaneously to fix finance and the real economy.

Roosevelt Institute Braintruster William K. Black is an Associate Professor of Economics and Law at the University of Missouri-Kansas City. He is a white-collar criminologist and was a senior financial regulator. He is the author of The Best Way to Rob a Bank is to Own One.

*Originally published on the Roosevelt Institute's blog, New Deal 2.0.


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Over the last several decades, the financial sector has grown relentlessly. It has doubled in size over the last 14 years. During the period 1973 to 1985 the financial sector never earned more than 16% of domestic profits. This decade, it has averaged 41% of all the profits earned by businesses in the U.S. In 1947 the financial sector represented only 2.5% of our gross domestic product. In 2006 it had risen to 8%. In other words, of every 12.5 dollars earned in the United States, one goes to the financial sector, much of which, let us recall, produces nothing.

That growth has not been among community or regional banks -- or credit unions. I'm talking about Wall Street.

Wall Street's growth is one big reason that most of America's economic growth during the last decade has flowed into the hands of investment bankers, stock traders and partners in firms like Goldman Sachs. The Center on Budget and Policy Priorities reports that fully two-thirds of all income gains during the last economic expansion (2002 to 2007) flowed to the top 1% of the population. And that, in turn, is one of the chief reasons why the median income for ordinary Americans actually dropped by $2,197 per year since 2000.

No surprise then that disproportionate numbers of the "best and brightest" graduates of our finest universities headed off to Wall Street. After all, that's where if you are very clever you can make tens of millions of dollars before you are thirty -- mostly producing nothing.

By 2007 the top 50 hedge and private equity fund managers averaged $588 million in annual compensation each -- more than 19,000 times as much as the average U.S. worker. And by the way, the hedge fund managers paid a tax rate on their incomes of only 15% -- far lower than the rates paid by their secretaries.

This huge wealth transfer from the "real" economy to the world of finance has also created a vicious cycle of increased credit dependency. If your family's real income isn't going up, but costs are, you try to borrow to stay afloat. That is one reason why private debt now equals 350% of the Gross Domestic Product -- the highest ever. The more debt that consumers owe to the shrinking number of big financial institutions, the greater the share of their shrinking or stagnant incomes that is siphoned off to the finance sector -- and the cycle just gets worse. And when the disposable income of ordinary Americans shrinks, they don't have the money to buy the new products and services that will fuel long term economic growth in the real economy.

Something is very wrong in this picture.

In fact, as last year's financial collapse made ever so clear, the increasing dominance of the financial sector - and its deregulation -- has become a mortal danger to our economic security. The financial sector - including the big insurance companies -- has morphed into a cancer growing on our economy -- a cancer that could easily strangle our prospects for our long-term economic security.

Later this week, Congress begins consideration of a package of measures that would serve as a first step in re-regulating and hopefully shrinking the American financial industry. This battle has not attracted as much attention as the critical fight over health care, but it is just as important for the well-being of everyday Americans.

The "best and brightest" from Wall Street would like to make the issues involved in this debate look complex and technical -- beyond the understanding of ordinary mortals. But there are a couple of clear principles to remember as the debate unfolds:

1) History has shown that financial markets cannot accomplish their ostensible goal of allocating risk and directing capital to their highest and best uses unless they function within the context of very strict rules. That is so because speculators have a natural tendency to create products and systems that allow them to engage in reckless excesses that cause the entire system to lurch from bubble to bubble, collapse to collapse. This is not a theoretical argument. History proves the case beyond a reasonable doubt.

In 1792 the newly-minted United States suffered its first credit crisis. Another credit crisis followed about once every fifteen years until 1932. Then, the mother of all credit crises caused the Great Depression that in turn spawned the Securities and Exchange Commission (SEC) to regulate the stock market, the Federal Deposit Insurance Corporation (FDIC) to guarantee deposits in banks, and the Glass-Steagall Act that prevented banks from engaging in other forms of more risky financial activity.

For the next 50 years, those regulation -- coupled with a wise use of Keynesian economic policies -- prevented another financial crisis. That is one of the reasons why America's experienced an unprecedented era of economic growth for every sector of the population - and a massive reduction in the inequality of income distribution.

But in the 1980's the Reagan "revolution" worked its de-regulatory magic on the Savings and Loan industry. It didn't take long for many of these once-stable institutions to collapse and cause the first credit crisis in a half-century. That should have given the country fair warning, but a few years later Wall Street convinced Congress to repeal the Glass-Steagall Act, and it prevented the regulation of newly-exploding "financial products" like "derivatives" that were basically bets on the movement of underlying investments like stock and bonds. Wouldn't want to "discourage financial innovation," they said. The growing predominance of private equity financing also took more and more financial transactions from the light of transparent regulated public markets into the de-regulated shadows.

Then there was the securitization of debt. Banks and other lenders bundled mortgages and other loans into packages and then chopped the packages into units that could be sold on secondary financial markets. These new markets made a lot more money available for loans, but there was no provision made for the inherent dangers. For years previous, bankers made loans with the realization that they were on the hook if they went bad. The new secondary markets allowed them to make the loans, and sell off the risk to a diffuse "market" that left them free of any risk.

All the while, the size of the financial sector was fed by the growing use of credit cards that could legally siphon off huge streams of revenue from ordinary Americans into the hands of bankers. And the elimination of usury laws encouraged the development of the "payday loan" industry that allowed someone to borrow $500 and pay $2,000 of interest on the loan over the next two years.

The result of all of these trends has been massive consolidation of power by a few major financial institutions that have ranged far afield from banking into highly speculative activities of all sorts. Brokerage firms like Goldman Sachs and banks like Citibank have become indistinguishable. Massive portions of the credit market now exist outside of the oversight of any regulator.

Today, 45% of the banking market in the U.S. is dominated by Bank of America and Citibank.

Finally, of course, huge remuneration packages were paid to clever Ivy League graduates who could make billions in speculative profit, even if they did so by taking Godzilla-sized risks. Remuneration systems paid them on the basis of short-term gain and they suffered no financial penalty for long-term pain. So they were "off to the races."

2) Much of the financial sector does not produce anything. The principal missions of the financial sector are to take on risk and allocate captial effectively. Some of the industry - especially community and regional banks -- do just that. But in the last year the financial sector as a whole didn't "take on risk," it shifted risk to ordinary Americans through gigantic taxpayer bailouts. And often the Wall Streeters themselves escaped the recent economic debacle, having salted away hundreds of billions of dollars.

Fundamentally the financial sector is made up of middlemen, who spend their time creating schemes that allow them to funnel society's money through their bank accounts so they can take a sliver of every dollar off of the top.

Right now, the private health insurance industry is busy trying to defend its turf against a public health insurance option. It wants to maintain its "right" to take that tribute off the top of as many health care dollars as possible. Remember, the private health insurance industry doesn't deliver any actual health care.

The same is true of most of the financial sector. It is the farmers, manufacturing firms, the health care providers, the transportation companies, the guys who sweep up buildings, the cops and firefighters, the people who teach our kids -- those are the people who produce the goods and services that we consume in our economy.

Most "innovative financial products" like derivatives are nothing more than schemes that allow speculators to build up paper wealth that will fuel the next credit bubble. Creating mechanisms to allow speculators to bet on the direction of stock prices or other actual investments doesn't do any more for the underlying economy than allowing the same people to bet on horse races.

Most Wall Street speculators don't contribute any more to our common well being than professional gamblers - which is pretty much what they are. Gaming in Las Vegas has fine entertainment value, but providing a gigantic worldwide casino for the rich is not an economically vital core function for the world's financial markets.

I'm not arguing against using financial markets to allocate capital and risk. Banks, stock markets and other financial institutions can be -- and have historically been -- important and efficient means of accomplishing these goals. But not when the tail begins to wag the dog. Not when the financial sector, which can be useful at serving the needs of the productive sectors of the economy, comes to dominate the economy.

After all, if so much wealth flows from the productive sectors of the economy into the fundamentally unproductive financial sector, ordinary people don't have enough money to buy the products that drive economic growth in the real economy.

3) Left to their own devices, financial speculators often kill off productive enterprises through leveraged buyouts and private equity plays. A case in point was highlighted last week by the New York Times. Simmons Bedding has been in business producing high quality mattresses for almost 133 years. Now it's about to file for bankruptcy protection -- but not because it isn't a viable successful business.

Simmons has been milked dry by a succession of buyers and Wall Street investment banks that have made millions through leveraged buyouts that made good financial sense for Wall Street, but left the manufacturing firm deeper and deeper in debt. The Times reports that "the financiers borrowed more and more money to pay ever-higher prices for the company, enabling each previous owner to cash out profitably."

Simmons now owes $1.3 billion compared with $164 million in 1991. According to the Times, "In many ways, what private equity firms did at Simmons, and scores of other companies like it, mimicked the sub-prime mortgage boom. Fueled by easy money... these private investors were able to buy companies like Simmons with borrowed money and put down relatively little of their own cash. Then not long after, they often borrowed even more money, using the company's assets as collateral."

"The result: THL (the private equity firm) was guaranteed a profit regardless of how Simmons performed. It did not matter that the company was left owing far more than it was worth." Too bad for Noble Rodgers, an employee of 22 years, who along with 1,000 others have been laid off. Too bad for the American manufacturing base. The investment bankers got theirs.

4) The bigger the financial sector gets, the more power it has to hold the entire economy ransom for huge bailouts when their speculative bubbles collapse. Firms that are allowed to grow as large as AIG, CitiBank and Bank of America create "systemic" risk that threatens the world financial system.

The bottom line is that if a financial institution is too big to fail, it's just too big, period.

The new regulatory proposals now pending before Congress are critical first steps in reining in the power of the financial sector. The proposed Consumer Financial Protection Agency is especially important. It would end the anything-goes "Dodge City" mentality that allows consumers to have their pockets picked by financial "products" like teaser-rate mortgages with prepayment penalties that guarantee the consumer pays more than meets the eye. It will require tight regulation of credit card interest rates and fees.

But equally critical are tough new regulations of the entire financial sector - including the "derivatives" and "credit-default-swap" markets - and private equity, as well as regulations to eliminate remuneration systems that incentivize recklessness, and requirements that mortgage originators maintain a stake in the loans they sell. The "resolution" authority proposed by the Obama Administration is also an important step to assure that there is an orderly way to close even the largest of financial institutions.

Serious regulation will inevitably cut back on the flow of income from normal people to the financial sector as a whole. But over time, our goal needs to be to restore dominance of the economy to the productive sectors of economic endeavor, and to break up the financial and insurance cartels that have a stranglehold on our future.

That will not happen without a monumental struggle. The Obama Administration's proposals for financial re-regulation are the first offensive on this critical front in the war for our long-term economic security.


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